AI developers are making amazing advances. Witness the excitement around AI’s progress in search, cancer diagnosis, genomic medicine, autonomous vehicles, Go, smart homes, machine translation, and even lip reading. Progress in such complex problems raises hopes for the development of general-purpose AI that can be deployed in a wide range of intelligent, open-ended interactions with people like computer interface, customer service, planning and advice. [caption id="attachment_23871" align="alignnone" width="960"] Photographer: Michael Nagle/Bloomberg[/caption] It is easy to imagine an enhanced Apple Siri, Amazon Alexa or IBM Watson that engages in conversations with people to answer questions, fulfill commands and even anticipate needs. In fact, unless you watch marketing videos with a very critical eye (like the latest one for Alexa shown below), you might even believe that AI has already reached this point. Unfortunately, AI is far from this level of intelligence. AI lacks the capability to understand, much less answer, many kinds of easy questions that we might pose to human assistants, agents, advisors and friends. Imagine asking this question of some AI-enhanced tool in the foreseeable future:

I am thinking about driving to New York from my home in Vermont next week. What do you think?

Most such tools will easily offer a wealth of data, like possible routes, including distances, travel times, attractions, rest stops, and restaurants. Some might incorporate historical traffic patterns for different times of day and even weather forecasts to recommend particular routes. See also: Could Alexa Testify Against You?   But, as the noted AI researcher Roger Schank smartly lays out in a recent article, there are many aspects of this question that AI tools will not address adequately any time soon—but that any person could easily do so now. Understanding such limitations is key to understanding the near term potential of AI and what it really means to be “intelligent." Schank points out that a person who knows you would know much about what you are really asking. For example, is your old car up to the task? Are you up to making the drive? Would you enjoy it? How might Broadway show schedules affect your decision about whether or when to go? “Real conversation involves people who make assessments of each other and know what to say to whom based on their previous relationship and what they know about each other,” Schank writes. “Sorry, but no ‘AI’ is anywhere near being able to have such a conversation because modern AI is not building complex models of what we know about each other.” In additional to the above question, Schank offers nine other questions that illustrate what people can easily answer but AI cannot:

1. What would be the first question you would ask Bob Dylan if you were to meet him?
2. Your friend told you, after you invited him for dinner, that he had just ordered pizza. What will he eat? Will he use a knife and fork? Why won’t he change his plans?
3. Who do you love more, your parents, your spouse, or your dog?
4. My friend’s son wants to drop out of high school and learn car repair. I told her to send him over. What advice do you think I gave him?
5. I just saw an ad for IBM’s Watson. It says it can help me make smarter decisions. Can it?
6. Suppose you wanted to write a novel and you met Stephen King. What would you ask him?
7. Is there anything else I need to know?
8. I can’t figure out how to grow my business. Got any ideas?
9. Does what I am writing make sense?

Answering these kinds of questions, Schank points out, requires robust models of the world. How do mechanical, social and economic systems work? How do people relate to one another? What are our expectations about what is reasonable and what is not? Answering Question 2, for example, requires an understanding of how people function in daily life. It requires knowing that people intend to eat food that they order and that pizza is typically eaten with one’s hands. Answering Question 5 requires analyzing lots of data, which AI can do, and thus help in making better decisions. But, actually making better decisions also requires prioritizing goals and anticipating the consequences of complex actions. Answering open-ended questions like Question 7 requires knowing the context of the question and to whom you are talking. Answering advice-seeking questions like Question 8 requires the use of prior experiences to predict future scenarios. Quite often, such advice is illustrated with personal stories. See also: Insights on Insurance and AI   Many AI researchers (like Schank) have explored such capabilities but none have mastered them. That does not mean that they never will. It does mean that applications that depend on such capabilities will be much more brittle and far less intelligent than is required. One way of thinking about AI is that it consists of the leading edges of computer science. Mind-bending computational capabilities are being developed in numerous application domains and deserve your attention. Generalizing those capabilities to human level intelligence, and therefore assuming their widespread applicability, is premature. Having a clear-eyed view of what AI can and cannot do is key to making good decisions about this disruptive technology—and leaving the irrational exuberance to others.

Ask a millennial who has just bought a car, "How much did you pay for it?" and the typical answer would be something like, "about $300 a month." The same scenario will play out with other purchases such as a home, an expensive computer and virtually any other big-ticket consumer purchase. There is nothing wrong with putting the monthly cost (access) of a product ahead of the final price (ownership), because, in the mind of today's consumers, ownership is increasingly the exception to the rule. Less Emphasis on Ownership In one of my previous articles, I summarized this point with the following:

"Rather than worrying about status, ownership and hierarchy, think about the benefits of access, collaboration, trust and sharing."

In fact, most millennials, (born 1985 and later) are in the accumulation and the consumption stage of their lives but are giving very little credence to ownership. For millennials, ownership signals responsibility and maintenance; two terms that this consumer group has very little interest in. Owning something is not convenient. Although this new attitude may signal a disruption to the status quo (baby boomers), this new idea of access over ownership can easily be embraced by manufacturers, marketers, retailers and, most importantly, insurers. Things that we rent, lease or share, also require a manufacturer, marketer, retailer and insurance policy. Rather than own – we share. Let's dig a little deeper. See also: Navigating Through Tough Times With The Aid Of Employee Ownership   The Sharing Economy There are many prominent examples of this shift from ownership to access. Consider the two sharing economy platforms that started it all: Airbnb and Uber. Airbnb was founded in 2008 when three determined entrepreneurs realized the need for more guest accommodations that could be booked online. Their approach to the hospitality industry started with a blow-up mattress but is now valued at $30 billion. The Airbnb story is a groundbreaking example of the sharing economy and how it disrupted the status quo. Uber, which got its start about the same time as Airbnb, set out to resolve a perceived transportation need. And what a ride it has been! Created as an online method to hire a car and driver in large metropolitan areas, the company created an online platform that connects riders with drivers through an innovative on-demand mobile application. The simple, yet brilliant, strategy has garnered more than one billion users. What Was That About Ownership? And what does all of this have to do with ownership? Everything! These two platforms own nothing. They don't own homes or cars. Yet Airbnb has more than two million properties worldwide, and Uber has more than one million vehicles on its platform. Access: But Wait, There’s More! What if you need to get an expensive evening gown but plan to use it rarely? Check out Rent the Runway where you can access what you may not be able to afford to own. You can rent a $3,000 gown for $75. What happens when you must travel out of state to attend a funeral and can’t afford the high costs of a kennel? Welcome to Dog Vacay. This platform provides a list of people in your area who love dogs and will charge less than a kennel. What if you want to impress someone by pulling up to their home or office in an expensive sports car? No problem. Turo can match you with the owner closest to you who will rent that sleek, fast-moving ride by the hour or by the day. Your in-laws just called and said they would be joining you for the weekend. Your schedule is hectic, and your apartment a disaster. You check out TaskRabbit to gain access to someone in your neighborhood who can’t wait to clean your apartment so your in-laws won’t think you’re a slob. By now, you should be getting the picture that consumers are sharing their consumption needs and services without considering ownership, and the price tag that comes with it. The Impact on the Insurance Industry Insurance professionals must adapt as millennials kick over the economic tables. Carriers must respond by creating products to manage the sharing risks or, at the very least, offer endorsements for personal and commercial products currently in the marketplace. Questions must be answered. Like...

• If I rent my expensive tuxedo on a sharing site, does the platform provide coverage, does my renter's policy provide coverage or is my tuxedo now considered business personal property, meaning I have to get commercial coverage?
• If I decide to board a neighbor’s dog through a sharing site, does the sharing site provide liability, or will my homeowner’s policy cover a dog bite from a neighbor’s dog when I’m charging that neighbor a boarding fee?
• I know I can get a landlord’s policy to cover a home I’m renting, but will coverage apply for daily rentals? What if I’m renting the home I live in while I’m on vacation? Will my HO3 cover when I’m renting my residence for a week or two?

Although insurers have begun to respond to the home-sharing and ride-sharing scenarios, what about all the other products and services that are now being shared rather than purchased? See also: How to Lead Change (Part 2)   Agents need to ask all current and prospective clients about the reality of renting their assets, to determine if a coverage issue is on the horizon. Agents must let insurers know what’s changed in the marketplace and how they can transfer these new risks in an efficient and affordable manner. If you have not become familiar or heard much about the new sharing economy, shouldn't it be your responsibility as a trusted adviser to uncover and point out the risks that are unfamiliar and likely not disclosed in a traditional client/broker conversation? Educating clients must be a top priority heading into 2017 and beyond.

Insurance is finally changing. It cannot but do so, to stay competitive in a technology-driven world. Customers' ever-increasing expectations, together with the increased importance of digital channels, are forcing all players to adapt. But major insurance players struggle to meet customers' demands for the ease of use, transparency and accessibility that they already have it in other sectors, like banking and shopping. Customers want insurance coverage tailored to their needs, via the channel they prefer. But insurers don’t seem very able yet to take advantage of this opportunity. Rigidity and complexity, that’s what customers often associate with insurance coverage and insurers in general. Insurtechs provide a fresh alternative to the incumbent’s model of doing business in today’s and tomorrow’s connected world. A deep collaboration between incumbents and insurtechs is necessary. Incumbents should embrace the solutions put forward by insurtech startups, which are legacy-system-free, resourceful and creative but usually lack in-depth knowledge about the insurance sector. Whether the result of a partnership is risk reduction, cost optimization or context-based pricing, the advantages are becoming clear for incumbents. See also: Top 10 Insurtech Trends for 2017   To cite Matteo Carbone, an insurtech thought leader, to stay relevant in the future insurance companies must themselves become insurtechs. And how better to do that than by working closely with the newcomers? Push mobile microinsurance is a very good example of how insurtechs have found a solution. This new approach to selling insurance manages to address existing challenges by using digital (mobile) channels for communication, registration, payment of premiums and claims processing (claims submission and claims payouts). I believe that the potential of microinsurance to revolutionize the insurance sales process is very high. It could help reduce the protection gap in developed countries for several types of risks, and it can be a way to target millennials with limited financial education and low trust in traditional intermediaries. The main scope of microinsurance is to deliver innovation to customers who seek it. At the same time, it helps the insurer get more insight on the individual client. Microinsurance can also be considered a form of micro-financing because it offers low-cost coverage for a limited period, and its applications could be huge. Investments in microinsurance will continue to climb because of the rising amount of data available out there and the ability to analyze it in a way that brings added value to both insurer and customer. Consider microinsurance as a concrete way to handle usage-based needs by covering specific risks for specific durations. As with all financial services lines of business, insurance providers are leveraging sophisticated data and insights to provide highly personalized products to meet consumers’ increasingly specific expectations. The sharing economy demands niche products, and only those products that are relevant to users’ usage and behavior patterns will remain successful. Italy represents the worldwide leading-edge experience in car insurance innovation and, thanks to the use of the black boxes, which started 10 years ago, the Italian market is the only market worldwide where auto insurance telematics is already mainstream. There are almost five million active black boxes in the country, and the penetration is higher than 16% of all cars. This (from some points of view) incredible performance has been possible thanks to the collaboration between insurers and tech companies. Due to this extremely successful experience with car insurance, Italy represents a “Silicon Valley” for the evolution of innovation in the insurance industry. My company, Neosurance, provides a virtual insurance agent for customers, who are not only under-insured but are also unaware of their potential needs for coverage. Neosurance, like an insurance agent, knowledgeable and capable, stimulates the protection need by offering the right coverage at the right time on the customer's smartphone, stimulating an impulse purchase of small-ticket insurance. See also: How Insurtechs Will Affect Agents in 2017   Solutions like ours can bring the insurance sales process to the next level, potentially transforming every old insurance company into an insurtech.

Last year, an EIOPA stress test revealed that a large portion of European insurers remain vulnerable for one or both of the tested scenarios. At the same time, insurers continue to struggle with a constant shift in customer expectations. We are all used to seamlessly working digitally in more and more aspects of our lives, and we’ve come to expect the same treatment when it comes to insurance. So what’s the problem? Shouldn’t a healthy insurer be perfectly able to cope with some adversity while making the change to become a more digital and customer-minded organization? Unfortunately, a number of reasons mixed together provide a particularly toxic combination that slows the transformation. To start with, insurers are still largely running on legacy applications. Not only does this limit organizational agility dramatically, but it also means that available change capacity is predominantly used to keep the legacy infrastructure up and running. On top of this, regulatory pressures are dramatically increasing the cost of doing business. Complex risk and compliance requirements in legacy-dominant environments reduce the ability to transform on a more fundamental level. Furthermore, there is continued pressure on product margins, and historically low interest rates are reducing returns. See also: Insurance Disruption? Evolution Is Better   Beyond the insurtech hype As incumbents struggle with internal inefficiencies and adverse conditions, fintech and insurtech initiatives are starting to emerge – based on fresh thinking and modern application architectures. These new initiatives relentlessly exploit inefficiencies in the value chains. And with the rise of the sharing economy, new ways to manage risks like usage-based or P2P insurance are becoming increasingly important. The right stuff? The awareness that incumbents need to transform their way of working, and solve some fundamental problems in their business models, is prevalent. There is in fact a lot of activity and experimentation taking place, through innovation labs, partnerships or direct strategic investments in insurtech. This is all well and good, but are these initiatives sufficiently grounded to become successful? Do incumbents possess the right stuff to create, develop, nurture and scale new business concepts with sufficient impulse to remain relevant and profitable in the long run? The journey toward self-disruption These are all questions that the industry will be posing in 2017, and there is no doubt the insurance sector needs to adapt to a new world. One thing is for certain, simply embarking on a journey to implement one of the "Top-10 Insurtech Solutions" is not going to cut it. The real challenge lies in first removing the legacy culture from organizations before trying to solve the challenge in application landscapes and value chains. This journey toward self-disruption requires courage and leadership. To reach the desired destination, boards may consider numerous approaches to rebalance change programs.  Considered approaches Scenario planning and storytelling can be a powerful tool for coping with a large number of uncertainties. Scenarios are perfectly suited to translate into compelling, vivid images of the future, using powerful storytelling as an effective way to convey messages. Changing the innovation mix is also something insurers will be contemplating. The composition of your innovation mix (product-, process- or business-model focused) should be in line with the lifespan of your dominant business model. For insurers, this might imply that now is the time to direct more resources toward more radical forms of innovation. Replacing incentives blocking change is another approach to consider. If a board’s primary responsibility is to facilitate the presence of a long-term business model, then this implies that the board should worry about anything in the organization that blocks this purpose. A review of existing performance management and key performance indicator (KPI) frameworks might be one of the most critical things to address as this drives behavior throughout the organization. See also: Which to Choose: Innovation, Disruption?   Then there is creative destruction as a driving force. A constant process of internal creative destruction is required to avoid becoming the victim of an external, competing creative force. The likes of General Electric and Johnson & Johnson have mastered this. Carefully applying these design principles in the insurance sector might be a critical activity. Looking ahead   The insurance sector has a long way ahead adapting to a new world. There is a critical role for current and coming leadership. We see insurers increasingly partner with insurtech companies, hoping to find fresh thinking, agility and entrepreneurship. We’ll have to find out if this brings sufficient change. Otherwise, the EIOPA double-hit scenario might be a blessing in disguise – it could, in fact, provide the required burning platform for the long-awaited transformation.

Here is an underwriter's report on our first 100 days. If you’re interested in how Lemonade is functioning from an insurance perspective, read on. I hope it will be less painful, and more revealing, than rummaging through regulatory filings. A Word to the Wise We launched three months ago, and, as anyone with a feel for statistics will tell you, 100 days of data isn’t that meaningful in insurance. So I don’t want to create the impression that the results I’m sharing establish a predictable trend. They don’t. We’re here for the long term, and long-term results are what matter. Our story will evolve – transparently – over time. Lemonade’s growth got off to a strong start. Premium growth is important (see analysis in Part 2 of our Transparency Chronicles), though in this update I’m going to focus more on insurance metrics, with commentary on the quality and diversity of our customers and claims. On those fronts too, I’m happy to report: so far, so great. Our Customers, Through an Insurance Lens 1. Our customers are new to insurance More and more people are switching to Lemonade every day, coming from very well-known insurance companies. At the very least, this is a good early sign. But, more importantly, we’re bringing in a new breed of customers – the underserved. The majority of customers insured with Lemonade are actually new to insurance. They had never found an insurance company that they liked, trusted or interacted with, the way they wanted – until now. We love that. Insurance is something everybody needs, and we are not competing just on price, but on simplicity, speed, value and values. 2. Our customers are thoughtful Although the basic $5/month policies are sufficient for some, a lot of our customers are asking us not only to protect them, their homes and their basic stuff but to add valuables to their policies and cover their jewelry, artwork, musical instruments, bikes or laptops. It’s thrilling when customers buy the basic, and then add all of things they value. Some of the requests have been quite surprising! While we can’t add everything immediately, we’re accommodating as fast as we can. See also: More Transparency Needed on Premiums   3. Our customers are diverse In insurance, you never want just one type of customer. Because our goal is to share risk across customers, too much concentration isn’t ideal. While we have a lot of renters, almost 50% of our premium came from homeowners – many with more than $500,000 and as much as $1.5 million of coverage. Our customers are geographically diverse, as well. While 35% of our premium is from Manhattan, the rest is spread across the New York metropolitan area, and across the state. Lemonade is no one-trick pony. 4. Our customers represent "high quality" risks Perhaps the most important part of underwriting is ensuring we don’t have adverse selection. This means insuring someone only because our prices are (too) low, or because we attract the riskiest policies. We use a series of factors to help predict if a risk is better or worse than average, and to price it as accurately as possible. Two bits of good news in this regard:

• Potential customers who come to Lemonade for insurance score above average as risks.
• Even more important, the best risks tend to end up buying Lemonade!

Having said that, there’s a lot we can improve on the underwriting side, and we’re working hard to train our algorithms to make better decisions. The more data we gather, the better our algorithms get. 5. Our customers are helping us to make insurance into a social good We celebrate claims when they come in. We’ve had a few (six in 2016, to be precise) – exactly the number we expected based on industry statistics. What is different is that our claims have all been small – way smaller than industry averages. It’s too early to mean much, but right now our loss ratio is much better than the rest of the industry, and I’m hoping this hints that the Lemonade Giveback will be strong this year. The Nitty Gritty Insurance Numbers Right now, more than 25% of people who get a price, buy. This is high by any standard, both in insurance and tech. What is extraordinary, however, is the trend. The percentage of people buying when they get a quote is increasing every single month. In December, we were up to 36% for renters, and 26% overall. In insurance, you want to buy from someone you trust. We’re ecstatic that our customers trust us to protect them, and we look forward to living up to that promise. Our written premium (basically how much insurance we sold) in 2016 (the last 100 days of the year, really) was $179,855. Our gross loss ratio (or claims we received in 2016 divided by earned premium) was 20%; a portion of that should be recovered from another insurance company, so we expect our final loss ratio for 2016 to end up at about 12%. While our reinsurers are standing by to help pay losses, we have not needed them yet. See also: Is Transparency the Answer in Healthcare?   What We Need to Work On While it all sounds great, some things did not work as we expected, and we had to adjust accordingly: 1. Get More Data There is a ton of information out there that can help sign customers up faster and ensure the coverage is right. While we gather and implement a lot of data, we’re only scratching the surface. For some homes, we need to ask you the square footage, which is kind of lame in this day and age. We’ve made it a priority to seek and incorporate new and different data every day to make sure policies are appropriate, and our customers are protected. 2. Innovating in… Language! When we started selling policies back in September, we wanted to make sure regulators and customers were comfortable, so we launched Lemonade with the industry-standard insurance policy contract. We know that it is poorly written, and unless you have a law degree – frankly, even if you have a law degree – it can become confusing. Who knew your liability coverage actually changes depending on whether you are also an insured under a policy written by the Nuclear Insurance Association of Canada (Section II.F.5.a.(3)). I assume most of our policyholders do not. We’re going to improve the policy so you can actually read it and understand what is covered and what is not. It will take time, but we will do it – I promise. 3. Improving Our Coverages Our policy is great for most people, but isn’t as customizable as we want it to be. For example, at launch we could not add fine art – now we can. Need your landlord listed on the policy? We added that a few weeks ago. Identity theft coverage? Still no, but that will be here in a week or two. Kidnap and ransom coverage – that one is a little further off. Kudos to our customers, whose patience is crucial as we continue to build a policy that covers everything you want to protect. If we can’t protect it yet, we will tell you… and know we are adding options every day. A lot of the incentive behind the Lemonade Transparency Chronicles was about trust. As Daniel wrote in his post, trust can’t be demanded, it has to be earned. We have the good fortune of having a strong, rapidly growing base of customers who trust us, and whom we trust too. Together, we are building a company for the long haul, and the early metrics make me feel like we are on the right path. Stay tuned for Professor Dan Ariely’s report next week, revealing Lemonade’s social impact in its first 100 days of business. This post originally appeared on the Lemonade blog.

The insurance industry is observing technology innovations and their adoption rate carefully. The impact of artificial intelligence, robotics, machine learning, driverless and connected cars, IoT, cloud, wearables and blockchain cannot be ignored. Many leading insurance companies are now focusing on themes such as “Re-imagining insurance” and “Shaping the future of insurance” and “Discovering the future.” The current economic uncertainties, sluggish growth environment, geopolitical risk and cyber risks are affecting every industry not just insurance, so you are not alone here! A “wait and watch” approach, hoping for the environment to stabilize, would be foolish in today’s fast-paced world. Insurers simply cannot confine themselves in a “current year” strategic trap. That approach limits your plans, actions and imagination beyond the current financial year and makes your behavior tactical. See also: Asia Will Be Focus of Insurtech in 2017   Here is how aggressively some companies are moving:

• Northwestern Mutual sets aside $50 million for insurtech investment
• AXA Strategic Venture led a $20 million Series B for One, Inc.
• MassMutual Ventures is working with more than 10 startups to prepare for tomorrow
• Aviva Ventures plans to invest more than £100 Million by 2020
• USAA Ventures participates in $18 million seed round for drone startup PrecisionHalk
• Zurich Insurance partners with home security startup Cocoon
• Lemonade offers renters and home insurance
• And the list goes on………..

If you are thinking that the above companies are the industry biggies with deep pockets that can afford innovation, you are giving mere excuses. There are more than 80 insurance companies today that are already working or experimenting with insurtech companies worldwide today! You cannot blame budget constraints or company culture/resistance to change, senior leadership lethargy or inaction in sponsoring innovation. I am confident that no CEO today would say “no” to fund or sponsor innovation. It is true that not all startups succeed (90% fail), so you must exercise caution while picking a startup. Note that a venture capitalist (VC) assessment of a startup must differ from an insurer's. While most VCs fund or invest in a startup by buying equity to make quick returns and move out, insurance companies must pick a startup based on how its offerings align and integrate into the company ecosystem for generating long-term value to its business and customers. There are 1,000-plus startups today (backed by funding of about $18 billion) that are already challenging the business model of insurance companies and have potential to disrupt the insurance industry. You don’t have time to assess such 1,000 companies? Relax. In the context of your country, your industry, your line of business and the product lines where your company specializes, this list is much more manageable. See also: Insurtech’s Pay-As-You-Go Promise Insurance companies must seriously explore partnerships with the startup ecosystem. If you continue to focus on cost reduction or worry about finding the solution to legacy challenges or think about why business-IT alignment is not getting fixed in spite so many attempts, you will remain inward-focused and lose precious time for innovation. Any forward-looking insurance company cannot ignore the potential that insurtech has to disrupt the industry and redefine business models, plus the agility, passion and out-of-the-box thinking that startups can provide. Insurers must partner with insurtech companies to reimagine insurance, discover the future and reshape the industry. The investment in insurtech is going to grow significantly during the current year. Are you thinking you are too late to get involved? Let me assure you, you are not late! The only caution is that you must act. The time is now!

Our healthcare (HC) and healthcare financing ( HCF) systems are not sustainable. To think about why that is, find a picture of a rainbow (or draw your own). There are seven bands of color. Label your rainbow from the bottom to the top: Soul/Mind/Body/Wellness/Primary Care/Secondary Care/Tertiary Care (healthcare from specialists in a large hospital after referral from primary or secondary care). See also: Has The Projected Cost Of Health Care Reform Changed?   At this moment, there are 324,414, 852 people in the U.S. Most believe that we are made up of those three bottom elements: spirit, mind and body. The center band of the rainbow is wellness – an ideal for any HC system. The three upper bands define the delivery systems of HC in our country today. The flaws in the HC and HCF model displayed are simple – our current system has at its core a focus of “sickness,” not the ideal of “wellness.” Our system was built on a focus on the body. Yet you can get nearly universal agreement from doctors that much of illness originates in the head, and most will agree that a “believer” supported by a prayer community gets better results. Our care giver systems are intertwined with HCF and superimposed on “we the people,” not fully integrated with us as individuals. We go to the doctor. Our world of specialists is defined by organs du jour. Our care is explained to us in the vernacular of medicine, not language we understand. When care doesn’t work, we are sent to a different specialty. Finally, our demographics are killing us. Diabetes, obesity, sedentary lifestyles, a victim mentality and a sense of entitlement are limiting our future. The heaviest users of care are spending other people’s money for the treatment! And, while our systems have become very good at delaying death, they are less effective at extending the quality of life. (Don’t believe me? Go visit a nursing home every day for a month.) See also: What Trump Means for Healthcare Reform   Yet healthcare reform is based on the same flawed thinking got us into this mess. America and her people are genius – when they work together for good. Need evidence? We’ve already walked on the moon. We have the money, the need and the motivation to save us all – now we must just find a way to do it. What can we do? What should we do? What do you suggest? Somebody out there – outside of the special interests – has the answer for the common interest or an idea that we the people can use to bring health/wellness to our HC and HCF systems. Marcus Welby, MD is dead. We aren’t. Help!

"Companies that offer consistently best-in-class customer experiences tend to grow faster and more profitably" - McKinsey

If you've been in the insurance business for any length of time, no one has to tell you that times are changing. Thanks to the ever-increasing popularity of the sharing economy, consumers are re-thinking the traditional agent-policyholder relationship. Any new thinking regarding ways to make insurance more convenient and affordable always leads to the notion of working directly with online resources. This scenario was true with the advent of the internet and is seeing its second wave in the face of various marketplace innovations -- including the sharing economy. Customer Experience is Changing: Insurance Industry Historically, the insurance industry has been highly regulated, with strict underwriting requirements and tightly guarded claim adjustment policies. So you may be asking how would an industry such as this even begin to follow the unconventional rules of sharing economy? Let's go look! Making Lemonade out of Lemons A ground-breaking insurtech startup, Lemonade, has changed the rules and is attempting to modify the image of the insurance industry forever. Lemonade has certainly ignited the discussion. Currently licensed to sell personal insurance in New York, Lemonade plans to expand and set a standard in the insurance industry. According to Fortune, the startup Lemonade was founded by Daniel Schreiber and Shai Wininger and is loosely based on the principles of successful sharing economy companies such as Uber and Airbnb. See also: 4 Mandates for Agents in Sharing Economy   Lemonade aims to sell insurance policies online to individuals who become a member of the peer-to-peer company. It goes something like this… You can join the online community at Lemonade and pay your monthly premiums just like you would to your traditional insurance agent/company. However, the premiums are pooled together by members of the group for the payout of claims. Sharing Economy Benefits to Insurance Consumers Because consumers don't have the time or patience to wait for days or weeks to start a new insurance policy, the ability to get instant coverage with the click of a button on a mobile phone app is highly attractive. It offers consumers the ability to be insured immediately. Here are a few more self-described benefits of the new peer-to-peer model:

• A startup like Lemonade doesn't have anything to gain by denying claims, so the odds of a fast and fair settlement increase.
• A reduction in fraud and much lower operating costs keep premiums low.
• Monthly fees are low (as low as $35/month for homeowner's insurance, $5/month for renter's insurance)
• Customers get a more personal consumer experience with peers instead of dealing with large insurance companies, which helps rebuild the trust factor in purchasing insurance.
• Monthly premium money is considered "peer money," and leftover funds from underwriting profits at the end of a term are donated to a cause, chosen by the peer members.

This is by no means a promotion of Lemonade specifically, just an acknowledgment that "the times they are a-changin'." And this is a good thing. Customer Experience is Changing: Not Feeling the Love There is no question that some consumers have a less-than-glowing opinion about insurance companies. Many don't like the idea of having to pay premiums to large and often impersonal firms. This consumer grievance is by no means limited to insurance carriers (I'm looking at you too, finance industry). If there should be a rate increase or a claim procedure gets complicated, the consumer/insurance company relationship doesn't get better. The trust levels go down, right along with customer satisfaction. The goal of the sharing economy is not only to give the consumer additional options but to provide a better, more technologically friendly, customer experience. The goal is to produce better feelings toward having to pay insurance premiums. Many carriers fail to realize that speed of claims resolution is just as important to consumers as professionalism and courtesy. And, with the all the innovations within the sharing economy that are premised on mobile technology, consumers are ready for a change. And that change is going mobile. Customer Experience Is Changing (Finally) Schreiber stated that he was pleasantly surprised at how many large reinsurers were interested in providing support and seed money to fund the start-up. Schreiber stated, "Instead of being antagonistic, the insurance industry has taken a more 'We've been waiting for you' approach." See also: Sharing Economy: The Concept of Trust   As for this trend catching on, more than 90% of consumers who participate in sharing economy ventures would endorse or recommend the company or service they have recently used, according to Vision Critical. According to Forbes, "the sharing economy excels at customer experience, and that is what inspires customer love and loyalty." This new world of customer services involves choice and a seamless mobile experience. Simple as that. As the demand for more convenient, affordable goods and services will only increase, it's clear that consumers are sending a loud and clear message of support…even in the insurance industry. Customer experience into the future will involve speed and ease of service. This, as we have seen, is premised entirely on mobile technology and innovative business models.

It’s not easy trying to predict the unpredictable. Yet that’s what risk managers are responsible for doing every day. Sometimes, the plans to identify or protect against a particular disaster come up short. Read on for four of the biggest risk management disasters in history – and how the risk management industry has learned from them. It’s become an iconic image in pop culture – Leonardo DiCaprio leans in close behind Kate Winslet as she raises her arms and exclaims “I’m flying!” But what can Kate and Leo teach us about risk management? Quite a lot, in fact. Thanks to several movies and countless other retellings, the tragedy of the Titanic is something everyone knows. But with a better understanding of some basic risk management principles, the Titanic never would have sunk at all. Michael Angelina, executive director of the Academy of Risk Management and Insurance at Saint Joseph's University, uses the Titanic and other notable risk management disasters to give his students a better idea of what exactly risk management is – and why they should care about it. It turns out some of the most notable risk management disasters had specific causes that create pretty clear lessons for risk managers in a range of industries to learn. Let’s take a closer look at four of the biggest risk management disasters in history and what ARMs and risk managers took from them, starting with the event everyone’s favorite '90s epic/romance/disaster movie is based on. The sinking of the Titanic The shortage of lifeboats on board the Titanic on April 15, 1912, has become a well-known fact representing the arrogance and naiveté of designers, crew members and passengers who were positive the massive vessel was unsinkable. To be sure, pretty much everyone was overconfident, from not giving lookouts binoculars to ignoring warnings from other ships about icebergs in the area. And while the lack of lifeboats is held up as the primary example of that hubris, the 20 lifeboats actually complied with safety regulations at the time. In fact, only 16 rescue ships were required. Lifeboat capacity was determined by the weight of the ship, not the number of passengers on board. This rule was developed for much smaller ships and hadn’t been updated to adjust for the enormous ships that were built in the early years of the 20th century. What’s more, there hadn’t been a significant loss of life at sea for 40 years, and large ships usually stayed afloat long enough for individual lifeboats to make multiple trips to and from a rescue vessel. For all of those reasons, everyone tragically assumed there were an adequate number of lifeboats for passengers. The risk management lesson learned: Complying with regulations and established best practices is no guarantee that a specific risk has been effectively mitigated. Risk managers need to consider these safeguards the same way they would any other risk prevention effort and take additional action when they don’t sufficiently guard against risk. See also: A Revolution in Risk Management   Deepwater Horizon explosion When the Deepwater Horizon oil rig exploded on April 20, 2010, several executives from BP and Transocean were actually on the structure to celebrate seven years without a lost-time safety incident on the project. Company leaders were so focused on preventing – and measuring – lesser risks like slips, trips and falls that they failed to identify the more complicated process management risks that ultimately led to the explosion. Risk management lesson learned: All risk analysis is essentially weighing how likely an event is to occur against what impact that event would have, then identifying effective ways to address those risks. Thanks to complacency, cutting corners, arrogance or some combination of those factors and others, BP and Transocean targeted risks with high probabilities and low impact. In the process, they neglected risks in the opposite quadrant of that matrix that were unlikely to occur but could have catastrophic results. Sept. 11 attacks Since the tragic events of Sept. 11, 2001, individuals, businesses and the U.S. government have put vast effort and resources into preparing for and defending our nation against further attacks. Professors of risk management at the University of Pennsylvania call 9/11 a “black swan” event – one that is very rare and difficult to prepare for. Risk managers are extremely good at preventing what’s happened before from happening again. But unlikely events are extremely difficult to predict. Before Sept. 11, 2001, terrorism was listed as an unnamed peril in a majority of commercial insurance deals, according to Penn researchers. After the attacks, insurers paid $23 billion, and many states passed laws permitting insurers to exclude terrorism from corporate policies. Today, the semi-public Terrorism Risk Insurance Act covers as much as $100 billion in insured losses from terrorist attack. Risk management lesson learned: These black swan events are difficult to predict and even more difficult to prepare for. A portion of the risk management field will always be reacting to the specifics of previous significant events and incorporating them into their models forecasting future risk. Financial Crisis of 2007-2008 Plenty of people were quick to blame risk managers for failing to protect the world’s largest financial institutions against the biggest economic disaster since the Great Depression. The Harvard Business Review identified six ways companies fail to manage risk, while the Risk and Insurance Management Society (RIMS) argues the financial crisis was not caused by the failure of risk management, but rather organizations’ failure to embrace appropriate enterprise risk management behaviors. Companies provided short-term incentives and did not communicate enterprise risk management principles to all levels of the organization. Risk management lesson learned: Risk management cannot exist in a vacuum. Creating a robust enterprise risk management program also requires communicating it to all levels of the organization and creating a culture and incentive system that matches the level of risk. See also: Can Risk Management Even Be Effective?   Interested in learning more about risk management? Check out the Associate in Risk Management designation from The Institutes.

This paper discusses the current state of Medicare secondary payer (MSP) compliance within the property and casualty (P&C) industry. Our payer survey findings show payers view MSP compliance as unmanaged and out of control. MSP compliance is excessively costly. The time has come for a data-driven or analytic-powered approach to compliance that leaders of the future will embrace. An analytic-powered approach uses high-quality data and strong algorithms to augment human decision-making in the process. Medicare Secondary Payer Medicare was born in 1966 as the primary payer for medical claims involving Medicare beneficiaries not covered by workers' compensation (WC), federal black lung, or veteran’s administration benefits. In 1980, In an attempt to collect as much money for the Medicare trust fund through rule-making, Congress enacted the Medicare secondary payer act expanding Medicare’s recovery to; group health and non-group health plans or self-insurance for liability, automobile and no-fault. Including all plans under those P&C lines that paid for any medical or personal injury, sweeping in travel insurance, medical payments coverages under commercial and personal property plans as well as plans that typically do not pay for a bodily injury such as treatment for medical professional liability, director and officer and errors and omission policies. Medicare has a right to both reimbursement for Medicare dollars paid, and recovery of payments Medicare might make in the future, where another primary plan exists. Primary Payer Survey We randomly and confidentially surveyed 35 non-group health primary payers, including carriers, third-party administrators, state funds and self-insured entities, to learn about their MSP compliance programs. The table presents the results. Companies surveyed agree 100% that MSP compliance delays or interferes with claims settlements. However, few have a formal monitoring process (4%), a fragmented vendor panel is used (71%), and few (30%) have a centralized program, such as an internal department or individual responsible for the oversight of MSP compliance. Most compelling is that 92% of companies surveyed do not have any confidence that their adjusters’ or claim handlers are capable enough to identify the risk or execute on MSP compliance at the time of settlement. These results clearly reveal a clear absence of risk management or quality measures for identifying, controlling or monitoring MSP compliance. Further, most payers do not establish internal best practices, relying heavily instead on external MSA vendor suggested best practice. See also: How Medicare Can Heal Workers’ Comp   Discussion Why do primary payers remain uncomfortable with MSP after 15 years of experience? To answer this question, let’s look at some background. On July 23, 2001, Medicare released a memo to all regional administrators to answer questions raised as to how to evaluate Medicare’s future interests for WC settlements. The memo did not detail any specific methodology for forecasting future medical care. Following the release of this memo, the first Medicare Set Aside (MSA) companies emerged to produce formalized MSA reports. These early companies cobbled together a mix of approaches used in the practice of Life Care Planning as used for the valuation of future medical costs for litigated claims. This untested, short-cut approach was sold as a solution to non-group health plans and third party administrators to satisfy Medicare’s requirements for MSAs. Thus, a small cottage industry established claims best practices for MSAs. Vendors have defined the requirement to not only prepare, but to submit MSAs to Medicare for review and approval, a voluntary process under the Act, that has become a WC claims best practice. While conventional MSA methodology may have offered a solution fifteen years ago, it is time to re-assess the industry’s approach. MSP compliance, as it has evolved, has outgrown existing models. Primary payers deserve to have much greater confidence and control. Primary payers can and should develop internal best practices for Medicare Secondary Payer. We believe a data-driven approach will increase payer confidence, create transparency in the MSP process and lower costs. Data is Power! An Analytic-Powered Approach to MSP Analytic-powered or data-driven decision management (DDDM) is an approach to governance, using data that has been appropriately gathered and verified to make business decisions. The technique has been around since the early days of the computer in the 1950’s when data was first mined and extracted for analysis. Today, business intelligence has advanced to offer technology based dashboards that display data, in an organized form, for analysis and decision making. These tools no longer require an expensive IT staff to gather and analyze information. The quality of the data and effectiveness of the analysis are the foundations for a successful data driven solution. Using data intelligence, primary payers can identify, manage and control MSP exposure and make decisions about managing MSP compliance risks. The table below compares the analytic-powered approach to the conventional approach. The difference between an analytic-powered and a conventional approach to Medicare Set Asides is dramatic. An analytic-powered approach relies upon a robust claims data warehouse of real medical transactions for bodily injuries over time. A standardized digital platform with algorithms and tables is applied. Given the same exact set of medical claim variables, an outcome will be the same every time. It offers tighter security standards, HIPAA (PHI/PII) protection with fewer hands touching the files. It remains in the hands of a payer’s internal professionals and can stay within the confines of its IT structure. Case Study Comparison We analyzed the experience of a primary payer who sent the same set of medical records, for a given claim involving a Medicare beneficiary, to 5 different MSA preparers. The primary payer received five different MSA forecasts as follows: Conventional methods are subjective, non-standardization, and therefore variable in nature and lack transparency. The same medical variables or medical claims record information can be reviewed by five different people and interpreted differently by each person; the same variables are not reproducible or consistent. Today’s conventional methods increase the complexity of future care analysis and vendor dependency. An analytic-powered approach offers exceptional return on investment of time and redeployment of labor. When one compares an analytic-powered MSA report to conventional methods for an identical case, the analytic- powered method used one thirty-sixth (1/36) the amount of human time and completed the report within 15 minutes. These reports are not submitted to CMS for review and approval because of the strength of the data and CMS guidelines that supports the proposal are irrefutable. A data-driven approach will not only drastically improve the quality, reliability and validity of an MSP program. It will provide the platform for a company’s internal program, offering transparency and control that will cut the overall total cost of MSP compliance by 50% or more. “Non-Group Health Plans and self- insureds are frustrated by the world of Medicare Set-Asides. This frustration has led to attempts to change the policy guidance in Congress, numerous meetings with CMS, and searches for new solutions. Some of the “Best in Class” have determined that the only way to secure superior outcomes is to control the process, bringing it inside their organizations and using data to secure superior results, thereby affording themselves an advantage in the marketplace.” Peter R. Foley C.P.C.U., C.I.C, Principal at C.L.A.I.M.S, LLC and former Vice President, Claims Administration, American Insurance Association. See also: Urgency of Rising Medicare Fraud   Conclusion Our survey of 35 companies exposes the failure of the current state of MSP compliance and highlights the need for disruptive and revolutionary change. As future guidance for MSP compliance is released, there is a real risk of greater complexity in the execution of a solution for primary payers and third party administrators who rely on conventional practices. The time has come for primary payers to own and develop their internal best practices for MSP compliance establishing alignment between the obligation to protect Medicare and close claims. The future is here for a data-driven solution that is streamlined, efficient and compliant with the intent of the MSP Act.