Social media is embedded in our lives—Facebook alone had 1.79 billion daily users as of September 2016—which means cyber criminals are not far behind. As companies increasingly rely on this digital channel for marketing, recruiting, customer service and other business functions, social media also has become a highly effective vehicle for cyber attacks. Outside of the corporate network perimeter and an organization’s control, it throws traditional security approaches out the window. A growing category of digital risk monitoring vendors, identified by Forrester Research Inc. in a recent quarterly Wave report, are catering to this problem. According to the report, digital channels—social, mobile, web and dark web—“are now ground zero for cyber, brand and even physical attacks.” The ways in which cyber criminals weaponize these channels are limited only by their imagination. Hackers can create fake corporate accounts for harvesting customer credentials, impersonate company executives, damage the brand’s reputation and post legitimate-looking links that contain malware. See also: Hacking the Human: Social Engineering   According to Cisco’s 2016 annual security report, Facebook, for example, was the top mechanism last year for delivering malware, through social engineering, in order to gain access to organizational networks. “(Social media) is a business technology platform, and because it’s been adopted at all levels of business … organizations have to figure out how to protect it,” says Evan Blair, co-founder and chief business officer at ZeroFOX, a digital-risk monitoring (DRM) vendor launched in 2013. “And it’s a gold mine for intelligence on individuals,” he adds. Social media—the ideal weapon The sheer volume of traffic on social networks is a magnet not only for businesses but also for the criminal element. According to the Pew Research Center, 79% of internet users are on Facebook, the most popular social network. About a third of internet users are on Instagram, and a quarter are on Twitter. Better click-through rates and lower advertising costs, among other things, are compelling companies to throw more money at social media advertising (Hootsuite estimates social media budgets have nearly doubled, from $16 billion in 2014 to $31 billion in 2016). But it’s not just the growing numbers of users and increased brand presence that creates an attractive playground for bad actors. It’s easy to create accounts and instantly attract followers—which means it’s easier than email for reaching a massive number of people with a phishing attack. Adding to the problem is that social media can be highly automated because it was built on an open API (application programming interface) that allows developers access to proprietary applications.“It’s a frictionless environment that allows you to communicate immediately,” says Devin Redmond, general manager and vice president of digital risk and compliance solutions for Proofpoint, another DRM vendor. Blair says: “Social media was built with automation in mind. You can create an account that interacts completely autonomously.” Even though email remains the medium of choice, according to various security companies, email phishing is on the decline. Social media phishing, on the other hand, is growing. Why organizations are at risk Eric Olson, vice president of intelligence operations at LookingGlass, says what makes digital risk a high priority is that it’s a business risk that touches multiple facets of an organization. It not just about cybersecurity—it also involves compliance, human resources and legal, among others. He says it’s important for security practitioners to focus on the how — e.g. phishing — rather than the channel it came from. “You have to be able to keep eyes in all the dark corners,” Olson says. A new technique Proofpoint identified in 2016 is angler phishing. Bad actors create a fake social media account on, say, Twitter, using stolen branding. They watch for customer service requests addressed to the legitimate account for a bank or a service like PayPal. They then tweet a reply with a link to a lookalike fake website where the customer is asked to enter login credentials. Despite this growing threat, however, many security practitioners are not aligned with social media, Redmond says. “The pace of adoption of social by enterprises and the pace of the risks that are evolving around that are growing much faster than people are addressing those risks,” he says. An emerging space The offerings of the vendors in this space vary. For example, ZeroFOX focuses largely on social media. Proofpoint covers social, mobile, web and email. LookingGlass integrates machine readable/open source feeds, analyst services, threat intelligence tools and appliances. Whatever approach they take, more security companies are likely to join in because the market is still growing. But even savvy companies are struggling to secure these channels. The hacking of Microsoft’s Skype for Business Twitter account in 2014 is proof—the Syrian Electronic Army wasted no time tweeting negative messages after taking over the account. They got some 8,000 retweets. See also: Social Media And The Insurance Implications   “Social media is the best attack platform for a nation-state actor and sophisticated cyber criminals, not just because it’s the easiest one to leverage for compromise, but it’s also completely anonymous,” Blair says. Redmond expects mobile to be another rising digital frontier, as more bad actors use fraudulent apps to do things like harvesting credentials. “If you look at it through the lens of bad actors, they’ve figured out all these are effective vehicles,” he says. They don’t have to break in any more — they just have to pretend they’re someone else. He adds, “They can do that more rapidly, at a greater scale, with less chance of detection.” This post was written by Rodika Tollefson and first appeared on ThirdCertainty.

The insurance industry has not been historically known for innovation. Given that the industry is steeped in risk-avoidance, evolution is fine, while revolution, with rapid change and disruption, creates uncertainty and potentially increased risk. At the heart of this revolution is a shift to the digital age. Unfortunately, many insurers do not fully understand or embrace this shift, creating a gap between insurer capabilities and market expectations. Insurers sitting on the digital sideline waiting for a clear winning approach that they can copy in a “fast follower” mode are allowing the gap to grow, giving existing competitors within the industry and new competitors from insurtech and outside the industry the ability to expand within the void. The year 2016 saw the revolution in full force with the rapid rise of insurtech that is creating tremendous disruption and innovation in insurance, with digital playing a leading role. From the emergence of startups like Haven Life, on-demand insurers like Slice and TROV and peer-to-peer insurance like Lemonade that have launched as “digital first” companies and solutions, traditional insurers are being increasingly challenged from both business model and market perception perspectives by new entrants. And while some insurers can point to a few sporadic initiatives and say they’re already in the digital game, our experience is that most have done so in a piecemeal way, without an overarching digital strategy that aligns with and informs the overall business strategy. It requires business leaders to shed sacred notions and wake up to the possibilities of rebuilding on a new foundation while maintaining the old structure long enough to transition smoothly.  Meeting the digital revolution with real transformation demands an acceptance that nearly everything industry insiders have known about insurance no longer applies. This requires a true “outside-in” view. Cultivating a deep understanding of customers’ needs and desires should be the first step any insurer takes as it begins or accelerates its own digital transformation. See also: Insurtech: One More Sign of Renaissance Defining Digital What do we mean when we say “digital”? Defining this – or at least coming to some common understanding – is essential to wise decision making when it comes to digital investments. Wander the streets of any insurance enclave and ask every insurance company employee you run into what “digital” means in the insurance context, and you are going to get a lot of different answers, more than a few of them self-contradictory. Definitions can range from narrow to broad, although, in our experience, most insurance company personnel stick with a narrow, capabilities-focused view of what digital is:  “Digital means a portal” or, slightly more broadly, “Digital means a tool or tools for enhanced customer communication.” From our perspective, these are too restrictive – because digital is not just about the technology. It’s about the people, processes and technologies that allow insurers to understand and interact with stakeholders – insureds, agents, brokers, partners, internal staff, etc. – in compelling, consistent and personalized ways. Transforming From the Outside-In So how do you create those compelling, consistent and personalized experiences for customers? The first step is widening the aperture on who a “customer” is. It is not just insureds, nor even agents nor brokers, which have been the focus of portal solutions. This narrow view leaves out a range of other stakeholders across the value chain that interact with the insurer and each other and are ripe for digitalization. Digital initiatives of some kind are almost universal in the insurance industry. It is rare for a company in any industry to not have at least a simple Web page. But what insurers do not consistently consider is defining what they mean by “digital,” what they want to achieve and how all the pieces fit together holistically to get a solid return on digital investments. Many insurers take a very tactical approach to digital strategy and investments, focusing on discrete capabilities rather than taking a business-need-driven approach. To make matters worse, the capabilities are too often based on internal stakeholders’ views rather than the external “customer” – the classic “inside-out” approach (aka, “build it and they will come”). The more effective approach is to deeply understand your customers by mapping their interaction journey across the value chain. This is the “outside-in” approach that will shape the digital strategy and priorities. Creating a digital strategy includes key building blocks. Insurers must outline their objectives and map customer journeys as steps in a calculated progression of the insurer toward a continuum of integrated digital initiatives. But no matter what the strategy and priorities are, they need to be based on the customers themselves. Whether through surveys, interviews, workshops or some combination, it is essential to step outside of your company walls and view the process from the perspective of the customer. It is also important to look outside of the insurance industry for guidance. Majesco’s own research studies with consumers and small and medium businesses revealed that insurance is in last place compared with other industries when it comes to ease of researching, buying and servicing products and services – even below the cable industry! The studies show that ease of use is very tightly connected to Net Promoter Scores (NPS), and we know from industry research that NPS scores are a key indicator of growth, profitability and customer loyalty. Insurance is clearly different in many ways from those other industries, but lessons and inspiration can and should be gained from their success. Why Is it Different This Time? You may think we;re just going through another fad. But there are key reasons why digital transformation is different than previous business modernization initiatives, such as e-business. From our perspective, it comes down to two overarching reasons. First, customers are the drivers. Whether those customers are individual policyholders, small business owners, large business employees, insurance employees or distribution partners, they are people who use digital technologies every day. Their digital demands are driving this shift, often based on their digital experiences with other businesses and industries. This is often referred to as the “Amazon effect.” And second, the digital revolution is led from outside of insurance. Relevant stakeholders experience high-end customer engagement from non-insurers on a regular basis To paraphrase Paul Papas, head of IBM’s Interactive Experience, the last best digital customer experience someone has anywhere is what they now expect everywhere, even from their insurance companies. Where to Start Given the range of things to consider, it can be difficult to know where to begin. Many insurers have started with sales, marketing and distribution. These are natural starting points. A host of insurtech startups have also focused on these areas, offering tremendous innovations and best practices from which insurers may derive their own transformational lessons. But there are several other areas of the value chain that can capture needed efficiencies, value and improvement through digital transformation. Enrollment, claims, product development, policy issue and service are all great starting points for a digital transformation and can have a profound impact on customer satisfaction and efficiency. In coming blog posts, I will explore each step in the value chain and the potential impact on each from digital transformation. See also: 5 Cs of Transformation in Insurance   Final Thoughts If you’re reading this, you’ve probably already begun your digital journey, or are at least thinking about doing so. I hope so! The gap between what customers expect and what insurers are able to provide is growing daily and rapidly into a chasm that will be increasingly difficult for many insurers to traverse. And it is only going to get tougher. The pace of change is accelerating, and the gap is widening and becoming harder to bridge. Those who don’t make moves to bridge or at least slow the widening of the gap are going to be left behind. It is a time of great change in insurance. A rebirth – a renaissance – of the industry is happening with the customer at the forefront. While it can be frightening, it is also exciting. It is time to embrace the shift and begin your digital transformation! For a deeper look at this topic, please see our recently published white paper, Insurance in the Digital Age: Transforming from the Outside In.

When it comes to adoption of technology, simple is most often better than complex. Steve Jobs and Apple went to great lengths to make their products simple. Without user adoption, products fail. Current technology trends continue the move toward simplicity with the advent of artificial intelligence and personal assistant tools like Amazon’s Echo and the Google Home. Before you know it, these tools will enter the benefits world. The question is, who is going to be first and best? And if I am a benefits broker, how does this affect my business? While many brokers are aware of the vendors that call on them or have booths at industry conferences, I believe the benefits technology race is going to heat up, with new competition entering the market. These new competitors see the market opportunity to automate large segments of our economy, including health insurance and healthcare. You may have heard of some of these companies, like Microsoft, Google, Salesforce.com and Apple. This would be in addition to current leaders such as ADP and Paychex. The stakes of the game will change, and the price of entry, from an investment standpoint, is in the hundreds of millions of dollars. Those with the capital will quickly outpace those with less capital. Don't be surprised when you start to see major mergers and acquisitions in the HR and benefits space. Could Microsoft buy Ultimate Software? Why not? Microsoft already purchased LinkedIn and recently hinted at getting deeper into the HR space. See also: Could Alexa Testify Against You?   When I look at products like the Amazon Echo and Google Home, I see products that have very quickly grabbed market share, with high rates of adoption. My wife, who is not an early adopter of technology, quickly became a user of Google Home. Why? Because it is easy. Would she have a better understanding of her health insurance if she could simply ask Google? Absolutely! Benefits technology, on the other hand, has not had broad adoption by employees. Yes, employers have bought systems or brokers have given them away, but when you look at utilization on the employee side it is abysmal. I believe the reason for this is because there is not enough value as a stand-alone solution to generate broad adoption. Keep in mind that the majority of people hardly use their healthcare in a given year, so there is little need to access such a system. I don't know about you, but I can hardly remember the login to my computer, never mind something I may not use for six months. The next generation of technology in the HR and benefits area is going to have broader and "everyday" value, while being much easier to use. Market-leading vendors, especially those with a great deal of capital, will invest in the latest technologies to try to win the technology race and gain more customers. And before you know it, you will be saying the following: “Alexa, is Dr. John Smith from Boston in the Blue Cross network?” “Ok, Google, request Friday off from work.” “Hey, Siri, how much does the average office visit cost?” “Alexa, what is the balance of my 401k?” “Ok, Google, transfer $500 from my savings to checking.” The advancement of technology and artificial intelligence has enabled many to have more personalized user experiences. Your Amazon Echo will "get to know you." Maybe in the near future your doctor will get to know you a little better, too. Many benefits brokers have chosen some technology vendor with a mission of putting as many clients on the system as possible. This is a risky position competitively as more advanced solutions from highly capitalized companies come along. I don't know many sales people or business owners in any industry who like running around with the eighth best product. Even more so when it is not necessary. The market and your customers do not care if you have invested thousands of dollars on some technology that may quickly fall out of favor. One should take the advice of Jack Welch, ex- CEO of General Electric, who once said, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” For those who have purchased the Amazon Echo or Google Home, you don't have to look far to see that the outside world is changing faster than the inside. The health insurance and healthcare industries often feel like they are moving at a snail’s pace. Private exchanges were lauded as change, when they really are a reincarnation of cafeteria plans from the '80s. See also: Why 2017 Is the Year of the Bot   With the Trump administration, changes in health insurance legislation may create a shift that empowers the consumer. The industry may need an army of people on the front lines to help the industry move to a whole new paradigm. The vendors will need help and the employers, and employees will need it, too. The technology is there. Alexa is ready. Are you?

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!