Voltaire once said that "if God did not exist, it would be necessary to invent him." Could you say the same about insurers today, I wonder? It is striking that, as organizations have sought to come to terms with the pace and scale of change now confronting them, the story of Kodak's rapid decline from controlling 90% of U.S. film sales and 85% of camera sales to eventual bankruptcy has emerged as the cautionary tale of what can happen when you fail to keep pace with technological change. The corporate equivalent of the man who failed to sign the Beatles. However, what many people forget is that Kodak actually invented the world's first digital camera -- in 1975. Far from being some sort of industrial dinosaur, therefore, Kodak was an innovation-driven company operating right at the cutting edge of photographic technology. And while endless books and articles have been written about the reasons for Kodak's demise, in my view, the principal issue was less the failure to keep pace with change and more a lack of imagination. See also: Matching Game for InsurTech, Insurers   Kodak could not imagine a world where a digital camera would be for anyone but the dedicated professional, given its (at the time) prohibitive cost. Kodak could not imagine a world where processing speeds, image resolution, battery life and storage capacity would increase exponentially, at a fraction of the cost. Kodak could not imagine a world where people would not wish to take rolls of film down to the chemist to get them developed, pick them up a few days later and then diligently stick that "Kodak moment" in an album. Kodak could not imagine a world where everyone would carry a mobile phone that contained a camera that allowed images to be instantly shared on vast online networks. If Kodak hadn't been helping invent this new world, the failure would have perhaps been more understandable. At the time, such a world must have seemed to have been drawn from the pages of a science fiction novel. And executives' lack of imagination was compounded by a fatal cocktail of arrogance -- Kodak famously saw little point in sponsoring the Los Angeles Olympics in 1984 given its dominant position, allowing Fuji to gain a foothold in the U.S. market and grow its market share from almost nothing to 17% by 1997 -- and a complete failure to articulate and execute a plan once the scale of the threat to the core business had become clearer. Fuji, faced with the same market dynamics and yet without the benefits of Kodak's pioneering R&D, did not fall into the same trap. To my mind, there is a clear read-across to the financial services industry, right now. There is no shortage of activity. Market commentators and the media are lining up to sell their vision of both the El Dorado that lies just over the horizon and the sixth circle of Hell (heresy, for those of you who don't know you Dante!) that awaits those who fail to convert to this new religion based on innovation. Every large player has got some sort of incubator or lab or chief innovation officer, whatever that is. Joint ventures are being formed. Data scrubbed. Analytics teams hired. Digital strategies unveiled. Billions of dollars is pouring into fintech and insurtech startups, most of which will likely not survive the first round of funding. But does the innovation go far enough? Are the incumbents correctly reading the signs but merely agitating the surface in response, while deep down changing nothing? Are they like Kodak, incapable of imagining what tomorrow's world could look like, because to do so conjures up an image so terrifying that it implies that they should torch their existing business so as to give birth to a new one from its ashes? This question is of particular relevance to the insurance market, an industry whose often-archaic business practices and antiquated operating models, not to mention huge frictional costs and under-investment in IT systems, must have the financiers and techies in Silicon Valley licking their chops in anticipation. Show me another industry where a U.S. client, say, will find its risk placed via a local broker, via a U.S. wholesale broker, via a London wholesale broker, via an MGA, into a Lloyd's syndicate, only to be reinsured via a FAC reinsurance broker to a reinsurer and then potentially via another treaty reinsurance broker to another reinsurer, with each stage of the chain clipping the ticket. How much of every dollar of premium goes to providing the actual cover versus feeding a serpent in danger of swallowing its own tail? It doesn't take much imagination to see the huge potential for eliminating or automating steps in this chain, creating value for the disruptor and hugely improving client outcomes in terms of cost and service levels. But the real winners here will be those who have the scale, firepower and smarts to invest in the analytics and systems to drive not just marginal efficiency improvements in discrete parts of the value chain but to challenge the very basis of the way things are done. Traditional small to medium-sized players, therefore, unless they are operating in very specific niches, may find themselves at a long-term, structural disadvantage to larger and smarter players with more access to data and more ability to invest in the people and systems required to drive insight from it. More critical than ever, however, will be client relationships and access. Improved analytics and slick systems is all fine, but if you don't have the customer or the products and marketing skills to get to them, you're wasting your time. That, at least, has not changed. In fact, if anything, in a more clinical, automated, digital world, client contact and warmth is set to become more important than ever. This, is turn, raises an interesting question, though. While for years, brokers have operated under the somewhat existential threat of disintermediation, is the boot not now very firmly on the other foot? Unlike the insurers, who only know what they underwrite, the larger brokers, in particular, potentially have access to vast swathes of client and claims data across every single class of business and geography. Armed with this and the client relationships, and with a wall of capital looking to be deployed in the market (the rise of the ILS market bears potent witness) why do they need the insurers at all? Why not just rent the capital, underwrite the best business themselves and use the traditional market for the rest and to reinsure out the peaks? And if the brokers can do that, why not Google or Amazon, which have huge client reach and brand loyalty, unmatched analytical ability and the firepower to build, buy or hire in whatever insurance expertise they might need? See also: 3 Ways to Improve Agent/Insurer Links   Of course, the situation is not that simple. The market has not evolved in the way it has by accident. Large, complex and long-tail risks require huge balance sheets and often syndicated underwriting and reinsurance towers, to be written at all. Shareholder returns vary massively between brokers and insurers for a reason. In the rush to embrace the new, we risk ignoring all that works and that is good about the old. And because of this, change, when it comes, is likely to be more gradual and evolutionary. But change it will, and, as the Kodak story shows, the key risk may well not be that people fail to recognize that the change is coming -- I believe most do -- but that they fail to imagine quite how radical that change could be and therefore fail to plan accordingly. Henry Ford famously said that, "If I had asked people what they wanted, they would have said faster horses." The danger is that many risk now falling into the same trap.

For the past 10 years, the insurance industry has been handcuffed by the weather data that’s been available to it – primarily satellite and radar. Although important, these tools leave insurers with a blind spot because they lack visibility into what is happening on the ground. Because of these shortcomings, insurance companies are facing unprecedented litigation and increases in premiums. To solve the problem, we must first review the current situation as well as what solutions have been proposed to resolve this data blind spot. Why Satellite and Radar Aren’t Enough While satellites and radar tell us a lot about the weather and are needed to forecast broad patterns, they leave large blind spots when gathering information about exactly what is happening on the ground. Current solutions only estimate what’s happening in the clouds and then predict an expected zone of impact, which can be very different than the actual zone of impact. As many know from experience, it is common for storms to have pockets with more intense storm damage, known as hyper-local storms. See also: Why Exactly Does Big Data Matter?   The Rise of the Storm-Chasing Contractor In recent years, the industry has also been beleaguered with a new obstacle: the storm-chasing contractor. These companies target areas that have been hit by a storm with ads on Craigslist and the like. They also exploit insurer’s blind spots by canvassing the area and making homeowners believe there was damage, regardless of whether damage actually occurred. This practice can leave the homeowner with hefty (and unnecessary) bills, hurt the entire industry and lead to higher litigation costs. Attempts to Solve the Data Blind Spot Many companies have proposed solutions that aim to solve the insurance industry’s data blind spot. Could a possible solution lie in building better algorithms using existing data? Realistically, if the only improvement made is to the current models or algorithms using existing data, there’s no real improvement because the data the algorithm is using still has gaps. Algorithms will continue to create a flawed output and will have no improved ability to create an actionable result. The answer must lie in a marked improvement in the foundational data. If better data is required to solve this blind spot, one might think that a crowd-sourced data source would be the best alternative. On the surface, this solution may appear to be a good option because it collects millions of measurements that are otherwise unavailable. The reality is that big data is only relevant when you can build true value out of the entire data set and, while cell phones provide millions of measurements, the resulting cleaned data remains too inaccurate for crowd-sourced weather data to provide a reliable dataset. The alternative crowd-sourced weather networks that use consumer weather stations to collect data also lead to huge problems in data quality. These weather stations lack any sort of placement control. They can be installed next to a tree, by air conditioning units or on the side of a house – all of which cause inaccurate readings that lead to more flawed output. And although these types of weather stations are able to collect data on rain and wind, none are able to collect data on hail – which causes millions of dollars in insurance claims each year. The Case for an Empirical Weather Network To resolve the insurance industry’s blind spot, the solution must contain highly accurate weather data that can be translated into actionable items. IoT has changed what is possible, and, with today’s technology, insurers should be able to know exactly where severe weather has occurred and the severity of damage at any given location. The answer lies in establishing a more cost-effective weather station, one that is controlled and not crowd-sourced. By establishing an extensive network of weather stations with controlled environments, the data accuracy can be improved tremendously. With improved data accuracy, algorithms can be reviewed and enhanced so insurers can garner actionable data to improve their storm response and recovery strategies. Creating an extensive network of controlled weather stations is a major step toward fixing the insurance industry’s data blind spot, but there is one additional piece of data that is required. It is imperative that these weather stations measure everything, including one of the most problematic and costly weather events – hail. Without gathering hail data, the data gathered by the controlled weather stations would still be incomplete. No algorithm can make up for missing this entire category of data. See also: 4 Benefits From Data Centralization While technology has improved tremendously over the past 10 years, many insurers continue to use traditional data that has always been available them. Now is the time for insurers to embrace a new standard for weather data to gain insights that eliminate their blind spot, improve their business and provide better customer experiences. Understory has deployed micro-networks of weather stations that produce the deep insights and accuracy that insurers need to be competitive today. Understory’s data tracks everything from rain to wind to temperature and even hail. Our weather stations go well beyond tracking the size of the hail; they also factor in the hail momentum, impact angle and size distribution over a roof. This data powers actionable insights

Entrepreneurs are doers. One of the strengths of successful entrepreneurs is that they get things done. However, relying solely on their own capabilities is limiting. We only have so much time, energy, creativity and intelligence; it is a finite game. To realize the fullness of our potential, we have to harness the time, energy, creativity and intelligence of others. We need to be playing an infinite game. To do so, we must learn to lead and manage. In this complex and ever-changing world in which we live, we typically are dependent on others to get the results we want. As an entrepreneur grows his or her business, the interdependencies multiply. Entrepreneurs have to trust others — and other people have to trust them. See also: 6 Tech Rules That Will Govern the Future   The starting point is leadership. My friend and colleague Dr. Herb Koplowitz defines leadership as follows: “Leadership is the ability to set a direction and coordinate the actions of others in implementing it.” Leadership is primarily concerned with vision and strategy. Vision is the direction toward which you want to take your business. Strategy is the clear plan of action to get there. Management is concerned primarily with accountability and authority. The challenge for many entrepreneurs is that they lack clarity around their vision; they lack strategy to build the right structure; and they have never learned how to exercise authority or hold people accountable. For the entrepreneur, the ability to create highly productive working relationships that can fulfill their vision depends on three factors:

• Effectiveness: Doing the right things to reach their strategic goals.
• Efficiency: Doing things right to optimize the use of resources and to reduce costs.
• Trust: Creating a positive working environment where people feel safe, respected and valued for their contributions.

As a leader and manager, it is important to take the time to develop and implement a business plan that includes:

• A well-articulated vision (where do you want your business to be in five years?)
• A clear strategy to reach that vision (what needs to happen to fulfill your vision?)
• A formal organization structure designed to implement your strategy (who and what do you need to support your strategy and achieve your vision?)
• Staffing and managerial leadership practices to maximize effectiveness, efficiency and trust (how do you need to transform the way you lead your business?)

See also: Incumbents, Insurtechs Must Collaborate   To take your business to the next level, you need to be a leader and a manager.

Asia will be the key pillar in the coming revolution of insurance and in all likelihood will become the hottest market for insurance technology (insurtech) globally. It's no longer just a pipe dream, as this time all the stars are aligning. Take the sheer population size and rapidly emerging tech-savvy middle class, together with low effectiveness of traditional insurance distribution. Combine that with a destabilizing wave of political populism, making its rounds across much of the developed world, and you’ve got most of the ingredients for a region that will take on a leading global role for insurtech. So what, if anything, is missing to really ignite insurtech in Asia? It turns out that while the region is ripe for insurtech, the actual quantity and quality of startups in Asia is nowhere near that of other regions… at least not yet. Share of investments in insurance startups can be used as a good proxy to the overall level of insurtech activity around the world. According to the figures, the U.S. takes 63%, with Germany (6%), U.K. (5%) and France (3%). China is at 4% - which doesn’t account for Zhong An’s massive investment in 2015 -- and India at 5% (Source: CB Insights). See also: The Future of Insurance Is Insurtech   So the logical question is, why aren’t there more startups in Asia, considering the substantial opportunity and funding that exists in the region? Is it due to a shortage of experienced entrepreneurs, difficulty of starting a business, lack of access to investment or something else? The answer is that it’s likely a combination of a few factors, including a weaker early-stage entrepreneurial ecosystem, which doesn’t yet effectively support startups, and a cultural aspect of lesser tolerance for failure. Both of these are changing fast, though, and entrepreneurs across Asia are starting to identify and test innovative insurtech solutions. The following are just a few recent notable insurtech startup examples across Asia that have already reached beyond Series A funding: Zhong An (an $8 billion Chinese insurtech startup), Connexions Asia (Singaporean flexible employee benefits platform with a U.S.$100 million valuation), and two large insurance aggregators out of India-- Policybazaar and Cover Fox.

So why am I convinced that Asia insurtech startups will not end up dominating their regional home turf ?

Probability and “Survival of the Fittest” The lack of critical mass of startups in the region means that they will not enjoy the same quality filters and network effects of the larger entrepreneurial ecosystems of the U.S., Europe and to a somewhat lesser degree China. "Surviving" U.S. and European startups have to fight their way across a lot more competition to reach scale in their home markets. Hence, where a weaker startup in Asia could get repeated life support simply because there aren’t that many others to invest in, natural selection weeds out the weaker models in EU/U.S. much quicker in favor of more robust ones. Stronger startups then get to attract the best talent from the entrepreneurial ecosystem, including talented entrepreneurs whose models didn’t work as well, further reinforcing successful EU/U.S. startups. Home Market Advantage Success in a large home market like the U.K., Germany or a few U.S. states gives a substantial boost to any startup. It provides both credibility and cash flow to allow a much more aggressive expansion into other regions. This also gives a startup flexibility to develop the necessary adjustments to the business model to adapt it for Asia. The U.S. and EU have a deep domain level of insurance expertise, which gives EU/U.S. startups from those regions a further edge to tap advisory expertise locally, because most of the largest global insurers are based in these two regions. Lastly, considering that most startups adopt a collaborative approach with insurance companies, having a relationship that originates close to the top decision maker at headquarters gives an added advantage to EU/U.S. startups when they are looking at expanding to new regions. I’ve personally experienced examples of relationships developed in Europe that later carried over in creating a pre-warmed partnership with the insurer’s operations in Asia. Regulatory Complexity Asia is made up of a large number of countries, where each has its own insurance regulator, who possess views on how things should be run. This means an additional potential growth hurdle for Asian startups. For example, a startup out of Singapore will need to figure out how to navigate the neighboring Asian country regulatory regimes pretty early in its growth cycle. Thailand, Malaysia, Indonesia and Vietnam markets all have diverse regulatory requirements. This lands the Singaporean startup at a disadvantage vs. a more mature startup out of EU/U.S. – which not only has experience dealing with regulators in its home market but also possesses a proven track record and a larger resource pool that it can use to overcome any regulatory issues. Meet Future Leaders of Asia InsurTech Here are  35 insurance startups from across the U.S., Europe and China that have a real shot at collaboratively shaping the future of Asia’s insurance . Granted that not all of these startups will successfully adapt their models for Asia, a few would and will go on to successfully dominate Asia’s insurtech landscape in the foreseeable future.

The future of insurance in Asia is coming fast, and it's looking pretty exciting! See also: Insurtech Has Found Right Question to Ask   Below are links/brief description of each of these 35 ventures. U.K.

• Guevara - People-to-people car insurance
• Bought by Many - Insurance made social
• Cuvva - Hourly car insurance on-demand
• SPIXII- AI insurance agent
• Gaggel - A better alternative to mobile phone insurance.
• ClientDesk - Digitizing the insurance industry
• Insly - Insurance broker software

Germany

• SimpleSurance - World's leading e-commerce provider for product insurances
• Friendsurance - The future of insurance (P2P)
• Getsafe - One-stop digital solution for all your insurance matters
• Finanz-chef24 - Germany's largest digital insurance for entrepreneurs and self-employed
• Money-Meets - Save money and improve finances
• Clark - Insurance as easy as never before
• MassUP - White-labeled platform for online insurance sales
• FinanceFox - Your insurance hero

USA

• Metromile - Pay-per-mile insurance (usage-based auto insurance)
• Oscar - Smart, simple health insurance.
• Zenefits - Online HR Software | Payroll | Benefits - All-In-One (EB distribution)
• Policy Genius - Insurance advice, quoting and shopping made easy
• Embroker – Business insurance in the digital age
• Slice - On-demand insurance for the on-demand economy.
• Trov - On-Demand insurance for your things
• Cover Hound - Compare car insurance quotes from top carriers
• Insureon - Small-business insurance
• Bunker - The marketplace for contract-related insurance
• Lemonade - Peer-to-peer renters and homeowners insurance
• Cyence - Comprehensive platform for the economic modeling of cyber risk

China

• Zhong An - China's first complete online insurer
• Cheche Chexian - Online auto insurance platform
• Tongjubao - P2P community risk sharing platform
• Huize Insurance - Leading online insurance agency platform in China
• Xishan Information Technology - Discount insurance e-tailer

Insurance technology was once the red-headed stepchild of financial technology. But with more than 800 insurtech startups garnering almost 150 deals totaling $3.5 billion of investment since 2015, insurtech is a force to be reckoned with. With this infusion of new blood have come some interesting and provocative pronouncements about this great industry. Some have come from people who are smart, insightful and engaged, while others are just plain arrogant, full of hubris, with their feet firmly planted in the air. Some of these observations have been eye-opening and challenging, others benign, some uninformed, some just plain dead wrong. Of all the things said, one is downright wrong. This pronouncement of misinformation is that insurance is a commodity, that all insurance policies are the same, that there is no real difference between policies issued from different companies. What is a commodity? The best definition of a commodity that I can find reads: a product or service that is indistinguishable from ones manufactured or provided by competing companies and that therefore sells primarily on the basis of price rather than quality or style. The key word in that definition is "indistinguishable." The products or services when put side by side act the same, delivering the same results. A perfect example is a battery. When I need a AA battery, I go to the store and buy one. Now it does not matter what store I go to or what brand I buy. As long as it was labeled AA, I knew that it would both fit and work by delivering just the right amount of electricity (provided I put it in the right way, but we’ll save that story for another time). See also: Has Auto Insurance Become a Commodity?   Another example is gasoline for our cars. It really does not matter which gas station I go to, or which grade I select; the gas goes into the gas tank, and the car runs. Yes, we can debate the benefits of different additives and octane grades: regular (usually 87 octane), mid-grade (usually 89 octane), and premium (usually 92 or 93) and their impact on engine knock. But the simple truth is that I put any gas into my car and it runs. In one sense, I understand that insurance can be thought of as a commodity. Go to a website, enter a handful of fields, and multiple quotes are presented for you to choose from. In this narrow and limited perspective, insurance can look like a commodity on the front side of the transaction. But the real question is not if a handful of fields can get you a number of quotes, but if those policies are the same? Do they cover the same things? Will claims be paid at the same amount? If insurance truly is a commodity, policies will all pretty much look the same, covering the same things. A Personal Example I was in Las Vegas for InsureTech Connect when Hurricane Matthew came up the Florida coast. I got a text message from the airline that my return flight to Orlando was canceled, and I would be contacted about rebooking. Quickly looking at the Orlando airport website, I read that it was going to be closed starting Thursday noon and at least all day Friday. Once Matthew passed, airport personnel would assess the damage and then determine when to reopen and at what capacity. I was now in full scramble mode, calling the hotel to extend my stay. The agents was very empathetic and most willing to help. This made me feel somewhat relieved until the agent cheerfully informed me that I certainly could extend my stay another night for $780! I almost said, “Is that with or without dancing girls?” But remembering that I was in Las Vegas, I found myself wondering if that might be an actual option. Holding my tongue, I thought best not to say anything other than to thank the agent for the kind offer. Yes, I was able to find another hotel room that was less expensive. Hurricane Matthew passed without doing much damage in the Orlando area. The airport reopened on Saturday, and I was able to get home without much trouble. The reason for telling you this story is to use it as a backdrop to see if insurance is a commodity, using perhaps the simplest form of insurance: trip insurance. Go to a trip insurance website, enter four pieces of information, get a bunch of quotes, select one and pay for it via credit card. Very simple, very straightforward. Trip insurance certainly walks and talks like a commodity. The question is, when did my trip insurance start? What was covered? What compensation was I due? How much could I expect? This is where our journey really begins. Trip insurance will run you on average between 4% and 9% of the trip cost. But a survey of 10 different trip insurance policies found that the terms and payments were very different. Also, the most expensive policy did not have either the lowest deductibles or the highest benefits. As a matter of fact, one carrier that was priced around 5% of the trip cost had many of the highest benefits. Here are some details of the different policies.   As you can clearly see, the coverages differ significantly in both their cost and potential benefit. Let’s walk through Delay Compensation as an example. One policy costs 4% of the trip and pays as much as $500 for a delay of 12 hours or more (not even covering the cost of my hotel room)/ Another policy costs 5% of the trip yet pays as much as $2,000 for a delay of five hours or more. The most expensive policy costs 9% of the trip but only pays as much as $1,000. Pricing, coverage and benefits are not just mildly different, they are wildly different based on product differentiation and competition. This example is based on a simple trip insurance model. When it comes to healthcare choices, “Comparing plan premiums and deductibles only scratches the surface of what you should evaluate before selecting a plan this fall. Policy details can make an important difference in coverage and costs, but it may take some digging to uncover them.” This caution also applies to personal insurance sold directly to the public. I’m familiar with one person who selected a personal auto carrier because it was the low-cost policy. However, when he had an accident, he discovered that the policy had no collision coverage. The few dollars he saved on the premium were insignificant compared with the $3,800 repair he had to pay for. See also: A Brave New World: Move Away From the Commodity Trap   Differences in coverage and payment, inclusions and exclusions across different types of insurance are as numerous as options on a Rubik’s Cube. There are a number of other ways that insurance is not a commodity.

• Users – a commodity does not care who is using it; it just works. The fuel in your car does not care who is behind the wheel or in passenger seats. Insurance, however, does care who is using it. With insurance, depending on circumstances and policy wording, not all drivers of your car are covered by your personal auto policy.
• Ownership – a commodity does not care who owns it; it works. With insurance, a vehicle may be owned by a company with a commercial auto policy, but that does not guarantee that the vehicle is covered.
• Termination – a commodity works until it stops; the battery runs out of energy, the car runs out of fuel. That’s it. Insurance, however, is still in effect beyond its expiration date. Florida victims of Hurricane Matthew have five years to file a claim.
• Location – a commodity behaves the same regardless of where it is used. Put a battery into a device, and it provides energy no matter where you go. With insurance, the location matters greatly. While most states have either two or three years to report a real estate property claim, the timeframe varies wildly from a low of one year to a high of 10 years depending on the state. Also, when you drive your car into Mexico, the gas still works, but your auto insurance stops at the border.
• Consistency – a commodity does what it does; its specifications or requirements do not change over time. A battery is designed to deliver so much power over time based on its design. Batteries can lose their charge, and gas can degrade, but their basic function does not change. The same cannot be said about insurance, even if it is written into policy wording or legislative edict. Two recent court cases have dramatically changed the cost and coverage of workers' compensation policies in Florida. The first removed limits on how many billable hours and cost can be accumulated by claimant attorneys. The second changed the duration that temporary total disability claims are to be paid, from two years to five years. Both these decisions were made long after the policies they affect were sold.
• Cost – when a commodity is produced, its costs are known. You know all the parts of the battery, you source them, assemble the battery, distribute and sell them. The same can be said for gas. With a commodity, costs cannot suddenly go up for products already sold. But when you price and sell an insurance policy, you cannot predict all the costs or even what is to be paid and for how long. Think about the two Florida workers' compensation examples above; policies were priced and sold based on “known” limitations on both claimant attorney fees and temporary total disability payments. Insurance companies will now pay unanticipated claim costs above and beyond what was originally covered, even though they were not factored into the original pricing. And there is no way to go back to the customer and charge extra for the added claim costs that are above and beyond the original policy.
• Importance – if a battery fails, you throw it out and get another one. If fuel is old or contaminated, your car may sputter for a while, but that’s it. However, insurance is oh so much more important. Insurance gives stability to our financial markets. Insurance encourages entrepreneurial investment and risk taking. Insurance helps people rebuild their lives when tragedy happens.

Insurance is vitally important to our economy. Virtually no commerce is conducted without it. Insurance is also wildly complex, varying from state to state, company to company, policy to policy. It requires attention to detail, rigorous and serious thought. For additional information on this topic, follow the links below;

• Virtual University
• Independent Agent Magazine

Well, that was fast. Remember all those massive, megabillion-dollar data lakes we all kept hearing about over the past few years? With the exception of the U.S. government, we’ll probably never see their likes again. Many of the large organizations that were pursuing those data lakes (not to mention countless smaller ones) have largely changed course. Why? The answer is actually not so surprising, even if this particular outcome is. Many of the CIOs I talk to these days are no longer thinking of their insight systems (analytics tools, data lakes, etc.) as separate from the rest of the business, or the enterprise systems that support them. They’re managing these insights systems more as a portfolio of analytics systems -- a true play for return on investment (ROI). As a result, large investments are broken into smaller, more agile investments. The technology organization may be shepherding 500 analytics projects rather than just five high-profile initiatives -- enabling and supporting 10,000 people, for example, rather than just 100. In that environment, a massive data lake starts to make less sense, even if all those 500 projects tap into it. A data lake is just too resource-intensive. See also: Why Exactly Does Big Data Matter?   Meanwhile, the need to tap into a large volume of data isn’t going away. In lieu of a huge, proprietary data lake, what options are there? This is where CIOs are getting creative, creating a network of smaller, more manageable data lakes, for example, supplementing their data with that provided by other organizations.

Blockchain is a revolutionary technology that could fundamentally change the way business is conducted and result in the restructuring of major industries. At least, that is the view of some prognosticators. Others believe that there are important implications for the technology, but that it will not be truly disruptive. What about insurance? Will blockchain be a major force in the industry, and, if so, when?

New research by SMA sheds some light on these questions. The short answer is that blockchain is likely to play a major role in the reshaping of insurance – but the big implications are two to three years out.

Blockchain has burst onto the scene. Many in insurance are still just becoming aware of its importance and are in learning mode. At this stage, slightly more than half of property/casualty insurers are aware of blockchain and are beginning to understand its implications, while only about 20% of life/annuity insurers surveyed know about the technology. What makes blockchain so powerful is the wide range of potential use cases. As a foundational technology, it becomes an enabler for peer-to-peer insurance, micro-insurance, digital currencies/payments, smart contracts and the exchange of all manner of sensitive documents. None of these require blockchain, but, in every case, blockchain makes the transactions more secure, improves efficiencies and makes new business models more feasible. L&A insurers see the exchange of sensitive documents with prospects and customers as the top potential use case for blockchain in the next few years. P&C insurers are looking to a wider range of use cases with high potential, such as micro-insurance, peer-to-peer insurance and digital payments.

See also: How Will Blockchain Affect Insurance?  

All sectors of the insurance industry increasingly see blockchain as important and potentially transformative. However, the level of investment and projects are still relatively low. About one in eight P&C insurers are developing strategies with blockchain in mind and moving to pilot projects. Only 3% of L&A insurers claim to have any activity regarding blockchain. Several of the global insurance players are participating in blockchain consortiums, investing in startups or implementing live projects with blockchain. Another important consideration is the emergence of more than 20 insurtech firms anchored by blockchain.

Blockchain does show great promise for the insurance industry. There are likely to be more projects, investments, consortiums and production implementations based on blockchain over the next two to three years as the industry gains experience with the new technology. Then it will not be surprising to see a wave of many blockchain-based initiatives ripple across the industry and become a contributing force to industry transformation.

For more information on the insurtech startups, business use cases and insurer blockchain projects, see the new research report Blockchain in Insurance: Insurer Progress and Plans, which is available at this link.

The insurance industry is a $4.6 trillion market worldwide, but it lags when it comes to digitization and providing consumers with great experience and service. We are looking in some depth at the five main challenges that startups are facing. Today, we look at Challenge No. 2. Find Challenge No. 1 here. Challenge No. 2: Providing real innovation that gives a competitive advantage and that provides real value in the long term will be the only way to prosper. Innovation can come by improving the consumer experience in buying and using insurance or offering more relevant insurance at affordable and lower prices. In insurance jargon, this involves optimizing risk protection. Startups can and are focusing mostly on digitizing distribution, especially through a mobile consumer approach. This improves consumer engagement and may quickly generate interest and traffic but ultimately needs to be converted into sales and new customers. See also: Where Will Real Innovation Start? Product innovation involves better and personalized dynamic pricing, which means savings for the consumers and providing targeted and relevant risk protection (coverages). Getting new product into the market with limited data and pricing experience will bring risks. This will, of course, be initially mitigated by low volumes. There is also greater scope for risk prevention. Technology can support consumers by automated monitoring and response, as well as giving real time feedback. In addition, technology provides the opportunity to reduce the claims costs (frequency) impact. Insurance, at the end of the day, is about service - a payment today for a future promise. Having access to the relevant services during an accident or adverse event is crucial for insured consumers. This includes making it easy to report and pay a claim. Having a seamless service will be important for the startups' reputation and operational and innovation capabilities. Startups will need to collaborate and have outsourced arrangements with a range of partners with different mindsets and systems. Takeout Building a robust, full-stack technology platform and end-to-end processes will be critical. Many startups have started, understandably, with the distribution, and few appear to have fully operating platforms that stretch back into the full value chain of insurance operations from selling, distribution, product manufacturing, policy management toward customer servicing and claims management. A full-stack technology platform supports a seamless process for the insured consumers, not only in the buying process but also for policy changes and claims handling. A full-stack technology platform with enhanced data management and analytics at its core will be required in the case of making differentiating, relevant and attractive insurance products and services. The explosion of data must be translated into improving insurance. Data needs to be converted into insurance pricing, more accurate prediction of future claims risk and enhanced and innovative risk prevention services. See also: Innovation — or Just Innovative Thinking?   Excellent service and product differentiation requires full control. Startups will need to be in control of not only marketing, distribution and customer experience but also dynamic data analytics, pricing, product development, policy administration and claims servicing. Even if startups do not provide these activities directly and hand them over to outsourced service providers including traditional insurers, they will need interfaces into other systems that may not be as robust as a new platform. In addition, they will need in-house staff to manage these processes. This will take expertise and time to build out. We are curious about your perspective.

Performing a directors and officers (D&O) insurance audit is a complex exercise that is made more difficult by constantly shifting language, new rulings and claim trends. While much of the policies’ language and terms have remained fairly constant over the years, here are six areas of new or renewed interest that buyers and their brokers will want to pay attention to. See also: The Need to Educate on General Liability   Cyber Exclusions: Because cyber-related litigation has been quiet, there is little case law at the moment testing courts’ interpretations of D&O policies, so it is difficult to determine the adequacy of coverage provided by existing policy language. Generally speaking, D&O policies are not crafted with cyber risks in mind, so many policies may contain problematic language, such as the definition of “wrongful acts.” However, some carriers are going in the opposite direction and are purposefully applying specific cyber-related exclusions to their policies with the intent of pushing the exposures to more appropriate cyber policies. Cyber policies have still not quite adjusted entirely to modern cyber risk, and these exclusions are not yet industry standards, so buyers should — when able — avoid D&O policies that contain cyber exclusions. While most policies are absent of such language, many carriers have included somewhat watered down wording by adding “privacy events and/or invasion of privacy” within the broad bodily injury exclusions. While this language is not as crippling as an explicit cyber exclusion, buyers should still attempt to negotiate its removal. Many professional liability experts also believe broadly worded terrorism exclusions may have the ability to negate coverage for cyber events with the belief that they will be classified as cyber-terrorism. To address the terrorism exclusion, buyers should ask the carriers to “except” (thus, carving back) cyber-related claims. Lastly, while it may be obvious, brokers should advise buyers on the importance of placing separate cyber insurance while also highlighting the intricate coverage differences among them. The same level of attention that is given to grooming D&O coverage should be given to grooming cyber proposals/policies. This includes careful review of policy definitions, terms, conditions, exclusions, etc. Professional Services Exclusion: Along with the contractual exclusion, the professional services exclusion is consistently cited as one of the most sweeping and problematic exclusions for insureds. Broad professional service exclusions typically preclude coverage for claims “for, based upon, arising from or related to” errors, acts and omissions while providing professional services. This exclusion is particularly problematic for service firms because almost any claim can be “related to” their providing of professional services. However, this exclusion is also becoming increasingly problematic for many businesses because so many businesses today provide some level of services (from consulting to technology services). For tech companies, in particular, this exclusion has the potential to preclude coverage for cyber-related claims, as many of the tech services provided may be considered “professional services” by the carrier. When negotiating this exclusion, buyers should ask the carriers to replace the term “for, based upon, arising from or related to,” with, simply, “for.” Such an amendment effectively carves out the errors and omissions exposure the carrier intends to exclude while still preserving coverage for “true” D&O claims. Conduct Exclusion: The conduct exclusions are one of the (if not the) most visited exclusions within D&O policies. While not much has changed in terms of recommendations to D&O buyers, we have noticed a number of carriers that still contain less-than-preferred language. To avoid coverage being denied for unintentional wrongdoing, the conduct should be specifically stated as “deliberate, willful and intentional.” Sufficient severability language should also be included to protect innocent directors. The area where we still see many carriers lacking is in the “ruling language.” For purposes of providing coverage for innocent actors and claims without merit, the carrier should agree to provide defense costs until a final determination is made. More specifically, though, that final “determination” should be in the form of a “final adjudication in the underlying action.” While much of it may seem like a matter of semantics, final rulings/judgments are NOT the same as “final adjudication,” which is required by the courts. In addition, the language should specifically state that that determination be made in the underlying action to prevent the carrier from arguing that wrongdoing found by those outside the courts (such as regulators) nullifies coverage. JOBS Act/Securities Exclusion: Startups and companies looking to raise equity have a new reason to be excited. The JOBS Act provides an avenue for significant growth without all of the time and compliance costs imposed by the strict reporting and disclosure obligations that come with an IPO. And with the new regulation A+, the ceiling has been lifted, allowing a significant capital raise while still remaining private. Those same attractive features, however, also carry some increased risk. The potential for fraud (and accusations of fraud) is considerably higher because of the lack of transparency. Additionally, private companies purchasing D&O may find a somewhat hidden surprise in the broad securities exclusions that almost entirely eliminate coverage for crowdfunding-related claims. While many insurers have been somewhat slow to react, many others responded expeditiously by either adding a separate endorsement or revising their exclusion to carve back coverage for claims that are related to securities and qualify under the JOBS Act. Any companies considering a crowdfunding campaign or raising any equity under crowdfunding regulations should exercise extra diligence when reviewing their D&O insurance to ensure the carrier has appropriately provided coverage for such claims. Without question, this includes smaller companies that may believe they are less prone to crowdfunding claims, which is false. The case against Quest from 2011 demonstrates that these claims can arise over seemingly simple fee disputes. Lastly, organizations should also avoid any carrier-imposed sub-limits for crowdfunding-related claims, paying close attention to the adequacy of such limits when they are unavoidable. Entity vs. Insured Exclusion: The insured vs. insured exclusion is almost as old as D&O itself. To alleviate some of the concerns related to the “I vs I” exclusion, many carriers today have adopted a more modern alternative replacing it with an “entity vs. insured” exclusion. While this substitution is preferred and does seem to solve many of the unintended consequences, it still deserves careful review. The most obvious carve-back that buyers and their brokers should seek is coverage for derivative claims brought on behalf of the organization. Because of their derivative nature, insureds should also negotiate a carve-back for bankruptcy claims brought by trustees and debtors in possession. Additionally, buyers should review the definitions of insured and organization/entity to ensure bankruptcy trustees and debtor-in-possession are also included as insureds. Regulatory Proceedings and Investigations: Coverage for regulatory/administrative proceedings and investigations has always been of interest for buyers but remains difficult to obtain. Informal regulatory proceedings and investigations against the entity itself are the most difficult to insure against. With cyber whistleblower claims beginning, regulators are capitalizing on their success with more “traditional” whistleblower claims, and coverage for government investigations is quickly becoming a topic of renewed interest. Over the past few years, many carriers have begun to provide coverage for informal investigations and regulatory/administrative proceedings against individual directors and officers. Additionally, private companies may be able to obtain coverage for formal investigations and proceedings against the entity itself. It should be noted that, for purposes of reviewing and grooming coverage, administrative/regulatory proceedings and investigations are not synonymous. Some carriers have also been implementing standard coverage for FCPA fines/penalties against individuals. The ability to obtain a policy with such language does not necessarily mean the policy will respond, though. There are a number of additional items that require review, such as claim definitions that require “wrongful act” accusations to trigger the regulatory coverage (which should be avoided). See also: What to Expect on Management Liability  

The origins of life insurance show up at least as long ago as the Middle Ages, when the notion of providing mutual aid emerged in organized structures. People came together via benefit societies for those in need and for the good of all. Similarly, modern-day carriers originated with mutual ownership – a construct that prioritized maintaining an asset pool to cover claims at any time, including ones that might occur decades in the future. A lot has changed. The top 25 life insurance carriers, which control 72% of the market, are largely public companies, so they must serve the demands of shareholders, not just policyholders. State, federal and global regulatory authorities watch over insurers’ moves with many goals – a big one being financial stability of carriers. But these efforts do not solve a problem highlighted in this year’s Insurance Barometer Study: One-third of American households would have an immediate problem paying basic living expenses if the primary breadwinner died. And an additional one-third has no idea what they would do should they find themselves in this situation. See also: What’s Next for Life Insurance Industry?   Ask people inside the sector the question, “Why doesn’t everyone buy the coverage they need, and may even know they need?” Responses are variations on three themes: (1) potential buyers perceive the products as too expensive; (2) they don’t understand how insurance works and what its value is; and (3) they put it low on the priority list relative to other financial commitments. None of these explanations is flat out wrong. But settling for them risks derailing innovators from solving a problem that will continue to affect people in need and the rest of us, too. It is a problem worth solving. Insurtech has become a hot sector, but life insurance gets relatively limited focus from either startups or investors. Why? Experts offer a few theories: It is complex -- loss curves run for decades. Unlike auto and home insurance, there’s no requirement to own life insurance -- so there is no definite group of buyers. Asset growth in this economic and regulatory environment has become trickier. Capital requirements are tougher. And maybe founders and funders themselves don’t want to look death or the greatest personal catastrophe in the eye. While these reasons sound plausible, there is a way to think about how to uncover sources of value and solve a marketplace and social problem hiding in plain site. Here is a proposed three-part plan: 1. Reframe the problem. Life insurance has historically addressed the problem, “What if I die too soon?” The questions asked now about financial health sound more like, “How can I be sure I’ll cover my monthly expenses given my earnings?” “How will I ever retire?” And, “What if I live too long?” Fears about dying too soon have been pushed down the priority list. In an era of longer life expectancy and lower inflation-adjusted income for many Americans, the new priorities are smart. Consider, therefore, how to solve these problems. Listen to people’s desire for products that pay the living, provide coverage for long-term care and medical expenses and are designed with far greater transparency than today’s living benefit products. (Try to read an annuity contract, and you will get the point.) 2. Understand what motivates people. Loss aversion theory, first proven by Nobel Laureate Daniel Kahneman and colleague Amos Tversky, demonstrates that people prefer to avoid loss rather than pursue the opportunity to realize an equivalent gain. No surprise, then, that confronting one’s mortality is a topic to be avoided -- it is the ultimate loss. This is especially the case given that many see no upside to buying a life policy: “When I win, I lose.” There will be traction for those innovators who can get to a nuanced definition of “trigger events,” beyond the tired and obvious ones. Trigger moments are when people will be more likely to evaluate the loss/gain relationship in a new light. See also: 8 Start-ups Aiming to Revive Life Insurance   3. Don't just play around the margins of what already exists. Be open to the possibilities that: (1) Potential buyers who say your product is too expensive are trying to tell you that the price/value relationship is weak. (2) People don’t understand the value of many life insurance products because these products are too complex. (3) In a world, where people fear the consequences of living too long, a product that focuses on one’s death seems out of step. Test the receptivity for product concepts that include living benefits and allow people to make tradeoffs among features. On the critical path: (1) cracking the code to combine delivering value to the buyer and financial feasibility all the way through claims payment, (2) executing with minimal fine print and (3) creating products that can be distributed through a cost-effective, multi-channel platform that leans digital/call center, innovates on commission structures and defines a new agent archetype.