Get used to it. The Internet of Things is here to stay. In fact, IoT is on a fast track to make all manner of clever conveniences part of everyday commerce and culture by the close of this decade. Tech research firm Gartner estimates IoT endpoints will grow at a breakneck 32% compounded annual growth rate over the next few years, reaching an installed base of 20.8 billion IoT units by 2020. See also: Insurance and the Internet of Things   Tiny, single-purpose sensors designed to collect rich profile data on individual behaviors — as well as on company systems — can already be found in all manner of medical devices, automobiles, TVs, gaming consoles, webcams, thermostats, utility meters, household appliances, manufacturing settings and wearable tech. Much more is coming. It is incumbent upon the businesses that deliver both the IoT devices — and the new internet-connected services that IoT sensors make possible — to address the security exposures that are part and parcel of this rapid scale-up. Fortunately, cybersecurity vendors are stepping up innovation to do just that. Gartner projects that worldwide spending on IoT security will reach $348 million in 2016 — up 24% from 2015 spending — and will climb steadily to $840 million by 2020. I recently sat down with Johnnie Konstantas, director of security solutions at Gigamon, a supplier of network visibility technology, to discuss what’s on the horizon. The following text has been edited for clarity and length. 3C: What is the core security challenge accompanying our rapid deployment of billions of IoT sensors? Konstantas: IoT sensors are quite small and pretty cheap, too, and they don’t have a lot of memory on them. Their whole point is to store a little bit of information and then just forward it on to the cloud. If you think about how we traditionally use things like encryption and a firewall to secure a mobile phone or laptop, that’s very hard to do on a small IoT sensor. So what you have is a conduit into the corporate network deployed for the purpose of receiving intelligence, and you can’t really push perimeter protection out to these IoT devices. There’s no question IoT sensors can potentially be a way in. The IoT endpoint could get infected with malware, or it could be used as a lily pad to jump in deeper. 3C: What defensive approaches look promising? Konstantas: A lot of it comes down to continuous monitoring. These devices are going to always be on, transmitting intelligence. The idea is to continuously understand what the IoT device is forwarding or receiving 24/7. Sounds like a tall order, but doing that allows you to essentially perform analytics on IoT-generated traffic. And with the proper kinds of security analytics in place, you will be able to surface anomalies. See also: How the ‘Internet of Things’ Affects Strategic Planning   3C: Sounds like big data analytics with an IoT twist. Konstantas: Yeah, exactly. Big data analytics is nothing new. Security analytics is nothing new. But both are actually seeing a resurgence. Call it SIEM (security and information event management) 2.0 for lack of a better word. This time, SIEM is not so much about collecting large volumes of data; it’s more about getting the right kinds of data. It’s about pruning my data feeds to figure out whether I have any risks associated with my IoT deployments. 3C: What key developments are on the horizon? Konstantas: I’ve been in security since ’98, so I’ve seen a few patterns play out. The one constant has been that when cool technology emerges — like our ability to do commerce on the web or virtualized storage and computing — adoption tends to be a lot faster than the arrival of the technology to secure it. So it’s fair to say that our desire to take advantage of sensor networks and IoT is going to outpace our ability to roll out security infrastructure to secure them as well. More stories related to the Internet of Things: Technological armor evolves to keep IoT devices safe from attack Ripples from Internet of Things create sea change for security, liability Consumers should brace for home network intrusions in 2016 This post originally appeared on ThirdCertainty.

A combination lock relies upon multiple numbers to match in order to release the catch. You can have three of the four numbers correct, and the lock will remain closed. Is this what is happening to the promise of group insurance sales? Are some insurers just one or two details away from unlocking the market? Many organizations would claim to have tried it all. Some have added auto enrollment capabilities, which did help. Some have improved service portals. Many have products and packages that likely meet the needs of today’s employers and their employees. Sales are happening, but if the research surveys are right, group insurers still aren’t scratching the surface of the market, particularly a fast growing new segment seeking something new. Employees still have every reason to want to purchase additional protection products through their employers (e.g. ease, security, underwriting, price). Employers still have every reason to want to carry the best selection of protection and wellness products administered on an easy-to-use platform. Providers, then, need to create and promote an ecosystem that sells itself to employers by selling through to employees. See also: Group Insurance: On the Path to Maturity Fortunately, the market has plenty of opportunity.  We are seeing healthy, steady growth, especially within the new health and wellbeing products offered as flex benefits. Insurers that hit on the right combination of product selection, digital readiness and market relevance, are going to find themselves tapped into a free-flowing market. How do providers create this win-win-win? Add health and wellbeing products One of the innovative ideas considered by a number of providers is focused on the health and wellbeing of employees. New health and wellbeing products are being developed and offered in different insurance segments. The first ones to enter the market were in South Africa with Discovery’s Vitality program and last year in the US when John Hancock teamed up with Vitality. This trend is now emerging in the UK, being replicated by the Private Medical Insurance (PMI) and group protection provider segments. A number of employers are offering a monthly benefit amount, which employees can use to select different products (a smorgasboard or flex approach) based on their unique needs and life-stage. Health and wellbeing products are part of the offerings in conjunction with traditional group protection plans. These health and wellbeing products provide standard PMI coverage to employees as well as significant auxiliary benefits and incentives. These include discounted gym memberships, reduced Eurostar fares, food discounts and more. To effectively provide these benefits, the insurer must build an ecosystem of partners who provide these benefits and services as a core part of the group protection product. Introduce education and gamification tools Benefits, no matter what kind, can be confusing. If the coverage is unclear, the product is unlikely to sell. When it comes to health and wellbeing offerings, gamification can proactively engage employees in selecting and using the right benefits, helping them achieve their well-being goals. An alternative approach for some group protection providers is to partner with health and wellbeing product providers (many of whom already have these educational tools in use) to market and offer a joint product to the employees. Regardless of approach, it is important to make these products easy for employers and employees to understand, select and use. Add and promote self-service functionality A digital portal to enrol, service and engage employees on a regular basis is a must.  The ability to quote and bind online as well as provide online service is of paramount importance to capture the small and medium enterprise market. Extending these capabilities to brokers and employers will not only improve the experience significantly, but also ensure that such books are profitable for the insurance company. Improve system robustness, speed and flexibility A number of companies are struggling with their IT applications, to support the level of flexibility required by the complex flex and voluntary business. A robust, configurable policy system can streamline the design and launch of these risk products and services rapidly into the market. Competitiveness starts with the agility provided by this foundation. Prepare relevant package types Insurers are reactionary by nature. When it comes to consumer and employer demand, product development and coverage packages should be timely and relevant. The insurer who is closely watching benefits trends and anticipating new offerings will be in a prime position to proactively capture more of the market. Smart insurers will also pay close attention to common differences between SME needs and large enterprise concerns when developing packages that fit. See also: How to Set Benefits in Different Nations   PROMOTE, PROMOTE, PROMOTE From marketing to sales to channel development, group risk insurers need to ramp up distribution efforts across the board. During this season of opportunity, it would be a crime to be prepared, yet not aggressive enough in pursuit of the many companies who still desperately need a group risk partner. Gather relevant data. Use it in yearly promotion. Once you are covering a particular group, the job is only half done. Use data gathering to know your clients and understand their employees. The details on how coverage improves within a client company will come in handy during contract negotiations and review the following year. In addition, many of the fine details will help your teams to improve take up rates with certain products and improve products that may need changes to improve utilization. This article was written by Vinay Nagwekar.

Faced with maturing markets and increased competition, many companies are seeking to differentiate themselves by enhancing their customer experience — but those efforts might be misguided. That’s not because customer experience is a poor source of competitive differentiation (on the contrary, it appears to be a compelling driver of shareholder value). Rather, it’s because companies tend to overlook key components of the experience — elements that may appear mundane but actually exert a meaningful influence on customer perceptions.

Documents often represent one of the most frequent and prominent touchpoints that companies have with their customers.

Part of the problem is that executives are easily enamored with customer experience improvement tactics that are buzz-worthy: big data predictive analytics, artificially intelligent chatbots, transformational customer relationship management (CRM) or mobile-friendly digital engagement, just to name a few examples. Less “glamorous” initiatives — such as billing statement redesigns, correspondence rewrites or sales proposal reformatting — struggle to garner much attention. That’s an issue, because these static documents often represent one of the most frequent and prominent touchpoints that companies have with their customers. See also: Payoff From Great Customer Experience?   Many businesses, however, view such documents as mere administrative communications. From the customer’s perspective, though, these documents are the experience — or, at least, a significant part of it. A classic example of this dynamic comes from the “explanation of benefits (EOB)” statements sent out by health insurers. Every time an insured receives medical care, an EOB is triggered. In theory, EOBs are meant to explain what a practitioner charged, what insurance covered (and didn’t cover), how much the insured is responsible for paying and why. In practice, many EOBs are practically indecipherable (just look at this example, which was recognized by the Center for Plain Language as one of the most confusing customer statements on the planet.) EOBs confound rather than clarify, generating more questions than they answer. They make IRS tax forms look like the most elegant communication pieces ever devised. EOBs are widely ridiculed and deservedly so. What’s fascinating, though, is that for most consumers, the EOB is the face of their health insurer. It is, by far, the most frequent touchpoint they have with the company that covers their medical expenses. Yet few insurers treat it as such and, instead, continue to issue EOBs that cement health insurers’ position at the bottom of most customer experience industry rankings.

Businesses discount the power that the written word has in shaping customer perceptions.

This is an issue that transcends any one industry. Businesses in virtually all verticals simply discount the power the written word has in shaping customer perceptions. As a Yale and Stanford study documented, something as simple as the readability of a font in product marketing materials can drive significant changes in consumer purchase behavior. Subconsciously, people see a difficult-to-read font as a cue that the purchase decision itself is difficult, so they defer making a decision. See also: How to Redesign Customer Experience   Yes, you read that right: Use a clean, readable font in your marketing materials and you’ll start converting more prospects into customers. However, it goes beyond font choice. It’s about overall cognitive fluency in written communications. The way our brains are wired, we prefer things that are easy to think about rather than things that are difficult to think about. When faced with a printed document, an email or even a webpage that exacts a high cognitive load, our brains essentially get paralyzed — and just tell us to walk away and not deal with it. That’s hardly a good recipe for engaging prospects or customers. Conversely, when written information is easy to interpret (meaning it’s clear in visual design, language and architecture), people are attracted to it. We’re more inclined to trust it (and the company sending it). We’re more likely to view the communications experience as a positive one. Clarity also means we’re less likely to have questions about the communication, which helps lower operating expenses by reducing stress on a firm’s infrastructure. Imagine how many unnecessary phone calls companies could preempt if their correspondence, bills, and statements were so clear that they actually obviated the need for customers’ inquiries. The development of crisp, clear and cognitively fluent communications should be a central component of any customer experience improvement strategy. Excelling in this regard enables companies to not just deliver a better brand experience but to do so at a lower cost. While these communication projects might appear mundane, monotonous, perhaps even boring, don’t be misled. They are an extremely practical and effective means of differentiating what may be one of the most common touchpoints you have with your customers. With every letter, email or document, companies have a chance to either enhance customer loyalty or erode it. Don’t squander this opportunity to shape your organization’s brand experience, capitalize on it by focusing on the “write stuff.” This article was originally published by Document Strategy.

New entrants—more customer-centric and digitally sophisticated than most established carriers—are transforming the way insurance is bought and sold. Their scalable, digital platforms, augmented by analytics, threaten the traditional distribution model. And at the core of the new operating models, powerful multi-industry partnerships are redefining the insurance distribution ecosystem. In short, they are taking the “I” out of distribution, and replacing it with the “we” of effective, broad-based partnerships. Established carriers urgently need to form such partnerships— and Accenture research shows that 72 percent have already done so, or plan to. But attractive alliances are, by definition, limited in number. Leading players are already inking the best deals, leaving the laggards with fewer options.

In short, it’s essential to move quickly—and gaining a first-mover advantage starts by understanding the new entrants’ true intentions.

They don’t want it all—but they are taking more and more. Approximately US$4.9 billion has been invested in 196 insurance tech companies since the second quarter of 2011, with no less than $2.6 billion coming in 2015. Targeting the lucrative distribution portion of the insurance value chain is a no-brainer for the new entrants. According to CB Insights & Accenture Analytics, 56 percent of the recipients of these investments are focused on the distribution part of the value chain (see Fig. 1). For the most part, these players aren’t interested in underwriting and taking on risk—it’s just too commoditized, requires too much capital, and is too heavily regulated. But they do want to own the customer experience. In fact, they promise to deliver a much better one—more attuned to the personalized service and tailored product offerings that 76 percent of consumers say they would switch providers for and 38 percent would even pay more to receive. Delivered at low cost via digital channels and convenient, point-of-purchase touch points, the new entrants’ value propositions not only appeal to insurance consumers hungry for a simplified, transparent and personalized buying experience. They also provide an opportunity to gather a wealth of customer data, build customer loyalty, and establish robust residual revenue streams. Consider, for example, how many auto dealers and manufacturers now offer insurance as part of a car-buying or car-sharing package, or the number of retailers that link insurance purchases to reward programs. As customers’ shopping habits shift from a linear to a non-stop path, the savviest new entrants are steadily raising their game (see Fig. 2). Some are leveraging their superior understanding of the customer base to influence product design to align with their overall Brand. Case in point: the UK retailer, John Lewis— whose insurance products are underwritten by a panel of leading British carriers—now incorporates the famous John Lewis brand promise: “never knowingly undersold.” Others are using their platform models to disrupt existing markets. The online US broker insureon, which serves more than 800 industries, can give customers a personalized quote in 15 minutes —a fraction of the time it takes traditional commercial brokers. Still others are forming powerful, cross-industry partnerships. BMW, for instance, has worked with Allianz to form a truly integrated partnership in which Allianz-designed products are tailored to fit BMW’s brand promise. BMW advertises the high-end performance of their vehicles. Driver behaviorbased telematics are not consistent with BMW’s core message. Instead, BMW and Allianz partnered to create a usage-based insurance product true to BMW’s brand promise. BMW Aftersales is also part of the agreement, which aims to generate global synergies by distributing some 50 joint products across 27 markets.

You won’t win tomorrow by continuing to do what you do today.

The industry is starting to rise to the new entrants’ challenge. Accenture research shows that 59 percent of carriers are prioritizing a more customer-centric distribution model, and 48 percent have already built a customer-centric hub that leverages data and analytics for an improved service experience (or plan to do so in the near future). But the established carriers still hesitate to take bolder steps. Fewer than half (43 percent) are planning or have completed the acquisition of startups or innovative competitors, for example. Carriers that have partnered with new entrants are already reaping the rewards, leveraging their natural advantage as underwriters to strengthen their own customer relationships. Since the start of their global partnership in 2009, Allianz and BMW, for example, have tripled their customer insurance business. Furthermore, the recent inclusion of a telematics tracking package for BMW’s electric cars—the hardware is pre-installed but only becomes operative if the driver also takes out Allianz insurance—puts the big German carrier at the forefront of digital innovation in the auto market. AXA, similarly, has significantly boosted its digital capabilities by forming a strategic partnership with Facebook. The deal gives the French multinational insurance firm access to dedicated Facebook resources in innovation, analytics and mobile, thus furthering its ambition to become what AXA Group COO calls “the leading digital and multi-access insurer.” Facebook, for its part, furthers its ambition to build major partnerships with international companies, and expands its footprint in the French market.

Act now, or lose out.

So how can you create customer experiences that are at least as good as those the new entrants are offering—ideally, better? The experience of the leaders suggests that you need to develop more customer-centric business and operating models, execute multiple models simultaneously for both the core and the digital businesses, and integrate the lessons learned about customer centricity from new partners, broadly, across the enterprise. The following considerations will help get you started:

• Pick your spots in alignment with your overall market approach. Determine your strategy and start by defining which customer segments are most attractive to you. Develop tailored value propositions and identify new product or service offerings, and then evaluate which non-traditional partnerships and business models will complement them. If your target customers are high-net-worth individuals, for example, you might seek out a luxury goods retailer.
• Rethink your product design approach to enable personalization at scale. Develop capabilities that enable faster product deployment, tailoring to specific partner value propositions, and modular product architecture supported by analytics at a granular level.
• Develop a supporting digital strategy that aligns to customer expectation, business vision and IT platforms to fulfill 4 fundamental objectives of customer experience:
  • Execution of fully-informed and real-time interactions
  • Expansion of awareness and extension of reach
  • Delivery of highly personalized experiences
  • Creation and distribution of rich, interactive content

• Build cost-effective and flexible back- and middle-office operations. Support them with a flexible technology infrastructure to make the economics work.
• Define a win-win partnership model. Define the role you want to play in the ecosystem. Align on the key success factors upfront through clearly articulated success metrics, well-defined customer segments, and one brand promise.

This article originally appeared on Accenture.

Often, it seems like the insurance industry moves slowly when it comes to technology improvements. The way insurers manage data and leverage analytics capabilities is no exception. But steady progress is being made. SMA’s recently released research report, Data and Analytics in P&C Insurance, highlights the progress as one of the key themes. The progress is observable in three areas: organizational changes to increase the focus on data/analytics, enhanced technology capabilities and the breadth of usage across the enterprise. On the organizational front, more insurers are treating data, business intelligence and analytics as a functional area of the business, akin to finance or human resources. One-third of P&C insurers now have centralized units at the enterprise level outside of the IT function. These units are increasingly being staffed with a blend of business and technology professionals who are focused on the disciplines of data and analytics. Chief analytics officers, chief data officers, data scientists and others are becoming more common, as quantified in our research report. See also: Data Science: Methods Matter (Part 4) Technology capabilities also continue to advance — with significant investments continuing to be made in traditional business intelligence — while more companies invest in advanced analytics and big data. Big data is a game-changer for a number of business areas, with significant percentages of insurers now citing applications such as pricing, customer segmentation, actuarial analysis, fraud, etc. as big opportunities. BI and analytics usage is now penetrating every area of the business. Pilots and projects from the 2014 time frame are now in production — with areas such as customer segmentation, underwriting profitability and new business analysis now implemented. The next wave of business projects are in progress in areas like customer lifetime value, underwriting operations and CRM. See also: Analytics and Survival in the Data Age   The trends, projects and investments featured in this research report are important for insurers to consider because data and analytics are increasingly becoming a primary source of competitive advantage. Data has long been considered a strategic asset by insurers, but now the scope of the data is expanding, the technologies and tools are becoming more sophisticated and the expertise of individuals is advancing.

As Brazil copes with the Zika-virus outbreak, political turmoil, civil unrest, crime, water sanitation and the looming threat of terrorist attacks, thousands of athletes, fans and officials are making their final preparations for the Summer Olympics. While none of the crises look likely to derail the Rio 2016 Games, the list of concerns reads like the list of covered exposures in a well-designed cancellation of event insurance policy. The International Olympic Committee is not alone in struggling to cope with the world of extreme events. Just look at some major sporting events that have recently been canceled, relocated or postponed:

• National Football League (Buffalo)
• English Premier League (Manchester United)
• Major League Baseball (Pittsburgh and Miami)
• Southeastern Conference Football (LSU and Tennessee)

If the list were to be expanded beyond sports, the number of concerts, events and conventions suffering the same fate is too large to compile. So, what should be considered when planning an important event, whether large or small? Infectious diseases: Zika is the latest of many infectious diseases to result in global travel advisories, the banning of large concentrations of people or implementation of public health control measures Communicable disease resulting in quarantine or restriction in people movement by a national or international body or agency is simply one exposure that concerned parties can eliminate through effective use of insurance solutions. See also: How to Think About the Zika Virus Extreme weather: In today's world of extreme weather events, once remote weather-related possibilities are becoming more and more frequent. Previously safe geographic areas have experienced hurricanes, earthquakes, wildfires, snowstorms, hailstorms, etc., all of which can leave event planners madly scrambling to determine the extent of damage incurred and whether their carefully choreographed event can go on. Even if the adverse weather does not damage the venue(s) of the event itself, the mega-facility guidelines of the nation may require the requisition of the venue by emergency personnel or evacuees in the event of a hurricane, wildfire, dam-breaking or some other catastrophe. Terrorism: Despite recent World Health Organization warnings, foremost in the worries of most risk managers for large-scale events is the rise of terrorist actions worldwide. Protection against terrorist acts can be included in cancellation of event policies for an additional cost. Such coverage would typically exclude the use of nuclear, chemical or biological materials, or radioactive contamination post-Fukushima, but even these eventualities can be covered if a thorough market analysis is conducted. Many policies do not require that a terrorist event actually take place; they can be designed to protect an entity's financial interest if the event is affected by the mere threat of terrorism, if the threat is confirmed by a recognized competent authority on the state, national or international level. Key person coverage: For events that rely on the attendance of certain personnel, performers or speakers, organizers can buy coverage specifically protecting against the non-appearance of key people. Public sector strikes: Public sector strikes, particularly those involving transportation services, and damage or loss of utility service to a venue also lead to many events being canceled, relocated, postponed or interrupted and are all insurable exposures. Business interruption coverage: Contingency insurance exists to provide protection for the expenses an entity occurs in organizing an event as well as the revenue the event should generate for the organizers, promoters, municipalities, etc. There is no "boiler-plate" solution for a specific event. It is essential that the event organizers and insurance representatives spend time evaluating the actual financial exposures the entity has. Expenses are normally the easiest to determine because they are fixed costs. However, many streams of revenue are often ignored if too much attention is given to the largest items, such as ticket sales, instead of supplementary income generated from merchandise sales, concessions, sales, lost sponsorship monies or even parking fees for attendees. See also: The Defining Issue for Financial Markets It is equally essential to determine who the financial responsibility ultimately rests with. Sponsorship contracts serve as a good example of complex obligations. If a corporation has agreed to spend millions to be the signature sponsor of an event, and the event is moved to a different venue where companies other than the sponsor already occupy desired signs and exposure, it should be determined if the expense is a sunk cost to the sponsor or if the hosting party has to reimburse the sponsor. This contract clause should dictate who receives the insurance policy benefit. Experience in determining financial exposure that each party incurs when events are in their initial planning stages is invaluable when custom-designing insurance policies to cover all possible financial liabilities. It is only a matter of time before a global spectacle of an event is canceled due to an unforeseen peril. While the emotional loss experienced by the participants and attendees is high, the financial impact can be mitigated or completely eliminated through the insurance market.

In upstate New York, a distracted driver crashes into a tree. Elsewhere, safety officials warn of an uptick in pedestrians walking into stationary objects, and even traffic. The connection, according to news reports: the latest gaming sensation, Pokémon Go. The game connects the digital and real worlds through augmented reality (AR) technology, and downloads are skyrocketing in the U.S. and globally. But for all the fun, risk professionals need to keep in mind that AR and other “disruptive technologies” can create safety risks and potential liability issues. Distractions Increase Risk Pokémon Go players seek to capture “Pocket Monsters” in real-world locations, from homes to businesses. However, as with other engrossing technologies, players can become so focused on their mobile devices that they lose track of the real world. Regulators have even posted signs to warn drivers of potential dangers. See also: An Eruption in Disruptive InsurTech?   For risk professionals, distractions are no game. If you haven’t already, consider assessing the potential impact from mobile apps in such areas as:

• Employee safety: Gamers can put themselves and others in harm’s way.
• Visitor/customer management: If your establishment is tagged as a Pokémon Go hot spot — with or without your consent — you may see increased traffic.
• Fleet safety: Gaming apps bring much the same risk as texting.
• Cyber risk: Data privacy and related risks stand out.

As you assess AR and other disruptive technologies, lean on basic risk management steps, including a review of insurance coverage in such areas as:

• Workers’ compensation: Although an injury suffered while playing a game would generally fall outside coverage, an employee may hide that game-playing was involved. Any spike in claims could affect how much you pay for coverage.
• General liability: If a customer or other person is injured on your premises because they are distracted, there could be a claim against your general liability policy. If you invited people to play the game on-site, could that affect the claim?
• Automobile liability: Distracted driving is a known factor in auto accidents. How will your policy respond to an accident in which game-playing was involved?

But don’t wait for an insurance claim before taking action. For example, remind employees to pay attention to their surroundings. Review and update driver safety programs, pointing out the dangers from mobile phones, navigation systems and other distractions. Remind drivers of the risks from other drivers and distracted pedestrians. See also: A Mental Framework for InsurTech   Additionally, it may be worth specifically mentioning Pokémon Go and other distractions in workplace safety programs. Be sure to include remote workers, for whom the lines between occupational and non-occupational injuries may be especially blurry. Disruptive technologies promise many benefits, but risk professionals can’t be distracted from managing the accompanying risks.

It’s no surprise that insurance companies excel at understanding the panoply of risks faced by their customers. After all, accounting for what can, has or might happen is a core part of the business. Yet when it comes to mergers and acquisitions (M&A), many insurance companies only excel at half the job: assessing the risk of a potential takeover and expertly crunching the data. The other half — identifying cultural clashes that could scuttle integration — is often neglected. After a deal closes, and even during negotiations, insurance companies must move beyond the numbers and decide how, or even whether, to bring the two cultures together. Our experience and research shows that many deals in cross-border M&A in the insurance sector founder because of cultural issues. Too often, the industry views cultural differences as operational matters that can be hammered out, rather than behavioral differences that require a more considered approach. Boards of directors, which scrutinize the rationale and costs of a merger, often fail to consider cultural issues or monitor post-merger integration. As the global insurance sector consolidates and the number of deals increases, a keener understanding of how merging cultures can (and do) clash will become more important for success. To look deeper into the challenge of cultural integration following M&A, Heidrick & Struggles talked with senior insurance executives experienced in acquisitions in Asia, Europe and North America. Most agree that clearer communications and an active approach to identifying and addressing cultural issues can improve the value captured from M&A. Yet many admit they overlook it — one executive said that at his organization several transactions were led by people who never visited the target company or its market, and had little local knowledge. “Having bought assets, we expected local market leaders who were new to the group to adopt our culture off the back of a series of written protocols and the occasional visit to London,” he said. “We seldom asked them about the nuances of their marketplace.” Increase M&A Activity Ensuring that culture is top-of-mind will become increasingly important as the industry continues to rebound from the 2008 economic crisis. A study by Swiss Re reported 489 M&A deals were completed globally in 2014.¹ Although the volume remains well below the pre-crisis peak — 674 deals in 2007 — the insurer concluded that indications “suggest that momentum behind M&A is building.” In a separate study, Deloitte found the number of deals involving brokers grew 40% from 2013 to 2014.² Although in Deloitte’s counting, deals involving underwriters edged lower from 2013 to 2014, the average value per deal almost tripled, from $124 million in 2013 to $359 million in 2014. Indeed, 2014 saw the announcement of eight insurance M&A deals with values of more than $1 billion, dwarfing the volume of big-money deals in previous years. The largest transaction was the $8.8 billion takeover of Friends Life by British insurer Aviva, creating the largest insurer in the U.K. Sidebar: Let's Make a Deal Several factors are contributing to increased M&A activity in the global insurance sector, but most consider the main impetus to be overall lower policy rates. Lower rates are seen as a byproduct of overcapacity, and the industry is consolidating to retain profitability and increase differentiation. Other factors include growing interest in insurance M&A from a broad range of backers, including hedge funds, private equity and international investors. Companies are looking for ways to use vast cash reserves. A strong U.S. dollar has made some cross-border deals less expensive for U.S. companies. And insurers are recognizing the need for economies of scale, particularly as the costs of IT and system changes mount. In addition, many companies in Asia are moving into global markets and looking for strategic acquisitions to drive their expansion plans. For example, in 2013, Sompo Japan Insurance bought U.K.-based Canopius Group, and in 2015 Mitsui Sumitomo Insurance (MSIG) bought Amlin, also of the U.K. And among the recent deals originating from China, Peak Re, a unit of Fosun Investment, bought Bermuda-based Ironshore in 2015, and in 2016, Mingshen was finalizing its acquisition of U.K.-based Sirius from White Mountains. Against this background, insurance companies are pushed toward M&A for a variety of reasons. The most common, still, is to bring together two companies with complementary businesses and strategies and capture greater value through scale efficiencies. In Asia ,in particular, such mergers are trending as a way to support regional growth aspirations. For example, in 2014 Swiss Re paid $122 million for RSA’s China unit, Sun Alliance. RSA’s strategy to divest out of Asia thereby provided Swiss Re with an established platform for its continued growth of direct insurance in China. This deal, and others like it, focused on serving an aging Asian population with products centered on retirement planning and financial safeguards. Other strategic goals are also driving deals — for example, attempts to harness digital technology and reinvigorate tired corporate business models. In one case, U.S. insurer Aetna in 2014 bought technology provider bswift, which offers cloud-based insurance exchanges and other digital products, for $400 million. These types of deals focus on integrating the newest technologies, such as mobile applications and big data analytics, as a core component of a company’s business model, either to reach customers, provide market insights or improve internal efficiencies. Such mergers are especially prone to cultural clashes as staid insurers butt against dynamic, high-tech entrepreneurs, often extinguishing the very spark that created value in the acquired company. And finally, in a reflection of the industry’s positive outlook, outside investors are also turning to the sector as a channel for steady yields. In one example, in 2014, the Canadian Pension Plan Investment Board acquired the U.S.-based Wilton Re for $1.8 billion. See also: Insurance M&A: Just Beginning The Power of Culture While M&A is driven by a range of underlying strategic objectives, those with the greatest potential look beyond pure cost efficiencies. Success is drawn not just from spreadsheets but also from cultural integration that produces better collaboration and new ideas. Such cultural integration can take several forms. The parent company can absorb and dominate the culture of the acquired company (perhaps the most common form); the two cultures can coexist, with the acquired company retaining a certain level of autonomy; or the two cultures can mix, creating a more ideal corporate culture. Regardless of the form that cultural integration takes, the evidence suggests insurers everywhere find it challenging: For example, 39% of respondents in a 2016 Towers Watson survey of 750 global insurance executives cited “overcoming cultural and organizational differences” as a post-integration challenge.³ Yet when companies get culture right, the benefits are significant. The 2004 merger of U.S. insurers Anthem and WellPoint Health Networks is a clear example. Soon after the $16.5 billion merger was approved, Larry Glasscock, CEO of the new company (now called Anthem), made it clear the merger signaled the birth of a new company and a new culture, rooted in internal trust and innovation. Glasscock first delivered the message to a newly formed executive-leadership team, composed of 15 leaders from both companies, then to 300 top managers in the new company and finally to its more than 40,000 employees. Eventually, the new culture would permeate every aspect of the new company, from hiring and orientation to performance management. By 2007, the company was named by Forbes magazine as one of the most admired companies in the U.S., had cut administration expenses in terms of share of overall revenue and was on track to reach its growth targets. In 2016, Anthem itself is in the process of merging with Cigna and could profit from remembering these lessons. The "best" integration model depends on a variety of factors, such as the relative size of the two companies, the optimal organizational structure after the merger and the value created by various cultural characteristics. But identifying the right model is a crucial element of any M&A process. By planning strategies for assimilation with the same fervor as those for operational efficiencies, insurance companies can lower the risk of failure in M&A. Before the Deal Is Done Spotting and addressing cultural challenges should start well before the papers are signed. Parallel to due diligence, acquiring companies should critically compare attitudes, work habits, customs and other less overt characteristics of the two companies involved. The effort should be a routine part of the standard M&A process, rather than an ad hoc response if friction develops. Gather data on culture. One useful tool for comparison is the corporate-culture profile, a diagnostic instrument based on survey data from both companies. Such surveys explore a range of corporate characteristics, such as attitudes toward personal accountability and collaboration, trust levels and integrity. They also gauge strategic alignment and commitment and assess the strengths and weaknesses of each culture. A corporate-culture profile can quickly identify areas in which two cultures diverge, pinpoint areas that may require immediate attention and highlight areas of common ground that should be recognized and celebrated. Often, acquiring insurance executives wrongly (and perhaps unconsciously) assume that two companies in the same business will have relatively compatible cultures. In cross-cultural M&A, such notions are wishful thinking at best and can lead to challenges. Staff with different training, work environments and market experiences will naturally view work differently.⁴ Investigate the intangibles. Our conversations with insurance executives who are experienced in M&A highlighted specific themes that arise during negotiations. The following concerns should be included in the process to lower the risk of cultural clash in an acquisition. Geographic location One executive who was involved in XL Capital’s 2001 $405 million takeover of Winterthur International, a unit of the Swiss insurer, said that cultural clashes delayed integrating the acquisition by years. “U.S. and Swiss cultures couldn’t be more different, and the conversations never even touched on the subject, only the data,” he recalled. “U.S. firms measure success on a quarterly basis, and Europeans have a long-term view on the business.” Foreign executives with marginal connections to local culture or sensitivities commonly lead the due-diligence process. As a result, it is generally superficial and ineffective in regard to these intangibles. Deals are rarely scuttled over cultural concerns, even though these tensions can delay extracting full value from a merger and potentially affect expected returns. Management level One deal that was, in fact, scuttled was an aborted attempt by a global insurer interested in acquiring a niche firm in India. The acquirer found a sharp contrast between attitudes held by executives and staff at the target company. Senior executives were focused on growth, and mid-level managers worked in fear of disappointing them. Even though the financials were promising, the deal fell through over integration concerns. “You almost always only get exposure to top management during the due-diligence phase, and it’s a dress-up show,” an executive close to the deal said. Potential problems can be avoided — or at least identified — by asking questions that go beyond a company’s books and by meeting all levels of staff. For example, ask senior managers about long-term strategies, business operations, styles of working and relations with mid- and low-level managers. Along with their answers, their approach — for instance: consultative or aggressive — should also be noted. See also: Is M&A in Data and Analytics Setting a Path for Innovation? Mindset Acquiring companies should also spend time with staff at all levels, assessing work habits and attitudes. Along with meetings at the workplace, off-site events can also be beneficial. “Buyers with a high EQ [emotional quotient] tend to have the ability to truly get the heartbeat of a business,” said the former regional leader for a global insurer, himself an M&A veteran. “Spend time getting to know the top and middle team outside of the work environment to understand their values and drive.” Encourage clear, honest communication In general, workers at an acquired company understand — and sometimes fear — that job cuts are possible. Painting too rosy a picture ahead of a deal could create tensions later when reality hits. “Be honest from the outset,” a senior manager at a European insurer suggested. “You’re buying a business for their book, and you need to cut costs.” Honest communication during negotiations and due diligence can help expose attitudes toward potential job cuts and identify any measures that are seen as off limits. When a global company negotiated a takeover of a Malaysian life insurer, the acquirer presented a clear plan for adjusting leadership roles, pointing out gaps and explaining how they would be filled, said an executive close to the deal. The plan was presented at meetings to ensure alignment. “The acquirer needs to understand and respect non-negotiables relating to culture and not just look at the numbers,” this executive said. Open communications at this stage can also create a clear picture of how integration will be handled if the takeover is completed. For example, acquiring companies often promise a short period with no major changes immediately following an acquisition. This interval allows senior executives and staff at both companies to become better acquainted and can help produce a more appropriate integration plan for capturing the full value of the merger. In the case of the Malaysian insurer, for example, the acquirer agreed that there would be no major changes during the first six months. Once the grace period was over, changes were to be gradual and subtle, rather than abrupt and disruptive, said a top executive who worked on the integration. The executive noted that continuity between the due-diligence and integration teams was also important to ensure that the basis for such agreements was understood and that the agreements held. The approach was likely helped by lessons learned during an earlier acquisition in which the global parent and acquired company struggled for several years under two separate management teams. Collaborate, don’t dominate Creating a collaborative atmosphere — one that doesn’t alienate staff at the company being acquired — begins with first impressions. Companies that tout their superiority or power can find cultural integration more difficult. In one case, the due-diligence team from a U.S. acquirer flew into Asia on private jets, stayed at the best hotels and boasted of their lifestyle to staff at the target company, creating emotional distance between them. “Historically, the insurance buyers have an absorb-and-impose approach to culture,” a top executive at a Japanese insurer said. “U.S. companies are known to be the worst acquirers. They generally look at immediate financial results and key performance indicators rather than the long-term picture. Buyers will tend to focus on protecting their core headquarters’ market first and other regions are at the bottom of the list.” Throughout the acquisition process, staff at the targeted company should be treated as any other corporate colleague. Corporate hierarchies and chains of command exist, of course, but when they are the defining aspect of personal relationships, staff at acquired companies can become more anxious and less collaborative, posing an obstacle to integration. One executive observed, “Nothing raises hackles more than feeling you have been absorbed into a large and seemingly uncaring behemoth when, up until a few weeks earlier, you were top of the tree in your local market.” See also: Cyber Threats and the Impact to M&A After the Papers are Signed If efforts before the deal can be seen as cultural intelligence-gathering, those after the deal focus on execution. After all, each integration effort is unique in its cultural aspects. A company may have a standard approach for combining product service lines, for example, but bringing staff members with diverse backgrounds together effectively requires a tailored approach. For years, French insurer AXA followed a generally successful pattern that it rigorously applied to its M&A activities. Conversion in some areas, such as branding, corporate values, shared services and IT infrastructure, were not up for negotiation, but acquired companies were allowed greater flexibility in others, according to a former country leader for AXA. But even AXA’s template is being tested by today’s volatile and highly competitive market. Our experience and discussions with insurance executives demonstrate several points that are helpful to keep in mind during this phase of a takeover. Don’t rush big changes... In many takeovers, cutting costs (and jobs) at the acquired company is one of the first priorities. But moving too fast can cause unnecessary friction and inadvertently force valuable talent out the door. By taking a long-term view of the value potential of an acquisition, companies can take the time needed to understand cultural differences, and then focus only on those that may directly prevent the company from reaching its goals. As two businesses merge, it’s natural for workers to become protective of their positions — and even paranoid about their future. The acquiring company must take pains to demonstrate that any cuts to duplicated roles will be decided based on merit, rather than internal connections. Some insurers can be very deliberate with any changes they make to an acquired company. “Japanese companies, when acquiring outside their home market and when they do it right, take a long-term view,” said an executive at a Japanese insurer. “They don’t impose their culture (because) it’s so different. Instead, they spend a lot of time learning what works and what doesn’t before implementing changes.” Some companies spend the first three or four months after an acquisition getting to know how the new company works. They might stage a night out with junior management away from their superiors to get a better idea of how they see the business. Such measures could help pinpoint where a company’s legacy culture might interfere with business objections. For example, if lower-level managers say they simply follow their boss’ orders, there could be a misalignment on staff empowerment that could reduce innovation and block flows of information. Once the integration is fully under way, continuing informal staff meetings at all levels can help define new cultural norms (such as greater entrepreneurship and accountability or the value of clients), reinforce key messages and gauge progress. In one example, an insurance executive recalled that when a North American holding company recently moved to acquire an Asian arm of another global insurer, it tried a new integration approach. Instead of forcing job cuts, the acquirer left the organizational chart for the acquisition open and slowly introduced the company to the new leadership approach and cultural norms. Managers who weren’t comfortable with the new thinking left relatively quickly of their own accord. The executive said there were no conflicts around the departures, and in the end the company lost about 20 from a staff of 400. With the money saved by avoiding remunerations to retain the highest-performing managers, it offered each employee a 40% interim bonus after six months, which helped boost morale. ...but when the time comes, act Once a decision is made to cut staff or to take another significant step, the acquiring company should act quickly and completely. Drawing out painful measures only accentuates lingering staff anxieties and delays the return to normalcy. For example, when a British insurer recently took over a national business in Asia, it agreed to retain all staff for two years, partly to appease local unions. As a result, the local workers who were upset with the merger (about 10% of the staff) didn’t cooperate with the new leadership, and their attitude lowered morale and productivity across the organization. After about a year, the acquirer paid out the intransigent workers to leave early. Create a strong team Just as an acquiring company should be aware of its first impressions during due diligence, its leaders should work to build a team of peers with the acquired company’s staff during integration. Too often, buyers approach acquisitions like a conquering army, imposing its rules without much consideration of the implications. Many of the executives we spoke with noted that U.S. insurers are especially notorious for this approach. When a global insurer bought the Asian unit of a European company, a number of unnecessary dictates upset the Asia staff, partly because they were perceived as ignoring cultural differences, an executive involved with the integration recalled. For example, the parent company banned sending text messages on company phones, even though text messaging was the primary channel the Asian staff used to reach its 5,000 independent agents. The Asian workers had to buy and use personal phones to do their jobs, the executive continued, adding that the acquirer also reneged on a promise to upgrade local offices after deciding it was too costly. Along with exerting dominance over an acquisition, singling out staff for special treatment can also lead to discord. A common error is offering retention pay to only a few executives, rather than across the board. Be candid about the downside The importance of clear and honest communication continues into the integration phase — and indeed beyond it, as a matter of course. New structures or other big changes should be broadcast quickly and widely to prevent destabilizing rumors from taking hold. Any messages about upcoming changes should be non-ambiguous and professional, especially for measures that could be perceived as negative. There is no good time for bad news, yet uncertainty is often more corrosive than the reality. When QBE bought Zurich Insurance’s Singapore unit in 2004, the Australian insurer was clear on the implications, an executive close to the merger said. Among these were that costs would be reduced at the top, and anyone in a position with more than one claimant would have to reapply for the position, undergo interviews, demonstrate their capabilities and show that they fit the new culture — all within three months. Everyone adhered to the schedule, and there were no surprises or unnecessary conflict, the executive said.

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The global insurance sector appears ripe for a new wave of consolidation as companies investigate entry into new markets and access to new technologies. As they pore over the numbers and explore the strategic rationale behind various moves, would-be dealmakers should also take stock of culture. Industry leaders have long been excellent at weighing the financial risks and rewards of an acquisition, but they often fall short when considering the cultural aspects — if they consider culture at all. Cultural differences, however, can often ruin an otherwise well-planned acquisition. By purposely including culture in the negotiation process and after the deal is signed, companies can improve their odds of success. Related thinking Larry Senn, chairman of Senn Delaney, discusses avoiding culture clash in mergers and acquisitions in this video. References ¹See  M&A in insurance: Start of a new wave?, Swiss Re Sigma, Number 3, 2015, swissre.com. ²See 2015 Insurance M&A Outlook: Continuing acceleration, Deloitte, 2015. ³For more, see “Defying gravity: Insurance M&A on the rise,” Towers Watson, January 2016, towerswatson.com. ⁴In acquiring assets outside the sector, such as technology companies, the danger is even more acute. The fast-moving culture of digital innovation often clashes with the more reserved pace of big insurance. To overcome this tension, some companies, including MetLife and Aviva, have set up innovation centers that operate separately from their parent companies.

Over the past few months, many of us have heard of the abuses surrounding Martin Shkreli (who is in the news again after a judge set a 2017 trial date for his securities fraud case) and separately, Valeant Pharmaceuticals, which was recently under fire for drug price increases. What we haven’t heard is that these sensationalized cases are truly insignificant when compared with the enormity of the problem facing America.  Only a few years ago, specialty drugs composed a reasonable-sounding 10% of our overall drug spending.  Last year, it bloated to 38%, and by 2018 it will be an astounding 50%, which is an increase of $70 million … a day. See also: Cutting Prices of Drugs Dispensed by Doctors   The reason we pay many multiples more than other countries for the same drug is because we have a rigged system in which America is the only globally unregulated market. Worse, we have actually created laws to protect large healthcare monopolies. So, we as Americans have the worst of all worlds: neither a single payer system with explicit price controls nor a free and fair market. Consider the hepatitis C drug Harvoni, which sells for about $95,000 in the U.S. for the required 12-week course. The same therapy costs less than $1,000 in India, for products that are officially licensed by Gilead, the manufacturer of Harvoni. The argument that this is a result of us having to subsidize drug R&D costs for developing countries is a farce. In developed countries such as France, Harvoni is available for about half the price we pay in the U.S. Unfortunately, the same dynamic extends beyond specialty products into other commonly used drugs. The price for a 30-day supply of Crestor is about $200 at most U.S. drugstores, but the price in India is only $6 for a product that in both cases was manufactured in Puerto Rico by AstraZeneca. I'm excited that VIVIO Health, which I've joined as CEO, is tackling this large and complex problem. We represent the vast majority of Americans, who pay far more than they should for healthcare. I dream of a better country for my three children, and I know you do the same for yours. I have been asked whether I feel like Don Quixote. No question, reforming how healthcare is purchased in America is a daunting task, but our team has clarity on enough of the puzzle pieces to make a difference. Reform is an achievable goal, with many precedents in other industries, such as travel, stock brokerage and retail. See also: AI: The Next Stage in Healthcare   The VIVIO Health solution reimagines the way we buy, use and measure specialty drug therapies. Our solution starts with the outcome and works backward, collecting data at every step. We’ve reversed the current purchasing model that starts with profitability for intermediaries and suppliers and instead prioritize the best alternatives for both patients and employers who foot the bills. The data we collect coupled with external data allows us to answer perplexing questions surrounding cost, efficacy and choice. We foresee a day, with everyone’s participation, when America saves billions on healthcare costs.  We need your support and are asking you to join us in saying NO to legacy and YES to a better system.  Sources:

• GoodRx US drug prices July 2016
• France pegs Gilead hepatitis C drug at "lowest price in Europe"
• Express Scripts 2015 Drug Trend Report, March 2016
• Barclays U.S. Health Care Distribution & Technology, Specialty Market Model 2016 Update, Jan. 6, 2016
• Natco gets DCGI approval to launch generic hepatitis-C drug Harvoni in India

There’s been a scary increase in successful ransomware attacks against large organizations this year. Specifically, hospitals have found themselves at the mercy of hackers who demand ransom payments to unlock critical system files. Recently, there have been signs that these criminals have moved on to universities, too. The University of Calgary admitted to Canadian media last month that it paid a $20,000 ransom “to address system issues.” But individuals have something new to worry about. A new report from Kaspersky Lab says its detection rate for mobile ransomware—malicious software targeting smartphones and demanding ransoms—quadrupled in one year. It’s easy to see why phone ransomware would work. Consumers fly into a panic when their phone battery dies; imagine what it’s like to see a message saying your phone is locked, and a $100 payment is required to unlock it. See also: Ransomware: Your Money or Your Data!   Kaspersky says some ransomware criminals simply require that mobile victims type in an iTunes gift card number to free the device. I’ve written recently about the increasing use of Apple card payments for fraud. A combination of easy, anonymous payments and off-the-shelf copycat software tools makes mobile ransomware a new and potentially dangerous threat, both to consumers and to the companies that employ them. The numbers tell the story: From April 2014 to March 2015, Kaspersky Lab security solutions for Android protected 35,413 users from mobile ransomware. A year later the number had increased almost fourfold to 136,532 users. It’s unclear from the report how users encounter mobile ransomware in the first place, though at least some get it when visiting porn sites and are tricked into downloading and installing malicious software. “The extortion model is here to stay,” Kaspersky says in its report. “Mobile ransomware emerged as a follow-up to PC ransomware, and it is likely that it will be followed up with malware targeting devices that are very different from a PC or a smartphone. These could be connected devices: like smart watches, smart TVs, and other smart products including home and in-car entertainment systems. There are a few proof-of-concepts for some of these devices, and the appearance of actual malware targeting smart devices is only a question of time.” See also: Ransomware: Growing Threat for SMBs   Kaspersky offers these tips to consumers:

• Back-up is a must. If you ever thought that one day you finally would download and install that strange boring back-up software, today is the day. The sooner back-up becomes yet another rule in your day-to-day PC activity, the sooner you will become invulnerable to any kind of ransomware.

• Use a reliable security solution. And when using it, do not turn off the advanced security features, which it most certainly has. Usually these are features that enable the detection of new ransomware based on its behavior.

• Keep the software on your PC up-to-date. Most widely used programs (Flash, Java, Chrome, Firefox, Internet Explorer, Microsoft Windows and Office) have an automatic update feature. Keep it turned on, and don’t ignore requests from these applications for the installation of updates.

• Keep an eye on files you download from the internet, especially from untrusted sources. In other words, if what is supposed to be an mp3 file has an .exe extension, it is definitely not a musical track but malware. The best way to be sure that everything is fine with the downloaded content is to make sure it has the right extension and has successfully passed the checks run by the protection solution on your PC.

• Keep yourself informed of the new approaches cyber crooks use to lure their victims into installing malware.

More stories related to ransomware: Understanding ransomware helps organizations devise solutions Cyber criminals use ransomware to hook big fish With rise of ransomware, keeping intruders out of network is crucial This article originally appeared on ThirdCertainty. It was written by Bob Sullivan.