The intersection of humanity and robots is being transported from the human imagination and formed into a tangible reality. Many books and movies like iRobot and Her have analyzed various potential impacts of that intersection, but the complete intersection will actually be that of humanity, robots and liability. It is insufficient, however, to know that advanced robotics and liability will intersect. Advanced robotics is going to thrust upon insurers a world that is extremely different from the one they sought to indemnify in the 20th century. Already, drones and autonomous vehicles are forcing some parts of the insurance sector to try to determine where responsibility exists so that liability can be appropriately assigned, and those efforts will continue for at least the next decade. The liability created by the combination of robots operating with humanity now falls on commercial, and especially professional, insurers to engineer robotic liability products to provide clients and the global economy with stability, while providing insurers a valuable stream of revenue. There are some ground rules that must be considered before bringing robotic liability to life. First, what is the definition of a robot? For the purposes of this paper, Professor Ryan Calo’s definition of a robot will be used. According to the professor, a robot can sense, process and act on its environment. There is also the realization that currently it may be beyond human ability to create a unified robotic liability doctrine for insurance purposes. This is largely due to the environments in which robots will exist, as well as the ramifications of those environments from a legal, physical and practical standpoint. After all, drones capable of sustained flight are inherently going to exist in a different realm from ground-based autonomous vehicles, and the same is true for robots capable of sub-orbital and intra-planetary flight. Therefore, this paper is going to focus on a discrete part of robotic liability: those robots used in agricultural fields. Another reason for focusing on one area of robotics is to keep things simple while exploring this uncharted part of the insurance sector. See also: Here Comes Robotic Process Automation The farmer, the field and the harvest, the most commonplace of settings, provide an area where dimensions of robotic liability can be easily analyzed and understood. Plant husbandry draws on thousands of years of human knowledge, and it is already using aerial drones and big data analytics to maximize crop yields. Additionally, the agricultural arena has a high likelihood of being an area wherein robots cause significant shifts in multiple areas of the economy. Within the next two or three years, a robot, like this paper’s fictional AARW (autonomous agriculture robotic worker), will be created and sent to the fields to begin to replace human labor when it comes time to harvest a crop. There are multiple reasons for this belief, starting with the advance of robotic technology. In 2015 the DARPA Robotics Challenge was held, and it demonstrated the deployment of an array of robots that will be the ancestors of a robot like AARW. In that competition, robots were required to walk on uneven terrain, accomplish tactile tasks and even drive a traditional vehicle. While the robots in that challenge were not largely or fully autonomous, they are the undeniable major step toward productive autonomous robots. There are already simple machines that can perform a variety of functions, even learning a function by observing human movements, and the gap between the drawing board and reality is being quickly eroded with the tremendous amount of computer hardware and software knowledge that is produced by both private and public institutions each month. Moreover, there are strong labor and economic incentives for the introduction of robots into the agricultural field. Robots are able to work non-stop for 12 hours, are free from any form of health and labor laws and can have life expectancies in the five- to 15-year range. Crops are, more often than not, planted in fields with straight rows and require only the robotic ability to pickup an item, like a watermelon, take it to a bin, deposit the melon in the bin and then repeat the same steps on the next watermelon. All this requires only a modest amount of know-how on the robot’s part. If AARW is built to industrial quality standards, then it will only require a minimal amount of maintenance over the course of each year. And if AARW is powered using solar panels, then the cost of its fuel will be included in the robot’s purchase price, which means that the minor maintenance cost along with a possible storage cost will be the only operating costs of AARW. With its ability to work non-stop and with no overhead costs for complying with human health and labor laws, AARW will be a cheaper alternative to human workers, providing a strong economic incentive for farmers to use robots in the field. An agricultural robot will, however, create unique exposures for a farmer, and those exposures will cultivate the need for robotic liability. Arguments can be made for completed operations/product liability and technology E&O exposures with AARW in the field. However, there are multiple reasons why it would be unwise to try to relegate liability for AARW to any current product. First and foremost, there is a strong expectation among scholars and legal experts that robots are going to do unexpected things. Imagine: At harvest time, the farmer brings AARW to the field to collect the crop of watermelons. The field happens to be near a highway on which big rigs travel, and part of the field lies next to a blind corner in the highway. As AARW successfully harvests one row after another, the farmer’s attention drifts, and she begins talking with a neighbor. Suddenly, there is a screech of tires and a loud bang as a big rig slams into AARW, which, for an unknown reason, walked into the highway. Who should bear responsibility for the untimely demise of AARW? If AARW were a cow, then the insurer of the big rig would have to reimburse the farmer for the loss of one of her cows. In certain respects, AARW and a cow are the same in that they can sense, process and act upon their environment. However, a cow has what is often described as a mind of its own, which is why insurance companies and the law have come to place the fault of a rogue cow on the unwitting vehicle operator instead of the aggrieved farmer. AARW, though, is not a cow. It is a machine created to harvest produce. Does the software that controls the robot’s actions equate to the free will of an animal, like a cow? The farmer who lost the cow does not demand her money back from the rancher who sold her a reckless bovine product. Why should the creator of the robot be expected to reimburse the farmer for the loss of AARW? How does it make sense for product liability to come into play when the rancher shares no blame for the indiscreet cow? Technology companies have been extremely successful at escaping liability for the execution of poorly crafted software, so the farmer is unlikely to find any remedy in bringing a claim against the provider of the software, even if it is a separate entity from the one that assembled AARW. Regardless of where blamed is assigned, the issue would be awkward for insurers that tried to force the liability for the robot’s actions into any current insurance product. At worst, the farmer would not be made whole (technology E&O), and, at best, changing existing laws would likely only partially compensate the farmer for the loss of AARW. See also: The Need to Educate on General Liability   The liability waters are already murky without robotic liability. Machine learning will likely create situations that are even more unexpected than the above possibility. Imagine if AARW imitated the farmer in occasionally giving free produce samples to people passing the field. In the absence of robotic liability insurance, who should be responsible for a mistake or offending action on the robot’s part? It would be unfortunate to place all of the blame on AARW or the farmer. The situations also call into question the quality of programming with which the robot was created. In the paper by M.C. Elise and Tim Hwang, “Praise the Machine! Punish the Human!” historical evidence makes it unwise to expect liability to be appropriately adjudicated were a farmer to sue the creator of AARW. With an autonomous robot like AARW, it is possible to bring into consideration laws related to human juveniles. A juvenile is responsible if she decides to steal an iPad from a store, but, if she takes the family Prius for a joyride, then the parents are responsible for any damage the juvenile causes. Autonomous robots will inherently be allowed to make choices on their own, but should responsibility apply to the robot and the farmer as it does in juvenile law for a child and a parent? From the insurer’s standpoint it makes sense to assign responsibility to the appropriate party. If AARW entered a highway, the responsibility should fall on the farmer, who should have been close enough to stop it. Giving away produce, which could be petty thievery, is wrong and, because AARW incorrectly applied an action it learned, it remains largely responsible. To more fairly distribute blame, it may be worthwhile for robotic liability to contain two types of deductible. One would be the deductible paid when 51% of the blame were due to human negligence, and such a deductible would be treble the second deductible that would apply if 51% of the blame were due to an incorrect choice on the robot’s part. This would help to impress on the human the need to make responsible choices for the robot’s actions, while also recognizing that robots will sometimes make unexpected choices, choices that may have been largely unforeseeable to human thinking. Such assignment of responsibility should also have a high chance of withstanding judicial and underwriting scrutiny. Another disservice to relegating robots to any existing form of liability is in the form of underwriting expertise. Currently, most insurers that offer cyber liability and technology E&O seem to possess little expertise about the intersection of risk and technology. That lack hurts insurers and their clients, who suffer time and again from inadequate coverage and unreasonable pricing. It would be advantageous to create robotic liability that would be unencumbered by such existing deficiencies. By establishing a new insurance product and entrusting it to those who do understand the intersection of humans, liability and robots, insurers will be able to satisfy the demands of those who seek to leverage robots while also establishing a reliable stream of new revenue. A 21st century product ought to be worthy of a 21st century insurance policy. Another aspect of exposure that needs to be considered is in how a robot is seen socially, something that professor Calo discusses in his paper “Robotics and the Lessons of Cyberlaw.” Robots are likely to be viewed as companions, or valued possessions, or perhaps even friends. At the turn of the last century, Sony created an experimental robotic dog named Aibo. Now a number of Aibos are enjoying a second life due to the pleasure people in retirement homes experience when interacting with them. One of the original Sony engineers created his own company just to repair dysfunctional Aibos. While that particular robot is fairly limited in its interactive abilities, it provides an example of how willing people are to consider robots as companions instead of mechanical tools with limited value. It is more than likely that people will form social bonds with robots. And, while it is one thing to be verbally annoyed at a water pump for malfunctioning and adding extra work to an already busy day, mistreatment of a robot by its employer may be seen and felt differently by co-workers of the robot. Some people already treat a program like Apple’s Siri inappropriately. People to tell Siri that it is sexy, ask what it “likes” in a romantic sense and exhibit other behaviors toward the program, even in a professional setting, that are inappropriate. While such behavior has not resulted yet in an EPL (employment practices liability) claim, such unwarranted behavior may not be tolerated. Consequently, the additional exposures created by a robot’s social integration into human society will more than likely result in adding elements to an insurance claim that products liability, technology E&O and other current insurance products would be ill-suited to deal with. See also: Of Robots, Self-Driving Cars and Insurance Advanced robotics makes some of the future murky. Will humans be able to code self-awareness into robots? Are droid armies going to create more horrific battlegrounds than those created by humans in all prior centuries? Are autonomous vehicles the key to essentially eliminating human fatalities? However useful those kinds of questions are, the answer to each, for the foreseeable future, is unknown. What we do know for sure is that the realm of advanced robotics is starting to move from the drawing board and into professional work environments, creating unexplored liability territory. Accordingly, the most efficient way to go into the future is by creating robotic liability now because, with such a product, insurers have the ability to both generate a new stream of revenue while at the same time providing a more economically stable world.

As the insurtech industry continues to boom, the importance of data cannot be overstated. Data analytics is essential for success as the traditional model of insurance evolves and modernizes. Data analytics allow you to test, measure and implement changes to your digital processes—on your website, email or mobile platform. These adjustments and modifications are also important in a way that people often don't recognize, because they are the insurance industry equivalent of “compounding interest.” Remember, compounding interest is essentially interest on top of interest. As the months and years go on, the total sum will increase as the interest continues to accumulate and compound. While the original amount may not be significant, the value grows impressively over time. See also: Why Exactly Does Big Data Matter?   All of the small changes you make to improve your digital processes and platforms operate in a similar manner. The modifications build on each other, leading to greater success and profits. Of course, all of these changes require careful analysis, hard work and innovative thinking but don’t underestimate their resulting value. Keep the big picture in mind and remember the worth that will accumulate. Compounding Interest in Motion If someone has an idea for new copy on an advertisement, and it tests well, you may decide to implement the change widely. Perhaps the stronger copy better resonates with consumers and results in a 1% higher arrival rate. If you currently have 10,000 arrivals each day, and each arrival is worth $100 to you, then over the course of a year you will see an additional $3.7 million. That could be invested in new employees who are able to identify further improvement opportunities. Imagine if you could then make more changes and achieve an additional 1% to 2% higher arrival rate. The possibilities and resulting returns are endless. These small changes can truly compound over time and make a real impact on your growth. Individuals Are Not Representative When determining changes to test and implement, remember that individuals are not representative. Despite an individual’s broad experience, expertise and skill set, he or she does not accurately represent a total set of people. Your mind will be blown by how an individual’s assumptions may be wrong when extended to an entire set of people. While an idea or process may seem undoubtedly logical or appear to be common sense, don’t assume a way of thinking is fact. For example, one person may truly believe that a color is ideal for a website when in fact, once it is tested, only 10% of the population agrees. Another color may be a better match, one that 80% of consumers agree to. To overcome this tendency to rely on your assumptions, implement a data-driven culture that eliminates arguments and assumptions. You can remain welcome to any and all ideas as inputs and then let the data decide. You may be surprised by the ideas that return successful results. An Infinite Amount of Possibilities As technology advances and devices evolve, there will be a near infinite amount of opportunities for optimization. Invest in data-backed initiatives, and don’t hinder your success because you think small changes are too insignificant to be valuable. A better site or form layout could improve your click-through rate, which could lead to a more positive consumer experience. This could then lead to more return visits from consumers, who also tell their friends about you, which could lead to a bigger pool of satisfied customers and an overall stronger digital experience. You never know where small changes will lead or what their return will be. See also: 4 Benefits From Data Centralization These small changes are the compounding interest equivalent in this digital age of insurance. Receive input from multiple sources, remain open to ideas and continuously test modifications to improve on current processes. Thanks to technology’s continuous advancement, there will always be more that you can do. If you’re looking for more advice on how to determine ideas and test changes, take a look at the previous articles: Give Consumers the Experience They Want and 3 Types of Data You Need for Personalization.

Occupational injuries cost the U.S. more than $250 billion annually. That is nearly three times the financial impact of cancer. Yet to date, the technology and analytics community has largely underserved the challenges of effectively helping injured workers get back to being productive rapidly. Injured workers are being pulled into complex processes unnecessarily. Claims adjusters juggle many balls and are not able to focus their time on what they do best: being a trusted adviser to the injured worker. The technology and analytics community can make an impact by helping drop combined ratios by more than 20% through better pricing and improved operations. To date, these efforts have been delivered largely through a one-off services model, an approach that works for specific scenarios in which objectives can vary by carrier. See also: Data and Analytics in P&C Insurance   For universal challenges across carrier, the one-off services model is suboptimal, and a product-centric model is recommended to maximize impact. Two such carrier challenges that affect the lives of claims adjusters daily and need special attention are:

1. Connecting the injured worker to the right providers. The choice of the provider for a claim makes a big difference to its outcome. From a total cost perspective, a bottom-tiered provider can cost five times as much as a top-tiered provider. Improving the quality of a medical network and directing claims toward better providers can reduce average claim costs by more than 10%. To suggest the right providers, claims adjusters need a solution that ranks providers in a fair, accurate, comprehensive and defensible way. The system also needs to be very easy to use so that the adjuster can come up with the right answer instantaneously when the injured worker calls.
2. Reducing claims escalation and focusing the team’s attention. The majority (~75%) of claims are simple and can be fast-tracked. However, the few that are complex (e.g., heading toward litigation or high costs) drive the bulk of the effort. Determining which claims are heading toward a simple outcome and which ones are heading toward complexity is challenging. The ever-changing nature of the claims complicates the situation. The claims team needs a solution that goes through the open claims and helps focus efforts. It needs to be highly accurate, dynamic (i.e., account for the changing nature of the claims) and integrate well into the team’s workflows. In short, the technology solution needs to mirror the dream analyst that every claims team likes to have — the one who is constantly on top of the claims and helps adjusters focus on being a trusted guide to the injured worker.

Why Now? Analytics, in particular, and technology, in general, have passed through the hype cycle and are now accepted as required parts of the workers’ compensation solution for these reasons:

• Underlying technology platforms are more mature. Claims management systems are being upgraded or replaced industrywide. They are more flexible, comprehensive and integrated than ever before. With this maturity comes the ability to easily connect one system to another and change workflows, an essential ingredient in accelerating change. Uber wouldn’t have happened if payment systems did not connect easily.
• Analytics have started proving value. The advances made on analytical models over the past five to 10 years have started showing clear, tangible results. Underwriting and pricing models have brought down combined ratios dramatically. Additionally, provider scoring models have reduced costs by more than 10% year-over-year, and litigation models have brought down attorney involvement rates by several percentage points. The value of analytics is no longer under scrutiny. The question now is: How can we realize impact?
• Both analytics and technology are essential to attracting new talent. Millennials will not accept archaic, paper-based processes. Most don’t know life without technology, and they treat it as a given. To attract new talent to the workers’ compensation industry, providers need to serve up tools that our future leaders can use and relate to rapidly. There is no alternative.

Why Current Delivery Models Are Obsolete Most advanced analytics efforts have been one-off projects by internal teams or boutique consulting firms. They are primarily geared toward proving the point but not designed for scale and longevity. They served a purpose while the market was sizing up the value of analytics. However, these services have led to unnecessary redundancy across the industry, and, lacking a long-term strategy, these suboptimal solutions have stalled over time. Are there exceptions? Sure. There are several models in which the objectives differ from carrier to carrier. For example, pricing models are intricately tied to the strategy of the carrier and will therefore have different goals for each carrier. In carrier-specific models, internal or outsourced analytics projects make sense. See also: How Technology Breaks Down Silos   However, for most claims operations, the objective is identical across carriers: reduce the cycle time of processing claims. To solve this challenge comprehensively, carriers need to have a dedicated focus over a long period. It takes hundreds of iterations to get all the pieces in place before one can call the solution complete. What is needed is a product-centric model. What Is the High-Impact Promise of a Product-Centric Model? A product-centric model is focused on creating the most robust solution possible across the entire industry. It is about identifying a problem that is common across many customers and then dedicating an R&D effort to it. Differences between customers are handled through configurations, such as switches that can be turned on or off, rather than customization, such as building brand-new models and using different inputs from customers. Product teams focus on select issues and continuously innovate. A product-centric model delivers:

• A continuously optimized model. Having a team of smart data scientists, engineers and product managers working toward the same goal for an extended period has an almost magical effect. All situations are thought through, and the solution is deep and complete. Experience builds on experience to create an exponentially rich set of features.
• A cost-efficient model. R&D costs can now be distributed across the industry, making the cost for each customer much lower than a one-off solution. This is especially true when considering the total cost of the solution, including design, implementation, maintenance and upgrades.
• A quickly implemented model. The constant refinement of the product makes it as close to plug-and-play as possible. Timelines can be reduced from months to days and minutes.

From our market size estimates, each of these challenges faced today by claims operations represents a $5 billion-and-upward opportunity across the industry. The potential of solving these challenges with advances in technology and analytics is significant from an economics standpoint. More importantly, a product-centric model will empower claims adjusters to do what we set out to do in the first place: “Get injured workers back on track rapidly.”

The coming year promises to be a year of continued disruption on several fronts for the insurance industry, including consumer demands, digital technology, cybersecurity and the shifting political landscape. The slow growth of the U.S. economy, coupled with market shifts, will also be prominent factors in 2017.

Insurers are looking at machine learning to make underwriting decisions. They are looking at all kinds of data, from medical to behavioral. They know they cannot take months to underwrite a policy. They need to do it in days – and, soon, even quicker.

This is an ideal time to make plans that take into account the future of the nature of work. Insurers now have the opportunity to introduce new technology, such as robotics, and more effective workforce management activities. By taking out repetitive tasks, they can produce an even more industrious and stimulating work environment for people.

See also: One Foot In Healthcare: Property And Casualty Payer Integration  

Below are the top strategic priorities from the 2017 EY U.S. life-annuity and property-casualty insurance outlooks.

Life-annuity strategic priorities

1. Prepare for regulatory change. From rules on consumer protection and transparency, to financial solvency and cybersecurity – and now a potential shift in overall policy direction – the regulatory landscape for life insurers has never been more complex. Insurers should develop a strategy to comply with the new Department of Labor fiduciary rule, and be prepared to course-correct; as well as confirm that internal systems can keep up with regulatory change overall.
2. Stay centered on the customer. The customer can be a valuable compass to companies mapping a strategy in changing times. Insurers should use this resource by applying analytics to gain deeper customer insights, creating a strong cross-channel customer experience and rethinking go-to-market approaches to meet changing investor needs.
3. Re-evaluate strategies for a changing marketplace. With the industry in transition, and a new administration taking office, this is an ideal time for management teams to carefully asses their current market position and plan for where they would like to be, long-term. In addition to reassessing strategic positioning for the years ahead, insurers should also consider using M&A to improve competitive positioning and should also look to find the right insurtech strategy for the firm.
4. Take digital transformation to the next level. 2017 will be a year of continued experimentation, and the focus of innovation will start to shift from reducing costs to reinventing products and business models. To do this, insurers should be prepared to enter the next phase of digital innovation by getting control of data across the enterprise and by using technology to improve current business approaches.
5. Make cybersecurity a top strategic priority. Given the vast amount of personal and health data that resides in insurance firms, and their complex vendor relationships, building a robust data security system is both crucial and challenging. To do this, insurers should look to make cybersecurity a continuous business activity by drawing on technology and people to secure data.
6. Close the talent gap. 2017 is the year to determine the critical workforce skills that insurers will need to drive the business forward. Insurers can build new talent management strategies by assessing whether the firm has the needed talent for the future and by creating clear pathways to transfer knowledge.

See also: 4 Mandates for Agents in Sharing Economy  

Property-casualty strategic priorities

1. Focus on customer-driven innovation. To adapt to a fast-moving marketplace and differentiate themselves from competitors, insurers must stay laser-focused on the customer and adapt their go-to-market strategies. To do this, they can nurture a culture of innovation, which will help accelerate the development of new products and business models.
2. Use technology to drive top- and bottom-line performance. In the face of shrinking returns, insurers will need to apply advanced analytics systematically across the value chain, as well as drive costs savings by drawing on robotics to automate insurance processes and build smart technology into future plans to remain competitive.
3. Put cybersecurity high on the corporate agenda. As with life-annuity insurers, cybersecurity is also a key topic for property-casualty insurers. In 2017, cyber risks will increase exponentially as digital technology becomes more pervasive, and cyber-attackers more sophisticated. Insurers should prepare for the next stage of cyber-risk and implement an active defensive system to protect against attack.
4. Rethink strategies to attract, develop and retain talent. With a large percentage of the workforce retiring in the years ahead, and digital transformation accelerating, 2017 will be a good time to take a hard look at future work needs. Insurers can start by understanding the millennial mindset and identifying the digital expertise they will need in the future.

Here are the complete reports:

2017 EY U.S. life-annuity insurance outlook

2017 EY U.S. property-casualty insurance outlook

Millions of emergency room patients could face financial ruin — even if they deliberately seek care at hospitals covered by their insurers.

That's the disturbing finding of a new study published in the New England Journal of Medicine. Conducted by two Yale professors, the study shows that one in five ER visits involve doctors who are not in the same insurance network as their hospitals. The patients treated by those out-of-network physicians are forced to pay for a portion of their care out-of-pocket. The average out-of-network ER charge is $600.

A bill that size spells disaster for many patients. About half of Americans wouldn't be able to cover a surprise $400 bill without selling something or borrowing money.

It's a travesty that, in the midst of medical emergencies, people who specifically head to hospitals covered by their insurance plans are still getting hit with huge bills. Unfortunately, these out-of-network ER charges are just the latest tactic that health insurers have devised to shift costs onto patients.

See also: Key Misconceptions on Health Insurance  

The contracts that hospitals establish with health insurers typically don't cover ER doctors. Those physicians have to negotiate with insurers directly. Many insurers decide ER physicians' fees are too high and cut them out of coverage networks.

Patients hardly ever suspect that the ER doctors at in-network hospitals could be out-of-network. Take Candice Butcher, a Salem, Va., mom who rushed her two-year-old son Logan to the ER after he cut his head on a dining room chair. Candice made sure to take her son to a hospital covered by her insurance. And Logan's treatment — cleaning and suturing the wound — was relatively straightforward. So she was stunned when she got the news: Her out-of-network ER doctor was charging her $750.

Or consider Craig Hopper, who got hit with a $937 bill by his Austin, Texas, hospital for ER treatment for a sports injury. "It never occurred to me that the first line of defense ... could be out of the network," says his wife, Jennifer. "In-network means we just get the building? I thought the doctor came with the ER."

The Hoppers are in a particularly unfriendly state. Fully half of the Texas hospitals covered by the state's main private insurers have zero — yes, zero — in-network ER physicians, according to work from the Center for Public Policy Priorities. Emergency patients all are getting hit with huge, unexpected bills. "There's little consumers can do to prevent it and protect themselves" says Stacey Pogue, an analyst at the CPPP.

This out-of-network trickery is largely a response to Obamacare's crippling mandates on insurers. The outgoing president's signature legislative accomplishment straps coverage providers with invasive, costly regulations, squeezing bottom lines and forcing insurers to cut expenses and boost revenues anyway they can.

The obvious insurer response is to ratchet up premiums. The average premium for plans available on the Obamacare exchanges in 2017 jumped 22% over the 2016 rates.

But insurers also have resorted to subtler tactics.

That includes raising deductibles, the amount that customers have to spend out-of-pocket before benefits kick in. The average health insurance deductible for individual plans shot up 42% in Obamacare's first year — and that figure continues to climb. Today, the average deductible for the "bronze" plans in the exchanges — the cheapest possible coverage — is a whopping $6,000 for individuals and $12,000 for families.

See also: The Basic Problem for Health Insurance  

Insurers also are restricting their official networks — limiting the doctors and hospitals that their customers can use. This strategy enhances insurer bargaining power in negotiations with healthcare providers, but it hurts patients by denying them access to convenient care. People get stuck traveling long distances to unfamiliar caregivers for vital treatments. McKinsey calculates that about four in 10 exchange plans exclude more than 70% of hospitals in the plan's coverage area, and a further three in 10 plans exclude at least 30% of hospitals.

Insurers are feeling the squeeze under Obamacare, and they're resorting to devious tactics to cut costs. Too often, that straps patients with staggering, unforeseeable medical bills. That should all change when Obamacare is repealed and replaced — which is why lawmakers must move with all due haste in the new year.

American entrepreneurship is alive and well and growing! There are countless rags-to-riches stories of how people with a good idea, boundless energy and infectious optimism have made it big, or simply made a rewarding livelihood and legacy for themselves and their families. Today’s fintech and insurtech movements are testament to this in spades! And while most national news stories focus on big business, and national cultural events like Black Friday tend to overshadow small businesses, there’s a growing movement embracing these vital contributors to our communities and economy. Insurance and other services are vital components for the vitality, risk protection and longevity of small businesses, and suppliers that are easy to do business with can capture a larger percentage of the market. Unfortunately, new research by Majesco, The Rise of the Small-Medium Business Insurance Customer: Shifting Views and Expectations…Is Your Business Ready for Them?, reveals that the insurance industry (as compared with other industries with which small businesses work) is “not easy to do business with.” The problem creates an opening for insurance startups. The Rise of Small Businesses and the Shop Small Movement On Nov. 26, 2016, the 7^th annual Small Business Saturday event sponsored by American Express and the National Federation of Independent Businesses (NFIB) was held to encourage shopping and patronage of local small business merchants – in the wake of the preceding day’s big box store Black Friday shopping hysteria.  According to research done by these organizations after last year’s Small Business Saturday, more than 95 million consumers shopped at small retailer businesses, spending $16.2 billion, up 8% from 2014. Interestingly, the event garnered support from many corporate sponsors – many of which count small businesses as their customers. Millennials show strong support for local small businesses, indicating they want to be “connected” to the products and businesses they buy from. A study by Edelman Digital showed that 40% of millennials preferred to buy goods and services from local small business retailers, even if doing so cost more. See also: Why Start-Ups Win on Small Business   While Small Business Saturday and Buy Local have a decidedly retail focus to them, the importance of all types of small businesses cannot be overlooked. U.S. Census Bureau figures from 2014 showed that businesses with fewer than 10 employees make up nearly 80% of all firms in the U.S. This is a huge market with enormous needs for products and services, including insurance to keep them running, protected and competitive. Where’s the Love? The Rise of the Small-Medium Business Customer research sought to understand small-medium business decision makers’ perceptions and views of those who support and supply them, including insurance. Four hundred business owners were surveyed using the Census Bureau’s definitions of very small to medium-sized businesses (SMBs), which we grouped into three segments (1-9 employees, 10-99 employees and 100-499 employees). The survey provided insights to evaluate perceptions on SMB customer views of insurance as compared with other businesses The results were enlightening. Interestingly, fair price was more important than lowest price across all of the business segments. However, the ability to create a custom product from a range of options is more important than both lowest price and the ability to pick from a set of “pre-packaged” options. This finding reflects the increasing demand for personalization rather than price-driven mass production of insurance products. Even more revealing were the results among the smallest (1-9 employees) businesses. The survey highlights that the traditional insurance business model has not been built with the capability to adequately meet the unique needs and expectations of SMBs. The industry has, instead, pursued a “one size fits all” approach. The consequences are that this segment of smallest SMBs (though with the largest number of such businesses) is uninterested in insurance, sees little value in insurance and considers insurance a necessary commodity or “necessary evil” required for their businesses. All three segments of SMBs, regardless of size, did not rate insurance as being particularly easy to do business with, in terms of researching, buying and servicing products, compared with the other types of businesses we asked about in the survey. Among the 1-9-employee segment, P&C, life and employee benefits ranked in the bottom half on all three of these aspects. Much more telling, however, this segment gave the lowest Net Promoter Scores (NPS) to insurance, showing a gap of as much as 60 points between insurance and the top business. (Net Promoter Scores measure the likelihood that a customer will make a recommendation to a prospective customer.) Adding fuel to the fire, these small businesses were the least likely to say insurance was responsive, innovative, had easy to understand products and provided good value for the money. This is not a pretty picture for traditional insurance — but a great opportunity for innovative "greenfields" and startups. Going Small Requires Big Thinking Increasingly, small business customers are demanding a personalized and digital experience, representing the shift from mass standardiza­tion of insurance to the micro-personalization of insurance, requiring broader data and sophisticated analytics to truly understand and respond to small businesses as well as a digital experience via a multi-channel approach. The rapid emergence of digital direct-to-SMB insurers and MGAs such as Assurestart (now part of Homesite/American Family), Cover Your Business.Com (a Berkshire Hathaway company), Hiscox, Insureon, Bolt, Slice and others are leveraging these ideas to reach the small business market. They are providing innovative products, streamlined and simple processes and digitally engaging capabilities that are extending the direct business model to SMB customers. In addition, aggregators, comparison sites or new distribution channels like Ask Kodiak help small businesses find the insurance products they need more easily. Our research identified gaps between many industry-held perceptions and customer-defined realities, which expose an insurance industry steeped in tradition — its business models, business processes, channels and products that are difficult to find, buy and service — and opens the door to new competitors. We have seen this play out before with personal lines over the last 10 to 15 years. The difference is that the pace of change and adoption of a digital play is unfolding more rapidly this time in commercial insurance, demanding that insurers respond, because the window of opportunity is smaller. Each company serving the SMB market must itself strategic questions, such as: “How do we bridge between the past, today and the future? How do we keep current customers loyal and engaged as we redefine our business to meet the needs of the vastly underserved and growing small business market? How do we get on par with other digital businesses that are setting new expectations for the SMB market?” If traditional insurers don’t ask these questions and respond, others will – taking current and future market share. See also: Secret Sauce for New Business Models?   Small businesses today are at the forefront of building new, technology-enabled, digitally first, innovative businesses that operate in a multi-channel world … like what we are seeing in insurtech. These businesses are increasingly led by millennials who have “grown up” digital and, as a result, seek fresh alternatives to age-old formulas … especially for insurance needs and offerings, helping them effectively meet their unique needs and expectations.  It’s time for the insurance industry to translate the good will from the Buy Local and Shop Small movements into big thinking and innovative solutions. A new generation of small business insurance buyers with new needs and expectations create both a challenge and an opportunity. There is no clear path or destination. The time for plans, preparation, and execution is now — recognizing that the SMB customer is in control. Those who recognize and rapidly respond to this shift will thrive in an increasingly competitive industry to become the new leaders of a re-imagined insurance business that aligns to a rapidly growing, millennial-owned, innovative SMB marketplace.  Insurance companies must stop talking about the opportunities and being digital, and start doing something about it by using the disruption and change as a catalyst for “real change.”

In the past several years, mobile technology has allowed economic transactions to get accomplished with little to no effort. Companies like Uber and Airbnb are leading the way, with business models that conveniently match supply and demand of livery and temporary housing in a way that has truly revolutionized how we go about our day-to-day lives. These new business models are often described as the on-demand economy, where customers: (1) obtain access to services, when they need it and (2) only pay per use. Going Beyond Uber and Airbnb On-demand solutions have spawned into new industries such as pet sitting, food and laundry delivery, event planning and, more recently, insurance. Innovative entrepreneurs are bringing this exciting business model to insurance…and I think it’s a terrible idea. Insurance is unlike any other business. An Uber user gets a ride, an Airbnb user gets a place to stay. There’s an instant gratification that doesn’t exist in an insurance transaction, because, in insurance, the user gets a promise. A promise! That’s it. Basically, an insurance customer pays and then waits for the promise to materialize in the form of a paid claim. This lack of instant gratification makes extending on-demand, pay-per-use models into insurance untenable in the long run. Here’s How In an on-demand or pay-per-use business model, when do you think insurance buyers will most want to buy insurance? Logic says, just before they are likely to need it. Consider Trōv, “the world’s first on-demand insurance for your things. With Trōv, you can protect just the things you want, exactly when you want, entirely from your phone. You can also easily organize important information about the things you own and back it up to the cloud, so it’s accessible when needed.” Admittedly, the app is nifty. The look and feel is fantastic and will really appeal to the new generation of insurance shoppers who wish to do everything on their phones. I can take a picture of my laptop, swipe, and it's insured. Very easy. Perhaps a little bit too easy. See also: On-Demand Insurance: What’s at Stake   Flaw #1: Bad Economics Put yourself in the shoes of a user and ask yourself, when will you most likely perform this transaction? Are you more likely to swipe-to-insure when the laptop is nicely tucked away in your bag, in your house, over a cozy, snowy weekend, when you are there to protect it…OR…are you more likely to insure it when you are traveling to a 2,000-person conference in New York City, staying in an Airbnb shared space? Odds are, in the on-demand insurance world, you will more likely buy coverage just before you’re likely to use it. Not to say that all insureds will do this, but rather that enough will, which will make the loss costs for the products insured higher than the same exposure in a traditional insurance product. And if loss costs are higher, so are the premiums. In other words, in this pay-per-use insurance model, the cost per unit of exposure will be significantly higher than in the traditional insurance model. And this is without even accounting for fraud. Imagine being able to get a new laptop every two to three years by insuring your old one just before it is mysteriously stolen? The economics scream that this won’t work! You can’t "on-demand" a promise. The promise itself is intangible, and users will only perceive value if they’ve actually used the product -- in direct contrast to insurers’ objectives. Flaw #2: Increased Interaction With an Insurance Company Another flaw in this model is that it’s incumbent on the buyer to turn coverage on and off, essentially market timing the transaction. Consider Slice, which “provides coverage on-demand, and for only the periods of time you need it. The Slice policy will automatically begin and end in perfect sync time you’re operating as a business, whether it’s minutes, days or weeks. And, you only pay for the dates and times you have a policy.” Let’s assume the role of the Slice insurance user: What if the user forgets to turn coverage on or off? While, in the case of Slice, users have to specify the off date, not all on-demand insurance players require this. Also, these new firms, which are focused on the customer experience, seem to ignore the fact that the last thing customers want is more interaction with insurance firms. As big of a fanatic about the industry as I am, I look forward to dealing with my insurance carrier as I much as I look forward to dealing with the IRS or with my dentist. We humans are notoriously bad at stock market timing. It’s pretty much common wisdom to avoid market timing and diversify your risk using low-cost indexing. In sum, the message of on-demand insurance? Time the risk. Some on-demand solutions, such as the one by auto insurer Metromile, place a device inside your vehicle that removes the user from the need to turn insurance on or off. The device is always on, and Metromile will only bill you if you use the service (outside of a small base rate), solving the timing problem mentioned above. I’m a fan of any technology that minimizes my interaction with the insurer, so what’s not to love? If you are truly a low-mileage driver, then you are likely to benefit from this arrangement, but….in my many years of selling auto insurance, the one near-constant source of pride that most auto insurance buyers patted themselves on the back for was how few miles they drove. Yet, time after time, when it came to verify miles driven, most policyholders failed to squeeze under 10,000 to 12,000 miles per year. That also happens to be the the inflection point where Metromile policies begin to get more expensive than traditional policies. So for the fortunate few who truly are low-mileage drivers, pay-per-use car insurance is likely a good deal. For everyone else, it will either be an expensive proposition, or, perhaps worse, you will bend your style of life to fit within the affordable mileage thresholds. Flaw #3: We Need More Coverage, More Often; Not Less Finally, insurance is all about dealing with risk and uncertainty, and we humans are really, really bad at managing risk. Low-frequency, high-severity events are truly troubling for our minds to handle. Our species has made remarkable advancements over tens of thousands of years, and yet even the brightest of us fall prey to risk and uncertainty. Whether it’s speculative risks or insurable risks, we make the same mistakes over and over again. On-demand or pay-per-use insurance is another innovation that, I believe, while attractive to many, is not really the type of products that insurers should be offering. You may be the most conscientious person, a true low-risk insurance buyer whom every carrier wants, and yet there are still a full range of factors that can and will cause you great losses, all of which are out of your control. No matter how risk-averse you are, things such as lightning, hail, hurricanes, tornadoes, earthquakes, floods, drunk drivers, slip and falls, falling cranes, power outages and other random events are going to strike, and you can’t always avoid them. For that reason, insurance policies are designed to offer a breadth of coverage. Yet it feels as if there’s a new wave of entrepreneurs entering the industry, looking to cash in on the insurance transaction by unbundling the coverage breadth and offering a stripped-down version of current coverage under the guise of “savings,” while leaving insureds more exposed. See also: Insuring a ‘Slice’ of the On-Demand Economy   I can see the attraction of pay-per-use. After all, why pay for all this extra insurance you don’t need? That being said, in the long run most customers will be turned off. The economics are not in place for the vast majority of insurance buyers. They don’t need less coverage, they need more! And they need it turned on – always! Buyers of on-demand or pay-per-use insurance will either get caught with their pants down (“Oops, I forgot to turn the coverage on”) or get frustrated when they see that they have been paying 25-50% of the value of their property year over year (“Oops, I forgot to turn the coverage off”) or get super frustrated when the coverage limits their lifestyle (“Can i get a lift; my car insurance is really expensive when I drive”). In other words, this new trend in insurance is penny-wise and pound-foolish. We certainly can do better.

Total drug spending is expected to hit $535 billion in the U.S. in 2018, which is almost 17% of all personal healthcare spending, according to The Wall Street Journal. In the aggregate, that’s an awful lot of money on the table. But most of us don’t live in the aggregate. The prescription drug spending we care about as individuals is what’s being talked about around our kitchen tables -- especially for the millions of Americans choosing a health plan during this open enrollment period. For those of us in this group, understanding whether and how our prescription drugs are covered, and how each element of the healthcare (and insurance) mix will contribute to our total cost of healthcare, is crucial. Selecting the wrong plan can be costly. Very costly. Health plans -- also complicated When we think about our personal healthcare expenditures, we tend to focus on out-of-pocket spending, i.e., what comes out of our wallet beyond what we pay for our monthly premiums. Understanding how much an individual will pay out-of-pocket for a prescription drug completely depends on the benefit design of the health plan. Premiums, co-pays, deductibles, co-insurance and other health expenses all play a contributing role. So where does one start, to figure out which plan to choose, based on the drugs they take? See also: 5 Apps That May Transform Healthcare   Formularies are a starting point A formulary is the list of drugs attached to a specific health plan that shows whether a drug is covered by that plan, and what tier level the drug falls into. Formularies can vary greatly. Certain drugs will be covered by a health plan’s formulary; others will not. The same drug might be covered at different tier levels for different health plans. All of this funnels into what an individual will pay for a prescription drug. If an individual takes a drug on a regular basis, it’s crucial to check the formulary connected to all health plans being considered during this open enrollment. You do not want to show up at the pharmacy, prescription in hand, and find that your drug is not covered and that you’re completely on the hook for it. Doing the extra research now can save thousands of dollars over a year. A lesson from Crestor To better understand how out-of-pocket costs for prescription drugs can vary, let’s walk through a real-life example: Crestor, which, with 21.4 million prescriptions written for it per month, is a popular branded drug that helps patients with high cholesterol. Data scientists at Vericred, a healthcare data services company, reviewed multiple health plans in the state of New York for individuals under the age of 65 in 2016 to see specifically what the cost range was for Crestor. Below are results for four different examples of plans that cover this drug. GoodRx estimates the cost for a 30-day supply of 20mg Crestor to be $324. New York Platinum Plan Plan details: $0 deductible, $30 co-pay for a monthly supply Total cost for Crestor for the year on this plan is $360. Total healthcare cost, including monthly premium of $740, is $9,240 New York Gold Plan Plan details: $750 deductible, $35 co-pay (deductible not required for drug co-pay) Total cost for Crestor for the year on this plan is $420. Total healthcare cost, including monthly premium of $605, is $9,420 New York Silver Plan Plan details: $2,250 deductible, $45 co-pay (co-pay applied once deductible is met) Total cost for Crestor for the year on this plan is $2,448. Total healthcare cost, including monthly premium of $473, is $8,136 New York Bronze Plan Plan details: $4,000 deductible, $35 co-pay (co-pay applied once deductible is met) Total cost for Crestor for the year on this plan is $3,888. Total healthcare cost, including monthly premium of $414, is $8,864 An individual in New York using Crestor can pay anywhere from $360 a year out-of-pocket to $3,888 a year out-of-pocket for the exact same drug. That’s a range of more than $3,500 depending on the health plan the individual selects. However, the drug cost isn’t the only consideration. If you look at the amount spent on Crestor alone, you might be inclined to select the Platinum plan with $0 deductible and a total expenditure of $360 for the year on Crestor. However, if you add in the monthly premium, and look at the full picture, it becomes apparent that the Silver plan is the best choice in this example. Even though the amount spent on Crestor is $2,448 (vs $360 on the Platinum plan), the total amount spent on healthcare for the year is $1,100 less than that of the Platinum plan. The example may be simple, but the issue is complex As noted above, this example is simplified. Oversimplified. In real life, the issue is more complex. There may be additional prescription drugs to consider and other out-of-pocket costs for co-pays and deductibles. Someone with that high-deductible plan may have an accident on New Year’s Day that takes care of their deductible for the year. Then spending on Crestor becomes nothing more than the monthly co-pay. But this example, as oversimplified as it may be, demonstrates the massive gap in spending for prescription drugs that exists among different health plans. It also demonstrates how important it is to find a plan that fits an individual’s needs. As an individual’s circumstances change, so does the math. The more conditions that need to be treated, the more office visits will be required and the more drugs will need to be taken. Every element affects the deductible and co-pay, which in the end affect the total amount spent on healthcare. See also: Not Your Mama’s Recipe for Healthcare   When it comes to picking a health plan, prescription drugs make the choice more complicated, and there’s no one simple solution. But new technology is helping to uncomplicate matters. While the healthcare industry still has a way to go before purchasing a health plan is as easy and straightforward as booking a trip on Expedia, transparency and technology are giving today’s consumers the opportunity to more easily weigh healthcare and cost decisions. Many decision support tools and health tech companies are just getting started. But, there are options out there to help individuals understand and act on their choices. GetInsured, Policy Genius and Take Command Health are excellent platforms, providing tools that help consumers find health plans that fit them uniquely. Some of these platforms even include different ways to search by doctors, prescriptions and conditions that need to be covered. The technology is only getting better – and better consumer decisions on healthcare plans are sure to follow. Consumers will have the opportunity to make truly informed choices - choices that can end up saving them thousands of dollars. Prescription drugs will remain a major part of the healthcare spending mix for the foreseeable future. What individuals need to focus on is how drug costs affect their personal bottom line. Emerging technology will help them do just that.

The Loch Ness Monster. Area 51. The grassy knoll. To the list of the world's great unsolved mysteries can be added a further conundrum -- the continued success of the insurance broker. For years, traditional brokers have labored under the Sword of Damocles that is disintermediation, be it from direct players, comparison sites or even from traditional bank-assurers. And for some parts of the market, those fears have been fully justified. In the U.K., for example, direct insurers have risen from nothing to control 41% of the personal lines market (ABI, 2015). And it has been estimated that comparison sites now account for more than a third of U.K. motor policies. This has had some inevitable consequences, with many smaller/High Street brokers giving up the ghost and a wave of (often very poorly executed) consolidation sweeping the lower end of the market, as players have turned to scale benefits to counteract dramatic falls in income. And this was before Silicon Valley threatened to unleash a tsunami of further disruption onto the industry’s shores. And yet the broker survives and, in the commercial lines sector in particular, prospers. As Mark Twain might have said, rumors of their demise have been much exaggerated. Why is this? Well, the cynic might argue that the archaic nature of the insurance industry itself has helped shield the market from the sort of Big Bang reform that struck the banking industry 30 years ago. Anyone remember open outcry? Wander around Lime Street today, and you will still see brokers, collars turned up against the wind, off to pitch their wares armed only with a bulging and brightly colored Manila folder wedged hopefully under one arm. Some might say that the industry's biggest single barrier to entry for new entrants is the fact that it remains so stubbornly paper-based! However, I would argue that the real reason for the broker’s survival lies in a simpler and more prosaic truth. See also: Friday Tip For Agents & Brokers: Your Best 30 Seconds   Trust. Hardly earth-shattering, I know. But in my experience those outside the industry -- and even those inside it, at times -- consistently underestimate the extent of the trust that clients place in their broker and the strength of the relationship that springs from this. In few other industries, for example, can often relatively junior individuals leave one shop for another, reasonably confident in their ability to take a couple of million dollars of brokerage across the street with them. For a product that is often said to be sold rather than bought and that has become, for the vast majority of businesses, relatively standardized, this sense of loyalty to the broker is somewhat counter-intuitive. But that is to ignore the very different psychology and motivations of the corporate buyer, who sees the value of insurance in insulating against shocks, keeping the management team out of court and "de-risking" new initiatives, unlike the consumer, for whom insurance is a grudge purchase where price is the overriding factor. Because of this corporate dynamic, brokers often occupy a privileged position at the top table, alongside a company’s accountants, bankers and lawyers. Accompany a company on a meaningful claim, and the strength of that position gets enhanced even further. And with the emergence of new risks such as cyber, and with the world today ever more complicated, unpredictable and unstable, then the need for a trusted adviser to help you protect your shareholders, employees and clients from whatever might be thrown at them and navigate the complexities of the market becomes more important than ever. Small wonder, therefore, that commercial lines brokers have proved so resilient. This, though, exposes the mystery -- the classicists among you might even say Hamartia -- that lies at the heart of the broking model. The value provided by a good broker is almost entirely in the advice she gives -- diagnosing where your risks are, identifying which risks should be transferred and which retained, designing placement strategies, helping put in place active risk prevention and mitigation strategies, getting claims paid, etc. And yet brokers are typically paid via commission for placing the risk, arguably the least value-added and most transactional part of what they do. Particularly in today’s market, where underwriters are falling over themselves to cut rates to secure market share and where, in the words of one former colleague of mine, “my twelve-year-old son could place an offshore energy policy right now.” Her words, not mine! It is the perfect illustration of someone negotiating over the price of the saddle but giving the horse away for free. The real problem with commission, of course, is the potential misalignment of interests it creates between brokers and their clients. At the most basic level, in any normal intermediary-based industry, the better deal you get for your client, the more you might expect to be paid. In the insurance industry, however, the more the client pays, the more commission the broker makes. Even stranger, it is paid for by the insurer even though the broker supposedly acts on behalf of the client. The risk of perverse incentives abounds. That's not all. Commission is also a pretty blunt way of linking effort to reward. The work involved in renewing a policy with the same insurer, for example, is a fraction of that required to set it up, and yet the same commission rate applies. Similarly, the effort required to place a $20 million policy is not hugely more than that involved in placing a $10 million one, and yet one will pay double the other. Some clients eat up huge amounts of time pursuing a contentious claim and yet will pay the same commission rate as a far more straightforward client with little claims activity. It is hard to see how this doesn’t create a cross-subsidization effect between the simpler, less demanding clients and the more complex, challenging ones, to the detriment of the former. Further complicating the picture is the fact that the economics of this tried and tested model have become increasingly challenged by the precipitous fall in the rating environment over the past few years, particularly outside the more volume-based classes. Commission is all well and good for brokers when prices are holding firm, but in a market where rates are falling 20% to 30% a year, as they have been in the aviation and energy markets, for example, brokers are suddenly faced with having to do the same, if not more, work for less money and with the prospect of worse to come. But brokers are nothing if not resourceful. Diversification has allowed some to grow their income by shifting their value proposition to providing a broader risk consultancy offering and cross-selling additional services. Consolidation and automation have taken supply out of the market and released significant efficiency savings. And, perhaps most importantly, ever more elaborate ways have been found to extract value from the market through sophisticated placement strategies, providing analytics and consulting expertise and taking on parts of the insurance value chain in return for a fee. And while brokers have rightly been very careful not to replicate the structures and practices that landed them in hot water with Eliot Spitzer not so long ago, I would speculate that, for the larger brokers at least, income generated from the market is proportionally larger than it was pre-Spitzer. While the broking community's inventiveness is to be lauded, the risk is that they start eroding the very foundations of their continued success. The more that clients feel that their broker is more concerned with selling them additional consulting or software services than worrying about their core program, the more revenues that they perceive their brokers to be pulling out of the market beyond their core commission, the more blurred the lines become between where brokers end and where insurers begin, then the more clients may start to question the value their broker is adding and whether the broker is truly acting in their best interests. See also: On-Demand Insurance: What’s at Stake   But then, perhaps clients have the market they deserve? Certainly, few apart from the largest and most sophisticated clients have agitated to move their brokers onto fee-based remuneration structures that more clearly link the actual effort involved and value created -- as they do for their other professional advisers who largely bill in terms of time and access to relative tiers of expertise. And stories abound of clients not playing fair, rewarding a cut in the premium with a proportionate fee reduction rather than rewarding their broker's efforts -- small wonder that brokers have been happy to let things lie. Perhaps these things are simply far too entrenched to change? Particularly where all parties feel happy with the relative trade-offs. But I wonder if there isn't potentially a certain mutual convenience in the broker's cost being, if not quite invisible to the client, then at least one step removed in that most never have to sign an actual check. It must almost feel like the broker's service is free.... Besides, you need to be careful what you wish for. There is an interesting read across here to the U.K. wealth management industry, where recent regulatory reforms have banned advisers from earning commissions from whichever provider they recommended to their client, to eliminate the risk of advisers placing/churning business to the highest fee payer and for earning trail commissions for little continuing effort. Instead, if clients want discretionary advice, they now have to pay their adviser an up-front fee that will typically run into the thousands of pounds and then pay further fees every time they transact. In theory, this makes sense, and the money that the providers were paying to the intermediaries by way of commission should have been handed back to client in the form of price reductions, leaving them no worse off once they had paid for advice. In practice, of course, this has created a windfall profit for the providers and left an advice gap at the heart of the British wealth management industry, because many clients have balked at the prospect of cutting a check for a couple of grand even though they were happy to pay this, and probably much more, when the adviser's costs were discretely embedded into the cost of the product. No wonder clients, brokers and insurers in the insurance industry have largely preferred to stick with the status quo. The law of unintended consequences looms large. Where does all this point, therefore, when considering the sustainability of the broking industry in the face of the changing market dynamics they are now facing? I would make a couple of suggestions. Firstly, there is probably a large swath of medium-sized commercial lines business where the economics simply do not justify the continued provision of brokerage advice and services on the same basis that this has been supplied in the past. Radically different operating models will be required, probably leveraging some of the learnings from the banking world, which has also had to evolve its service model. There is probably an opportunity for AI and robo-advice based models, such as are increasingly being seen in the wealth management world. At one level, this will favor those brokers with large retail/affinity/SME customer bases and strong brands that can leverage existing practices and infrastructure up the value chain. But it also potentially suggests a rich seam of opportunity for disruptors armed with weapons-grade analytics and innovative distribution strategies. Secondly, when it comes to larger, international companies or non-standard, more complex risks, the importance of the trusted broker relationship is not going to change. In fact, as I have argued elsewhere, the world’s greater uncertainty and volatility makes that very simple, human, trust-based relationship more important than ever. Insurers will continue to pay for this distribution -- they have no choice. And new entrants, who think that a roomful of MIT graduates and a piece of smart tech can dislodge a 20-year relationship forged in the white heat of a ugly claim, will find out the hard way how wrong they are. In this part of the market, they are far better served focusing on providing solutions to back-end operational efficiencies and supplying discrete tools and services. However, what is likely to change is what the client's trust-based relationship with the broker is built on. Being able to navigate your way around a wine list, procuring Center Court tickets at Wimbledon and being an excellent transactional broker may have been enough to win and retain business in the past but just won't cut it in the future. Clients now need a far more holistic, technical and analytically based approach to helping them understand, manage and mitigate their exposures. The placement will become a hygiene factor for most, if indeed it isn't already. The challenge for the brokerage community -- and by extension for the sustainability of trusted relationships with clients -- is whether brokers are equipped to meet their client's rapidly shifting requirements from either a capability, a tools or an organizational perspective. Many brokers simply don't have enough people with the highly technical, analytical and consultative skills that they need if they are to provide the advice that their clients are increasingly likely to require. This implies the need for a far more strategic and thoughtful approach to long-term resource planning to ensure that people with the right sort of qualifications and attributes are being attracted to the organization and the right sort of skills developed in those who are already there. Some of their people will be able to make the necessary transition to this new world; others, sadly, won't. And while this may create a short-term opportunity for some players to attract displaced talent and, with them, their loyal clients, over the longer term they are likely to end up saddled with the cost but without the income, unless they, too, can acquire or build these skills. With this change in capabilities comes a potential change in organizational design, as brokers will need to go from wearing all sorts of hats as they typically do today -- sales rep, relationship manager, program designer, placement expert, claims fixer etc. -- to acting as a sort of overall risk adviser who then brings in expertise and tools, drawn from specialized teams, as and when they are required. This, in turn, implies quite a significant cultural shift for many brokers, who often guard their client relationships jealously and are wary of exposing them to a colleague who might screw things up. I realize that for many this sounds like absolute heresy, and no doubt some players will seek to make a virtue of their brokers continuing to operate across a broad front. But to me it feels like an almost inevitable consequence of the world's increasing complexity and the impossibility of any one person having the depth or range of technical expertise needed if they are to meet their clients' evolving needs. It can surely be no coincidence that almost every single other professional services industry has evolved in this way? The real complexity is that this will be an evolutionary change, as the technical and analytical demands of clients in different classes and different parts of the world and even within the same classes and parts of the world will vary. This implies that the successful brokers will be those who can effectively operate two models in parallel, as they mirror their clients’ own evolution. This would tend to favor the larger brokers, who have both the resources and the scale to develop a more sophisticated relationship-management-based service model alongside their existing one, hire and develop people with the right skills mix and develop the analytics they need based on huge amounts of data. See also: Is It Time to End the Annual Policy?   Smaller, more niche brokers and MGAs, too, should be more able to develop their offering because of their narrower focus and ability to target their investments to their advantage. The people who may struggle are those caught somewhere in between, with all the cost of managing this transition (potentially on a global scale) but without the scale to be economic or the investment capital and data to be effective. Further consolidation of those lacking the resources or culture to embrace this new world is inevitable. One thing is for sure. If history has proved one thing it is that brokers are remarkably good at morphing their offering to reflect their clients' changing demands and dreaming up new ways to grow their income, whatever obstacles are thrown in their way. In this, I am somewhat reminded of Louis XIV’s minister of finances, Jean-Baptiste Colbert, who once described the art of taxation as being “in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.” On that basis, the broking community might want to consider running for office!