At the dawn of another year, it’s always helpful to reflect back and examine the last 12 months. What happened that surprised us? What were we proud of? And what lessons did we learn? In 2016 our entire industry went from one that was slow to adopt emerging technologies to one that is well on its way toward digital transformation. With increasing disruption in the form of innovation and new market entrants, we’ve moved more quickly toward progress than any time in history. And while this is a notable achievement (especially in the Property + Casualty insurance), reports show that there is a real movement for Straight-Through-Processing between all business processes. In the employee benefits/group insurance space that I work in, our experience is that insurance companies want to streamline all data. One of the prerequisites is eliminating the re-entry of data. For example, pushing CRM data to a rules-based underwriting and rating engine. Sending the information into illustrations and proposals and then populating an electronic application (e-app) into an enrollment component, where the insurer can cross-sell optional voluntary products is gaining traction. As are web services into various broker exchanges and automated renewals with seamless movement of data between claims and policy administration vendors into the sales and underwriting system. See also: Top 10 Insurtech Trends for 2017   However, many manual processes are still dominant across certain areas of insurance such as new case on-boarding, platform integration and voluntary product offerings (critical illness and accident), revealing there is still work to be done. In just one year, carriers have had to mobilize intelligently. They’re making strategic decisions that salvage previous investments in IT and equip present ones for growth. Taking large strides toward innovation and the Internet of Things gives insurers the inevitable benefits of this shift more quickly, too. 5 Key priorities Goals drive action, and Celent’s Life/Health Insurance CIO Pressures and Priorities 2016: North American Edition report outlined the following as some of the top business goals influencing CIO’s of mid and large sized carriers in 2016:

• Growth and retention
• Process optimization
• Regulatory requirements
• Innovation
• Cost reduction

Charged with finding the right solutions to realize these goals, IT departments have had important investment decisions to make. Not just for solutions that help achieve objectives today, but also ones that ensure mid-term and long-term success as well. Adapting to Disruptive Technology Insurtech is now a fully fledged stream of fintech with $1 billion of venture capital invested in 47 deals in the first half of 2016, Life Insurance International revealed. That’s great news for insurers. Contrary to what some others experts think, I believe insurtech to be more complementary to insurers as opposed to competition. Modernization of core legacy systems, new insurance exchanges and changing business models (platform and peer-to-peer) defined the year. They will continue to do so as carriers adopt digital strategies. Blockchain cryptocurrencies (Bitcoin), Artificial Intelligence (AI and chat bots), and sensor technology (wearables and autonomous cars) are taking hold in insurance and providing ample opportunity for disruption. The Internet of Things (IoT), the foundation for many emerging technologies, has irrevocably changed the way companies and consumers communicate. These trends are accelerating. See also: 5 Predictions for the IoT in 2017   Of course, Big Data, analytics and cloud technology are all part of the mix as well. Juggling the onslaught of new innovation and understanding how it can be used to create a competitive edge – very quickly - can be disconcerting. However, these disruptive forces should be seen as the catalyst necessary for the kind of dramatic change required to spur growth and new insurance products. Regulations Impact Technology Last April the US Department of Labor (DOL) set new regulations on the way agents and brokers will be compensated when advising on employee retirement plans or individual retirement accounts (IRAs). Scheduled to be in place by April 2017, the fiduciary rule will also affect strategic decisions for technology, compliance, products and employee training. Advisors and insurers must navigate which products the rule affects and how it will impact clients and operations. The proposed International Capital Standard (ICS) stands to address the capital requirements of global systemically important insurers and internationally active insurance groups. This unprecedented global measure is intended to regulate the capital allocations of international insurers. And while ICS is not yet enacted, international insurance carriers are encouraged to participate in forums and groups. This will help shape this global initiative to ensure key business concerns are addressed by the regulation. For a deeper understanding of the new standards, see this recent report by Price Waterhouse Cooper. 2016 in a Nutshell—and Moving Forward So can we wrap up 2016 in a bow? A lot of progress was made. But there is still a long way to go. It will take not place overnight, within a year or even a few years. It is a new paradigm that will continue evolve right along with us. The benefits of which will be felt as swiftly as companies are willing to change. Automation, integration and digitization are creating solutions for straight-through processing. They’re yielding faster turnaround times, reducing errors and optimizing workflow, creating the kind of connected insurance that customers and advisors are hungry for. “The secret to change is not to focus your energy on fighting the old but on building the new.” Those words of wisdom could have been uttered by a top management guru. But they were said by Socrates 2,400 years ago! Building the new—and building on the old, too. As we approach 2017, it’s clear that’s what the insurance industry leaders intend to do.

I'm speaking at a gathering of life insurance executives this week on the Gulf coast of Florida, and a topic that I'll address is one that merits wider consideration: the need for invisibility.

There's been talk about how insurance may be switching paradigms: Rather than having policies be "sold, not bought," we're now moving toward having them be "bought, not sold." There's truth to that, given that the internet gives people access to so much more information; potential clients are doing lots of research and are less susceptible to traditional sales tactics. But what if policies weren't either bought or sold? What if they just happened? What if they were almost invisible?

Trov, Slice and a few others are moving us in that direction, making activating a policy as simple as a swipe on a mobile phone. In the developing world, shipping rice may carry some insurance automatically, and other types of nearly invisible microinsurance are taking hold. Other types of insurance will follow, if we're creative enough. Perhaps taking out a commercial mortgage could bring with it a policy on the owner for the term of the mortgage -- the policy could be underwritten mostly based on some basic information about the owner, and there would be almost no transaction costs, removing two of the obstacles that can make buying life policies cumbersome.

In any case, the idea of invisibility is worth keeping in mind as a design principle. If we can move toward making policies as simple as an app on a phone, sales as easy as "would you like fries with that?" and customer service as comfortable as a stream of text messages, we'll go a long way.

To whet your thinking, here is a recent article from Forbes that explains how powerful the concept of invisibility has turned out to be in banking.

I hope you'll also visit our website to explore the nearly 2,600 articles by our more than 800 thought leaders. I also encourage you to look at the Innovator's Edge, where we are tracking the progress of nearly 800 insurtech startups. We're about to roll out some tools that will make it much easier for startups and incumbents to find each other there -- sort of an eHarmony for insurtech.

Cheers,

Paul Carroll, Editor-in-Chief

P.S. Yes, if you must know, it's lovely here. While my home state of California is being whacked by another major storm and much of the rest of the U.S. is shivering, the temperatures here will be in the high 70s and low 80s this week. I'll suffer through.... 

Today’s healthcare system is an absolute mess. It’s outrageously expensive, needlessly complicated and driven by transactions instead of relationships. People are paying more and more each year – always for less insurance coverage and very little “real” healthcare. Of course, the system is broken…. Or is it? To begin to transform healthcare, it’s important to identify and correct our misconceptions about the system. Let’s start with two big ones: Misconception #1: Americans spend nearly $3 trillion a year on healthcare (and this number is rising). Three trillion dollars is about 18% of our nation’s gross domestic product. We rank terribly against other developed countries for overall healthcare system costs. But there is a major problem with this statistic. It doesn’t represent what’s really happening. Look at Canada, which ranks much better than the U.S., spending less than 12% of its GDP on healthcare -- but we are calling foul on this stat. I lived in Canada for 23 years. I received my education there, trained there, practiced there, owned a company there and was a patient of the Canadian healthcare system on several occasions. I also have many friends and family members who still live there. The truth is that many Canadians come to the U.S. for routine and not-so-routine healthcare because it is not easy to access in Canada. In fact, if you’re in Canada and need healthcare urgently, you may find yourself in a terrible bind. The truth is that the Canadian healthcare system simply doesn’t match up to the U.S. system for quality, accessibility and true effectiveness. It’s not even close. The most privileged people in Canada wait (and sometimes die waiting) for services that the poorest and most average Americans can access right away, very successfully, every hour of every day. I’ve seen it over and over again with my own family and with many strangers looking for help. Americans wouldn’t tolerate for one day what even the most privileged Canadians endure indefinitely before finally coming to the U.S. for care. So how can Canada’s better healthcare GDP ranking be explained? Let’s start by breaking down U.S. “healthcare” spending: Do we really spend $3 trillion a year? Or is a large portion of this money wasted on excessive administration and poor planning but billed as “healthcare” spending? Are there healthcare companies that depend on revenue and profits generated by this waste and administration? Yes, there are. Here’s my take. Many status quo healthcare players are certain to disagree, but, as Upton Sinclair said, “It is impossible to prove something to someone whose salary depends on believing the opposite.” I believe that true healthcare costs in the U.S. are only about $1 trillion (6% to 8% of GDP) and that many industries are turning a nice profit by structuring their systems to capitalize on predictable waste, administration, inefficiencies and poor planning – built right into the U.S. healthcare design. See also: Why Healthcare Must Be Transparent   I’m not saying that there isn’t any waste or unnecessary administration that spur extra spending in Canada – there’s lots of it. I’m just saying that the financial incentives are much different. Waste and administration don’t pay as profitably in Canada as they do in the U.S. I’m also not saying that the Canadian healthcare system is better than in the U.S. I believe healthcare is far superior here. I’m just saying that in the U.S., we allow big industries to earn humongous profits off of waste, administration, inefficiency and poor planning. Canada does not. “Waste” is a bit abstract, so let’s provide a couple of examples. In Canada, an MRI completed at a cost of $300 to $500 in an independent lab is not performed again a week later in a hospital at a much higher cost, as can happen in the U.S. And a gall bladder surgery that can be performed at one site for $3,200 will not be performed at another hospital for $14,000. This happens in the U.S. many times every day, contributing greatly to our $3 trillion in costs. This difference in cost is “waste,” not “real healthcare.” “Poor planning” is also a bit abstract. But imagine the diabetic child of one of your employees running out of her 90-cent glucose monitoring strips that are essential for determining the correct dose of insulin she needs. It would not be uncommon for this situation to lead to a $20,000-plus hospital admission. So, you tell me, was the hospital’s $20,000-plus in revenue a result of a need for “healthcare,” or was it really because of “poor planning” built right into a system that limits diabetic supplies? Maybe we’d be going overboard if we claimed that this design was deliberate, but the fact remains that limiting basic, inexpensive primary care, education and diabetic supplies benefits the status quo players in healthcare. This amount also contributes to America’s $3 trillion in healthcare spending. Moreover, Canadian private insurance companies simply cannot demand double-digit premium increases from employers every year to pay for this waste, administration and poor planning, but it is tolerated by most businesses in the U.S. Misconception #2: The healthcare system is broken. Like most people, I used to agree with the commonly stated premise that the healthcare system is broken. I now have concluded that the American private healthcare system is working exactly as intended. Let me explain. America’s healthcare system is run and controlled by trillion-dollar industries with multi-hundred-billion-dollar companies that are publicly traded and exert a lot of influence on the actions of our governments. With all of the talk about the expenses resulting from the Affordable Care Act, it’s shocking to learn that the most profitable stocks from 2011-2016 were U.S. insurance, pharmaceutical, hospital and other related healthcare companies. In fact, the percent growth in American health insurance stocks during that period are four to five times greater than the Dow, and the Dow is up more than 100%! These public companies have a goal (and fiduciary duty) to grow revenue and profits (and share prices) by any legal means. Because these companies can easily leverage their size and influence to exert control, I believe it is reasonable to conclude that today’s U.S. healthcare system is working perfectly for what it was designed to do – return shareholder value to these companies. It’s just not working that well for the rest of us. Maybe it’s just not designed for us. Are there any business owners or employees who still feel that the healthcare system exists primarily to serve them? If the system did exist for you, wouldn’t you expect to see much more transparency in pricing? Would you accept insurance premiums that go up 10% to 40% percent every year? Wouldn’t your employees be able to make appointments much more easily and have more access to their doctors via the phone? Wouldn’t their doctors’ appointments begin on time, minimizing time wasted in a waiting room? In a nutshell, healthcare would be much easier, more convenient, more affordable and more accessible, and you wouldn’t have the hassle, frustration and feeling that you were being taken advantage of at every renewal time. Clearly, the system is not designed to serve the employer and employee. But this doesn’t mean it isn’t doing what those in power want it to do. Share prices don’t lie. The more we have studied it, the more we see that the only two stakeholders in the entire healthcare system who are aligned for costs, quality and customer experience are the purchaser of healthcare (the employer) and the user (the employee). All other stakeholders (e.g., hospitals, doctors, insurance companies, brokers, pharmaceutical companies, and even our politicians) have incentives to do things and make decisions that are not aligned with the employer and employee. At the very least, there are many things that happen in the healthcare system that do not benefit the employer and employee but do benefit other stakeholders in the system. But there is a secret: When an employer and employees team up and recognize their aligned interests, they gain a tremendous new capability for lowering healthcare costs, getting better quality and results and receiving the customer experience they want. Even though it could seem that the more organized stakeholders of healthcare (e.g., the hospitals, insurance companies, brokers, doctors, etc.) are conspiring to take advantage of employers and their employees, we would encourage you instead to consider that, in most cases, the people running the system are very good people who want the best and want to help people. This is why they pursued a career in healthcare in the first place. It is just unfortunate that the system in which they work has evolved and now essentially forces them to add the costs of profitable waste and unnecessary administration, and often they don’t even know they are doing it. See also: Not Your Mama’s Recipe for Healthcare   It doesn’t have to be this way -- and there are ways that employers can take back control. It always starts with challenging the status quo thinking, and by taking a common sense approach to simplifying and gaining price transparency. Designing an employer health plan that makes routine primary care, labs, chiropractic and preventive exams super easy, convenient and affordable is always the foundation for minimizing the high-dollar expenses that eat up most of the healthcare claims budget. Read “Business Owner’s Guide to FIGHTING HEALTHCARE” for more details on how anyone can make healthcare work for them.

There’s a lot in print and on the web about the concept of “engagement” and how it applies in the insurance and financial services sales process. We all know what engagement means at an everyday level as we work to connect with people in various ways or describe how someone is engaged or even engaging. It's exciting when we hear of a couple becoming “engaged." In business, the word "engagement" has many applications, ranging from simply having an agreed upon appointment time (an engagement)… to reaching a deal, resulting in buying or contracting for some service. When it comes to sales, client or prospect “engagement” needs to be understood much, much more. Engagement is a strategic asset or weapon when a professional intentionally and regularly stays in touch with their clients and centers of influence or trusted partners by connecting personally and relationally. Being highly engaged means the professional is staying focused with all these people in the continuing delivery of value, investing time, staying in touch every two to three weeks and building a deeper personal relationship with each person based on their individual interests and needs. This type of strategic investment always builds trust, keeps the pathways open for serving added needs and finding new opportunities and always gains new prospect referrals and introductions. See also: How Advocates Can Reengage Workers   Research about engagement in the financial services industry brings some startling information to the table. The work by Julie Littlechild of Absolute Engagement of Toronto shows that clients who have a “satisfied” relationship with their provider have an overall loyalty rating of 99%, yet only 20% have actually provided a referral to their financial adviser. So they’re satisfied and are likely going to stay as clients, but only one in five has actually referred a new opportunity to their provider. However, when the survey polled clients who felt their provider was very engaged, the results shift dramatically. These clients had a 100% loyalty rating, and 98% of these had actually already provided referrals to their advisers during the past year. So, do the math: Highly engaged relationships provide more times more referrals than those where there’s less or little engagement. Now imagine you had all of your clients and trusted professional connectors feeling that you were in a real, connected relationship with them. What could that potentially yield to you in the way of new sales opportunities, month in and month out? The national sales leader of one of the largest and most recognized Insurance companies in the world told me that “our competition really comes from inside… it’s the inertia inside of my firm…,” meaning producers keep doing the same things that they’ve always done and then get the same lukewarm results. All of that can be changed with added emphasis on training his teams on the importance and specific ways to create better engagement with clients and centers of influence Today, insurance leaders are universally concerned about technology disruption… you know, the threats coming from startups like Lemonade right now, and Zenefits before. I know that any professional worth his suit can readily withstand these competitors by focusing on using his No. 1 asset: the ability to build highly engaged relationships with clients and other professionals that will increase loyalty and generate a multitude of new referred client opportunities. As a producer, your best asset is your ability to strengthen each and every relationship in your network on a person-to-person basis to where trust is the glue and your personal connection provides the ties that bind. I’ll guarantee that no newcomer or technology can easily replicate what you’re building when you reach out and make a personal contact with the people in your networks every two to three weeks. That provides the inoculation against disruptors -- essential if you’re serious about protecting and growing your business. See also: MyPath: Engage the Next Generation   Imagine how 30 to 35 of these important people would feel if you had a routine that showed them how important you believe they are. Imagine how they would feel if every two weeks or so you were to make an unexpected visit, send an email with something they are caring about, make a quick, unplanned phone call or write a short personal note of appreciation with no other purpose in mind but to make them know that you are thinking about them and that they are valued and important. To build these engaged relationships, you first must develop a mindset of being a “giver.” To make it happen consistently, use tools to keep you scheduled and on track and systematically ensure that you’re staying engaged and in touch to provide meaning and value and create close connections. Then, as Robert Cialdini states in his noted book "Influence," as you give meaningfully to people, they will have a desire to reciprocate, and if you teach them how to give back… with referrals and introductions, they will! Become one of the few getting excellent ratings for engagement in your industry, and you’ll reach every goal you have. Someone once said, “Your network is the key to your net worth.” That statement has never been more appropriate than it is right now! And I’ll add that engagement is the key to building your network!

Love it or hate it, 2016 was a year that brought many surprises. And 2017 is looking like another year of unexpected outcomes. The saying goes, "May you live in interesting times." And we are definitely living in interesting times, including in the insurance industry. Here are 10 insurance questions for 2017: 1. Will this be the year that the U.S. insurance industry makes a definitive move toward level commissions or fee-based products across all product lines? Most other professional service providers are paid on an hourly or fee basis, including accountants, attorneys, physicians, trust officers and the majority of financial planners. The Department of Labor fiduciary rule is driving some insurance companies to offer fee-based annuities for retirement plans rather than traditional commission-based annuities. See my take on this: The Fiduciary Rule: A Call To Arms for the Insurance Bill of Rights: Aligning the Insurance Industry With Consumers. The U.K. already has a commission ban, yet life insurance sales are now trending up. While, there are differences in the U.S. and U.K. markets, the core principles are the same. To learn more, visit the Nerd's Eye View Blog for Bob Veres' in-depth look. Commissions are not necessarily the bottom-line issue; it's the premiums that really make the difference. 2. Will the Affordable Care Act stay in effect?  While no one knows for sure, it is unlikely that the ACA will be completely repealed any time soon. President-elect Trump, along with leaders in Congress, have vowed to repeal and replace, but doing so will be challenging given the lack of votes in the Senate. And while there are significant issues with the ACA, consumers do benefit. Also, healthcare organizations and insurance companies having spent millions of dollars to adjust to it. What is likely is that changes will occur on a gradual basis. The bottom line is that one of the most important benefits to U.S. citizens is the ability to purchase health insurance if you have any existing (or past) health issues. Prior to the ACA, it was challenging to get an individual health insurance policy, which created a bigger issue for individuals and for our overall society. Yes, premiums are increasing, and there are fewer insurers participating. At the same time, it is estimated that there are more than 20 million people with insurance under the ACA. Change will happen, just gradually. If the ACA is replaced, there remains the questions of how to fund it, if the current mandates (taxes and penalties) are stripped out. The funding is one of the core issues and does need to be revised. Insurance companies have also left the federal and state exchanges in a number of states, and they will need to be given incentives to return to the marketplaces. See also: Top 10 Insurtech Trends for 2017   3. What will happen with long-term care insurance (LTCI)? The need for long-term care insurance is not going away; people are living longer, and healthcare costs are rising. Medicaid coverage is minimal and does not apply to most long-term-care expenses. Older LTCI policies have experienced significant premium increases for many reasons, but since the passage of the National Association of Insurance Commissioners' Rate Stabilization Model Act, there have been fewer increases on newer policies (Read more: "What's ahead for long term care insurance" ). Currently, hybrid long-term-care/life insurance policies are experiencing growth, but these complex policies are not a solution, as they are a step away from providing a direct protection against the specific risk being insured, which means they are more expensive than a stand-alone LTC policy. A new issue coming up is that some states have "filial responsibility" laws that obligate adult children to financially support their parents and are starting to be used by some nursing homes.  Read about it here. 4. Will insurance agents go extinct? No, insurance agents will not be going away. However, the way that insurance agents currently do business and have historically done business will be going away. With greater access to information and technology, insurance agents will become true advisers to their clients rather than simply transacting product sales. Professional insurance agents provide value to consumers when they help them understand how insurance policies work and when they assist consumers in making wise choices. The insurance agents who survive will be the ones who recognize that they need to align their interests with those of consumers and work in their best interests by recommending insurance coverage that consistently meets the needs of their clients. Insurance agents will need to follow the concepts outlined in The Insurance Bill of Rights. Mark Twain said, "The reports of my death have been greatly exaggerated," and this certainly applies to insurance agents. 5. Will consumers finally discover the value of disability insurance?  Disability insurance is the most overlooked financial tool. Disability insurance is a necessity for anyone who depends on their income. If we are discussing a mandatory insurance coverage, disability insurance should be at the top of the list. Three in 10 workers entering the workforce today will become disabled for some period before they retire (Social Security Administration, Fact Sheet, January 31, 2017). This point was brought home by the fact that Colin Kaepernick did not play this year for the San Francisco 49ers until they purchased a disability insurance policy for him. Read more here. 6. Has the annuity marketplace hit its turning point?  The current annuity marketplace is filled with complex annuity options that are increasingly challenging for an insurance agent to understand, let alone being understandable for consumers, especially seniors, who are heavily marketed to. The annuity industry continues to face significant market conduct issues in terms of suitability and disclosures (Read about the investigation by the New York Department of Financial Services). Annuity companies that think outside the box and provide low-cost, easy-to-understand solutions will gain popularity. A number of leaders in the financial planning area are already discussing the value of single-premium immediate annuities in investment portfolios to help offset longevity risk (living too long). This will only happen with low-cost annuities and where agents can really provide value by recognizing and solving challenges that can only be addressed with annuities that serve the consumer by getting back to the core function of annuities. 7. Have we reached the tipping point for when the impact of the prolonged low-interest-rate environment will fully emerge on interest-sensitive life insurance policies?  The majority of universal life policies issued are facing the hidden danger of terminating long before they are expected to. This is due to lower-than-projected credited interest rates, which has led to reduced cash values. If a life insurance policy reaches a cash value of zero, it will terminate unless it has a no-lapse guarantee. The only way to keep the policies in force is to increase the premium, however, life insurance companies, for the most part, are not advising policy owners that they need to increase the premium and specifying the amount by which the premium needs to be increased. This situation has been exacerbated by the fact that a number of life insurance companies have had to increase their mortality costs (cost of insurance charges) to maintain profitability. Continuing to ignore this issue is going to have significant long-term ramifications for the stability and trust in life insurance companies and life insurance agents. This is affecting all types of life insurance that are not guaranteed products, just not as directly. Read more: Will Your Life Insurance Terminate Before You Do? See also: 10 Predictions for Insurtech in 2017   8. Is there truly an insurtech company that can add core value to the insurance process? The insurance industry needs evolution, and not revolution. The majority of insurtech companies are really bringing us more of the same; they are really just "dressed up" insurance brokerages and insurance insurance companies. And while some do make use of technological breakthroughs, they are not making insurance breakthroughs, which is an important distinction. The real breakthroughs will come from when consumers can more easily understand insurance products and pricing and companies can use data to provide truly customized insurance product pricing, streamline underwriting, simplify products and riders and provide insurance products that people need, thereby eliminating those that don't have a useful purpose. 9. Is it time for insurance policies to finally be used primarily for insurance purposes? The insurance industry will recognize that it must get back to its core function, which is protecting against potential risks. When this happens, it will lead to better-optimized insurance products for consumers and longer-term business for insurance companies. This will especially be true in the areas of life insurance and annuities when the trend becomes using insurance to address non-insurance issues. Insurance is just insurance. 10. Will the insurance industry discover excellent customer service? Quality policy owner service is not something that the insurance industry as a whole is known for. Companies that provide top-notch customer experiences thrive, are well-known for doing so and can be easily named (think: Nordstrom, Disney and Apple). Other companies are known for poor customer service, while most remain in the middle. FedEx, which used to be known for top service, now delivers packages at any time and leaves them all over the place. The point is that a quality policy owner experience will revolutionize the insurance process. If the insurance industry can learn to "delight" consumers at every step along the way from the policy selection process, policy application and underwriting process, policy monitoring and claims service, then the insurance industry will really move forward. The Bottom Line Greater insurance literacy will benefit consumers and members of the insurance industry. Following the guidelines of The Insurance Bill of Rights is what will move the insurance industry forward. Ask your agent and insurance company if they've taken The Insurance Bill of Rights Pledge and look for the Insurance Bill of Rights Seal on their website. If they haven't taken it, ask them why not or what they have to hide about fairness and disclosure -- and join The Insurance Bill of Rights Movement by signing the petition to support The Insurance Bill of Rights (click here). If you have any feedback or your own questions for 2017, please let me know. Thanks for reading.

There’s a lot of attention being given at the moment to the startup firms that are entering the insurance market in the hope of grabbing attention and business by disrupting the established ways of doing things. And some of these insurtech startups are indeed introducing new and exciting ideas to the market. Disruptive thinking has its upside, and customers will benefit from it. Does it have a downside as well, though? There’s a view that, to be successful, disruptors need to “delight in breaking rules, but not rules that matter.” This view can lend startups a certain piratical air, yet it can also cause them to see the rules that get in their way as the rules that don’t matter. That’s why we’ve seen some high profile insurtech startups crashing into regulatory brick walls: Zenefits is a classic example of this. Now,  I’m not saying that startups shouldn't hit problems, even regulatory ones, but what I am saying is that they should at least get the basics right, even if the basics are themselves disruptive to the work of disruptors. The U.K.’s Information Commissioner made this clear to the insurance industry in 2015 when he pointed out that “big data is not a game played by different rules.” See also: An Eruption in Disruptive InsurTech?   I’m also not asking for insurtech startups to occupy the high moral ground, but I am saying that they cannot reinvent "doing business" in ways that sidestep the ethical values that consumers expect firms to uphold. Nailing business values like "innovative" and "disruptive" to your piratical mast won’t stop inconvenient winds like "honesty" and "fairness" from pushing your exciting voyage toward the hard rocks of reality. It is with terms such as honesty and fairness that customers often describe what a "good financial services firm" feels like. Yet insurtech start-ups are often being urged to disrupt customer expectations, seeing them as a quaint left-over from an old way of doing things. The future is instead said to lie in insurance providers getting closer to their customers in all sorts of ways. Yet isn’t business success more reliant on customers wanting to get closer to firms? It’s the latter that leads to the former, not the other way around. The danger is that disruptors’ natural and essential super-confidence in themselves is translated into overconfidence in the ethical correctness of their decisions and judgments. And there’s then the tendency for them to believe that other people think the same way as they do. Both are fairly normal traits that we all exhibit in some form or other in our everyday lives. I certainly do, and my daughters have pulled me up short with one or two of the decisions I’ve made. See also: The State of Ethics in Insurance   And that sort of challenge, that sort of "knowing you but through different eyes" is vital for insurtech startups. While insurance needs disruptive startups, they in turn need disruptors of group think, of the wrong sorts of overconfidence. As the folklore of startups fills with tales of disruptors being told they’re not being overconfident enough in their business plans, let’s put out a marker of hope for 2017, that it will see tales of disruptors being told they’re not being ethical enough in their business plans, that they’re not doing enough to earn the trust of consumers. It’s very possible, if the market and those advising them want it.

In the 2013 movie “Her,” Theodore Twombly, a lonely writer, falls in love with a digital assistant designed to meet his every need.  She sorts emails, helps get a book published, provides personal advice and ultimately becomes his girlfriend. The assistant, Samantha, is A.I. software capable of learning at an astonishing pace. Samantha will remain in the realm of science fiction for at least another decade, but less functional digital assistants, called bots, are already here. These will be the most amazing technology advances we see in our homes in 2017. Among the bestsellers of the holiday season were Amazon.com’s Echo and Google Home. These bots talk to their users through speakers, and their built-in microphones hear from across a room. When Echo hears the name “Alexa,” its LED ring lights up in the direction of the user to acknowledge that it is listening. It answers questions, plays music, orders Amazon products and tells jokes. Google’s Home can also manage Google accounts, read and write emails and keep track of calendars and notes. Google and Amazon have both opened up their devices to third-party developers — who in turn have added the abilities to order pizza, book tickets, turn on lights and make phone calls. We will soon see these bots connected to health and fitness devices so that they can help people devise better exercise regimens and remember to take their medicine. And they will control the dishwasher and the microwave, track what is left in the refrigerator and order an ambulance in case of emergency. See also: What Do Bots Mean for Insurance?   Long ago, our home appliances became electrified. Soon, they will be “cognified”: integrated into artificially intelligent systems that are accessed through voice commands. We will be able to talk to our machines in a way that seems natural. Microsoft has developed a voice-recognition technology that can transcribe speech as well as a human and translate it into multiple languages. Google has demonstrated a voice-synthesis capability that is hard to differentiate from human. Our bots will tell our ovens how we want our food to be cooked and ask us questions on its behalf. This has become possible because of advances in artificial intelligence, or A.I. In particular, a field called deep learning allows machines to learn through neural networks — in which information is processed in layers and the connections between these layers are strengthened based on experience. In short, they learn much like a human brain. As a child learns to recognize objects such as its parents, toys and animals, neural networks learn by looking at examples and forming associations. Google’s A.I. software learned to recognize a cat, a furry blob with two eyes and whiskers, after looking at 10 million examples of cats. It is all about data and example; that is how machines — and humans — learn. This is why the tech industry is rushing to get its bots into the marketplace and are pricing them at a meager $150 or less: The more devices that are in use, the more they will learn collectively, and the smarter the technology gets.  Every time you search YouTube for a cute cat video and pick one to watch, Google learns what you consider to be cute. Every time you ask Alexa a question and accept the answer, it learns what your interests are and the best way of responding to your questions. By listening to everything that is happening in your house, as these bots do, they learn how we think, live, work and play. They are gathering massive amounts of data about us. And that raises a dark side of this technology: the privacy risks and possible misuse by technology companies. Neither Amazon nor Google is forthcoming about what it is doing with all of the data it gathers and how it will protect us from hackers who exploit weaknesses in the infrastructure leading to its servers. Of even greater concern is the dependency we are building on these technologies: We are beginning to depend on them for knowledge and advice and even emotional support. The relationship between Theodore Twombly and Samantha doesn’t turn out very well. She outgrows him in intelligence and maturity. And she confesses to having relationships with thousands of others before she abandons Twombly for a superior, digital life form. We surely don’t need to worry yet about our bots becoming smarter than we are. But we already have cause for worry over one-sided relationships. For years, people have been confessing to having feelings for their Roomba vacuum cleaners — which don’t create even an illusion of conversation. A 2007 study documented that some people had formed a bond with their Roombas that “manifested itself through happiness experienced with cleaning, ascriptions of human properties to it and engagement with it in promotion and protection.” And according to a recent report in New Scientist, hundreds of thousands of people say "Good morning" to Alexa every day, half a million people have professed their love for it, and more than 250,000 have proposed marriage to it. See also: Top 10 Insurtech Trends for 2017   I expect that we are all going to be suckers for our digital friends. Don’t you feel obliged to thank Siri on your iPhone after it answers your questions? I do, and have done so.

As an industry, we are knowledgeable. In fact, I think one could say that insurers may know more about the way the world works than most other industries. We hold the keys to risk management and the answers to statistical probability. We underpin people, businesses and economies world-wide. We have centuries of real-world experience and decades of real-world data dealing with individuals, groups, businesses, property, life, investments and health. Yet, in 2017, none of that experience will matter unless we are willing to embrace an entirely new field of knowledge. The convergence of technology with digital, mobile, social, new data sources like the Internet of Things (IoT) and new lifestyle trends will make insurers better, smarter and more successful IF we are willing to “go back to school” and audit the class on modern, innovative insurance models, generational shifts in needs and expectations and disruptive technologies. This class is largely self-taught. Between you, Google, traditional and new media (think Coverager, Insurance Thought Leadership and InsurTech News), social networks and a few hours each week, you can expand your horizon toward the future to become a knowledgeable participant in 21^st century insurance. It will help, however, if you know what to search for. In this blog, I’m going to give you five high-level areas to keep tabs on in the coming months. These are the places where technology and market shifts are going to create massive competitive energy in the coming year. Insurtech, Greenfields and Startups As of this writing, AngelList (a startup serving startups,) lists 1,069 insurance-related startups. Many of these are new solution technology companies. Others are new insurance companies or MGAs focusing on new market segments, new products and new business models. The influx of capital from venture capital firms, reinsurers and insurers has advanced the proliferation of startups and greenfields based on new tech capabilities. Business model disruption will continue to be mind-boggling, exciting and scary all at the same time — bringing insurtech into the mainstream and powering the industry-wide wave of innovation. Whether you are sifting through ideas to improve your competitive position, launch a new insurance startup or greenfield, seek partners actively engaged in insurtech or invest or acquire a new technology startup, insurtech companies and their growing numbers are to be watched. Reading through these types of lists will give you a feel for the expansive nature of insurance. You’ll see how marketing minds are turning traditional insurance concepts into relevant products and solutions that fit today’s and tomorrow’s lifestyles. Be inspired to engage in insurtech in 2017, because time is of the essence. For background, start by reading Seed Planting in the Greenfields of Insurance. See also: 10 Predictions for Insurtech in 2017   Artificial Intelligence and Cognitive Computing AI and cognitive computing technologies like IBM’s Watson have been touted as the link between data and human-like analysis. Because insurance requires so much human interaction and analysis regarding everything from underwriting through claims, cognitive computing may be insurance’s next solution to better analyze, price and understand risks using new data sources and add an engaging and personalized advisory interface to their services to achieve efficiency and improvements in effectiveness as well as competitive differentiation. Cognitive computing’s speed makes it a great candidate for underwriting, claims and customer service applications and any task requiring near-instant answers. IBM and Majesco recently announced a partnership to match insurance-specific functionality with cloud and cognitive capabilities. This will be an area to watch throughout 2017. On-Demand, Peer-to-Peer and Connected Insurance Trov allows individuals to insure the things they own, only for the periods during which they need to insure them. Cuvva is betting that people will want to have insurance on their friend’s cars during the time in which they borrow them. Slice launched on-demand home-share insurance to hosts using homeshare platforms like Airbnb, HomeAway, OneFineStay and FlipKey. Verifly offers on-demand drone insurance. Insurance startups are filled with companies that are providing insurance to the new spaces, places, behaviors and lifestyles where insurance is needed. Other startups are using social networks and the Internet of Things to bring parity to insurance, often lowering premiums. Peer-to-peer insurers like Friendsurance and Lemonade put customers into groups where the group’s members pool their premiums, payment for claims come from the pool and, in the case of Lemonade, leftover premium is contributed to social causes. Metromile uses real usage data to provide fair auto insurance premiums. Here is a space where insurers must keep their eyes open for opportunities. How can P&C insurers cover those who don’t own a car, but who still drive periodically? How will group health insurers help employers lower their rate of medical claims? How will life insurers promote wellness and reduce premiums?  Many of the answers will be found in digital connections, social knowledge, IoT data and an ability to provide timely, instant and on-demand coverage.  For more insight, start reading 2016’s Future Trends: A Seismic Shift Underway and the soon-to-be-released update. The Revival of Life Insurance One area that will receive a much-needed insurtech stimulus will be life insurance. The life insurance industry ranks last as noted in the recent research, The Rise of the New Insurance Customer: Shifting Views and Expectations; Is Your Business Ready for Them?, which is likely reflected in the decline of life insurance purchases over the past 50 years. The 2010 LIMRA Trends in Life Insurance Ownership report notes that U.S. individual life insurance ownership had dropped to the lowest rate in 50 years, with the ownership rate at just 44%. As new simplified products are introduced, new data streams proliferate and real-time connections improve, life products are poised to change. Already, new life insurers and traditional life insurers are positioning to use connected health data as a factor in setting premiums. John Hancock’s Vitality is perhaps the best current example, but other players are entering the mix — many simply claiming to have a better methodology for selling and servicing life policies. Haven Life, owned by Mass Mutual, and companies such as Ladder, in California, are reinventing term insurance … from simplifying the product to creating an “Amazon-like” experience in buying in rapid time. Ladder, in particular, uses a MadLibs-type underwriting form that’s not only relevant but fun to use. The life insurance industry is hampered by decades-old legacy systems and the cost of conversion and transformation is taking too long and costing too much. As a result, look for existing insurers to begin to launch new brands or new businesses with modern, cloud core platforms to rapidly innovate and bring new products to market for a new generation of customers, millennials and Gen Z. As we saw in 2016, most new entrants are aimed at term products that will sell easily and quickly to the underserved Gen Z and millennial markets. New life players and products, as well as existing life insurers, reinsurers and even P&C insurers seeking to capture this opportunity will be interesting to watch in 2017. See also: What’s Next for Life Insurance Industry?   Cloud and Pay-As-You-Use If your company is underusing or not using cloud computing with pay-as-you-use models, 2017 should be a year for assessment. Though cloud use isn’t new, its business case is picking up steam. Search “cloud computing and insurance” and you’ll find that the reasons companies are seeking cloud solutions are evolving. The case for core system platform in the cloud reached the tipping point in 2016 … from nice to consider to a must have, and it will be the option of choice in 2017. The logic has grown as capabilities have improved, cost pressures have increased and now the demand for speed to value and effective use of capital on the business rather than infrastructure is gaining priority. Incubating and market testing new products in a fail-fast approach allows insurers to see quick success and capitalize on pre-built functionality with none of the multi-year implementation timeframes. Increasingly, many insurers are taking advantage of the same pay-as-you-use principles of cloud as consumers themselves. They are paying as they grow, with agreements that allow them to pay-per-policy or pay based on premiums. They are using data-on-demand relationships for everything from medical evidence to geographic data and credit scoring. They use technology partners and consultants in an effort to not waste downtime, capital, resources and budgets. They are rapidly moving to a pay-as-they-use world, building pay-as-they-need insurance enterprises. This is especially true for greenfields and startups, where a large part of the economic equation is an elegant, pay-as-you-grow technology framework. They can turn that framework into a safe testing ground for innovative concepts without the fear of tremendous loss, while having the ability grow if the concepts are wildly successful. Major insurance research firms advocate cloud as a smart approach to modernizing infrastructure and building new business models. Keeping cloud on your company’s radar is crucial and good place to start is reading The Insurance Renaissance: InsureTech’s Pay-As-You-Go Promise. These are just a few of the areas we should all be watching throughout 2017, but the vital step is to take your new knowledge and apply your “actionable insights” throughout your organization, powering a renaissance of insurance. Make 2017 your company’s Year of Insurance Renaissance and Transformation!

As your transition team morphs into your operations group, I thought I would take a moment to give my thoughts on ACA as a seasoned consultant to this industry. While I hear the blustering about repeal and replace, it is my strong belief that any successful bi-partisan remake of healthcare will need to build from the success of President Obama’s signature legislation. In building consensus, President-elect Trump may wish to throw a bone and acknowledge that reducing the ranks of the uninsured was a win, and it was not the only one. Here is my scorecard for the ACA: High marks: Facilitating the shift from fee-for-service to fee-for-value healthcare by supporting the Accountable Care model is important. Comparative effectiveness research, which creates national models for best practices in care delivery, has moved the cost of care, albeit too slowly, in the right direction. For example, a recent study in the Annals of Internal Medicine establishes that reimbursement penalties for hospital readmissions have reduced these by 77 out of 10,000 admissions. Eliminating pre-existing conditions, benefit maximums and coverage rescissions is a critical change effected by ACA that must be retained. If coverage is purchased under the rules as developed, it is unconscionable that an insurance policy can simply no longer respond. See also: What Trump Means for Health System   Average grades: Coverage for all children to age 26 added coverage for millions of our healthiest population. Uniform coverage for children who have yet to be established as adults is important. But to what extent? Should employers also have to cover the non-dependent adult children of their workers? The extended coverage is a generally good idea, but a small tweak would move it to the high marks section: require that the child be a tax-qualified dependent no older than 26. We should have a coverage mandate; however, to make this effective it should have teeth. In Australia, the penalty for not having coverage is significant enough that younger adults wouldn’t consider the risk/reward tradeoff of “rolling the dice” to be a viable option. We should do the same and also provide age-banded rates that are not as punitive to the younger insured. Everyone has to be in the system because opting out has a backstop, too. Even prior to ACA, Americans had a coverage stopgap. If one was sick enough and needed care, pre-ACA, it would have been dispensed in the hospital. Medicaid expansion is an excellent way to bring basic benefits to Americans who simply can’t afford healthcare. However, any new healthcare initiative has to find a way to mandate national standards for providing care for the indigent. Providing coverage for those with income at 18% of the federal poverty level or less is absurd, yet is a standard in two states for eligibility. Someone at that level can’t even afford food – there is no way they would pay into a healthcare system. Care should be basic and should have individual accountability built in – even the poor need to help control healthcare expenditures. Employers should have to provide coverage meeting minimum standards, but the convoluted state-mandated benefits should be simplified and national standards should be established. This would also facilitate selling coverage across state lines and increase competition. Failing grades: Community rating makes sense in the small group marketplace. Standardized plans and rates simplify this market. But eligibility leakage such as association plans and PEOs (professional employer organizations), which are allowed to underwrite risk, “cherry-pick” the risk pool and ultimately create an insurance death-spiral. The Cadillac Tax is a stupid way to finance healthcare change. Instead, the plans should have an actuarial value threshold that sets deductibility limits. If a business wishes to provide a higher level of benefits it should be able to, but the deduction would be disallowed. There is no reason an employer should be taxed for older demographics or a sicker work force that might increase premiums above the “Cadillac” premium limit. The administrative complexity of ACA has to go. The exchanges are a bureaucratic nightmare. The reporting structure consumes needless resources for very little benefit. Policing the new system would be simple. The states would determine Medicaid eligibility, and the tax reporting system would capture those individuals without coverage. See also: What Trump Means for Healthcare Reform Other suggestions: Establish price controls on brand name drugs that take into account financial incentives for inventiveness. A single drug available to treat a medical condition is like a monopoly, and it is against public policy for a monopoly to set rates (for example water or electric rates), so why should a drug company set an unconscionable price for a drug that cures hepatitis C or cancer? If one has that condition, he will pay anything to cure it. But it is the employer or the insurance carrier that bears the bigger financial burden. Perhaps there should be a separate award for that inventiveness not paid by the direct users -- instead, a drug and medical innovation tax on insurance policies. Drug price transparency should be immediately introduced. Drug rebates that obfuscate the true cost of medicine and either hide pharma profits or shift money back to the employer or plan administrator are ridiculous. Get rid of them. It is an incredible time to be in healthcare!