“It’s all about the customer.” How often have we heard that statement?  More times than we can count, Yet it is more relevant than ever as we exit the “pre-digital” age and enter an environment where survival will be measured by rapid adaptability (see our recent blog post An Ocean Apart: Pre-Digital and Post-Digital Insurance Models). In our prior posts, we focused on two areas of the insurance value chain that likely are not top of mind when thinking about digital transformation — billing and claims.  In this post, we’ll cover policy and customer serving, which is certainly a higher-profile area for digital enhancement. Policy and customer servicing should be near the top of insurers’ “to do” lists when it comes to embracing the digital shift and transforming into a digitally optimized, customer-focused enterprise. While many insurers express the desire to become more digitally enabled, most are struggling to catch up, let alone position themselves as leaders. Technology is evolving, and customer demands are growing faster than most companies can deal with. Add to this the challenge that insurers are often saddled with legacy systems, siloed data and product- (not customer-) focused processes that make anticipating and adapting to these changes all the more difficult. A McKinsey survey from earlier this year reported that most insurers in the U.S. and Europe focus their digital attention on sales and marketing, in particular on the earliest stages of the lifecycle — research and quoting. While these two areas are important, the survey noted that insurers were lagging in their ability to service customers digitally after they were on-boarded. See also: Key to Digitizing Customer Experience   Improving Customer Service Is a Great Way to Differentiate Majesco’s primary research studies on consumers and small-medium businesses showed that, compared with other industries, insurers are pretty bad at service. Life insurers are ninth out of 10 in terms of “ease” of servicing (of the industries shown in comparison, only streaming TV/video/music gets poorer marks for service), while P&C insurers are in fifth place (behind online banks, local retailers, national retailers and online retailers). All small-medium businesses (SMBs) ranked life insurers and employee benefits providers no higher than eighth out of 10 different industries they use as suppliers. P&C insurers also ranked low (fourth out of 10) among the smallest SMBs (those with fewer than 10 employees), but fare much better among larger companies, rising as high as third and second. Furthermore, our research noted that poor marks have a demonstrable effect on success. If a respondent reported that any one of the aspects surveyed (research, purchase, service) was “not easy” then their Net Promoter Score dropped significantly. And NPS is recognized as a key predictor of a company’s growth and profitability. According to Celent research, even agents, who are understandably worried about digitally enabled self-service reducing their importance in the sales process, recognize the need for digitization of insurance service processes. The research notes that agents are asking insurers to invest in technology enhancements to, among other things, improve online policy changes. But It Isn’t Easy (of Course) At first glance, policy and customer service appears to be an important and straightforward – if not particularly sexy – way to apply digital capabilities to improve outcomes. But looks can be deceiving. Some of the basic tenets of good service – a 360-degree view of the customer, for example – can be difficult and expensive to implement. Regulatory barriers may prevent streamlining how policy changes are implemented online, varying significantly from state to state and country to country. Legacy policy management systems may not be able to connect to digital front ends in a direct way. But all of these challenges provide an opportunity to focus on a customer journey-map-based approach to digital transformation! By starting with a vision for digitally enabled customer service (what you want the service experience to be, what business goals you are trying achieve, what key performance indicators you will measure for success) and then creating customer personas and journey maps, you will be able to create a transformation road map. That road map will include people, process and technology changes that you will make over time to reach that vision, allowing for incremental change (instead of taking a riskier, big-bang approach to changes). Don’t Ignore the Shiny Objects Just because we recommend an incremental approach doesn’t mean it can’t be fun! There is a lot of cool and interesting insurtech investment in this area, which can (and often should) be leveraged to roll out needed functionality without having to build it yourself. For example, having e-signature (and as per this blog post on digital billing) and multiple e-payment capabilities can make a policy change paperless and seamless for the customer, something that has been shown to improve service “ease of use” scores. Chat capabilities (human or chatbot) to walk customers through basic to tricky processes is a boon to customer service, with leaders like Lemonade and Geico leveraging them at almost every step of the customer lifecycle. Co-browsing options can be used to help customers navigate particularly tricky process steps. Customer analytics can be used to identify customers at risk of leaving, help them manage their risks and even identify cross- and up-sell opportunities. Even artificial intelligence (AI) shows promise in customer service, and far beyond just chatbots. IBM’s Watson is assisting customer service efforts in dozens of industries, and all indications are that it will be especially useful in insurance, where matching customers to products and services can help generate revenue and improve customer satisfaction. An excellent non-insurance example is the work Watson is doing with H&R Block. Watson is used to feed appropriate question prompts to tax professionals during client consultations. Bill Cobb, H&R Block president and CEO, said, “Watson is learning more and more as it does more tax returns.” According to a recent IBM blog, “Watson has learned 600 million data points relevant to the industry as well as the U.S. tax code.” Imagine Watson in insurance, rolled out to give agents prompts based on both individual knowledge and “learned” experience. Watson will help insurers translate regulatory requirements and improve relationship management. Cognitive customer service will give real depth to the possibilities. The Future Today Institute has stated in its 2017 Tech Trends Report that artificial intelligence will soon be integrated into nearly every facet of work life. In a detailed look at industries covered in the report, AI is the #1 trend in every industry. But Keep an Eye Out for Pitfalls One potential pitfall is to think this service mentality applies to just personal lines, which, as I’ve highlighted in my other blog posts, is far from the truth. Commercial carriers have a lot to gain from digitally enabled servicing, particularly in the SMB market, where margins can be thin on a per-policy basis. Commercial carriers may be very amenable to service outreach that includes risk-mitigation advice as well. See also: ‘It’s the Customer Experience, Stupid’   Insurtech is not just for personal lines, either: A recent SMA study highlighted more than 400 insurtechs targeting the commercial space, and the carriers themselves are interested in leveraging them for, among other things, customer servicing. Other pitfalls include trying to do too much at once or taking a scattershot approach to service improvements. These dangers reinforce the critical importance of leveraging customer journey mapping to create a disciplined approach to capability deployment. How to Start As we have consistently advocated, start with a vision of what you want to achieve. Check this against other investment priorities and pain points for your customers and other stakeholders (for example, if the biggest area of complaint is with the claims process, you may want to consider starting there). Create personas and journey maps to guide your decision-making.

The core systems replacement cycle is speeding up. Twenty years ago, even if you spent your entire career working at the same insurance company, you might expect to go through the implementation of a new core system once, maybe twice. Technology – and the speed of business that it enables – is changing that.

Technology is advancing at an exponential rate, and that includes the technology underlying the business of insurance. Moore’s Law predicts that processing power will double every two years. Other technologies exhibit similar exponential advances. Before solid-state drives emerged, the cost of hard-drive storage dropped by half annually. In 1997, 1 GB of memory would set you back about $100. Ten years later, the price had dropped to less than $.50 per GB.

See also: Finding Success in Core Systems  

When processing power was limited and storage was expensive, we were constrained in how we used core systems. The exponential advancement of these and other technologies removes the obstacles that had previously restricted their use – which opens many, many new avenues of technological advancement and business innovation. In the next 10 years, we can expect similar advances in the technology that we are using today.

Ten years is a critical number in insurance technology. In 2007, new insurance core systems did not have a variety of capabilities that are necessary to deal with the challenges of today. Mobile and policyholder collaboration is now a mandate. Advanced use of data and analytics has become a base-level requirement. Insurers now need to be able to handle a wide variety of specialized lines of business such as cyber, as well as shared economy elements like hybrid products to provide coverage for UberX and Lyft drivers. Consequently, more insurers expect that a core system implemented today will be up for replacement in less than 10 years. In 2011, nine out of 10 insurers anticipated a new policy administration system would last for more than a decade. Today, only six out of 10 insurers agree.

This is a tremendous shift in the market’s perceptions among P&C and L&A insurers alike. It reflects the accelerating pace of change and the exponential advances in technology. Insurers looking to the future – at the changing business models and products in the market – are unsure that an older core system will be able to face the challenges brought by digital and greenfield insurers as well as other insurtech advances. At a minimum, the core systems of today must continue to improve in upgradability to keep up with the advancing capabilities insurers need to match the pace of market changes.

Shorter lifespans mean insurers are rethinking how they allocate resources for core systems modernization. When faced with obsolescence in less than 10 years, insurers are more attracted to options that require less up-front planning and capital. This has translated into a greater number of cloud-based core systems as well as a shift toward more subscription-based pricing models.

The speedy implementations and quick time to value possible with cloud-based core systems appeal to insurers for the same reasons. Quick time to value is essential for insurers to be able to take advantage of new market opportunities, and implementations that take months rather than years can increase insurers’ adaptability. These buying trend changes aren’t displacing insurers’ purchases and implementations of larger, enterprise-wide core systems. The new trends simply give insurers the quick wins they need while they continue to advance enterprise-wide core systems modernization projects.

See also: The Death of Core Systems  

My recent report, Bridging to the Future With Core Systems Modernization, explores that trend and other ways that insurers are using modern core systems to increase the adaptability of their businesses. Core systems replacement and modernization is one of the seven SMA Bridges to the Future – and is critical for insurers to prepare for the opportunities and challenges of insurance in the coming years.

When we look at how quickly our world is changing, 10 years doesn’t seem so long. It reminds me of a prescient quote from Bill Gates: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.” And he said that more than 20 years ago.

Connected insurance represents a new paradigm for the insurance business, an approach that fits with the mainstream Gen C, where “C” means connectivity. This novel insurance approach is based on the use of sensors that collect and send data related to the status of an insured risk and on data usage along the insurance value chain. Auto telematics represents the most mature insurtech use case, as it has already passed the test and experimentation phase. It is currently being used as an instrument for daily work within motor insurance business units. In this domain, Italy is an international best-practice example: Here, you can find at the end of 2015 half of the 10 million connected cars in the world have a telematics insurance policy. According to the SSI’s survey, more than 70% of Italians show a positive attitude toward motor telematics insurance solutions. According to the Istituto per la Vigilanza sulle Assicurazioni (IVASS), about 26 different insurance companies present in Italy are selling the product, with a 19% penetration rate out of all privately owned insured automobiles in the last quarter of 2016. Based on the information presented by the European Connected Insurance Observatory, the Italian market surpassed 6.3 million telematics policies at the end of 2016. See also: Telematics: Moving Out of the Dark Ages? Based on this data, we can identify three main benefits connected insurance provides to the insurance sector:

1. Frequency of interaction, enhancing proximity with the customer while creating new customer experiences and offering additional services
2. Bolstering the bottom line, through specialization,
3. Creating and consolidating knowledge about the risks and the customer base.

The insurance companies are adopting this new connected insurance paradigm for other insurance personal lines. The sum of insurance approaches based on IoT represents an extraordinary opportunity for getting the insurance sector to connect with its clients and their risks. The insurers can gradually assume a new and active role when dealing with their clients—from liquidation to prevention. It’s possible to envision an adoption track of this innovation by the other business lines that are very similar to that of auto telematics, which would include:

1. An initial incubation phase when the first pilots are being put into action to identify use cases that are coherent with business goals;
2. A second exploratory phase that will see the first rollout by the pioneering insurance companies alongside a progressive expansion of the testing to include other players with a “me, too” approach;
3. A learning phase in which the approach is adopted by many insurers (with low penetration on volumes) but some players start to fully achieve the potential by using a customized approach and pushing the product commercially (increasing penetration on volumes);
4. Finally, the growth phase, where the solution is already diffused and all players give it a major commercial push. After having passed through all the previous steps in a period spanning almost 15 years, the Italian auto telematics market is currently entering this growth phase.

The telematics experience teaches us two key lessons regarding the insurance sector:

1. Transformation does not happen overnight. Before becoming a relevant and pervasive phenomenon within the strategy of some of the big Italian companies, telematics needed years of experimentation, followed by a “me, too” approach from competitors and several different use cases to reach the current status of adoption growth.
2. The big companies can be protagonists of this transformation. By adding services based on black box data, telematics has allowed for improvements in the insurance value chain. Recent international studies show how this trend of insurance policies integrated with service platforms is being requested by clients. The studies also show that companies, thanks to their trustworthy images, are considered credible entities in the eyes of the clients and, thus, valid to players who can provide these services. If insurance companies do not take advantage of this opportunity, some other player will. For example, Metromile is an insurtech startup and a digital distributor that has created a telematics auto insurance policy with an insurance company that played the role of underwriter. After having gathered nearly $200 million in funding, Metromile is now buying Mosaic Insurance and is officially the first insurtech startup to buy a traditional insurance company. This supports the forecast about “software is eating the world”— even in the insurance sector.

See also: Effective Strategies for Buying Auto Insurance How can other markets capitalize on the telematics experience and create their own approach?

The Employee Retirement Income Security Act (ERISA) has been around since the Ford administration. Most people know the law in relation to retirement benefits, but it’s emerging as an unexpected, yet high-potential, opportunity to drive change in the dysfunctional U.S. healthcare system. The law sets fiduciary standards for using funds for self-insured health plans, which is how more than 100 million Americans receive health benefits. Health plans for wise companies with more than 100 employees are self-funded because they are generally less costly to administer. As a result, more than $1 trillion in annual healthcare spending is under ERISA plans or out-of-pocket by ERISA plan participants. While it's roughly one-third of healthcare spending, employer/union-provided health benefits likely represent more than two-thirds of industry profits as they wildly overpay for healthcare services because of the misperception that PPOs help save them money. In reality, PPO networks cost employers/unions dearly. This overpayment makes ERISA plans an attractive target for operational efficiencies. Healthcare is the last major bucket of operational expenses that most companies haven’t actively optimized (they've already optimized operations, sales, marketing, etc.). For those that don’t get on top of this, it could also be a source of significant potential liability for companies and plan trustees. We are already aware of the ripple effect on benefits departments — one entire benefits department (with the exception of one person) was fired when the board realized the lack of proper management. See also: ERISA Bonding Reminder   ERISA requires plan trustees to prudently manage health plan assets. Yet very few plans have the functional equivalent of an ERISA retirement plan administrator who actively manages and drives effective allocation of plan investments. This person (or team) would have deep actuarial and healthcare expertise to enable them to deeply understand and negotiate potential high-cost areas of care, something traditional human resource departments lack. At the same time, it’s broadly estimated that there is enormous waste throughout the healthcare system. The Economist has reported that fraudulent healthcare claims alone consume $272 billion of spending each year across both private plans and public programs like Medicare and Medicaid. The Institute of Medicine conducted a study on waste in the U.S. healthcare system and concluded that $750 billion, or 25% of all spending, is waste. PwC went so far as to say that more than half of all spending adds no value. It's impossible to imagine any CEO/board allowing this in any other area of their company. Increased outside scrutiny on how ERISA-regulated health plans spend their dollars could create immense potential liability for both company directors and health insurers across the country. Nationally prominent lawyers, auditors and others are catching on to this and are taking action to get ahead of it or are advancing potential new categories of litigation that could result in hundreds of billions in damages. In just the last couple of months, we at the Health Rosetta Institute — a nonprofit focused on scaling adoption of practical, nonpartisan fixes to our healthcare system — have learned of some key events that will likely further increase scrutiny on ERISA fiduciary duties. First, two Big Four accounting firms have refused to sign off on audits that don’t have allowances for ERISA fiduciary risk. A senior risk management practice leader at one of those firms told a room of healthcare entrepreneurs and experts that ERISA fiduciary risk was the largest undisclosed risk they'd seen in their career. As more accounting firms start to require this, it will change how employers manage ERISA health plan dollars. Second, independent directors have quietly sounded the alarm to three company auditors about this growing issue, recognizing the potential for personal financial liability that director and officer insurance policies may not cover. We expect to see more of them focusing on this issue, given that healthcare spending is roughly 20% of payroll spending for most companies. Third, attorneys are building litigation strategies around employers filing suits against their ERISA plan co-trustees (the plan administrators who actively manage the plan’s health dollars) alleging they breached their ERISA fiduciary duties by turning a blind eye to fraudulent claims. We expect the first of these cases to be brought this year and expect to see significantly more in the next couple years. One firm we’re aware of is working on cultivating dozens of these cases. The implications of this third trend could be enormous. If boards and plan trustees know fraud could exist and don’t take action to rectify the issues, they could open themselves to liability from shareholders and plan beneficiaries. The scale of damages just for fraudulent claims could be on the magnitude of lawsuits over asbestos and tobacco. A very conservative estimate of what percentage of claims are fraudulent is 5% (many believe 10-15% is more accurate). Employers spend more than $1 trillion per year on healthcare. If you take the low-end estimate (5%) and extrapolate over the statutory lookback period for ERISA (six years), that would be $300 billion. These legal threats could force employers to actively manage health spending the same way they manage other large operational expenses. We’ve already seen companies doing this, reducing their health benefits spending by 20-55% with superior benefits packages. Employers use a variety of approaches, but most are relatively straightforward and focus on proven benefits-design solutions that make poor care decisions more costly and better care decisions less costly to encourage the right behavior. Most importantly, they don’t focus on shifting costs to employees. This cost-shift to the middle class has devastated the American Dream and was the backdrop for the populist campaigns that were badly misreported (in terms of their root cause). See also: Solution to High-Cost Indemnity Payments?   Three high-potential areas for improvement include actively managing high-cost care to move it to high-quality, lower-cost care settings; directly addressing drug costs; and creating incentives for wise care decisions. Here are a few repercussions these changes may have for companies and investors:

1. As more procedures move from expensive hospital settings to lower-cost independent ambulatory surgery centers, this means lower margins at for-profit hospitals, threatening return assumptions on hospital revenue bonds and growth potential for ambulatory care categories.
2. Tackling pharmacy spending puts downward pricing pressure on pharmacy benefits managers. An indirect example of the consequences of this is the face-off between drug middleman Express Scripts Holding Company and health insurer Anthem. In the next quarter, a statewide health plan is doing a reverse auction to select their next PBM. It's hard to imagine the incumbent PBM will be willing to drop its pricing and rebate games for a high-profile public entity.
3. More active management of healthcare, self-insurance and lower costs by employers reduce revenue and margins at public insurance companies, threatening core revenue streams. This is compounded by self-insured employers moving to independent plan administrators not tied to traditional insurers.

Surprisingly, the most sustainable and high-impact of these approaches will benefit employees, as well. Most wasted spending in healthcare that directly affected patients is the result of overuse, misdiagnosis and sub-optimal treatment. Time and again, we’ve found that the best way to slash costs is to improve health benefits. And isn’t better healthcare at a lower cost the best outcome for all of us?   This article was also written by Sean Schantzen, who was previously a securities attorney involved in representing boards, directors, officers, and companies in securities litigation and other matters including some of the largest securities cases in U.S. history. An earlier version of this article was also published on MarketWatch.

At times, it seems like insurtech is around every corner, with new startups materializing every day, conferences emerging out of nowhere and accelerators doing their job of accelerating. Until recently, most of the activity and visibility in property/casualty has been related to personal lines. Sure, there have been commercial lines startups and partnerships in the distribution space for quite some time, but there has appeared to be much less activity than around personal lines. This has begun to change in the last six months.

See also: Insurtechs Are Pushing for Transparency  

SMA’s recently released research report, InsurTech and Commercial Lines: A Surge of Activity and New Implications, analyzes the current state of the insurtech world, and there are approximately 400 startups that SMA has identified as relevant for commercial lines insurers. At this stage, the biggest areas of interest are small commercial (distribution) and workers’ comp (loss control and claims). This follows the natural path of technology adoption in the insurance industry. Insurtechs and emerging technologies will likely advance along this path. There are certainly some insurtechs that are applicable beyond small commercial today, but the complexity and uniqueness of other commercial lines have limited insurtech's penetration thus far.

Among the insurtechs with capabilities for commercial lines, almost half are either in the connected world or the distribution spaces. Distribution plays include digital agents/brokers, startup MGAs and tech companies with platforms or solutions for agents and brokers. Those with connected-world solutions have great potential for risk reduction and mitigation for fleets, properties, worksites and other areas that commercial lines insurers cover.

It is likely that insurtechs will continue to emerge with use cases for commercial lines. In the meantime, the existing body of insurtechs are maturing as they refine their solutions, pilot/partner with insurers and begin to roll out live implementations with customers.

See also: Leveraging AI in Commercial Insurance  

From a commercial-lines standpoint, insurtech is no longer hidden in the shadows. As more and more insurtech activity sees the light of day, the potential to transform the industry increases.

Fifty-six cents of every premium dollar is indemnity (loss costs). A further 12 cents is needed to assess, value and pay those losses. Given that two-thirds of the insurance industry economics are tied up in losses, it would be logical that much of the innovation we are now witnessing should focus on driving down loss costs and loss adjustment expense — as opposed to the apparent insurtech focus on distribution (and, to a lesser extent, underwriting). This is beginning to happen. What do you have to believe for loss costs and adjustment expenses to be a prime area of innovation and disruption? You have to believe that the process (and, thus, the costs) to assess, value and pay losses is inefficient. You have to believe that you can eliminate the portion of loss costs associated with fraud (by some estimates, as much as 20%). You have to believe that there is a correct amount for a loss or injury that is lower than the outcomes achieved today, particularly once a legal process is started. You have to believe that economic improvements can happen even as customer experience improves. And you have to believe that loss costs and adjustment expenses can decline in a world in which sensor technology starts to dramatically reduce frequency of losses and manufacturers embed insurance and maintenance into their “smart” products. See also: ‘Digital’ Needs a Personal Touch   Having spent years as an operating executive in the industry, I happen to believe all of the above, and I am excited by the claims innovation that is just now becoming visible and pulling all of the potential levers. We are seeing an impact on nearly all aspect of the claims resolution value chain. Take a low-complexity property loss. Technology such as webchat, video calls, online claims reporting and customer picture upload are all changing the customer experience. While the technologies aren't having a huge impact on loss adjustment or loss costs, they are having profound impact on how claims are subsequently processed and handled. One such example, as many have heard, is how Lemonade uses its claims bot for intake, triage and then claims handling for renters insurance. Lemonade’s average claim is a self-reported roughly $1,200 (low value), and only 27% are handled in the moment via a bot as opposed to being passed to a human for subsequent assessment. Still, Lemonade certainly provides a window to the future. Lemonade is clearly attacking the loss-adjustment expense for those claims where it believes an actual loss has occurred and for which it can quickly determine the replacement value. More broadly, Lemonade is a window into how many are starting to use AI, machine learning and advanced analytics in claims in the First Notice of Loss (FNOL)/triage process — determining complexity, assessing fraud, determining potential for subrogation and guiding the customer to the most efficient and effective treatment. While Lemonade is the example many talk about, AI companies such as infinilytics and Carpe Data are delivering solutions focused specifically on identifying valid claims that can be expedited and on identifying those claims that are more questionable and require a different type of treatment. These types of solutions are beginning to deliver improvement in both property and casualty. New data service providers — such as Understory, which provides single-location precision weather reports — can be used to identify a potential claim before even being notified, which can reduce loss costs through early intervention or provide reference data for potentially fraudulent claims. Equally interesting is the amount of innovation and development appearing in the core loss-adjusting process. Historically, a property claim — regardless of complexity — would be assessed via a field adjuster who evaluates and estimates the loss. Deploying technical people in the field can be very effective, but it is obviously costly, and there is some variability in quality. In a very short time, there are very interesting new models emerging that reimagine the way insurers handle claims. Snapsheet is providing an outsourced solution that enables a claimant of its insurance company customers to use a service that is white-labeled for clients. The service enables the claimant to take pictures of physical damage, which is then “desk adjusted” to make a final determination of the value of the claim, followed by a rapid and efficient payment. WeGoLook, majority-owned by claims services company Crawford & Co, is using a sophisticated crowd-sourced and mobile technology solution to rapidly respond to loss events with a “Looker” (agent) who can perform a guided process of field investigation and enable downstream desk adjusting process, as well. Tractable provides artificial intelligence that takes images of damaged autos and estimates value (effectively a step toward automatic adjudicating). Tractable — like, Snapsheet and WeGoLook — has made great strides. Aegis, a European motor insurer, is rolling out Tractable following a successful pilot. In each of these instances, the process is much improved for customers — whether it be self-serving because they choose to do so (Snapsheet), rapidly responding to the event (WeGoLook) or dramatically reducing the cycle time (Tractable). All provide material improvements in customer experience. See also: Waves of Change in Digital Expectations   Obviously, each of these models is attacking the loss adjustment expense — whether through a more consistently controlled process of adjusting at a desk, using AI to better assess parts replacement vs. repair or improving subrogation, among other potential levers. Today, all of these solutions are rather independent of each other and generally address a low-complexity property loss (mostly in the auto segment), but the possible combination of these and other solutions (and how they are used depending on type and complexity of claims) could begin to amplify the impact of technology innovation in claims.

With GDP rates in SE Asia exceeding 6.3% per annum, with premium growth for life, accident and other policies higher than 13% last year in the region and with insurance penetration rates of 5% or less, we seem to be looking at a slow, fat rabbit. But we don't seem to be able to shoot it. Why? See also: Innovation — or Just Innovative Thinking?   While numerous global and regional insurance carriers have created venture capital funds, insurtech incubators and grand initiatives, the carriers' fundamental view of the world has not changed. Consider the following: In 2016, there were approximately 75 deals in private tech investment by reinsurers and insurers, up from three deals in 2013. On the face of it, this is encouraging. However, of the total tech deals completed in 2016, more than 72% involved U.S.-based startups and only 12% involved ones in Asia. In other words, the fastest-growing markets of the world received only a fraction of the total tech investments from the insurance industry, which is not exactly transformational. You can't shoot even a slow, fat rabbit if you don't aim at it. If we assume an average of a $2 million for each of those private deals, this equates to $150 million in total capital commitments. Let’s be generous. If the average deal size was $10 million, the total industry commitment would have been $750 million, or less than .02% of the industry's $4.5 trillion in annual premium. Can you imagine a private equity firm like Blackrock investing only two-hundredths of a percentage point of its assets in products and ventures for the future? Neither can I. In all fairness, it is not easy to disrupt the status quo in insurance.  After all, for well over a century, insurance was a game the house almost always won. Other than catastrophic events (hurricanes, tsunamis, floods, etc. — many of which are co-insured by local and federal governments), insurance has been a safe bet if, of course, you are the house. In the face of change, many insurers have recently undertaken initiatives to break the mold. MetLife recently created LumenLab in Singapore, where a 7,800-square-foot facility is an incubator for innovative startups from outside the insurance industry. But with MetLife's earning declining more than 19% from 2015 to 2016, is it enough? Aviva, a British multinational with more than 33 million customers across 16 countries, recently launched an initiative to encourage entrepreneurs to develop disruptive solutions. The mission statement reads: “Our mission is to connect with extraordinary talent, uncover breakthrough innovations and give those breakthrough innovations the opportunity to thrive.”  That's very passionate, but what is the end game? See also: Insurers Are Catching the Innovation Wave   True innovation, transformation and disruption are cultural issues, and must be cultivated and encouraged from the top. Most insurance CEOs do not engage in high-altitude mountain climbing, scuba diving or any other extreme sport, nor do they hang out at the Google campus. Most importantly, they do not spend a lot of time in Bangkok or Shanghai. But they should, because that is where the new markets are forming. There are, of course, exceptions to the rule. The first is Axa, which has created Axa Ventures, a true, well-funded venture capital subsidiary with a mission to invest in disruptive ventures that can actually get to market. The fund is led by Minh Tran, who has a successful history in venture capital and disruption. The second and less obvious group is Munich Re, based in Germany, which has launched numerous digital and venture initiatives. Germany has become a center for insurtech, and, while Munich Re’s efforts are, in my opinion, still not completely coordinated, it is clearly making a company-wide effort. If insurance carriers want to lead the pack, they must embrace models similar to the one Axa has created, and they must make a corporate commitment to transformational change — especially in emerging markets. Disruption does not happen overnight, but it does happen. And, in a legacy industry ripe for change, it will happen sooner rather than later. The question is whether it will be led from the inside or whether the industry will be dragged kicking and screaming into the future from the outside.

In Amazon’s warehouses, there is a beehive of activity, and robots are increasingly doing more of the work. In less than five years, they will load self-driving trucks that transport goods to local distribution centers where drones will make last-mile deliveries. Soon afterward, autonomous cars will begin to take the wheel from taxi drivers; artificial intelligence will exceed the ability of human doctors to understand complex medical data; industrial robots will do manufacturing; and supermarkets won’t need human cashiers. The majority of jobs that require human labor and intellectual capability are likely to disappear over the next decade and a half. There will be many jobs created, but not for the people who have lost them — because they do not have those skills. And this will lead to major social disruption unless we develop sound policies to ease the transition. See also: May the Forms Be With You!   The industry behind these advances — and reaping huge financial rewards from them — has been in denial. Tech entrepreneur Marc Andreessen, for example, calls the jobless future “a Luddite fallacy”; he insists that people will be re-employed. But now others, including Facebook’s Mark Zuckerberg, Tesla’s Elon Musk and Bill Gates, are acknowledging a skills mismatch, with the potential for mass unemployment. They advocate a universal basic income (UBI), a payment by the government that provides for the basic wants and needs of the population. [Mark Zuckerberg tells Harvard grads that automation will take jobs, and it’s up to millennials to create more] But these tech moguls are simply kicking the can down the road and shifting responsibility to Washington. UBI will not solve the social problems that come from loss of people’s purpose in life and of their social stature and identity — which jobs provide.  And the politicians in Washington who are working to curtail basic benefits such as healthcare and food stamps plainly won’t consider the value of spending trillions on a new social-welfare scheme. In a paper titled “A New Deal for the Twenty-First Century,” Edward Alden and Bob Litan, of the Council on Foreign Relations, propose solutions for retraining the workforce. They believe that there will be many jobs created in technology and in caring for the elderly — because Western populations are aging. The authors say that young people starting careers should be equipped with the education and skills needed to adapt to career changes and that older workers who become displaced should receive assistance in finding new jobs and retraining for new careers. Government shouldn’t provide the jobs or training but should, the authors say, offer tax incentives and insurance, facilitate job mobility and reform occupational licensing. To encourage employees to gain new skills, there should be “career loan accounts” from which they can fund their own education — with repayment being linked to future earnings. [‘Coal country is a great place to be from.’ But does the future match Trump’s optimism?] To minimize the effect of wage cuts resulting from changing professions, Alden and Litan advocate a generous wage-insurance scheme that tops up earnings; enhancements to the Earned Income Tax Credit; direct wage subsidies; and minimum wage increments. They believe, too, that a voluntary military and civilian national service program for young people would help alleviate the social disruption and teach important new skills and provide tutoring to disadvantaged students, help for the elderly and improvements of public spaces such as parks and playgrounds. These ideas are a good start, but the focus was on maintaining a balance between Republicans and Democrats, on being politically palatable. The coming disruptions are likely be so cataclysmic that we need to go beyond politics. See also: Outlook for Taxation in Insurance   We have already seen the increasing anger of the electorate from both the right and the left in the U.S. elections. We are witnessing the same in Europe now. As technology advances and changes everything about the way we live and work, this will get much worse. We must understand the human issues — the trauma and suffering of affected people — and work to minimize the impacts. As Harvard Law School’s Labor and Worklife Program Executive Director Sharon Block said to me in an email: “I don’t think we can be limited in our thinking by what can get through Congress now — nothing can. We need to be using this time to come up with the big new ideas to develop a bolder progressive vision for the future — and then work to create the conditions necessary to implement that vision.” The problem here is that with this future fast approaching, not even the inventors of the technologies have a real answer. This is why there is an urgent need to bring policymakers, academics and business leaders together to brainstorm on solutions and to do grand, global experiments.

If both parties accept the proposal, we have a settlement. (Hurray!) If one party accepts, but the other does not, there is no settlement, and the refusing party never learns that the other side accepted. I only tell parties there is no settlement. If both sides refuse, I tell them there is no settlement, but, again, parties do not know if the other side accepted the mediator’s proposal. There are many benefits of the mediator’s proposal. Principally, no one has forsaken their last offer to settle. If a mediator’s proposal does not succeed, the parties can continue negotiating from their last position. Blame It on the Mediator The mediator’s proposal allows mediation participants to save face. “It wasn’t our idea; it was that darn mediator’s.” Sometimes attorneys hesitate to be completely forthright in their recommendations to their clients, particularly if they are the second or third attorney on the file. The mediator’s proposal opens the door for a frank discussion while allowing the attorney to shift responsibility to the mediator for an idea the client may find distasteful. See also: The 1 Way to Maximize Success in Mediation   Mediators don’t stick their necks out to come up with a proposal unless they are pretty sure it is going to be accepted. These things don’t happen early in the mediation. More likely, you will see a mediator’s proposal when it looks like parties are heading to an impasse. Because my mediator’s proposal is a reflection of the parties' own negotiation to this point, it is generally accepted.

As the June 30 deadline approaches for this year’s SMA Innovation in Action Awards, I’m looking forward to seeing the innovative strides that insurers and solution providers have made in the past year. The market is changing so quickly that adaptability is key. The SMA Innovation in Action Awards recognize insurers of all types and sizes who are rethinking, reimagining and reinventing the business of insurance. In recent years, we have recognized a number of traditional, established companies that are propelling themselves forward. They have combined the best strengths of our industry today with the best new ideas from insurtech and the digital world. And this convergence of the old and the new is the true path to success. See also: Key Trends in Innovation (Parts 4, 5)   Our winners have showcased this type of mindset by blending their existing projects and goals with very targeted uses of insurtech, emerging technologies and new data sources.

• Experiment with new technology and customer experiences. John Hancock’s Vitality Program (2016 winner) engages policyholders through gamification and personalized guidance to increase their healthy activities, like exercise and annual physicals. Policyholders can report data online or through a free wearable fitness tracker. In the next phase of this project, John Hancock has expanded the customer engagement model to now provide discounts on healthy foods from participating stores. Each time the policyholder buys a healthy food, the discount and brand appear on the checkout receipt, reinforcing John Hancock’s role as their partner in healthy living. In addition to the creative application of emerging technologies, John Hancock is shifting from a transactional relationship with their customers to one based on value-added services.
• Engage with emerging technologies. Texas Mutual (2016 winner) tackled a loss-prevention challenge, engaging workers to learn and follow onsite safety procedures by creating virtual reality scenarios to train construction workers. Texas Mutual’s Safety in a Box app was designed for easily accessible, familiar technology: the user’s mobile phone with a free cardboard viewer. Texas Mutual also distributed viewers at construction industry conferences and filmed in both English and Spanish to reach a broader audience.
• Incubate innovation. Incubating Haven Life (2015 winner) internally allowed MassMutual to test a new business model: selling life insurance completely online in about 20 minutes. Underwriting Haven Life’s policies relies on external data fed through proprietary algorithms, reducing the time and complexity for the applicant.
• Look at the big picture – but start small. Motorists (2016 winner) completed the first phase of its plan to achieve complete organizational transformation within 10 years. The ultimate goal is to operate as an “85-year-old startup” designed for innovation and collaboration, and the company redesigned a key workspace to foster this cultural shift. It built around cutting-edge technology to enable work to shift seamlessly across time zones and continents. This first step is intended to encourage more collaborative work styles to spread throughout the company, bringing Motorists closer to its vision.

One of the best parts of our awards program is to showcase how innovation is flourishing within our industry – and not just with greenfield insurers or those partnering with insurtech firms. Together, John Hancock, Texas Mutual, MassMutual and Motorists have more than 400 years of experience in writing insurance. They demonstrate how no company is ever too established to embrace change. See also: 3 Ways to Leverage Digital Innovation   For more information on the SMA Innovation in Action Awards and to create your own submission, visit www.strategymeetsaction.com/awards. Submissions are due by June 30. We will also be focusing on the power of convergence at our annual SMA Summit in September.