Last month, Uber Technologies took action to heal a rift with its drivers, but it may have inadvertently created a rift with its customers. The company announced a class action settlement with its California and Massachusetts drivers, who sued Uber for classifying them as independent contractors, rather than as employees. The settlement, if approved by a San Francisco judge, will leave the independent contractor classification intact, but it will also give Uber drivers some new rights. Among those new rights is allowing drivers to post signs in their cars soliciting tips from customers. And that’s where Uber’s ride might get a bit rocky. Uber and its ride-hailing app arrived on the scene in 2009, and the company has enjoyed spectacular growth ever since. Fueling that success has been Uber’s innovative customer experience — which isn’t just great, it’s magical. With the push of a button on a smartphone, a private car rolls up curbside ready to take you wherever you need to go.  You get in, you go, you get out. That’s it. There’s no fumbling for cash to pay the driver, no math problem at the end of the ride to calculate a tip from a fare meter. Uber just charges a flat fee for the trip to the credit card on file for the customer. It is, in a word, effortless for the passenger, both physically and mentally.  But that could change if drivers start soliciting tips. Uber’s app has no facility for adding a tip to the fare, and the company has indicated it has no intention of incorporating that capability. So, with the driver's ability to solicit tips, the cashless interaction, a hallmark of Uber’s customer experience, is replaced by one that looks and feels a lot more like a traditional taxi cab. Furthermore, a service that had been free of the emotional baggage of tipping (should I or shouldn’t I, and, if so, how much?) will suddenly become more mentally taxing. Instead of feeling liberated from the typical taxi fare ritual, Uber riders may feel "guilted" into tipping their driver (especially because Uber’s bidirectional scoring system lets drivers and passengers rate each other). In Uber’s defense, it’s possible that tip solicitation was the least of all evils at the settlement negotiating table. What’s troubling, however, is that tipping — as handled in Uber's ecosystem — undermines a key point of differentiation for the service. What was effortless suddenly becomes effortful. Down the road, that could present a problem for Uber and could perhaps be a give a lift to Lyft, Uber's primary competitor in this space (which, incidentally, offers cashless tipping via its app). See also: New Questions on Uber and Lyft To survive long-term, businesses have to adapt, be it to changing circumstances, marketplaces, regulations or environmental influences. What’s important, though, is to make sure those adaptations don’t undermine foundational elements of a company’s value proposition (in the case of Uber: rider convenience.) Southwest Airlines, for example, has long resisted charging fees for baggage, even as the rest of the industry has collected billions of dollars. Why? Because the company views the lack of fees as a central component of its passenger-friendly policies — policies that, to quote the stated brand purpose, give people the “freedom to fly.” Southwest has also avoided flying any aircraft other than the Boeing 737, viewing that operational simplicity as a critical ingredient to delivering a superior passenger experience. (Southwest’s acquisition of AirTran in 2011 was almost derailed over this point — until Southwest got Delta to take over every non-737 airplane in AirTran’s fleet.) So follow Southwest’s lead and ask yourself: What elements of my firm’s customer experience are truly sacrosanct? What are the characteristics or components that are so central to our brand experience they should never change? Put your finger on those elements now, when you’re not in the middle of a stressful business decision that might cloud your judgment. Then do your best to protect those pillars of the experience, limiting adaptations and accommodations to areas that are less likely to dilute the brand differentiation you’re trying to cultivate. See also: Will Workers' Comp Kill Uber, Lyft, Etc.? With Uber opening the door to gratuities for its drivers, we may be witnessing a “tipping” point in the evolution of the company’s customer experience (and not for the better). Avoid putting your business in a similar situation by clearly identifying – and preserving – that which sets you apart in the marketplace. This article first appeared at Watermark Consulting.

What do Steve Martin, Alice in Wonderland and Amazon founder Jeff Bezos (or any other successful entrepreneur) all have in common? They know how to “get small.” While the notion of getting small means something different to each, the ultimate meaning for all is that getting small is the key to something bigger. For Steve Martin, it is a hilarious way to describe the way to measure how much a recreational drug has impaired, or perhaps even expanded, one’s perception of the world. For Alice, it is a way to enter places she could have never gone before and thereby learn something new. For Jeff Bezos, it is about envisioning a big idea and recognizing that investors and consumers won’t accept it unless it is served up in bite-sized pieces, in the right order. Getting small is a critical, yet missing, skill set (and mindset) for the insurance industry. This wasn’t always the case. If you trace back the roots of any insurance company, you’ll find a founder who had a big vision but knew how to start small before asking anyone for money to help fund it. Perhaps it was just to help a small region of the country or a specific group of people who had a unique situation where impact could easily be measured. Dial the clock forward 100-plus years and you have companies that are so far from their entrepreneurial roots that they completely lost the ability to create and launch brand new products, services and business models. We’ll blame things like legacy systems, multistate regulations and entrenched cultures, which are real; however, we can still apply the skill set of getting small to work within those constraints. Having been through innovation journeys with a healthy number of insurance companies over six years, it is easier now to see how much this issue has impeded the ability to make progress with big ideas. Yes, there are game-changing ideas in their pipelines — ideas that disruptive start-ups would be proud of. But the lack of ability to get small stands in the way because of these three beliefs:

1. The product has to be maintained for the life of any one policy. So every possible future transaction must be accounted for because nobody wants customer complaints.
2. The product must conform to all the current rules and regulations, even if they don’t logically apply to the new idea, because nobody wants to disturb regulator relationships.
3. The product’s underwriting risk must be completely understood before launching anything because nobody wants to shut down a product on account of being wrong about its pricing.

The reality is innovation in any industry involves complaints, changing relationships and being wrong about pricing. The key is minimizing each of these so that the financial and reputational impact on the company is also small. How? By building the skills of prototyping and minimum viable product (MVP) design. Prototyping is a way to design an experience so that it feels real but isn’t. No promises are ever made, no rules broken and no risk transferred. The advantage of prototyping is the ability to accurately test consumer reactions to key features, and learning which ones are the most attractive. More important, prototypes paint the vision of the future for purposes of galvanizing a team and inspiring change for regulators who need to be on that team. Not everyone can be inspired, but if you find a few, that’s a start. The lessons from the prototype dictate the MVP, which is the smallest and lowest-risk starting point at which a product will attract. From this, you learn, adjust and ultimately scale up if appropriate. There is also an exit strategy. Choosing the right MVP is critical because it means you’ve taken the optimal amount of risk for the potential return. Zero risk is not an option because it means you’ve learned nothing, launched nothing and got no result. Steve, Alice and Jeff would never stand for that. Neither should you. This article previously appeared in National Underwriter Life and Health Magazine.

AARP's Project Catalyst recently released a study in collaboration with HITLAB, the healthcare innovation and technology lab based in New York, that shows a very high family caregiver interest in using new technologies to help care for loved ones (71%), but the actual usage today of technology by caregivers is very low (7%) due to the lack of awareness of viable options and the time challenges involved.

According to Laura Pugliese, deputy director of HITLAB and member of the research team, the study is "a call to action regarding the tremendous challenges facing our society and unpaid family caregivers, who are unsung heroes. We are helping to put together a road map for innovative companies to produce technology products and services in the caregiver marketplace to address unmet needs. We want to find out what works and what doesn't."

That is the basic goal of AARP and its partners in Project Catalyst, including the medical researchers at HITLAB. The staggering statistic in this study is that by the year 2020 there will be 117 million Americans (including the aging baby boomers) who will need assistance with daily living and healthcare issues. The problem is that, although 117 million people will be in need of a wide range of assistance, it is projected that only 45 million family members will be available to help care for their loved ones. These family members are not only unpaid, but lose $522 billion in income, according to the study ("Caregivers and Technology: What They Want and Need").

As a former caregiver for both my mother and father, who served in WWII and who were part of America's greatest generation, I can't even begin to share how stressful, time-consuming and emotionally draining the process is and the profound impact it played in both my personal and professional life.

As a caregiver over the span of several years, I became involved in finances, banking, wills, estates, taxes, power of attorney, selling a home, healthcare directives, Social Security, Medicare, Medicaid, senior housing, assisted living, nursing homes, DNR orders (Do Not Resuscitate), doctor appointments, surgery, emergency room visits, hospital stays and end-of-life decisions, in addition to just being a son and a brother. I wouldn't have it any other way, of course.

The only technology available to me was my cellphone and answering machine, but AARP Project Catalyst has identified nine frontiers for innovative technology companies to address:

• Medication Management
• Vital Signs Monitoring
• Diet and Nutrition
• Aging With Vitality
• Healthcare Navigation
• Social Engagement
• Physical Fitness
• Emergency Detection and Response
• Behavioral and Emotional Health

These nine frontiers certainly identify the key areas of concern of a caregiver. However, as I thought about all the time and effort involved from my own personal experience, what is lacking is overall caregiver support. I was often asked, How is your mom? How is your dad? Nobody ever asked how I was doing.

Nothing can prepare you for this caregiver role. In the middle of intense professional obligations as a vice president with responsibilities to major clients, I had to sell a house, find good doctors, get power of attorney, prepare financial statements, pay bills and find cleaning services while seeing that my parents were getting the best healthcare available at the right time and place and taking all the right medications.

Being a caregiver is at minimum like having a part-time job, unpaid. The AARP/HITLAB study found that on average a caregiver spends 20 hours a week on a wide variety of tasks. From my experience, that is about right on a good week.

I can envision existing and future technologies having the ability to better monitor medication regiments. My father, who suffered from congestive heart failure, a blocked carotid artery, diabetes, arthritis, sleep apnea and other ailments, was given so many medications that I had to work with the hospital pharmacy department to develop a check list of what medications he should be or not be taking, what for, why and how often. I developed a handmade chart on his refrigerator door and put numbers on his prescription drug bottles. My handwritten instructions were take # 1, 2, 6, 8, 10 and 12 in the morning, another set in the afternoon and another set at night. It worked, but I had to do this myself by hand with help of a pharmacist.

Initially, the doctors wanted to amputate my father's legs due to poor circulation from congestive heart failure, but by getting a second opinion we learned that his cardiologist was prescribing the wrong medications. I got him a new cardiologist and the right medications. A dad whose sons didn't have our healthcare background and connections would have needlessly lost his legs and his quality of life.

Although there are technologies in use today, the actual usage based on this real world study is only 7%. The ability to monitor vital signs, especially for people with sleep apnea, congestive heart failure and other chronic conditions along with glucose levels for a diabetic can bring both peace of mind to a caregiver and potential lifesaving capabilities for the patient.

This study should be a call to action, and I'm sure there are many potential technologies in the pipeline or on the drawing board. I am also glad that people like AARP and HITLAB and the sponsors of Project Catalyst, including Pfizer, UnitedHealthcare, Medstar Health and the Robert Wood Johnson Foundation, are working on this road map.

Project Catalyst is actually reaching out to caregivers themselves to determine what their needs are and what works and what doesn't. HITLAB medical researchers literally went to people's homes to interview them to determine their daily needs and their use of technologies as a caregiver. I believe a very comprehensive list of potential technologies should be developed and tested. I see that healthcare technologies and apps are being developed and tested now to address health monitoring such as vital signs and glucose levels. My fear is that this potential use of technologies will be fragmented and require multiple companies, each addressing one of the nine identified frontiers, and may be cumbersome or expensive.

A major issue will also be the ability of medical providers to monitor these vital health signs and other health issues in real time. In addition, will the health insurance industry, including Medicare and Medicaid, be in position to pay primary healthcare providers for this monitoring?

I would also like to see innovative companies provide a comprehensive list of capabilities to help with all the non-direct healthcare needs of a caregiver, such as selling a home, power of attorney, healthcare directives and finding professional caregivers such as visiting nurses, assisted living and nursing homes.

Stan Kachnowski, chairman at HITLAB, stated; "Our goal is to help bring the best technologies to the caregiver marketplace in order to make a positive impact where the patient (and their caregiver) comes first and profits last."

AARP and HITLAB plan to continue their research and will conduct a series of pilot programs to test new technologies.

This is something that will eventually affect almost everyone either as a patient, caregiver or both. When doctors say there is no known cure for congestive heart failure, diabetes or Alzheimer's or other chronic conditions, they mean it.

In today’s insurance environment, victory belongs to the bold. Margins are under pressure, and competition is heating up; insurers can no longer afford to sit on businesses that are under-performing or sub-scale. By taking a portfolio approach to their businesses, insurers can start to assess the value and performance of their assets to make bold decisions on whether to grow or go (build or leave the business). Time for bold decisions Facing continued low interest rates, growing rate pressures in the property and casualty (P&C) sector and high levels of competition in both the P&C and life sectors, insurers will see margins under pressure for the near future. Not surprisingly, most have already undertaken massive cost-reduction initiatives. Now, with little room left to cut, some are starting to take a more critical and strategic view of their business as a whole. Our experience suggests that insurers need to take bold action and make difficult decisions now if they hope to create shareholder value and grow their business. The reality is that too many insurers are carrying businesses that are sub-scale, underperforming or simply distracting for management. See Also: What is Your 2016 Playbook for Growth? To help organizations assess their businesses and local operations, we have developed a diagnostic tool that segments businesses in the following way: Taking a portfolio view We firmly believe that there are significant opportunities to help insurers enhance shareholder value by taking a portfolio view of their assets. And, in doing so, insurance organizations should be able to make clear decisions about whether to go (i.e., leave those markets and businesses that do not meet the strategic objectives of the organization) or grow (i.e., committing to targeted investment to drive transformational change and improvement initiatives that will allow the business to compete effectively). Indeed, by looking at non-core businesses as a portfolio of assets, insurance executives should be able to properly assess each businesses’ strategic fit, performance and synergies, which, in turn, will enable them to identify opportunities to improve the business through portfolio realignment. Taking a portfolio view will also provide insurance executives with the insight needed to prepare a fix, close or sell strategy that drives a clear approach for non-core assets and then move through to a robust execution plan with appropriate governance. GO: A bespoke approach to divestment In those cases where the assessment process leads to the decision to go, insurance executives will need to develop a smart divestment strategy for the business. Interestingly, our experience suggests that the divestment process has evolved considerably over the past decade. Whereas in the past, the normal approach to selling a business involved rigid auction processes based on standard checklists and documents such as information memoranda and vendor due diligence reports, most now recognize that this approach may not maximize value. Instead, insurers are now taking a more bespoke and focused approach to divestment that is largely influenced by four key factors: — economic conditions — sellers taking control — wider buyer populations — business model changes GROW: More than just scale Insurers need to have sufficient optionality and diversification to respond to a rapidly changing business environment. And while not all divisions and local operations need to be market-leading, they do need to demonstrate how they can make a contribution to the overall strategic ambitions of the organization. For some, the answer will come in the form of inorganic growth within their sub-scale businesses. For others, targeted investments to support product growth initiatives or new distribution arrangements offer a lower-risk solution. However, while many deals have been driven recently by organizations with a (fully understandable) strong focus on costs and efficiency, we often find that scale, in itself, is not a good enough reason to support a deal. Indeed, we believe that acquisitions must also bring complementary capabilities (such as new expertise in specific product lines, increased geographical reach or new distribution models) to create a sustainable platform for future growth. GROW: Responding to a changing environment New technologies, changing customer demands, new ways of doing business and the threat of innovators disrupting the traditional business model are all changing the way that insurers view their portfolio of assets and businesses. See Also: The Formula for Getting Growth Results Clearly, understanding and capturing the benefits of innovation is a critical imperative, and there are major opportunities available for companies willing to invest in new technologies. Recognizing this, many insurers are now starting to develop new models and ways of working with the financial technology (FinTech) community. Key takeaway: Be bold Regardless of whether the decision is to grow or go, insurers need to start facing up to the difficult decisions that must be made about their underperforming assets. Interestingly, our experience suggests that — in this rapidly evolving space — outright acquisition may not always be the right answer. As our recent report, The Power of Alliances, demonstrates, many insurers are now exploring the value that could be generated by investing in partnerships, alliances and innovation hubs to broaden their exposure to innovations and technology solutions. Simply put, insurers can no longer afford to sit on businesses that are not delivering value; they must make bold decisions and then execute on them to win in this environment. Reprinted from (Regulatory Challenges Facing the Insurance Industry in 2016,) Copyright: 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of a particular situation. For additional news and information, please access KPMG's global website.

Insurers and intermediaries know that innovation has the potential to disrupt their current business and operating models. And they know that they need to innovate faster than their competitors to defend and grow their business. Yet few have found a winning formula for embedding innovation into their people, products or processes. Feeling the disruption The fact that new technologies, innovations and business models are changing the dynamics of the insurance market is clear. More than eight in 10 insurance executives responding to our recent survey, Innovation in Insurance, said that they believe their organization’s future success to be tied closely to their ability to innovate ahead of their competitors. But with new entrants, new technologies and new business models emerging at an increasingly rapid pace, many insurers are also concerned that innovation will bring more disruption than value. Many are already feeling the heat. In fact, almost half of our survey respondents said that their business models were already being disrupted by new, more nimble competitors. For some, the risk of disruption and the opportunity for competitive advantage is driving a renewed focus on innovation. In a recent interview with John Geyer, senior vice president of MetLife’s innovation program, for the report, A New World of Opportunity: The innovation imperative, he said: “If somebody’s going to disrupt our industry, it might as well be us.” Indeed, new technologies are reducing losses and costs while saving lives and increasing customer satisfaction, reducing risks and driving new business models and consolidation within the industry. New advances such as driverless cars, machine learning, home sensors and "robo-agents" empowered with artificial intelligence and mobile payments offer a world of opportunity for insurers. The capacity and capability to innovate While many insurers recognize the vast possibilities that innovation brings, many seem reluctant to be first out of the gate. This is not entirely surprising; most organizations responding to our survey reported that they lack the hallmarks of an innovative organization, such as dedicated budgets, formal strategies, executive-level support and measurement processes. Even those that want to take first- mover advantage (as almost a third of our respondents’ claim they wanted) face significant challenges catalyzing innovation. In part, this comes down to capacity: 79% of respondents across the globe told us that they were already running at full tilt just keeping up with their core requirements. Capability is also a key concern. Lack of skills and capability was ranked by 74% of respondents as a top three barrier to innovation, particularly for smaller and mid-sized organizations and those based in Europe. Simply put, insurers know what they need to do to drive innovation but recognize they lack certain skills to achieve it. To be fair, most insurers have certainly been working hard to improve their innovation strategy and capabilities. Many have already implemented cultural change programs focused on fostering innovation and training programs to develop idea generation and innovation skills. Others have put their sights on widening their innovation ecosystem by engaging in partnerships with academics, FinTechs and other third parties to drive innovation. Some have even changed their business models or created innovation "hubs" or "labs." Lessons from leaders Our experience suggests that while all of these previous initiatives are valuable, few organizations have been bold enough in their objectives or their execution to truly drive change. Based on our research, our interviews and our experience, we have identified six key ways that leading insurers are becoming more innovative.

1. They are focusing on creating a customer-centric culture. While more than half of respondents say they have conducted a cultural change program in the past five years, our experience suggests that they may have focused their efforts in the wrong area. Rather than trying to become more innovative, insurers may instead want to become more customer-centric, which, in turn, will drive innovation.
2. They are willing to disrupt their existing business models. Doing more of the same, only faster, is not a recipe for long-term growth. Leading insurance players recognize the need to innovate not only product and service development, but also how they approach innovation itself. Insurers and intermediaries need to be willing to try new models and partner with new stakeholders to truly compete in an innovation-led competitive marketplace.

3. They apply agile and dedicated leadership. Innovation requires leadership, strong executive support and clear vision. There’s no secret engine behind a door that creates innovative energy for an organization. It’s not about having the best game plan; it’s about having a coach who knows which players to put in the field to execute on the game plan. That’s how goals are scored.
4. They mitigate risk by investing and experimenting. The best companies have discovered ways to link their investments to the expected frequency and severity of risks to ensure they are appropriately matching investment to risk. They have started to experiment with new business models. Looking at the viability of their current business model and the role of technology in their competitive strategy, they are also exploring new business models and businesses as the profile of risk changes.
5. They understand why they are investing. While most organizations report that they measure their return on their innovation investments in some way or another, the leading insurers are working to ensure that they have the right alignment with business objectives and are broadening their metrics beyond simple financial ROI calculations to include more subjective measures such as public reputation or customer engagement.
6. They learn from others. We believe partnerships will be key to future success, but we need the right structures, models and infrastructure to create value. Large organizations need to learn to partner, and all organizations need to learn to partner effectively. Consider alliances with partners outside of insurance to accelerate customer benefits and expand the value chain.

The road ahead Our research and discussions with established and start-up players suggest that — to make the most of this new world of opportunity — the insurance industry needs to pivot from a traditionally risk-averse culture to one that encourages experimentation while mitigating financial risk. To achieve this, insurers will need to tap into new sources of innovation, accessing fresh ideas from employees, customers, investors and partners, which, in turn, will require progressive leadership at the top of the organization. The innovation imperative is clear for insurers. Now it’s time to make the most of the world of opportunities that exists for those bold and innovative enough to seize these opportunities to create competitive advantage. Reprinted from (Regulatory Challenges Facing the Insurance Industry in 2016,) Copyright: 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the facts of a particular situation. For additional news and information, please access KPMG's global web site.

After my 10-year old daughter caught me reading “Snoopy the Destroyer,” Paul Krugman’s column in the April 11, 2016, New York Times, I had to reassure her that Snoopy was still safe to watch. Krugman may scare little girls with his article arguing for more federal regulation of financial institutions, including MetLife, owner of the Snoopy logo, lest the economy blow up. But consumers and the broader economy should not be scared, due to the work of state insurance regulators. The idea, as suggested by Krugman, that federal regulators know best would have Charlie Brown saying, “Good grief.” As Iowa’s state insurance commissioner, I work closely with 55 other insurance commissioners, directors or superintendents through the National Association of Insurance Commissioners (“NAIC”) to supervise the nation’s insurance market.  I serve as chair of the NAIC life and annuity (“A”) committee, which sets national policy on matters that affect the life insurance and annuity industry. Through these roles, I know our state-based regulatory system works to protect all American consumers and the financial soundness of the carriers we regulate. The myth that federal regulators know best has long been dispelled, but it is still front and center today, particularly when those same federal officials are challenged on their decisions. Alarm bells are going off at the Treasury Department after a U.S. District Court recently threw out the designation of MetLife as a systemically important financial institution (SIFI). Treasury Secretary Jack Lew lashed out at the court in public statements and in the pages of major U.S. newspapers that MetLife, a company that is almost 150 years old, somehow presents a threat to the U.S. unless the company is subjected to additional oversight and federal regulation that accompanies the SIFI designation. Secretary Lew fails to acknowledge that MetLife, Prudential and hundreds of other insurance companies are closely and successfully regulated and supervised by state insurance commissioners, and have been for decades. Critics of the court’s decision - including Lew – argue that the court did not defer to the “experts” at the Financial Stability Oversight Council (FSOC), which found that MetLife posed a threat to the economy. However, the FSOC itself ignored its own true experts. The FSOC designated MetLife as a SIFI in December 2014 over the objections of the only two independent FSOC members with true expertise and experience in insurance regulation. What we have learned following the 2008 financial crisis – and what Congress should keep in mind – is that the near collapse of AIG, and the accompanying $180 billion check from taxpayers to save it, was due to suspect federal oversight of AIG, not to any inadequacy in our state-based insurance regulatory system. AIG was a large, complex financial company. The insurance operations were supervised by the state insurance regulators, while its financial products division was supervised by the Office of Thrift Supervision (“OTS”). It was AIG’s financial products division that became overextended by offering credit default swaps backed by the sizable balance sheet of AIG. OTS did not require AIG’s financial products division to have sufficient capital, and the company was left exposed. I want to ensure that the economy is protected from a financial crisis as much as anyone, but the thought of federal regulation and supervision of traditional insurance activities does not allow me to sleep easier. To the contrary, we need a coordinated regulatory approach where regulators work together. The federal government’s supervision shouldn’t expand into areas where it lacks expertise and where states are already working effectively. Consumers will bear the costs of this unnecessary overlap and duplication. The insurance industry is under the watchful eye of state insurance departments, and our track record of solvency regulation of large national and multinational insurers speaks for itself. The NAIC and state insurance departments have updated solvency oversight through transformational model laws that allow state insurance regulators to maintain a close watch on the insurance activities of the carriers domiciled in our respective states. When Judge Rosemary Collyer rescinded MetLife’s designation, she found that FSOC failed to take into account existing regulatory regimes. In short, the court found that FSOC failed to consider the level of scrutiny that insurance carriers like MetLife face from state regulators. Through strong statutory schemes and strong financial oversight, state regulators have detailed knowledge of insurance companies and successfully protect policyholders in all 50 states. Insurance companies do fail, as part of a healthy and competitive market, but it is a rare occurrence, because state insurance regulations require that insurance companies hold significant amounts of capital in reserve. Even when a company fails, policyholders are protected through our receivership process. In addition to the amount of capital a carrier is required to hold, states also maintain strict rules on the kinds of investments an insurance carrier may make with policyholders’ money. If the OTS maintained this same type of oversight and approach, AIG would not have required a massive taxpayer bailout. Alarmists like Secretary Lew insist that a large insurance company poses a threat to the U.S. economy and thereby requires federal supervision. They claim that Judge Collyer’s decision throwing out MetLife’s SIFI designation undermines broader efforts to reform our financial system in the wake of the 2008 financial crisis. But Judge Collyer’s decision is focused on the process that the Financial Stability Oversight Council used for designating MetLife as a SIFI in 2014, not the broader law. Dodd-Frank anticipated the fallibility of FSOC designations, as the law allows companies to challenge their designation. I do not blame MetLife for challenging the FSOC. FSOC continues to dismiss the legacy and expertise of state regulators like myself and has announced that it will appeal the District Court’s decision. It is puzzling why the federal government believes it can do a better job than on-the-ground state commissioners. As state commissioners, our top priority is protecting policyholders and providing robust oversight. This allows me to tell my daughter that Snoopy isn’t the bad guy, but she may learn to fear alarmists like Krugman and Secretary Lew as she begins to read past the funny pages.

The P&C insurers that will win in our increasingly data-driven market are the companies that embrace the possibilities of technology and are able to own the “micro-moment”: Companies that reach consumers when they are making decisions and forming preferences will be ahead of the curve. Communication technology now makes it possible for insurers to reach out to customers using automated voice, text, social media, email and other platforms. For example, when catastrophe looms, such as a major weather event, insurance companies have a great opportunity to protect policyholders and minimize losses by contacting customers. This is not only good for the bottom line, because it avoids losses; it's a great way to deliver an exceptional customer experience, which confers a competitive advantage. Insurance company executives instinctively see the value of using personalized communication to build loyalty and strengthen relationships. But not all companies are fully ready to take advantage of the possibilities of a closer connection with customers. See Also: Data Science: Methods Matter Executives worry about the quality and accuracy of the data they have on hand. That’s because many insurance companies only contact customers when processing a claim or following up on a late payment. Some use these opportunities to update their customer data, but since records verification only happens around transactions, a sizable portion of the company’s customer information is always outdated, and that can stymie efforts to own the micro-moment. Take the connected catastrophe scenario, for example — because much of the customer base is always connected and has higher expectations around personalized communication than ever before, it makes sense to conduct customer outreach when a catastrophe is likely. By reaching out to customers, companies can contribute to customer safety, reduce losses and strengthen relationships. A P&C company, with an insured population in the path of a hurricane or wildfire, might reach out via automated voice message, text, social media (e.g., Facebook or Twitter) or email to alert customers of the danger, provide advice on documenting insured property and inform customers on how to file claims once the event is over. The P&C company might also identify the location of mobile service centers. The message this type of initiative sends to customers is unmistakable: The company is looking out for the customer and stands ready to assist during a tough time. And with modern communication technology, companies can implement a system capable of managing affordably customer outreach across multiple platforms, using automation to handle most of the workload. Another issue is that many P&C companies don’t make a practice of asking for permission to contact customers or recording customer communication preferences. In addition to up-to-date contact information (including landline and mobile numbers), companies need to request communication preferences, such as whether the subscriber prefers to be contacted by voice, text or tweet. Getting P&C company databases where they need to be to conduct widespread customer outreach in a personalized manner that respects customer communication preferences will take a large-scale data scrubbing effort at most companies. It can be conducted in-house if the insurer has sufficient resources to tackle such a project, or the company can choose to hire a third-party vendor. When P&C insurers have the clean data they need, they can contact policyholders to help keep them safe, but that’s just the beginning. With clean data and the ability to automate communications using customer preferences, companies can reach out to customers about changing coverage needs, inquire about policy lapses, address late payments and much more. The first step in fostering closer relationships with customers via personalized communication is making sure the information on hand is clean — data that has been verified as accurate. With clean data, forward-thinking insurance company leaders can ensure that consumer demand for greater personalization is met and that their company thrives in an increasingly data-driven economy.

The use of telematics in car insurance isn’t new. For the past few years, more and more drivers have been signing up to have little black boxes installed in their cars that monitor their driving behavior, as insurance companies offer incentives such as lower premiums and discounted rates for safe drivers. By allowing insurers to track their driving behaviors – including average speed, braking force and distance driven – drivers are able to negotiate lower premiums and other benefits, which many view as a fairer and less discriminatory way of assessing risk. From a commercial point of view, if we can promote and encourage safer driving on the road then the number of crashes will come down, and the cost to the insurance industry will reduce accordingly – and those savings will be passed on to the public. Premiums for 17-year-olds with telematics boxes are half what they were four years ago overall, and statistics suggest accident rates within this age bracket are also coming down. Technology, and technology-enabled propositions, have really reduced claims costs, especially for young drivers. "Black box insurance" has other benefits, too. Many insurers also offer free anti-theft tracking and roadside assistance through the device, and so far RSA has a 100% return rate on stolen vehicles that have a telematics device fitted. Enter the era of the smart home With the benefits of telematics so clearly proven within the automotive industry, insurers are now turning their focus to the residential realm – in a bid to create "smart homes" that are intuitive and responsive to internal and external risks. For many homeowners, the ability to control their climate, lighting and entertainment devices is one of the main attractions when it comes to home telematics, whereas insurers are drawn to the security benefits offered. Luckily, telematics-based home insurance offers both parties the best of both worlds – convenience and risk mitigation, all in one handy tech-savvy package. Smart home = smarter home insurance? Just as black boxes in cars reward safe driving behaviors with lower premiums and discounts, smart home owners could reap the benefits of a connected abode. From discounts for locking the door and setting the alarm, to a fairer, up-to-date assessment based on moisture, flooding or carbon monoxide monitoring, home telematics can give consumers more control over their insurance rates and premiums, as well as a more in-depth understanding of their utilities usage, environmental risks and overall home security. In fact, smart home technology-based insurance has the potential to improve on existing discounts or lower premiums for features like security systems – simply by ensuring that these features are regularly used. With people buying smart switches and systems, insurers are looking initially for propositions that help reduce the impact, even eliminate, some claims around water, theft and fire. What’s next, connected pets? It may seem like a sci-fi fantasy, but telematics for pets is set to be the next game-changer in the insurance industry, which is no surprise given that around 2.6 million people in the U.K. have pet insurance. Pets are seen as part of the family, and owners spend a considerable amount on maintaining their furry best friends’ health, well-being and fitness. But how do we keep an extra close eye on our four-legged friends when we don’t speak their language? Pet telematics: Going beyond the microchipping process It’s not as disturbing or invasive as it sounds. All it takes for pets to join the telematics generation is a small GPS device – which is clipped to a collar or inserted under the dog’s skin to record its movements and activities throughout the day. When paired with a smartphone app, this safe, easy technique allows owners and insurers to monitor pets’ body temperatures, hormones and heart rates, with some even going as far as tracking bowel movements – and this data is collated to form a comprehensive picture of a pet’s health and lifestyle. Pet insurance is really a well-being product – private medical insurance for cats and dogs, effectively. Pet obesity results in a lot of claims, so if pet telematics can encourage owners to have healthier, more active pets, he’s for it. What’s in it for consumers?  The use of telematics in everyday life and activities puts consumers in the driver’s seat when it comes to their insurance policies and premiums. By having access to detailed data on their driving, home security and pet care, ordinary consumers can become more aware of the risks around them, which could spur them to change or improve their behavior. People want to be healthy and happy, and not have to deal with the aftermath of an insurance event. The common thread across telematics is that technology creates proposition that either prevent or minimize the impact of claim events. What about privacy concerns? While many customers may balk at the thought of having their lives monitored, a recent Deloitte survey has shown that more than half of respondents were willing to share private information for a premium discount. This shows that, although privacy concerns remain top of mind for most, a sizable incentive can override that resistance to transform consumers into adopters. See the Deloitte report here. What’s in it for insurers? Telematics enables insurers to create products and services that accurately reflect customers’ risk. Perhaps that explains why telematics has become increasingly popular among consumers and insurers over the past few years. A study by ABI research estimates that global insurance telematics subscriptions could exceed 107 million in 2018, up from 5.5 million at the end of 2013. It also predicts that usage-based insurance will represent more than 100 million telematics policies and generate in excess of €50 billion in premiums globally by 2020. Telematics can move insurers from dealing with incidents, to stopping those incidents from being as bad as they could otherwise be. Using technology lets insurers move into that prevention mitigation space. This article originally appeared on www.rsagroup.com/the-thread.

It’s no secret that cyber attacks have the potential to cause massive business disruption – affecting both financial performance and corporate reputations. But when it comes to C-suite preparedness for cyber attacks, organizational silos are preventing businesses from taking a comprehensive approach. Cybersecurity is a threat that affects the entire C-suite, and managing this emerging risk requires an integrated mindset. Many senior executives lack full knowledge about how cyber attacks could affect their organization and how to make cybersecurity a C-suite priority. Moreover, across organizations different leaders are addressing different parts of the cybersecurity challenge: where the chief  information officer (CIO) and chief information security officer (CISO) are focused on physical and virtual data security, the CFO is concerned about ensuring financial stability in case of an attack. The chief legal officer may be concerned with the potential litigation effect, while the chief marketing officer (CMO) is responsible for mitigating bad PR and preserving the brand. In sophisticated organizations, the chief human resources officer (CHRO) is developing cyber training and awareness programs for employees to address threats that can originate within the company. Cybersecurity is clearly a distributed problem that requires integration across the entire C-suite. Aon’s latest findings reveal that more than half of companies do not plan to buy cyber insurance even though there is an increased threat of attack. This disconnect exists primarily at the board level -- the C-suite knows cybersecurity is an issue, but struggles to define its effect on financial performance. As cyber attacks become more prevalent, organizations will need to take an integrated approach toward preparedness.

Imagine that you were a major investor in a leading company, and its board of directors had no members with independent, world-class financial expertise. Who would look after your interests? You could probably coach the directors to ask good questions, but they would lack the competence to judge the answers. The board would not be able to engage management in robust conversations about the complexities of capital structure, mergers and acquisitions, financial accounting, reporting, regulatory compliance or risk management. Most investors and regulators would deem such a board unfit to carry out its fiduciary guidance and governance responsibilities. Yet that’s precisely where many companies are when it comes to information technology. Digitally driven change is becoming as critical an issue to most companies as finance. Companies are being called on to reimagine and reconstruct every aspect of their business; customers, suppliers and markets expect no less. Consider the rapidly expanding use of mobile phones in retail and banking. Or the changes foreseen in the transportation industry due to car-hailing algorithms and driverless vehicles. Already, one MIT study has found that digitally adept companies are, on average, as much as 26% more profitable than their competitors. And that advantage is only likely to increase. The boards of many large companies are ill-equipped for these shifts. That was the conclusion of our 2015 study of more than 1,000 nonexecutive and executive directors at 112 of the largest publicly traded companies in the U.S. and Europe. By analyzing company filings and public information, we found that all too many boards lacked the expertise needed to understand how technology informs strategy and affects execution. In Europe, for example, 95% of the companies we assessed, excluding technology and telecommunications companies, still had no non-executive directors with deep technology fluency. In the U.S., almost half of the surveyed companies had no technology expertise on their boards. These included major financial-services, insurance, industrial and consumer products companies. Yet each of those industries is grappling with complex strategic questions that hinge on technology. See Also: How Leadership Will Look in 20 Years Even boards with world-class technology expertise can have blind spots in areas of strategic importance; these include analytics, cybersecurity and digital fabrication. And even experts who keep up with particular technologies may miss the general effects of rapid technologically driven change on core products, business models and customer preferences. Many board members are aware of these deficiencies. They know that their companies will either embrace technological change and claim the markets of the future or be put out of business. In 2015, a PwC global survey of large-company directors found that 85% of the respondents were dissatisfied with the way their companies were “anticipating the competitive advantages enabled by technology.” Almost as many, 79%, said their boards did not sufficiently understand technology. The pervasiveness of the problem is troubling for anyone who cares about these companies — but it also represents an enormous opportunity. At the board level, there is a need for knowledgeable, incisive “geeks”: independent directors with experience and perspective in putting technology to use. In the past, many boards have compensated by relying on management or external consultants for strategic advice. But the stakes are now too high to take that approach. Boards can no longer duck the responsibility for the company’s digital transformation. They must take real ownership by ensuring that they are equipped to fully understand this part of the board agenda. Otherwise, how can they adequately oversee their company’s strategy, investments and expense base? How can they guide profitability, manage risk, assess management performance and ensure proper talent supply? Below are three critical steps you can take to better prepare your company for these challenges. 1. Hold out for sufficiently broad and deep expertise. Although company leaders agree on the need to attract technology-fluent directors, they often approach the undertaking as an exercise in diversity. They “check the box” by bringing in one person to stand for the full technological field, rather than seeking multiple directors with relevant experience and insight. To assess the severity of this deficiency in the companies we studied, we analyzed the resumes of their nonexecutive directors on four distinct aspects of technology: pure-play disruptive digital business, enterprise-level IT, cybersecurity and the digital transformation of Fortune 500–sized enterprises. Each is critical to boards’ oversight responsibilities, and fluency in each requires a distinct body of knowledge and experience. Few experts in enterprise-level value-chain IT could offer expert guidance on building disruptive digital business, and vice versa. We found that more than 90% of the companies, including technology and telecommunications firms, lacked expertise in one or more of these critical technology areas. Our research revealed only two companies that addressed all areas: Google and Wells Fargo. To address the gap, you must open multiple board seats for people with technological experience. Just as having only one woman on a board has proven to be insufficient, having just one IT-savvy member is problematic. To fill these seats, you may have to reach beyond the traditional search targets of former CEOs and CFOs. Tap into recent CIOs, CTOs and other C-level leaders at successful information-intensive companies; retired military officers with large information-technology commands; and senior consulting and private equity partners with deep cross-industry expertise in enterprise technology transformations. Resist the urge to rely solely on Silicon Valley experience. Start-up experience is valuable, but addresses just a small part of the large enterprise technology challenge. Likewise, the “move fast and break things” attitude in Silicon Valley often does not translate well to other industries. When recruiting these board members, be wary of candidates without fresh experience; in fast-moving fields such as cybersecurity or disruptive digital technology, people who are no longer active don’t always keep up with the latest trends. If executives in the business sector are scarce, look elsewhere; other sectors may be surprisingly relevant. In financial services, for example, understanding sophisticated process control is increasingly important. The best prospective board member may come from the logistics industry — from, say, FedEx or UPS. 2. Support robust discussions of technology with the right kinds of practices and management structures. There are two possible mechanisms for accomplishing suitably robust discussions. The first is to establish a formal technology-focused subcommittee of the full board, on par with other oversight functions such as audit or compensation. This can be helpful in raising critical issues and promoting deep discussion of complex topics. It also creates a mechanism for engaging external advisers. Alternatively, set up a technology advisory committee that meets regularly with top management and periodically reports to the board. AT&T does this. It may be easier, with such a committee, to attract best-in-class expertise, given that the time commitment is low and there are no full fiduciary responsibilities. Typically, advisory committees can also rotate members more frequently than a board can. It must be remembered, however, that an advisory committee reports to management, not the board. This will color its advice. Whatever the structure, it is important for this group to address topics that go beyond technology strategy and IT governance. The most important priority may be enterprise strategy and the ways in which technology makes new value propositions possible. FedEx, which is as much a technology company as a transportation icon, has used such a board to great effect for many years. 3. Set the right context. Alan Kay, one of the foremost pioneers in personal computer conception and design, once said, “Point of view is worth 80 IQ points.” The context with which your board of directors views technology is a critical element for enterprise success. They must collectively understand the 10 to 15 drivers of technology that have taken quantum leaps in the past decade — for example, big data and analytics, cloud computing, mobile technology, artificial intelligence, the Internet of Things and autonomous transportation — and the potential implications each has for the company. They must also have a clear view of their own company’s IT landscape: their existing hardware and software, including estimates of redundancy, age, robustness, any risk of obsolescence and costs. For example, how many marketing systems, customer databases and human resource systems does the company have? How interoperable are those systems? The need to ask these types of questions about a factory or back-office footprint would be obvious, but boards have generally neglected such inquiries regarding technology. The board must also understand risks related to technology, the defenses currently in play and any weaknesses in those defenses. Most important, the board must understand how the company’s IT systems relate to the company’s overall strategy, and what capabilities are needed to support it. It falls to the board to ensure that the company has a multiyear plan to address technology needs while reducing costs and risk. Boards need not grant a license to spend. On the contrary, the hallmark of computers and networks is that they continually get faster, better and cheaper. These benefits accrue only to those with modern gear, however, so frequent upgrades are essential. Finally, the board must incorporate its expanded technology context into larger deliberations. Talent recruiting and leadership development should be designed to fill gaps in technological fields. The criticality of IT should inform the review of proposed mergers and acquisitions. A close link to the audit committee is important because technology affects regulatory compliance and ethical issues. And the relationship to full board strategy discussions is critical. Of course, placing someone with world-class technology expertise on a board does not guarantee success. Many technically proficient companies have lost to upstarts with a better product or service. But without this expertise, boards cannot play their most important role: intervening with substantive conversations about strategic decisions early enough to make a difference. And without these focused conversations about technological investments and decisions, boards cannot fulfill their fiduciary responsibilities. Today, every board of directors has a once-in-a-generation chance to leapfrog the competition through technology competency. The opportunity is great because the task is difficult, and there is no large pool of talent waiting to be recruited. Those companies that meet this challenge successfully will capture the markets of the future. A version of this article appeared in the Summer 2016 issue of strategy+business.