This is an unprecedented time for insurers. As margins associated with conventional lines of coverage continue to tighten, pressure is increasing to offer new forms of coverage to respond to the emerging cyber threats facing insureds in today's digital economy. At the same time, insurers are compelled to make certain that those risks are effectively excluded from coverage under many other "traditional" policy forms. Unfortunately for underwriters of both traditional and newer policy forms, emerging cyber threats can be difficult, if not impossible, to predict and factor into underwriting and policy drafting processes. But as we've already seen in the context of cyber incidents, today's unknown cyber threat can become tomorrow's front-page news and unanticipated limits payout. And if that threat is spread across multiple insureds in an insurer's coverage portfolio, the bottom-line effect of the aggregated losses could be devastating. Making matters worse — as recently recognized by the Bank of England's Prudential Regulation Authority (PRA) — these “silent” cyber exposures can simultaneously affect multiple lines of coverage, (including casualty, marine, aviation and transport), affecting both direct and facultative coverages. See also: A Revolution in Risk Management   Imagine this scenario: Company A manufactures components used in the Wi-Fi systems of commercial airliners. Mr. X, a disgruntled employee of Company A, purposely inserts a software coding vulnerability into the components, which were then sold to Company B, a leading manufacturer of commercial jetliners. Company B incorporates Company A's components into its jetliners and then sells 30 of them to three major U.S. commercial airlines. Company A also sells the affected components to Company C, which manufactures and sells private charter jets. Company C sells 15 jets containing Company A's vulnerable components to various private individuals and corporations. Once the planes are in operation, Mr. X remotely exploits the vulnerability in the aircraft, causing three in-flight planes to go down in populated areas. Plane 1 crashes into a medical center in Small Town. Plane 2 destroys an electrical power station in Mega City, plunging half of the city into darkness. Plane 3, a private corporate jet, causes serious damage to a bridge that is heavily used by a commuter rail service in Sunny City, rendering it unusable and making it virtually impossible for thousands of commuters to get to work. Widespread panic immediately ensues after the crashes. All U.S. air traffic is halted pending an investigation of the cause. There are numerous traffic accidents and looting incidents following the blackout in Mega City, and many organizations are forced to close indefinitely. Mr. X then contacts Company C and the three airlines that purchased the affected jetliners and demands $1 billion in exchange for revealing the vulnerability. This obviously is an unlikely scenario, but as technology continues to be used in novel ways, it is important to recognize what will be possible. This scenario was created to highlight a complex casualty catastrophe initiated from a technological weakness in an increasingly connected world. While crashing planes are terrifying, the bigger takeaway is that this was not a possible scenario prior to recent technological developments. It isn’t difficult to see how the multiple insurance coverages triggered from the above scenario could result in insured losses well in excess of $20 billion. Individual company losses could be disastrous, given the previously uncorrelated nature of individual lines of businesses that would be affected. While technology forges new connections among businesses and individuals, the connections have ushered in the new risk of technology initiated catastrophe scenarios, recently labeled as a “Cyber Andrew” scenario, in reference to Hurricane Andrew, which resulted in losses few insurers previously believed possible. The continued expansion of loss causes, courtesy of new technology, will have implications for both legacy insurance and new cyber insurance contracts. This means that insurers must assimilate expanding possibilities into risk management processes including Probable Maximum Loss (“PML”), risk aggregations and risk appetites. At the core of the silent cyber hurdle is: Do current risk management systems capture all possible risks today, and will they capture what can happen tomorrow, before a “Cyber Andrew” hits? See also: Can Risk Management Even Be Effective?   This challenge, if the PRA is to be believed, is currently not being met. As the conversations continue to escalate to the C-suite, risk managers need access to a team with specialized skill sets to better understand and calculate the impact of new technology into their enterprise risk management plans. At the same time, this added focus on technology will continue to expand reporting requirements. Providing detailed yet clear reporting to the board that highlights the full impact of current technologies on the comprehensive insurance portfolio will be a minimum standard. As technology continues to advance, insurers’ risk management tools and resources must evolve. Each organization will face its own distinct hurdles based on individual characteristics of its insurance portfolio, and its solution should be just as individualized. There will not be one magic bullet that ends cyber risk. The keys to meeting this challenge will be understanding new and emerging risks and assembling a team of professionals with the prerequisite skills to address the issues.

Blockchain, or distributed ledger technology, has quickly become a fixation in the financial services industry as a result of its potential to revolutionize our thinking about data sharing and security. In considering the technology, senior business and IT leaders at property and casualty (P&C) companies must balance their natural skepticism about “next big thing” trends with a clear recognition of both the large-scale impacts and significant upside. See also: What Blockchain Means for Insurance   After all, it’s not hype to say that the opportunity is huge and that the possibilities of future applications are many. Similarly, it’s not hard to see how distributed, secure, peer-to-peer ledgers — the mysterious and exotic-sounding technology behind blockchain — may one day be as common in the insurance industry as Structured Query Language (SQL) databases. Blockchain has the potential to evolve into a core, underlying element in the technology “stacks” of most P&C carriers, supporting a diverse range of processes and part of your company’s future technology “plumbing.” P&C executives must also keep in mind that these are still very early days. Blockchain in 2016 is roughly where the World Wide Web was in 1996 — on the radar of forward-thinking companies but still a long way from adoption at scale. Therefore, the question for most P&C companies is not whether they will adopt blockchain, but rather what and how to start testing, develop proof of concepts and proving out the value proposition. In 2016, we saw numerous announcements of intent, but to date we've not seen many (any?) true applications of blockchain propositions live in the insurance market. In 2017, we will see the reality - in specialty P&C and in health insurance. This will lead to a fundamental rethinking of insurance business models. See also: Blockchain: What Role in Insurance?   In our new report, we look at emerging blockchain applications and the five main areas where we see the potential for transformation/disruption in the insurance industry.

Happy New Year!

As we gear up for what will surely be an eventful 2017, one of my first resolutions (other than really and truly getting into shape this year -- really -- truly) is to provide some more commentary on how I see the industry evolving, based on my three decades of experience watching technology develop and transform just about every other industry. 

I'll begin with a baby step, pointing you to an interesting article I read over the break about The Ugly Unethical Underside of Silicon Valley, which should be a cautionary tale for all of us as we watch insurtech take off. I've either lived in Silicon Valley or within shouting distance of it for more than 20 years and admire the ethos greatly, but there is a duality to innovation. The great thing is that the best innovators break all the rules. The bad thing can be that the innovators break all the rules.

The trick is to think creatively while staying ethical. That's harder than it sounds. Every innovator is a relentless salesman, so there's always going to be some shading of the truth. And, once money is invested, the pressure escalates. Maybe a little lie will keep the investors happy and the momentum going...but then maybe a slightly bigger lie is needed to cover when the next problem hits...and then a bigger lie...and, voila, you have MCI or any number of other major frauds.

Insurtech represents a profound change for insurance, but Zenefits has already shown how easy it is to go astray by thinking that rules are just there to be ignored. There will be others.

Cheers,

Paul Carroll,
Editor-in-Chief

Smart CSOs and CISOs are moving from post-incident to pre-incident threat intelligence. Instead of signature and reputation-based detection methods, they are looking at artificial intelligence innovations that use machine learning algorithms to drive superior forensics results. In the past, humans had to look at large sets of data to distinguish the good characteristics from the bad ones. But organizational threats increasingly manifest themselves through changing and complex signals that are difficult to detect with traditional signature-based and rule-based monitoring solutions. See also: What You Must Know on Machine Learning   What’s more, traditional tools can contribute to “alert fatigue” by excessively warning about activities that may not be indicative of a real security incident. This requires skilled security analysts to identify and investigate these alerts when there already is a shortage of these skilled professionals. With machine learning, the computer is trained to distinguish the good characteristics from the bad ones, using multidimensional signatures that can examine patterns to identify anomalies and detect problems. A mitigation response can then be triggered. Two types of learning Machine learning generally works in two ways: supervised and unsupervised. With the former, humans tell the machines which behaviors are good and bad. The machines then figure out the commonalities to develop multidimensional signatures. With unsupervised learning, the machines develop the algorithms without having the data labeled, analyzing clusters to figure out what’s normal and what’s an anomaly. Unsupervised machine learning can be used as part of a layered defense approach, serving as a scalable safety net across an organization’s information ecosystem. This can help identify rogue uses in all types of networks, distributed or centralized, local or global, cloud or on-premise. Sophisticated security By applying machine learning techniques across a diverse set of data sources, systems can absorb more and more relevant data and become increasingly intelligent. These systems can then help optimize the efficiency of security personnel, enabling organizations to more effectively identify threats. With multiple machine learning modules to scrutinize security data, organizations can identify and connect otherwise unnoticeable, subtle security signals. See also: How Machine Learning Changes the Game   Machine learning also can produce pre-analyzed context for investigations, making it easier for security analysts of all experience levels to discover threats. This approach enables CISOs to accelerate detection efforts and reduce time expended on investigations. This article was written by Santosh Varughese. It originally appeared on ThirdCertainty.

Picture the commute of the future: You live in Palo Alto, CA, but you work 350 miles away in Los Angeles. After your morning latte, you click on a smartphone app to summon your digital chauffeur. Three minutes later, an autonomous car shows up at your front door to drive you to a Hyperloop station in downtown Mountain View, where a pod transports you through a vacuum tube at 760 mph. When you reach the Pasadena station, another self-driving car awaits to take you to your office. You reach your destination in less than an hour. That is the type of scenario that Hyperloop Transportation Technologies (HTT) chief executive Dirk Ahlborn laid out for me as we were preparing to speak together on a panel at the Knowledge Summit in Dubai on Dec. 5.  He was not talking about something that would happen in the next century; he expects the first of these systems to be operational in the United Arab Emirates by 2020. The Abu Dhabi government has just announced that it has been working with his company to connect Abu Dhabi and Al Ain, two UAE cities separated by 105 miles, using the Hyperloop system. See also: The Real Story on Transportation   A proposal for this mode of transportation came from Elon Musk in August 2013, in a paper titled “Hyperloop Alpha.” Musk envisaged a mass transit system where trains travel as fast as 760 mph in pressurized capsule pods. These would ride on an air cushion in steel tubes and be driven by linear induction motors and air compressors. He claimed that the system would be safer, faster and cheaper than trains, cars boats and supersonic planes — for at least 900 miles — and he said it would be resistant to earthquakes and would generate more energy through its solar panels than it would use. Straight out of science fiction it may be, but two start-ups took up Musk’s challenge to develop the technology: HTT and Hyperloop One. These companies have raised more than $100 million each and say that they will have operational systems in three to four years and that they have governments backing them. Hyperloop One demonstrated elements of the technology in the Las Vegas desert in May 2016.  The sheiks I spoke with in Dubai were most excited about HTT’s system. Even if the Hyperloop technology doesn’t pan out, the digital chauffeurs surely are coming. Self-driving cars such as the Tesla that I drive can already take control of the wheel on highways and are able to monitor traffic around them better than humans can — because their sensors enable them to see in 360 degrees and communicate with each other to negotiate rights of way. By 2020, self-driving cars will have progressed so far that they can drive safely at speeds as fast as 200 mph in their own partitioned lanes on highways. In these circumstances, the commute to Los Angeles from San Francisco would take only an hour and a half — without the need to catch a connection to a supersonic pod. From Abu Dhabi to Al Ain or to Dubai could take the car 30 to 40 minutes, door to door. In other words, Elon Musk’s self-driving cars and HTT’s short-haul Hyperloops may be competing with each other. I’m one of those who would prefer the convenience of having their car come with them so that they can keep extra stuff in the back and be working uninterrupted on the commute. In any case, for longer journeys, say from New York or San Francisco to Miami, catching a Hyperloop will make more sense than riding in the self-driving car. The point, though, is that we are on the verge of a revolution in transportation.  For decades — actually, centuries — we have been dependent on locomotives and, more recently, airplanes to take us long distances. The technologies have hardly advanced. The entire industry is about to be disrupted. Many of us will choose to take the shared cars and Hyperloops; others will own their own cars. But we will take fewer rides in trains and planes. That is why new rail-based transportation systems, such as the one California has long been debating, are not sensible investments. By the time they are complete, our modes of mass transportation will have changed. The California project aims to move 20 to 24 million passengers a year from downtown L.A. to downtown San Francisco, through California’s Central Valley, in 2 hours, 40 minutes. It is projected to cost an estimated $64 billion when completed by about 2030. By then, we will be debating whether human beings should be allowed to drive cars, and public rail systems will be facing bankruptcy because of cheaper and better alternatives. See also: Of Robots, Self-Driving Cars and Insurance   The wise investment to make will be in accelerating adoption of self-driving cars and in reserving lanes for them, and in building energy-efficient long-distance transportation systems that do not consume even more time, money and arable land than we have lost already. For distances in the hundreds or thousands of miles, we’d do well to explore Hyperloops and other environmentally sensitive modes of mass transportation. They may be far more cost-effective than laying new railways.

The primary drivers of disruption in insurance – notably, fintech (and more specifically, insurtech) – are coming from outside the industry. However, while the pace of change and market disruption has been daunting for most incumbents, the growing presence of insurtech companies is not a threat, but rather is creating real opportunities for the industry. We see a combination of market and organizational priorities that open the door for these new opportunities.

• External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage.
• Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders). An effective enterprise innovation model (EIM) will take into account the different ways to meet an organization’s various needs and help it make innovative breakthroughs. The model or combination of models that is most suitable for an organization will depend on its innovation appetite, the type of partnerships it desires and the capabilities it needs. EIMs feature three primary approaches to support corporate strategy:

• Partner – Innovation centers (also known as hubs or labs) are the most common of the three EIM approaches. Their main purpose is to connect insurers to the InsurTech ecosystem and create new channels for bringing an outside-in view of innovation to the business units.
• Build – Incubators are a common and effective way to build innovative capabilities and accelerate change. They can be internal, but most companies have preferred to establish them externally and then bring their ideas back into the company.
• Buy – In this case, an insurer typically will establish a strategic corporate ventures division that sources ideas from outside the company. The company provides funding and support for equity, while the venture explores, identifies and evaluates solutions, and participates in new ventures.

Companies can select elements from each of the above models based on their need for external innovation, the availability of talent, their ability to execute and the amount of investment the organization is willing to commit. See also: Innovation — or Just Innovative Thinking?   Insurance leaders’ innovation agenda should include:

• Scenario planning – What are potential future scenarios and their implications?
• Real-time monitoring and analysis of the insurtech landscape – What’s out there that can help us now, and what do we want that may not exist yet?
• Determining how to promote enterprise innovation, including which combination of approaches will most effectively accelerate and enable execution – What’s the best approach for us to stimulate and take advantage of innovation?
• Augmenting the organization with new and different types of talent – Where are the innovators we need, and how can we best attract and employ them?
• Cyber security and regulation – Are we prepared for the operational challenges that new technology can present, and have we and our real and potential partners considered the compliance ramifications of what we’re doing or considering?

Typical Exploration Topics Some of the typical exploration topics across lines of business are:

• Personal lines: usage-based insurance, shared and on-demand economies, peer-to-peer, direct-to-consumer, ADAS & autonomous cars.
• Commercial lines: direct to small business, drones and satellite imagery, internet of things, alternative risk transfer, emerging risks.
• Life and retirement: robo-advice, personalized insurance, medical advances, automated underwriting, decreasing morbidity and mortality risk.

Opportunities for insurers As part of PwC’s Future of Insurance initiative, we have interviewed many industry executives and identified six key insurtech business opportunities. We see a combination of market and organizational priorities, which open the door for both external and internal opportunities. External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage. External opportunities:

• Are mainly driven by customer expectations and needs and enabled by technology.
• Offer front runners the opportunity to gain market relevance and position themselves.
• Also offer fast followers opportunity because value propositions can be quickly replicated.

Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes. Internal opportunities are:

• Mainly driven by technological advancements.
• A source of competitive advantage but demand deeper change.
• An opportunity to set the foundation for how the company understands and manages risk.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders). See also: 10 Predictions for Insurtech in 2017   Some examples of change are:

• Incremental: Omni-channel integration, leveraging mobile and social media solutions and experiences to follow existing trends in customer and partner interaction;
• Disruptive: Usage-based and personalized insurance that leverages technology and data to develop new risk models based on behavioral factors. This also has the potential to drive radical change.
• Radical: Crop insurance, where data from different sources (such as weather and soil sensors) is leveraged to optimize and predict yield. As a result of this deterministic model, claims are paid up-front at harvest time.

There is no single perfect innovation mix. It depends on a company’s strategic goals and willingness to invest. Insurers should take into account current insurtech trends and determine long-term potential market scenarios based in part on current indicators and emerging trends. A short-term view will not foster the change that leads to breakthrough innovation. As a starting point, the following questions can help you evaluate how prepared your organization is to drive innovation.

• Corporate structure
  • Which parts of your organization drive innovation? Does the push for innovation occur at the corporate or business unit level (or both)?
  • How is the board engaged on decisions about the organization’s innovation mix?
  • What is the organization doing to make innovation a part of its culture?
  • What are the main challenges your organization faces when driving innovation?

• Strategy, ideation and design
  • How does your organization become familiar with new trends and their implications?
  • To what extent has your organization used an “outside-in” view to inform your innovation model?
  • Which potential future scenarios have you identified and shared across the organization?
  • To what extent have you aligned your innovation portfolio strategy with potential future scenarios?
  • How does your organization approach ideation through execution?
  • Which capabilities are you leveraging to enable and accelerate the execution of new ideas?
• External participation
  • What investments has your organization made in innovation?
  • In which areas is your organization participating (e.g., autonomous cars, connected economies, shared economies)
  • What structures (potentially in specific locations) has your organization created to support external participation?
  • To what extent has your organization managed to attract talent and partners?

Fast prototyping is key to quickly creating minimally viable products/solutions (MVP) and bringing ideas to life. Early stage start-ups develop and deploy full functioning prototypes in near-real time and go-to-market with solutions that are designed to evolve with market feedback. In this scenario, the development cycle is shortened, which allows startups to quickly deliver solutions and tailor future releases based on usage trends and feedback and to accommodate more diverse needs. Incumbents can follow the same approach and align appropriate capabilities and resources to develop their own prototypes. They also can partner with existing startups that have a minimally viable product (MVP) to help them to move to the next stage, scaling. For this, they have to take into consideration several factors, including operational capacity, cyber risk and regulation (among others) to deploy the MVP in an “open” market. As opposed to controlled pilots or proofs of concept that are controlled environments, this “open” market is driven by demand. Lack of proper resources and the inability to scale the startup will severely compromise or actually prevent successful innovation. See also: 7 Predictions for IoT Impact on Insurance   The ways to accomplish all of this vary based on how the organization plans to source new opportunities and ideas, how it plans on executing innovation and how it plans to deploy new products and services. The following graphic provides examples of enterprise innovation operating models by primary function. Final thoughts In a fast-paced digital age, insurers are balancing insurtech opportunities with the challenge of altering long-standing business processes. While most insurers have embraced change to support incremental innovation, bigger breakthroughs are necessary to compete with the new technologies and business models that are disrupting the industry. This article was written by Stephen O'Hearn, Jamie Yoder and Javier Baixas.

The beginning of a new year is usually the time to predict key trends for the year to come, and so it goes with the insurtech sector as well. Most lists focus on the latest sexy technologies and applications. But, after a year, we find these have hardly gained any traction and so cannot really be considered “trends” in our view. To call something a key trend, new and innovative is not enough. It requires adoption at scale. We, therefore, decided to take a different approach, resulting in quite a different kind of list. Being consultants for several blue chip insurers, speaking at conferences and attending boardroom meetings, we meet insurance executives on a daily basis. Consequently we have a fairly good idea about what's at the top of their agenda as well as the pace in which change will take place, and in turn what insurtech solutions are most likely to fit into those plans. These insights resulted in our Top 10 Insurtech Trends for 2017, illustrated by some awesome insurtechs that joined us at the previous DIA event. Trend 1. Massive cost savers in claims, operations and customer acquisition Already a major trend, of course, but one that will gain even more importance in 2017. Quite a few insurers face combined ratios that are close to 100, or even exceed that number. Digitizing current processes is absolutely necessary, for operational excellence and to cut costs. Digital transformation of insurance carriers started in 2015, really took off in 2016 and will be mainstream by 2017 and beyond. Virtually every insurer, big or small, that takes itself seriously will continue to look for ways to operate more efficiently in every major part of the costs column: in claims expenses, costs of operations and customer acquisition costs. Technology purchases and investments by insurance carriers will further explode in these areas, as will the number and growth of insurtechs that cater to that need. With OutShared's CynoClaim solution more than 60% of all claims can be managed automatically, resulting in lower costs as well as increased customer satisfaction. Results of the first implementations: as much as 50% decrease in costs, 40% increase in customer satisfaction. The solution takes six to nine months to implement, whether it is from scratch or a migration of established operations to the platform, which is quite spectacular in the insurance industry. Check this out. See also: How Insurtechs Will Affect Agents in 2017 Trend 2. A new face on digital transformation: engagement innovation At the end of the day, digitized processes and a lower cost base are table stakes. It is simply not enough to stay in sync with fast changing customer behavior, new market dynamics and increasing competitiveness. No insurer ever succeeded in turning operational excellence into a competitive advantage that is sustainable over the long term. More and more carriers realize that engagement innovation is the next level of digital transformation. From a customer point of view, this is not about a new lipstick or a nose job but about a real makeover. Engagement innovation not only includes customer experience, but customer-centric products, new added value services and new business models, as well. Insurtechs that really innovate customer engagement for incumbents have a great 2017 ahead. Amodo connects insurance companies with the new generation of customers. With Amodo’s connected customer suite, insurers leverage on digital channels and connected devices such as smartphones, connected cars and wearables to acquire and engage new customers. Amodo collects data from smartphones and a number of different connected consumer devices to build holistic customer profiles, providing better insights into customer risk exposure and customer product needs. Following the analysis, risk prevention programs, individual pricing as well as personalized and “on the spot” insurance products can be placed on the market, increasing the customer’s loyalty and lifetime value. Trend 3. Next-level data analytics capabilities and AI, to really unlock the potential of IoT Many insurance carriers have started IoT initiatives in the last few years. In particular, in car insurance it is already becoming mainstream, with Italy leading the pack. Home insurance is lagging, and health and life insurance is even more behind. All pilots and experiments have taught insurers that they lack the right data management capabilities to cope with all these new data streams -- not just to deal with the volume and new data sets, but more importantly to turn this data into new insights, and to turn these insights into relevant and distinctive value propositions and customer engagement. Insurtechs that operate in the advanced analytics space, machine learning and artificial intelligence hold the keys to unlock the potential of IoT. 2016 DIAmond Award winner BigML has built a machine-learning platform that democratizes advanced analytics for companies of all sizes. You don't have to be a PhD to use its collection of scalable and proven algorithms thanks to an intuitive web interface and end-to-end automation. Check this out. Trend 4. Addressing the privacy concerns To many consumers, big data equals big brother, and insurers that think of using personal data are not immediately trusted. Quite understandable. Most data initiatives of insurers are about sophisticated pricing and risk reduction really. Cost savers for the insurer. However, the added value of current initiatives for customers is limited. A chance on a lower premium, that's it. To really reap the benefits of connected devices and the data that comes with it, insurers need to tackle these data privacy concerns. On the one hand, insurers need to give more than they take. Much more added value, relative to the personal data used. On the other hand, insurers need to empower customers to manage their own data. Because at the end of the day, it is their data. Expect fast growth of insurtechs that help insurers to cope with privacy issues. Traity (another 2016 DIAmond Award winner) enables consumers to own their own reputation. Traity uses all sorts of new data sources, such as Facebook, AirBnB and Linkedin, to help customers to prove their trustworthiness. Munich Re's legal protection brand DAS has partnered with Traity to offer new kinds of services. Check this out. See also: 10 Predictions for Insurtech in 2017   Trend 5. Contextual pull platforms Markets have shifted from push to pull. But so far most insurers have made hardly any adjustments to their customer engagement strategies and required capabilities. In 2017, we will see the shift to pull platforms, as part of the shift to engagement innovation. Whereas push is about force-feeding products to the customer, pull is about understanding and solving the need behind the insurance solution and being present in that context. Risk considerations made by customers usually don’t take place at the office of an insurance broker. Insurers need to be present in the context of daily life, specific life events and decisions, and offer new services on top of the traditional products. Insurtechs that provide a platform or give access to these broader contexts and ecosystems help insurers to become much more a part of customers' lives, be part of the ecosystem in that context and add much more value to customers. VitalHealth Software, founded among others by Mayo Clinic, has developed e-health solutions, in particular for people with chronic diseases such as diabetes, cancer and Alzheimer’s. Features include all sorts of remote services for patients, insurers and care providers collaborating in health networks, access to protocol-driven disease management support. All seamlessly integrated with electronic health records. VitalHealth Software is used by insurers that are looking to improve care as well as reduce costs. Among other OSDE, the largest health insurer in Argentina and Chunyu Yisheng Mobile Health, a fast-growing Chinese eHealth pioneer with around 100 million registered users that is closely linked to People’s Insurance Company of China (PICC). Trend 6. The marketplace model will find its way to insurance Marketplaces: We already see the model emerging in banking, and insurance will follow fast. Virtually every insurer offers a suite of its own products. Everything is developed in-house. More and more carriers realize that you simply cannot be the best at everything, and that resources are too scarce to keep up with every new development or cater to each specific segment. In the marketplace model, the insurers basically give their customers access to third parties with the best products, the most pleasant customer experience and the lowest costs. The marketplace business model cuts both ways. Customers get continuous access to the best products and services in the market. And costs can be kept at a minimum through connecting (or disconnecting) parties almost in real time to key in on new customer wishes and anticipate other market developments. In 2017, we will witness all sorts of partnerships between insurtechs and incumbents that fit the marketplace model. AXA teamed up with the much-praised 2016 DIAmond Award winner Trōv to target U.K. millennials. Trōv offers customized home insurances by allowing coverage of individual key items rather than a one-size-fits-all coverage set with average amounts. Check this out. Trend 7. Open architecture A new ecosystem emerges, with parties that capture data (think connected devices suppliers) and parties that develop new value propositions based on the data. Insurers will have to cooperate even more than they are currently doing with other companies that are part of the ecosystem. When an insurer wants to seize these opportunities in a structural way, it is no longer only about efficiently and effectively organizing business processes, but it is also about easy ways to facilitate interactions between possibly very different users who are dealing with each other in one way or another. Again, banking is ahead of insurance. For our new book, "Reinventing Customer Engagement: The next level of digital transformation for banks and insurers," we spoke to many executives in banking, as well. German Fidor Bank has set up an open API architecture called fidorOS, enabling fintechs to develop financial services themselves on top of an existing legacy system. Citi says that "any financial institution that doesn’t want to rapidly lose market share needs to start working in a more open architecture structure." The Backbase omnichannel platform is based on open architecture principles. It leverages existing policy administration systems capabilities and adds a modern customer experience layer on top, creating direct-to-consumer portals and giving the opportunity to integrate best-of-breed apps as well as improving agent and employee portals. Swiss Re, Hiscox and Legal & General are some of the insurers that use the Backbase platform. Check this out. Trend 8. Blockchain will come out of the experimentation stage When Goldman Sachs, Morgan Stanley and Banco Santander decided to leave the R3 Blockchain Group many thought this was proof that blockchain technology apparently was not as promising as initially expected. The contrary is true. It is not uncommon to join a consortium to speed up the learning curve, and then drop out and use the newly acquired knowledge to build your own plans and gain some competitive advantage, especially with a technology as powerful as blockchain. We believe a similar scenario will not take place in the B3i initiative launched by AEGON, Allianz, Munich Re, Swiss Re and Zurich. Thinking cooperation and ecosystems are just much more in the veins of the insurance industry. Plus there are plenty of use cases that cut both ways: improve operational excellence and cost efficiency as well as customer engagement. That is good news for the insurtech forerunners in blockchain technology. Everledger tackles the diamond industry’s expensive fraud and theft problem. The company provides an immutable ledger for diamond ownership and related transaction history verification for insurance companies, and uses blockchain technology to continuously track objects. Everledger has partnered with all institutions across the diamond value chain, including insurers, law enforcement agencies and diamond certification houses across the world. Through Everledger’s API, each of them can access and supply data around the status of a stone, including police reports and insurance claims. Check this out. [caption id="attachment_23289" align="alignnone" width="580"] A worker inspects a 5.46 carat diamond before certification at the HRD Antwerp Institute of Gemmology, December 3, 2012. HRD Antwerp analyses diamonds with specially designed machinery, as even for experts it is impossible to visually tell the difference between a synthetic stone and a naturally grown one. Picture taken December 3, 2012. REUTERS/Francois Lenoir (BELGIUM - Tags: BUSINESS SOCIETY SCIENCE TECHNOLOGY) - RTR3B8HW[/caption] See also: 5 Predictions for the IoT in 2017   Trend 9. Use of algorithms for front-liner empowerment Algorithms that are displacing human advisers generate headlines. Robo advice will for sure affect the labor market’s landscape. For a costs perspective, this may seem attractive. But from a customer engagement perspective this may be different. To relate to their customers, financial institutions need to build in emotion. Humans inject emotion, empathy, passion and creativity and can deviate from procedure, if needed. Banks and insurers need to create a similar connection digitally. With so many people working at financial institutions, there is also an opportunity to create the best of both worlds. We see the first insurers that deploy robo advice to empower human front-liners. This is resulting in better conversations, higher conversion and, finally, greater solutions for customers. AdviceRobo provides insurers with preventive solutions combining data from structured and unstructured sources and machine learning to score and predict risk behavior of consumers -- for instance, predictions on default, bad debt, prepayments and customer churn. Predictions are actionable, because they’re on an individual customer level and support front-liners while speaking to customers. Trend 10. Symbiotic relationship with insurtechs Relationships between insurers and insurtechs will become much more intense. All the examples included in the previous nine trends make this quite clear. Insurers will also look for ways to learn much more from the insurtechs they are investing in -- whether it is about specific capabilities or concrete instruments they can use in the incumbent organization, or whether it is about the culture at insurtechs and the way of working. We see an increasing number of insurers that are now using lean startup methodologies and that have created in-house accelerators and incubators to accelerate innovation in the mothership. The Aviva Digital Garages in London and Singapore are perfect examples. They are not idea labs, but the place where Aviva runs its digital businesses, varying from MyAviva to some of the startups Aviva Ventures invests in – all under one roof to build an ecosystem and create synergies on multiple levels. This Top 10 of Insurtech trends that we will witness in 2017 sets the stage for the Digital Insurance Agenda. It reinforces the need to connect insurance executives with insurtech leaders, which is basically our mission. It helps us to create an agenda for DIA 2017 Amsterdam that is in sync with what insurers need and what the latest technologies can provide. Check Digital Insurance Agenda for more info.

This week, I get a real treat. That's because we at ITL are hosting our third Shaping the Future symposium, which will gather nearly 30 insurance company CEOs on the Google campus for a day and a half that will surely challenge us and make us all smarter about the transformation of the insurance industry. 

I can't know exactly what will transpire -- the magic doesn't happen until we get all that experience and brainpower in one room and start challenging people with insights about game-changing technologies and about how to turn them into disruptive innovations -- but I'll share a bit of recent thinking that will provide a framework for part of the discussion.

With a hat tip to Elisabeth Kubler-Ross and her five stages of grief, I've decided that technology disrupts an industry in four stages. After three decades of watching technology-based transformation, I believe those stages are:

--Denial. This pretty much matches Kubler-Ross' first stage. People think that things will keep going the way they always have just because, well, they always have. Some, at least sub-consciously, may realize that disruption is coming but believe it won't hit until after they retire, so they can avoid facing up to the problem. 

Insurance may not spend as long as other industries in the denial phase simply because so many other industries have come before. It's hard to look at Kodak and Blockbuster and retailers and newspapers and music and... and remain convinced that disruption won't happen.

--Shiny things. Once it becomes clear that disruption is happening, all kinds of things suddenly look like genius ideas. Possibility is everywhere. Too much money chases too few good ideas because it's hard to separate the mundane from the revolutionary. That's how we wound up with Pets.com and its sock puppet Super Bowl ad back in 2000, even though shipping heavy bags of dog food to homes wasn't going to revolutionize anything.

Insurance seems to me to be mostly in the "shiny things" phase. Just about everyone realizes that change is coming, but most of the insurtech ideas at this point are first-order innovation -- doing some existing thing better than it's been done before, rather than taking a wholly new approach. Yet investors are pledging to throw billions of dollars at the mostly less-than-revolutionary ideas out there.

--Winnowing. Companies often start by generating dozens of ideas, perhaps through a hack-a-thon, and congratulate themselves on their innovation. Or they engage in what I think of as innovation tourism, having senior people spend a week in Silicon Valley and deciding they've done enough to learn about new technologies and trends. Eventually, though, companies realize that no transformation can happen without the CEO's blessing and that the CEO has limited bandwidth. The innovative possibilities have to be winnowed to three to five, with the CEO allocating a set amount of time and funds to nurture and evaluate these possibilities. (If the time and funds for innovation aren't sacrosanct, existing businesses will steal them.)

--Lather, rinse, repeat. Once they realize that they have to winnow the list, companies eventually come to understand that the winnowing is continual. You start to build out the ideas that have promise, but you also have to kill or table the ones that aren't going anywhere. The focus actually has to be on the tabling and killing, because they aren't natural or pleasant, while the building out is, and it's possible to waste an awful lot of money on zombie innovations.

Both my brothers were once professional poker players, and the best advice they gave me before I started playing in a neighborhood game was to look at my down cards realistically (in Texas Hold 'Em) and fold frequently rather than hold out hope for a miracle. It was years before I ever had a losing night, in a group of very smart Silicon Valley executives, just based on that one bit of advice.

Those ideas about the four stages will surely be challenged and fleshed out later this week, and I'll report back to you on what I learned (within the bounds of the confidentiality we've promised participants). 

Cheers,

Paul Carroll,
Editor-in-Chief

We knew that 2016 would be big. To capture the flavor of the pace and magnitude of change, I wrote a series of blogs where I likened the dramatic shifts in insurance technology to what happened during the original Italian Renaissance, when education, money, art and science combined to create quantum leaps forward and redefined trade and the economy, the social scene and technological advancement. So here we are at the end of 2016, and I think we can make a case that 2016 was not only pivotal and groundbreaking but that it was historic on the scale of a Renaissance. At no time in the history of insurance can we find one year that includes this many game-changing events AND a rapid pace of continuing advancement. My thinking is that if the 525,000 minutes of 2016 were actually historic, then perhaps they deserve their own six-minute look back. To keep things short, I’ve split the 2016 trends into one-minute discussions. Insurtech — From independent ideas to industry-wide imperatives Do you remember where you were when you first heard the term “insurtech”? Its first connotations were regarding those out-in-the-stratosphere ideas from independent tech and insurance startups as an extension of fintech regarding important-but-not-disruptive ideas in insurance. You may have heard the term “insurtech” in 2015, but it certainly went mainstream in 2016 as its own vertical focus separate from fintech. Conversations around insurtech grew, but, more importantly, the influx of capital that advanced the proliferation of startups and greenfields based on new tech capabilities and business model disruption were unprecedented — bringing insurtech from its fintech roots into a completely mainstream, independent, industry-wide wave of innovation. Many traditional insurers and reinsurers hopped on the insurtech wave and showed interest in capturing their own slices of the creative pie. From accelerators like the Silicon Valley Insurance Accelerator (SVIA), Global Insurance Accelerator (GIA) and Plug and Play to the first InsureTech Connect meeting in Las Vegas in October with more than 1,500 executives in attendance, insurtech became the “hottest” thing in the industry, giving insurers of all sizes and lines of business pause to consider their strategies. Even S&P recognized the impact of insurtech as having “a complementary place in the traditional insurance world, despite remaining uncertainty in the industry about how it will function on a wide scale.” See also: The Insurance Renaissance, Part 5   The insurance industry may never have had this much activity, excitement and concern on the promise and potential of insurance disruption and reinvention.  From the launch of Lemonade, Slice, Haven Life and more insurers and MGAs, the shift to a customer-centric rather than product-centric view is creating a customer experience not unlike the Amazon experience. 2017 will continue to see existing insurers and reinsurers looking to stand up a new brand and business model to capture the next generation of customers and position for growth. Emerging technology engages insurers What emerging technologies are we seeing as having made an impact in 2016 with real operational impact? There is artificial intelligence (AI) and machine learning. There are new sensors and their ability to capture the unseen aspects of operation and life. Protective technologies in vehicles, property and health are growing. There is live streaming data and video from smart phones and drones. Data’s organizational and visual capabilities are improving with new tools. We could drone on. But the reality is that the mobile, connected and ethereal digital world is using real-time data to gain insight and manage, reduce or eliminate risk in the physical world to a greater degree than ever before. There used to be “an app for that.” Now, there’s a sensor for everything on the Internet of Things. The world is fast becoming an omni-channel portal into daily life. The distance from “emerging technology” to mainstream tech usage is measured in months, not years, shattering Moore’s Law. Emerging technologies span a diverse realm for insurers — if you consider that new technology can be worn on a wrist, flown pilotless through the sky or operate entirely within the digital networks of processors and servers. It’s no wonder that an insurance renaissance is in full swing. The space age has given way to the digital age, where it seems like anything may be possible — it just takes imagination, creativity and thinking outside the traditional box. Digital technologies have penetrated previously untapped data mines, allowing machine failure to be predicted and prevented; human risk to be captured and calculated; and insurer risk to be managed, mitigated and eliminated, creating a new value proposition, new products and new services for customers. New and innovative businesses launches Disruption makes use of plug-and-play ideas and technologies. Traditional insurance organizations were tightly wound balls of string, operating everything within that ball. Connections were immovable. Processes attempted to be neat and tidy, but they were always struggling with the “messiness” of adaptation. Today’s insurtech resembles Legos in insurtech's ability to fulfill conceptual opportunities. Imagine a pile of sensors, another pile of devices and yet another “pile” of data streams. Then ask yourself, “What can your mind dream up today?” In 2016, businesses were busy dreaming up enough disruptions to disturb the sleeping giants of insurance. Slice made a mobile app that integrates with a hybrid homeowner/commercial product. Lemonade used an AI bot to act as agent on a peer-to-peer insurance platform. Haven Life (launched in 2015 but entered 33 new states in 2016) reconsidered how data streams could improve the life underwriting experience for term life.  And then there were new distribution options with companies like Ask Kodiak, Insurify and PolicyGenius — to name a few — deconstructing and redefining the insurance value chain/business model. Just like building with Legos, there seem to be no end to the combinations of startup and greenfield businesses that can launch using new business models, technologies and great ideas across all aspects of the insurance value chain to meet new customer needs, expectations and demands. This is one area where 2017 will certainly trump 2016 — we may only be seeing the beginning of the innovation wave — but expanding from venture-capital-backed to existing insurers standing up their own greenfield and startup businesses. Reinsurers invest in insurtech and startups With the reinsurance market having excess capital, reinsurers took big moves to be major players in insurtech — from investing in technology companies to new startup insurance and MGA businesses. In addition, many are looking at all the disruption around and within insurance and developing, incubating and testing new insurance products to take to market, either directly or through customers or partners. Consider reinsurers' investment in Trov, Lemonade, Root and Slice; Munich Re’s investment and focus on mobility and autonomous vehicles; or XL Group and the establishment of XL Innovate, a specialized venture capital fund pursuing investments in financial technology, new opportunities for insurance underwriting and related analytics, globally. Swiss Re, Hannover Re, Odyssey Re, Maiden Re and others are rapidly making moves as well.  Consistently, these investments are in new operational models, new products or meeting new risks — creating a path to underserved or new markets. See also: Insurtech: One More Sign of Renaissance   As noted in a recent article, all this insurtech activity is raising the expectation on the importance of reinsurance capital to support new business models and back technology startups. In the process, insurtech startups are looking to disrupt the risk to capital value-chain in insurance by deconstructing and collapsing the value chain and by cutting out primary carriers or brokers, as well as costs, and placing the risk directly with reinsurers, leveraging unused capital. We expect to see increased activity from reinsurers that will likely begin to look at partnering with existing insurers/customers to collaborate on new products and with emerging technologies or by standing up a new brand or greenfield, continuing the deconstruction of the traditional insurance value chain. Cloud goes mainstream In 2016, the case for core system platform in the cloud reached the tipping point — from a nice-to-have to a must-have. Its logic has grown as capabilities have improved and cost pressures have increased. Though cost is a consideration and modern functionality is important, rapid industry change is fueling a renaissance in insurance models. The startup insurer or the greenfield insurance concept needs a system solution built for rapid deployment. New products often need new processes, making cloud capabilities a catalyst for creative product development. Nothing can make an insurer feel more cutting edge than moving from idea to rollout in the short timeframes that cloud solutions provide. Many insurers are taking advantage of the same pay-as-you-use principles as consumers themselves. They are sharing system solutions with cloud-based technology. 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 time, capital, resources and budgets. Insurers 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. The window of opportunity is open to insurers that wish to prepare their business models, products, processes and systems to embrace the pay-as-you-go culture This makes cloud a nearly-universal solution, fitting the needs of both startups and traditional insurers with plans for growth and expansion. In 2016, cloud became a mainstream option — an imperative for insurers needing a competitive edge. Perspectives on the Pace of Change The world recently lost John Glenn, a famous American astronaut and long-time U.S. senator. Glenn was born in 1921, only 18 years after the Wright Brothers tested flights at Kitty Hawk. He lived to pilot jets, was the first person to orbit the earth in a spacecraft, then later flew on two Space Shuttle missions at the age of 77. His life is a great example of the growing pace of change — in a world that moved from mechanization to digitization. See also: A Renaissance, or Just Upheaval?   Yet as much as changed in Glenn’s lifetime, today’s advancements are eclipsing all of them in pace and disruption. The systems that create knowledge through data and analysis are truly powerful forces that will ignite perpetual improvement and a new world of connected living. Insurance, once concerned with risk management on a large scale, will be focused on learning and understanding risk down to an individual policy-level, with a craving for more knowledge as it becomes available. If 2016 proved to be an insurance renaissance fueled by insurtech, it is very likely that 2017 will provide us with an even greater shift in the midst of an industry rebirth. How much will change? We have all of 2017 to find out!

We’ve combed through the year’s data of all the reading and liking and sharing that has been done around our articles, and this year a definite theme emerged: You recognize that the status quo isn’t working any more, and you need to make changes to your business model to remain relevant to your clients. Part one is about positioning and communication, recognizing that what you say and how you say it matters – a LOT. And here in part two, we’re taking a look at how you’re running your operations. Business Practices The consensus is that it’s time for an overhaul because insurance agency business practices are terrible. Continuing with status quo will not keep you even any longer; holding onto status quo is actively moving you backward. 1.) 5 Fears You Must Face: The High Cost of Insurance Agency Fears Prospecting, referrals, retention, producers and delivering results may not sound like items that should scare you, but clearly they do. And not addressing those business fears in a healthier manner could put you out of business. Bottom line: We get how truly terrifying these fears are and how difficult it is to bring significant change to your agency. But you have no choice. If you don’t face the fears, if you don’t bring the change, you are on a dead-end path. See also: 26 Most Important Words in Business   2. Do Insurance Brokers Really Know Why Their Clients Hire Them? The short answer is “Generally, no.” It may seem like an odd question, but if you don’t know why your clients hired you, it’s probably because you don’t have a clear value proposition; therefore, you also likely don’t know what your clients found compelling about you and your company. And it’s pretty hard to deliver effective results against the unknown. “It just feels right” is not a business-building answer that you can replicate to regularly drive new business. Bottom line: Leaving your fate to the buyer’s gut instinct is inexcusable. It has to be extremely clear as to why anyone should hire you. And the same, tired reasons our industry has been giving for decades won’t cut it. 3. For Insurance Agency Growth, It's Time to Pick up the Pace Insurance agencies have never put themselves in position to control their own pace. Your business growth is being slowed because you have attached your business to someone else’s business (the carriers). And, because you can’t stray too far from the source, you can’t move any faster than the pace they set for themselves. Bottom line: It’s time to start running your business as the stand-alone business you have always needed it to be; it’s time to set your own pace and grow as much and as fast as you desire. 4. Insurance Producer Sales Goals Are a Joke Traditional producer sales goal-setting is a joke and results in very little confidence – for the producer or the leadership – that it will actually happen because it isn’t based on anything meaningful. The “goal” is likely the same pretend goal from last year, or some percentage variation of it, which was probably originally selected based on a “round number,” such as $100,000. Bottom line: Successful business years don’t just happen, at least not any more. Nobody is responsible for your success more than you. Set a goal you actually believe in, and it will drastically reduce (likely by half) the number of accounts you need to write. 5. Dude, Do You Know How Bad Your Numbers Suck?! Do you have any idea of how upside down you are on a majority of your book of business? It’s probably true. Knowing that agencies vary significantly by number of producers, let’s do some analysis on a per-producer basis to find out just how profitable your producers are running their books. This is a great follow-up to the Sales Goals article listed above. Bottom line: You can’t afford to continue leaving things to chance. Be honest with yourself and evaluate your marketing and sales efforts and then make the tough decisions to make the needed changes – regardless of how difficult it may feel. You HAVE to change the way you’re working. +1 BONUS:  Zenefits: Disrupting Lives, Not Just the Insurance Industry The industry loves a good “stick it to Zenefits” article or two. Perhaps it’s because you feel they’re really off base with their model. Or you don’t like the disruption they've brought to your comfy business. Or maybe you just can’t turn away from the drama they have created. Whatever the individual reason, here is the article that topped our posts for the year. Bottom line: Regardless of how you feel about them, please note that they continue to add new clients. While they may not be popular in the insurance industry, they more than make up for it with a group of employers who are attracted to what they're offering. Take notes, and make your own adjustments to your own business based on what employers want today, which is different from what they wanted three years ago. Zenefits started based on this idea, and they continue to make adjustment because of it. You should, as well. Triple Bottom Line From Q41 2016 Posts Agency owners need to control their business from value proposition and communicating effectively, both internally and externally; to managing the company in a head-on manner and making difficult decisions that allow them to create the culture and company they want and need to have; to managing the flow of assets throughout the organization from revenue coming in the door to allocation of resources internally. See also: Why Start-Ups Win on Small Business   Leaving anything up to “the way it’s always been done” or maintaining status quo is putting you and your employees on a dead-end path. Take control of your business and take control of your future. Can't get enough of these great insights? Be sure to check out Part I of Top Q4i posts from 2016! A version of this article originally appeared on Q4i Agency Blog.