Catastrophe bonds are an increasingly important form of risk transfer for insurers. Cat bonds are a peculiarity of the U.S. reinsurance market, where about 125 to 200 natural disasters occur a year. They were first sold in the mid-1990s after Hurricane Andrew and the Northridge earthquake highlighted the need for a new form of risk transfer. The cat bond market has been growing steadily for the past 10 years, and more than $25 billion in catastrophe bond and insurance-linked securities are currently outstanding, according to Artemis. Many insurers have moved away from managing their ceded reinsurance program with spreadsheets, which are time-consuming and error-prone, in light of current regulatory and internal demands. More carriers have installed — or are planning to install — a dedicated ceded reinsurance system that provides better controls and audit trails. See also: Is P2P a Realistic Alternative? Besides enabling reinsurance managers to keep senior management informed, a system helps carriers comply with the recent Risk Management and Own Risk and Solvency Assessment Model Act (RMORSA). It also generates Schedule F and statutory reporting, an otherwise onerous job. And technology prevents claims leakage (reinsurance claims that fell through the cracks). Cat bonds add a layer of complexity. The cat bond premium is a “coupon” the insurer pays to the bond buyer. There are many potential losses behind each bond, and the potentially huge recovery amounts to as much as hundreds of millions of dollars for some insurers. Other complexities include a priority deductible, an hours clause, lines of business reinsured or excluded and attachment criteria to automatically identify subject catastrophe amounts. Without technology, tracking all this can be overwhelming. The ceded reinsurance system can also be used to manage cat bond premiums. From a system perspective, it’s not terribly different. The same analytical split (per line of business and per insurance company in the group) applies to bonds just as it does to reinsurance treaties. With a little tweaking, a solid ceded reinsurance system should be able to handle cat treaties and bonds equally well. While ceded premium management for cat bonds shouldn’t be difficult, claims present bigger challenges, especially when trying to automatically calculate the ultimate net loss (UNL) because additional factors and rules are often used to determine it. For instance, it may be necessary to apply a growth-allowance factor, determine the number of policies in force when the catastrophe occurs and calculate growth-limitation factors. This allows the calculation of ceded recoveries in case of a catastrophe. Additionally, the calculation of UNL may be specific for each cat bond — and even for each corresponding peril. See also: Insurers: the New Venture Capitalists   Automating all this isn’t necessary because few events trigger those complexities. Once a manual workaround incorporating the audit trail and justification of the subject amounts is done, the reinsurance system can handle the remaining calculations. While it’s not necessary to fully automate all steps to calculate the UNL, it is still better to handle the whole process with an integrated information system than with multiple spreadsheets that are unwieldy and labor-intensive. Without the right technology, managing cat bonds is daunting. With automation, they can be managed far more effectively.

On Sept. 21, 2016, at 7 a.m. EDT in New York, Lemonade issued a press release. Paraphrased, it said: We’re open for business! Only time will tell the true impact that Lemonade can have on the insurance industry. Or if we will look back at 2016 in the same way we trace the origins of insurance to 1688 and the birth of underwriting in London. I’m convinced. The launch of Lemonade will go down as a defining moment in the history of insurance. And, after today, this industry will never be the same!  I trust you, you trust me. Insurance didn’t start out badly. When you look back in history, there are many examples of civilizations and societies supporting each other. Looking out for each other is natural behavior. This is what insurance is meant to be: mutuality in the pooling of shared risk. Sadly, the industry has lost its way with the evolution of mass scale personal lines in the 20^th 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. With a very high cost of sale and administration overhead (and little that can be done to reduce it), the insurer is motivated to minimize the amount it pays in claims. See also: Be Afraid of These 4 Startups It’s an unfair relationship from the customer’s perspective. The customer has paid the premium and yet has to prove a claim to get what is rightfully hers. No amount of technology can obviate this fundamental failing of today’s insurance business model. And that is why the launch of Lemonade is so significant! Insurance reinvented    About a month ago, it was my privilege to have some time with Daniel Schreiber, the CEO and co-founder of Lemonade. We talked about the launch of Lemonade and the reasons for taking the hardest route to get a license in New York. We discussed the things that needed to change in the industry, and Daniel explained the philosophy and motivation behind Lemonade. Next month, I plan to write a longer piece with Daniel on the company's business model and tech. With his permission, I will share some of the detail behind Lemonade, which is, quite frankly, awesome, mind-blowing and game-changing! And if that doesn’t whet your appetite, take a look at these videos on YouTube:

• Lemonade in 60 Seconds
• Lemonade App Demo
• The Science Behind Lemonade

The thing to know about Lemonade is that it has built a full-stack insurance model from the ground up. This is NOT a mobile app sitting on top of traditional insurance. That’s what you get when you ask a bunch of people to find a new way to drive a nail into a piece of wood. If those people have only ever used a hammer, the chances are their solution will be kind of like a hammer. See also: The Insurance Renaissance (Part 1)   This innovation dilemma is not a problem unique to insurance. The incumbents in all industries have shown it’s difficult to innovate from within. That's why it took an Amazon to reinvent shopping, PayPal to change the game on payments and AirBnB and Uber to disrupt in their respective markets. (See this great article on Daily Fintech about the seven acts in the creative destruction play.) Lemonade is truly different Here's why:

• It’s a platform.

The way Lemonade has addressed conflict of interest between insured and insurer is inspiring — the company has simply eliminated it! Operating as a platform that enables the insurance engagement, Lemonade doesn't make any gain from the non-payment of claims. It takes a flat fee for running the platform. It makes its profit from the fee. If Lemonade doesn't pay any claims, it doesn’t increase its bottom line. Lemonade has taken out the “winners and losers” dynamic that today’s insurance model is built around. Like all great ideas, it’s simple and bleeding obvious.

• It’s peer-to-peer insurance.

Unspent premiums are put to good use. As a signed-up member of B-Corp, Lemonade groups its customers by affinity to good causes. This means that, for example, everyone who cares passionately about local youth development or finding a cure for cancer is grouped together. Unspent premiums from the risk pool are donated to the good cause at the end of each term. When a customer makes a claim, he or she knows any embellishment will be taking money away from the good cause they support, not the so-called “fat-cat insurers.” This is pure genius. Now you have a dynamic where the insurer’s job is to pay claims, and the insured’s motivation is to help others.

• It’s a pure-play tech stack.

The tech behind Lemonade is pretty special. It’s a 21^st century platform built on 2016 technology. It uses artificial intelligence to communicate through a mobile platform with its customers. From quote and buy to making a claim, the customer journey is simple, automated and immediate.  Underwriting is quick and easy and automated. Lemonade is more likely to ask how many friends you have than how your roof is constructed! Claims are the same. You tell the app what you’ve lost, make a short video testimonial and the company pays out. Immediately. There is no claims submission. There is no approval process. You state your loss, and they pay you what you’ve asked for.

• It’s all about trust and behavior.

Lemonade's secret sauce is Dan Ariely, the company's chief behavioral scientist. Dan studies behavioral economics and has written a series of books, including “The (Honest) Truth About Dishonesty.” Daniel explained to me why trust and behavior are so important to the fabric of Lemonade. He said, “People are generally honest. We all have a trust self-image that we might push from time to time. It’s like speeding; that doesn’t make us  feel like bad person when we do it. The same goes for insurance. People don’t feel aligned to the insurer, but they do feel the relationship is adversarial. This gives people a sense of entitlement and leads to embellishment and even fraud.” A great example of how trust can improve human behavior can be seen at Grameen Bank in India. This is a bank for poor people. It is trusted to repay unsecured loans without reliance on credit scores or enforcement through debt recovery agencies. And the repayment rates are higher than those of the traditional lenders who won't lend into these mass markets for fear of default.

• It’s about the greater good.

Lemonade is a public benefit corporation. This means it balances the needs of shareholders with a social responsibility to make decisions for the greater good. Like a government department, Lemonade has a corporate duty to make decisions that do not put profit and returns to shareholders first. Insurtech comes of age Out of all these characteristics, it is this last one that I think will be the most enduring and the most significant. It fundamentally cements the alignment of trust between the insured and the insurer. This is not paying lip-service to satisfy a corporate social PR agenda. Lemonade is putting its money where their mouth is. In the age of the 4^th Industrial Revolution, trust is the defining characteristic of the modern era. See also: InsurTech: Golden Opportunity to Innovate   Now, for the first time in the insurtech era, we are about to see a true game-changer come into the market. Of course, a lot will depend on consumer adoption. Will they “get it”? Do they want it? But one thing is for sure — up until now, no one has come this close to addressing the fundamental issues in personal lines. And if Lemonade succeeds (and I think it will), we will look back to 2016 and New York as the birthplace of 21^st century insurance.

Insurance companies across a wide range of offerings (health, auto, home) report they can benefit from investing in their mobile strategy — and yet they are not all prioritizing their digital transformations. According to the 2016 The State of the Mobile Experience report, 89% of insurance decision makers understand the need for a mobile experience and plan to invest in mobile this year. To date, 89% of insurance companies have a mobile website, and 74% have a mobile app. However, 20% of companies with an existing mobile presence rate their existing experience as a six or below on a 10-point scale. It is time insurance decision makers look the issue in the face and get emotionally committed to making some serious (and potentially hard) changes to create new value. With a rising millennial generation primed to make insurance choices for the first time, providers must have a digital mindset with a high emphasis on mobile. Millennials lack strong loyalty for one provider over another. Though millennial customers are the generation most likely to be disengaged from their primary carrier in general, they are more than twice as likely to purchase insurance policies online. In other words, if you want to capture user engagement from millennial customers, the only strategy that is likely to work is digital. It’s not just millennials, either. While younger generations may have a clearly expressed desire for mobile solutions, older generations have also become accustomed to these offerings. All insurance customers benefit from the ease and efficiency of a well-designed mobile experience. The time for your digital transformation is now. What’s the Deal with Insurance Providers? As an industry, insurance has been historically slow to adopt mobile technologies — for a wide variety of reasons. See also: What Millennials Demand as Customers   For agent and business-to-employee (B2E) scenarios for account management, insurance decision makers list an aversion to change (65%) and a lack of comfort with mobile devices (39%) as major barriers. They also fear losing customer touchpoints (43%) if they enable their workforce to interact through a mobile app. Insurance providers report that major obstacles with technology (34%), budget (24%) and prioritization (21%) prevent them from providing their policyholders with a strong mobile experience in their B2C scenarios. As the industry evolves and customers expect faster, more tech-friendly customer service and user experiences, industry leaders cannot afford to live in the past. Though insurance is an age-old industry, companies looking to outpace competitors and find long-term success must offer a strong digital and mobile experience — fast. Turning Obstacles Into Opportunities (Mobile Solutions) The best way to offset the industry’s aversion to quick change is to clearly articulate mobile’s unique ability to address common insurance pain points and build a consistent experience across all digital platforms. For all parties involved in the insurance equation — customers (policyholders), employees (insurance providers) and third-party agents and contractors — a well-crafted digital experience that is focused on the user journey is the key. When asked about their customers, insurance decision makers most commonly note issues of speed and information. 60% say customers lack access to necessary information when they need it, and more than half (55%) feel customers are not receiving assistance in a timely fashion. Adding to these pain points, 30% of insurance influencers feel customers have no way to retrieve the status of a claim or policy, and 26% lack communication from agents. See also: Maturing Use of Mobile in Insurance   Employees face similar roadblocks, in terms of accessing information as well as internal and customer interactions. Insurance providers believe their employee’s biggest pain points are working across departments to sell and manage policies (45%), handling too many different policies and claims (42%) and not having access to information in the field (42%). Not being able to register new customers or submit claims from the field (28%) and a lack of communication from policyholders (26%) were other top perceived concerns. All these problems are easily remedied with the right strategy. For example, mobile offerings like processing a payment, account management and alerts/notifications make it easier for policyholders to manage and update their existing insurance policy. Likewise, a strong mobile app and website enable customers to access claims and assistance, policy quotes and live chat with customer care departments from anywhere, at any time. The same can be said for insurance providers. Armed with mobile technologies, agents and claim representatives can expedite their administrative duties and access needed content and information in the field. Mobile solutions also give insurance employees better access to predictive sales and customer demographic information, both of which enable stronger, more targeted insurance outreach. With the right digital solutions providing better communication channels and more value, the touchpoints that insurance firms are concerned about losing can instead become strengthened relationships between agents and policy-holders. Kicking Mobile Adoption Into High Gear Mobile apps and websites can make both customers' and insurance employees’ lives easier. Yet, just because something is good for us, it does not always mean we use it. That seems to be the main struggle for insurance companies today. Insurance providers know that mobile solutions work and that customers want them. In fact, of those companies planning to invest in mobile in 2016, 77% will do so in reaction to customers' expressed desire for mobile experiences. Similarly, two-thirds (62%) plan to invest in preparation for a mobile-driven future. Yet there’s still resistance to mobile adoption. To abet concerns and misconceived reservations, insurance companies must engineer their digital and mobile offerings to provide value to their users throughout their journey while maintaining the needed security and compliance restrictions built into their legacy systems. See also: How to Protect Your Mobile Data   Luckily, insurance companies can address most employee and user concerns in tandem. By providing agents with greater utility via mobile capabilities, insurance decision makers can, in turn, improve the experience and satisfaction of everyday users. It is time for insurance firms to be active, rather than reactive, about their digital strategies and to stop waiting for customers to tell them when they are dissatisfied. Instead, put mobile at the top of the list for investment and start taking advantage of all the new opportunities digital can create in the insurance industry.

Irrespective of your sector of interest or whether you are in the market for insurance, take a few minutes to watch this video, Science Behind Lemonade, and the App demo. There has been so much hype about the Lemonade launch over the past months, but this is the real deal in insurance disruption. It offers lessons for any innovator, as well as any incumbent thinking it can somehow sidestep the possibilities of technology. See also: InsurTech Boom Is Reshaping Market   A few specific stand-out attributes and accomplishments: According to PropertyCasualty360.com, 66% of 18- to 29-year-olds rent their homes (vs. 37% overall), and 70% do not have renters insurance. What a smart move to make renters core to the V1.0 offering. Lemonade is introducing itself to a receptive market with a large unmet need in an easy-to-understand experience. This will, no doubt, be Step One in a longer relationship as the younger generation's insurance needs become more complex. Lemonade has broken the win/lose basis of traditional insurance. When I conduct research interviews with people who own or seek to buy insurance, it's not uncommon to hear things like (literally), “when I win, they lose,” or vice versa. Aligning interests between the person buying insurance and the insurance carrier reframes the relationship, and can reinstate trust in one of the least trusted of all sectors. Lemonade takes the sector back to the original concept behind insurance as it first appeared, all the way back in the 19th century — pooling funds so members of a community can cover for each other in times of crisis. The intelligent use of UX + data + virtual agent to have a truly personalized, relevant conversation results in giving people something they need. This is as far from product-pushing as one could imagine is possible. (Note: Renowned behavioral economist Dan Ariely is part of the Lemonade team.) Lemonade is surely an exemplar that will be studied — with attempts to imitate — within the insurance sector and beyond. But be warned that simply putting lipstick on a pig won't work. The fact that Lemonade has been built from the ground up, driven by authentic purpose, will make imitation hard. See also: Be Afraid of These 4 Startups   A stat shared at a conference yesterday, which you may have already heard: 70% of millennials would rather do business with Google, Facebook or Amazon than with a traditional financial institution. Insert “Lemonade” into that sentence. Kudos for a true disruptor for having the tenacity and focus to make a statement about what insurance can be. I'll be shopping as soon as the company offers coverage in my state!

The winners of the SMA Innovation in Action Awards are Figo Pet Insurance, Meteo Protect, Motorists Insurance Group and Texas Mutual Insurance, among insurers, and Baseline Telematics, Life.io, Octo Telematics and Pristine, among service providers. SMA launched this awards program five years ago to recognize projects and solutions that have reshaped one or more of the foundational areas for the Next-Gen Insurer: business model, customer, innovative culture and technology and data. See also: Innovation — or Just Innovative Thinking?   The insurer winners of 2016 SMA Innovation in Action Awards, in alphabetical order, are:

• Figo Pet Insurance, for its unique approach to the pet insurance business model through the innovative use of emerging technologies. The proprietary Pet Cloud platform offers policyholders real-time pet GPS tracking, cloud storage for medical records, mobile claims filing, social pet profiles, a pet-friendly business locator, texts and alerts for coming shots and appointments. Figo’s reimagination of the pet insurance value proposition is focused on making life easier for people and their pets. Figo's holistic approach offers a meaningful example of how the insurance industry can reinvent its business models and customer engagement strategies for the digital world.
• Meteo Protect, for offering customized, data-driven agricultural insurance for weather-related risks. Customers can choose each parameter of their weather policies, including crop, period of coverage, specific weather event and intensity and payment amount. Meteo Protect’s Vivaldi platform aggregates huge volumes of weather-related data from 40 years of climate history; current readings from satellites, sensors, gauges and other global weather data sources; and commodity prices and crop yields. Meteo Protect’s focus on the changing nature of weather risks and emphasis on the uncertain future expands the possibilities for the personalization of insurance products and services.
• Motorists Insurance Group, for creating an innovation space as part of the cultural shift necessary for its 10-year vision of organizational transformation. This vision hinges on Motorists’ reinvention as an “85-year-old startup” designed for innovation and collaboration. The Intersection, the company's new collaboration space, represents a complete redesign of a 1940s space to prioritize natural light, bright colors and transparency. It facilitates global collaboration through the use of cutting-edge technology, enabling work to shift seamlessly across time zones and continents. Motorists demonstrates that no company is ever too established to change, and that vast and intangible changes like developing an innovative culture can start small and still have a big impact.
• Texas Mutual Insurance, for “Safety in a Box,” a groundbreaking virtual-reality app designed to teach construction workers the value of following safety procedures. The app is available for download to a user’s phone, which can be inserted into a Google Cardboard virtual-reality viewer for an interactive, 360-degree viewing experience in English or Spanish. The user can experience the four most dangerous construction site accidents, including a collapsing trench, and see how safety choices determine the outcome of each scenario. Texas Mutual is distributing the boxes for free at construction industry events to promote workplace safety and reinvent the company's role as a workers’ comp insurer.

A compendium of case studies detailing the success stories of the four winners and the 16 other insurers that participated in the SMA Innovation in Action Awards program is available here. The solution provider winners of 2016 SMA Innovation in Action Awards, in alphabetical order, are:

• Baseline Telematics, for its BaseDrive telematics solution, which leverages a mobile app and in-car Bluetooth dongle to give insurers everything they need to create their own usage-based insurance (UBI) programs.
• Life.io, for its policyholder engagement platform for physical, emotional and financial health, which uses behavioral economics, predictive analytics and personalized content to drive high levels of sustained policyholder engagement and the achievement of personal goals.
• Octo Telematics, for its telematics offerings that deliver behavioral, contextual and driving analytics, enabling insurers to provide value-added services for policyholders such as UBI pricing, loyalty programs, vehicle diagnostics, location-based services, mobile connections and more.
• Pristine, for Pristine Eyesight, a video communication platform for smart glasses (e.g., Google Glass) and mobile devices that enables long-distance collaboration between field professionals via real-time audio and video connection.

A collection of case studies profiling the four solution provider winners, with details on the rest of the 27 solution provider awards submissions, will be released in early October. See also: Insurance Innovation: No Longer Oxymoron  

Weeks ago, Jim and I met for coffee to solve all the world’s problems. We didn’t, but he did hand me an article about Sudoku and said, “There may be a story in here.” He was right. I just didn’t realize how quickly it would appear on my computer screen. Later that day, when I was driving down Main Street in New Iberia, La., I saw mobs of “geeks” (the politically correct term is “millennials”) playing Pokémon Go. My wife works Sudoku puzzles. I had read about Pokémon Go, but I have never even seen it played before. See also: Pokémon Go Highlights Disruptive Technology   I was impressed with the marketplace’s embrace of Pokémon Go. One hundred million devotees in less than a year is a game-changer. If, like Sudoku, your business is manual, local- and pencil- and paper-dependent, your universe is limited to yesterday. If you are global and virtual like Pokémon Go, there are no boundaries — only opportunities. Your future depends on the choices you make, local or global, manual or virtual. Now let’s quit playing around and get serious about the insurance industry and your place, if any, in tomorrow’s world. Whether you prefer the metaphor of revolution or evolution, our world is changing. The change is going to be structural, revolutionary and transformational. The reason is that when one thing is different it's change; when everything is different it's chaos. In terms of natural disasters, think 9/11, Hurricane Katrina and New Orleans, the Japanese tsunami, etc. For economic crises, consider the 2008 economic collapse, the stock market crash, the GM bailout, the demise of AIG, Lehman Brothers, etc. — and then remember the past and current reshuffling of the retail and distribution systems in our world (Amazon, Uber, Airbnb, Expedia, WebMD, Netflix, etc.) I could go on, but I won’t. I can’t remember all the changes, nor can I outrun the pace of change. These changes from yesterday were triggered by systems, big data, technology, global competition and corruption, the internet and a marketplace that has evolved over time — from the corner store, to Main Street, to strip shopping centers, to malls, to box stores and even to a virtual presence in cyberspace. The big change now and tomorrow is not place but rather people and pace. See also: Look Up, Look Out, Think New! Our industry was built for a “father knows best” world. The youngest of the Greatest Generation are now 70 years old. Their progeny are the Boomers, who are 52 and older. Those in Gen X are age 32 and above, and the Gen Y and millennials are somewhere between 12 and 34. In tomorrow’s market, age doesn’t matter — wiring does. Every preceding generation was born to analog; these Gen Yers/millennials are digital natives. What we “old” folks see as aberrations, they see as the norm — and they and the market ain’t going back ever again. By 2025 (which is nine years away) millennials will be 75% of the working people. The next nine years may bring more technological advances than we’ve seen in our collective lifetimes. Our options are simple: We can go enjoy a smoke and a Sudoku on the bank of the nearest tar pit and wait for a meteor to end our pain and frustration, or we can shift into high gear and catch up with the roaming hordes of Pokémon Go folks and play in — and with — the world as it’s going to be! THE MARKET IS CHANGING BECAUSE BUYERS CHANGE! Change or die! Carpe mañana!

Newly released findings from the Ponemon Institute and A10 Networks reveal that nearly half of cyber attacks in the past 12 months used encryption to evade detection and distribute malicious software. These findings challenge how we think about the powerful technology we use to protect privacy, security and authenticity. They also demonstrate very effectively how this security technology has been subverted into a powerful weapon for cyber criminals. This research is another damning piece of evidence that a significant chunk of enterprise security spending is not effective. Possibly half, or even more, of our security technology is doing little to effectively identify bad guys hiding within encrypted traffic. And because the increasing regulations around encryption will continue to drive a dramatic increase in the volume of encrypted traffic, the number of opportunities for bad guys to hide in plain sight is increasing exponentially. We’re fixing one illness but creating a new disease. See also: The Costs of Inaction on Encryption Transport Layer Security (TLS) and its predecessor, Secure Sockets Layer (SSL), encrypt traffic. TLS and SSL turn on the padlock in our web browsers—they are the most widely relied upon indicators for consumers that a transaction is “secure.” This technology is used to hide data traffic from would-be hackers, but it also hides data from the latest, hot-selling security tools. Because businesses now are being required to turn on encryption by default, encryption keys and certificates are growing at least 20% year over year—with an average of 23,000 TLS/SSL keys and certificates now used in the typical Global 2,000 company. Volume overwhelms security efforts As enterprises add more keys and certificates and encrypt more traffic, they are increasingly vulnerable to malicious encrypted traffic. Administrators simply do not have the tools to keep up with the growing number of keys and certificates. Venafi customers reported finding nearly 16,500 unknown TLS/SSL keys and certificates. This discovery represents a huge volume of encrypted traffic on their own networks that organizations don’t even know about. Sadly, enterprise spending on next-generation firewalls, sandboxing technologies, behavior analytics and other sexy security systems is completely ineffective to detect this kind of malicious activity. What does a next-generation firewall or sandbox system do with encrypted traffic? It passes the traffic straight through. If a cyber criminal gains access to encrypted traffic, then he is given a free pass by a wide range of sophisticated, state-of-the-art security controls. Inspection a formidable task The hard work of SSL/TLS inspection is at the core of today’s cybersecurity dynamics, but it remains largely overlooked in most enterprises. The challenge of gaining a comprehensive picture of how encryption is being used across enterprises and then gathering the keys and certificates that turn on HTTPS is daunting for even the most sophisticated organizations. See also: How Safe Is Your Data?   Throw in the challenge of keeping keys and certificates updated as they are renewed and replaced, and most enterprises can’t keep up. Even if multiple full-time employees are applied to the problem, they won’t be able to move at a pace that will enable them to identify bad guys hiding in encrypted traffic. Unfortunately, as an industry we continue to ignore this gaping blind spot. For example, when the federal government’s chief information officer issued requirements for protecting all government websites with HTTPS by Dec. 31, 2016, no guidance was provided on how to defend against cyber crime that uses encryption as an attack vector. As an industry, we’ve got to acknowledge and eliminate this blind spot. We need to be able to inspect traffic and automate the secure issuance and distribution of keys and certificates. The technology is available to solve these problems so we can use encryption safely. But before we can solve any problem we first need to admit that we have one. This article was written by Kevin Bocek and originally appeared on ThirdCertainty.

No matter how hard I try, I have been unable to avoid being bombarded with news about the presidential race. While most of the opinions and assertions leave me wondering, the additional insights into the importance of super delegates fascinated me. It turns out that winning the traditional delegates was important, but having the super delegates on your side really swung the field in your favor. In one way, it doesn’t feel quite right that any delegate should have any greater impact than another. However, because no one asked me how to run party primaries, I suppose I’m left to live with my feelings and just “figure out how to live within these rules.” As I work with many of our commercial clients on strategies for their digital footprint (a concept I’ll discuss in a moment), I can’t help but think of our super delegate equivalent — the proliferation of insurance aggregators. Whatever you may call them — rate exchanges, quote engines, comparison sites, aggregators or digital agencies — these newcomers are increasingly important and relevant distribution channels, and, no matter how long we attempt to ignore them, they won’t be going away. They will simply be wielding their distribution clout, helping insurers to grow as they continue to rapidly expand their prospect pipelines. For commercial insurers who may not wish to pay attention to aggregator growth or for those who would like to reserve their judgments on the future of commercial sales, I would like to suggest that it is time to swallow your notions, accept the relevance of these super delegates and just “figure out how to win within these rules.” How quickly can an industry turn upside down? In politics, anything can happen. Approval ratings can rise and fall dramatically in 24 hours. Major players and influencers can come from nowhere. I think 2016 is proving my point. In 2015, we had no idea that our presidential race would look quite like this. What if, on Jan. 1, 2017, you awoke to find that most commercial polices were being sold online through digital agencies? If you hadn’t seen it coming, it would certainly hit your organization like a ton of bricks. If you had seen it coming and you hadn’t prepared, it would feel even worse. If you had seen it coming, and you had aligned your organization with some of these alternate channels, you might feel gleeful. The point is, the day of the digital agency is close upon us. If you aren’t preparing to sell in this space, you are probably being shortsighted. The super delegates have arrived, more are on the way through the insurtech movement and it is time to court them. See also: Commercial Insurers Face Tough Times   In the commercial space, we currently have companies such as NetQuote, CoverWallet and Insureon offering lead generation and quoting capabilities to commercial insurers as they offer real quotes to businesses in need of insurance. (Read more about new insurtech players in Majesco’s Future Trends report.) Insureon, probably the most-talked-about of the three, can quote on a fairly broad spectrum of business insurance. Insureon has tremendous reach and a good selection of insurers to bolster its offerings. If we see Insureon as our leading super delegate, what can we do to gain Insureon votes? The digital footprint Let’s step back for a moment and look at our high-level goals. Our goal is not to leave behind agent and broker service, but to embrace and prepare for new distribution channels by improving our digital footprint. As we often see, when it comes to digital preparedness, what’s good for one channel may be good for another. What is useful for the aggregators is likely to improve agent service, as well. Every step we take to become digitally ready, with the right back-end capabilities and integrations and the right front-end capabilities, will end up benefiting all channels, including traditional broker and agent capabilities. The real work of enabling the digital presence that these new channels require will prepare your organization for growth across channels by creating a consistent experience for both your delegates and your super delegates. If you have your digital footprint in position when a producer reaches out to your underwriter or phones in to your call center, they will capitalize on your improved capabilities, enhanced product offerings and simplified quote process. The role of the super delegate When I speak with clients, I often see how perspectives make all the difference. Insurers look at the existing distribution channels and all the technology options to further advance the agent and broker experience, and they see the newcomers like Insureon popping onto their scene. Most insurers seem to fall into two camps. Either they see aggregators as a threat or they view them as a smart option for distribution, reaching a broader set of customers and segments. This is the inside-out perspective. The insurer asks, “What can we do to engage or compete?” But the digital agencies themselves have taken advantage of starting with a fresh perspective to make the customer experience seamless and easy. They are taking the outside-in perspective, asking, “What can we do to make ourselves more appealing?” They start with business preferences and how businesses will want to buy something. In that practice, they have positioned themselves as extensions of our internal systems. They are funnels attracting businesses like flowers attracting bees. If done correctly, integrating with these third-party players can mean a material addition to our distribution model, with little change to the traditional agent/broker approach. In this way, the super delegate has not only become an aggregator, but has become a cheerleader. It is their marketing and their messaging that will drive insurers’ businesses. (Read more about perspectives and purchase trends in the blog, The Power of Observation for Insurers.) See also: How to Win in Commercial Lines   If I look at companies like Insureon as my super delegate (and cheerleader), I can see how I can tip the balance in my favor. I still have to win the affinity and loyalty of my agents and brokers, but having these new alternative distribution options could mean the difference between maintaining my business or breaking out to new customers, products and accelerated growth. In Part 2 of this series, we’ll look at possible approaches to preparing the digital footprint and some of the questions an insurer should ask itself before beginning. We will also look closely at why business insurers may want to begin by developing insurance products for small, niche businesses. This article was written by Robert Buhrle and originally appeared on Majesco.com.

Anyone who was around in the early 1990s may remember that the mantra of modern globalization was that decentralized markets were good and centralized markets were bad. The math supporting the efficiencies of the comparative advantage economic model was, and still is, indisputable. Further back, the concept of laissez-faire has been the cornerstone of modern capitalism since the late 1600s. So we have seen this picture before, and it should be acknowledged that there is, in fact, reliable precedent to examine as we approach the era of machine-enabled decentralized governance called blockchain technology. Blockchain technology is incredibly interesting to me because many of the opportunities and concerns regarding the technology are similar to the conditions surrounding my involvement in the implementation of the NAFTA agreement more than two decades ago. Specifically, I worked on standards for the mutual recognition of engineering professionals between the U.S. and Mexico. While the effort largely failed, I was able to directly observe efforts to control a decentralized network. The effect was that markets were administered unevenly and rarely met the conditions of insurability. Today, the standing joke in the blockchain domain is that the “act of trying to control a decentralized market eliminated many of the benefits of having one in the first place,” Let history be our teacher. See also: Blockchain: No More Double-Entry Books?   Today, while we may face similar peril, it is much more serious. Blockchain technology is far more powerful than linear Comparative Advantage Theory. Blockchain promises exponential efficiencies or exponential deficiencies. The difference is that we also have the knowledge, foresight and profound responsibilities to get it right this time. We have a choice. In 1993-96, the mutual recognition of professional engineers was controversial and divisive. U.S. engineers were fearful they would lose their high-paying jobs to cheap Mexican engineers, whose salaries at the time were about one-tenth the U.S. engineers' salary. The fear was real. I saw something different. I saw an entire nation — an entire continent — that needed everything U.S. engineers create. Mexico, Central America and South America needed roads, bridges, structures and every manner of infrastructure upon which all markets depend. The problem was that infrastructure projects could not be financed. This was not for lack of money (NAFTA also liberated access to financial services) but for lack of insurance. Without a tip-to-toe insurance presence, Latin American economies continue to experience difficulties in bridging the capitalization gap. The capitalization gap is that strange period between the time when money begins to flow into a project and the time revenue flows out of the project — where the asset isn’t an asset yet and falls off the balance sheet. There is no title and no recourse if something goes wrong; risk is very high, and so is the corresponding cost of capital. In the U.S., it is well-known that soft costs can represent as much as 30% of the cost of a structure. We have also developed a professional engineering licensure system that serves as a financial instrument; a proxy for title, which fulfills the conditions of insurability. The combination of insurance and engineering is what maintains the asset as an asset on the balance sheet. Even when the shiny new office tower resembles nothing more than a pile of dirt, that pile of dirt is valued as a shiny office tower on the balance sheet. Banks and insurance companies depend heavily on engineers to verify the design, materials, processes, components and performance of all subjects they finance. In general, the construction process breaks down into a long and complicated series of events that all must be contracted, negotiated, ordered in time and verified in a secure manner — while also triggering payments to stakeholders. This is a textbook perfect application for blockchain technology. See also: Why Insurers Caught the Blockchain Bug   The consortium between engineering and insurance is critical to convert existing engineering and construction contracts into blockchain-adjudicated smart contracts. Engineers would validate conditions of insurability throughout the design, construction and the life cycle of the asset. The consortia between engineering and insurance already exists, and their impact on the cost of capital is abundantly clear. To formalize this on a blockchain initiative is not a radical position by any means. What is unique about this proposal is that insurance and engineering should be at the forefront of blockchain development, building the bridge that spans the capitalization gap upon which all derivative markets can travel, laissez-faire. (Adapted from; Insurance: The Highest and Best Use of Blockchain technology, July 2016 National Center for Insurance Policy and Research / National Association of Insurance Commissioners Newsletter)