A decade ago, straight-through processing was a buzzword, and speed to market was critical. The progress that financial institutions have made in making almost all aspects of their transaction footprint digital has left little to leverage on the transaction side. Today, while most organizations are busy revamping their policy administration systems, which were long ready to be replaced a decade ago, the companies that will be set apart are those that start considering machine learning and artificial intelligence (AI) for their core systems. If you look at the fundamentals of any kind of insurance, at the core, insurance offerings are about risk pooling and the ability of the insurer to price products so that over time the premium revenues outstrip the claims experience. Historically, all the analysis has been done by people, and rightly so, as we lived in a world that was not connected, and human intervention to analyze outside factors was critical. See also: What You Must Know on Machine Learning   Fast forward to current time: All the data is on some kind of digital medium and more often than not connected and accessible. What is missing is the machine learning and artificial intelligence integration into the different facets of the insurance life cycle and the software platforms that are used to manage and maintain the data. The amount of data that needs to be analyzed and the patterns that are needed to be determined are so humongous that relying on data analysis by a person alone may not be the best approach. If you use Google often, you have noticed that now Google can predict what you are searching and what you are looking for based on data it collects on your location, your emails, your past transaction etc. Over time, there will be a cognitive angle to the search capabilities exhibited by Google. If you apply the same rule of thumb to underwriting, insurance pricing and risk aggregation, why would we not want to leverage machine learning in a similar manner? For this to happen, we need to start building software systems with not just automation in mind but also a consideration of how system design can extend machine learning. If the dots are connected and the data patterns understood and logic applied, there are certain decision making aspects that can move away from people to machines and over time evolve to largely autonomous ecosystem. What will differentiate the market leaders from the laggards is investment in this aspect. These changes will come in the next decade or maybe even sooner, and the underwriting and actuarial aspects will lean toward machine learning and AI-assisted functions. The next wave would lead to a totally autonomous ecosystem. The picture simplistically highlights the possibilities of embedding machine learning in the software ecosystem that we see in today's insurance landscape. This is a generalized view, agnostic of the domain or line of business. Insurance carriers would need to start thinking out of the box to translate this into software platforms of the future, pushing current roles into those that co-exist or radically change them. Before we set the drones to fly and change the commercial insurance ecosystem, machine learning and AI need to be adopted into mainstream core software platforms. The emerging market in the foreseeable future will be opened to the players that will NOT be consumed with dev-ops and pushing the realms of delivery automation but by those firms investing in infusing machine learning and artificial intelligence into core platforms enabling underwriting and actuarial functions to be supplemented by machines. See also: How Machine Learning Changes the Game   Insurance has traditionally followed and adopted what has been tried and tested in the banking space. For a change, there may be an opportunity for insurance carriers to take the lead and beat the banks and other financial institutions to set free the machines and change the way products are conceived and priced and premiums calculated.

In the modern insurance world, personalization is about more than modifying content to match consumer profiles. It’s about meeting consumers’ needs more effectively, making interactions easier and increasing overall satisfaction. Remember, the consumer experience is a funnel, and personalization can be applied to each touch-point in the funnel. Personalize all platforms of interaction: in person, mail, phone calls, email, website and mobile. See also: The Case for Personalization   When it comes to insurance, consumers want the process to be easy. Your use of personalization should align with that belief. Personalized service is important to consumers, and according to one study, 80% of insurance customers are looking for personalized offers, messages, pricing and recommendations from their auto, home or life insurance providers. Give your consumers what they’re looking for. The 3 Types of Data You Need for Personalization: With the Internet of Things, the majority of consumer touch-points are now digital. Use the available data to help improve your personalization techniques.

• Demographics: Leverage the consumer data you have—age, gender, location, platform preference (mobile, email, by mail, only digital), expressed interests—to better meet your customers’ needs. Asking consumers to repeat or re-enter information that they’ve already shared shows them that you don’t care. Know their demographics to show that you do.
• Past Contact: What is the consumer’s history with you? Use the historical data to your advantage. A record of contact with the customer is necessary and can greatly inform all future contact. Recall their previous experiences to better understand and meet their current needs.
• Present Context: Consider the present context data for personalization. What type of device is the consumer using? Which browser is she searching on? For what reason is he contacting you? This can inform the method of personalization used to better meet their needs effectively.

Personalization in Action Depending on your sector within the insurance industry, your method of personalization may differ. An insurance company may use personalization in a slightly different manner than independent agents do. Here are some personalization methods that put the three types of data mentioned above to use. Amend these methods to fit your sector and help improve the consumer experience.

• Contextualize language, images or graphics based on the consumer’s location in emails, mailing materials and in-app offers. Using an image of the consumer’s city or a well-known landmark can help show that you are aware of who your consumers are. Using language that matches your consumer’s demographics and is relevant to his age, location, occupation or needs will also be more useful to him. You can always A/B test to see which method resonates best.
• Refer to previous contact in current interactions. For example, an agent could say: “The last time we spoke was in November. Are you still the primary driver for your Nissan Altima?” Or a home insurer could send a follow-up email to ask how the home repairs went after a filed claim.
• Personalize email headers or content in reference to local events or happenings in the consumer’s location.
• Offer helpful, relevant information. Insurance apps may offer driving routes, roadside assistance and real-time weather reports or warnings. Similarly, agents can send email updates warning of a coming snowstorm or local incident that may affect their customers. Telematics companies could send home or car maintenance tips, reminding customers that it may be time to check their smoke detector batteries or get an oil change.
• Personalize offers to customer interests. If the consumer travels a lot, she may want to know more about rental car insurance or travel insurance. If a driver has had several recent accident claims, an agent could recommend technologies or courses to help improve skills and cut costs.

See also: 5 Stages on Journey to Personalized Insurance   Why Does Personalization Work? Personalization works because it’s relevant. When relevant information is provided, it meets consumers’ needs more effectively and efficiently. Relevant information speed interactions and improves consumer satisfaction. Every interaction with a consumer is not a singular event, but part of a collective path. With the growth of the Internet of Things, insurance is becoming more personalized and tailored to each consumer. Use the available data to deliver the right promotion, content and service to meet your consumers’ needs.

The goals you set for your organization might be sabotaging the very success that you’re trying to cultivate. That’s the message from Professors Maurice E. Schweitzer, Lisa D. Ordonez, Adam Galinsky and Max Bazerman – all of whom should surely win an award for the most creative titling of an academic research paper (“Goals Gone Wild” in the Academy of Management Perspectives journal). In a recent New York Times article, the professors’ research was highlighted along with intriguing examples of the unintended consequences of goal setting. Like this gem: An NFL team, in an effort to improve the performance of an interception-prone quarterback, added a clause to his contract penalizing him for every pass thrown to the opposing team. The result? The QB threw fewer interception -- but only because he stopped throwing the ball altogether, which wasn’t the desired outcome. See also: Your Data Strategies: #Same or #Goals?   This goal-setting phenomenon is routinely on display in business circles, when companies focus so relentlessly on a metric that their people over-rotate on it. That ultimately drives undesirable, sometimes even awkward behavior. Perhaps you’ll recognize some of these examples from your own experience, as a businessperson or as a consumer:

• Auto dealerships where franchise recognition is so closely tied to “top box” scores on a satisfaction survey that staff practically beg customers for an “Excellent” rating.
• Call centers that set targets for call length, leading service representatives to be more interested in getting customers off the phone than in actually helping them.
• B2B firms that use Net Promoter Score (NPS) as their primary gauge of performance, leading company representatives to hand-deliver the NPS survey at the most auspicious occasions (like on a golf outing with a client).
• Companies with such laser-focus on market share targets that they acquire new business at all costs, even at the expense of profitability.
• Human resource recruiters who are held accountable for qualified candidate “yields” from their sourcing methods, leading them to pass less-than-ideal applicants through the recruiting pipeline.

To avoid making your organization’s goals its own worst enemy, keep these four tips in mind: 1. Consider unintended consequences. In the fervor to address a business issue and rally the troops around an effort, organizations leap to embrace a metric without carefully considering all of the downstream impacts. Contemplating a new measure, or a renewed focus on an existing one? Put on your contrarian hat for a moment. Think of all the bad things that could happen if your staff focused, to a fault, on the line you’ve drawn in the sand. Based on how detrimental and probable those unintended consequences are, tweak your approach accordingly. 2. Strive for balance. Guard against over rotation on any single metric by creating a balanced system of measures. For example, if you want to encourage a sales-oriented culture, but wish to avoid staff making sales at any cost, then only reward those top salespeople who also meet some performance threshold for profitability or customer satisfaction. 3. Set Goldilocks goals. Setting goals is one management task where it’s dangerous to be cavalier. Set the bar too high, and you create unrealistic performance expectations that can disengage your staff or, worse, lead them to game the system. Set the bar too low, and you miss an opportunity to get people to stretch toward a higher level of performance. If you want to set a goal, first track the metric for a time to get a sense of its variability as well as the current performance level. That’ll help you set an informed goal that’s more likely to motivate rather than frustrate. 4. Beware the tie to compensation. Pay for performance – yes, I’m all for it. But organizations can get into trouble when they move too swiftly to tie particular metrics (especially new, unproven ones) to individual compensation. First, get some experience under your belt tracking the metric and providing individual feedback based on it. Then structure the compensation linkage in a way that reinforces a balanced approach to measurement. See also: Integrating Strategy, Risk and Performance   When it comes to performance measurement and goal setting, simple “carrot and stick” thinking won’t suffice. Business leaders must invest some real time engineering this piece of their workplace puzzle. It’s the best way to ensure that your organization’s goals are working for you, and not against you.

Walmart, a true leader in benefit innovation, is taking the next right step, expanding its popular and successful Centers of Excellence. When Walmart workers, called associates, use Centers of Excellence, deductibles and co-pays are waived. All travel expenses are paid for the patient and a companion. Starting next year, if covered folks at Walmart have spine surgery outside of a Center of Excellence, it will be considered out of network, and only 50% of the costs will be covered. This is a huge step and is reminiscent of the early days of preferred provider organizations (PPOs), provider networks and health maintenance organizations (HMOs). At the beginning, if you got care through a PPO, your deductible and co-pay were waived. In a few short years, those programs evolved into ones that paid regular benefits with deductibles, etc., if you used PPO doctors, but applied higher deductibles and co-pays if members went out of network. Of course, in most HMOs, if members went out of network, nothing was paid. See also: Walmart’s Approach to Health Insurance   What Walmart is doing now, while a very logical extension of what benefit plans have been doing for more than 30 years, is a huge step forward in truly controlling waste, overtreatment and misdiagnoses in health plans. Kudos. Here is the press release: The Right Care at the Right Time: Expanding Our Centers of Excellence Network Starting next year, Walmart will double the number of world-class medical facilities available to our associates who have been told they need a spine surgery. Whether you’re a cashier in Wyoming who’s been with the company for six months or you’re a 20-year associate running a store in Miami, if you have Walmart health insurance, you have this benefit. We are adding the Mayo Clinic facilities in Arizona, Minnesota and Florida to our current list of Centers of Excellence (COE) for spine surgeries, which are Mercy Hospital Springfield in Missouri, Virginia Mason Medical Center in Washington and Geisinger Medical Center in Pennsylvania. Our COE program is about more than just access to these facilities and their specialists; it covers these procedures at 100%, including travel, lodging and an expense allowance for the patient and a caregiver. Why would Walmart offer a benefit like this? It’s pretty simple – we care about our people and want them to receive the right care at the right time. Walmart started offering this benefit in 2013, and our data tells us we are making a difference for our people, but we want to do more. That’s one of the reasons for adding more eligible medical facilities to the program. Other reasons these medical facilities were selected are that each facility:

• Fosters a culture of following evidence-based guidelines, and, as a result, only performs surgeries when necessary.
• Structures surgeons’ compensation so they [have incentives to provide] care based on what’s most appropriate for each individual patient and look at surgery as a last option.
• Is geographically located throughout the country to provide high-quality care to participants in one of Walmart’s health benefits plans.

Research, as well as our own internal data, shows about 30% of the spinal procedures done today are unnecessary. By utilizing the Centers of Excellence program, our associates are assessed by specialists who are [given incentives] differently to get to the root cause and prescribe appropriate treatment. Our associates are very important to us, and we want to make sure they and their families receive the highest level of quality care available. Preventing a surgery that someone doesn’t need is only part of our Centers of Excellence. The other, even more important aspect is making sure our people receive the right diagnosis and care plan for their pain. In The New Yorker, renowned surgeon and public health researcher Atul Gawande underscored the importance of this approach: “It isn’t enough to eliminate unnecessary care. It has to be replaced with necessary care. And that is the hidden harm: Unnecessary care often crowds out necessary care, particularly when the necessary care is less remunerative. Walmart, of all places, is showing one way to take action against no-value care—rewarding the doctors and systems that do a better job and the patients who seek them out.” Walmart is not alone in this approach to appropriateness of care. One example is the Choosing Wisely initiative, which is backed by recommendations from more than 70 specialty societies including the American Academy of Orthopaedic Surgeons, North American Spine Society and the American College of Surgeons. The stated purpose of Choosing Wisely is to help patients choose care that is supported by the evidence, not duplicative of other tests or procedures already received, free from harm and truly necessary – we couldn’t agree more. To further encourage our associates to take advantage of this offering, next year, spine surgeries at one of our six Centers of Excellence medical facilities will continue to be covered at 100% with travel and lodging paid for the patient and a caregiver. If the surgery is performed outside of a COE facility, it will be considered out of-network and paid at 50% in most cases. Our associates are very important to us, and we want to make sure they and their families receive the highest level of quality care available.  We have seen spine surgeries performed often when they are not necessary. By making these changes in our benefit offerings next year, Walmart wants to make sure that our associates and their family members are diagnosed correctly and that they get the best possible treatment. See also: There May Be a Cure for Wellness  

The triggers that have induced the insurance industry to innovate have dramatically changed in this millennium. Up until the 21st century, little innovation occurred, because insurers were looking to create products for emerging risks or underinsured risks. Innovation occurred most often as a reaction to claims made by policyholders and their lawyers for losses that underwriters never intended to cover. For example, the early cyber policies, which insured against system failure/downtime or loss of data within automated systems, were created when claims were being made against business owners policies (BOPs) and property policies that had never contemplated these perils. Similarly, some exclusions and endorsements were appended to existing policies to delete or add coverage as a result of claims experience. Occasionally, customer demand led to something new. Rarely was innovation sought as a competency. Fast forward to today, when insurers are aggressively trying to develop innovative products to increase revenue and market share and to stay relevant to customers of all types. Some examples include: supply chain, expanded cyber, transaction and even reputation coverages. With sluggish economies, new entrants creating heightened competition, emerging socio-economic trends and technological advances, insurers must innovate more rapidly and profoundly than ever. The good news is that there is movement toward that end. Here is a sampling of the likely spheres in which creativity will show itself. Space Insurers have already started to respond to the drone phenomenon with endorsements and policies to cover the property and liability issues that arise with their use. But this is only the tip of iceberg in comparison with the response that will be needed as space travel becomes more commonplace. Elon Musk, entrepreneur and founder of SpaceX, has announced his idea for colonization of Mars via his interplanetary transport system (ITS). “If all goes according to plan, the reusable ITS will help humanity establish a permanent, self-sustaining colony on the Red Planet within the next 50 to 100 years” according to an article this September by Mike Wall at Space.com. See also: Innovation — or Just Innovative Thinking?   Consider the new types of coverages that may be needed to make interplanetary space travel viable. All sorts of novel property perils and liability issues will need to be addressed. Weather Weather-related covers already exist, but with the likelihood of more extreme climate change there will be demand for many more weather-related products. Customers may need to protect against unprecedented levels of heat, drought, rain/flood and cold that affect the basic course of doing business. The insurance industry has just taken new steps in involving itself in the flood arena, where until now it has only done so in terms of commercial accounts. Several reinsurers -- Swiss Re, Transatlantic Re and Munich Re -- have provided reinsurance for the National Flood Insurance Program (NFIP), for example. Insurance trade associations are studying and discussing why primary insurers should do more in terms flood insurance as a result of seeing that such small percentages of homeowners have taken advantage of NFIP's insurance protection. Sharing Economy As a single definition for the sharing economy begins to take shape, suffice it to say that it exists when individual people offer each other products and services without the use of a middleman, save the internet. Whether the product being offered is a used handbag, a piece of art or a room in a private house or whether the service is website design, resume writing or a ride to and from someplace, there are a host of risk issues for both the buyer and seller that are not typically contemplated by the individual and not covered in most personal insurance policies. This is fertile ground for inventive insurers. How can they invent a coverage that is part personal and part commercial? Smart ones will figure out how to package certain protections based on the likely losses that individuals in the sharing economy are facing. Driverless Cars So much has already been written about the future of driverless cars, but so many of the answers are still outstanding. How will insurance function during the transition; who will be liable when a driverless car has an accident; who will the customer be; what should the industry be doing to set standards and regulations about these cars and driving of them; how will subrogation be handled; how expensive will repairs be; how will rates be set? A full list of unanswered questions would be pages long. The point for this article is – how innovative will insurers be in finding answers that not only respond to these basic questions but also provide value-added service that customers will be willing to pay for? See also: Insurance Innovation: No Longer Oxymoron   The value added is where real innovation comes into play. Something along the lines of Metromile’s offerings for today’s cars is needed, such as helping drivers to find parking or locate their parked cars. Such added value is what might stem the tide of the dramatic premium outflows that are being predicted for insurers once driverless cars are fully phased in. Corporate Culture and Reputation Recent events indicate that corporations need some risk transfer when it comes to the effects of major corporate scandals that become public knowledge. The impact from the size and scope of situations such as the Wells Fargo, Chrysler, Volkswagen and other such scandals is huge. Some of the cost involves internal process changes, public relations activities, lost management time, loss of revenue, fines and settlements. Reputation insurance is in its infancy and warrants further development. And though insurance typically does not cover loss from deliberate acts, especially those that are illegal, there is enough gray area in many scandals that some type of insurance product may be practical despite the moral hazard and without condoning illegal behavior. And the Risk All innovation poses risk. Risk is uncertainty, and innovation leads to uncertain outcomes. Just as insurers must create solutions, they must be willing to acknowledge risk, assess risk, mitigate risk and prepare for some level of risk to materialize. So, as insurers are now actively trying to innovate, they must make sure that their enterprise risk management practices are up to addressing the risks they are taking. For each new product, some of these risk areas must be explored:

• Is there a risk that projections for profitability will be wrong?
• If wrong, by how much, and how will this shortfall affect strategic goals?
• What is the risk appetite for this product initiative?
• What is the risk the new product will not attract customers, making all development costs wasted expense?
• What is the risk that price per exposure will be incorrectly estimated, hurting profitability?
• What is the risk for catastrophic or shock losses relative to the product?
• How will aggregation risk be handled?
• What is the risk that litigation concerning the policy coverages will result in unintended exposures being covered?

Conclusion Regardless of whether or not they have been dragged into innovation by disruptive forces, insurers are finally ready to do more than tweak products around the edges. The risk of not innovating appears to be greater than the risk associated with innovating.

The insurtech phenomenon reached new heights at the InsureTech Connect 2016 event in Las Vegas in October. More than 1,600 attendees spent two days absorbing new ideas, connecting and making followup plans to explore working together.

I’ve participated in many of the insurtech and emerging tech (in insurance) events over the last couple years, but I have recently noticed a distinct shift. Most of the initial events included insurtech startups, investors and industry consultants and influencers. The focus was all on the “new” – exciting new ideas, developments and companies that were poised to transform the insurance industry. While a few insurance executives participated, the vast majority of people with insurance business cards were representing the venture capital arms of the companies. Recently, there has been a dramatic shift in the participants in everything insurtech. Companies and individuals representing the traditional, incumbent part of the industry are now actively participating. So, I am going to coin a term here: I’m calling this group MatureTech.

Insurance executives leading key parts of the business, driving innovation and creating strategies are now involved in force, representing all sizes of companies and all lines of business. Incumbent tech players are on the scene, as well. While there have been a few leaders involved in some of the early events and insurtech activities, there has now been a ramp-up of participation from these companies.

See also: 8 Exemplars of Insurtech Innovation  

This blending of the old and new is, in fact, a great development. Our central theme at SMA has been the need to bridge from today’s insurance company to the Next-Gen Insurer of the future. And it is really much more about transition and adaptation than disruption. This is not meant to downplay, in any way, the revolutionary ideas, new business models and innovative products and services emanating from the insurtech world. But there are some fundamental realities about the insurance business and operations that make it difficult to change overnight. Insurance is complex and highly regulated, especially once you get beyond the personal/individual products. Some of the key themes emerging that show how insurtech and MatureTech are beginning to blend are the following:

• Partnering and new ecosystems are the path forward: All types of players are looking to create value in new ways and with new types of partners.
• Core systems are called that for a reason: One way or another, there is still a need for automated solutions for policy, billing, claims and other core areas of the business. Although there can be new approaches, the reality is that integration with the existing systems that every insurer has today is important.
• The MGA model is appealing: It allows companies to create and sell innovative solutions and own the customer relationship but not have to hold the risk and raise the level of capital required to be an insurer.
• Insuring new things and offering new services are huge opportunities: Perhaps one of the greatest opportunities is microinsurance, which is now much more possible in the digital era. Offering new services in conjunction with insurance cover is enabled by the broad availability of real-time data.

See also: Calling all insurtech companies – Innovator’s Edge delivers marketing muscle and social connections

There is no doubt that the world of insurance is changing. There is an open debate about how rapidly that will occur and what parts of the business will be most affected. But one thing is for sure. Bringing together the strengths of the existing insurance world with the emerging new approaches is inevitable, and it is beginning to happen. And as insurtech collides with MatureTech, insurers must develop bridging strategies to become Next-Gen Insurers and capitalize on the opportunities ahead.

The absence of risk profiling at the point of purchase in most commercial insurance transactions globally leads to uncertainty about how much insurance is appropriate and how to structure coverage. This uncertainty greatly magnifies the extent of under-insurance and or non-insurance, which undermines the value and reputation of the insurance industry and its advisers. Without the certainty provided by a risk profile, the divergence of interests for insureds and the insurance industry can determine whether clients are under-insured or even not insured at all. The divergent interests include:

1. Insureds will logically try and keep premium costs down, which often affects the levels of insurance and whether to even insure. This can often result in under-insurance or non-insurance in the event of a claim.
2. Insurance advisers and underwriters will often encourage higher limits and more coverage to give their clients (insureds) the best protection in the event of a claim, which is their primary purpose.

Digital risk profiling can greatly reduce the extent of under-insurance and non insurance, particularly for higher risks, by providing independent, industry-specific risk exposure, control and benchmarking guidance for insureds and their advisers. See also: Improve Reputations by Digital Risk Profiling   An extract from a sample risk profile (from the RiskAdvisor digital library) is  shown below. In this example, the client risk assessment is shown in the light blue for insurable risks and green for business risks. Independent industry and risk area specific risk benchmarks are shown ( in purple) to help provide guidance for clients and their insurance advisers to better assess potential risk exposures for their industry sector, to help reduce the potential for under-insurance or non insurance. Once a client-specific risk profile is created, then the more intelligent matching of insurance with risk can occur as a result of:

1. Higher risks being identified in a risk profile, which are usually the ones that are more likely to be considered for insurance. Without the identification of these higher risks and their consequence, under-insurance or non insurance is more likely to occur.
2. Higher risks that can be insured can be shown as distinct from uninsurable business risk, creating much clarity on under-insurance and non-insurance before any claims.
3. The inclusion in a risk profile of some form of risk consequence rating assessment creates the opportunity to better quantify the amount of coverage that is required, which again reduces the risk of under-insurance or non-insurance.

See also: Digital Risk Profiling Transforms Insurance   With low-cost online digital risk profiling now available for business insurance, there is a wonderful opportunity for the insurance industry and advisers to better match insurance coverages with actual client risk through documented risk profiles, reducing the instances of under-insurance or non-insurance and the potential for negligent advice claims.

Last week, I was excited to attend the first Insuretech Connect conference, which brought together entrepreneurs, VCs and industry insiders to focus on the innovative (and some say disruptive) developments within the industry. I wanted to get a closer view of the emerging technology and begin to hear a clearer message about how these developments are connected with the core issues facing the industry, such as: the industry in total very rarely delivers cost of capital returns; the products are complex, and structured in ways that make them not easily consumable by customers; there is aversion to new risks by the carriers given lack of credible loss information used for pricing; a third of P&C premium is absorbed in cost of sales and delivery, an unsustainable figure; etc. With the event behind us, here are my top takeaways: 1. There are fantastic stories beginning to emerge about the engagement of millennials (notoriously uninterested in insurance products) that over time could be hugely instructive for the broader industry. Both Trov and Lemonade are genuinely different, with an experience that is more akin to a social media exchange with your friends as opposed to the arduous image (and sometimes reality) of most insurance buying, servicing and claims interactions. Both appear to have genuinely rethought the product being delivered. In the case of Lemonade, the company has removed the implicit contention between insured and customer with an affinity-oriented dimension: Excess premiums not used to pay claims go to a charity of the customer's choice. These factors alone (I will cover more below) fundamentally reposition the insurance provider in the mind of the consumer. Trov is delivering an on-demand, single-item, micro-duration coverage – a genuinely innovative product concept. The takeaway here is that true innovation in customer experience is unlikely if there isn't innovation in the product. Trov also provides its user with an app that has real value to the consumer independent of the insurance cover -- effectively the app is a a super-easy-to-use personal asset register. The “value in use” delivered in this app is a launch point for an entirely different type of engagement. Metromile is doing the same thing with its free smart driving app, which helps you with  where you parked your car, with diagnostics and maintenance and with trip planning. The Metromile app has tremendous value to its users independent of the usage-based insurance the app provides. So the real question for the industry is whether Lemonade and Trov are just great ingenuity to deliver renters and single-item coverage to a segment that is meaningfully under-penetrated and uninterested in insurance, or whether these fundamental innovations will be harnessed and applied by others not just elsewhere in personal lines but in commercial and specialty lines, as well. 2. Unsurprisingly, the conference was dominated with many who are endeavoring to attack the distribution part of the value chain by changing customer experience and the cost to deliver those experiences. Many of the entrepreneurs are borrowing pages from the countless other categories that have gone through dramatic changes in distribution (financial services, travel, etc.). It is early days, but I look forward to companies such as Embroker, which is legitimately trying to re-create the entire customer-broker experience (focused on the more complex middle-market commercial risks), with technology as a critical enabler. One far narrower example is Terrene Labs, which is a really interesting play on big data that potentially flips the application-for-insurance process for commercial insurance on its head. Effectively, the company is developing the technology that combs the public domain to create a near-completed (and far-higher-quality) insurance application based on only a handful of questions. I highlight this venture led by the ex-CIO of Great American as he is seeking to improve the customer experience in small commercial while simultaneously slashing the front-end agency cost of entering the application data to carrier’s on-line systems. I suspect that the much-anticipated launch of Attune, the initiative backed by Hamilton-Two Sigma-AIG, will feature this sort of change in experience. I anticipate the developments next year on distribution are going to be far more robust and measurable. 3. While there is an intensifying discussion about the Internet of Things (IoT) and the exponentially increasing data that can be accessed to evaluate risk -- including sensor technology that can convert risk taking into a continuously monitored, pay-as-you-go model (even in liability classes) -- most of this is futurist stuff. The exceptions are usage-based insurance (UBI) in auto, some modest developments in smart home and increasingly smart machinery monitoring you find in a variety of commercial applications. Yet one company really stood out in its ambitions. The company, Understory, has been installing micro weather stations (wireless, solar-powered, etc.) to get a far more finite view of rain, hail, wind, etc. than the National Weather Service can provide. During a panel discussion, the CEO noted that the company can put 60 of these micro weather stations in a city for the cost of a single large radar system (around $200,000). It is difficult to cite the specific loss to the industry of straight-line wind and hail (it runs in the tens of billions of dollars in the U.S. alone each year), and hail loss is notoriously difficult given the sometimes long tail to discover it and, in certain cases, the high fraud rate and difficulty to empirically verify whether a hail storm that occurred during a specific period of insurance coverage caused the damage. But the sort of innovation occurring at Understory was one of the few focused on a core aspect where the risk takers can improve performance and meaningfully reduce loss costs. This is not to say that the many excellent developments around machine learning and predictive analytics applied to underwriting and claims is not similarly attacking these sorts of costs, it is just that Understory is unusual in that it is a tangible quantum improvement in data that can drive improvement in loss costs. Look out for the next wave of “Understories” and to more tangible results from the variety of vendors pushing the machine learning/big data angle for both claims and underwriting, 4. I finish with my “not so impressed” takeaway. The most obvious aspect missing at the conference was a good economic understanding of the insurance industry by many of the entrepreneurs selling their wares. In some cases, including panelists, they were flatly wrong in their assertion and some showed little regard for the facts. Even Daniel Schreiber, the CEO of Lemonade (whom I found to be thoroughly entertaining, insightful and articulate about many things, including behavioral economics), responded to a query from the interviewer/moderator in a way that indicates that some independent research suggests that the pricing of Lemonade's product is a fraction of competitors. Schreiber suggested that the 25% cost for distribution (I interpreted this as total commission) and 40% total operating costs for the industry, compared with the “20% management fee Lemonade charges its customers,” is a key contributor to the difference in costs. Underlying Schreiber’s comments was an obvious point that the cost of today’s insurance product to the customer is far too high and that innovation has to drive down costs for the insurer and prices for the consumer. At least Schreiber took on the issue in a thoughtful way. Unfortunately, though, the 25% and 40% numbers are simply wrong. I go back to the factual economics of our industry. The INDUSTRY IN TOTAL DOES NOT EARN COSTS OF CAPITAL, so the industry in total is not getting paid for the risk it is taking. In 2015, 31% of premium (not 40%) went to sales and service. In personal lines, the numbers are far lower. As a reference point, Progressive’s total expense ratio is just under 20%, and Travelers homeowners expense ratio hovers around 28% (with a large part in commissions, given their retail distribution model ). I am not suggesting that the industry is not ripe for some disruption, but that those are seeking to disrupt (or even enable) it need to understand the macroeconomics and then follow the money (kind of what Understory is doing). Back to Lemonade. I can imagine that the company has built its infrastructure in such a way that the investors will get an appropriate return from the 20% management fee. I can further imagine that the model may self-select a better class of renters than the wider population and that maybe the fundamental proposition reduces fraud-driven loss costs, so a far lower price could be justified. Yet only a few of those at the conference started with a good foundation of industry and value chain economics, an understanding of the unique regulatory and product attributes that will remain for the foreseeable future, and where and how underwriting and loss performance can be improved. As these issues come into focus, I suspect that the innovations will begin to fulfill the expectations that are building in the insurtech space.

Someone’s figured out how to bottle a great customer experience. No, this isn’t a magic elixir that, when applied to any customer interaction, turns disappointment into delight. This is, quite literally, a bottle that delivers a great customer experience. It’s called “ClearRx,” and it was developed in 2005 by graphic designer Deborah Adler. She sought to improve what is actually a pretty crummy customer experience – one’s interaction with a prescription medicine bottle.

If you think about it, prescription bottles don’t sport a very customer-friendly design:

• Childproof caps, while great for keeping medicine out of the hands of children, also make it difficult for less dexterous people (many of them elderly) to access their drugs.
• The most prominent feature on the prescription label itself is often the pharmacy’s logo, which is actually the least important piece of information for the patient.
• Reading the label requires some mental gymnastics, as the drug name, dosage and intake instructions are printed in a tiny font that meanders around a cylindrical bottle. It’s hardly the ideal platform for easy viewing.
• Color-coded warning stickers (indicating, for example, that the medicine should be taken with food) are typically printed on orange labels, which don’t stand out well on a traditional amber-colored prescription bottle.
• If your household stores prescription drugs in a drawer, good luck finding the right one. Because the drug name is printed on the side of the prescription bottle, you need to pick up and inspect each one to locate the right medication for the right person.
• Some of the most important information, such as that about drug interactions and side effects, is usually printed on a separate sheet that’s stapled by the pharmacy to a paper bag. That sheet often gets discarded with the bag and therefore isn’t readily available when people actually need to consult it.

See also: Answer to a Better Customer Experience?   When her grandmother misread a prescription bottle and mistakenly took pills meant for her grandfather, Deborah Adler decided there must be a better way. And that’s when she invented the ClearRx system, which was later licensed to Target’s pharmacies.

ClearRx essentially reinvented the prescription medication bottle, creating a far more customer-centric product. Here’s how Adler did it:

• A reshaped bottle now allows for a flat surface on which prescription information can be printed. No more reading while rotating the bottle. All the key information is clearly visible to the patient from a single vantage point. In addition, the drug name is printed on the top of the bottle, as well, so even if stored in a drawer, it’s easy to find the right medication.
• The information architecture of the label itself better aligns with what the patient needs to know. Pharmacy branding takes a backseat to safety. The top half of the label prominently displays the drug name, dosage information and intake instructions. The bottom half of the label, printed in smaller type, is reserved for less critical information, such as the quantity of pills and the name of the prescribing physician.
• The drug information sheet (describing interactions and side effects, among other important details) is now neatly tucked behind the prescription label – always easily accessible when you need it. There’s also a rudimentary magnifying glass inserted behind the label, for people who need some extra help reading the bottle.
• Essential warnings, such as whether to take the drug on an empty stomach, are more prominently delineated on the back side of the bottle (instead of crammed onto a small warning sticker).
• The bottle cap was redesigned to still be childproof while allowing for easier access by elderly patients and others with limited dexterity.
• Colored rubber rings attach to the neck of the bottle, allowing each individual in a household to choose an identifying shade so they can spot their prescriptions at a glance – even if the bottles are mingled with those of other family members.

ClearRx was a huge hit with Target’s pharmacy customers, many of whom are now lobbying CVS to embrace the design. (CVS acquired Target’s pharmacies in 2015 and subsequently converted all prescription bottles to their more traditional design, in the name of “cost efficiency.”) Here’s what you should take away from the ClearRx story: Everything has a customer experience. Yes, even the act of opening up a prescription medicine bottle is a type of customer experience. And when such seemingly inconsequential interactions are intentionally engineered, it can distinguish the experience (and the associated company) in the marketplace – as ClearRx and Target so skillfully accomplished. See also: How to Redesign Customer Experience  Think broadly about the types of interactions that constitute your company’s customer experience. It’s not just about interactions with retail store associates, call center staff or onsite sales reps. There are likely more subtle components to the experience that deserve to be managed just as carefully – for example, the act of opening a box of shipped goods, or installing a piece of software or reading an account statement. Be deliberate and thoughtful in shaping the design of all of these interactions, always incorporating the perspective of those who actually use your product or service. The brilliance of ClearRx is that it took a meaningful but overlooked touchpoint and redesigned it with the customer in mind – thereby creating a source of competitive differentiation, where before there was none. That’s a prescription for success, in any business. This article first appeared at Watermark Consulting.

Insurance companies face numerous state, federal and international regulatory obligations with customer communications and relationship management. Failure to comply can be costly to reputations and bottom lines. In fact, the vast amounts of personal and sensitive data require businesses in the insurance, financial services and other highly regulated sectors by law to archive electronic messages and ensure customer privacy across communication channels. In our hyper-connected digitized world, these security requirements extend to include interactions done via mobile messaging, which has quickly emerged as the preferred and fastest-growing communication method. There are already 1.6 billion people on messaging platforms world-wide, and projections are that, in 2017, more than 28.2 trillion will be messages sent. See also: How Chatbots Change Open Enrollment   Yet many of the most popular social mobile messaging platforms don’t meet the regulatory requirements set forth by the Securities and Exchange Commission (SEC) and other regulatory bodies. They are designed for peer-to-peer messaging instead of contemplating business communications and transactions. A case in point is the recent privacy concerns raised when WhatsApp, a popular messaging app, announced it would share customer data with Facebook. Compliance, legal and regulatory professionals shudder at the thought of "shared customer data." Consumers don't want to use the same chat app for private, business interactions that they use for friends. As a result, adoption has been slow for social chat apps for insurance, as well as banking, healthcare, telecommunications and cable-TV and related services, via social chat apps that provide real transactional capabilities has been slow. Likewise, most insurers and other highly regulated companies aren’t sold on using a social messaging service such as WhatsApp or Facebook for messaging with customers largely because of data privacy issues. So how can insurance companies embrace mobile messaging as the preferred way for customers to communicate, while still meeting regulatory, legal and internal policy requirements?

1. Adopt a messaging platform that allows secure, encrypted messaging purposefully designed for business.
2. Ensure mobile messages are effectively captured and archived in a secure filing cabinet.
3. Ensure compliance and integration of your mobile messaging solution with other customer communication channels and enterprise systems.

See also: The Case for Personalization   The insurance industry has built its foundation on managing risk and building a good reputation. By adopting mobile messaging to communicate with customers in real-time, insurers have an opportunity to create a deeper connection with customers, increase satisfaction and reduce costs while also building trust with customers. The opportunity to improve the customer experience is huge, while also successfully meeting the regulatory requirements around this next wave of change in communication.