Incumbent insurers have taken decades, and, in many instances, hundreds of years building a business and creating a book of business (almost entirely through the hard work of agents, brokers and MGAs). Why should they share their customer information with startup insurers (regardless of how or why the startup insurer is using technology)? Potentially invest in the startups, yes. Give away customer information -- not so much. Two triggers for the question There are (at least) two triggers that formed the question of whether incumbents should partner with startups:

1. Discussions with a CEO of an insurance startup on how technology-dependent startups insurance firms can scale; he mentioned the possibility of looking at the pharma/biotech industry dynamic (i.e. startup biotech firms partnering with traditional pharma companies to achieve scale)
2. Thinking about what's in it for traditional insurers to partner with startup insurers that are coming to market using new technology. If the technology-dependent startup insurer believes it is primarily "a tech firm that supports/offers one or more parts of the value chain (distribution, underwriting, or even customer service)," then what really differentiates the startup insurer from a traditional technology company?

See also: Insurtech Has Found Right Question to Ask Left to their own devices Might technology-dependent startup insurance firms, if left to their own devices, succeed on their own? Possibly, but there are several hurdles:

1. They must comply with insurance regulations (at least state and possibly federal)
2. They must be and remain financially viable. Unlike technology startup firms, the state insurance regulators can't allow the startup to generate loss after loss. Firms like Salesforce and Amazon can go years without profit, but that situation is not true in the insurance industry.
3. They need scale (and profitable scale, at that), and, as the CEO mentioned to me, the startup has to "get the word out" and become known. How much is in the technology-dependent startup insurance firm's marketing/advertising budget (and how is the company spending the money)?

If the technology that the technology-dependent insurance startup uses is its "secret sauce," then an incumbent insurer can:

1. Test the technology itself
2. Invest in the startup to accelerate the lessons of using the technology
3. Acquire the startup

See also: Insurtech: One More Sign of Renaissance But my advice to each incumbent insurance firm is to never give away or share your customer list with any technology-dependent startup insurance firm. It makes no sense to do that.

Every three years, the U.S. Environmental Protection Agency (EPA) identifies certain national environmental problems where it believes it can make a difference by dedicating direct enforcement resources. Starting on Oct. 1, 2016, and for the next three fiscal years, these “National Enforcement Initiatives” (“NEIs”) include two new ones, an expanded one and four existing initiatives. These seven enforcement priorities offer insights into how the EPA plans to allocate its enforcement resources to specific environmental hazards concerning water, air, hazardous chemicals and energy extraction. As the EPA moves forward with these priorities, businesses need to be cognizant of the increased enforcement potential, especially to avoid non-compliance, and thus mitigate the associated environmental risk. Here is a recap of the initiatives: 1. Water Pollution Pollution of waterways from raw sewage systems, storm drains, underground storage tanks, runoff and waste disposal continues to be a high priority for the EPA. Recent attention from the lead- contaminated water in Flint, MI, and the Gold King Mine wastewater release have underscored the need for heightened enforcement. The EPA’s “new” water enforcement focus is keeping industrial pollutants out of the nation’s waters. The EPA will be directing enforcement resources on certain industrial sectors identified as “disproportionate contributors” to pollution, including chemical and metal manufacturing, mining and food processing. Concentrated Animal Feeding Operations (CAFOs) and Animal Feeding Operations (AFOs) will also continue to be enforcement priorities. See also: Minding the Gap: Investment Risk Management in a Low-Yield Environment   Water-related enforcement initiatives are:

• Industrial pollutants (new initiative): The EPA will rely on water pollution data to target facilities in industrial sectors like chemical, metal manufacturing, mining and food processing to cut illegal discharge of nutrient and metal pollution into lakes, rivers and streams.
• Raw sewage and contaminated storm water: The EPA is targeting municipal sewer systems, using Clean Water Act violations to reduce pollution and volume of storm water runoff and to prevent unlawful discharges of raw sewage. Sources for this pollution include industrial runoff, fertilizers, fossil fuels and general human activities.
• Animal waste: The EPA will use innovative monitoring and targeting techniques to reduce and control chemicals and waste from controlled animal feeding operations.

2. Air Pollution Primary contributions to air pollution come from large industrial facilities like coal-fired power plants, acid, glass and cement manufacturing operations. Ensuring that these facilities comply with the Clean Air Act and reduce emissions has been a focus of the EPA since 2005. EPA investigations have found that many of these facilities failed to upgrade or install pollution-control devices during modification and construction of new plants. The results have prompted new and continued focus on air-enforcement initiatives:

• Reducing air pollution from large sources: This new initiative aims to ensure that large industrial facilities install state-of-the-art air pollution controls when they build new facilities or make significant modifications to existing facilities.
• Cutting hazardous air pollutants: This expanded initiative is focused on accurate reporting for refineries, chemical plants and other industries that emit hazardous air pollutants or air toxics. The initiative has now been expanded to include large product storage tanks, hazardous waste generators and treatments, as well as storage and disposal facilities.

3. Hazardous Chemicals This year's new hazardous chemical enforcement priority targets chemical plant pollution for causing large volumes of hazardous substances and having a high frequency of catastrophic accidents (150/year). Because many of these facilities are located in low-income communities, activists' calls for environmental justice have made this a priority. Mining and mineral processing operations continue to generate more toxic and hazardous waste than any other industrial sector. Through its continued enforcement efforts, the EPA has reduced the risk of mining waste contamination of drinking water, rivers and streams, and is working to clean up mining sites across the nation. The areas of priority are:

• Accidental releases: This new initiative attempts to step up scrutiny of pollution sources (i.e. chemical and manufacturing plants), ensuring that these facilities reduce the risk of accidental releases through innovative accident prevention measures and improving response capabilities.
• Mineral processing operations: Focus is on discharges from mining operations and cleanup of point sources that the EPA believes are threaten drinking water, rivers and streams.

4. Energy Extraction Referred to as a “bridge-fuel," natural gas serves as a lower-CO2 alternative to coal, as the country tries to refine and expand its renewable energy sources. However, the extraction of natural gas poses risks from improperly maintained wells that can leak natural gas into waterways and water sources. Combustion of methane produces a potent greenhouse gas, and communities in and around these operations can also be exposed to carcinogens like benzene and other smog-forming pollutants. This initiative aims to ensure that natural gas extraction and production is done in a way that minimizes these risks. In the past three years, the EPA has settled a number of high-impact cases under this initiative and will continue to address noncompliance through greater use of advanced pollution monitoring and reporting techniques. Past Enforcement Highlights: The EPA's enforcement highlights for 2015 provide a constructive snapshot of the breadth of the agency’s enforcement authority:

• $7 billion by companies in equipment upgrades and clean-ups;
• $404 million in combined federal administrative, civil judicial penalties and criminal fines;
• $4 billion in court-ordered environmental projects resulting from criminal prosecutions;
• 129 combined years of incarceration for sentenced defendants;
• $1.98 billion in commitments from responsible parties to clean up superfund sites; and
• $39 million for community environmental mitigation projects.

According to the latest EPA enforcement statistics, more than 98% of cities with large combined sewer systems, and more than 90% of cities with large sanitary sewer systems, are under enforceable agreements. About 59% of individual power generating units at coal-fired power plants have installed the required pollution controls or are under a court order to do so. Meanwhile, the agency says it has settled with 217 concentrated animal feeding operations for regulatory violations and issued enforcement actions to 196 natural gas extraction and production sites. See also: Developing A Safe Work Environment Through Safety Committees   Meanwhile, the focus on larger cases is expected to continue, with the EPA stating that it will specifically target facilities that operate in multiple states to support “a consistent national strategy.” Consider the following recent EPA enforcement settlements: Water: A large farming cooperative and processing facility that manufactures refined sugar, liquid sugar and other products from sugar beets will pay $6 million in an agreement to resolve Clean Water Act violations at its processing facility. Under the terms of the settlement, the company will model the volume of its wastewater ponds, audit its wastewater piping systems, drain lines from spray irrigation fields and use automatic cut-off valves to prevent further discharges. Air: A large cement manufacturer will invest $10 million to cut emissions of harmful air pollution at five of its manufacturing plants to resolve alleged violations of the Clean Air Act. As part of the agreement, the company will install and operate modern pollution controls for nitrogen oxide (NOX) emissions at its kilns, conduct detailed diagnostic energy audits and spend $150,000 in mitigation on energy efficient projects that reduce nitrogen oxide emissions. Hazardous Chemicals: Under an amendment to a 2012 agreement, a large petroleum company will spend $319 million to install state-of-the-art flare gas recovery systems (FGRSs) that will capture and recycle gases that would otherwise be sent to flares at facilities in Illinois, Kentucky, Louisiana, Michigan and Ohio. These efforts are projected to reduce emissions from flares by 896 tons per year. Energy Extraction: A large oil and natural gas exploration and production company will pay $5 million to resolve federal and state violations of requirements for the installation, operation, maintenance, design and sizing of vapor control systems at condensate storage tanks. The company will make necessary modifications to ensure that each vapor control system is properly designed and operated, and will spend at least $4.5 million on environmental mitigation projects that will reduce volatile organic compounds and nitrogen oxides. With evolving environmental standards, businesses need to remain well-informed of these EPA enforcement priorities.

Physical therapy can be one of the biggest cost drivers of a workers’ comp claim. In addition to the treatment itself are the expenses for travel and the employee’s time away from work. Onsite clinics can reduce the expenditures. They are cost-prohibitive for all but the largest companies, but many organizations are starting to turn to an alternative that combines the need for easily accessible PT at a cost comparable to or lower than clinic-based therapy. Called therapy on demand, onsite PT involves a physical therapist going to the injured worker’s worksite -- or home, in some cases -- setting up equipment he brings and spending an hour focused solely on a single injured employee. Contrary to what some industry practitioners fear, the logistics are fairly simple. “All we really needed to provide was a room that looks like a big closet; a room big enough to fit a massage table,” said Sandra Palacio, a claims adjuster at Royal Caribbean International. “We had several meetings before we put this in place. We tested it out for the first week or two, got great feedback and have continued to use it. It’s been a great experience.” See also: Therapy Charges Are Being Inflated   Royal Caribbean teamed up with OnSite Physio, a mobile physical medicine company, to treat injuries sustained by the cruise line’s newly hired dancers and actors who train at a Miami-based facility. With the need to keep the entertainers away from work as little as possible, onsite PT has been a natural fit. “The dance studio is a unique system where they are only here for four to six weeks, so we need to have medical appointments on a fast basis,” Palacio said. “OSP has been great in that they come to us, get the person treated with PT, and injured workers are back doing their normal daily activities within an hour.” The fact that the workers can stay at their workplace for treatment eliminates the costs for travel and lost work time. Some companies have reported savings of as much as 30% by using onsite PT services. One, Marriott International, will discuss the results it has seen during a session at the National Workers’ Compensation and Disability Conference & Expo, Dec. 2, in New Orleans. (For a reduced registration rate, visit www.onsite-physio.com.) Focused PT Among the cost savings reported are fewer PT appointments needed. The one-on-one attention given to each injured worker — often by the same therapist for the duration of the treatment — and being at his workplace allows the therapist to target each patient’s unique problems and job tasks, which can result in quicker recoveries. “In a clinic, I might work with Mrs. Smith for 10 minutes, then Mr. so-and-so, then Mr. Brown. It’s this constant juggling act while you are in the clinic because, unfortunately, that’s just the model of outpatient PT,” said Daniel Sanchez, a physical medicine expert and a founder and VP of operations for OSP. Working onsite, “there is an ‘aha’ moment, when you realize you can do so much more with this injured worker than you ever could in a clinic. You have that one-on- one time with the patient so we get to really see and put into practice our treatment alongside what it is they do. We can perform therapy that is more meaningful, treatment that is work-related and more transferable to the real world. In a clinic, you have to simulate those things.” RTW A key difference between clinic-based PT and onsite is the focus on returning the employee to work. Sanchez makes the analogy of treating an athlete. “If the quarterback for the Jets gets a sprained ankle...what do they have onsite for the injured worker?" he asked. "They have people who specialize and treat them to get them back to their job. They are worried about whether the quarterback can get onto the field and do specific things. All of his treatment is around that.” That same type of thinking is at play with onsite PT companies such as OSP. One of its clients, for example, is a solid waste disposal company. While the workers in that industry no longer do as much manual labor as they did years ago, workers nevertheless sustain injuries. Repetitive motion injuries to the hand or elbow are typical, as are twisted knees and sprained ankles from getting off a truck improperly. See also: Employers Solving Healthcare Crisis One Onsite Clinic at a Time   “If I say, ‘this is a garbage worker,’ and I am in a clinic, I used to think I knew what that meant. Not until I did a ride along and looked at how they are pushing, pulling, spending time sitting in the heat, did I understand what the job entails,” Sanchez said. “In a clinic, I might have that worker going up and down steps. Onsite, I can train him right on that step. It’s the actual piece of equipment he uses, so his treatment is 100% functional. We’re taking the time to really understand what they do and tailor the therapy to it.” While onsite PT is not necessarily the best option for every injured worker, advocates say it offers many advantages over clinic-based therapy. “I definitely see this as a great benefit to companies that have a lot of workers’ comp claims because they can have the worker at the office, have OSP come and within an hour that worker can be back to work instead of the worker having to leave the job early just because he has to travel early and probably is not able to return that day,” Palacio said.

InsurTech Week 2016 hosted by the Global Insurance Accelerator in Des Moines was a great experience. It is quite interesting to see the energy, excitement, new ideas and investment in the insurance industry. Brian Hemesath and his team at the GIA have done a great job of harnessing this activity and being a positive force for change in the industry.

There are two themes I would like to highlight. The first is that the ingenuity and sheer variety of the startups is astounding – and will ultimately be a great thing for the industry. The second theme, and perhaps the more subtle one, is that there is a collegial atmosphere and a common sense of purpose about the role of insurance in society and business.

See also: Insurtech Has Found Right Question to Ask  

Variety and Ingenuity

The 11 insurtech startups participating in this InsurTech Week are a microcosm of the larger movement. A few examples are illustrative.

• Abaris – an innovative, direct-to-consumer solution for retirement planning, starting with income annuities.
• Insure A Thing – an idea for a revolutionary new business model for insurance that includes making payments in arrears (post-claim).
• Denim – a social media ad platform for insurance with a vision to ultimately reimagine marketing and distribution.
• ViewSpection – a mobile app for DIY property inspections to help to inexpensively provide more information to agents and underwriters.

The other participants also had innovative solutions for various lines of business and addressed key business issues in insurance today. They are: Ask Kodiak, Gain Compliance, Montoux, InsureCrypt, Elagy, CoverScience and Superior Informatics.

Some are in the early stages. Some originated outside North America and may or may not enter the market here. Some may not even be approved by regulators in their current form. But that is true of the broader set of the hundreds of insurtech companies that are active today.

The main point is that there is a great deal of innovation here, and many of these companies will play a role in the evolution of insurance, one way or another.

Collegial Atmosphere

The founders and investors in insurtech companies certainly desire to make money. Insurers that are engaging with these firms hope to gain competitive advantage. But in keeping with the culture of the insurance industry, there is also a great atmosphere of collaboration and even a sense that there is a higher purpose.

I don’t want to sound too dramatic, but there is a sense of altruism here – a sense that there are great opportunities to make the world a better place. Many of the insurtech companies see opportunities to improve safety in homes, in businesses, in factories and on the roads. The potential to significantly reduce accidents and deaths is tangible. Providing new services and capabilities to enhance lifestyles, improving individual well-being and just making it easier for customers to do business with the industry are also common purposes.

There is a spirit of cooperation among insurers, insurtech and other industry players, even in cases where companies are competitors. Not to criticize other industries, but insurance is about a lot more than selling a widget and making a buck.

See also: Calling all insurtech companies – Innovator’s Edge delivers marketing muscle and social connections

A Bright Industry Future

Overall, I believe this is cause for optimism for the insurance industry. It is not easy to transform from today’s business models, processes and systems into a future that embraces all the new ideas coming from insurtech. But many in the industry are now actively involved in building strategies, experimenting with new ideas and technologies, launching ventures and generally being willing to think differently.

While many industries are being disrupted, insurance is more likely to morph into a better version of itself, with incumbent players learning from and partnering with new players.

Here is the answer, in 100 words or less: ACA permits people to sign up even if they are already sick. Real insurance cannot work that way. Imagine an Accountable Fire Insurance Act that required insurers to sell you fire insurance after your home had burned. Homeowner insurance rates would skyrocket. Anyone who carefully read the ACA would have seen that coming. The big insurers knew this would happen but played along in the beginning to avoid attracting political fire. When 75% of Americans get a taxpayer subsidy under ACA, it isn’t really insurance but more of an income redistribution mechanism…for better for worse. There it is, 96 words.

Our nomination for word of the year is, by far, “uberization.” This term is used to describe the growing deluge of companies that offer on-demand services from cars to homes to labor, and much more. Many commentators view this economic transformation as a revolution that will see our entire economy shift from one of consumption, to one of access. And we think they're correct. The Rise of On-Demand The key to an "uberized" economy is where on-demand services meet crowdsourced labor solutions. You see it everywhere. Even traditional businesses are learning new tricks from an avalanche of high-profile acquisitions. Whether it's Expedia’s purchase of Homeaway, GM’s buyout of Sidecar or Ford's investment in Lyft, this shift is becoming more undeniable. On-Demand for Insurance Now, on-demand services are coming to the insurance industry, the most risk-averse industry, by its very nature. The insurance industry has become more nimble--mostly out of necessity, but that's a story for another day. See also: How On-Demand Economy Can Prosper   Insurance carriers are learning quickly that they need to adapt to the demand of, well, on-demand services. And the integration of the gig economy is the next step in the business evolution of the traditional insurance sector. Tough Questions for the Insurance Industry What does the “uber of insurance” mean? What opportunities and challenges does it bring to the industry? The gig economy, sharing economy, 1099 economy, on-demand economy or whatever you want to call it isn’t going away, and consumer participation continues to grow. Earners, consumers and the old guard of the supply chain are eager to find ways to diversify and optimize business solutions. How do you satisfy the demand for on-demand data gathering? Claims handling and processing? How does the insurance industry gather the data it needs effectively, efficiently and accurately? Uber, Lyft, and Airbnb have not only demonstrated that they fill a need in the marketplace, but often they do it better than the traditional options - as uncomfortable a thought as that may be for the old guard in the supply chain. Can this model work for the insurance industry? It can, and this is how. Hug Your Smartphone, Save a Tree Mobile technology is your new best friend when it comes to data gathering for claims handling and processing. The insurance industry is traditionally paper-intensive. Paper is no longer a security blanket, but a wet blanket weighing down processes and impeding efficiency. Candy Crush and Capturing Data It’s easy to marvel at the innovation of smartphones from the most addictive apps to the most useful. I won't get into my Candy Crush addiction; I'm seeking professional help. The point is to make smartphones work for you and your business processes. Today, smartphones are essential to the daily lives of most of us, providing communication, connectivity, schedules, entertainment and even our wallets. Think about how you can leverage people’s familiarity and affinity for their smartphones by merging it with your smart application development and deployment. Capturing data has never been easier than point and click...Oops, I mean a finger swipe. Now more than ever data can be captured, optimized and automatically entered into your data systems and processes. This new process can facilitate the seamless flow of data into business processes without risking it getting stuck to the bottom of someone’s shoe, misfiled, misplaced or eaten by the proverbial dog. For the notepad next to your computer: seamless data integration at the point of data capture. It sounds like a dream, doesn’t it? Sharing Is Caring First referred to as the sharing economy or the gig economy, the "uberization" of the workforce didn’t originate with Uber. But I'm still voting for “uberization” for word of the year. Merriam-Webster is next on my contact list. People have always done odd jobs that fit their skill set, hobby, or need. Uber, Turo, Airbnb and WeGoLook through mobile technology have taken this tried-and-true individual entrepreneurship spirit not only to the next level, but to a measurable impact on the economy. Just consider recent sharing economy industry projections made by PwC. I won't spoil it for you, but you'll soon be acquainted with the word "mega trend." See also: Uber’s Thinking Can Reinvent the Agent   Crowdsourced labor solutions not only provide diversified earning opportunities, but they also provide options to workers, consumers and businesses alike. Remember our talk about being nimble? All parties can scale up or down as they choose. They can also select where and how they participate in the gig economy and leverage it to provide for their financial or business goals. As these on-demand solutions grow, expand and diversify, companies and consumers will have the opportunity to test and identify the best solutions for them, all with a swipe of their smartphone. Free Market for Solutions Some will argue the gig economy is the free market at its best, others will argue it’s at its worst. Like anything, it comes back to how individuals and companies strategically apply these solutions to their business challenges. In the insurance industry, data gathering and claims processing will always resolve around how you can do it faster and better and with fewer mistakes. As the saying goes, “time is money.” With the help of technology, the reach of smartphones and crowd labor -- insurance companies can standardize and streamline data gathering, claims processing and other simple tasks while controlling costs. For instance, why dispatch an employee across the metro, county, state or even country, incurring all the related expenses, time delays to gather data and take pictures when you can dispatch someone who’s already there? Not only do you save time travel, and employee productivity, but thanks to the near-universal familiarity with smartphones and standardized mobile apps, you don’t have to train workers. What if there was an Uber of Insurance? It’s not really a matter of “if” anymore, but of “when” and “how.” The when is now, and the how is through the growing relevance of the insurtech disruption.

In the insurance industry, there are often multiple people who need to access company data to do their jobs well. However, having multiple databases can harm the data’s integrity and result in redundant work or low consumer satisfaction. Streamlining data storage and availability is the ideal solution to these issues as it increases efficiency and maintains data accuracy, all the while improving the consumer experience. Here are four essential benefits of data centralization: Facilitates collaboration Keeping data centralized speeds processes and facilitates collaboration, allowing for more accurate and insightful analysis. The creative team may learn of a downstream underwriting change and adjust their acquisition tactics and copy. Similarly, a traffic team may note an ad that has a high conversion rate and collaborate with the advertising team to improve other marketing materials and advertisements. Such collaborative effort may also increase productivity, as there is greater flexibility without digital walls or a “paper prison.” Information is shared, and the central data hub creates transparency in business operations, enabling cross-silo analysis and further opportunities for innovation. Eliminates unnecessary touchpoints and reduces inefficiencies Centralized information enables insurers and agents to offer additional services to meet their customer needs. Instead of calling and waiting to speak to an agent or customer service representative, consumers may be able to access their own policy information through a mobile app or website. Their questions may all be answered digitally, eliminating the need to contact their agent or insurer. This added service saves consumers time and reduces inefficiencies. See also: 3 Types of Data for Personalization   Streamlining data will also eliminate unnecessary touchpoints with your consumers and result in more effective processes. Whether a customer enters information on your website, returns a mail-form or replies by email, all of his data will be collected and maintained in one central location. Consumers will never have to answer the same question twice. Improves data accuracy Smart data acquisition improves information accuracy and quality. Instead of having key data in multiple department databases, it is all centralized. This ensures that anyone accessing important metrics has the latest information. There is a smaller margin of error, and this improves the consumer experience, while helping underwriters and agents do their jobs. For example, if a customer has moved to a new location, underwriters can learn of the change at the same time the marketing department does, and both can update their processes to match the updated information. This eliminates redundant communication with consumers and allows departments to adjust immediately. Furthermore, centralizing allows you to heighten security measures in your company. Instead of implementing and maintaining security for four or five platforms, you can focus on securing one central data hub. Prepares for the future The insurance industry, like many others, is becoming integrated with the Internet of Things. Streamlining data acquisition will prepare you for the future of insurance, regardless of your sector within the industry. Insurance will likely undergo a paradigm shift as technology changes the way business is done. Whether it’s data flowing from telematics apps, in-home device sensors or life insurance wearables, centralized data will enable richer experiences for your consumers. Knowing of changes instantly will reduce costs and claims and allow insurers and agents to provide better services for their consumers. One central information hub that is flexible and adaptable will only become more useful as the way we insure continues to evolve. See also: Data and Analytics in P&C Insurance   Smart data acquisition and warehousing will improve customer satisfaction and make your business more efficient. Opt for the process that improves accuracy, eliminates unnecessary touchpoints, enables collaboration and prepares you for the future of insurance.

We’ll admit it; we were caught asleep at the wheel on this one. We had heard of Lemonade a few months ago and how it successfully raised $13 million in investor funding, but given that there are 500-plus other insurtech startups out there, we didn’t pay that close attention. Then on Sept. 21, it opened for business. Both Carly and Tony were in Hawaii for the CPCU Society Annual Meeting and entirely too busy drinking Mai Tais, err, I mean, working the event to even notice that Lemonade went live. We’re back in the lower 48 now, back at our day jobs and, after almost a month working on catching up, it just recently hit us that Lemonade is a BIG deal. A REALLY BIG DEAL. A lot of digital ink has already been spilled at ITL with at least three great articles about Lemonade, but we still needed to give our own point of view. As Insurance Nerds, we are completely geeked out, and, as millennials, we can’t help but want to move our own insurance to Lemonade and are actively wondering when the company will expand to Pennsylvania and Georgia, where we live. Lemonade is not just another insurtech startup. It is an actual, mobile-first, legacy-system-free, licensed carrier offering P2P (peer-to-peer) insurance to delighted customers in the state of New York through a seemingly magical iPhone and Android app. To start understanding what this is all about, you must watch the three short videos in this article: That first video looks like a VERY snazzy proof of concept, and it almost makes you wonder if this thing will ever go live or if it will simply be vaporware. But it’s already live! Maya, the young lady who asks you in plain English a few simple questions to “get you some great insurance” is not a call center rep in NYC, Des Moines or even in Delhi; she’s an artificial intelligence chat bot. This technology is so new that it was unknown before 2016 and is only starting to be experimented with in the high-tech industry, and it’s live on Lemonade, helping people buy homeowner’s and renter’s insurance. Notice how, as the user fills in his address, the system automatically pulls potential matching addresses, and once it has a full match it automatically displays a map to confirm. Then it asks whether you have roommates, a fire alarm or a burglar alarm, if you answer yes to any of those, the system knows what else it needs to ask. See also: Lemonade: Insurance Is Changed Forever   It immediately pulls data from databases, analyzes all the underwriting characteristics it needs and offers an incredibly cheap policy. Oh, and if you already have a policy, Lemonade will even cancel it for you and get you a refund! Coverages are shown in a simple, graphical illustration, and just tapping on a darkened icon adds that coverage to your quote immediately. Enter your credit card info, and done. The whole video takes about 40 seconds to get to a bound policy. In real life, it probably takes about 90 seconds. You even get to sign your contract right on your touchscreen. It’s downright magical. The ease of use and freedom from legacy systems by themselves are probably enough to get 70% of millennials (and many Xers and Boomers) to leave their existing insurers and go with Lemonade instead! As Michael Tempany explains, no existing insurer can produce an app like this because of our legacy systems, workforce and processes. It’s simply not possible. He even argues that “the only solution for traditional insurers wanting to compete with Lemonade is to start from scratch. In short, they need to create a company or subsidiary unencumbered by legacy systems, workforce constraints and intermediaries.” But that’s just the beginning. Rick Huckstep of the Digital Insurer is absolutely right that “This is what insurance is meant to be: mutuality in the pooling of shared risk.” He argues that “the industry has lost its way with the evolution of mass scale personal lines in the 20th century. The profit motive has gotten in the way of trust; the insured and the insurer are both chasing the same dollars. And now, their interests are no longer mutual but are misaligned. The insured wants a helping hand and to be ‘made whole.’ The insurer wants to satisfy its duty to shareholders.” This is true even with mutual companies with no shareholders; the existing model of every other insurance carrier puts the customer’s interests against the carriers interests at least to some extent. While Lemonade is a full-on risk-bearing carrier, it has eliminated the existing dilemma of every other carrier: Lemonade takes a 20% cut of the premium as a fee, and that’s it. If you have a loss, you get paid for it (immediately and without questions), and, if you don’t have losses, and your policy produces a profit, it gets donated to the charity of your choice. The claims process is also amazing. You open the app, tell it you had a claim, answer a couple of questions, sign on the screen, record a quick video explaining what happened and get paid, on the spot, immediately. Oh, and by the way, Lemonade is A-rated and reinsured by Lloyds of London. The second video explains the science that makes it all work and has a great line: “Insurance that is a social good, not a necessary evil.” This tag line is going to be killer awesome. Also, very interesting that Lemonade explicitly explains what Geico’s “15 minutes can save you 15% or more” line has always meant: There are no brokers or agents involved. Nobody explains Lemonade better than Dan Ariely, behavioral economics expert, Duke professor and Lemonade’s chief behavioral officer. “In the very structure of the old insurance industry, every dollar your insurer pays you is a dollar less for their profits. So when something bad happens to you, their interests are directly conflicted with yours. You’re fighting over the same coin. Basically if you tried to create a system to bring out the worst in people, you would end up with one that looks a lot like the current insurance industry.” See also: It’s Time for Some Lemonade   And a fantastic commercial making it all crystal clear to the customer: Make no mistake, Lemonade will expand beyond New York, and we’d expect it to be in all 50 states within the next five to seven years at the very latest, and it will expand beyond renters and homeowners. A lot of questions remain open: Will Lemonade have decent underwriting results? Will the underwriting results even matter given the fee-based structure? Will the company be able to come up with an equally genius model for auto insurance? How about commercial insurance? A couple of things are absolutely certain: Millennials have no issue leaving legacy insurance companies and will be thrilled to try this out; and our industry has changed forever. Lemonade is what we will get compared with from now on. How will your company compete? Want to support InsNerds? InsNerds is free, it's a labor of love and it takes a lot of time. We have a ton of fun doing it, and we would really appreciate your support in keeping it running. If you've been helped by one of our articles, if we've helped you grow in your career, if you agree that our content is improving the insurance industry and that we are unique in what we do, please consider donating. We’ll use your donation to deliver even more career- and industry-changing content, and to spread the word about that content far and wide in the Insurance Industry.

Five years ago, insurance-focused technology conferences were attended mostly by insurance carriers and large consulting firms. Now, I’m amazed and encouraged at both the size of the audiences and the diversity of the audiences – a melting pot of venture firms and eager entrepreneurs, as well as all the traditional industry folk. “Insurtech” is starting to get some serious attention, and for good reason. There are new funding announcements every couple weeks, new conferences popping up left and right and corporate venture funds now at almost all major carriers. The funding in this space alone has risen from $740 million in 2014 to $2.65 billion in 2015, and as a category insurance tech has seen 50% more deal activity in 2016 year to date than in all of 2015 combined. As Peter Thiel has said, “Humans are distinguished from other species by our ability to work miracles. We call these miracles technology.” We’ve seen technology revolutionize other industries, and now it’s our time. Our industry has been here before, and, every time, new companies have emerged while incumbents have suffered. Technology has cycled through the industry many times, each time weeding out the latent and rewarding the agile. What’s different this time is the pace of change – winners will become losers faster than we’ve ever seen. This time, three forces will significantly affect the personal lines insurance industry: shifts in consumer purchasing behavior, the proliferation of data and the interplay between data and consumers. The mobile-first era Technology makes life easier for consumers, and we’ve seen a shift in behaviors because of it (or is it the other way around?). Regardless, as a result of this shift, mobile is the fastest-growing retail channel, and “one click” ordering has become the standard. See also: Blockchain Technology and Insurance   Unfortunately, as an industry, we are far behind. The industry standard still touts a 15-minute purchasing experience as a win – on a computer. Despite the inherent value of convenience, the mobile experience is far more tenuous for consumers than other distribution channels across all major competitors. Consumers are asked to enter in form field after form field designed for a desktop, but on a mobile device and with only two thumbs. The result is a digital experience that ranks worse than government services. We’ve seen this trend before. The internet had a very similar effect on our industry in the late '90s and early 2000s and continues today. With the exception of Progressive, Geico and USAA, most large carriers still struggle to understand how to compete in an internet-first world. These three companies successfully cornered the market by embracing the internet while the rest of the industry doubled down on the spiraling agent-model. It’s clear that we’re trending toward the same pattern with mobile. Today, it’s a relatively level playing field. Those who support a mobile-first experience will win big. Those who are late to the game won’t ever catch up. Open the data floodgate The rise of mobile means access to new data, and new data is paramount for our industry. A fundamental value that insurance companies provide to the economy is the ability to price and understand risk. Data is essential to this understanding. As Seth Lloyd of MIT says, humans used to be hunters and gatherers of data. With technology, data is now flying by us every second, and the real challenge is successfully understanding how to capture, sort and use this data. Smart mathematicians and engineers have already figured this out to a large extent, creating supercomputers able to do machine learning mathematics on large quantities of data, producing insights never before seen. However, despite the accessibility of these improved techniques, most actuarial modeling is still based in classical statistics and generalized linear modeling. The interactions: data + consumer These two trends -- the customer move to mobile first, and the proliferation of data -- are difficult to manage alone. When combined, the interaction becomes disproportionately challenging. This has created an environment where the industry has largely pegged new data collection against consumer experience, rather than executing on both simultaneously. For example, telematics through OBD II programs have been major efforts of the industry. The reality is these devices are confusing for consumers, the value proposition to them is meager and the process of receiving the device, plugging in the device and returning the device is starkly arduous in contrast to modern consumer purchasing experience expectations. Smartphones can now do everything an OBD II device can, and, with connected cars, these OBD II devices are completely obsolete. The question is whether carriers will continue to throw good money after bad, or realize the sunk cost of OBD II programs and begin investing in new technologies. See also: Insurtech: One More Sign of Renaissance   And it’s not that the industry isn’t spending money on IT – it is. Armies of engineers working on old technologies are provided with hundreds of millions of dollars to attempt to overhaul policy management systems. Billion dollar companies specializing in just fixing policy management systems exist, capitalizing on the inability and incompetence of the industry. The dawning of insurance tech The industry has for too long mistreated technology, looking at it as a cost of doing business, rather than an investment in consumer experience and better data management. It is rare, if ever, that you see a seasoned engineer in the C-suite at an insurance company or even on the board. Talented engineers run from the industry. Can you blame them? The agile engineer, eager, stumbles into a lagging and latent system. It’s almost the start of a bad joke. The result is that all of these implications and their interactions with one another have cost consumers dearly. The purchasing experience is confusing and onerous. The price is unfair, based off the same data as 20 years ago and off out-of-date statistical modeling. Consumers are paying for an inefficient system. This is clear to the venture community, and clear to many entrepreneurs. The industry has been protected by regulation, capital and complexity. These barriers may have slowed the pace, but, increasingly, we are seeing startups that are not partnering with existing carriers, but becoming carriers. This is the beginning of a new end for car insurance. Technology will continue to create miracles, and these miracles will belong to the consumer.

At the 2016 PCI Annual Meeting, a panel of retiring insurance executives discussed lessons learned over their careers. The panel comprised:

• Marguerite Tortorello – moderator
• Terrance Cavanaugh – president and CEO – Erie Insurance Group
• Kenneth Ciak – vice chairman – Ameriprise Auto & Home Insurance
• Tad Montross – retired CEO – Gen Re
• J. Douglas Robinson – chairman – Utica National Insurance Group

What keeps you up at night, then and now?

• The Weather Channel!
• Making sure that we are achieving responsible growth for our shareholders.
• The emerging risk trend that had not yet been identified.
• Worrying is one step. As CEO, you need to do something about the things that cause you worry.
• The dramatic change our economy is undergoing and the impact it will have on our industry.
• As CEO, everything keeps you awake.

See also: Blending the New With the Old Where do you think the culture of the insurance industry should be moving?

• Our industry used to be very sleepy and stagnant. Over time, we are seeing more specialization, which allows for better expertise. We need to continue to attract better and smarter new talent into our industry. Our industry needs to do a better job explaining the role insurance has in the economy and all the good things we do.
• The question is – how much of the change we are seeing right now is cyclical versus permanent? How companies respond to this is important to their future direction. Companies are more intelligent now because of underwriting and claims models. We need to be cautious about becoming overly dependent on these models.
• Is your business culture an accelerator or an inhibitor to future business. Going forward, we need to focus more on service instead of just the protection that we offer. Our clients expect us to be more proactive.
• There is more emphasis on “work-life” balance, but this may have gone too far. New employees want to work less but be rewarded more. Our clients expect 24-7 service, which conflicts with our employees' desire for less time at work.

What types of traits do executives need to look for in their management team to lead into the future?

• You want people who are curious and will challenge the status quo. We cannot be overly dependent on what we have done in the past to make decisions about the future.
• Leadership needs to have a clear vision about their long-term goals and not get distracted by short-term issues.
• Leaders need to show their employees they care about them and that we relate to them. Our customers want the same thing.

How do you see the industry better marketing itself to millennials to attract new talent?

• We need to emphasize the vast variety of tasks we perform and jobs available in our industry.
• Stressing the “service” aspect of our industry versus just paying claims. We help people at a time of need.
• We are an industry that is under attack at the state and federal levels. We need to do a much better job talking about the good things we do for society and the key role our industry plays in preserving the economy.
• Everyone uses insurance products, but few actually understand the insurance products. The industry needs to do a better job explaining what we do and why it is so important. We need people to view insurance as an investment in protection instead of just an expense.

How will technology affect our industry in the future?

• Consumers want instantaneous service, and we need to be able to deliver it.
• We still deliver paper policies, so we have a long way to go in the technology area.
• It is important to balance technology changes with regulatory requirements.
• Technology is affecting almost every risk we underwrite. Industry leadership needs to pay attention to these changes so they make sure they are evaluating the risk correctly.
• We probably have made more mistakes with technology innovation than other industries due to the significant amount of historical data we are dependent on. On the flip side, we may become better at evaluating risk than public policy wants us to be as certain segments may become uninsurable with better data and analysis.

What are your concerns around the regulatory environment?

• This is a huge issue. Not only are regulators wanting to regulate how we do the business of insurance, but they are also wanting to regulate what we invest in, who we promote, how we compensate people and the makeup of our boards. At some point, we have to run a business.
• The constant change of regulations creates so many challenges. For example, after Hurricane Sandy states, put out new regulations to govern how companies handled claims on in-force policies.

See also: Are You Ready for the New Paradigm?   What regulatory impact do you think the pending elections will have?

• Historically, the party in the White House has not had a significant impact on the financial markets.
• We are already seeing so much regulation on our industry, it is hard to get much worse.
• There is concern that politicians will not like the answers that our data gives us with regard to rates and coverage limitations.
• The sharing economy is going to have a big impact on our industry. The state elections and how they are viewing this could have a significant impact.
• The concern is that one party may control the presidency, House and Senate, which would not be best for consumers or our industry as it would allow that party to unilaterally advance their agenda.

How do you see the distribution model changing?

• We have seen significant consolidation on the brokerage side, and this will continue.
• We are likely to see more direct-to-consumer products, which is what consumers are requesting.
• There needs to be a way to allow consumers to have flexibility and still involve the agent or broker in the transaction.

What is one thing you wish you knew then that you know now?

• I wish we had made bigger investments in technology earlier rather than constantly trying to modify legacy systems.
• Be mindful of your body language and demeanor as people pay close attention to this when listening to your message.
• It is so important to have the right people in the right place. Intellectual capital still drives everything.
• Don’t be afraid to make decisions. Too many let indecision inhibit them.
• My greatest fear was that I would hire the wrong people for the job. We eventually developed better tools to assist in that, and I wish they had been available earlier.