Lemonade, the industry disruptor touted as a game-changer for the insurance industry, has officially opened, with homeowners and renters products launched in New York. Lemonade’s opening is significant for a number of reasons. First, Lemonade’s business model will donate unused premiums to a charity. This sounds like a great idea -- and it deserves to work -- but time will tell if it’s enough to deter fraud. Second is the Lemonade app. The Lemonade app seems to be a killer in terms of capability, usability and its use of bots. Get insured in 90 seconds? Tick. Submit a claim and get paid in three minutes? Tick. The app is easy to use and has a slick user interface (UI) – it’s the app every insurer wishes it had. See also: Lemonade: Insurance Is Changed Forever   Which brings me to my point: Could a traditional insurer create an app -- and accompanying product offer -- like Lemonade? Ever? No. And here’s why. First, traditional insurers are crippled by legacy systems -- creaking green-screen pre-floppy behemoths that no amount of lipstick can overcome. They’re not capable of ever supporting a product offering like Lemonade’s. Second, traditional insurers have global workforces that are personally invested in the industry status quo. Moving to a product offering like Lemonade would involve ripping up centuries of rules and embracing a lot uncomfortable (and job-threatening) change. And third, Lemonade’s product offering has no place for intermediaries, who insurers depend on for the majority of their income. As we know, once an insurer goes direct, intermediaries will switch insurance companies, meaning bye-bye revenue. The only solution for traditional insurers wanting to compete with Lemonade is to start from scratch. In short, they need to create a company or subsidiary unencumbered by legacy systems, workforce constraints and intermediaries. It’s been done before in other industries. The 1990s saw the advent of the low-cost airline. Traditional carriers, unable to compete with low-cost carriers, created low-cost subsidiaries of their own. These low-cost subsidiaries were not hamstrung by legacy systems, unionized workforces or booking agents. They were free to innovate, create new cultures and products. While some have struggled, many have enjoyed success. See also: It’s Time for Some Lemonade   Now is the insurance industry’s low-cost airline moment. Transforming from within is proving to be a glacial and painful process for many traditional insurers. Starting from scratch may just be their best option.

The sharing economy has created unprecedented opportunities for making money. Airbnb has inspired people to turn their spare rooms into cash machines, and Uber enables anyone with a decent car to earn extra money as a modernized taxi driver. The barriers to generating additional income have essentially vanished because of these platforms. But many people don’t realize that by renting out their houses or working as part-time drivers, they’ve become entrepreneurs — and entrepreneurs need insurance. An Unsatisfactory Status Quo The insurance industry hasn’t quite caught up to the sharing economy. Platforms such as Airbnb, HomeAway, RelayRides and HomeDine have democratized the hotel, transportation and dining industries. These services allow people to connect directly with one another to borrow cars, rent rooms and share meals. But participants haven’t just circumvented the system through these products; they’ve also exposed themselves to significant liabilities. Homeowners who rent out rooms or their entire houses can’t rely on their homeowners insurance to cover damages caused by renters. Those policies only apply to the owners’ risk profiles, not their guests. Owners can take out landlord policies, but those are extremely costly for someone who only rents out a room a few times a year. Many ride-sharing drivers find themselves in a similar conundrum. Because their cars function as both personal and professional vehicles, they’re stuck between two insurance options. Personal insurance won’t necessarily apply if something happens while they’re on the job, but commercial policies may be too costly and broad for their needs. See also: New Way to Insure the ‘Sharing Economy’   Companies like Lyft, Uber and Sidecar provide some coverage, but many drivers remain vulnerable. Some states and insurers have begun issuing ride-sharing-specific policies, which is a step in the right direction; however, we still need a more robust solution. The same goes for insuring new businesses. Uber and Airbnb are valued at more than $60 billion and $30 billion, respectively. They can invest in costly insurance policies and can afford to take risks, but smaller startups simply don’t have the capital for the necessary coverage in the sharing economy. Given the right circumstances, these smaller startups could transform the market and spur economic development. Insurance providers must account for their needs as well — and that’s a win-win situation. The more protection a provider offers, the more stature and clients it will attract. Insurance for the Future Insurers have been reluctant to create products for the peer-to-peer market because the sharing industry operates in murky legal areas. As sharing economy businesses grow, questions arise about employment laws, zoning and health and safety concerns. Providers want to see how these regulatory issues play out before getting in the mix. New policies will need to account for risks such as accidental deaths, rape, violent crimes, theft and invasions of privacy. Developing insurance plans for vendors in this field is new territory, and few want to take the first steps. Many underwriters prefer to pursue traditional business instead of the “more conceptual” circumstances inherent to the sharing economy. But someone has to take on these cases. Insurers that have the foresight and fortitude to navigate this area will see long-term benefits as these companies become more popular. Homeowner and auto insurance brokerages have already seen a dip in their premium volumes because of the peer-to-peer economy. Providers must steel themselves against disruption, but they needn’t approach it from a solely defensive standpoint. Here’s how insurance providers can win in the sharing era: 1. Embrace opportunities for innovation. The sharing economy is in its infancy and will mature rapidly in the next several years as digital platforms like Uber generate an ever-growing amount of user data, allowing for more personalized insurance solutions. Opportunities to insure a single trip or flight will only increase as insurance providers learn to take advantage of the large amounts of data being collected. Providers would be wise to ride this wave of innovation by accommodating the market’s changing needs. Instead of waiting to see what their competitors will do, insurance companies should develop new risk profile algorithms so they cater to larger audiences. 2. Anticipate client needs. As more people participate in home- and ride-sharing platforms, they’re going to have questions about how these businesses fit within their policies. Agents and brokers must be prepared to address consumers’ concerns and provide solutions to coverage gaps. Consumers recognize the importance of risk management, especially when it comes to their homes and finances. Insurers that create products for this new market will set the industry standards and earn their customers’ loyalty. 3. Brace for long-term impact. Some experts speculate the sharing economy is a millennial fad that won’t seriously affect the insurance industry. But others predict it will be worth $335 billion globally by 2025. Providers should bet on the future and position themselves to grow with the market. First, providers should focus on customer journeys, engagement and interaction by optimizing the user experience, investing in digital and embracing disruption. Because learning from the disruptors is one of the best ways to ignite change in a large organization, invest in startups and open up access to employees. Finally, adapt an agile mindset. Test and launch minimum viable products by shortening development cycles and incorporating the customer into the process. Disruption is never painless, but companies can lessen the negative impact by investing in new products now. See also: How to Insure the Sharing Economy   The sharing economy isn’t going anywhere. The regulatory questions will be ironed out because the market demands it. Consumers crave the freedom of being able to book unique, private accommodations by logging in to an app. They enjoy the personalized features that tell them who they’re renting from, who their driver is and who lives nearby and is willing to cook dinner for them. Peer-to-peer products remove the middlemen. People will not yearn for the days of more bureaucracy. If anything, they’ll demand even more direct, streamlined sharing options. Insurance providers should read the writing on the wall and heed its warning. The time to innovate is now.

If there were any doubts that the insurance industry is innovating and transforming, all doubts were dispelled at the 2016 SMA Summit. Insurer after insurer described innovative new business models, products and uses of emerging technologies. Virtual reality, drones, gamification, wearables, the IoT and other emerging technologies were all discussed – not as future possibilities for insurance, but as real-life examples in the marketplace. Partnerships with grocery chains, universities, nutritionists and insurtech companies, among others were prominent in the discussions.

See also: Customers’ Digital Expectations  

One word in particular – ecosystems – was repeated throughout the course of the event. What is most fascinating about this is how the insurance ecosystem is now evolving. In 2009, SMA began a series of research that we termed the Insurance Ecosystem, which aimed to provide insights into the progress and plans of insurers, reinsurers, distribution channel players, claims partners and solution providers. At that time, most of the industry considered those types of firms, along with the regulators and customers, to be the entities that made up the insurance industry ecosystem. While all of these are still central to the ecosystem, in the new digital era new players are joining in, the boundaries between industries are blurring and new ecosystems are becoming important to insurance.

The connected world is not just about connecting things to the Internet and making them smart. It is about making new connections with companies in different industries to provide new products and services to customers, rethink the customer experience, attack operational processes in new ways and even address pressing societal problems. In the process, new ecosystems are forming. Ecosystems for smart homes, cities, vehicles, buildings and agriculture all are emerging with new players partnering in new ways. The healthcare, fitness, elder care and individual well-being areas are populated by many new companies alongside existing companies in traditional industries.

The companies in these new ecosystems may provide connected devices at the digital edge, data/analytics to manage information and create actionable insights, services built around the devices/data, tech infrastructure to support the ecosystem – or any combination of the above. These new ecosystems provide tremendous opportunities to transform risk management, the customer experience and operations, providing a new level of value to customers and society at large. The stories from the companies at the SMA Summit provide a great glimpse into the possibilities and throw down the gauntlet for other insurers.

See also: Waves of Change in Digital Expectations  

The important question for insurers is how they will participate in these new ecosystems. It will not happen by magic. Insurers must actively partner, invest and innovate with companies outside the traditional industry. It won’t be too long before we will be saying, “It’s not your father’s insurance industry.” Success in the new insurance industry will be highly dependent on being an active participant in these new, emerging ecosystems.

The route to a fully autonomous vehicle market seems long and fitful in the eyes of many. But it is likely to become a reality faster than many are prepared to accept. Like IBM, Kodak and many other companies once confronted with a rapidly changing market, we, too, now face disruptions in the auto market, perhaps unlike any since the invention of the auto. As liability increasingly shifts from the human driver to systems and software – a trend highlighted by recent reports of the first autonomous fatality – original equipment manufacturers (OEM) will come to the forefront as primary holders of automobile-related insurance risk. How they manage this risk will help determine the success and acceptance of the autonomous vehicle market in the years to come. A new age Skeptics of an early adoption of fully autonomous vehicles have a point. In their short history, autonomous vehicles have faced a wide array of challenges including skittish maneuvering ability in wet weather, gaps in infrastructure, regulatory and legal shortcomings, market acceptance, risk of hacking, consumers’ privacy and ethical choices. The list goes on, but so do advances in technology. There are dozens of advances such as braking assistance, blind spot detection, pre-collision warning systems, electronic stability control and vehicle-to-vehicle communication that have been adopted over the years or are now making their way into the latest models. These technologies have been largely accepted and often embraced by consumers who have come to view them as something more than just a convenience. See also: Connected Vehicles Can Improve Claims   In fact, few dispute the potential safety advantages of fully self-driving cars. Active safety systems that eliminate the human element from the driving equation have already been shown to prevent accidents. According to the Insurance Institute for Highway Safety (IIHS), automatic braking can reduce rear-end crashes by 40%, and front collision warning systems can lower rear-end accidents by 23%.¹ But this is just the tip of the iceberg: 94% of auto accidents are caused by human errors such as speeding, driving under the influence and driver inattention, according to a 2015 survey by the National Highway Transportation Safety Administration.² The U.S. market is expected to see several thousand autonomous vehicles sold in 2020, which will grow to nearly 4.5 million vehicles sold in 2035, according to IHS Automotive forecasts, an industry research firm.³ The slow methodical 11-year turnover in U.S. car ownership is likely to fall by the wayside as convenience or safety features entice consumers to purchase a self-driving car sooner than they would otherwise do. These early purchasers could be setting up a cycle of more rapid adoption as car buyers decide to forgo the thrill or pleasure of driving for the safety of their families and the ability to be more productive (or just catch up on sleep and social media). Further, there may be no need for car ownership at all in a new shared economy including on-demand autonomous shuttles. Shifting responsibilities Assessing liability in the near future will admittedly be a tricky matter as a mix of driving modes, ranging from no autonomy to full autonomy, populate the roadways. Accidents that involve human driver to human driver will morph into dozens of combinations of human drivers with various levels of semi-autonomous drivers and eventually fully autonomous cars. Questions of liability will need to sort out not only the comparative negligence of a human operator’s actions but also the capability of software and sensors. As the ever-diminishing role of human drivers gives way to the rise of autonomous vehicles, the importance of personal auto insurance will likewise be replaced by product liability. Google, Mercedes and Volvo have already said they will accept responsibility for accidents that are caused by malfunctions in the technology in their cars, a move welcomed by federal regulators that see the commitment as a way to smooth the introduction of vehicles with these new technologies. While these carmakers’ pledges may, in fact, be redundant, they are a harbinger of the shift in demand for product liability. But carmakers’ step up in accountability is only one link in the manufacture of autonomous vehicles, which can involve dozens of suppliers for software, systems and devices which enable the positioning data and predictive response algorithms to be accurate and effective. Enhanced sensing and response time capabilities will drive new demands on hardware and software performance. How will liability be spread among potentially dozens of interlocking but legally separate entities? See also: Plunging Costs for Autonomous Vehicles   Currently, as part of the general purchasing conditions, the supplier will indemnify and hold the manufacturer harmless from and against any and all loss, liability, cost and expense arising out of a claim that a defect in the design or manufacture of the product caused personal injury or damage to property. However, suppliers are not always completely responsible for the design or validation of the components they provide, but rather can be directed by the carmaker to either model or test the component according to the carmaker’s predetermined specifications. Thus, the parties may have a shared financial burden of failure and need to negotiate the consequences at project inception. The process of assigning responsibility and managing indemnification often involves a team of resources that do not contribute to the carmakers’ underlying business function of making people mobile. This relationship is likely to evolve as the importance of the car’s electronic control unit (ECU) grows ever more critical as the brain center for programming features that ultimately determine how the car responds. Even now, validating software code – a function paramount in detecting errors – is less defined as compared with hardware. How the validation process will evolve under all possible control scenarios is extremely difficult to imagine. But one change in the process is becoming clear: As the software algorithms become more integral to the success and failure of autonomous vehicles, carmakers have started to keep a tight rein on the integration of software and hardware. As willing as carmakers may be to absolve consumers of the responsibility for accidents that stem from the fault of their technology, they are unlikely to extend a similar courtesy to their suppliers. And why should they if the cause of the accident can be traced to a supplier’s defective sensor or software? Nevertheless, untangling the web of responsibility can be a distraction from the business focus and could become an impediment to progress. What is a relatively well-established practice in other fields for passing the liability down the supply chain to the source of the failure is likely to become much more complicated and nuanced in the realm of autonomous vehicles as cars become increasingly dependent on an integration of sophisticated technologies. Likewise, the ways in which risk is shared under product liability are likely to be increasingly difficult to manage. In an autonomous world, the insurance program would ideally be structured such that suppliers not only have skin in the game but also have a more transparent line of sight to the cost they are contributing to the potential liability. The question the industry needs to ask is: Is there a better way to share the cost of risk among the carmaker and its suppliers reflecting the shifted responsibility? Enter a SPLASh pool One option is to create an insurance pool for each autonomous carmaker. Under a Supplier Product Liability Autonomous Share (SPLASh) pool, the carmaker would assume all the product liability risk for accidents stemming from the autonomous technology and cede the risk to the SPLASh pool. To be viable, all suppliers – or “swimmers” – along with the carmaker would need to participate in the pool, which would operate as a funding vehicle for the risk. Each year, the pool would be funded commensurate with the expected losses, and losses would be paid directly from the fund, eliminating the manufacturer’s role of managing indemnification from the suppliers. Like more traditional risk pools used by a range of organizations from public entities that share their law enforcement exposure to a group of hospital systems that manage their professional liability risk, a SPLASh pool would also have a management function, presumably overseen by the manufacturer, as well as various insurance-type functions from actuaries, to calculate the premium and reserves; claims handlers (internal or outsourced) to pay and manage claims; and lawyers to interpret coverage, among others. In this way, autonomous technology may be paving a new road but with the experience and insight of well-traveled insurance professionals who understand the different approaches to managing risk. Funding would reflect the supplier’s risk profile with low risk suppliers like those that provide cameras for parallel parking – the minnows of the pool – paying less than high risk “whale” suppliers such as a software developer. The pool can be structured according to frequency and severity of risk. Such an arrangement could consist of all pool members participating in a structure where more frequent, low-severity claims are grouped (Fund A) separately from less frequent, high-severity claims (Fund B), both meeting risk transfer. Each fund would have per occurrence loss limits and require member contributions based on actuarial projections, perhaps at first based on fault rates from engineering systems output, until credible loss data develop. Various features such as aggregate limits, loss ratio caps, overflow between funds and member assessments can be used to tailor the insurance coverage with a clear desired outcome – to motivate innovators to develop quality products. See also: Here Comes Robotic Process Automation   The arrangement builds in a high level of transparency as suppliers with bad loss performance would be required to contribute more to Fund B than others. Moreover, consistently poor swimmers could be replaced by suppliers with better performance. This concept blends well with the current warranty programs offered by car manufacturers. Like those programs offered today, dealers provide details of new and used warranty programs available to the consumer, covering defects in material or workmanship for 48 months or 50,000 miles, whichever comes first, for example. The carmaker would budget a certain amount of costs toward warranty replacement and then track the records and claims to more accurately predict future replacement costs as well as pinpoint components that are failing, assuming that the problem can be isolated. If costs are higher than expected (outside of the normal failure rate), the manufacturer can push further costs to the supplier at the source or remove them from the assembly line altogether. Buckle up A SPLASh pool can pave the way to managing carmakers’ risk in the future. The product liability exposure from autonomous vehicles shouldn’t be a roadblock to the increased safety and mobility that self-driving cars can bring to millions of people. The insurance industry will need to demonstrate its creativity and foresight in managing risk to keep innovation on the right track.

On Sept. 3, 2015, a press release was issued by the Carson J Spencer Foundation; RK, a construction company in Denver; and the National Action Alliance for Suicide Prevention. This press release was timed to coincide with Suicide Prevention Month in September and World Suicide Prevention Day on Sept. 10 . This press release announced the distribution of A Blueprint for the Construction Industry: Suicide Prevention in the Workplace (aka The Blueprint). One year later, we believe  that this document was a catalyst in developing a national movement in suicide prevention in construction. This articles tracks the milestones of this movement and future directions. In 2010, the National Action Alliance for Suicide Prevention and its Workplace Task Force were launched in conjunction with World Suicide Prevention Day. The co-authors served as inaugural members of the Workplace Force. The Blueprint was intended to create awareness, generate advocacy and spur action in the construction industry around suicide prevention. In addition, The Blueprint provided a toolkit for how to discuss mental health and suicide prevention in the construction industry. Equipped with The Blueprint, the co-authors began an initiative to break the silence and create a culture of caring. The co-authors sought to gain the attention of the construction industry through a media saturation campaign. The intent was to build a reproducible model within the construction industry that could subsequently be used as a reproducible model by other industries. In short, the coauthors sought to integrate mental health and suicide prevention in safety, health, wellness and employee benefit programs by framing the topics as the “next frontier in safety.” The Centers for Disease Control and Prevention (CDC) published a report that placed the construction and extraction industry as second-highest in the nation for suicide rates. But, a year later, The Blueprint has exceeded expectations. It spawned an outpouring of targeted action that is rippling throughout the construction industry. The impact has been felt in: publications, presentations, projects and partnerships. Publications The publishing of The Blueprint created demand for articles by major independent construction industry publications and those published by trade associations. There have been at least 28 unique articles published since the first one was posted online by the Construction Financial Management Association (CFMA) on Nov. 1, 2015. See also: Union Pacific Leads on Suicide Prevention These articles have included both in-print and online versions. The articles have begun to cross over from construction into architecture and engineering, to make this an issue that is being discussed in the integrated AEC industry. The articles have penetrated major industry brands, including Engineering News-Record (ENR); the Associated General Contractors of America’s Constructor; CFMA’s Building Profits; Associated Builders and Contractor’s Construction Executive; Construction Business Owner; and the National Association of Women in Construction’s Image. Presentations Once articles were appearing in industry publications, it was easier to solicit presentations. The first presentation that Cal Beyer gave regarding suicide prevention was the September 2015 CFMA Southwest Regional Conference, where he included suicide prevention as part of his company’s commitment to Safety 24/7: safety at work, home and play. The second presentation he delivered was to the South Sound Chapter of the National Association of Women in Construction in November 2015 near Seattle. These two early successes made it easier to “sell” the concept of presentations. Sally Spencer-Thomas presented at the January 2016 Men’s Health Conversation at the White House in January 2016, while Beyer presented at the pre-meeting at the Department of Health and Human Services. The next two presentations were led by Spencer-Thomas in February 2016 at an executive roundtable sponsored by Lendlease in Chicago and to the Associated General Contractors of Washington. More than 100 attendees heard Beyer’s presentation at the Pacific Northwest Forum of the National Association of Women in Construction in April 2016. Two sessions were facilitated at the CFMA Annual Conference in June 2016. Similar sessions were offered in Portland, OR, in June to the AGC of Oregon and in Boise, ID, in July for the Idaho Chapter of CFMA . The marquee event was held in Phoenix on April 7, 2016, when more than 100 attendees participated in the CFMA’s Regional Suicide Prevention Summit. Similar summits are scheduled by CFMA chapters for Charlotte on Nov. 9, 2016, in Portland, on Nov. 16 and Chicago on Feb. 17, 2017. A series of summits have been proposed by numerous CFMA chapters in 2017, including: Denver; Washington, DC.; Indianapolis; Houston; and Las Vegas. Projects and Partnerships The first partnership was established with CFMA through publications — including the first article as well as two custom PDF publications highlighting both the “why” and “how” to address suicide prevention in construction companies. Moreover, CFMA launched the aforementioned Construction Industry Alliance for Suicide Prevention and created an executive committee task force. Clare Miller, the Executive Director of the Partnership for Workplace Mental Health, has been distributing periodic updates on the construction industry to her organization’s members. A partnership was formed with the JP Griffin Group, an employee benefits consultancy in Scottsdale, AZ. The Griffin Group created artwork for four custom poster templates that has been provided to the construction industry at no charge. Hoop 5 Networks, an IT system consulting company from San Diego, provided web development services for the Construction Working Minds website maintained by the Carson J Spencer Foundation. Union Pacific invited Spencer-Thomas and Beyer to present in Omaha at the Railroad Suicide Prevention Summit on Aug. 24, 2016, so that rail industry leaders could transfer the lessons learned from construction to their own industry. Likewise, the U.S. Department of Veterans Affairs requested the construction industry be represented at its roundtable on suicide prevention on Aug. 30, 2016. While Beyer was not able to attend, he invited representatives from the CFMA and ABC associations to attend. See also: A Manager’s Response to Workplace Suicide   Finally, the best example of the growing partnership is the creation of a construction subcommittee on the workplace task force of the National Action Alliance for Suicide Prevention. There are now nine members on this subcommittee, and it is the largest subcommittee of the workplace task force. These subcommittee members represent a broad cross-section of the construction industry. The nine subcommittee members are:

1. Cal Beyer; Risk Management Director; Lakeside Industries, Inc. (Issaquah, WA)
2. Dr. Morgan Hembree; Leadership Consultant; Integrated Leadership System (Columbus, OH)
3. David James; CFO; FNF, Inc. (Tempe, AZ)
4. Tricia Kagerer; Risk Management Executive; American Contractors Insurance Group (ACIG); Dallas.
5. Joe Patti; Vice President & CFO; Welsbach Electric Corporation (College Point, NY)
6. Christian Moreno; Vice President; Health Risk Solutions; Lockton Dunning (Dallas)
7. Bob Swanson; Retired President; Swanson & Youngdale, Inc. (Minneapolis)
8. Sally Spencer-Thomas, CEO, Carson J Spencer Foundation (Denver)
9. Bob VandePol; Executive Director, Employee Assistance program; Pine Rest Christian Mental Health Services (Grand Rapids, MI)
10. Michelle Walker; Vice President Finance & Administration; Spec ialized Services Company (Phoenix)

Conclusion Thus, in less than one year, the construction industry has moved from not thinking about suicide prevention to being a leading industry in the effort. In fact, in May 2015, Forbes published an article called, “What Construction Workers Could Teach Other Industries About Mental Health Awareness.” This demonstrated how broadly this awakening and action has been felt. This first phase of garnering awareness and political will is critical in starting this national movement. The next phase is to institutionalize these efforts by bringing best practices in suicide prevention to companies, researching outcomes to better understand what works and developing policy and procedures that support mentally healthy, resilient and psychologically safe workplaces.

It seems all the talk and all the buzz around insurance these days is how insurance is being disrupted; that insurance disruption is the hottest and newest area of tech startup focus and of venture capital. While all of this is true, it’s my belief that insurance is not being disrupted. Here’s why… Insurance is a several-hundred-year-old phenomenon. Without boring you with all those several hundred years of history, suffice to say, it is a massive global industry – many estimate it to be $5 trillion globally! So, the first question is how do you disrupt a multitrillion-dollar industry? The answer can be found in the adage that goes, “How do you eat an elephant?” Answer: “One bite at a time.”  See also: Which to Choose: Innovation, Disruption?   This “one bite at a time” analogy is appropriate for what is happening in the insurance startup ecosystem. Don’t get me wrong, I believe insurance startups and innovation are transforming insurance. But to say that insurance is being disrupted seems a bit strong from my vantage point. The real truth lies in the difference between incremental innovation and disruptive innovation. Disruptive innovation is the game changer. It is what most think of when they hear that an industry is being disrupted. It means very large, old, stodgy and outmoded businesses will fail because a disruptive innovation has changed the game. Incremental innovation means just that, smaller bets with less risk. I often refer to this approach as innovating on the margins. It is much like the “one bite at a time” approach to innovation. The insurance industry is much like this – slow and steady wins the race. It always has been and in my opinion likely will be for many years to come. When we think about all of the startups and innovation that are working to innovate in insurance, most everyone is focused on building incremental innovations. Most are not focused on building all new types of insurance companies. Why? Because the amount of capital required to start a new type of insurance company is a very large barrier to entry. Most estimate that to start an insurance company today would require several hundred million dollars, if not a billion dollars or more. That’s why. So where does that leave us? It leaves us with incremental innovation, not disruptive innovation. And that’s okay. It’s quite a good thing, in fact. Many new solutions will be developed in the years ahead that will move the insurance industry forward in ways that even five years ago we could not have imagined. It’s an exciting time in insurance. But for now, one bite at a time will have to do. See also: FinTech: Epicenter of Disruption (Part 1)   I’m interested to hear from you. Do you think insurance is being disrupted or is it being transformed through incremental innovation?Leave me a comment below or take the conversation to social media with the hashtag #denimrivet. This article originally appeared Denimrivet.,/em>

Goldilocks entered the house of the three bears. The first bowl she saw was full of the standard, no-frills porridge. She took a picture with her smart phone and posted it to Instagram, with the caption #same. Then she came to Papa Bear’s bowl. It was filled with organic, locally grown lettuce and kale, locally sourced quinoa, farm-fresh goat cheese and foraged mushrooms. The dressing base was olive oil, pressed and filtered from Tuscan olives. It was presented in a Williams Sonoma bowl on a farm table background. She posted a photo with the caption #goals. By the time Goldilocks went to bed, she had 147 likes. The End. Enter the era of the exceptional, where all that seems to matter is what is new, different and better. When Twitter came out, it didn’t take me long to pick up how to use hashtags. But then hashtags took on a life of their own and spawned a new language of twisted usage. Now we have #same — usually representing what is not exciting, new or distinctive. And we have #goals — something we could aim for (think Beyoncé’s hair or Bradley Cooper’s abs). See also: Data and Analytics in P&C Insurance   Despite their trendy, poppy, teenage feel, #same and #goals are actually excellent portable concepts. When it comes to your IT and data strategies, are they #same or are they #goals? What do your business goals look like? Are you possibly mistaking #same for #goals? Let’s consider our alternatives. Are our strategies aspirational enough? If you are involved in insurance technology — whether that is in infrastructure, core insurance systems, digital, innovation or data and analytics — you are perpetually looking forward. Insurance organizations are grappling daily with their future-focused strategies. One common theme we encounter relates to goals and strategies. Many organizations think they are moving forward, but they may just be doing the work that needs to be done to remain operational. #Same. When thinking through the portfolio of projects and looking at the overall strategy, it is common to wonder, “Isn’t this just another version of what we did three months ago, even three years ago?” Is the organization looking at business, markets, products and channels and asking, “Are we ready to make a difference in this market?” No one wants the bowl of lukewarm, plain porridge — especially customers. Are we aiming one bowl too far? On the flip side, our goals do need to remain rooted in reality. It’s almost as common for optimistic teams to look at a really great strategy employed by Amazon, only to be reminded that the company isn’t Amazon and doesn’t need to be Amazon. It just needs to consider using Amazon-like capabilities that can enable the insurance strategy. Data lakes can be a compelling component in modern insurance business processing architectures. But setting a goal to launch a 250-node cloud-based Hadoop cluster and declaring you’ll be entirely out of the business of running your own servers is not a strategy that’s right for everyone. If the organization is pushed too far on risk or on reality, it creates organizational dissonance. It’s tough to recover from that. Leaders and teams may pull back and hesitate to try again. Our #goals shouldn’t become a #fail. Finding the “just right” bowl. Effective strategies are certainly based in reality, but do they stretch the organization to consider the future and how the strategies will help it to grow? When the balance is reached and the “just right” bowl full of aspirations is chosen, there is no better feeling. Our experience is that well-aligned organizational objectives married to positive stretch goals infuse insurers with energy. This example of bowls, goals, balance and alignment is especially apropos to data and analytics organization. It is easy for data teams to lay new visuals on last year’s reports and spin through cycles improving processing throughput. To avoid the #same tag, these teams also need to evaluate all the emerging sources for third-party aggregated data and big data scalable technologies. With one foot in reality and one stretching toward new questions and new solutions, data analysts will remain engaged in providing ever-improving value. See also: How to Capture Data Using Social Media   Even if an organization could be technically advanced and organizationally perfect, it would still want to reach for something new, because change is constant. Reaching unleashes the power of your teams. Reaching challenges individuals to think at the top of their capacity and to tap into their creative sides. The excitement and motivation that improves productivity will also foster a culture of excellence and pride. We are then left to the analysis of our individual circumstances. If you could snap a photo of your organization’s three-year plans, would you caption it #same or #goals? Inventing your own scale of aspiration, how many of your goals will stretch the organization and how many will just keep the lights on?

There are some large anomalies in the business insurance market, including:

• Small to medium-sized (SME) business spend billions of dollars on premiums globally, yet a detailed risk profile is rarely developed to ensure that insurance producers and carriers are seen as trusted risk advisers rather than just sellers of product.
• The absence of risk profiling, and risk control information, makes it very difficult for insurance carriers to recognize and reward businesses that commit to improving their risk management and lowering loss ratios.
• There are very few cost-effective risk management services that can assist the millions of SMEs around the world to reduce their costs of risk.
• Underinsurance continues to hurt the reputation of the insurance industry.

The capture of client- and industry-specific risk exposures and controls in a risk profile could be the key to correcting these anomalies, resulting in a decrease in claims, improved insurance industry returns and enhanced industry reputation. See also: Do You Really Have a Digital Strategy?   Until now, risk profiling through consulting has generally been unaffordable and inefficient for most SMEs, but RiskAdvisor now provides a pre-populated, online risk platform that enables affordable, client-specific, industry risk profiles to be produced in a matter of minutes. The platform library currently contains more than 160,000 risk exposures, controls and treatments, 6,000 benchmarks across more than 600 industries and 60 risk areas. The automated capture of risk exposure and control information by insurance carriers, producers and brokers has numerous positive effects:

• If insurance buyers, producers and carriers capture a client’s industry-specific risk profile, more intelligent and efficient buying, selling and underwriting would occur.
• The strategic aggregation and analysis of risk data is important in helping carriers and producers maintain relevance in the marketplace.
• Data-driven product development helps carriers and producers bring new risk products to market faster and with greater chance of success.
• Data holds the key to improvements in risk management, which is integral to pricing risk.
• Sharing risk data with all stakeholders will make everyone involved in the insurance value chain more customer-centric.
• There can be a greater focus on more comprehensive customer services and specialty products.

See also: Customers’ Digital Expectations   Through digital risk profiling, insurance buyers, producers and carriers can easily understand a business's industry-specific risk profile and controls to enable more intelligent buying, selling and underwriting of insurance globally. Advantages to carriers of accessing a digital risk platform include:

• A competitive advantage through superior risk selection, enhanced granular underwriting assessment and more accurate pricing of risk in a highly efficient and cost-effective manner.
• Having risk information in a timelier manner, before binding acceptance.
• Obtaining risk control information and data on a far greater proportion of a carrier’s books at much lower cost.
• Interrogation of risk control data by individual risk or at portfolio level. This allows the carrier to obtain valuable insights on the performance of the portfolio, including developing trends and mitigation strategies.
• Enhanced portfolio management through the ability to analyze risk controls at an individual and portfolio level.

The strategic aggregation and analysis of risk data promises to alter every part of the industry value chain. A customer-centric view powered by new forms of data, analytics and automation offers the ability to better price risks. Digital risk profiling can deliver benefits to insurance buyers as follows:

• Risk profiling helps support better decision making when managing risk.
• The risk of being underinsured, or not insured, is reduced through improved risk assessment.
• Resilience greatly increases for insureds to recover from loss events.
• Governance and compliance outcomes improve.
• Security and confidence are enhanced for key stakeholders such as financiers and equity providers.

Digital risk profiling can transform the insurance industry’s value proposition from insurance product sellers to trusted risk and insurance advisers. Capturing risk information at the point of client engagement can have a profoundly positive effect through the entire insurance value chain.

Catastrophe bonds are an increasingly important form of risk transfer for insurers. Cat bonds are a peculiarity of the U.S. reinsurance market, where about 125 to 200 natural disasters occur a year. They were first sold in the mid-1990s after Hurricane Andrew and the Northridge earthquake highlighted the need for a new form of risk transfer. The cat bond market has been growing steadily for the past 10 years, and more than $25 billion in catastrophe bond and insurance-linked securities are currently outstanding, according to Artemis. Many insurers have moved away from managing their ceded reinsurance program with spreadsheets, which are time-consuming and error-prone, in light of current regulatory and internal demands. More carriers have installed — or are planning to install — a dedicated ceded reinsurance system that provides better controls and audit trails. See also: Is P2P a Realistic Alternative? Besides enabling reinsurance managers to keep senior management informed, a system helps carriers comply with the recent Risk Management and Own Risk and Solvency Assessment Model Act (RMORSA). It also generates Schedule F and statutory reporting, an otherwise onerous job. And technology prevents claims leakage (reinsurance claims that fell through the cracks). Cat bonds add a layer of complexity. The cat bond premium is a “coupon” the insurer pays to the bond buyer. There are many potential losses behind each bond, and the potentially huge recovery amounts to as much as hundreds of millions of dollars for some insurers. Other complexities include a priority deductible, an hours clause, lines of business reinsured or excluded and attachment criteria to automatically identify subject catastrophe amounts. Without technology, tracking all this can be overwhelming. The ceded reinsurance system can also be used to manage cat bond premiums. From a system perspective, it’s not terribly different. The same analytical split (per line of business and per insurance company in the group) applies to bonds just as it does to reinsurance treaties. With a little tweaking, a solid ceded reinsurance system should be able to handle cat treaties and bonds equally well. While ceded premium management for cat bonds shouldn’t be difficult, claims present bigger challenges, especially when trying to automatically calculate the ultimate net loss (UNL) because additional factors and rules are often used to determine it. For instance, it may be necessary to apply a growth-allowance factor, determine the number of policies in force when the catastrophe occurs and calculate growth-limitation factors. This allows the calculation of ceded recoveries in case of a catastrophe. Additionally, the calculation of UNL may be specific for each cat bond — and even for each corresponding peril. See also: Insurers: the New Venture Capitalists   Automating all this isn’t necessary because few events trigger those complexities. Once a manual workaround incorporating the audit trail and justification of the subject amounts is done, the reinsurance system can handle the remaining calculations. While it’s not necessary to fully automate all steps to calculate the UNL, it is still better to handle the whole process with an integrated information system than with multiple spreadsheets that are unwieldy and labor-intensive. Without the right technology, managing cat bonds is daunting. With automation, they can be managed far more effectively.

On Sept. 21, 2016, at 7 a.m. EDT in New York, Lemonade issued a press release. Paraphrased, it said: We’re open for business! Only time will tell the true impact that Lemonade can have on the insurance industry. Or if we will look back at 2016 in the same way we trace the origins of insurance to 1688 and the birth of underwriting in London. I’m convinced. The launch of Lemonade will go down as a defining moment in the history of insurance. And, after today, this industry will never be the same!  I trust you, you trust me. Insurance didn’t start out badly. When you look back in history, there are many examples of civilizations and societies supporting each other. Looking out for each other is natural behavior. This is what insurance is meant to be: mutuality in the pooling of shared risk. Sadly, the industry has lost its way with the evolution of mass scale personal lines in the 20^th century. The profit motive has gotten in the way of trust; the insured and the insurer are both chasing the same dollars. And now, their interests are no longer mutual but are misaligned. The insured wants a helping hand and to be “made whole.” The insurer wants to satisfy its duty to shareholders. With a very high cost of sale and administration overhead (and little that can be done to reduce it), the insurer is motivated to minimize the amount it pays in claims. See also: Be Afraid of These 4 Startups It’s an unfair relationship from the customer’s perspective. The customer has paid the premium and yet has to prove a claim to get what is rightfully hers. No amount of technology can obviate this fundamental failing of today’s insurance business model. And that is why the launch of Lemonade is so significant! Insurance reinvented    About a month ago, it was my privilege to have some time with Daniel Schreiber, the CEO and co-founder of Lemonade. We talked about the launch of Lemonade and the reasons for taking the hardest route to get a license in New York. We discussed the things that needed to change in the industry, and Daniel explained the philosophy and motivation behind Lemonade. Next month, I plan to write a longer piece with Daniel on the company's business model and tech. With his permission, I will share some of the detail behind Lemonade, which is, quite frankly, awesome, mind-blowing and game-changing! And if that doesn’t whet your appetite, take a look at these videos on YouTube:

• Lemonade in 60 Seconds
• Lemonade App Demo
• The Science Behind Lemonade

The thing to know about Lemonade is that it has built a full-stack insurance model from the ground up. This is NOT a mobile app sitting on top of traditional insurance. That’s what you get when you ask a bunch of people to find a new way to drive a nail into a piece of wood. If those people have only ever used a hammer, the chances are their solution will be kind of like a hammer. See also: The Insurance Renaissance (Part 1)   This innovation dilemma is not a problem unique to insurance. The incumbents in all industries have shown it’s difficult to innovate from within. That's why it took an Amazon to reinvent shopping, PayPal to change the game on payments and AirBnB and Uber to disrupt in their respective markets. (See this great article on Daily Fintech about the seven acts in the creative destruction play.) Lemonade is truly different Here's why:

• It’s a platform.

The way Lemonade has addressed conflict of interest between insured and insurer is inspiring — the company has simply eliminated it! Operating as a platform that enables the insurance engagement, Lemonade doesn't make any gain from the non-payment of claims. It takes a flat fee for running the platform. It makes its profit from the fee. If Lemonade doesn't pay any claims, it doesn’t increase its bottom line. Lemonade has taken out the “winners and losers” dynamic that today’s insurance model is built around. Like all great ideas, it’s simple and bleeding obvious.

• It’s peer-to-peer insurance.

Unspent premiums are put to good use. As a signed-up member of B-Corp, Lemonade groups its customers by affinity to good causes. This means that, for example, everyone who cares passionately about local youth development or finding a cure for cancer is grouped together. Unspent premiums from the risk pool are donated to the good cause at the end of each term. When a customer makes a claim, he or she knows any embellishment will be taking money away from the good cause they support, not the so-called “fat-cat insurers.” This is pure genius. Now you have a dynamic where the insurer’s job is to pay claims, and the insured’s motivation is to help others.

• It’s a pure-play tech stack.

The tech behind Lemonade is pretty special. It’s a 21^st century platform built on 2016 technology. It uses artificial intelligence to communicate through a mobile platform with its customers. From quote and buy to making a claim, the customer journey is simple, automated and immediate.  Underwriting is quick and easy and automated. Lemonade is more likely to ask how many friends you have than how your roof is constructed! Claims are the same. You tell the app what you’ve lost, make a short video testimonial and the company pays out. Immediately. There is no claims submission. There is no approval process. You state your loss, and they pay you what you’ve asked for.

• It’s all about trust and behavior.

Lemonade's secret sauce is Dan Ariely, the company's chief behavioral scientist. Dan studies behavioral economics and has written a series of books, including “The (Honest) Truth About Dishonesty.” Daniel explained to me why trust and behavior are so important to the fabric of Lemonade. He said, “People are generally honest. We all have a trust self-image that we might push from time to time. It’s like speeding; that doesn’t make us  feel like bad person when we do it. The same goes for insurance. People don’t feel aligned to the insurer, but they do feel the relationship is adversarial. This gives people a sense of entitlement and leads to embellishment and even fraud.” A great example of how trust can improve human behavior can be seen at Grameen Bank in India. This is a bank for poor people. It is trusted to repay unsecured loans without reliance on credit scores or enforcement through debt recovery agencies. And the repayment rates are higher than those of the traditional lenders who won't lend into these mass markets for fear of default.

• It’s about the greater good.

Lemonade is a public benefit corporation. This means it balances the needs of shareholders with a social responsibility to make decisions for the greater good. Like a government department, Lemonade has a corporate duty to make decisions that do not put profit and returns to shareholders first. Insurtech comes of age Out of all these characteristics, it is this last one that I think will be the most enduring and the most significant. It fundamentally cements the alignment of trust between the insured and the insurer. This is not paying lip-service to satisfy a corporate social PR agenda. Lemonade is putting its money where their mouth is. In the age of the 4^th Industrial Revolution, trust is the defining characteristic of the modern era. See also: InsurTech: Golden Opportunity to Innovate   Now, for the first time in the insurtech era, we are about to see a true game-changer come into the market. Of course, a lot will depend on consumer adoption. Will they “get it”? Do they want it? But one thing is for sure — up until now, no one has come this close to addressing the fundamental issues in personal lines. And if Lemonade succeeds (and I think it will), we will look back to 2016 and New York as the birthplace of 21^st century insurance.