As the insurance industry enters a period of profound change, we at Eos use a concept called the 20/20 dynamic to illustrate the point: On a conservative basis, we believe most insurers risk losing at least 20% of their business to disruption. On the flip side, for those that embrace innovation there is an opportunity to grow their business by 20%. Our goal is to ensure our strategic investors are on the right side of this equation. Insurtech represents a unique opportunity for insurers to evolve their business model. Insurtech is not necessarily about disruption, but more an opportunity to take advantage of technology and data to create innovative solutions, reduce costs and capture greater value for customers, brokers and intermediaries, underwriters and service providers. At one level, active participation is required just to meet the basic requirements of playing in the new market. For those committed to a strategic approach, insurtech can help drive true competitive differentiation, while enabling measured bets for the future. See also: Insurtech: Unstoppable Momentum   Underpinning this transformation are 10 key trends that we have identified and believe will be at the heart of the insurtech evolution:

1. Insurance, as we have it known it historically, will be bought, sold, underwritten and serviced in a fundamentally different way within the next three years
2. External data and contextual information will become increasingly more important than historical internal data for predicting risk and pricing
3. A majority of the simple covers will be bought in standard units through a marketplace/ exchange, permitting just-in-time, need and exposure based protection through mobile access
4. Solutions will continue to evolve from protection to behavioral change then to prevention -- even across complex commercial insurance
5. Although proliferation of data and increasing transparency on the buyer and seller will cause disintermediation for simple covers, it will also create opportunities for brokers and intermediaries to innovate solutions and channels for their B2C (non-standard risk pools, retirees/older generation, healthcare gaps) and B2B (emerging and unknown risks, cyber, global supply chains, cross-border liability, terrorism) customers
6. The ability to dynamically innovate (new risk pools, new segments, new channels) and deliver on the customer promise will become the most important competitive advantage (as known risks continue to get commoditized and move to the direct channels)
7. Internal innovation, incubation and maturing of capabilities will no longer be the optimal option; dynamic innovation will require aggressive external partnerships and acquisitions
8. Simple "Grow or Go" decisions of the last decade will be sub-optimal, as the dust settles in insurtech; building in future optionality and degrees of freedom will be the key
9. Consolidation just for economies of scale will provide increasingly less marginal value in non-life as well as life insurance; real value creation will come from "economies of skill" and digital capabilities
10. Deep learning (next generation of AI), blockchain and genomics technologies will improve financial inclusion and better meet the needs of the under-insured and uninsured

We have linked the above trends to analysis of how profit pools will change over time to build an investment strategy that also focuses on platforms or clusters that allow us to build more compelling propositions by connecting related players in adjacent parts of the value chain. Three areas of initial focus are: 1. A digital front office solution that leverages an open architecture platform developed by Convista (OneDigitalOffice), augmented by relevant startups including, for example, on-demand insurance by Oula.la and social media adoption by Digital Fineprint. The ability to drive dynamic innovation is driven by technology stack/system flexibility to respond quickly to customer needs. New risk pools, new products and new ways to reach customers will place massive pressure on traditional systems, making a dynamic digital front office key to execution.

• 360-degree multi-channel (direct, field sales force, internal sales force, independent agents/brokers) connectivity
• Augmented functionality across the value chain from sales/distribution through underwriting, binding and servicing
• Sales funnel optimizer (sales force effectiveness) -- inquiry/quote, quote-to-submission, submission-to-bind ratio
• Sales force/intermediary (broker/agent) segmentation and performance management

As an example, the impact of the sharing economy and need for on-demand insurance will require instant pricing and cover that switches on and off at point of sale to meet the needs of the customer. 2. An end-to-end claims solution developed by RightIndem and supported by additional capability from other technology providers The claims space is an interesting one; it represents the largest individual expense on any P&C insurer's P&L but conversely has seen very little innovation. This is now starting to change. RightIndem has developed a platform that achieves significant improvements in customer satisfaction while significantly reducing the cost of managing the claim. This is a win/win for the customer and the insurer and in our view a classic enabler technology that takes an existing function within the insurance value chain but does it much more effectively and with the interests of the customer at its core. See also: Insurtech Checklist: 10 Differentiators   3. Artificial intelligence (AI) with an initial focus on life and health insurance developed by Gen.Life We are particularly excited about the combination of AI and the latest health technology to transform insurance. Examples include Livingo Health, which combines a blood glucose monitor support and intervention to help coach people through diabetes, and Cycardia Health, which employs machine learning predictive analytics software to categorize abnormal circadian patterns in otherwise healthy breast tissue to provide early detection of breast cancer. These types of technology will allow the early detection of potential diseases so that preventative treatment can be started much earlier, dramatically improving chances of success. Rather than life and health insurance being about prospective payments after an event, they can become the key mechanism for deploying technology to allow people to enjoy healthy lives. The insurance industry will look very different in five years, but more importantly there is an opportunity to drive huge benefits to society through reducing under-insurance and supporting the transition from protection to prevention.

The really bad thing about risks is that they almost never lead to a loss. Why would that be bad? Because risk aversion is responsible for so much lost opportunity. Risk aversion allows us to shoot down ideas faster than we build them up. It is easier to cite a risk that a project or change effort will fail than to undertake it. But getting ahead means change, and change means risk. Those who prosper in business, take risks. The list of leaders who wouldn’t take risks is a very short one.

The biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks. – Mark Zuckerberg

In other blogs, we’ve written about the price you pay by not adapting. It’s not a question of whether you should take risks, but how to do it well. Nearly all great advances come through leaders' appreciating an opportunity and understanding how to manage its risks. So often in our discussions with companies, we encounter leaders who acknowledge the opportunity we present, but who are stymied by perceived obstacles to acting on it. The focus turns too heavily to what lies in the way rather than the path. These obstacles become risks – “unknowns” – that inhibit desired transformation. See also: 4 Steps to Integrate Risk Management   Risks are an integral, essential part of improvement. They force us to think, to adapt, to learn. Companies that advance don’t do so by avoiding risk. They don’t do so in spite of risk. They do so in conjunction with risk. The question is not how to avoid risk, but how to embrace it. Leaders love risk as a thing to be conquered, not feared. Here’s how they do this. Define your goals in detail before you define your risks. It’s easy to get sidetracked by anxiety. The mention of a potential goal is more often met by caveats about it than by building out the path to the goal. Leaders focus first on the goal and the value of achieving it. Act on risks constructively. Draw up a list of risks that could materialize on your way to your goal. Define each risk (what it is), what impact the risk can have, the probability that it will occur and what should be done to manage it. Most often, the risk is much smaller than you imagine. For example, if we more aggressively negotiate medical cost reductions, we might generate more litigation. That might cost us $2,500 per case. This might happen on 10% of the cases. Don’t stop there….compare your risks to your upside – Our plan will result in reductions of more than $1,800 on 80% of all cases…..The upside is positive. Keep moving forward. Enlist people in problem solving…not problem identification. When engaging with others on a project or change effort, dwelling on risks leads to managing against a fear of failure. Get people involved in answering this question: “How can we achieve [name the goal]?” – rather than “what do you think of [name the goal]?” For example, how might we successfully achieve medical-cost reductions without generating litigation?” Plan for success and manage your way there. Managing risk doesn’t mean playing defense against potential disaster. On the contrary, it means keeping a clear eye on what you want. When we implement with a client, we have a detailed list of action items to be accomplished by our customers and us. Tedious? Not really. Critical to success? Absolutely. We know the critical success factors and we plan for and execute on them. Use risk to learn. We all know that stuff happens. Recognize it. Learn from it. Move on. Peter Drucker, the famous management guru, said it best…..

“People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.”

See also: Are Portfolios Taking Too Much Risk?   If you’re feeling hemmed in by risks, take a different approach. Embrace it. It’s the only way to master it.

When I first met Dan Ariely (now chief behavioral officer at Lemonade, among his many other duties) 15-plus years ago, he told a story about how people will, well, cheat on their insurance applications. He said he got a large car insurer to let him experiment with 12,000 applications. For the control group of 6,000, he changed nothing. They filled out the form, including how many miles they drove each year, and signed at the bottom. With the other 6,000, he had people sign at the top, attesting at the beginning of the process that everything they were about to fill in would be true. Dan drily reported that, "It turns out that those who sign at the top of the form drive 3,000 miles a year more than those who sign at the bottom."

Since getting involved in the insurance industry 3 1/2 years ago, as part of my three-decade focus on digital technology and its prospects for innovation, I've learned that lots of people fudge, and not just on how many miles they drive. People will find a homeowners policy a bit too expensive, so they'll fiddle with the facts and report that the home had the roof replaced recently or forget to report that trampoline, or something. What really surprised me is how much people get away with fudging (I'm trying to be kind here) on whether they even have insurance. They'll get a certificate of insurance, so they can show that a policy was in force at a particular moment in time, but then what? How do you know that policy is in force a day later? A week? A month? Six months?

With the advent of Trov, Slice and a few other innovators, it's now possible to turn coverage on and off (for some things) in an instant, but businesses still don't really know whether those they're working with have the requisite insurance at any particular moment. And if they want to find out, businesses have to wade through a sea of paper (or sometimes PDFs) that must total in the tens of millions each year in the U.S. alone.

Well, I'm happy to report that as part of our work at the Innovator's Edge site, which tracks the roughly 800 insurtech startups, we've come across a company that has a solution. That company is GAPro, and you can learn more about it here. In an era where software-as-a-service has become commonplace, GAPro provides what it calls verification-as-a-service. You get a dashboard that tells you in real time the coverage status of your contractors, brokers or whomever -- green signifying that all is in order, yellow highlighting those whose policies are up for renewal soon and red showing those whose policies have lapsed. 

GAPro is still in its early days -- that's what insurtech is all about, right? -- but the idea is spot on, and those running the company are seasoned pros, so I'm confident they're going to get this right. That's why we've begun working with them to provide some counsel and, of course, to help them get the word out. You can read the announcement about our new relationship here. If you have a problem managing certificates of insurance -- and who doesn't? -- I encourage you to contact them. 

Cheers,

Paul Carroll,
Editor-in-Chief

A year ago, as the insurtech movement was starting to take off, a general partner at Andreessen Horowitz made a presentation to our semi-annual gathering of two dozen insurance company CEOs at Google headquarters and began by saying: "Distribution trumps innovation."

In some ways, that's an obvious statement. An innovation can't spread until you find that first customer, and then the second and then the third. But the statement was still startling to hear from a leader at a premier venture capital firm known for celebrating innovation. I jotted down the line, then looked around the room and saw that just about everyone else was, too.

Distribution trumps innovation.

While we have spent years at ITL fostering innovative ideas by curating what is now more than 2,600 articles by more than 800 of the best thinkers in the insurance and risk management industry, we decided to tackle the distribution piece of the puzzle, too. We began by cataloging all the insurtech startups, a list that now exceeds 800, and making it as easy as possible to search the startups based on technology, location, problem being addressed, etc. We gathered that information at a site that I've mentioned several times to you now: the Innovator's Edge. We've found that those looking for innovators need to know more, so we've taken the next step.

We've developed what we call Innovator's Edge Exchange. The foundation of IEx is the Market Maturity Review, which takes startups about a half-hour to fill out and which provides detail on where they stand in five crucial areas: the maturity of their technology, of their experience in the insurance industry, of their work with relevant regulations, of their operations and of their funding. Startups have begun to fill out these surveys to be discovered by potental customers, and I encourage everyone on the list to do so by going to the IE Exchange site. The more complete the list of startups in IEx, the more valuable it'll be to incumbents looking for innovators, and the more likely everyone will benefit. If you're not on the list and should be, please let me know at paul@insurancethoughtleadership.com. If you're an incumbent and want to be notified when you can sign up to get access to all the market maturity information we're gathering -- probably in late February -- you can sign up here. 

Cheers,

Paul Carroll,
Editor-in-Chief

It looks like 2017 is continuing right where 2016 left off—with news of a massive data leak and thousands of passwords being exposed on the internet and cached by search engines. This refers to the gaping security flaw recently discovered in the widely used Cloudflare service. It goes without saying that you should immediately change all your passwords, given how deeply embedded into the internet Cloudflare is. You also should seriously consider using a multifactor step-up capability to access your more sensitive websites and services. Related article: Cloudflare bug spills passwords in plaintext Your identity has become a “currency,” and criminals are able to sell it like other data. Unfortunately, many organizations are dragging their feet in adopting more advanced and secure methods for allowing customers to connect with their services. For the near term at least, passwords are here and will be here for the next few years. See also: The 7 Keys to Strong Passwords   In terms of security and availability, passwords are the lowest common denominator. They are cheap to deploy, users understand how to interact with them, and the risks associated with the username and password paradigm—while not fully understood—are accepted. But, there are three key factors converging that will replace these username and passwords in the future. Many more savvy about security First, policy- and decision-makers are becoming more sophisticated in their understanding of the risks and security profile that simple reliance on passwords presents. Recent announcements from Yahoo CEO Marissa Mayer and General Counsel Ronald Bell should be a bellwether in this regard. Following YAYB (Yet Another Yahoo Breach), Bell resigned without severance pay, and Mayer lost her annual cash bonus and equity award—which some reports estimate to be worth upward of $14 million. Governmental regulations—such as the revised payment services directive (PSD2) in Europe—are requiring more stringent authentication requirements for financial institutions while the National Institute of Standards and Technology in the U.S. no longer recommends one-time passwords (OTPs) being delivered via SMS in its Digital Authentication Guideline. Password reliance and its associated pain is a global problem. Advances in biometrics, other alternatives Second, viable alternatives to the password are gaining widespread acceptance. Since the release of the fingerprint scanner on the Apple iPhone 5S, biometrics have exploded as an alternative to PINs and passwords. Related article: China embraces FIDO Alliance standards The FIDO Alliance has grown as an industrywide organization popularizing a set of specifications that increase privacy, increase security and increase usability while at the same time allowing the multitude of players from the authentication marketplace to ensure interoperability. Adoption of such alternatives is moving along at a solid clip with millions of users worldwide already using this technology. Consumers demand more Finally, users are fed up. They have learned of breach after breach after breach. The added features that complicate a password are not actually making it more secure, but they do make passwords significantly more difficult to input on the small touchscreens that are becoming our primary computing devices. As these three forces continue to converge, passwords will be replaced in greater and greater numbers. As a society, we need to overcome password pain and look to the future. Using a fingerprint or other biometric authentication measure helps users look beyond the failed username and password infrastructure. In time, the public will understand how flawed traditional password usage is. It’s both inconvenient and insecure. See also: How to Make Smart Devices More Secure   In 2017, we will see more companies erring on the side of security, removing passwords and implementing modern authentication strategies that eliminate the opportunity for large-scale password leaks and theft. This post originally appeared on ThirdCertainty. It was written by Phil Dunkelberger. 

According to a recent Innovation Management post, Are Corporate Innovation Centers Too Big To Fail?, the number of such centers or labs across the globe jumped from 301 to 456 over the course of the 15 months ended in October 2016. This 60%-plus increase reflects legacy enterprise efforts to deal with inescapable disruption. Boards and the C-suite see labs adding value by:

• Driving understanding and alignment of their businesses to changing customer and market needs,
• Attracting people with expertise who are entirely different from the talent running day-to-day operations. These are the kinds of people who can spot trends far in advance and connect the execution dots to commercial opportunity, and
• Accelerating innovation of all types – business model, product, brand, experience and process, among others – attacking the revenue anemia and margin compression that afflicts pre-digital companies.

See also: What Is the Right Innovation Process?   One segment of innovation labs is just theater. There is another segment spawning high-potential revenue streams that would not have come about otherwise. But too many are established with good intentions and high expectations, yet run into a common set of seven failure points:

• Innovation is treated like a project or activity. It is deemed essential yet isn't integral to the strategic plan projections. Worse, innovation is booked as an expense line for a year or two, with a vague future dependent on how everything else is going. I empathize with the CEO’s decision to assume no upside on revenue as a way of managing the high risk of failure associated in particular with disruptive innovation. However, this decision creates unintended consequences, starting with undermining accountability for results. The lab may be destined to deliver a self-fulfilling prophecy – either not getting results or not being able to measure the results that pilots generate.

• Innovation is placed in a protective but isolating bubble. It is smart to protect new ideas from the natural instincts of a mature organization. The problem becomes that being placed inside a bubble – e.g., physical location or reporting relationship -- makes the lab feel even more foreign to everyone else. The result is a reduced chance of ever being integrated to accelerate scale, leverage the organization's reusable infrastructure, access the client base or tap into existing brand equity.

• Top-of-house leadership lacks skills or courage. At the end of the day, if the CEO or business unit head do not have skin in the game, or do not actively hold all directs accountable for the lab’s success, innovation efforts cannot take off. Perhaps the CEO has checked the box for the board by creating an innovation lab, and then allows a budget cycle or two to pass, assuming this is enough time to produce results. Or this is such a new game that, through nobody’s fault, there is a lack of expertise on how to drive a successful lab effort. New roles are created, and hiring mistakes are made.

• The lab is expected to find the silver bullet answer to a poorly defined problem. "It's a technology problem." Or, "We need partners." Or, "We need to move everyone to Silicon Valley." And so on. Survey results reviewed in Digital Dynasties: The Rise of Innovation Empires Worldwide reveal that “partnering with ecosystem” is the core operating objective. Toward what end? What marketplace problems is the lab trying to solve? There is often not an answer grounded in an understanding of the unmet needs of large enough segments toward which the lab can point its energy.

• Enabling capabilities and governance get insufficient attention. Gaps in infrastructure, data access, process, policies, metrics, goals and communications require as much or perhaps more attention than coming up with the innovation concepts themselves. Executing innovation to achieve commercial impact demands that those involved get dirt under their nails at every level of the organization. Ideas get lots of focus. Reality is that the hard work is in the unglamorous details of navigating bureaucracy, reforming status quo procedure to allow for speed and agility and motivating the organization as a whole to support change.

• Talent criteria to succeed are demanding, making people hard to find. Succeeding as a team member of an innovation lab takes a complex set of personal, leadership and functional abilities and skill. Identifying the right profile is tough, and then finding the people who match the spec is even tougher. There are conflicts between the politics of consensus that may be part of continued funding and the lab’s inherent challenge to the status quo.

• The culture built on past greatness can stop an innovation lab in its tracks. The right construct for an innovation lab must achieve a tough balancing act: fitting alongside the corporate culture, challenging it, and leveraging it, all at the same time.

See also: How to Create a Culture of Innovation   The most persistent failure point I have seen is to not recognize and connect the dots between the desire to innovate and the mechanics of execution and followthrough. That is why one of the biggest wins can be to break innovation execution down into small manageable steps that produce signals along the way, including progress markers such as hitting important milestones, getting a pilot to market and seeing impact, enabling capabilities to deliver or mobilizing resources against a defined set of market needs.

Insurance is the industry most affected by disruptive change, according to the percentage of CEOs who are extremely concerned about the threats to their growth prospects from the speed of technological change, changing customer behavior and competition from new market entrants. Insurers know they need to innovate to remain competitive. In fact, 67% of insurance respondents to PwC’s 2017 CEO Survey see creativity and innovation as very important to their organizations, ahead of other financial services sectors and the CEO Survey population as a whole. And, insurance CEOs noted that the area they would most like to strengthen to capitalize on growth opportunities is digital and technological capabilities, followed by customer experience (reflecting the connections between the two). However, the industry’s traditional conservatism and the dizzying pace of technological change has made it difficult to change. As a result, most insurers are looking outside the industry – typically in the insurtech space (e.g., drones, sensors, internet of things (IoT)) – for the best ways to improve their systems, processes and products. And there is no doubt that industry stakeholders think insurtech has real promise: Annual investment in insurtech startups has increased fivefold over the past three years, with cumulative funding reaching $3.4 billion since 2010, based on the companies that PwC’s DeNovo platform follows. See also: What Is the Right Innovation Process?   To facilitate a diverse approach to identifying opportunities and potential partners from different industries and specialty areas, an enterprise innovation model (EIM) is table stakes. An EIM facilitates:

• New product and service development: Being active in insurtech can help insurers discover emerging coverage needs and risks that require new insurance products and services. As a result, they can improve their product portfolio strategy and design of new risk models.
• Market exploration and discovery: Prescient insurers actively monitor new trends and innovations, and some have even established a presence in innovation hotspots (e.g., Silicon Valley) where they can directly learn about the latest developments in real-time and initiate innovation programs.
• Partnerships that drive new solutions: Exploration typically leads to the development of potential use cases that address specific business challenges. Insurers can partner with startups to build pilots to test and deploy in the market.
• Contributions to insurtech’s growth and development: As we describe below, venture capital and incubator programs can play an important role in key innovation efforts. Established insurers that clearly identify areas of need and opportunity can work with startups to develop appropriate solutions.

Most insurers are looking outside the industry for the best ways to improve their systems, processes and products. Maintaining awareness, influencing the market and identifying the right partners To ensure an organization’s innovation efforts are in sync with – or even driving – the latest developments in the market, an EIM needs a formalized yet agile process for identifying and incorporating best practices. Dedicated assessment of insurtech advancements can allow insurers to identify and promote best practices and key technologies. Moreover, maintaining a close connection with the insurtech market can help a company develop its external knowledge and relationships with innovators. Through this process, insurers can identify potential partners that can help them understand evolving technologies and their applications, and even contribute to developing the capabilities they desire. With a deeper understanding of the market, capabilities and key players, insurers can be better positioned to facilitate innovation, ideation and design. While some fintech companies already have compelling insurance applications, insurers have a great opportunity to identify and design new potential use cases. Fast prototyping is key to quickly creating minimally viable products (MVP) and bringing ideas to life. Early-stage startups develop and deploy full-functioning prototypes in near real time and go to market with solutions that evolve with market feedback. The development cycle is shortened, which allows startups to quickly deliver solutions and tailor future releases based on usage trends and feedback and to accommodate more diverse needs. Established insurers can follow the same approach or can partner with existing startups that have a MVP to help them to move to the next stage, scaling. The ways to accomplish all of this vary based on how the organization plans to source new opportunities and ideas, how it plans on executing innovation and how it plans to deploy new products and services. The following graphic provides examples of EIMs by primary function. The innovation center The innovation center (also named “lab” or “hub”) is a structure at a corporate level that bridges external innovation with business unit needs and innovation opportunities. It relies on internal subject matter experts and innovation champions to ignite and drive innovation initiatives at a business unit level. With this model, innovative new products and services go to market under the company’s brand. The innovation hub provides an outside-in view while promoting innovation internally. With this model, the company dedicates a team to constantly monitor trends and market activity, build and maintain relationships with key insurtech players, identify potential future scenarios and determine new partnership opportunities. The hub should be managed through business units to effectively innovate (i.e., building prototypes and scaling models). Execution is a key success factor, and we recommend insurers consider complementary innovation models to help promote positive outcomes. Regardless of the model they use, we recommend that insurers of all sizes consider developing an innovation center and create an external connection based on potential future scenarios. The incubator An incubator can drive innovation from idea to end product by identifying new opportunities and developing related solutions. Although it does require a significant investment of both money and resources, it has proven especially effective in addressing complex problems and devising new approaches to them. Although the incubator can be internal, external structures typically create unique development environments and attract necessary talent. Via an external approach, ideas come mostly from outside the company and a panel of internal or external innovation specialists provide high-level guidance and approval for the innovation the company is seeking through the incubator. Although the incubator initially drives innovation, business units typically become involved during the development process. They have an important role, especially when planning to deploy new solutions within the organization. The incubator can wind up as a start-up that can go to the market under its own name. One of the main strengths of the incubator model is that it facilitates execution. It holds an idea until a prototype is developed and a minimally viable product is available. The gradual involvement of business units during the process enables the model to adequately scale. Upon adoption by its future owner, the incubator and business units can address any related challenges related to operating capacity, cyber risk, regulation and other issues. Strategic venture capital (SVC) The SVC model offers the opportunity to participate via stake or acquisition in relevant insurtech-related players. This is a way to influence and shape the development of specific startups (e.g. pushing them to solve specific problems) and acquire key capabilities and talent, and as a way to derive value from strategic investments. In the SVC model, the company establishes a new ventures division, which sources ideas from the outside. The company provides funding and support for equity, while a SVC from this new structure explores, identities and evaluates solutions and markets new ventures under its own brand. The funds thatSVC invests in a startup help new players augment their capabilities and scale their business model. This could lead to potential market joint ventures, acquisitions or other deals to monetize the initial investment. Established insurers with SVC arms are usually leaders in specific market segments and therefore leverage their experience and knowledge to select key ventures. To become more active with insurtech, these structures can be linked to innovation centers, thereby allowing companies to connect ventures with business units. Instead of choosing one model over the other, we propose one that combines key elements from each. Companies can select elements based on their need for external innovation, the availability of talent, their ability to execute and the amount of investment the organization is willing to commit. EIM operating options EIM operating characteristics Bridging the cultural divide Complicating the need to innovate is the fact that an insurer’s culture often influences an external company’s decision about partnering with it. In fact, according to our 2016 Global FinTech Survey, more than half of fintechs see differences in management and culture as a key challenge in working with insurers. Insurers also realize this, and 45% of insurance companies agree that this is a major challenge. See also: How to Create a Culture of Innovation   Accordingly, insurers will need to assess the availability and compatibility of existing resources and determine how and where they can find what may not currently be available. By clearly articulating the organization’s needs, defining explicit roles and establishing a model for enterprise innovation, an insurer can address any underlying concerns it may have about partnerships. While insurers can create internal structures to support innovation, most of them will have to enlist external resources in one way or another. In fact, we expect many talented professionals without insurance-specific skills will be the ones who wind up driving innovation. Attracting and developing innovators Insurers can create internal structures to support innovation, but – as EIMs stipulate – success ultimately depends on having the right talent. And, most insurers will have to enlist external resources – ones who have an entrepreneurial mindset and who are well-connected to insurtech – in one way or another. How does a company attract and retain this kind of talent? There are four primary ways:

• Acquire the new talent from start-ups. This works well if the acquired company keeps running its business under its own start-up rules, away from the acquirer’s bureaucracy. Otherwise, if there is too much acquirer interference, then retention will be a challenge in a market that covets innovators.
• Attract the talent directly from the market. This option typically requires a new mindset from the hiring company in terms of business role, work environment and even location. Establishing a presence in relevant innovation hotspots will help make an offer more attractive, facilitate external connections and demonstrate the insurer’s commitment to letting innovators be free to innovate.
• Partner with startups, technology vendors, universities, researchers and other proven innovators. This option represents a major opportunity because it enables the insurer to create the connections to and formal partnerships with new talent. However, while identifying desired capabilities is relatively easy, there will need to be strong alignment of purpose between the organization and the new partners for the relationship to work. In this case, the Innovation Hub should be the most helpful model.
• Grow the talent. This option is probably the least disruptive because it doesn’t require external changes. Large organizations have the opportunity to discover talent within their structures. But, the organization will have to ascertain and leverage the mentality and professional background of employees in many different ways. Gamification, internal collaboration groups and other resources can help in the search for potential in-house innovators, but most companies will need a more sophisticated staffing model to develop this talent (e.g., having specific development plans and offering “external” experiences in projects and with partners).

Complementing these options is the insurance industry leadership’s advocacy of new methods to foster change in employee skill sets. According to insurance respondents to PwC’s 2017 CEO Survey,

• 61% are exploring the benefits of humans and machines working together (considerably higher than any other FS sector), and
• 49% are considering the impact of artificial intelligence on future skills needs (also considerably higher than any other FS sector).

Implications In response to this rapidly changing environment, incumbent insurers are approaching insurtech in various ways, prominently through joint partnerships or startup programs. But whatever strategy an organization pursues, insurtech’s main impact will be new business models that create challenges for market players and other industry stakeholders (e.g., regulators). In this environment, insurers will need to move away from trying to control all parts of their value chain and customer experience through traditional business models, and instead move toward leveraging their trusted relationships with customers and their extensive access to client data. For many traditional insurers, this approach will require a fundamental shift in identity and purpose. The new norm will involve turning away from a linear product push approach, to a customer-centric model in which insurers are facilitators of a service that enables clients to acquire advice and interact with all relevant actors through multiple channels. By focusing on incorporating new technologies into their own architecture, traditional insurers can prepare themselves to play a central role in the new world in which they will operate at the center of customer activity and maintain strong positions even as innovations alter the marketplace. To effectively develop these new business models and capabilities and establish mutually beneficial insurtech relationships, established insurers will need to start with a well-thought-out innovation strategy that incorporates the following:

• An effective enterprise innovation model (EIM) will take into account the different ways to meet an organization’s various needs and help it make innovative breakthroughs. The model or combination of models that is most suitable for an organization will depend on its innovation appetite, the type of partnerships it desires and the capabilities it needs. EIMs feature three primary approaches to support corporate strategy, partnering via innovation centers (or hubs), building capabilities via incubators and buying capabilities via a strategic ventures division. Companies can select elements from each of these models based on their need for external innovation, the availability of talent, their ability to execute and the amount of investment the organization is willing to commit.
• Even though insurers can create the internal structures that support innovation, most of them will have to enlist external resources in one way or another. Accordingly, they will need to assess the availability and compatibility of existing talent and determine how and where they can find what may not currently be available. Much like with enterprise innovation models, there are certain ways (often in combination) that insurers can locate and obtain the resources they need, including acquiring it, trying to attract it, partnering and growing it internally.

We know the single greatest roadblock to timely work injury recovery and controlling claim costs. And it’s not overpriced care, or doubtful medical provider quality or even litigation. It is the negative impact of personal expectations, behaviors and predicaments that can come with the injured worker or can grow out of work injury. This suite of roadblocks is classified as “psychosocial” issues – issues that claims leaders now rank as the No. 1 barrier to successful claim outcomes, according to Rising Medical Solutions’ 2016 Workers’ Compensation Benchmarking Study survey. Psychosocial roadblocks drive up claim costs far more than catastrophic claims, mostly due to delayed recovery, and claims executives told us they occur regardless of the nature of injury. In other words, one cannot predict from medical data the presence of a psychosocial issue; one has to listen to the injured worker with a fresh mind. See also: Power of ‘Claims Advocacy’   It’s likely no coincidence that, while the industry has progressively paid more attention to psychosocial issues this past decade, there’s also been a shift toward advocacy-based claims models over adversarial, compliance- and task-based processing styles. Simply put, advocacy models – which treat the worker as a whole person – are better equipped to control or eliminate psychosocial factors during recovery. According to the 2016 Benchmarking Study survey, claims advocacy and greater training in communication and soft skills, like empathy, are associated with higher-performing claims organizations. Psychosocial – What It Is, What It Is Not The Hartford’s medical director, Dr. Marcos Iglesias, says that the “psych” part does not mean psychiatric issues, such as schizophrenia, personality disorders or major depressive disorders. Instead, he points out, “We are talking about behavioral issues, the way we think, feel and act. An example is fear of physical movement, as it may worsen one’s impairment or cause pain, or fear of judgment by coworkers.” The Hartford’s text mining has found the presence of “fear” in claim notes was predictive of poor outcomes. Similar findings were recently cited by both Lockton (“Leading with Empathy: How Data Analytics Uncovered Claimants’ Fears”) and the Workers’ Compensation Research Institute (“Predictors of Worker Outcomes”). Emotional distress, such as catastrophic reaction to pain and activity avoidance, is predictive of poor outcomes. Other conditions, behaviors and predicaments include obesity, hard feelings about coworkers, troubled home life, the lack of temporary modified work assignments, limited English proficiency and – most commonly noted – poor coping skills. Additionally, being out of work can lead to increased rates of smoking, alcohol abuse, illicit drug use, risky sexual behavior and suicide. When peeling back the psychosocial onion, one can see how adversarial, compliance- and task-driven claim styles are 1) ill-suited for addressing fears, beliefs, perceptions and poor coping skills and 2) less likely to effectively address these roadblocks due to the disruption they pose to workflows and task timelines. Screening and the One Big Question Albertsons, with more than 285,000 employees in retail food and related businesses, screens injured workers for psychosocial comorbidities. To ensure workers are comfortable and honest, the company enlists a third-party telephonic triage firm to perform screenings. “It’s voluntary and confidential in details, with only a summary score shared with claims adjusters and case managers,” says Denise Algire, the company’s director of risk initiatives and national medical director. At The Hartford, Iglesias says claims adjusters ask one very important question of the injured worker, “Jim, when do you expect to return to work?” Any answer of less than 10 days indicates that the worker has good coping skills and that the risk of delayed recovery is low. That kind of answer is a positive flag for timely recovery. If the worker answers with a longer duration, the adjuster explores why the worker believes recovery will be more difficult. For example, the injured worker may identify a barrier of which the adjuster is unaware: His car may have been totaled in an accident. This lack of transportation, and not the injury, may be the return-to-work barrier. It Takes a Village Trecia Sigle, Nationwide Insurance’s new associate vice president of workers’ compensation claims, is building a specialized team to address psychosocial roadblocks. Nationwide’s intake process will consist of a combination of manual scoring and predictive modeling, and then adjusters will refer certain workers to specialists with the “right skill set.” Albertsons invites screened injured workers to receive specialist intervention, usually performed by a network of psychologists who provide health coaching consistent with cognitive behavioral therapy (CBT) principles. This intervention method is short in duration and focuses on active problem-solving with the patient. The Hartford also transfers cases with important psychosocial issues to a specialist team, selected for their listening, empathy, communication skills and past claims experience. Emotional Intelligence – Can It Be Learned? Industry professionals are of mixed minds about how and if frontline claims adjusters can improve their interpersonal skills – sometimes called “emotional intelligence” – through training. These soft skills include customer service, communication, critical thinking, active listening and empathy. Experts interviewed agree that some claims adjusters have innately better soft skills. But they also concur that training and coaching can only enhance these skills among claims staff. See also: The 2 Types of Claims Managers   Pamela Highsmith-Johnson, national director of case management at CNA, says the insurer introduced a “trusted adviser” training program for all employees who come into contact with injured workers. Small groups use role-playing and share ideas. An online training component is also included. Advocacy – The Missing Link to Recovery Could it be that advocacy – treating the injured worker as a whole person and customer at the center of a claim – is the “missing link” for many existing claim practices to work, or work better? Whether for psychosocial issues or other barriers, organizations like The Hartford, Nationwide, CNA and Albertsons are paving the road to a more effective approach for overcoming pervasive barriers to recovery. Participants in the 2016 Workers’ Compensation Benchmarking Study confirm that higher-performing claims organizations are taking this road. The coming 2017 study will continue to survey claims leaders on advocacy topics. A copy of that report may be pre-ordered here.

Leading a large organization of people is not unlike raising teenagers. At its core, the goal is to provide enough independence to allow growth and innovation and to fuel excitement about what people are doing, but at the same time to provide the necessary guard rails to help keep focus on the mission and prevent the stray person from getting too far from the flock and encountering danger. Parents are like the C-suite, and their approach to life, their leadership stamina and their commitment are key drivers in the family’s success. When a teenager makes a huge mistake, or perhaps even worse, does harm to himself or others, people often look to the parents. Are they good parents? Strict enough? Involved enough to know what’s going on? Participating enough to influence behavior? Modeling good values and social norms? The same is true when a business finds itself embroiled in scandal or accusations of wrongdoing. See also: How to Lead Change in an Organization   Incidents of sexual harassment in the workplace have dominated recent headlines. These examples are not in the gray area of whether there’s hidden bias impeding the path to promotion for women, or whether there’s a systemic gender pay gap, for example. These headlines include overt sexual behavior that most people readily agree is totally inappropriate at work, and that many judges and juries will likely find are illegal, as well. The managers at Microsoft’s Xbox division reportedly sponsored a party with scantily clad waitresses and too much alcohol. Uber has been accused of rampant sexism, sexual harassment and an untenable environment for women employees. Members of the U.S. Marine Corps reportedly have a Facebook site with 30,000 followers on which naked photos of female Marines are posted for all to see, comment on and share. Some of the naked photos were apparently taken without the subject female’s knowledge or permission, and some identify the women by name, rank and duty station. Sadly, these are just a few of the highlights. Examples are plentiful and span all industries. The first questions that came to my mind when I read these headlines are directed at the leadership of the organizations. Have those leaders done something to create or facilitate this behavior at work? Are their policies strict enough? Are those policies enforced? Do the leaders even know what’s going on in their organization? Are they modeling good values themselves? Sound familiar? Teenagers, even though the vast majority of them are wonderful, caring people of good character, don’t always exhibit those characteristics in their behavior. They are notorious risk takers and exercise poor judgment. Parenting them is hard. I’ve discovered recently that the biggest parenting challenge, however, originates not with my own teenagers, but with their friends’ parents. Let’s consider underage drinking. Studies show that the vast majority of students drink alcohol while still in high school. Locking up your alcohol, staying up late to chaperone gatherings in your own home or to greet your teenagers when they arrive home, imposing consequences when you discover your teenager has been drinking and even enlisting professional help if it’s a consistent problem requires stamina and commitment. It disrupts your own social life and your own freedom as a parent. Even more difficult, it draws judgment and scorn from other parents and from your teenager’s friends. If you inform other parents that their own kids are participating in drinking, you could end up being an outcast, and there will almost certainly be negative social consequences for your teenager. It’s hard. And if you don’t, the risks are too scary to imagine. Studies show that teenagers who drink are three times more likely to become addicted than people who start drinking later, and alcohol-related deaths among teenagers (already too frequent) are on the rise. Nonetheless, studies also show that most parents will throw in the towel and ignore the drinking, decide not to inform other parents, fail to follow through with consequences and accept that it’s “normal” for teenagers to drink. My teenager, after all, is a “good” kid. Creating a workplace environment that is hostile to sexual harassment is also hard. Even though the vast majority of men are wonderful, caring people of good character, when together in groups there can easily be a high incidence of inappropriate sexual behavior that is deeply disturbing (and illegal) in the workplace. Corporate leaders may either be unaware of it or may condone it. Either is problematic. Reporting incidents of sexual harassment, or punishing employees who engage in it can draw judgment and scorn from fellow leaders and very often results in negative social consequences for both the victim and the leader. When the consequences of speaking out affect career advancement and rewards, the impulse to stay out of it or ignore it altogether can be overwhelming. And yet the consequences of failing to speak out and stand up to sexual harassment in the workplace can kill your business. Sound familiar? There is a simple solution that will at least eliminate the headlines we’ve seen lately, even if it doesn’t address the whole problem: no safe sex in the workplace. Period. Sex is a personal and private activity that has no place at work. We as humans easily understand that there are certain environments where sexual behavior by adults is always inappropriate. For example, you would be hard pressed to find a person who thinks it acceptable to expose preschoolers to strippers, pornography, aggressive propositioning or naked pictures of parents. Consequently, we don’t do that in preschools, and not because adults suddenly don’t enjoy that type of behavior on their own time, and not because the people who do enjoy that behavior are not “good” people. Instead, adults recognize that preschool is a safe zone in which adult sexual behavior is not appropriate or welcome. A similar mindset at work would be extremely effective in eradicating offensive and illegal behavior. No strippers at work gatherings. No passing around naked pictures of colleagues. No standing by quietly and watching your colleague or boss harass a woman in his organization. Work needs to be a safe zone in which sexual behavior is not appropriate or welcome. See also: Is Your Organization Open to New Ideas?   A plethora of books about how to be a good parent and how to succeed as a corporate leader are readily available. You can read thousands of pages about which seven habits are most important and effective. I offer a simple tip that applies equally to parenting and leadership. It is hard. The consequences of getting it wrong are significant. But when it comes to the big stuff, there are no shortcuts. Stand up to the potential negative social impact and stop your teenager from drinking. Stop your colleagues from bringing sex into the workplace. You will be very glad you did.

“Hello, undefined: How are you?” We’ve all seen bad marketing emails where what was supposed to be a personalized greeting or communication goes terribly wrong. These failed attempts at personalizing the customer experience have the exact opposite effect that they are supposed to when the data is bad. It would be better to go back to the rules we use in face-to-face communications: If you can’t remember someone’s name, better not mention it at all. The same high standards apply to marketing principles in the insurance world when you aim to personalize interactions with policyholders. You have to get it right. Today, customer expectations are at an all-time high. Personalized experience is a key differentiator that sets insurers apart, but they really only have one shot to get it right. One slip-up can spell disaster for customer loyalty and brand reputation. See also: How the Customer Experience Is Shifting   Recently, I got my renewal package for my homeowner’s policy from a large insurer. In big bold typeface, I was greeted with, “Thank you for being our customer since 1989.” Okay … but I have had a homeowner’s policy with this insurer since 1980! In 1989, we sold our first home and bought a second home. So, I can understand a different location or possibly a different policy number, but I am still the same customer! I got fixated on how the company could be wrong. It is clear that insurers manage customers by line of business or a policy number in a policy admin system, not by customer data. Then, I started to examine the entire renewal package, and the company was adding new benefits and coverages in simple language – those were positives. But I could not get past the front page. The overall quality of the renewal document was marred by the flawed opening. So, to insurers, regardless of your size, if you want to personalize, you'd better get it right. Never assume personalized, exported data is correct. You must be sure of it. In my case, a simple tweaking would have been all that was necessary to rephrase the statement, “Thank you for being a customer at this address since 1989.” As a customer, I expect more. As insurers, we should demand more, provide more and ensure that personalized data is right. Otherwise, you look sloppy, and the veil into your organization (or lack of organization) is lifted. Don’t be another bad data story, and don’t make your customers feel undefined when they interact with you. See also: 5 Key Customer Experience Trends   After all, first impressions still count, big-time. Customer loyalty can change as quickly as you can say, “Hello, undefined…”