Picture the commute of the future: You live in Palo Alto, CA, but you work 350 miles away in Los Angeles. After your morning latte, you click on a smartphone app to summon your digital chauffeur. Three minutes later, an autonomous car shows up at your front door to drive you to a Hyperloop station in downtown Mountain View, where a pod transports you through a vacuum tube at 760 mph. When you reach the Pasadena station, another self-driving car awaits to take you to your office. You reach your destination in less than an hour. That is the type of scenario that Hyperloop Transportation Technologies (HTT) chief executive Dirk Ahlborn laid out for me as we were preparing to speak together on a panel at the Knowledge Summit in Dubai on Dec. 5.  He was not talking about something that would happen in the next century; he expects the first of these systems to be operational in the United Arab Emirates by 2020. The Abu Dhabi government has just announced that it has been working with his company to connect Abu Dhabi and Al Ain, two UAE cities separated by 105 miles, using the Hyperloop system. See also: The Real Story on Transportation   A proposal for this mode of transportation came from Elon Musk in August 2013, in a paper titled “Hyperloop Alpha.” Musk envisaged a mass transit system where trains travel as fast as 760 mph in pressurized capsule pods. These would ride on an air cushion in steel tubes and be driven by linear induction motors and air compressors. He claimed that the system would be safer, faster and cheaper than trains, cars boats and supersonic planes — for at least 900 miles — and he said it would be resistant to earthquakes and would generate more energy through its solar panels than it would use. Straight out of science fiction it may be, but two start-ups took up Musk’s challenge to develop the technology: HTT and Hyperloop One. These companies have raised more than $100 million each and say that they will have operational systems in three to four years and that they have governments backing them. Hyperloop One demonstrated elements of the technology in the Las Vegas desert in May 2016.  The sheiks I spoke with in Dubai were most excited about HTT’s system. Even if the Hyperloop technology doesn’t pan out, the digital chauffeurs surely are coming. Self-driving cars such as the Tesla that I drive can already take control of the wheel on highways and are able to monitor traffic around them better than humans can — because their sensors enable them to see in 360 degrees and communicate with each other to negotiate rights of way. By 2020, self-driving cars will have progressed so far that they can drive safely at speeds as fast as 200 mph in their own partitioned lanes on highways. In these circumstances, the commute to Los Angeles from San Francisco would take only an hour and a half — without the need to catch a connection to a supersonic pod. From Abu Dhabi to Al Ain or to Dubai could take the car 30 to 40 minutes, door to door. In other words, Elon Musk’s self-driving cars and HTT’s short-haul Hyperloops may be competing with each other. I’m one of those who would prefer the convenience of having their car come with them so that they can keep extra stuff in the back and be working uninterrupted on the commute. In any case, for longer journeys, say from New York or San Francisco to Miami, catching a Hyperloop will make more sense than riding in the self-driving car. The point, though, is that we are on the verge of a revolution in transportation.  For decades — actually, centuries — we have been dependent on locomotives and, more recently, airplanes to take us long distances. The technologies have hardly advanced. The entire industry is about to be disrupted. Many of us will choose to take the shared cars and Hyperloops; others will own their own cars. But we will take fewer rides in trains and planes. That is why new rail-based transportation systems, such as the one California has long been debating, are not sensible investments. By the time they are complete, our modes of mass transportation will have changed. The California project aims to move 20 to 24 million passengers a year from downtown L.A. to downtown San Francisco, through California’s Central Valley, in 2 hours, 40 minutes. It is projected to cost an estimated $64 billion when completed by about 2030. By then, we will be debating whether human beings should be allowed to drive cars, and public rail systems will be facing bankruptcy because of cheaper and better alternatives. See also: Of Robots, Self-Driving Cars and Insurance   The wise investment to make will be in accelerating adoption of self-driving cars and in reserving lanes for them, and in building energy-efficient long-distance transportation systems that do not consume even more time, money and arable land than we have lost already. For distances in the hundreds or thousands of miles, we’d do well to explore Hyperloops and other environmentally sensitive modes of mass transportation. They may be far more cost-effective than laying new railways.

The primary drivers of disruption in insurance – notably, fintech (and more specifically, insurtech) – are coming from outside the industry. However, while the pace of change and market disruption has been daunting for most incumbents, the growing presence of insurtech companies is not a threat, but rather is creating real opportunities for the industry. We see a combination of market and organizational priorities that open the door for these new opportunities.

• External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage.
• Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders). 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:

• Partner – Innovation centers (also known as hubs or labs) are the most common of the three EIM approaches. Their main purpose is to connect insurers to the InsurTech ecosystem and create new channels for bringing an outside-in view of innovation to the business units.
• Build – Incubators are a common and effective way to build innovative capabilities and accelerate change. They can be internal, but most companies have preferred to establish them externally and then bring their ideas back into the company.
• Buy – In this case, an insurer typically will establish a strategic corporate ventures division that sources ideas from outside the company. The company provides funding and support for equity, while the venture explores, identifies and evaluates solutions, and participates in new ventures.

Companies can select elements from each of the above 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. See also: Innovation — or Just Innovative Thinking?   Insurance leaders’ innovation agenda should include:

• Scenario planning – What are potential future scenarios and their implications?
• Real-time monitoring and analysis of the insurtech landscape – What’s out there that can help us now, and what do we want that may not exist yet?
• Determining how to promote enterprise innovation, including which combination of approaches will most effectively accelerate and enable execution – What’s the best approach for us to stimulate and take advantage of innovation?
• Augmenting the organization with new and different types of talent – Where are the innovators we need, and how can we best attract and employ them?
• Cyber security and regulation – Are we prepared for the operational challenges that new technology can present, and have we and our real and potential partners considered the compliance ramifications of what we’re doing or considering?

Typical Exploration Topics Some of the typical exploration topics across lines of business are:

• Personal lines: usage-based insurance, shared and on-demand economies, peer-to-peer, direct-to-consumer, ADAS & autonomous cars.
• Commercial lines: direct to small business, drones and satellite imagery, internet of things, alternative risk transfer, emerging risks.
• Life and retirement: robo-advice, personalized insurance, medical advances, automated underwriting, decreasing morbidity and mortality risk.

Opportunities for insurers As part of PwC’s Future of Insurance initiative, we have interviewed many industry executives and identified six key insurtech business opportunities. We see a combination of market and organizational priorities, which open the door for both external and internal opportunities. External opportunities primarily relate to social and technological trends and pertain to the shift in customer needs and expectations (which digital technology has facilitated). Insurers have been taking action in these areas to stay relevant in the market and at least maintain their market position. For many companies, focusing on these opportunities remains critical, but this is not enough for them to gain a truly competitive advantage. External opportunities:

• Are mainly driven by customer expectations and needs and enabled by technology.
• Offer front runners the opportunity to gain market relevance and position themselves.
• Also offer fast followers opportunity because value propositions can be quickly replicated.

Internal opportunities relate to using technology to enhance operations and business function execution. For example, some insurers have used artificial intelligence (AI) technology to enhance internal operations, which has improved efficiencies and automated existing customer-facing, underwriting and claims processes. Internal opportunities are:

• Mainly driven by technological advancements.
• A source of competitive advantage but demand deeper change.
• An opportunity to set the foundation for how the company understands and manages risk.

To take full advantage of these opportunities, insurers need to determine their innovation needs and make meaningful connections with innovators. Doing so will help them balance their innovation mix – in other words, where they can make incremental innovations (the ones that keep them in the game) and where they can strive for real breakthroughs with disruptive and radical innovation (the ones that position them as market leaders). See also: 10 Predictions for Insurtech in 2017   Some examples of change are:

• Incremental: Omni-channel integration, leveraging mobile and social media solutions and experiences to follow existing trends in customer and partner interaction;
• Disruptive: Usage-based and personalized insurance that leverages technology and data to develop new risk models based on behavioral factors. This also has the potential to drive radical change.
• Radical: Crop insurance, where data from different sources (such as weather and soil sensors) is leveraged to optimize and predict yield. As a result of this deterministic model, claims are paid up-front at harvest time.

There is no single perfect innovation mix. It depends on a company’s strategic goals and willingness to invest. Insurers should take into account current insurtech trends and determine long-term potential market scenarios based in part on current indicators and emerging trends. A short-term view will not foster the change that leads to breakthrough innovation. As a starting point, the following questions can help you evaluate how prepared your organization is to drive innovation.

• Corporate structure
  • Which parts of your organization drive innovation? Does the push for innovation occur at the corporate or business unit level (or both)?
  • How is the board engaged on decisions about the organization’s innovation mix?
  • What is the organization doing to make innovation a part of its culture?
  • What are the main challenges your organization faces when driving innovation?

• Strategy, ideation and design
  • How does your organization become familiar with new trends and their implications?
  • To what extent has your organization used an “outside-in” view to inform your innovation model?
  • Which potential future scenarios have you identified and shared across the organization?
  • To what extent have you aligned your innovation portfolio strategy with potential future scenarios?
  • How does your organization approach ideation through execution?
  • Which capabilities are you leveraging to enable and accelerate the execution of new ideas?
• External participation
  • What investments has your organization made in innovation?
  • In which areas is your organization participating (e.g., autonomous cars, connected economies, shared economies)
  • What structures (potentially in specific locations) has your organization created to support external participation?
  • To what extent has your organization managed to attract talent and partners?

Fast prototyping is key to quickly creating minimally viable products/solutions (MVP) and bringing ideas to life. Early stage start-ups develop and deploy full functioning prototypes in near-real time and go-to-market with solutions that are designed to evolve with market feedback. In this scenario, 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. Incumbents can follow the same approach and align appropriate capabilities and resources to develop their own prototypes. They also can partner with existing startups that have a minimally viable product (MVP) to help them to move to the next stage, scaling. For this, they have to take into consideration several factors, including operational capacity, cyber risk and regulation (among others) to deploy the MVP in an “open” market. As opposed to controlled pilots or proofs of concept that are controlled environments, this “open” market is driven by demand. Lack of proper resources and the inability to scale the startup will severely compromise or actually prevent successful innovation. See also: 7 Predictions for IoT Impact on Insurance   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 enterprise innovation operating models by primary function. Final thoughts In a fast-paced digital age, insurers are balancing insurtech opportunities with the challenge of altering long-standing business processes. While most insurers have embraced change to support incremental innovation, bigger breakthroughs are necessary to compete with the new technologies and business models that are disrupting the industry. This article was written by Stephen O'Hearn, Jamie Yoder and Javier Baixas.

The beginning of a new year is usually the time to predict key trends for the year to come, and so it goes with the insurtech sector as well. Most lists focus on the latest sexy technologies and applications. But, after a year, we find these have hardly gained any traction and so cannot really be considered “trends” in our view. To call something a key trend, new and innovative is not enough. It requires adoption at scale. We, therefore, decided to take a different approach, resulting in quite a different kind of list. Being consultants for several blue chip insurers, speaking at conferences and attending boardroom meetings, we meet insurance executives on a daily basis. Consequently we have a fairly good idea about what's at the top of their agenda as well as the pace in which change will take place, and in turn what insurtech solutions are most likely to fit into those plans. These insights resulted in our Top 10 Insurtech Trends for 2017, illustrated by some awesome insurtechs that joined us at the previous DIA event. Trend 1. Massive cost savers in claims, operations and customer acquisition Already a major trend, of course, but one that will gain even more importance in 2017. Quite a few insurers face combined ratios that are close to 100, or even exceed that number. Digitizing current processes is absolutely necessary, for operational excellence and to cut costs. Digital transformation of insurance carriers started in 2015, really took off in 2016 and will be mainstream by 2017 and beyond. Virtually every insurer, big or small, that takes itself seriously will continue to look for ways to operate more efficiently in every major part of the costs column: in claims expenses, costs of operations and customer acquisition costs. Technology purchases and investments by insurance carriers will further explode in these areas, as will the number and growth of insurtechs that cater to that need. With OutShared's CynoClaim solution more than 60% of all claims can be managed automatically, resulting in lower costs as well as increased customer satisfaction. Results of the first implementations: as much as 50% decrease in costs, 40% increase in customer satisfaction. The solution takes six to nine months to implement, whether it is from scratch or a migration of established operations to the platform, which is quite spectacular in the insurance industry. Check this out. See also: How Insurtechs Will Affect Agents in 2017 Trend 2. A new face on digital transformation: engagement innovation At the end of the day, digitized processes and a lower cost base are table stakes. It is simply not enough to stay in sync with fast changing customer behavior, new market dynamics and increasing competitiveness. No insurer ever succeeded in turning operational excellence into a competitive advantage that is sustainable over the long term. More and more carriers realize that engagement innovation is the next level of digital transformation. From a customer point of view, this is not about a new lipstick or a nose job but about a real makeover. Engagement innovation not only includes customer experience, but customer-centric products, new added value services and new business models, as well. Insurtechs that really innovate customer engagement for incumbents have a great 2017 ahead. Amodo connects insurance companies with the new generation of customers. With Amodo’s connected customer suite, insurers leverage on digital channels and connected devices such as smartphones, connected cars and wearables to acquire and engage new customers. Amodo collects data from smartphones and a number of different connected consumer devices to build holistic customer profiles, providing better insights into customer risk exposure and customer product needs. Following the analysis, risk prevention programs, individual pricing as well as personalized and “on the spot” insurance products can be placed on the market, increasing the customer’s loyalty and lifetime value. Trend 3. Next-level data analytics capabilities and AI, to really unlock the potential of IoT Many insurance carriers have started IoT initiatives in the last few years. In particular, in car insurance it is already becoming mainstream, with Italy leading the pack. Home insurance is lagging, and health and life insurance is even more behind. All pilots and experiments have taught insurers that they lack the right data management capabilities to cope with all these new data streams -- not just to deal with the volume and new data sets, but more importantly to turn this data into new insights, and to turn these insights into relevant and distinctive value propositions and customer engagement. Insurtechs that operate in the advanced analytics space, machine learning and artificial intelligence hold the keys to unlock the potential of IoT. 2016 DIAmond Award winner BigML has built a machine-learning platform that democratizes advanced analytics for companies of all sizes. You don't have to be a PhD to use its collection of scalable and proven algorithms thanks to an intuitive web interface and end-to-end automation. Check this out. Trend 4. Addressing the privacy concerns To many consumers, big data equals big brother, and insurers that think of using personal data are not immediately trusted. Quite understandable. Most data initiatives of insurers are about sophisticated pricing and risk reduction really. Cost savers for the insurer. However, the added value of current initiatives for customers is limited. A chance on a lower premium, that's it. To really reap the benefits of connected devices and the data that comes with it, insurers need to tackle these data privacy concerns. On the one hand, insurers need to give more than they take. Much more added value, relative to the personal data used. On the other hand, insurers need to empower customers to manage their own data. Because at the end of the day, it is their data. Expect fast growth of insurtechs that help insurers to cope with privacy issues. Traity (another 2016 DIAmond Award winner) enables consumers to own their own reputation. Traity uses all sorts of new data sources, such as Facebook, AirBnB and Linkedin, to help customers to prove their trustworthiness. Munich Re's legal protection brand DAS has partnered with Traity to offer new kinds of services. Check this out. See also: 10 Predictions for Insurtech in 2017   Trend 5. Contextual pull platforms Markets have shifted from push to pull. But so far most insurers have made hardly any adjustments to their customer engagement strategies and required capabilities. In 2017, we will see the shift to pull platforms, as part of the shift to engagement innovation. Whereas push is about force-feeding products to the customer, pull is about understanding and solving the need behind the insurance solution and being present in that context. Risk considerations made by customers usually don’t take place at the office of an insurance broker. Insurers need to be present in the context of daily life, specific life events and decisions, and offer new services on top of the traditional products. Insurtechs that provide a platform or give access to these broader contexts and ecosystems help insurers to become much more a part of customers' lives, be part of the ecosystem in that context and add much more value to customers. VitalHealth Software, founded among others by Mayo Clinic, has developed e-health solutions, in particular for people with chronic diseases such as diabetes, cancer and Alzheimer’s. Features include all sorts of remote services for patients, insurers and care providers collaborating in health networks, access to protocol-driven disease management support. All seamlessly integrated with electronic health records. VitalHealth Software is used by insurers that are looking to improve care as well as reduce costs. Among other OSDE, the largest health insurer in Argentina and Chunyu Yisheng Mobile Health, a fast-growing Chinese eHealth pioneer with around 100 million registered users that is closely linked to People’s Insurance Company of China (PICC). Trend 6. The marketplace model will find its way to insurance Marketplaces: We already see the model emerging in banking, and insurance will follow fast. Virtually every insurer offers a suite of its own products. Everything is developed in-house. More and more carriers realize that you simply cannot be the best at everything, and that resources are too scarce to keep up with every new development or cater to each specific segment. In the marketplace model, the insurers basically give their customers access to third parties with the best products, the most pleasant customer experience and the lowest costs. The marketplace business model cuts both ways. Customers get continuous access to the best products and services in the market. And costs can be kept at a minimum through connecting (or disconnecting) parties almost in real time to key in on new customer wishes and anticipate other market developments. In 2017, we will witness all sorts of partnerships between insurtechs and incumbents that fit the marketplace model. AXA teamed up with the much-praised 2016 DIAmond Award winner Trōv to target U.K. millennials. Trōv offers customized home insurances by allowing coverage of individual key items rather than a one-size-fits-all coverage set with average amounts. Check this out. Trend 7. Open architecture A new ecosystem emerges, with parties that capture data (think connected devices suppliers) and parties that develop new value propositions based on the data. Insurers will have to cooperate even more than they are currently doing with other companies that are part of the ecosystem. When an insurer wants to seize these opportunities in a structural way, it is no longer only about efficiently and effectively organizing business processes, but it is also about easy ways to facilitate interactions between possibly very different users who are dealing with each other in one way or another. Again, banking is ahead of insurance. For our new book, "Reinventing Customer Engagement: The next level of digital transformation for banks and insurers," we spoke to many executives in banking, as well. German Fidor Bank has set up an open API architecture called fidorOS, enabling fintechs to develop financial services themselves on top of an existing legacy system. Citi says that "any financial institution that doesn’t want to rapidly lose market share needs to start working in a more open architecture structure." The Backbase omnichannel platform is based on open architecture principles. It leverages existing policy administration systems capabilities and adds a modern customer experience layer on top, creating direct-to-consumer portals and giving the opportunity to integrate best-of-breed apps as well as improving agent and employee portals. Swiss Re, Hiscox and Legal & General are some of the insurers that use the Backbase platform. Check this out. Trend 8. Blockchain will come out of the experimentation stage When Goldman Sachs, Morgan Stanley and Banco Santander decided to leave the R3 Blockchain Group many thought this was proof that blockchain technology apparently was not as promising as initially expected. The contrary is true. It is not uncommon to join a consortium to speed up the learning curve, and then drop out and use the newly acquired knowledge to build your own plans and gain some competitive advantage, especially with a technology as powerful as blockchain. We believe a similar scenario will not take place in the B3i initiative launched by AEGON, Allianz, Munich Re, Swiss Re and Zurich. Thinking cooperation and ecosystems are just much more in the veins of the insurance industry. Plus there are plenty of use cases that cut both ways: improve operational excellence and cost efficiency as well as customer engagement. That is good news for the insurtech forerunners in blockchain technology. Everledger tackles the diamond industry’s expensive fraud and theft problem. The company provides an immutable ledger for diamond ownership and related transaction history verification for insurance companies, and uses blockchain technology to continuously track objects. Everledger has partnered with all institutions across the diamond value chain, including insurers, law enforcement agencies and diamond certification houses across the world. Through Everledger’s API, each of them can access and supply data around the status of a stone, including police reports and insurance claims. Check this out. [caption id="attachment_23289" align="alignnone" width="580"] A worker inspects a 5.46 carat diamond before certification at the HRD Antwerp Institute of Gemmology, December 3, 2012. HRD Antwerp analyses diamonds with specially designed machinery, as even for experts it is impossible to visually tell the difference between a synthetic stone and a naturally grown one. Picture taken December 3, 2012. REUTERS/Francois Lenoir (BELGIUM - Tags: BUSINESS SOCIETY SCIENCE TECHNOLOGY) - RTR3B8HW[/caption] See also: 5 Predictions for the IoT in 2017   Trend 9. Use of algorithms for front-liner empowerment Algorithms that are displacing human advisers generate headlines. Robo advice will for sure affect the labor market’s landscape. For a costs perspective, this may seem attractive. But from a customer engagement perspective this may be different. To relate to their customers, financial institutions need to build in emotion. Humans inject emotion, empathy, passion and creativity and can deviate from procedure, if needed. Banks and insurers need to create a similar connection digitally. With so many people working at financial institutions, there is also an opportunity to create the best of both worlds. We see the first insurers that deploy robo advice to empower human front-liners. This is resulting in better conversations, higher conversion and, finally, greater solutions for customers. AdviceRobo provides insurers with preventive solutions combining data from structured and unstructured sources and machine learning to score and predict risk behavior of consumers -- for instance, predictions on default, bad debt, prepayments and customer churn. Predictions are actionable, because they’re on an individual customer level and support front-liners while speaking to customers. Trend 10. Symbiotic relationship with insurtechs Relationships between insurers and insurtechs will become much more intense. All the examples included in the previous nine trends make this quite clear. Insurers will also look for ways to learn much more from the insurtechs they are investing in -- whether it is about specific capabilities or concrete instruments they can use in the incumbent organization, or whether it is about the culture at insurtechs and the way of working. We see an increasing number of insurers that are now using lean startup methodologies and that have created in-house accelerators and incubators to accelerate innovation in the mothership. The Aviva Digital Garages in London and Singapore are perfect examples. They are not idea labs, but the place where Aviva runs its digital businesses, varying from MyAviva to some of the startups Aviva Ventures invests in – all under one roof to build an ecosystem and create synergies on multiple levels. This Top 10 of Insurtech trends that we will witness in 2017 sets the stage for the Digital Insurance Agenda. It reinforces the need to connect insurance executives with insurtech leaders, which is basically our mission. It helps us to create an agenda for DIA 2017 Amsterdam that is in sync with what insurers need and what the latest technologies can provide. Check Digital Insurance Agenda for more info.

This week, I get a real treat. That's because we at ITL are hosting our third Shaping the Future symposium, which will gather nearly 30 insurance company CEOs on the Google campus for a day and a half that will surely challenge us and make us all smarter about the transformation of the insurance industry. 

I can't know exactly what will transpire -- the magic doesn't happen until we get all that experience and brainpower in one room and start challenging people with insights about game-changing technologies and about how to turn them into disruptive innovations -- but I'll share a bit of recent thinking that will provide a framework for part of the discussion.

With a hat tip to Elisabeth Kubler-Ross and her five stages of grief, I've decided that technology disrupts an industry in four stages. After three decades of watching technology-based transformation, I believe those stages are:

--Denial. This pretty much matches Kubler-Ross' first stage. People think that things will keep going the way they always have just because, well, they always have. Some, at least sub-consciously, may realize that disruption is coming but believe it won't hit until after they retire, so they can avoid facing up to the problem. 

Insurance may not spend as long as other industries in the denial phase simply because so many other industries have come before. It's hard to look at Kodak and Blockbuster and retailers and newspapers and music and... and remain convinced that disruption won't happen.

--Shiny things. Once it becomes clear that disruption is happening, all kinds of things suddenly look like genius ideas. Possibility is everywhere. Too much money chases too few good ideas because it's hard to separate the mundane from the revolutionary. That's how we wound up with Pets.com and its sock puppet Super Bowl ad back in 2000, even though shipping heavy bags of dog food to homes wasn't going to revolutionize anything.

Insurance seems to me to be mostly in the "shiny things" phase. Just about everyone realizes that change is coming, but most of the insurtech ideas at this point are first-order innovation -- doing some existing thing better than it's been done before, rather than taking a wholly new approach. Yet investors are pledging to throw billions of dollars at the mostly less-than-revolutionary ideas out there.

--Winnowing. Companies often start by generating dozens of ideas, perhaps through a hack-a-thon, and congratulate themselves on their innovation. Or they engage in what I think of as innovation tourism, having senior people spend a week in Silicon Valley and deciding they've done enough to learn about new technologies and trends. Eventually, though, companies realize that no transformation can happen without the CEO's blessing and that the CEO has limited bandwidth. The innovative possibilities have to be winnowed to three to five, with the CEO allocating a set amount of time and funds to nurture and evaluate these possibilities. (If the time and funds for innovation aren't sacrosanct, existing businesses will steal them.)

--Lather, rinse, repeat. Once they realize that they have to winnow the list, companies eventually come to understand that the winnowing is continual. You start to build out the ideas that have promise, but you also have to kill or table the ones that aren't going anywhere. The focus actually has to be on the tabling and killing, because they aren't natural or pleasant, while the building out is, and it's possible to waste an awful lot of money on zombie innovations.

Both my brothers were once professional poker players, and the best advice they gave me before I started playing in a neighborhood game was to look at my down cards realistically (in Texas Hold 'Em) and fold frequently rather than hold out hope for a miracle. It was years before I ever had a losing night, in a group of very smart Silicon Valley executives, just based on that one bit of advice.

Those ideas about the four stages will surely be challenged and fleshed out later this week, and I'll report back to you on what I learned (within the bounds of the confidentiality we've promised participants). 

Cheers,

Paul Carroll,
Editor-in-Chief

We knew that 2016 would be big. To capture the flavor of the pace and magnitude of change, I wrote a series of blogs where I likened the dramatic shifts in insurance technology to what happened during the original Italian Renaissance, when education, money, art and science combined to create quantum leaps forward and redefined trade and the economy, the social scene and technological advancement. So here we are at the end of 2016, and I think we can make a case that 2016 was not only pivotal and groundbreaking but that it was historic on the scale of a Renaissance. At no time in the history of insurance can we find one year that includes this many game-changing events AND a rapid pace of continuing advancement. My thinking is that if the 525,000 minutes of 2016 were actually historic, then perhaps they deserve their own six-minute look back. To keep things short, I’ve split the 2016 trends into one-minute discussions. Insurtech — From independent ideas to industry-wide imperatives Do you remember where you were when you first heard the term “insurtech”? Its first connotations were regarding those out-in-the-stratosphere ideas from independent tech and insurance startups as an extension of fintech regarding important-but-not-disruptive ideas in insurance. You may have heard the term “insurtech” in 2015, but it certainly went mainstream in 2016 as its own vertical focus separate from fintech. Conversations around insurtech grew, but, more importantly, the influx of capital that advanced the proliferation of startups and greenfields based on new tech capabilities and business model disruption were unprecedented — bringing insurtech from its fintech roots into a completely mainstream, independent, industry-wide wave of innovation. Many traditional insurers and reinsurers hopped on the insurtech wave and showed interest in capturing their own slices of the creative pie. From accelerators like the Silicon Valley Insurance Accelerator (SVIA), Global Insurance Accelerator (GIA) and Plug and Play to the first InsureTech Connect meeting in Las Vegas in October with more than 1,500 executives in attendance, insurtech became the “hottest” thing in the industry, giving insurers of all sizes and lines of business pause to consider their strategies. Even S&P recognized the impact of insurtech as having “a complementary place in the traditional insurance world, despite remaining uncertainty in the industry about how it will function on a wide scale.” See also: The Insurance Renaissance, Part 5   The insurance industry may never have had this much activity, excitement and concern on the promise and potential of insurance disruption and reinvention.  From the launch of Lemonade, Slice, Haven Life and more insurers and MGAs, the shift to a customer-centric rather than product-centric view is creating a customer experience not unlike the Amazon experience. 2017 will continue to see existing insurers and reinsurers looking to stand up a new brand and business model to capture the next generation of customers and position for growth. Emerging technology engages insurers What emerging technologies are we seeing as having made an impact in 2016 with real operational impact? There is artificial intelligence (AI) and machine learning. There are new sensors and their ability to capture the unseen aspects of operation and life. Protective technologies in vehicles, property and health are growing. There is live streaming data and video from smart phones and drones. Data’s organizational and visual capabilities are improving with new tools. We could drone on. But the reality is that the mobile, connected and ethereal digital world is using real-time data to gain insight and manage, reduce or eliminate risk in the physical world to a greater degree than ever before. There used to be “an app for that.” Now, there’s a sensor for everything on the Internet of Things. The world is fast becoming an omni-channel portal into daily life. The distance from “emerging technology” to mainstream tech usage is measured in months, not years, shattering Moore’s Law. Emerging technologies span a diverse realm for insurers — if you consider that new technology can be worn on a wrist, flown pilotless through the sky or operate entirely within the digital networks of processors and servers. It’s no wonder that an insurance renaissance is in full swing. The space age has given way to the digital age, where it seems like anything may be possible — it just takes imagination, creativity and thinking outside the traditional box. Digital technologies have penetrated previously untapped data mines, allowing machine failure to be predicted and prevented; human risk to be captured and calculated; and insurer risk to be managed, mitigated and eliminated, creating a new value proposition, new products and new services for customers. New and innovative businesses launches Disruption makes use of plug-and-play ideas and technologies. Traditional insurance organizations were tightly wound balls of string, operating everything within that ball. Connections were immovable. Processes attempted to be neat and tidy, but they were always struggling with the “messiness” of adaptation. Today’s insurtech resembles Legos in insurtech's ability to fulfill conceptual opportunities. Imagine a pile of sensors, another pile of devices and yet another “pile” of data streams. Then ask yourself, “What can your mind dream up today?” In 2016, businesses were busy dreaming up enough disruptions to disturb the sleeping giants of insurance. Slice made a mobile app that integrates with a hybrid homeowner/commercial product. Lemonade used an AI bot to act as agent on a peer-to-peer insurance platform. Haven Life (launched in 2015 but entered 33 new states in 2016) reconsidered how data streams could improve the life underwriting experience for term life.  And then there were new distribution options with companies like Ask Kodiak, Insurify and PolicyGenius — to name a few — deconstructing and redefining the insurance value chain/business model. Just like building with Legos, there seem to be no end to the combinations of startup and greenfield businesses that can launch using new business models, technologies and great ideas across all aspects of the insurance value chain to meet new customer needs, expectations and demands. This is one area where 2017 will certainly trump 2016 — we may only be seeing the beginning of the innovation wave — but expanding from venture-capital-backed to existing insurers standing up their own greenfield and startup businesses. Reinsurers invest in insurtech and startups With the reinsurance market having excess capital, reinsurers took big moves to be major players in insurtech — from investing in technology companies to new startup insurance and MGA businesses. In addition, many are looking at all the disruption around and within insurance and developing, incubating and testing new insurance products to take to market, either directly or through customers or partners. Consider reinsurers' investment in Trov, Lemonade, Root and Slice; Munich Re’s investment and focus on mobility and autonomous vehicles; or XL Group and the establishment of XL Innovate, a specialized venture capital fund pursuing investments in financial technology, new opportunities for insurance underwriting and related analytics, globally. Swiss Re, Hannover Re, Odyssey Re, Maiden Re and others are rapidly making moves as well.  Consistently, these investments are in new operational models, new products or meeting new risks — creating a path to underserved or new markets. See also: Insurtech: One More Sign of Renaissance   As noted in a recent article, all this insurtech activity is raising the expectation on the importance of reinsurance capital to support new business models and back technology startups. In the process, insurtech startups are looking to disrupt the risk to capital value-chain in insurance by deconstructing and collapsing the value chain and by cutting out primary carriers or brokers, as well as costs, and placing the risk directly with reinsurers, leveraging unused capital. We expect to see increased activity from reinsurers that will likely begin to look at partnering with existing insurers/customers to collaborate on new products and with emerging technologies or by standing up a new brand or greenfield, continuing the deconstruction of the traditional insurance value chain. Cloud goes mainstream In 2016, the case for core system platform in the cloud reached the tipping point — from a nice-to-have to a must-have. Its logic has grown as capabilities have improved and cost pressures have increased. Though cost is a consideration and modern functionality is important, rapid industry change is fueling a renaissance in insurance models. The startup insurer or the greenfield insurance concept needs a system solution built for rapid deployment. New products often need new processes, making cloud capabilities a catalyst for creative product development. Nothing can make an insurer feel more cutting edge than moving from idea to rollout in the short timeframes that cloud solutions provide. Many insurers are taking advantage of the same pay-as-you-use principles as consumers themselves. They are sharing system solutions with cloud-based technology. They are paying as they grow, with agreements that allow them to pay per policy or pay based on premiums. They are using data-on-demand relationships for everything from medical evidence to geographic data and credit scoring. They use technology partners and consultants in an effort to not waste time, capital, resources and budgets. Insurers are rapidly moving to a pay-as-they-use world, building pay-as-they-need insurance enterprises. This is especially true for greenfields and startups, where a large part of the economic equation is an elegant, pay-as-you-grow technology framework. They can turn that framework into a safe testing ground for innovative concepts without the fear of tremendous loss, while having the ability grow if the concepts are wildly successful. The window of opportunity is open to insurers that wish to prepare their business models, products, processes and systems to embrace the pay-as-you-go culture This makes cloud a nearly-universal solution, fitting the needs of both startups and traditional insurers with plans for growth and expansion. In 2016, cloud became a mainstream option — an imperative for insurers needing a competitive edge. Perspectives on the Pace of Change The world recently lost John Glenn, a famous American astronaut and long-time U.S. senator. Glenn was born in 1921, only 18 years after the Wright Brothers tested flights at Kitty Hawk. He lived to pilot jets, was the first person to orbit the earth in a spacecraft, then later flew on two Space Shuttle missions at the age of 77. His life is a great example of the growing pace of change — in a world that moved from mechanization to digitization. See also: A Renaissance, or Just Upheaval?   Yet as much as changed in Glenn’s lifetime, today’s advancements are eclipsing all of them in pace and disruption. The systems that create knowledge through data and analysis are truly powerful forces that will ignite perpetual improvement and a new world of connected living. Insurance, once concerned with risk management on a large scale, will be focused on learning and understanding risk down to an individual policy-level, with a craving for more knowledge as it becomes available. If 2016 proved to be an insurance renaissance fueled by insurtech, it is very likely that 2017 will provide us with an even greater shift in the midst of an industry rebirth. How much will change? We have all of 2017 to find out!

Suicide breaks all the rules. Consider the vigilant life-long efforts people make to grow and flourish. Remember the countless reminders received from parents, educators, medical professionals, and other caretakers to remain safe and healthy. Measure the perpetual efforts made to build toward a successful life. Remember the desperation when presented by a threat to life and the efforts made to escape it. Relive the grief at the loss of a loved one. Breath by breath, second by second we focus upon Life. Is it any wonder that people are shocked when someone willfully chooses to abandon this shared quest by completing suicide? Death by suicide powerfully jars our concept of the way life is supposed to be and challenges core foundations such as, “What can I really trust?” When death by suicide strikes the workplace, employees immediately look to its leadership for direction. How those leaders respond when all eyes are upon them offers both tremendous opportunity and serious risk for the subsequent outcomes. At risk is trust. Some will react more strongly than others. (Some co-workers may now be at increased risk for their own self-harm.) But when exposed to this event the primary question regresses to, “How would leadership respond if it was me? How valued am I?” See also: Blueprint for Suicide Prevention   Effective crisis leadership after suicide demonstrates trustworthiness at three levels: Competence, Character and Compassion. These elements are not mutually exclusive and must be in evidence simultaneously. Competence:

• Especially when shaken, people need to experience leadership that has a plan and demonstrates expertise. Acknowledge your own pain but let people see you move forward confidently. People must witness someone who is also affected and fully acknowledges that impact but is strong enough to move forward while sad. There is tremendous power in strong, calm presence. Calm is just as contagious as fear.
• Communicate sensitive but confident belief in others’ competence. Express a firm expectation of recovery and return to a New Normal. Guide people to efficacy through sensitive resumption of familiar tasks and schedules. They need to know you believe in them and will support their success.
• Demonstrate competence by bringing expert resources into play such as the EAP to provide support and guidance.

Character:

• Those led must witness leadership that keeps promises, operates by the rules and “does the right thing.” Suicide breaks rules. Sometimes, suicide feels like a lie. Leadership must cherish shared life-giving values, especially at this time.
• Suspicion and distrust need not be logical to be powerful. Communicate, communicate, communicate. Minus current information, people tend to develop their own, and that misinformation can be very damaging.

Compassion:

• Demonstrate caring. Death by suicide is a very human crisis. Care for the family of the deceased as well as others who are particularly affected. People will equate that caring with the value you hold for them.
• Build community by being visible to groups of affected co-workers and emphasizing the strength available through community. Remind work teams to support each other both emotionally and functionally while they may not be at their best.

See also: How to Communicate Following a Suicide   Do the right thing, and it’s good for business. Crisis leadership aims to mitigate the human, financial, productivity, reputational and morale costs of tragedy. When death by suicide affects an organization, it produces a day people will never forget. Those you lead will not forget. Neither will you. Lead them well. Insurance Thought Leadership’s continuing series of articles focused on suicide prevention is written by the Workplace Task Force of the National Action Alliance for Suicide Prevention, the public-private partnership championing suicide prevention as a national priority.

For many people, the arrival of the New Year heralds the promise of achieving bigger and better things, reaching new heights and perhaps accomplishing things that weren’t done in the prior year. 2017 is going to mark a pivotal year for agents and brokers as insurtech distributors really hit the marketplace with new ways of fulfilling customer sales and service expectations. Agency-carrier connections are a critical issue. Depending on which path a distributor chooses, it can either be a Happy New Year – or it can be a very un-Happy Year. See also: 10 Predictions for Insurtech in 2017 Unfortunately, SMA survey results show that many distributors have a long, arduous path ahead. Sixty-three percent of responders indicated they were mainstream investors in connectivity technology, not investing for differentiation or not investing at all. This lack of investment needs to be reversed, or those distributors will likely face a very sad New Year’s Day in 2018. Small agents with less than $1 million in premiums are in the most defensive position, with 67% believing the No. 1 business driver for investing in connectivity technology was customer retention; 58% of agents with more than $1 million in premium said retention was their main motivation. Being the owner or principal of an insurance agency is not an easy job. There are many factors that contribute to success, but there are also many barriers. Agency survey responders indicated the top barrier to improving connectivity is workflow challenges. It is very important for agency owners and principals to assess why this is the case. If the challenge is internal culture, it is imperative that agency management work to change attitudes as quickly as possible. The other potential cause of workflow challenges is how insurers execute connectivity. Agency management needs to work with insurers on how they connect with the agency. If an insurer cannot change how they deal with connectivity issues, agency owners and principals should assess just how much value that insurer brings to the agency, and if the inefficiencies are worth it. SMA has looked at the connectivity issue from the perspective of commercial lines insurers and personal lines insurers, and now from the agent and broker point of view. There were similar responses to many of the questions asked. For example, conflicting priorities were the No. 1 inhibitor to investment for all groups. There were also some clear differences: For instance, the majority of agents and brokers indicated they weren't satisfied with their connections with insurers, while more than 50% of personal lines insurers believed that needs are being met. Clearly, there is work to be done. While some consumers want a completely automated insurance and sales process, a good number of others want the help of a knowledgeable insurance professional, and they want a personalized experience. There is much opportunity for agents and brokers to deliver on those expectations, but change is needed. See also: 4 Mandates for Agents in Sharing Economy   On New Year’s Day 2017, agents and brokers should make a resolution to adopt technology that will facilitate seamless, straight-through processing to support customer requirements. This is not a resolution that can be broken. Customers are demanding service transparency and real-time execution. There are some emerging insurtech distributors who will be very happy to fulfill the needs of customers with all the bells and whistles customers have come to expect. New Year’s Day 2018 could be a sad day for the agents left behind with a deteriorating customer base.

It's time to reflect on the passing year, mark my predictions from last year and throw some light on what I see 2017 holding in store. In my post from this time last year, I made a number of predictions, so, now, I wanted to look at how I did. Feel free to jump in and see how close to the mark I was and share your perspectives. Reviewing 2016 — How did I do? 1. Fintech and insurtech.  In last year's piece, I said that 2015 was the year of the zone, loft, garage and accelerator and that this would continue in 2016 with more focus. Regarding fintech and insurtech, I was right. We have seen some heavyweight investment (more so in the U.S. and Asia) and no major failures, to my knowledge. Trending up. Points: 1.  2. Evolution of IoT. In 2015, I wrote, “2016 will be the year we all realize (IoT) is just another data/automated question set.” Evolution here is continuing, but not at the pace I expected. New firms such as Concirrus (and many others) have come up with some great examples of managing and leveraging the ecosystem. Points 2. 3. Digital and data. At the end of last year, I said 2016 would continue to be a big area of growth for both. There's been progress, yes, and pace and traction ahead of what's expected. Points 3. 4. M&A will continue but will slow. I think this has slowed this year, with two of the three major regions in the latter half of the year focused on Brexit and the U.S. election. Now, folks are trying to work out where that leaves fintech/insurtech. Points 4. 5. Will the CDO Survive? I said I thought we'd see a move back to the chief customer officer. Well, no sign of my chief customer officers yet! (Although, after writing this, I came across three chief customer officers, so it's a start). Have you ever asked an insurance company or people inside the company “who owns the customer?” To me, we're still product-centric rather than customer-centric. Points 4. 6. New business models. I said last year that we'd need to be clear on what the new business model will be — and what it needs to be. This year, there's been lots of talk in this area, including here at Deloitte in our Turbulence Ahead report. We identified four business models for the future: 1) Individualization of insurance, 2) Off-the-shelf insurance, 3) Insurance as utilities and, finally, 4) Insurance as portfolio. It may take longer for this to materialize, but, without doubt, these models are coming. See my colleague Emma Logan describe these here. Points 5. 7. What we buy and sell. I believed that, last year, we'd move away from a product mindset to become more relevant and convenient. But we're still in talking mode, although the ideas here are evolving rapidly. Expect an all-risks policy in Q2 2017. Points 5. 8. Cyber is the new digital. There has been an increase in the number of products and players, but there still hasn't been any personal cyber policy. I expect that to come in 2017 still. Points 6. 9. Partnerships and bundling. In 2015, I thought we'd see a big rise in the partnerships between insurers and third parties. That's happened. Points: 7. So I'm marking my 2015 predictions as 7/9 (or 78% ) — a good effort, but I may have been a bit too ambitious. See also: 4 Marketing Lessons for Insurtechs   Moving into 2017 Re-reading the above, I still feel all my predictions are valid, be it the end of the CDO, the birth of personal cyber or an all-risks policy. I've been involved in enough conversations over the last 12 months to say these are all very real, although some are closer to seeing the light of day than others. Moving into 2017, here are my top 10 trends to watch:

1. Speed. Almost all conversations about insurance start with a statement that we're not moving quickly enough — from transforming and modernizing the legacy estates to quite simply getting products to market quicker. We can no longer wait six months to launch new or updated products. Look at those who managed to capitalize on Pokemon Go insurance cover. In insurance, we'll move from fast walking to jogging and sprinting. But take caution: This is still a marathon, and there's still a long way to go. In fact, as Rick Huckstep wrote recently, the sheer speed at which the insurance market has grown in the last 21 months is part of the challenge and attraction.
2. AI, cognitive learning and machine learning. AI has been long bandied around as a material disruptor. On the back of collecting/orchestrating the data, it's critical to drive material insight and intelligence from this and allow organizations, brokers and consumers to make subsequent decisions. In 2017, AI will come of age with some impressive examples, including voice. In 2016, we saw Amazon's Echo and Google Home product launches, as well as some insurers — like Liberty Mutual — giving voice a try. Imagine asking freely, “Am I covered for...?” or, “What's the status of my claim?” Adding this skill to the mix will likely be table stakes. In addition, AI will augment other solutions to drive value, e.g. robotic process automation, which I wrote about here. All this boils down to getting a better grip on the amazing data we have already while leveraging the vast open data sets available to us.
3. Line of business focus shift. The insurtech world will make a definitive shift from all the wonderful personal line examples to SME (the next obvious candidate) and to more specialty and complex commercial examples. Will Thorne of the Channel Syndicate wrote a great piece on this in November. While the challenges are harder and more complex, I believe the benefits are greater once we get to them.
4. Believers. The market has polarized somewhat between those who believe in major innovation and are pushing hard, and those who don't (or have a different focus and near-term objectives). The range is from those who worry about the next 90 days/half-year results to those who are actively looking to cannibalize their business and investing to find the most efficient way to do this. Here, there's no right or wrong, with hundreds of organizations strewn across the path. I still believe more will move to the cannibalization route as the first carriers start to unlock material value in 2017, including continued startup acquisition. Oliver Bate (Allianz) had an interesting and positive perspective on this during his company's investor day in November.
5. Scale and profitability. Over the last 12 to 18 months, I've seen some great startup organizations; internal innovation and disruption teams; VCs; and more. Now is the time to work out how we industrialize and scale these. This is the very same challenge the banking and fintech communities are going through. If you're an insurance company with 30 million or 80 million global customers, should you be worried about Startup X that has 10,000 or 100,000 customers? If they do manage to scale, can they do so profitability? This reminds me of a recent article about how unprofitable Uber is, but, with millions of engaged customers, they have our attention now. Profitability will become front and center. In fact, Andrew Rear over at Munich Re Digital Partners put together a good post on what the company looks for and why he and the team chose the six they did.
6. Orchestration. With all of these startups in insurtech, we'll need to quickly understand what role they play. Are they a platform play, end product play, point disruptor or something else? Regardless, given the volume and velocity of data generation, the importance of both API connectivity and the ability to orchestrate it will increase dramatically. For me, these are table stakes.
7. External disruptors. In the Turbulence Ahead - The Future of General Insurance report released earlier this year, we identified six key external disruptors that are happening regardless of the insurance industry. These are 1) the sharing economy, 2) self-driving cars and ADAS, 3) the Internet of Things, 4) social and big data, 5) machine learning and predictive analytics, and 6) distributed ledger technology. The key for me within insurance is to identify what role we'll play. I believe we'll continue to firmly be the partner of choice for many given our societal and necessary position in the global economy.
8. Micro insurance. Here, I specifically mean the growth of micro policies, covering specific risks for specific times. Whereas we typically annually see 1.1 policies per customer, we'll see eight to 10 micro policies covering a shorter period (episodic or usage-based insurance) as per our business models described in the Turbulence Report. This will be true for all lines of business. We've already seen some great launches in this space — including Trov, which partnered with Munich Re in the U.S., AXA in the U.K. and SunCorp in Australia. There's been global access through partnering with established players that has created a new way to market to the next generation. While we switch this on manually by swiping left and right (given some of the external disruptors and location based services), this will very much be automatic going forward. Insurers will need to find new ways to orchestrate, partner and find value to bring in clients. It won't be just one policy, it will be many that they orchestrate to deliver clients everything they need.
9. Blockchain and DLT. I almost didn't include blockchain here, but two factors have led me to include this for the first time: 1) the number of requests we're now seeing in the market for both specific solutions and more education/use cases and 2) the fact that nine of the 18 startups in the FCA's new Sandbox are blockchain-related. In 2016, we saw lots of PoC examples, trials and the first live insurance product on the blockchain (see: FlightDelay). Some use cases are more developed than others, and some markets are more suitable than others (I'm still looking for good examples in personal lines), so I believe this will evolve in 2017 but that there won't be scale breakthroughs. However, along with the World Economic Forum, I firmly believe that “The most imminent effects of disruption will be felt in the banking sector; however, the greatest impact of disruption is likely to be felt in the insurance sector.” We still must ask, “why blockchain?” Just because you can use it? It needs to be the right solution for the right business problem. Horizontal use cases such as digital identity or payments offer compelling use cases that can easily be applied within insurance. In many ways, blockchain, for me, feels much more like an infrastructure play in the same way we would do core systems transformation (policy, claims, billing, finance, etc.)
10. Business as usual — for now! Partly related to No. 4, we still need to run our business. How we do this and how we set up for the future will be another challenge — not just from a technology perspective but from a people and organization design perspective. (How we work, collaborate and more.) What are the transition states from our current models to a new world in 12, 24 or 36 months. Forward-thinking organization are putting plans in place now for their organizations in the years to come. This will become more important as we embed, partner and acquire startups and move toward new ways of engaging and working with customers.

Interestingly, there are now also so many accelerators, garages, hubs, etc. that startups all now have a lot of choices regarding where to incubate and grow. This presents a whole new challenge on the rush to insurance disruption. See also: Asia Will Be Focus of Insurtech in 2017   Finally, there are two other observations I wanted to share:

1. China. While I don't spend any time in China, it's hard not to be in awe of what is going on — specifically, the speed and scale at which things are happening. China's first online insurer, Zhong An, did an interview with Bloomberg regarding what the company is doing with technology (including blockchain) and, more importantly, its scale ($8 billion market cap in two years, 1.6 billion policies sold) — and the only concern from the COO, Wayne Xu, is that the company isn't moving quickly enough! Step away from this and look further to what's happening with disruption in general with Alipay and others from the BAT (China's equivalent of GAFA — Baidu, Alibaba and Tencent) is simply amazing. There's a good FT article on Tencent, the killer-app factory, and the sheer speed and scale of disruption.
2. Community. The global insurtech (and fintech) community is an amazing group of people from around the world who have come together across borders and time zones to further challenge and develop the market. Each geography has its own unique features, mature players, startups, labs, accelerators, regulators and, of course, independent challenges. We don't always see eye to eye, which makes it all that more rewarding because you're challenged by industry veterans and outside-thinking entrepreneurs. This year's InsureTech Connect in Las Vegas with more than 1,600 people was truly amazing to see. Things have clearly moved far beyond a small isolated hive of activity with varying levels of maturity to a globally recognized movement. It was great to meet and to see so many carriers, startups, VCs, regulators and partners looking to further the conversation and debate around insurance and insurtech. This community will, no doubt, continue to grow at a fast pace as we look for insurtech successes, and I look forward to seeing how the 2017 discussion, debate and collaboration will continue.

As always, I look forward to your feedback! What I have I missed? Here's to an exciting 2017!

The final draft version of the King IV Report on Corporate Governance in South Africa 2016 places a different focus on the governance and management of risk. It now states that: “The governing body should assume responsibility for the governance of risk by setting the direction for how risk should be approached and addressed in the organization. Risk governance should encompass both:

• the opportunities and associated risks to be considered when developing strategy; and
• the potential positive and negative effects of the same risk on the achievement of organizational objectives.”

The focus is now firstly on “opportunities” and the “potential positive effects” and only thereafter on “negative effects.” The major change in focus, however, is the requirement in paragraph A, where it is stated that opportunities (firstly) and risks should be considered when developing strategy. It is implied that the opportunities referred to are the opportunities brought about by the development of the organization’s strategy. These opportunities can be viewed as “stand-alone” opportunities, or opportunities that were identified without first identifying the risk. This requirement is different from the requirement in the next paragraph, where the positive and negative effects of the same risk should be dealt with. See also: Easier Approach to Risk Profiling   The difference in accent is more apparent when the definition of risk contained in King IV is examined. It states that, “Risk is about the uncertainty of events; including their likelihood of occurring and their effect, both positive and negative, on the achievement of the organization’s objectives. Risk includes uncertainties with a potential positive effect on the organization (i.e. opportunities) not being captured or not materializing.” This definition of risk clearly highlights “uncertainties with a potential positive effect.” Although all commonly used risk definitions, from COSO 2004 to ISO 31000/2009, as well as King III, referred to opportunity or the upside of risk, the concept of risk was generally viewed as something negative, or as the potential downside of a future occurrence. What has exacerbated this misconception was the view that risk and opportunity were opposites. Many documents, including King II, stated that “enterprise is the undertaking of risk for reward,” implying that the greater the risk, the greater the reward. In other words, if everything went well, you had great reward, but if things went badly, you had great risk. This led to the mistaken belief that opportunity is merely the “upside of a downside risk.” This belief assumed that risk and opportunity are inextricably linked. It is now apparent that this notion is not true. It is entirely possible to reduce risk while improving returns. In fact, to survive in today’s world, it is not only possible but essential. Traditionally, risks were classified and managed in three broad categories, namely hazard risks (so-called pure risks like fires, natural catastrophes, violent attacks, etc.); financial risks (bad debt, currency, interest rates, etc.); and operating risks (IT system failures, supplier interruptions, etc.). The opportunities attached to these risks can be described as reducing the impacts of the downsides, also known as the “silver-lining” opportunities. In other words, every dark cloud (risk) has a silver lining (opportunity) attached to it. Often the opportunities are the exact opposite of the downside risk, viewed as the two sides of the same coin. A good example may be a rise in interest rates, which may be a risk to some people, while being an opportunity to others. However, when one looks at the King IV definition of risk it is apparent that the achievement of the organization’s objectives is the key element. The key objective of any organization can never only be the avoidance of loss or harm, but must be the optimization of its strategic objectives. This is confirmed by the adage that “a risk is not only a bad thing happening, it is also a good thing not happening.” Any future uncertainty, which can be opportunity, risk or both, can be classified into four broad categories, namely:

• Future possible event (Stochastic Uncertainty).
  • This refers to an event that has not happened, and it may not happen at all. However, if it does, it will have an impact on the organization. Most identified risks are like this and include events like new developments, a supplier going out of business, law changes, disasters and the like.
• Variability (Aleatoric Uncertainty).
  • Some aspect of a task or project is uncertain and may include timing uncertainties, budget variability and the like.
• Ambiguity (Epistemic Uncertainty)
  • This uncertainty stems from lack of knowledge or understanding of a situation, condition or event. This may include matters like market conditions, competitor capability and the like.
• Blind Spots (Ontological Uncertainty).
  • This uncertainty exists outside of normal knowledge and experience frameworks and is therefore not seen or expected – the so-called “black swans,” emergent or emerging risks and blind spots.

The traditional method of identification of opportunities as part of the risk assessment process, where the upside of a downside risk is identified, can be viewed as “passive opportunity identification.” These identified opportunities are mostly the direct opposites of the identified risks and fit in well with the view that higher reward requires higher risk – the “two different sides of the same coin” principle. It must be stressed, however, that this method of opportunity identification remains a key component of risk and opportunity management and that it remains important to have it done. Examples of these kinds of opportunities are items such as interest rate movements, exchange rate fluctuations, margin squeeze and the like. In short, it can be described as “risk including opportunity.” King IV, on the other hand, now requires the governing bodies of organizations to ensure that “active opportunity identification” is conducted. These are the stand-alone opportunities that are not necessarily aligned with any downside risk. These would be the opportunities that the organization needs to pursue to enable it to achieve its strategic objectives. Custodians of this process would normally be the office of the CEO, the strategy director or the research and development department. The opportunity identification and assessment process would be distinctly different, and separate, from the risk assessment process that organizations are currently conducting in terms of King III. Reporting of the opportunities that are the result of the identification process would be different as well. These reports would not fit the mold of the typical risk report, with likelihood and impact indications, as these metrics are mostly irrelevant to opportunities. The target audience of the report would be different, as the information surrounding potential opportunities are by their very nature confidential and not for wider consumption. See also: Building a Risk Culture Is Simple–Really   The key aspect in the risk assessment process that needs careful consideration when conducting opportunity management is that of “appetite and tolerance." When downside risks are considered in isolation, determining and calculating risk appetite and risk tolerance levels are foundational in the process. These levels do not only refer to financial metrics (gearing, debt levels, cash, etc.) but also to non-financial metrics (level of injuries, negative press, etc.) and are mostly absolute downside risk limits beyond which the organization is not willing or able to venture. These risk limits do not reference opportunity, and the only upside apparent in appetite and tolerance levels would be when those limits are not reached or breached. When dealing with stand-alone opportunities, the organization would determine or calculate what downside limit it is prepared or able to endure to achieve a particular opportunity. Although the identification and management of opportunities may not be the responsibility of an organization’s risk department, the latter has a role to play and can add significant value to the process. As a result of the methodologies and techniques at its disposal, and as a result of the knowledge and experience of its personnel, the risk department may be able to assist in the process to identify opportunities, may be able to assist in the documenting and evidencing of the results of this process and may be able to assist in the monitoring of the results.

In a meticulously planned operation, we filed for a license in 47 states simultaneously. We’ll be revealing the first states in which Lemonade will become available in a couple of months. One thing’s for certain, 2017 is going to be an interesting ride! Stay up to date with news about our progress here…

Now that I got this off my chest, I can add some color to why we’re doing this.

Many tech startups go through the famous Local vs. Global debate as they start to plan a market penetration strategy. This dilemma was born with the arrival of modern internet commerce and became even more prevalent with the emergence of SaaS companies that provide global coverage right out of the box.

When you’re selling a digital product, going global may seem like small overhead. Reality is a bit different, though, and, more often than not, small startups that take a bigger bite than they can swallow get into trouble.

When feasible, startups should consider aiming their launch beams at a single city or even a town with population that represents their typical customer.

Here’s why:

1. Know thy users, and design for them

It always amazes me how often startups overlook usability testing during the initial design phase. Having videos of random people playing with your (barely working) mockup is priceless. We learned more in a couple of days of testing than we did in months working in our office.

The cool thing is that you only need about five testers to get value out of a session like that, so there’s really no excuse to not doing it. The smaller the area you launch in, the better the chance of getting valuable data in a user testing session.

We spent hours in WeWork and Starbucks with our early stage, smoke-and-mirrors version of the Lemonade app. We would show it to people, ask for their feedback, ask them some questions and record the entire session. We would then sit in the office and analyze the videos to figure out what worked and what didn’t.

Our early Starbucks user testing sessions allowed us to launch a relatively mature product into the market and achieve faster adoption by our New York customers.

See also: Let’s Make Lemons Out of Lemonade   2. Budget

Product launches require spending some money. To improve the chances of success, it is recommended to fuel the organic interest generated by social noise and PR efforts with some paid channels. Got a story in TechCrunch? Bloomberg? It will probably die down quicker than you think.

A nice trick is to use content recommendation tools like Outbrain and Taboola to promote content to users who may be interested in it. Google Ads are another obvious choice. Choosing the right outlets is one thing, but there’s a huge difference in costs between a global campaign and a local one.

This becomes much more dramatic when your company requires additional resources to operate in each region like Groupon and Uber. Lemonade recently closed its third round of financing ($60 million in one year of operation) from top VCs such as Google Ventures, General Catalyst, Thrive, Sequoia, Aleph and XL Innovate. We’re going to use this money to drive our expansion throughout the country and activate specific markets the way we did in New York.

3. Surgical use of media coverage

Getting great media coverage takes a lot of attention and time. Whether you can afford an agency or not, you’ll have to choose your battles well. Launching in a specific city allows you to focus on the outlets that are most relevant and will simplify your pitch to journalists.

If you’re creating something exclusive for a certain region, reporters who cover that region usually have a hunger for tech stuff that is happening, or launching in their hometown before everywhere else. BTW, there’s a case for launching in unexpected places like Portland or Philadelphia, which usually don’t get much attention from the tech and consumer industry for new products. There’s a good chance that media reach (which expands far beyond just the place you’re starting from) will be much stronger.

We chose New York for Lemonade’s home. We see NY’ers as an ideal representation of our target demographic and personality. So we invested our efforts in a select few outlets that are read by our first wave of early adopters of the city’s financial workers and young professionals — NY Post, Bloomberg and Wall Street Journal.

4 . Brand and messaging

Building a great brand involves a lot of consumer psychology. You spend weeks trying to figure out the best tagline, the perfect ad and the right illustrator to do your art. If you get this right, you have a real chance at grabbing your customers’ attention.

The first few months of brand activation are critical. Limiting yourself to a select region or demographic allows you to be laser-focused on framing and positioning.

Lemonade Local

Building an insurance company from scratch, in New York, one of the toughest regulatory environments in the country, is a huge undertaking. The sheer complexity and investment required to get to the starting point includes raising a lot of capital and hiring the right people to be able to get licensed by the state’s Department of Financial Services.

This is the life of a company that operates in a highly regulated industry, and it’s unlike anything I’ve ever seen in the tech space. For Daniel and me, the decision to start in one state was simple. There’s no other way. Insurance carriers have to choose a state. Just one. And then maybe, if you play nice, regulators will let you go for more.

We wanted to launch Lemonade in one state — NY, and even more so when we realized we had no choice :)

See also: Lemonade: A Whole New Paradigm  

In the last three months since our New York launch, we’ve had overwhelming demand coming in from all over the country to open up for business in more states. This was very encouraging because it showed us hints of initial demand and product market fit to people and age groups that we never thought would be our early adopters.

But what surprised us most was the excitement coming from unexpected places, such as government offices and regulators. Having a favorable regulatory environment is a great opportunity to bring an honest, affordable, transparent and fun insurance experience to everyone in the U.S.!

Be the first to know how we’re making progress with our nationwide expansion.

Here’s the list of states where we will gradually launch in the coming year or so:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin

* States in bold represent the ones most requests to launch came from

This article originally appeared here, and you can find more about Lemonade here.