Insurance CEOs are acutely aware of the disruption and change facing their industry. Keeping pace isn’t just a matter of adopting new technology. It’s also about being innovative and developing the customer intimacy needed to meet fast-shifting market expectations, while sustaining an unrelenting focus on reducing costs. Disruption and change Insurance CEOs’ concerns over regulation, the pace of technological change, shifting customer behavior and competition from new market entrants have continued to rise from their already high levels. In fact, no other industry group of CEOs is as "extremely concerned" about the threats to growth in these four areas. Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace. The good news is that many insurers are embracing innovation. Two-thirds of insurance CEOs see creativity and innovation as very important to their organizations, ahead of other financial services sectors. They’re also ahead of the curve in exploring the possibilities of artificial intelligence and humans and machines working together. Innovation and growth 86% of insurance CEOs believe technology will completely reshape competition in the industry or have a significant impact over the next five years. The gathering transformation is already evident in areas ranging from robo-advice to pay-as-you-go and sensor-based coverage. See also: Convergence: Insurance in 2017   Cutting-edge customer interaction and data analytics have enabled insurtech businesses to set the pace in the marketplace. However, rather than being just a threat, collaboration with insurtech businesses can help more established insurers to make the leap from incremental to breakthrough innovation. This includes improving insurers’ ability to analyze the huge amounts of data at their disposal, which can lead to better customer understanding, higher win rates and more informed underwriting. Partnership with insurtech can help insurers improve processes, increase efficiencies and reduce costs. Data, digitization and trust While digitization and data proliferation are now central elements of the insurance business, they bring increased cyber risk. More than eight out of 10 insurance CEOs (81%) are "somewhat" or "extremely" concerned about the impact on their growth prospects, on a par with banking and capital markets (82%). Given the volume of medical, financial and other sensitive policyholder information that insurers hold, breaches could lead to a loss of trust that would be extremely difficult to restore. More than seven out of 10 insurance CEOs (72%) believe that it’s harder to sustain trust in this digitized world, though they also see the management of data as a competitive differentiator. Grappling with regulation A massive 95% of insurance CEOs are at least "somewhat concerned" about the potential impact of over-regulation on their growth prospects, and 67% are "extremely concerned." See also: Insurance Coverage Porn   The need to implement so many regulatory reforms across so many areas has inevitably tied up management’s time and made reporting more cumbersome. Compliance demands and costs also continue to rise, straining operational infrastructure and holding back returns. However, these are the unavoidable realities of today’s marketplace. Insurers that are able to build the changes into business as usual can gain a critical edge. And pressure on returns means the "second line" now has to pay its way as part of an approach that shifts the focus beyond compliance to sharpening competitive advantage. Download the full report here.

On a weekly if not daily basis, there are media reports about the growing impacts of addiction to opioids. The Centers for Disease Control and Prevention (CDC) reports that 78 people a day are dying from the effects of opioid overdose. Families are being systematically destroyed by the multiplicity of effects of this increasingly pervasive problem. In 2014, there were more than 47,000 drug overdose deaths in the U.S., and more than 28,000 of those deaths were caused by opioids (including heroin). The current overdose epidemic is unfortunately only one symptom of a greater problem in the U.S. Our nation consumes 80% of all opioids produced in the world, yet the American population makes up only 5% of the total world population. This strongly implies there is a societal, cultural profile in America that is unlike anywhere in the world, driving such demand and overuse. As the national “epidemic” of opioid abuse continues to get increasing attention, it’s important to realize the effect it has on employers. Prescription opioid abuse alone cost employers more than $25 billion in 2007. Even if the injured worker never develops an opioid misuse disorder, long-term opioid use is still extremely problematic. The evidence tells us that the effectiveness of chronic opioid therapy to address pain is modest and that effect on function is minimal. In addition, when injured workers are prescribed opioids long-term, the length of the claim increases dramatically and even more so when other addictive medications like benzodiazepines (alprazolam, lorazepam) are prescribed. Perhaps the most troubling statistic of all: 60% of injured workers on opioids 90 days post-injury will still be on opioids at five years. See also: Potential Key to Tackling Opioid Issues Workers’ compensation stakeholders are increasing efforts to call more attention to the use of these potent pain-relieving drugs by injured workers. In the highly complex and diverse field of workers’ compensation, entities from state governments to insurers and other workers’ compensation stakeholders are stepping up to address the issues and impacts of opioid use by injured workers in varying degrees through a myriad of methods. Most work-related injuries involve the musculoskeletal system, and doctors increasingly prescribe short- and long-term opioids to address even minor to modest pain despite broad medical recommendations against long-term use. Because of the prevalence of back injuries in the workplace, opioids are increasingly becoming the treatment of choice for what often starts as a short-term treatment, but frequently becomes long-term, with the likelihood of addiction occurring before treatment is completed. Claims professionals should understand that there are many variations of opioids, including fentanyl; morphine; codeine; hydrocodone (Vicodin, Lortab); methadone; oxycodone, (Percocet, OxyContin); hydromorphone (Dilaudid) – each with different levels of potency. For example, fentanyl is 50 to 100 times more potent than heroin. No wonder addiction is so often the result. Paul Peak, PharmD, assistant vice president of clinical pharmacy at Sedgwick, notes that opioids act on receptors in the brain; therefore, it’s expected that certain changes will occur over time as use continues. Each one of us would realize both opioid dependence (this means withdrawal symptoms occur when the drug is stopped) and opioid tolerance (this means more drug is needed to get the same effect as use continues) if we were to take opioids consistently for weeks or months. In many cases, patients who are prescribed opioids chronically will experience a worsening of pain that is actually caused by the opioids themselves. Because opioids have these profound effects on our brains, engaging injured workers in their own recovery is a best-claim practice, and it is critical to achieving the best outcomes. This should begin early, and a key part of the process includes encouraging workers to ask their doctors questions when they are being treated with drugs for pain. Some of these questions should include:

• Is this prescription for pain medicine an opioid?

Doctors should educate patients on what an opioid is and how to use it safely to relieve pain.

• What are some of the potential adverse effects of opioids?

Opioids can affect breathing and should be used with great caution in patients with respiratory issues. They most often cause moderate to severe constipation. Even short-term use can decrease sleep quality and impair one’s ability while driving.

• Where can I safely dispose of remaining pills?

To protect others from potential misuse, any excess supply should not be saved for later use. Injured workers should be advised not to give them to friends or family, and to dispose of unused pills appropriately. States often provide disposal options/locations for opioids to reduce the chance of leftovers getting into the hands of unintended users. In addition, CDC guidelines now recommend patients are only given a three-day or seven-day supply of opioids, and some states are now putting laws in place following this recommendation.

• Am I at risk for abuse?

Providers can use risk assessments to help determine those people at greatest risk for abusing opioids if prescribed. Peak notes that opioids do have some benefit in the acute phase post-injury, say within four to six weeks after injury. However, when improvement doesn’t occur in this time frame, continuing use of opioids is not appropriate, as addiction becomes increasingly assured. These are among the key questions for treating physicians that injured workers should ask. While engagement is a vital part of patient accountability, physician education is even more critical. Peak explains that more is expected of doctors because they are providing the care. Patients and physicians working together in a close relationship is key. Injured workers and family members should talk to the treating physician immediately if they see signs of addiction or dependence. There are some possible warning signs of addiction, such as craving the pain pills without pain or when pain is less severe, requesting early refills or stockpiling medication, taking more pills at one time or taking them more often than prescribed, or going to multiple prescribers for opioids or other controlled substances. Early detection can help stop the destructive cycle of addiction before it becomes too powerful to resist. Injured workers can also contact an addiction counseling organization. A note of caution for all whose accountabilities touch this area of treatment – terminating prescription opioids “cold turkey” can be dangerous and even fatal. Throughout the life of the claim and at the end of the day for injured workers using opioids, the relationship with their doctors will be the primary factor in determining how the treatment will end and the outcome that is achieved. Strategies for the claims team So where does all this leave claims professionals who want to see injured workers recover successfully and appropriately from their workplace injuries? See also: Opioids Are the Opiates of the Masses   Claims professionals must define a strategy for identifying and then monitoring physician prescribing patterns and the specific use patterns in each case. Some of the tactics that should be considered include:

• Leveraging pharmacy utilization review services
• Directing patients to doctors who won’t overprescribe opioids; and those who use prescription drug monitoring programs and tools, which are available in most states
• Engaging nurse case managers early and regularly; their involvement and intervention can help deter addiction; nurses can advocate for other more clinically appropriate options and advocate for best practices including risk assessments, opioid contracts, pill counts and random drug screens
• Ensuring that injured workers are getting prescriptions through pharmacy benefit management networks
• Leveraging fraud and investigative resources that are often useful in uncovering underlying, unrelated patterns of behavior that would indicate a propensity for opioid abuse
• Considering the cost of opioids versus alternatives; while many alternate treatments are more expensive on the front end, certain drugs may be much more expensive in the long term, especially if they lead to addiction
• Addressing the opioid issue well before case settlement; as with most longer-term open claims scenarios, those with opioid use will only produce worse outcomes and get more expensive over time without appropriate early interventions

Continued vigilance by claims professionals can enable and facilitate a better result at closure and avoid a lot of potential pain for the injured worker along the recovery path.

The sharing economy, which is made up of consumers and businesses who provide on-demand services, faces particular challenges when it comes to insuring their risk while conducting business. Simply put, the sharing economy and the short-term exchange of assets for a fee has created headaches for insurers. Think of the early days of Uber and ride-sharing insurance. Certainly, one constant challenge that on-demand or freelance workers face, is purchasing insurance protection at affordable prices. Since on-demand workers typically work on a per project or per task basis, there may not be a need for annual policies. Especially if there is a gap of more than 30 days between jobs. In the sharing economy, where ride-sharing has become a tremendous service for on-demand workers, the ability to purchase automobile coverage on a per-mile basis may very well become a critical need for those who participate in this new industry. As the sharing economy continues to expand, the ability to purchase insurance products on a pay-as-you-use basis will become even more important to the members of this new economy. And, insurance companies will have to respond to the significant insurance implications. Let's go a little deeper. Short-Term Insurance: Pay-As-You-Use Pay-as-you-use is a fairly common economic precept in today’s technology landscape. It can only become profitable if the consumer realizes a benefit, values its ease of use, and the variable expenses. An example is when Metromile introduced its pay-per-mile insurance coverage; it easily appealed to the majority of low-mileage drivers who felt that they would now be treated more equitably. See also: Insurtech: One More Sign of Renaissance   Ride-share drivers obviously benefited from the reduction in wasted premium dollars, and they were compensated by the delivery of a personalized experience that made them feel counted. Consumers are responsible for constructing, through their needs and desires, a digitally keen, on-demand sharing economy. Innovative sharing economy companies like Airbnb, Uber, and WeGoLook, are turning wasted assets and labor into productive and profitable products and services. The Insurtech Movement Just as the Italian Renaissance took hold due to the desires and determination of dedicated stakeholders, insurtech as a concept has grown to be a collaborative movement (or Renaissance) in the insurance industry. Yes, we just compared the Renaissance to insurtech. The point here is, as with the 14th-century movement, these cultural shifts serve as a bridge from the old to new. Insurtech, as a technological movement, branched out from fintech following reports of significant capital entering the market for insurance start-ups. This massive availability of capital paved the way for start-ups and existing companies to innovate new products, services, and fresh new business models. These models are the innovative driving force supporting the insurtech movement, and why new and existing carriers are considering new business models to jump-start a fairly stale marketplace. Short-term insurance products are a part of this insurance renaissance. Denise Garth’s article at Majesco.com sums this all up eloquently;

“Just like the original Renaissance, today's Insurance Renaissance is spurred by the converging factors of people, technology, and market boundaries. InsurTech is powered by all three. Within insurance, this new Renaissance represents a real shift with significant business implications beyond legacy modernization. It represents a whole realm of new opportunities via greenfields, start-ups and incubators to cover a fast changing market landscape.”

The Big 3 Areas of Innovation and Disruption: Short-Term Insurance Implications The sharing economy is certainly a driving force behind the expected innovation coming out of the insurance industry as companies respond to the needs of the on-demand workforce. Three areas that are most important for short-term insurance innovation are: People As baby boomers hand-off to Gen X, and then Gen X hands off to millennials, and the sharing economy continues to grow, expectations must be met regarding pay-per-use-products and changes in communicating resulting from technology. Technology Consider for a moment how often consumers use their smartphone daily to research, purchase, and access products and services. The resulting expectations that are seeded by technology continually disrupt the traditional insurance marketplace and means of distribution. Mobile technology is the linchpin of short-term insurance as it guarantees immediate access and information flow between carriers and policyholders. Boundaries Traditional borders matter less and less. Technology and globalization generally simply does not value them. Consider how car manufacturers like Tesla are looking to offer the consumer vehicle insurance as a part of the vehicle purchase. The new business models being formed will drive additional changes in the lives of consumers leading to new expectations and innovation. With reduced boundaries and increased information, consumers require on-demand products that suit their personal needs. Short term insurance will be a large part of this discussion going forward. A Bright Horizon Today's insurers are gazing at the horizon that hasn't been this bright in decades. Their window of opportunity is wide open for participants to innovate and offer new business models and products to meet the needs of the pay-as-you-go culture that has developed. See also: A Renaissance, or Just Upheaval?   Thank you, sharing economy! Working capital is available for those with the vision, skill-sets, and determination, whether their experience is based on insurance, technology, or other market segments. Change is on the way, and we'd be wise to get on board lest we get left behind. Although the growing consumer emphasis is on short term and personalized products, these industry-changing innovations are by no means short term. They are here to stay!

There is a saying: “In wellness, you don’t have to challenge the data to invalidate it. You merely have to read the data. It will invalidate itself.” Indeed, if there is one thing you can take to the bank in this field, it’s that articles intending to prove that wellness works inevitably prove the opposite. Another saying is that the biggest nightmares of leading wellness promoter Ron Goetzel and his friends (the Health Enhancement Research Organization, which is the industry trade association) are, in no particular order:

1. facts;
2. data;
3. arithmetic;
4. their own words.

And Mr. Goetzel, writing in this month’s Health Affairs [behind a paywall], is Exhibit A in support of the paragraph above. To summarize the implication of this article, you, as brokers, need to take ROI off the table as an attribute of wellness. Instead, you’ll need to find wellness vendors who are willing to screen most employees much less often than once a year, just as government guidelines recommend. No wellness vendor ever got rich by screening according to guidelines. As a result, willing vendors are hard to find. (Examples include It Starts with Me and Sterling Wellness, as well as my own company, Quizzify, whose outcomes don’t rely on screening.) The lower screening frequencies also mean lower commissions. Weighed against that is the advantage of doing the right thing for your customer and their employees. See also: There May Be a Cure for Wellness   The Collapse of the ROI Myth The subject of Mr. Goetzel’s article was specifically employer cardiac spending vs. cardiac risks in an employer population. He found that cardiac risks correlated the “wrong” way with cardiac spending, meaning that companies with healthier employees somehow incurred more cardiac-related spending. But that correlation -- and it was only a correlation, not cause-and-effect -- by itself didn’t cause the death of wellness ROI, though it didn’t help. As is typical in wellness, and as was mentioned in the first paragraph, the proximate cause of the death of wellness ROI was that this breathlessly pro-wellness author accidentally provided the data proves that wellness loses money. Specifically, they didn’t separate the average employer cardiac claims spending of $329 per employee per year (PEPY) into “bad” claims (spending on events like heart attacks), vs. “good” claims (spending on preventive interventions to avoid heart attacks). How big a rookie mistake is combining these two opposite claims tallies -- prevention expense and event expense -- and calling it “average payment for all cardiac claims”? It would be like saying the average human is a hermaphrodite. Splitting that average into its two opposite components would have revealed that spending on actual avoidable events is much lower than spending on wellness programs implemented to avoid those events. That, of course, is exactly the right answer, as we showed 15 months ago. Let’s do the math How much do employers spend on “bad claims” like heart attacks? Here is the number of heart attacks, spelled out so that people can replicate this analysis using the official government database, tallying all the admissions for heart attack-related DRGs:

1. DRG 280 — 12,825
2. DRG 281 — 15,404
3. DRG 282 — 18,365
4. DRG 283 — 1,800
5. DRG 284 — 275
6. DRG 285 — 160

This totals to 48,829. Roughly 100,000,000 adults are insured through their employers. That means that about 1 in 2000 employees or spouses will have a heart attack in any given year. Let’s double that to generously account for any other cardiac events that could be prevented through screening employees, to 1 in 1000. Now let’s equally generously assume a whopping cost of $50,000 per heart attack. So of the $329 PEPY that Ron calculated for prevention and events combined, only $50 ($50,000 per event and 1 in 1000 working people suffering one) is spent on events. The rest is spent on prevention and management expense, like putting people on statins, diuretics etc., doctor visits, lab tests etc.—things done specifically to avoid these events. These latter expenses are not avoidable. Nor are they even reducible through wellness. Just the opposite– wellness vendors are always trying to close “gaps in care” by sending people to the doctor to get more of these interventions. See also: A Proposed Code of Conduct on Wellness   According to Mr. Goetzel’s own data, a wellness program — health risk assessments, screening, portals etc. — costs about $150 PEPY. An industry that spends that much to get what Mr. Goetzel himself states is at best a 2% reduction in a $50 PEPY expense can’t save money. This mathematical fact explains the industry’s constant need to lie about savings (and about me). Anyone care to claim my $2 million reward for showing wellness saves money? I didn’t think so…

Mold is an ubiquitous substance whose health hazards present indoor air quality challenges that have been gaining public attention in recent years. As clarity on the health effects of mold – both positive like penicillin and negative such as respiratory implications – has emerged, so too the propensity for claims of bodily injury and property damage. Indeed, at the beginning of this current millennium, predictions were that mold would emerge as the ‘next asbestos’. This prophecy, which has not materialized, was prompted by several notable property damage insurance claims that attracted media attention: one by Tonight Show sidekick Ed McMahon who agreed in 2003 to a settlement of $7.2 million for damages from alleged toxic mold that sickened his family and killed their dog; another involved a jury award of $32 million to a Texas couple for alleged mishandling of their mold claim. These high-profile claims, a series of tort claims, and mounting uncertainty as to whether mold would be considered a pollutant within the scope of the absolute pollution exclusion in commercial general liability policies, prompted the insurance industry to introduce a variety of mold and fungi related exclusions into their forms. In this emerging coverage void, insureds and their advisors sought an alternative risk transfer solution to address this now seemingly uninsured exposure. So if, as the industry thought, mold was a pollutant, then certainly mold should find a home in the environmental site liability insurance marketplace. Initially, insurers were justifiably skittish due to the media hype about mold claims. Adopting a cautionary approach, environmental underwriters began to conduct more particular analysis about the nature of a given structure’s building construction, specific materials and wall coverings. Underwriters also looked at a location’s history and source of water intrusions, not solely soil and groundwater beneath and around the property. The industry also looked at ways of more effectively managing and mitigating water intrusion events through development of mold mitigation plans and protocols. Soon, the environmental site liability industry was routinely adding mold to its list of trigger pollutants. See also: Three Surprising Hazards of Worksite Wellness Programs   Nevertheless mold claims are becoming a costly tormenter for environmental insurance carriers, especially in properties such as apartments, condos, and hotels, and present several unique challenges and considerations. Claims Made and Reported Coverage Mold coverage is typically offered on a claims-made-and-reported basis such that the claim, or discovery of the mold, must first happen during the policy period and be reported to the insurer in that same period. Property owners and managers of properties, especially residential and hotel properties, deal with a host of complaints involving water and mold, most of which are addressed as maintenance issues. These seemingly slight matters can mushroom into a lawsuit, which could become problematic if the initial complaint by the tenant or guest is not reported to the insurer during that policy year and is subsequently interpreted by the insurance company as the triggering claim under a succeeding policy when the lawsuit is filed. This presents a fundamental challenge on the claims made and reported requirement in the policy. Such circumstances may also implicate a known pollution exclusion, which is typically standard in environmental site liability policies. Late Notice/Consent When the mold is revealed by a tenant, often a property manager will want to take immediate steps to eliminate the problem. While laudable from the perspective of property stewardship, taking this action without notice to the carrier (pre-tender) and without consent (voluntary payments) can lead to a reduction or elimination of coverage. Cleanup Costs versus Water Damage Environmental site liability policies typically cover mold cleanup to the extent required by law or as recommended by a licensed and insurer-approved certified industrial hygienist (CIH). Usually, however, where there is mold, there is also water and water damage that needs to be addressed lest it develop into mold. The policies often only respond to actual mold conditions, not potential mold conditions. As an example, the policy will pay for the costs to handle and dispose of drywall that has mold on it, but not likely any drywall that is only wet or water stained or discolored. A CIH would recommend the removal of such material as well as addressing the source of the water. Unless, however, there is mold confirmed to be present, these non-directly-mold-related activities would not likely be covered under an environmental site liability policy. Restoration Costs In a similar vein, environmental site liability policies typically provide some restoration coverage for real or personal property not damaged by mold but damaged during the cleanup. So in the hypothetical situation above, the removal of the moldy wall in the course of the mold remediation would likely trigger an obligation to restore or replace such property. Restoration or replacement of the wet or water stained or discolored drywall, however, would not be covered. Policy wordings on this aspect can differ, but frequently in addition to requiring carrier prior approval, the restoration, repair or replacement is limited to the value of the property immediately before it was damaged during the cleanup. So, in other words, the value of the replacement could be limited to the value of a moldy wall. Business Interruption Another challenge arises when the insured’s operations or rental activities are suspended due to water and mold. The environmental site liability policies typically define the interruption as the suspension of operations directly resulting from the cleanup of the pollution and prescribe the period of restoration as the time necessary to complete the cleanup. Establishing that the interruption is the direct result of the cleanup can prove elusive and then isolating the duration of the mold business interruption from the water business interruption can also prove problematic. Additionally, sometimes the mold is discovered in the course of a planned renovation – this offers another avenue of dispute – determining what was the duration of the planned suspension compared with the duration of the suspension from mold cleanup. Other Insurance While environmental site liability insurance is typically written as primary coverage, often the mold extension is granted only in excess of other available coverage (such as, but not limited to, property coverage). This structure can add an additional level of complexity (and delay) as the insured must establish to the carrier that no other potential coverage could apply to the loss. See also: Bad-Faith Claims: 4 Ways to Avoid Them   Managing mold insurance claims can present unique challenges to owners and operators of real property, including disruption of tenancy, liability for bodily injury and property damage claims, costly cleanup, economic loss from a tenancy disruption and reputational damages. The first step is prompt notification of a claim or the discovery of mold to the carrier in accordance with the policy terms. Thereafter, clients can work with their broker in collaboration with the carrier so that the condition is remediated to the extent recommended by a CIH and that thorough documentation of the work and costs, including any business interruption expenses, are submitted to the carrier for consideration and prompt payment. Mold is not the next asbestos but offers unique challenges to those who advocate for, purchase, or sell coverage for mold conditions. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.

I’m currently working with the IT services team of a large government department. The goal is to help them become more innovative and agile so they can deliver faster, greater value to their internal and external customers. At Clustre, we fundamentally believe that innovation has to be focused on solving real issues.  Without that compass, innovation is a pointless vanity. Only by recognizing and understanding a problem can you begin to solve issues in a clever way. Innovation has to be driven from the edge – by front line staff actually immersing themselves in real problems – rather than in a remote innovation lab dealing in theoretical issues. This may sound painfully obvious but it’s a basic precept that is often forgotten in the headlong rush to embrace new thinking.

My client agrees. This project was firmly rooted in a very real problem – here’s the nub of it…

This government department serves an agency that holds frequent strategy meetings of significant national importance. Up to twenty senior people attend these events and, historically, they would each bring a note-taker to record every key discussion point for the benefit of absent colleagues. See also: How to Master the ABCs of Innovation   It’s a system that worked effectively – if somewhat cost-inefficiently – until austerity became an absolute government priority. Suddenly, this surfeit of scribes could no longer be afforded. Senior officials were left to take, summarize and circulate their own notes. It was too much of a multi-task. Notes became fragmentary and reporting became ever more sporadic. Clearly, the process was collapsing. So Clustre was asked to suggest ways of bridging the widening communication gap. Fortunately, my client had done a pretty thorough job of analysing and understanding the problem. Embedding a member of his Innovation team within the meeting group, he quickly identified the core issues. Undoubtedly – and perhaps understandably – the imposition of this rather menial ‘note-taking’ role aroused some deep resentment. But that was secondary to the main stumbling blocks: acute time starvation and an irreconcilable conflict of roles. To be both a thought-leading contributor to strategic meetings and a shorthand reporter took role-play too far. It simply wouldn’t work. But that left us with an even bigger question: what would? Serendipity is defined as ‘fortunate happenstance’ – a surprise collision of possibilities. Literally a few weeks earlier, we had welcomed a fascinating new company to our Clustre innovation community. This team has developed a technology that enables people to video capture and share meeting discussions and outcomes. What’s more, a powerful search agent also allows people to search for and instantly access pre-recorded material. It was our serendipity moment. I arranged to take the technology provider to meet the client and, to cut a long and very animated presentation short, he loved it. He instantly saw the potential applications and is now arranging to demo this clever piece of technology to his clients. I have high hopes. However, win or lose, this story is an object lesson. Increasingly we find that innovation is happening at the edge. Really clever thinking comes from reaching out to connect with real customers and resolve very specific human needs. In my experience, centralized innovation labs are often isolated from this reality. To close, let me leave you with this last thought… At some considerable expense, a government agency recently issued all front line staff with smart phones. Part of a bold initiative to promote the adoption of technology, these dedicated devices came fully loaded with some very secure apps. The agency’s end goal was to persuade people to use these devices exclusively. But many staff refused to play ball. They flipped between work and private devices until some simple behavioral research revealed the core issue… See also: 2017 Priorities for Innovation, Automation   When the agency gave permission for staff to upload their personal music, the problem was instantly eliminated. It just goes to prove that intelligence and lateral thinking will deliver solutions that money alone can’t buy.

Nearly 40 years ago, a Harvard MBA student named Dan Bricklin got tired of having to recalculate all the values in a spreadsheet every time a variable changed. Having been a computer science major at MIT, Bricklin sat down with a buddy and produced an electronic spreadsheet for the Apple II. 

Fast forward to the second half of the 1980s. I'm at the Wall Street Journal, and we're facing the most extraordinary wave of mergers and acquisition activity that anyone has ever seen. These were the days of Michael Milken and the Predators Ball, of Gordon Gecko and his "greed is good" speech in "Wall Street." What unleashed this tectonic shift in the landscape of business? Dan Bricklin and his rudimentary spreadsheet.

The spreadsheet didn't let people do anything that they hadn't been able to do before. Yet it did the work so much faster that it created a revolution. All sorts of bright young analysts could now fiddle with combinations of asset purchases and sales based on different assumptions about interest rates and growth and reimagine the business landscape on their PCs (while generating huge fees for investment banks).

This story came to mind last week as we held our Shaping the Future of Insurance event on the Google campus in Mountain View, CA. That was partly because my longtime colleague Chunka Mui, who first made the spreadsheet/M&A connection for me, did a great presentation on how to think about innovation in insurance and partly because Diane Greene, the Google SVP who runs their cloud business, followed with her vision for where the cloud will take us.

The cloud, like the spreadsheet, doesn't do anything that we can't already do, but the cloud is so much more efficient that, I believe, it will lead to tectonic shifts of its own. Data will not only be freed from the silos that make sharing within businesses difficult but will be available for easy combination with other data from within the insurance industry, from companies in other industries and from public sources. It will be possible to slice and dice data assets just as creatively as those spreadsheet jockies did with other assets in the late 1980s, and the result won't just be larger or smaller companies; the result will be whole new business models that generate knowledge that will make people's lives fuller and less risky. We can leave Gordon Gecko out of the picture this time. 

Cheers,

Paul Carroll,
Editor-in-Chief

With the announcement that Insurity has acquired Valen Analytics, the core and analytics landscape has changed again. We have been tracking M&A activity and outside investments in the core systems space for some time, and the past year has seen a marked trend toward the acquisition of data and analytics firms by core systems providers. Insurity and Valen are only its latest manifestation. Duck Creek acquired Yodil. In March 2016, Guidewire acquired EagleEye Analytics, and prior to that Millbrook. The momentum of these acquisitions and core providers’ other investments in expanded capability is morphing the core provider landscape significantly. The insurance industry is awash in data, and more and more data presents itself every day. Historically, insurers had three choices for how to extend data and analytics capabilities across the enterprise. Many contracted with outside providers, for example, SAS, SAP and IBM. Others chose to build their own data and analytics capabilities. Both of these options had expense and skill set considerations that put these paths beyond the reach of most small and mid-tier insurers. They most frequently turned to the third option: spreadsheets. The big players had the best options – and smaller insurers having to make do struggled to join their ranks. See also: Applied Analytics Are Key for Progress   When SMA surveyed insurers on their plans for becoming Next-Gen Insurers, we found out just how important data and analytics are. We measured insurers’ progress along seven “bridges” – initiatives that provide defined pathways upon which insurers can build transformation strategies critical to becoming a Next-Gen Insurer. The results were published in the recent report, Insurance in Transformation: Building 7 Bridges to the Future. The number one bridge was “majoring in data and analytics.” 95% of insurers are making progress in this area. It is imperative, therefore, that insurers look for ways to further their data and analytics capabilities. Based on insurers’ three options for data and analytics, smaller insurers have been at a disadvantage. Although they are well aware of the importance of data management and analytics, they are limited by resources and skill sets. While core systems have advanced in many areas the past 10 years, their data and analytics capabilities have typically focused on business intelligence functions, like operational reporting and data standardization. Predictive analytics and link analysis have not been within the scope. The analytics firms that we are seeing acquired by core solution providers, however, have the deep expertise in these areas that many insurers have never been able to access. Smaller insurers and others who depend heavily on the built-in capabilities of their core systems stand to gain the most from this trend of core providers acquiring data and analytics expertise. The benefits are significant. Insurers that previously were not able to gain necessary insights from their data will now be able to obtain them. New insights that will allow insurers to innovate will go a long way toward leveling the playing field. See also: Why Data Analytics Are Like Interest   Integrating the new acquisitions is a work in progress for the core providers. The major upside for insurers is that pre-integrating analytics into the core environment supports the trend of bringing analytics closer to real-time transactional processes. This is an important goal for all insurers to attain.

Jan. 20, 2017, Washington, D.C.: Donald Trump takes the oath as the president of the U.S. Something that was unthinkable even a year ago has actually happened. A lot has been written about this event in political terms and in economic terms, but what does it mean to us as human beings and as professionals? What does it tell us about the world we all live in and work in? It's the perfect postcard moment, the perfect imagery that captures the paradigm shift that has been going on for some time at a human level and a societal level. It tells us unmistakably that the world works differently now and values things differently now. Pithy Trumps Thorough. Our attention span is measured in seconds now. We rarely sit down for an hour or two at a stretch to read something and consider something deeply. We are drawn to pithy, memorable soundbites and no longer have the patience to go through a logical, comprehensive analysis of anything, even if that is of monumental importance. This is not just in politics; even the business world is awash with soundbites, fancy infographics and short-term tactics. Connection Trumps Content. If we like a leader -- if we feel a "connect" with the leader -- we support the leader even if the leader's ideas are not great or they don't have many ideas. If we feel a job-seeker is like us -- if we feel a connection -- we hire him even if he doesn't have the experience we said we wanted. If we like a brand, we buy its products and pay more for them even if they are not the best products. See also: What Trump Means for Best Practices   Confirmation Trumps Consideration. If someone says something that confirms our own preferences or ideas, we believe it. If someone says something that is contrary to our preferences or ideas, we shut the person out. We don't wish to spend the time needed to consider, to think, to examine, to perhaps change our minds. Conversations have become echo chambers. Again, this is not just in politics. Just think back to the last time you witnessed a conversation between business managers and risk managers in your own organization. Passion Trumps Perseverance. Our image of the last several generations is that of people persevering to achieve what they want. People starting out with very limited means but working their way up over the course of many years and decades. The current generations are more about passion. If we believe in something, we want everyone to know about it. We want everyone to know our passions and to experience our lives just as we are experiencing it. Fast and Fleeting. Everything seems to happen faster. Stories build up in hours -- globally. Leaders rise to the top in a few short months. New products and companies become dominant in a year or two. But things fade away faster, too. Stories become stale in days, and then no one cares any longer about the Syrian toddler or the burning cell phones or that game-changing corporate merger. Fifteen minutes of fame has become fifteen seconds of fame. Window of opportunity has become a small keyhole. Digital Unites Us. And It Divides Us. It is no surprise that digital technologies are making the world a smaller place. In politics, pundits and ideas and even fake news seamlessly travel from one country to another. In business, we routinely work with people scattered across the globe. In our daily lives, we use products and services coming from everywhere. However, at a micro level, digital seem to be separating us, putting us in our own bubbles. If you go to a restaurant or observe a family sharing a meal, more often than not their faces are awash in the digital glow of their own devices. The impulse each of us feels to "like" a post or send a message at that very moment is so much stronger than the desire we have to look into each other's eyes and have a real conversation. Just as technology has broken up and reorganized entire industries, it seems to be reorganizing the society -- earlier, we belonged to a family or a tribe or a city or a nation, but now we belong to a global, digital, amorphous, even transitory group of people who share our interests. What should we do? As professionals and individuals and as mentors and parents, we need to put more emphasis on these traits and skills:

• Be a marketer. Good work is important, but talking about it and selling it in a pithy, passionate, confident and catchy way is equally important.
• Connect with people. Learn how to understand, relate to and connect to people. Find areas of agreement. Appeal to their heart.
• Truly embrace change. Like it or not, change is happening and happening fast. Better to be on its side than to be complacent, comfortable or cocky.
• Use the power of digital. It is much more than devices and apps. It can help you find allies across the globe and collaborate with them. It can fundamentally change how your business or home or community operates today.

See also: What Trump Means for Healthcare Reform   But remember to check the devices at the door, when you are with people who are important to you. Just like Trump, your most loyal and trustworthy fans and advisers are likely those you live with or those you often meet face-to-face.

I’m betting against Lemonade, the highly publicized insurtech startup. I’m not betting against its ability to make money. The venture capitalists who have invested $60 million in the company are better at assessing the company’s financial chances than I am. Lemonade’s backers are in it to get rich—or richer—and not to make insurance “delightful,” as the company’s slogan goes, and they may well succeed. I’m betting against Lemonade’s claim that it is “transforming the very business model of insurance.” Apps, bots and a giveback to charity just aren’t enough. Lemonade says it doesn’t operate like a traditional insurance company in many respects. Let’s test that proposition by measuring Lemonade against a standard of how customer-friendly insurers should operate. The standard is set by the Essential Protections for Policyholders, a project of the Rutgers Center for Risk and Responsibility at Rutgers Law School, which I co-direct, in cooperation with United Policyholders. (https://epp.law.rutgers.edu/) The Essential Protections provide a roadmap for states to follow in regulating homeowners insurance and a scorecard to evaluate states’ current systems of regulation. Although the Essential Protections are directed at regulators, they also can be used to measure how well an insurance company like Lemonade measures up. Here are some examples. See also: The Story Behind the Lemonade Hype   Buying Insurance Homeowners generally don’t know much about the policies they are buying except for the basics—policy limits, deductible, price, maybe a few essential terms. Lemonade has made a start at improving this process; it offers customers a copy of the policy before they pay for it, and the company issues transparency reports with some information about claims. But more is needed, and the Essential Protections suggest further steps that Lemonade can take. First, Lemonade should post its policies online, with easy-to-understand explanations of key provisions and comparisons to terms in other commonly used policies, like the Summary of Benefits and Coverages under the Affordable Care Act. Second, Lemonade has made a preliminary report on its claims (only six were filed in 2016). When it accumulates more claims, it should do what no other insurer does and give statistics on those claims: number of claims opened, closed with payment, and closed without payment, including amounts. How many claims were disputed? How long did it take to resolve major claims? Then consumers can begin to evaluate Lemonade on quality as well as price. Premiums and Renewals A big problem in homeowners insurance is what policyholder advocates describe as “Use It and Lose It.” A homeowner who has paid premiums for years suffers a loss and files a claim; the insurance company responds by dramatically raising the homeowners’ premium or even refusing to renew the policy altogether. Is Lemonade’s underwriting algorithm going to employ Use It and Lose It? Lemonade claimed (probably accurately) a world record when its claim bot, A.I. Jim, paid policyholder Brandon’s claim for a lost coat in three seconds. But what happens to Brandon when the policy comes up for renewal? Will Lemonade renew his policy? Will it raise his premium, now $5 a month? If Lemonade wants to transform insurance, it should commit to the Essential Protections standard by pledging not to non-renew or raise a premium because a policyholder submits a single claim in a three-year period. Some states require adherence to the standard by law, but as Lemonade goes national it can promise to treat all its policyholders at least this well. Claims Process Processing a claim for a stolen coat by bot is great, but people mostly buy insurance for protection against major losses. Lemonade hasn’t disclosed how it will process those claims. Does it have a claims staff who will go out and inspect a fire-damaged home or will it hire third-party adjusters? How will those people be compensated? What does their claims manual look like? Lemonade should tell us. Essential Protections suggest other standards Lemonade should follow. It should provide policyholders a clear explanation of all of their rights and obligations, copies of relevant state laws, and every piece of information that Lemonade uses in evaluating the claim. Their policies should give claimants at least two years to file suit if necessary and advance notice that any deadline is expiring. Policies also should have lots of other details often subject to dispute, including, for example, adequate Additional Living Expense, matching of undamaged to damaged property, and more. (Go to the Essential Protections website for details.) See also: Why I’m Betting on Lemonade Lemonade hopes that the claim process will always be problem-free. But often there will be disputes about coverage or scope of loss. Lemonade should provide for fair appraisal, mediation, and arbitration provisions. And if a policyholder is required to sue Lemonade because it has acted unreasonably and the policyholder wins, Lemonade should agree to pay the policyholder’s attorneys fees in addition to damages, so the policyholder is made whole. Conclusion For now, I’m betting against Lemonade transforming what policyholders care about most in insurance—having enough information to make good choices in buying insurance, being treated reasonably, and having their claims paid promptly and fairly. I hope I lose the bet, because if Lemonade does a good job and attracts customers, the market will force other insurers to do the same. So far, Lemonade hasn’t provided enough evidence to show that will happen.