The most successful small commercial carriers have been able to establish highly profitable books of business by cherry picking low-complexity risks that can be efficiently underwritten and processed. These carriers monitor and adjust underwriting decisions at a portfolio level to ensure underwriting discipline and profitability. There has been a focus on building advanced, agent-facing technology, primarily through proprietary portals. This technology streamlines the acquisition and, in some cases, servicing of this highly profitable business to provide incentives to agents to increase their submission flow. However, this strategy has not led to any single dominant carrier in the $60 billion to $90 billion U.S. small commercial insurance market, and increasing competition is threatening the historically comfortable position of market leaders. Several fundamental characteristics of the U.S. small commercial insurance market (e.g., higher retention, lower price volatility, large number of uninsured and underinsured business owners) and renewed optimism in small-business growth have led existing carriers to sharpen their focus on small commercial. In addition, several insurtech startups have entered the market with solutions for underserved customer segments. And, the relatively benign Cat environment has fueled further competition from various types of capital providers (e.g., hedge funds, pension funds, foreign investors, capital markets) looking to diversify their investment portfolio with uncorrelated insurance assets. See also: A Tipping Point for Commercial Lines At the same time, recent pricing pressures and slow organic growth have led many distributors to leverage their positions to improve their placement yield through higher compensation. Limited organic growth opportunities also have led to a broad consolidation of distributors, with an increasingly large number of private equity-backed brokers looking for short-term gains and opportunities to reduce systemic inefficiency. Moreover, mid-market, publicly traded and bank-owned players have effected similar consolidation and focus on operational efficiency. Serial acquirers have sometimes inherited some large books of small commercial business that are expensive to service. To lower costs and simplify operations, these intermediaries have reduced the number of carriers they do business with and abandoned servicing. Distributors increasingly favor markets with broad risk appetite, easy processes for placing new business and minimal servicing requirements. The carriers that will succeed in this rapidly changing landscape will approach the market with an agency perspective and focus on agency economics in addition to their own performance goals. This requires evaluating opportunities to drive economic value across the whole value chain. By shifting their focus from maximizing profitable growth in terms of direct premiums written on their books to maximizing profitable premium under management (both theirs and their distributors), leading carriers can avoid the race to the bottom on price and to the ceiling on commissions. Stretching the limits of automation The obvious starting point is to extend the limits of what can be acquired, underwritten and serviced through a relatively automated model. The “Main Street” small commercial segment, which consists of small, low-complexity businesses with straightforward insurance needs was the first segment that carriers automated. Today, distributors can request, quote and bind “Main Street” business policies in near real time from several carriers that have successfully identified classes of business that have a lower loss ratio and require limited to no underwriting ”touch.” These carriers have established strict guidelines and knock-out criteria for the types of businesses that can pass through, leaving tougher classes to second-tier carriers or non-admitted markets. As access to information currently not captured in traditional apps and artificial intelligence becomes more prevalent, carriers can judiciously loosen restrictions on the risks that need manual review and accordingly increase automation. Confirming underwriting classification and fit with appetite is a common reason for manual underwriting review, and is especially likely for more complex or hazardous classes. Most carriers don’t want to insure general stores that sell firearms or landscapers who climb trees. Referral underwriters must verify the classification and gather additional information by reviewing company websites, or even reaching back out to the agent or customer. Fortunately, third-party data and analytics now can provide this information. This is leading to new risk segmentations and redefining where money can be made. Historically, distributors have (potentially unknowingly) placed the majority of their simple, easy-to-place risks with a few large carriers that can digitally “set and forget” this book. Distributors have struggled to place more complex risks across myriad markets. Classes that are not within the appetite of standard carriers are much more expensive for distributors to place and service. This is especially problematic on smaller accounts. As distributors reassess their portfolios and look to streamline their markets, they will increasingly start using their “Main Street” small commercial book as a lever for carriers to also write their complex small book. Accordingly, carriers must offer solutions for tougher classes, both to meet distributor and customer needs and to increase their own revenue opportunities. Eliminating unnecessary hand-offs There are many hand-offs between the customer, agent and carrier throughout the lifetime of a policy. This creates operational friction that increases costs and compromises the customer and agent experience. In many cases, carriers are in a better position to efficiently and effectively handle the transactions that distributors currently perform or initiate. When it comes to acquisition, real-time quote and bind for low-complexity risks is already table stakes. However, carriers usually require a significant amount of information from the customer and agent to facilitate this process. Current apps are extremely cumbersome to populate, and a new streamlined application process will constitute a fundamental change to the economics of acquiring new business. Imagine being able to enter just four pieces of information about a business (e.g., business name, business address and owner’s name and DOB) and receiving a real-time quote with the option to immediately purchase and electronically receive policy documents. The transaction can even be facilitated via direct integration between the distributor’s agency management system and carrier systems to avoid redundant data entry. Furthermore, imagine this approach being implemented with no impact on underwriting quality or manual back-end processing requirements for the carrier. See also: Commercial Insurers and Super Delegates Leveraging internal data from prior quotes and policies, integrating external structured data feeds and mining a business’ website and social media presence can provide carriers with enough information to determine a business’ operations, applicable class codes, property details, employment, payroll and other key risk characteristics to underwrite and price low-complexity risks. In cases where more information is needed, dynamic question sets with user-friendly inputs can augment the application process without sacrificing underwriting quality. And if the agent wants to negotiate on coverage, terms and conditions or pricing, there can be options for requesting underwriting review, supported on the carrier side by advanced routing that passes the request to the appropriate underwriter based on expertise and agency relationship. These investments are an obvious way for carriers to improve data accessibility, consistency and quality for underwriting analysis, and also increase underwriter productivity. Distributors also benefit from these carriers’ increased efficiency and ease-of-doing business and are more likely to send business their way. Servicing can be another drain on agency resources. The amount of paperwork and transaction flow for small commercial accounts (e.g., requests for certificates, new employees or drivers) is often disproportionate to the amount of premium that they generate. As a result, it is common for carriers to offer service center capabilities. Larger agencies that are looking to streamline their operations most often use these services; in fact, they are often a key factor when agencies look to transfer their book to a new carrier. These capabilities are also appealing to smaller agency owners who may not want to hire an additional customer service representative (CSR) to manage the renewal book. Carriers are typically in a better position to service the book on behalf of the agent because they own the master policy, billing and claims information, have the authority to process changes and have the expertise to address any customer questions or concerns. They also have the scale needed to optimize the process and manage capacity, which they can even leverage to offer servicing and other back-office capabilities for an agent’s entire portfolio (even that written with other carriers), completely eliminating the need for a CSR. Furthermore, seamlessly servicing the business that transfers to another player’s balance sheet can enable another important strategic aspiration: helping new capital providers enter the small commercial insurance game. Renting underwriting acumen As we mentioned, alternative risk-bearing capacity is proliferating. Various categories of capital providers may have an appetite for different risk profiles (e.g., high-volatility, long-tail risks). Some of them may enjoy a higher net investment income ROE and therefore can afford lower underwriting profitability thresholds. However, they still need an underwriter and “A”-rated paper. Currently active fronting arrangements are already providing a more direct link between capital and (currently mostly short-tail) primary risk. Small commercial carriers could “rent” their underwriting expertise via similar fronting ventures and significantly “write” more, including classes of business with a higher loss ratio that may still be attractive to certain capital providers. This would be an effective way to artificially broaden underwriting appetite, leading to improved ease of doing business for distributors. Risk placement of small, complex risks can pose challenges for agents who have to procure and maintain a significant number of appointments, each of which may require distinct and inefficient acquisition and servicing processes. By underwriting risks on behalf of another party, a carrier could earn additional revenue for fronting the business while offering a valuable service to their distribution partners. A carrier that offers services in these three areas could become the one-stop shop for placing small to mid-sized risks for distributors. And if that carrier could continue to offer a competitive compensation package, it would have an outstanding value proposition. Value-added offerings could be part of a strategic compensation package that drives desired agency behavior – for example free servicing on year 1 business if they meet new-business growth goals, or broadened appetite and placement services if they maintain profitability standards. Ultimately, it may be able to fundamentally restructure the economics of providing insurance and ancillary protection services, with tangible benefits to all constituents. See also: How to Win in Commercial Lines   By thinking like a distributor and identifying opportunities across the insurance ecosystem to drive value, a carrier can compete on ease of doing business rather than price – changing the playing field to protect margins and drive profitable growth. This goal would have been difficult to achieve a few years ago, but recent technology advances have made it possible.

In March 2016, the first Future Trends: A Seismic Shift Underway report was published, highlighting that a seismic shift in the insurance industry was underway due to the converging “tectonic plates” of people, technology and market boundary changes. The shift was realigning fundamental elements of business that would require major adjustments from insurers for them to survive and thrive. By the end of 2016, we could make a case that it was a historic year. At no time in the history of insurance can we find one year that includes this many game-changing events and a rapid pace of continuing advancement. A trend at the forefront of the shift was insurtech. Its emergence represented an industry high point for activity, excitement and concern. Commonly, major shifts are punctuated with pauses. For example, with the rise of the internet for business use in the 1990s, or the flurry of IT activity leading up to Y2K, monumental changes were followed by periods where insurers could breathe, adjust and move forward. What became apparent in 2016 is that insurtech advancements and the forces of change may not see any significant slowdown. The momentum that has been building is unstoppable. Industry advancements, cultural trends and IT reactions are gaining speed as they gain strength and a framework for stability. See also: How the Customer Experience Is Shifting   Because insurance industry shifts are in constant flux, decisions based on those shifts must be based on the very latest perceptions. To help, Majesco has issued a Future Trends 2017 report with a fresh set of perspectives and data that will keep insurers abreast of the latest trends. Throughout the report, Majesco also helps insurers consider practical measures for preparation. The Forces of Change The Future Trends reports provide context to a shifting industry by placing trends under three umbrella forces/categories: People, Market Boundaries and Technology. Under each category, major developments are discussed and industry impacts are noted. For the 2017 report, Majesco has expanded the subtopics to include:

• Impacts of economic conditions
• Behavioral economics
• Pay-as-you-need insurance enterprises
• Platform solutions
• Insurtech
• Competition for Talent

The unstoppable shifts become clearer and more relevant when looked at through the spheres of change. People. A changing population, with many members beset by economic challenges, is applying urgent pressure on the insurance industry to develop a new approach to the market; one that demands products and services that are more affordable, tailored to very specific needs, simpler and grounded in trust. These conditions have helped create a “new normal” when it comes to consumers’ and businesses’ risk profiles and expectations. The atmosphere for purchasing decisions is also changing. Insurers need to take a close look at what factors will improve policy uptake in a world dominated by the desire for immediacy. Market Boundaries.  Customer expectations, experiences, loyalties and relationships are continuing to rapidly change, with long-held business assumptions and models being dismantled and replaced with new models, more appropriately aligned to this shift. The traditional boundaries between industries and companies are also being dismantled by technologies that have created platform-based economic shifts. The result is a porous market, where engagement is everything and the relationships between businesses, customers, channels and partners create their own chemistry. It is exciting! But new strategies are needed for everything from product development to back-end administration. Technology.  The rate of emerging technologies will continue, but even more exciting is the rapid adoption and commercialization of these technologies, surpassing many predictions by “the experts,” while catching many traditional executives off guard. Advancing technologies are converging, increasing customer expectations and demands, and access to capital for new technology start-ups is magnifying the extremes – from disruption and destruction to innovation and transformation. Can insurers simply graft these new technologies onto their existing frameworks? It is unlikely. A broader approach is needed. Even insurers focused on replacing their legacy core systems with modern solutions surrounded by digital and data capabilities will need to take a new view and a broader approach to the changes around them to make certain that systems stay aligned with new customer expectations. These expectations highlight a generational gap where traditional insurance business models, processes, channels and products are becoming rapidly irrelevant to a new generation of buyers. Will established insurers suffer at the hands of tech-savvy, culture-savvy competition? Some may, but only if they allow themselves to. Many will re-invent themselves to become the new leaders of a re-imagined insurance business … that meets the needs and demands of a new generation of buyers. They will forge new roads of adaptation and become adept at shifting balance from the traditional old business to the ever-flexible new business. See also: How to Cope With Shifting Appetites   Adapting to the Shift This seismic shift is creating leaps in innovation and disruption, challenging the traditional business assumptions, operations, processes and products of the last 30 to 50 years. The implications for insurers are enormous. To adapt to this shift, the report notes that insurers are charting a path using the following methods:

• Maintain and grow the existing business while transforming and building the new business. The current business is funding the future and needs to be kept running efficiently and effectively as the market shifts.
• Optimize the existing business while building the new business. Optimizing any process will help to maximize the existing business, reduce the cost of doing business and provide a bridge from the past to the future while allowing realignment of resources and investment to the new business.
• Develop a new business model for a new generation of buyers. Create a strategy and plan for a new business model that supports simultaneous leaps forward to create new customer engagement experiences underpinned by innovative products and services that offer growth, competitive differentiation and success in a fast-changing market dynamic.

These three focal points are critical steps in a world of change and disruption. A new generation of insurance buyers with new needs and expectations create both a challenge and an opportunity. There is no clear path or destination. The time for plans, preparation and execution is now — recognizing that the customer is in control. Those who recognize and rapidly respond to this shift will thrive in an increasingly competitive industry to become the new leaders of a re-imagined insurance business that aligns to a rapidly growing millennial, Gen Z and Gen X customer base. For a deeper dive into current insurance industry shifts, and to envision how your organization can take advantage of unstoppable momentum, be sure to read Majesco’s Future Trends 2017: The Shift Gains Momentum.

Insurtech is hot, so the world tells us that VCs and PE firms, large IT companies and a wide range of startups all agree on its prospects. A cynic would, however, say that the worlds of innovation and insurance could hardly be further apart. A financial services industry – by its very nature – has a long-term view, with stability as part of its DNA and solidarity as its backbone. A long-term view does not spontaneously align with the speed, agility and instant nature of today’s society and of innovation. Stability has an uneasy relationship with constant change, and solidarity has to be reinvented to find its place in the personalized customer experience. So which characteristics are most important? Here are six: 1.  Digital DNA – Customer-centric, agile, simple Too often – even in startup designs – we see translations of today’s practices and procedures into a workflow built with new technology. These so-called optimizers have a place in the value chain and can help organizations improve digital access in their current environment. Insurtech should go further: redesign and simplify. Build processes in smaller kernels and connect those rather than "boiling the ocean." Build from scratch. There is no other way for existing insurers or new players than going digital. This trend is as big as automation was in the eighties: a giant leap forward. See also: Top 10 Insurtech Trends for 2017   2.  Instant, Open and Mobile – the new norm for connectivity Please stop debating this; these are all irreversible, societal changes that we see and experience in every walk of life. Insurance is not unique; these laws apply here. Look for omni-channel, use that time to develop an open and mobile solution that is instantaneously available with all relevant context. This is not a generational segmentation. We no longer speak of millennials but of Generation C – the connected customer who reaches across all ages and lifestyles. 3.  Regulation as Opportunity All too often, disruptive startups claim to shy away from the establishment, to make a new market, but even the Ubers of this world have to deal with the rules of law. As much as we may complain about the EU and consumer protection bodies, these same institutions create a massive market and playing field with their new technology. Don’t be shy; study the law and find your niche. At the very least, understand the impact: Making connections and using data for enhanced propositions sounds great, but be sure that things will change after May 25, 2018, in the EU when the GDPR (here is a quick and insightful analysis by Capco) kicks in. Consent will be needed from every single customer or there will be tough penalties of as much as 4% of annual global revenue, or €20 million – whichever is the greater amount. On the other hand, PSD2 creates a totally new and open banking and insurance landscape – make sure to be educated and part of it. 4.  Fair and Acceptable to the World For too long, banking and insurance was primarily the domain of those fully participating in society, preferably with stable financial backgrounds, and the more assets the better the service that one could expect. Customers were "too poor to service" or did not have enough "income potential" to be an interesting target. New technology makes it possible to service every customer in a fit-for-purpose manner: Bank accounts can be as cheap and easy as mobile phone numbers, and the ultra-wealthy can have a 24-hour-a-day virtual concierge. More access to financial services means more economic participation, tax income, business development, financial health and independence and stability. Furthermore, recent debates on tax optimization and wealth gaps together with much more transparency make it clear that it simply is no longer acceptable to not let everyone participate – in a way that suits him or her. What started as a moral and political topic has found a firm place in the investment agenda of PE and VCs, too. 5.  Data: Context Is King Hardly any other industry is as data-rich as insurance; banking pales in significance to the data assets of insurance companies. Silos, warehouses... and data appears in higher volumes by the day. Today, we simply speak of structured and unstructured (social) data, which all carries extreme relevance, but... only at a certain moment in time for a certain person or occasion and in a certain context. The good news is that more than ever can we benefit from the pull effect of the right and interested audience when posting relevant content online. All this and more means only one thing: Data is nothing – context is everything. Despite tools galore, make sure you understand the GDPR (outside Europe, this will most likely become the acceptable norm, too) and build an environment in which the right data can be pulled into that transaction or context to enhance the value for the customer and the relevance to the insurance company. It can be done now! 6.  Embrace the Ecosystem Ownership is out, access is in: access to a wider ecosystem of business partners. You do not have to own or build something yourself to derive value from it. In an open API system, relevant third parties can be your last mile to a new customer segment, or in reverse they pay you for the last mile into your customer basis. Building relevant networks and opening up a network so customers can choose for themselves who they find relevant is the way forward. This speeds up your time to market, your relevance and the richness of the customer experience. Ecosystems can equally be entered into to try out new markets, new customer segments or new vertical offerings. Be aware that, in finding good partners and striking the right deal, the devil is in the detail of the cultural fit. Can large settled companies work with small agile ones? Will your teams be able to align? Culture matters most is one lesson we have already learned in the first few steps we have set in this direction as an industry. The how is as important to success, if not more, than the what. Optimizers, Transformers and Disruptors Our next blogpost will include the other four criteria. But these first six already provide a clear picture. So does everyone have to tick all six boxes to be an insurtech firm? No, but this is a useful framework to position your company, your ambition and your market: to help investors understand what your ambition is, how fast things might go, how much money you might need and what other resources are key. As disruptive as technology and societal changes have been lately, nothing changes overnight in business. Disruptors will come, some will grow and become an established part of a new world, others might fail, having learned a lot. See also: 4 Hot Spots for Innovation in Insurance So take a step back and away from your startup dream of being the change agent of the new world and take a critical look at yourself. There is a lot of space for all types of players to make the transformation we as an industry face. We need optimizers – the players who give the industry tangible short-term benefits on the road to digitization. We need transformers, those that do not change the rules of the game, but that do rethink and redesign workflows, transaction processes and entire business flows. And, yes, we need disruptors to help the industry shape a new (level) playing field with new opportunities in areas no one could foresee. The resources needed, the outlook, the potential of return and the addressable markets differ. Optimizers can become transformers after a few years of experience. Transformers, however, hardly ever become disruptors, the DNA is too different. It has happened, but in a new company with a new team and vision. Embrace the world of insurtech, be honest about your position and aim for 10 stars in your business model. Stay tuned for the other four criteria. See you all in Amsterdam!

Apparently anybody with internet access is now an insurance expert. Recently, I read this article about the miracle and savior that is insurtech: 3 Major Areas of Opportunity It’s a quick read, so I’ll wait until you return… To paraphrase Einstein, “Things should be made as simple as possible, but no simpler.” That's why this statement in the article is inapplicable to insurance:

“The first is customers, who have grown accustomed to an easy, Facebook-like experience in interacting with large service providers.”

Insurance transactions are not equivalent to Facebook “likes.” Technology as a communications tool is fine. I only communicate with my agent via email. It’s easy, it’s 24/7, and it’s documentation of our communication, something that has paid off for me more than once in the last 25-plus years. See also: Top 10 Insurtech Trends for 2017   But technology is only a tool. It’s a means to an end, not an end in and of itself. The insurance purchase cannot (and should not) be reduced to an Amazon-like “1-Click” purchase. Consumers are not buying crew socks or body lotion on the internet, they’re entering into a complex, legal contract that, if not properly executed after identifying their unique exposures to loss, could result in catastrophic financial loss. Lives could be ruined, families destroyed. This is serious stuff, not the subject of goofy box store clerks and prancing lizards. If I make a bad decision buying a Bluetooth speaker online, I might be out $30 or the inconvenience of returning it. If I make a bad decision buying insurance online, I could lose almost everything I own and 25% of my income for the next 20 years. No matter how consumers have grown accustomed to an easy, Facebook-like experience online, there is more to the “insurance experience” than the purchasing component. Just ask anyone who has ever had a significant claim, especially one that didn’t go so well. Then, there’s this in the article:

"New algorithms for predicting risk, for example using machine learning, will allow for vast automation of the underwriting process, and managing contracts and identities with the blockchain will reduce the resources needed for fraud detection."

What it may also enable is “black box” discrimination, even if unintended, because no one knows for sure what those algorithms are using to make underwriting decisions. And, if your insurance premium is based on 600 “big data” factors, how do you know what impact each factor had on your premium or what you can do to control your premium? One might argue, as do data analytics businesses selling their services, that this is somehow good for the insurance company…but what about the consumer? Then we have:

"The second source of pressure comes from competitors. Not only will consumers be more likely to give their business to a digital-native insurer, but entire new kinds of exposure are opening that will give a challenger an opportunity to strike. The cybersecurity market is growing everywhere, along with the pressure to contain and manage the risk better, yet traditional insurers are slow to make convincing offers to threatened customers."

One reason insurers are slow to respond is that developing an insurance premium that is, by law, adequate, not excessive, and not unfairly discriminatory is very difficult to do for a brand new type of exposure or one that is evolving almost daily. If you can’t price the coverage, you can’t determine what the coverage should be or not be. Insurers caught flack for not responding quickly to the Uber phenomenon. According to some, two early insurers that responded with broad, inexpensive coverage quickly took a beating with two $1 million-plus claims because they didn’t understand the exposure, overinsured it and underpriced it. See also: All Insurers Must Become Insurtechs   Technology can be a cool tool, but it is not the be-all, end-all savior or nemesis of the insurance industry. Insurance has always been and will most likely always be a mechanism for assisting consumers and businesses in identifying their exposures to loss and enabling them to manage them without going bankrupt. We must always keep that mission in mind no matter what the revolutionary new idea du jour might be.

Insurers are loosening policy language to allow more treatment for opioid addiction. Treatment centers and providers are opening, expanding and increasing services to meet growing demand. Workers’ comp requires treatment for those addicted to or dependent on opioids, leading to higher costs for employers, insurers and taxpayers. Medicaid will be saddled with much of the burden, as addicts often lose their jobs and have no other coverage – so we taxpayers will foot the bill. We know who’s going to be writing the checks – ultimately you and me and our nations’ employers, in the form of higher insurance premiums, higher taxes and lower earnings for employers. That’s wrong. And not just-kinda-sorta-of-that’s-too-bad wrong, but ethically, morally and maybe even legally wrong. See also: How to Attack the Opioid Crisis   The purveyors of this poison have made billions by lying, deceiving and killing our fellow citizens. By crushing families, destroying towns, bankrupting businesses, ripping apart our social fabric. And we’re left paying the bill in dollars, deaths and soul-searing pain. I have a modest proposal.  Make the pill-pushers pay. Congress should pass a bill, and the president should sign it, making the opioid industry pay for its sins -- treatment coverage, a flat amount for each person who died on their poison and reimbursement for all past costs incurred by individuals, families, taxpayers and employers.  Bankrupt the industry, take every penny the owners have and use it to help those they’ve harmed. Let’s call it the Corporate Opioid Responsibility Payment Service Establishment Act. CORPSE, for short Make the bastards pay.

Smart-television maker Vizio agreed to pay a penalty this month for spying on 11 million customers. According to the Federal Trade Commission, the company captured second-by-second information on what customers viewed, combined it with their gender, age and income and sold it to third parties. How much was the fine for Vizio, which has sales in excess of $3 billion? It was $2.2 million — barely a slap on the wrist. These kinds of privacy breaches are increasingly common as billions of devices now become part of the “Internet of Things” (I.o.T.). Whether it be our TV sets, cars, bathroom scales, children’s toys or medical devices, we are already surrounded by everyday objects equipped with sensors and computers. And the companies that make them can get away with being careless with consumer security — and with stealing customer data. Vizio has been accused of exposing its customers to hackers before. In November 2015, security researchers at Avast demonstrated how easy it was for hackers to gain complete access to the WiFi networks that Vizio’s TVs were connected to and that it recorded customer data even when they explicitly opted out of its terms of service. See also: ‘Smart’ Is Everywhere, but…   On Black Friday in 2015, hackers broke into the servers of Chinese toymaker VTech and lifted personal information on nearly five million parents and more than six million children. The data haul included home addresses, names, birth dates, email addresses and passwords. Worse still, it included photographs and chat logs between parents and their children. VTech paid no fine and changed its terms of service to require that customers acknowledge their private data “may be intercepted or later acquired by unauthorized parties.” Regulations and consumer protections are desperately needed. One option would be to hold the manufacturers strictly liable for these hacks, to financially motivate them to improve product security. In the same way that seat belt manufacturers are responsible for the safety of their products, I.o.T. device makers would be presumed to be liable unless they could prove that they had taken all reasonable precautions. The penalties could be high enough to put a company out of business. But this would be inequitable. One of the factors enabling such hacking is that users don’t use sufficiently complex passwords and thus leave the front door unlocked. It could also stifle innovation, with the big players avoiding the possibility of extreme penalties by becoming averse to innovations, and small players avoiding entering the market because they lack the resources to handle possible litigation. Duke School of Law researcher Jeremy Muhlfelder says that copyright law has a history of Supreme Court cases that have ruled on this exact principle, of not wanting to curb the “next big thing” by holding innovators liable for their innovations. Innovators themselves wouldn’t, and shouldn’t, be liable for how carelessly their innovations are incorporated into new products. But imposing strict liabilities on manufacturers, because it would lead indirectly to canceling the rewards of innovation, might not be legally realistic either. A more reasonable solution may be along the lines of what attorney Matt Sherer recommends in a paper on regulating artificial intelligence systems that was published in the Harvard Journal of Law and Technology: Impose strict liability but with the potential for pre-certification that removes the liability. I.o.T. devices would be deemed inherently dangerous, and thus the producer would be strictly liable for faults unless an independent agency certifies the devices as secure. This would be similar to the UL certification provided by Underwriters Laboratories, a government-approved company that carries out testing and certification to ensure products meet safety specifications. See also: Why 2017 Is the Year of the Bot   Equipment certification is also one of the recommendations that former Federal Communications Commission chairman Tom Wheeler made in a letter to Sen. Mark R. Warner (D-Va.) regarding the government’s response to the October 2016 attack on the internet. He proposed a public–private partnership that creates a set of best practices for securing devices, the certification or self-certification of products, and labeling requirements to make consumers aware of the risks. Wheeler proposed “market-based incentives and appropriate regulatory oversight where the market does not, or cannot, do the job effectively.” As Wheeler also noted, addressing I.o.T. threats is a national imperative and must not be stalled by the transition to a new president. This is beyond politics. It is a matter of national security and consumer safety.

Imagine if you could pick between Uber drivers based on their driving experience. Would you hire an experienced driver who has logged hundreds of thousands of road miles or one who has driven just a few hundred miles? I’ll bet you’d go with the experienced driver. Now apply the same question to driverless cars. How would you pick? The same logic applies: Go with experience. By the miles-driven heuristic, recent reports released by the California Department of Motor Vehicles show that Waymo (the new Alphabet spinout previously known as Google's Self-Driving Car program) is running laps around its competitors. As with human drivers, experience matters for driverless capabilities. That’s because the deep learning AI techniques used to train driverless cars depend on data—especially data that illuminates rare and dangerous “edge cases.” The more training data, the more confidence you can have in the results. See also: How to Picture the Future of Driverless   In 2016, Waymo logged more than 635,000 miles while testing its autonomous vehicles on California’s public roads compared to just over 20,000 for all its competitors combined. As the W. Edwards Deming principle that is popular in Silicon Valley goes, “In God we trust, all others bring data.” The data shows that Waymo is not only 615,000 miles ahead of its competitors but that those competitors are still neophytes when it comes to proving their technology on real roads and interacting with unpredictable elements such as infrastructure, traffic and human drivers. Now, there are lots of ways to cut the data and therefore a lot of provisos to the simple test-miles-driven heuristic. Waymo also leads the others in terms of fewer “disengagements,” which refers to when human test drivers have to retake control from the driverless software. Waymo's test drivers had to disengage 124 times, or about once very 5,000 miles. Other companies were all over the map in terms of their disengagements. BMW had one disengagement during 638 total miles of testing. Tesla had 182 disengagements in 550 miles. Mercedes-Benz had 336 disengagements over 673 miles. Fewer miles might mean fewer edge cases were encountered, or it might mean that those companies tested particularly difficult scenarios. But, low total miles driven casts doubt on the readiness of any system for operating on public roads. Until other contenders ramp up their total miles by a factor or 1,000 or more, their disengagement statistics are not statistically relevant. Tesla fans could rightly point to the more than two hundred million miles that Tesla owners have logged under Tesla’s Autopilot feature. Those miles are not considered here. (Autopilot is not defined as autonomous under California law, so Tesla is not required to report disengagements to the California DMV.) But, no doubt, all those miles means that Tesla’s Autopilot software is probably very well trained for highway driving. What do those highway miles tell us about Tesla’s ability to handle city streets, which are more complex for driverless cars? Not much, but the 550 miles that Tesla did spend on public road autonomous testing speaks volumes about its dearth of experiential learning on city streets. (Ed Niedermeyer, an industry analyst, recently argued that most of Tesla's 550 miles were probably logged while filming one marketing video.) See also: Novel Solution for Driverless Risk   It should also be noted that the reported data applies only to California; it does not account for testing in other active driverless hubs—such as Waymo’s test cars in Austin, TX, Uber’s driverless pilots in Pittsburgh or nuTonomy’s testing in Singapore (just to name a few). It is safe to guess, however, that a significant percentage of all autonomous testing has been logged in California. Notably missing from the reports to the California DMV are all other Big Auto makers and suppliers—and other players cited or rumored as driverless contenders, like Apple and Baidu. They might well be learning to drive on private test tracks or outside of California. But, until they bring data about their performance after significant miles on public roads, don't trust the press releases or rumors about their capabilities. Waymo’s deep experience in California does not guarantee its victory. Can it stay ahead as others accelerate? That remains to be seen, but it is clear from the California DMV reports that Waymo is way ahead on the driverless learning curve.

We are facing an epidemic that is only going to get worse – the scourge of cyber and telephone-based scams against individuals and businesses. Scammers are becoming so sophisticated that it is difficult for even the most educated and tech-savvy individuals to avoid being conned. It is actually difficult to find someone who has not fallen for some kind of scheme that resulted in stolen money or a stolen identity.

These highly sophisticated and organized criminals are now able to assemble substantial information about an individual, their relationships with others, the products they own and the businesses they interact with. This allows scammers to create credible, convincing stories and interactions that instill confidence or fear, causing people to give out sensitive personal information, credit card information or other financial details. Some of these schemes are so involved that they span days or weeks and result in individuals wiring significant amounts of money to these villains. Other plots are based on ransomware that extorts money in exchange for the release of locked up digital information.

See also: Most Firms Still Lack a Cyber Strategy  

The result of this barrage of attacks – especially against individuals – is that many people are just shutting down. You’ve probably seen the advice in recent articles that you should hang up immediately when the caller is not recognized, because criminals are now enticing the person to say “yes,” recording their voice, then using that recording as consent to conduct illegal financial transactions. In addition, phishing scams are becoming more and more realistic, so it is not as easy as it once was to spot a fake request. SMS texting-based scams are on the rise, so individuals are becoming cautious about responding to what they receive via those modes. The bottom line: More and more people are unwilling to take an inbound call, answer an unknown email or communicate with someone on social media who asks for information.

Add to this the fact that millennials are notorious for avoiding actual “live” phone conversations, and you have a serious problem for any company trying to do outbound marketing of any sort. Sure, the direct mail will still fill up the mailbox, but virtually anything communicated electronically is now suspect.

Quite a few people I know (including myself), are taking the strategy that the only time they will buy something, renew a subscription, donate to a charitable cause or provide any personal information is when they initiate the interaction.

This has some serious implications for the insurance industry – both negative and positive. The contact center operations with predictive dialers and other advanced technologies are used extensively by many insurers, especially the Tier 1 companies. And these outbound calls are not just for marketing and prospecting, but also for existing policyholders for insurance-to-value assessments, customer satisfaction surveys and other activities. Emails are also prevalent among insurers for prospecting and for communicating with policyholders and members. Insurers, as well as companies in other industries, may face more and more resistance to these approaches over time.

If there is any silver lining in this, it comes from the enormous societal need for advice on preventing and dodging these scams and for indemnification against these types of attacks. Insurers have the opportunity, and perhaps the obligation, to determine the industry role in this area. Cyber liability coverage could be expanded significantly across all lines of business. Loss-control engineering should increasingly include expertise in these areas to help customers. Insurers should promote legislation, encourage technology solutions and find other ways to thwart this increasing threat.

See also: Cyber Insurance: Coming of Age in ’17?  

It may sound like hyperbole to say that direct marketing is headed for a crash, but preemptive actions by insurers, other industries and governments need to kick into overdrive if this problem is to be solved ... not just for the sake of marketing but for the protection of the customer, as well.

Just a decade ago, “insurance” and “innovation” seemed mutually exclusive. Insurance products and the business overall hadn’t changed much over the previous century and the likelihood of insurers – which, by their very nature, are risk-averse – changing anytime soon seemed unlikely to many both inside and outside the industry. However, over the past decade, there have been dramatic changes in the world that insurers cover and in the data and technology available to them. The result is that insurance companies have opportunities to explore new revenue models and improve profitability in ways that did not exist even just a few years ago. See also: Secret to Finding Top Technology Talent   The most prominent changes and their effects on revenue models include: 1. Consumers, social media, and data – The ability to connect, communicate with and observe insureds and potential insureds in real time or near real time has opened up new possibilities for insurers to understand their customers’ needs, pain points and desires. Many carriers have started to rethink their customer experience so they can “listen” directly to their customers instead of being solely reliant on their distribution channels.

• Revenue model implications –Insurers are using technology and data tools to explore opportunities to provide complementary products and services to insureds. These tools enhance carriers' understanding of customer needs and enable them to address these needs seamlessly via direct and indirect channels.
• Profitability implications – Insurers are rethinking their business processes and customer journeys to identify “leakage areas” and “moments of truth” when profits are hurt by 1) frustrated customers choosing to leave or 2) missed opportunities to expose customers to products and services that meet their needs.

2. Insurtech – While the fintech boom has subsided somewhat elsewhere in financial services, insurtech is still growing. Traditionally, one of the biggest hindrances to many insurers in getting new products or new product enhancements to market was their own technology and data environment, and the belief that they alone had to build any new technology from scratch. However, the rapid rate of technological change and insurtech capabilities has led many carriers to look externally to enhance their capabilities and test new products and delivery models for their products. This underlies the promise that insurtech offers for established players – in fact, we think the opportunities that insurtech presents outweigh the threats many incumbents perceive.

• Revenue model implications – Insurers are increasing their investments in, partnerships with and acquisitions of insurtech companies to more quickly bring new products and services to market, especially ones that better match pricing to a more accurate understanding of the risk or actual use of the insurance (including on-demand and usage-based insurance models).
• Profitability implications – As a result of technological disruption, insurers are rethinking their value-chains and leveraging insurtech and other technology systems to improve operational areas that have historically been inefficient in terms of cost, time and use of human capital.

3. Internet of Things (IoT) – Although IoT technically is part of nsurtech, the impact of device networking is creating unique risk management – even risk avoidance – opportunities for insurers. From commercial and personal line P&C to life/health and group, IoT opens up opportunities for carriers to move from simply computing the probability of risks and then reacting to them as they occur to being able to monitor potential risks and prevent their occurrence.

• Revenue model implications – Insurers are exploring how IoT can open up product and service opportunities. In the P&C space, insurers have the option of partnering with IoT companies to provide IoT solutions as part of their product offering in both B-to-B and B-to C. In life/health and group, we expect insurers to continue to test how devices can reinforce healthy lifestyles and open up opportunities for insurers to make life and health truly about “life and health” and not just death and sickness.
• Profitability implications – Insurers are leveraging IoT to reduce claims frequency and severity. We expect new insurance models will test and explore ways to share these benefits with the customers – for example, by using behavioral economics techniques to provide incentives and reinforce positive decision-making and lifestyle choices.

4. Bionic Advice – There is currently a lot of talk about robots and machines replacing humans. However, at least for now, the real opportunities are not in finding the “perfect algorithms” that completely automate advice. Rather, they’re in machines enhancing the effectiveness of advisers and other distribution channels. And, the insurance industry appears to be prepared; in our recent annual CEO Survey, 61% of insurance CEOs said their companies are exploring the benefits of humans and machines working together. See also: How Technology Breaks Down Silos Numerous studies have confirmed that customers prefer the flexibility of interacting with insurance companies via the channels of their choosing – and this still often includes human ones. The real benefit of robo-advisers and AI is that they can automate basic advice but provide immediate, detailed information specific to a given customer that an adviser then can use to inform her product and planning suggestions. In addition, robotics and AI increasingly provide insurers the opportunity to capture information and refine their understanding of and recommendations for their customers throughout the sales and customer lifecycle processes.

• Revenue model implications –Insurers are exploring bionic advice models to increase revenue by better matching products and customer needs and by creating new product bundles based on an enhanced understanding of customer segments.
• Profitability implications – Insurers have lost out on many sales opportunities over the years – not because they had disinterested customers but because they or the channel partner never really understood customer needs. Many carriers realize this and are exploring how to deploy bionic advice models to automate customer follow-up, either in real time (e.g., while talking to an adviser) or at specific intervals (e.g., annual review, life event, etc.). The goal is to help carriers be more relevant to customers and, by offering appropriate products and service bundles, increase the products per household and boost “stickiness.”

Implications In the case of the scenarios we describe here and others that could emerge, we see some consistent patterns:

• New revenue models will result from the opportunity to leverage data, technology, social medial platforms and mobile devices that lead to the creation of new products, services and pricing strategies.
• Insurtech is not just about new products and services. Insurance companies will continue to take advantage of emerging technologies and data to enhance their internal operating models. This, in turn, will enable them to market new products and services faster and to sell and service them more efficiently.
• Insurance companies will continue to explore how to leverage peer-to-peer models and behavioral economics to drive new pricing strategies, growth and profitability.

PwC predicts that the sharing economy will grow from a $15 billion-a-year industry in 2014 to more than $300 billion in 2025. Now that's growth! Although the term “sharing economy” can be elusive, the common denominator is an on-demand workforce that leverages underused assets. That on-demand workforce is made up of freelancers, gig workers, temporary staff, moonlighters or whatever label you want to prescribe. This is leading to a world of reduced costs for both consumers and businesses. So, can this translate into more affordable insurance products? Let's explore. The Sharing Economy: A Brief Introduction The key to the shift in consumption behavior from ownership to access (or what we've termed the “sharing economy”) is the use of mobile technology. Smartphones and mobile platforms have enabled major sharing platforms such as Uber, Lyft, Airbnb and WeGoLook. (Yes, we know that early agrarian communities shared everything — including labor and food. But they didn't have smartphones!) The sharing economy also includes services — especially those that can be delivered electronically. See also: The Sharing Economy and Accountability   How Businesses Can Take Advantage Individuals benefit from the sharing economy because of the ability to connect goods and services to consumers electronically or, ultimately, in person. A peer-to-peer model of consumption reduces consumer costs. Adding mobile technology facilitates the sharing and has allowed for cost savings across the board. The sharing economy allows individuals to go into business by using the internet, a laptop, tablet or smartphone. Businesses benefit as much as individuals because they can connect, and contract, with members of the on-demand workforce for ad hoc projects or temporary services. And businesses are noticing. According to a Jobshop survey, one-third of businesses plan to use workers from the sharing economy for their staffing needs over the next five years. But what does that mean for insurance? How the Sharing Economy Can Help Promote Affordable Insurance Look at property and casualty insurance, where rates continue to increase year over year: The sharing economy can have a significant effect on payroll and service-delivery costs. National insurance carriers have massive payrolls that drive up rates for consumers. When payroll costs are compared for W-2 employees and on-demand freelance workers, the savings is significant. When a full-time employee is hired at $20 an hour, the actual cost to the company is much more than the hourly wage because of payroll taxes, benefits, workers' compensation premiums and unemployment insurance. Not to mention the cost of the workspace needed for each employee. The W-2 employee who is hired at $20 an hour actually costs the employer about $25.60 an hour, so an independent contractor hired at $20 an hour reduces the cost of payroll by $5.60 an hour, or more than 20%. Contractors can also be hired as needed, so they aren't paid full-time. Multiplying the payroll reductions by the many thousands of independent contractors working nationally, and huge savings are created that can be passed on to the consumer. By accessing the on-demand workforce, insurance carriers can gain access to highly skilled independent contractors (many of them retirees) at minimal cost. These professionals typically work as independent contractors and offer their skills at below-market prices because they have a retirement plan. I would know. WeGoLook employs more than 30,000 of these highly skilled on-demand workers. Areas for Insurers to Target Insurers seeking to reduce payroll costs can easily access various web platforms, such as WeGoLook, to search for independent contractors to satisfy their needs and save money. These needs can include:

• Communications: Experienced communicators can be contracted to connect with clients and agents to discuss coming programs or to conduct surveys.
• Asset Verification: Most property and casualty insurers rely on inspections of residential and commercial properties to make certain the dwelling or building qualifies structurally for a policy. Insurers can use gig platforms to contract skilled field service agents to personally visit and photograph the property in question.
• Claims: An insurer’s claim department relies on experienced adjusters to inspect and adjust damage to a property or vehicle. In areas with lower populations, using independent contractors makes better financial sense than hiring full-time claims adjusters.

See also: Sharing Economy: The Concept of Trust   Make Insurance Affordable by Passing on Savings to Consumers It’s highly likely that national insurers can reduce payroll costs and service delivery by partnering with on-demand workers in the sharing economy. Technology makes it possible for the parties to connect, discuss and contract for whatever the project might be. The savings can be passed on to consumers, making you more competitive in a crowded market.