For the past few years, the innovation rate in the global insurance industry has run at peak levels, in good part because of digitization, which continues to be a pervasive influence—if not as disruptive as early projections. Initial expectations of a departure from traditional distribution channels turned out not to be the case. Clients preferred direct, personal contact when buying insurance products. While online channels have not generated major changes—for example, in the vehicle insurance sector in Italy (5% of premiums today are generated online, compared with 1% in 2012) —telematics has had a substantial impact. It represents 15% of all insurance policies today in Italy. (These policies did not exist in 2002.) Digital transformation is, of course, leaving its mark in four macro areas. First, consumer expectations: A Bain survey suggests that more than three out of four consumers expect to use a digital channel for insurance interactions. Second, product flexibility: The traditional Japanese player, Tokio Marine, for example, started offering temporary insurance policies via mobile phone, e.g., travel insurance limited to the dates of travel and personal accident coverage for people playing sports. Third, ecosystems: They are created when the insurance value proposition depends on collaboration with partners from other sectors. For example, when Mojio sells a dongle (at, say, a supermarket) that requires connection to an open-source platform to be installed in a car, third-party suppliers are able to extract driving data from that platform and create services based on it. Onsurance, for one, offers tailor-made insurance coverage based on the data collected. Fourth, services: Insurers today are moving away from the traditional approach of covering risks to a more comprehensive insurance plan, which includes additional services. Connected insurance: a telematics “observatory” to promote excellence  The fact that the Italian insurance market represents the best of international automotive telematics practices gave rise to the idea of creating an “observatory” to help generate and promote innovation in the insurance sector. Bain, Ania, Aiba and more than 25 other insurance groups are among its current participants. The observatory has three main objectives: to represent the cutting edge of global innovation; to offer a strategic vision for major innovation initiatives while reinforcing the Italian excellence paradigm; and to stimulate research and debate concerning emerging insurance issues such as privacy and cyber risk. The Observatory on Telematics Connected Insurance & Innovation, will focus not only on vehicle insurance (where Italy has the highest penetration and the most advanced approach worldwide), but on additional important insurance markets related to home, health and industrial risk, which, I am convinced, represent the next innovation wave. Italy is currently the best practice leader in connected insurance. Italian expertise in vehicle telematics is finding applications in other insurance areas, particularly in home insurance—where Italy is the pioneer—and in the health sector, where we recently launched our first products. InsurTech on the rise Another sector that has seen an increased number of investments in 2016 is InsurTech. Until last year, attention focused on many types of financial service start-ups. Today there is significant growth in investments in insurance start-ups: almost $2.5 billion invested in the first nine months of 2015, compared with $0.7 billion in 2014 [according to CB Insight]. Many new firms are entering the sector, bringing innovation to various areas of the insurance value chain. The challenge for traditional insurers will be to identify firms worth investing in, and also to create the means for working with those new players. The challenge is integration Ultimately, the main challenge for insurers will be to find ways to integrate the start-ups into their value chains. The integration of user experience and data sources will be key to delivering an efficient value proposition: It is untenable to have dozens of specialized partners with different apps in addition to the insurer’s main policy. It will be necessary to manage the expansion and fragmentation of the new insurance value chain. To come up with an answer to this problem, start-ups are generating innovative collaborative paradigms. One example is DigitalTech International, which offers companies a white-label platform that integrates various company apps and those of third-party suppliers into a single mobile front end, even as it offers a system for consolidating diverse client ecosystems (domotics, wearables, connected cars) into a single  data repository. Integrating and managing complex emerging ecosystems will be one of the greatest challenges in dealing with the Internet of Things (IoT) for the insurance industry. (A version of this article first appeared on Insurance Review.)

Picture this: The year is 2025. A call comes to the police station—someone has broken into a local home. A drone is deployed to the address and arrives within five minutes. The drone feeds video to the station and to the closest autonomous (driverless) police vehicle. The drone guides the police car to the location. The officer in the car (we’ll assume he’s human, for now!) isn’t actually driving; he’s an occupant, watching the drone’s video feed. He can see the suspect fleeing, and he researches other crimes in the neighborhood along with potential suspects. The drone estimates the perp’s height and weight, and the officer can see his clothing and a possible gun in his belt. The police officer communicates with other officers in the area to coordinate the capture. As the suspect runs, his description and location is fed constantly to all nearby police vehicles, and he is surrounded within 15 minutes of the initial call. This is far from fiction. The international consulting firm Frost and Sullivan predicts that 180,000 driverless cars will hit the U.S. market in 2020. That’s less than 1% of today’s annual new car market, but that’s just the beginning! Just about every major car manufacturer (as well as Google, of course) is developing autonomous vehicles, and the competition is getting  more intense as the demand for collision avoidance features grows. Just as drones are spreading (if not yet regulated), driverless cars will become widely accepted. Americans love to drive, but there are too many undeniable advantages to autonomous cars. The first one is safety. According to the U.S. Insurance Institute for Highway Safety  (IIHS), 94% of all car accidents are caused by human error. Nearly two million crashes could be avoided if human error were eliminated. That’s not to say that driverless vehicles won’t crash, but, as the technology improves, crash rates will drop like a rock. In 2025, if our roads are still packed with commuters, the occupants of many vehicles will be reading, answering emails, video conferencing and browsing the web. In other words, they’ll be working. A recent Morgan Stanley report predicted that driverless cars could add $5.6 trillion (yes, with a 'T') to the global economy because of the combination of a steep reduction in accidents and the dramatic increase in productivity. It is estimated that in 2035 autonomous cars will account for 25% of all cars. Back to the police force. As driverless cars evolve, routine traffic monitoring will drop, high-speed chases will slowly decline (with drone help) and smaller police forces will focus on more serious crime. Cameras will capture everything—both from the ground and the sky. Officers will become highly trained in electronic law enforcement. Efficiency will rule! Of course, these are just predicted outcomes. This policing panacea isn’t all roses; it will not eliminate the need for community relationships, direct contact with neighborhoods and personal contact in law enforcement. Furthermore, while vehicle collisions will fall, the cost and maintenance of autonomous cars will remain extremely expensive in the near future. Currently, it costs about $150,000 to equip a driverless car. But that cost will drop to $7,000 by 2030 and to $3,000 by 2035. Nothing’s perfect. Every emerging concept or technology brings unexpected challenges and unintended consequences. But it appears that autonomous automobiles will emerge soon, and it’s likely that some day we’ll say they are "here to stay.” For today, I guess I’ll have to drive myself home. What a chore.

As a technology investor, I spend my days scouring Europe in search of the next big thing.

London’s FinTech scene has been a profitable hunting ground of late. With the U.K. FinTech industry generating $20 billion in revenue annually, it is not surprising that $5.4 billion has been invested in British FinTech companies since 2010.

A daily journey on the Tube is a testament to how rich the FinTech scene has become, with the capital’s underground trains now wallpapered with ads for Crowdcube, Transferwise, Nutmeg and other innovative companies. And London has played host to FinTech Week, celebrating the contribution these firms are making to the capital’s evolving financial services industry.

But where are the insurance tech entrepreneurs?

It is frequently—and accurately—argued that it is London’s birthright to play host to the poster-children of FinTech because of the capital’s impressive legacy and world-leading position in banking.

Read more: London FinTech investment in 2015 has already surpassed last year's total.

The same can be said of insurance: The concept of modern insurance was solidified in Edward Lloyd’s coffee house in the 1680s. Yet there isn’t a day celebrating InsurTech— let alone a week of conferences, events and after-parties.

This is even though the insurance industry, with trillions of dollars of annual insurance premiums globally, is comparable in size to the rest of the financial services industry put together. Digital insurance should be an obvious target for technological disruption, especially as traditional insurers have struggled to adapt to the digital age en masse.

Recent research by Morgan Stanley found that consumer satisfaction with online experiences in the insurance industry is well below average, with only real estate and telcos finishing lower in the 16-industry league table. The big insurance brands have very little contact with their end consumer because of intermediaries such as offline broker networks, and, as a result, brand advocacy is often low. Put it this way: When was the last time you raved to your neighbor about your insurance provider?

Technology has the potential to drive worthwhile change in insurance. There are already a few success stories, but only a few. Insurance comparison engines such as Moneysupermarket, Compare the Market and Check24 have fundamentally altered how consumers discover their insurance providers. Black Box Insurance, based on telematics data, has become a mainstream product for young drivers, fueling the growth of companies such as InsureTheBox and Marmalade.

Read more:  These are the most influential people in FinTech

These are all fantastic firms, but there is not a long list beyond these examples.

So, why don’t we see more of this type of innovation? Insurance does have far higher barriers to entry than many other industries. To simply get an insurance company off the ground, it requires a colossal amount of cash to cover any potential claims. Additionally, regulation is tough, with good reason. The European Commission’s Solvency II Directive sets a high standard for the capital requirements for insurers to hit to be classed as an eligible provider.

This type of money is hard for a start-up to find. Having said this, very similar challenges are being overcome in retail banking, with challenger banks such as Metro and Atom obtaining banking licenses and putting regulatory capital in place. The successes that many have encountered in FinTech should buoy potential InsurTech entrepreneurs, as should the appetite of venture capitalists to invest in the insurance sector.

I don’t just speak for myself; insurance has excited many colleagues from other funds, especially as the industry is starting to give us some success stories. Slowly but surely, companies such as The Floow, BoughtByMany and QuanTemplate are demonstrating that technology can disrupt the insurance industry. London’s centuries-old legacy in insurance has created a talent pool that is, arguably, the best in the world. Combine this with the strong tech talent in the capital and you can see that the raw ingredients required to build extremely interesting companies are readily available. Additionally, certain large incumbent insurers are beginning to show interest in nurturing the capital’s potential InsurTech community. AXA is a particularly good example, having recently launched Kamet, a €100 million accelerator program aimed specifically at InsurTech entrepreneurs.

The combination of VC appetite, available talent and support from existing players demonstrates that London is a powder keg of untapped potential. The only missing ingredients, at the moment, are the world-beating entrepreneurs willing to put their ideas to the test.

FinTech has shown that London can lead the world in industries that are steeped in tradition and ripe for change. It’s time for InsurTech to step out of the wings.

And then there were none? The individual health insurance marketplace is endangered, and policymakers need to start thinking about a fix right now, before we pass the point of no return. Health plans aren’t officially withdrawing from the individual- and family-market segment, but actual formal withdrawals are rare. What we are witnessing, however, may be the start of a stampede of virtual exits. From a carrier perspective, the individual and family health insurance market has never been easy. This market is far more susceptible to adverse selection than the group coverage market. The Affordable Care Act’s (ACA) guarantee of coverage only makes adverse selection more likely, although, to be fair, the individual mandate mitigates this risk to some extent. Then again, the penalty enforcing the individual mandate is simply inadequate to have the desired effect. Then add in the higher costs of administering individual policies relative to group coverage and the greater volatility of the individual insured pool. Stability is a challenge, as people move in and out of the individual market as they find or lose jobs with employer-provided coverage. In short, competing in the individual market is not for the faint of heart, which is why many more carriers offer group coverage than individual policies. The carriers in the individual market tend to be very good ; they have to be to survive. In 2014, when most of the ACA’s provisions took effect, carriers in the individual market suddenly found their expertise less helpful. The changes were so substantial that experience could give limited guidance. There were simply too many unanswered questions. How would guaranteed issue affect the risk profile of consumers buying their own coverage? Would the individual mandate be effective? How would competitors price their products? Would physicians and providers raise prices in light of increased demand for services? The list goes on. Actuaries are great at forecasting results when given large amounts of data concerning long-term trends. Enter a horde of unknowns, however, and their science rapidly veers toward mere educated guesses. The drafters of the ACA anticipated this situation and established three critical mechanisms to help carriers get through the transition: the risk adjustment, reinsurance and risk corridor programs. Risk corridors are especially important in this context as they limit carriers’ losses—and gains. Carriers experiencing claims less than 97% of a specified target pay into a fund administered by the Department of Health and Human Services; health plans with claims greater than 103% of this specific target receive refunds. Think of risk corridors as market-wide shock absorbers, helping carriers make it down an unknown, bumpy road without shaking themselves apart. While you can think of them as shock absorbers, Sen. Marco Rubio apparently cannot. Instead, Sen. Rubio views risk corridors as “taxpayer-funded bailouts of insurance companies.” In 2014, Sen. Rubio led a successful effort to insert a rider into the budget bill, preventing HHS from transferring money from other accounts to bolster the risk corridors program if the dollars paid in by profitable carriers were insufficient to meet the needs of unprofitable carriers. This provision was retained in the budget agreement Congress reached with the Obama administration late last year. Sen. Rubio, in effect, removed the springs from the shock absorber. The result is that HHS was only able to pay carriers seeking reimbursement under the risk corridors program 13% of what they were due based on their 2014 experience. This was a significant factor in the shuttering of half the health co-operatives set up under the ACA. Meanwhile, individual health insurers have taken a financial beating. In 2015, United Healthcare lost $475 million on its individual policies. Anthem, Aetna, Humana and others have all reported substantial losses in this market segment. The carriers point to the ACA as a direct cause. Supporters of the healthcare reform law, however, push back. For example, Peter Lee, the executive director of California’s state-run exchange, argues that carriers’ faulty pricing and weak networks are to blame. Whatever the cause, the losses are real and substantial. The health plans are taking steps to stanch the bleeding. One step several carriers are considering is leaving the health insurance exchanges. Another is exiting the individual market altogether—not formally, but virtually. Formal market withdrawals by health plans are rare. The regulatory burden is heavy, and insurers are usually barred from re-entering the market for a number of years (five in California, for example). There’s more than one way to leave a market, however. One method carriers sometimes employ is to continue offering policies but to make it hard to buy them. Because so many consumers rely on the expertise of professional agents to find the right health plans, a carrier can prevent sales by making it difficult or unprofitable for agents to do their job. Slash commissions to zero, and agents lose money on each sale. While I haven’t seen documentation yet, I’m hearing about an increasing number of carriers eliminating agent commissions as well as others removing agent support staff from the field. (Several carriers have eliminated field support in California. If you know of other insurers making a similar move or ending commissions, please respond in the comments section). So, what can be done? In a presidential election year, there's not much to be done legislatively. Republicans will want to use an imploding individual market to justify their calls for repealing the ACA altogether. Sen. Bernie Sanders will cite the situation as yet another reason we need “Medicare for all.” Former Secretary of State Hillary Clinton, however, has an incentive to raise the alarm. She wants to build on the ACA. Having it implode just before the November presidential election won’t help her campaign. She needs to get in front of this issue now to demonstrate she understands the issue and concerns, to begin mapping out the solution and to inoculate herself from whatever happens later this year. Congress should get in front of the situation now, too. Hearings on the implosion of the individual market and discussions on how to deal with it would lay the groundwork for meaningful legislative action in 2017. State regulators must notice the endangered individual market, as well. They have a responsibility to ensure competitive markets. They need to examine the levers at their disposal to find creative approaches to keep existing carriers in the individual market and to attract new ones. If the individual market is reduced to one or two carriers in a region, no one wins. Competition and choice are consumers’ friends; monopolies are not. And when consumers (also known as voters) lose, so do politicians. Which means smart lawmakers will start addressing this issue now. The individual health insurance market may be an endangered species, but it’s not extinct … yet. There’s still time to act. There's just not a lot of it.

With $5 trillion in premiums, an incredibly low level of customer satisfaction, aging infrastructures, an analytically based, high-volume business model and a “wait until we have to” approach to innovation, insurance is now fully in the sights of the most disruptively innovative engine on the planet, Silicon Valley. The tipping point for insurance is here. More than 75 digitally born companies in Silicon Valley, including Google and Apple, are redefining the rules and the infrastructure of the insurance industry. Inside the Insurance Tipping Point – Silicon Valley | 2016 It’s one thing to listen to all of the analysts talk about the digitization of insurance and the disruptive changes it will bring. It’s quite another to immerse yourself in the amazing array of companies, technologies and trends driving those changes. This post is the first of a series that will give you an inside look at the visions, culture and disruptive innovation accelerating the digital tipping point for insurance and the opportunities that creates for companies bold enough to become part of it. (Join us at #insdisrupt.) Venture firms are catalysts for much of Silicon Valley's innovation, and insurance has their attention. Frank Chen of Andreessen Horowitz sees software as rewriting the insurance industry, AXA insurance has established an investment and innovation presence here. Others, including Lightspeed Ventures, Ribbit Capital and AutoTech Ventures, are investing in data and analytics, new insurance distribution plays and other technologies that will change the shape of insurance. New business models: Metromile, Zenefits, Stride Health, Collective Health, Climate Corp., Trov and Sureify, are using technologies to redefine and personalize insurance and the experience customers have with it. Rise of the Digital Ecosystem – Expanding the Boundaries of Insurance Digital ecosystems are innovation catalysts and accelerators with power to reshape industry value chains and the world economy. They dramatically expand the boundaries within which insurance can create value for customers and increase the corners from which new competitors can emerge. Silicon Valley is home to companies acutely aware of how to establish themselves as a dominant and disruptive platform within digital ecosystems. That includes Google, which is investing heavily in the automobile space with Google Compare and self-driving vehicles and has acquired Nest as an anchor in the P&C/smart homes market. Fitbit is already establishing health insurance partnerships. And let’s not forget Apple. The Apple Watch already has insurance-related partners. Apple has clear plans for the smart home market and has recently launched AutoPlay, its anchor entry into the auto market. There are rumors that Apple plans to develop an iCar. And that’s just what we know about. There are a host of other companies placing digital ecosystem bets in Silicon Valley, as well: GE, which is driving the Industrial Internet of Things; Parstream, with an analytic platform built for IoT; the IoT consortium; Jawbone; Evidation Health; Misfit Wearables; icontrol Network; GM and its advanced technology lab; carvi; and DriveFactor, now part of CCC Information Services. Then there are the robotics companies, including 3D robotics, the RoboBrain project at Stanford University and Silicon Valley Robotics, an association of makers. Customer Engagement and Experience – New Digital Rules, New Digital Playbook. When your customer satisfaction and trust is one of the lowest in the world and companies like Apple and Google enter your market place, it’s really time to pay attention. There is a customer value-creation and design led innovation culture in the valley unrivaled in the world, and the technology to back it up. Companies like Genesys, and Vlocity are working on perfecting the omni channel expereince. Hearsaysocial and, declara, are working on next gen social media to help customers and the insurance industry create better relationships. Many of the next generation of insurance products will be context aware, opening the door to new ways of reaching and supporting customers. Companies like mCube and Ejenta, are working to provide sensor based insight and the analytics to act on it. Trunomi, Beyond the Ark, and DataSkill via cognitive intelligence are developing new innovative ways to use data & analytics to better understand and engage customers. Lifestyle based insurance models are being launched like Adventure Adovcates and Givesurance, And some of digital marketing automation’s most innovative new players like Marketo, and even Oracle’s Eloqua are rewriting and enabling a new digital generation of marketing best practices. Big Data and Analytics – Integrated Strategies for the New “Digital” Insurance Company The techno buzz says big data and analytics are going to affect every business and every business operation. When you are a data- and analytics-driven industry like insurance that deals with massive amounts of policies and transactions, that buzz isn't hype, it's a promise. The thing about big data and analytics is that when they are used in operational silos, they provide a tactical advantage. But when a common interoperable vision and roadmap are established, analytics create a huge strategic advantage. That knowledge and the capability to act on it is built into the DNA of “born digital” entries into the insurance market like Google. The number of companies working on big data and analytics within the valley is staggering. We have already discussed a few in the Customer Engagement section above. Here are a few more, In the area of risk: RMS is building its stable of talent in the big data space; Actian is delivering lightning-fast Hadoop analytics; Metabiota is providing epidemic disease threat assessments; and Orbital Insights is providing geo-based image analysis. In the areas of claims and fraud, Palantir, ScoreData, Tyche and SAS are adding powerful capabilities for insurance. Improved operational effectiveness is being delivered by Saama Technology, with an integrated insurance analytics suite; by Prevedere, with data-driven predictive analytics; by Volumetrix, with people analytics; and by Sparkling Logic, which helps drive faster and more effective decision making. Insurance Digitized | Next Generation Core Systems With insurance boundaries expanding, integration with digital ecosystems, increasing reliance on analytics and the demand for personalized and contextualized outcome- and services-based insurance models, core systems will have huge new sets of requirements placed on them. The requirement for interoperability between systems and data and analytics will grow dramatically. Companies like Guidewire, ISCS and SAP are building a new generation of cloud-based systems. Scoredata and Pokitdoc are bringing new capabilities to claims. Splunk, Symantec and FireEye are addressing emergent cyber risks. And companies like Automation Everywhere, Occulus Riff, Suitable Technologies and Humanyze are enabling the digitally blended and augmented workforce. The latest investment wave includes artificial intelligence, deep learning and machine learning, which core systems will need to incorporate. Surviving the Tipping Point – Becoming One of the Disruptive Leaders This is a small sampling of the technologies, trends and companies just within Silicon Valley that are shaping the digital future of insurance. The changes these will drive are massive, and they are only the tip of the iceberg. An Insurance Tech meetup group open to all the insurance-related companies within Silicon Valley was just announced by Guillaume Cabrere, CEO of AXA Labs, and already has 64 members. For established companies to survive the tipping point and thrive on the other side of it requires more than handing “digital transformation” off to the CIO or marketing team. Success requires a C-Suite that has become an integral part of the community and culture building the digital generation of insurance companies. For technology companies and next-generation insurance companies, success requires building partnerships with established and emerging players. This blog series is designed to inform and accelerate that dialog and partnering formation. It will include a series of interviews with disruptive leaders from industry and Silicon Valley. If you or your company would like to be a part of that series, please let me know. Join us for the next Insurance Disrupted Conference – March 22-23, 2016 l Silicon Valley ITL readers receive a 15% discount when registering here.

The availability of rapid diagnostic technology and the dramatic growth of retail healthcare has converged to create opportunities for the life insurance industry to attract and serve millions of consumers who are uninsured. Increasingly, consumers are visiting retail locations for healthcare. Life insurers stand to benefit in both the short and long term by taking advantage of the convenience of retail healthcare and the availability of rapid testing to speed underwriting. Rapid Tests Meet Consumer and Insurer Needs In the past five years, minimally invasive rapid diagnostic testing has been revolutionized. Its accuracy, speed and ease-of-use have made it a perfect fit for the retail health environment. Rapid tests require only a small drop of blood or an oral swab, deliver accurate results in minutes and meet stringent FDA guidelines. Tests, such as A1c for diabetes or cotinine for smoking detection, can be combined into one kit for ease of use and distribution. And, because results can be seen immediately, rapid tests meet consumer expectations of speed by eliminating the delays inherent in the central lab process. Faced with declining sales, forward-thinking insurers and reinsurers are using these new tools and processes to enable rapid issue of insurance. And, when combined with more traditional measurements such as height, weight and blood pressure, rapid tests provide insurers with the information they need to make accurate and quick decisions on a life insurance application. The data can be electronically transferred from the retail site to the insurer to enable immediate, rule-based decisions. As a result, an insurance offer can quickly be delivered to the consumer—often by the time he or she arrives home—delighting consumers and shrinking the life insurance underwriting process considerably. Growth of Retail Healthcare Creates Reach into Neighborhoods Retail pharmacies and urgent care clinics are quickly becoming neighborhood clinics. They are able to provide a broad range of services, with the majority offering health screenings and wellness services to fulfill the growing consumer demand for affordable, accessible healthcare in a convenient and professional setting. This trend is one that we can expect to grow and broaden. According to Accenture’s recent analysis, “Walk-in retail clinics, located in pharmacies, retail chains and supermarkets, will add capacity for 25 million patient visits in 2017, up from 16 million in 2014.” The Urgent Care Association of America reports similar growth. There are now 7,000 urgent care clinics in the U.S. that see three million patients each week. A New Process for a New Generation The availability of rapid diagnostic testing in retail settings offers a unique opportunity for life insurers to address several challenges in the application process that are cumbersome to today’s consumers. Many of these consumers simply disappear because the insurance process takes too long. Rapid testing speeds the delivery of results to the insurer so it can quickly make an offer to the consumers. Consumers are able to complete testing in a convenient and professional setting. In an age where speed of information is not only expected but demanded from consumers, this new paradigm provides insurers and reinsurers with a process that consumers will applaud with their loyalty and their life insurance dollars.

The way people and companies interact with each another is tremendously different from the way they conducted business just 10 years ago. Technology is pushing the boundaries of how and when business is conducted between businesses and their customers. That being said, the insurance industry’s customer journey over the last 100 years has not evolved or diverted from its basic business model: Brokers and agents are still the primary means for insurance companies to market and sell their products. This broker-dependent model served the industry well and remained the same while other industries have evolved their delivery channels. While there are some exceptions—such as Progressive and Geico, which use direct channels quite successfully—the industry’s most prevalent delivery channel remains with agents and brokers. Given the insurance industry’s stability and profitability over time, the notion of a distribution chain realignment or agent disintermediation seems quite unlikely. This is bolstered by the fact that many large and successful companies played by the old business model quite profitably. Accordingly, there had been little incentive in the past to alter this business model. Today, however, insurance distribution is ripe for technological disruption, and carriers that ignore this trend are doing so at their own peril. We are on the verge of the perfect storm; the magnitude of technological availability and shifting demographics in the U.S. has the potential to disrupt and reorganize almost all aspects of the insurance customer journey. Technology’s Adoption and Diffusion: Its effects on the general population During earlier periods of technological growth, technology created more efficiency within the brick-and-mortar framework. Businesses were able to cut costs, automate design and streamline processes. The ultimate consumer did not necessarily enjoy lower prices or a better buying experience as a direct function of improving economies of scale. Moreover, consumers did not have additional access to pricing information, product research, reviews or product promotion pieces in real time. Instead, the average consumer bought through the retail channel that businesses sold through without any alternative. Today, access to information is widely available in real time. If you want a product review on something you are interested in at your local store, you Google it. Then, if the review is satisfactory to you, you can go to a brick-and-mortar location and purchase it, or you can log on to an online store and purchase it from your sofa. The average consumer has more information and power at his disposal than ever before. He can search for prices at no cost to him and then make purchases. According to the U.S. Census in 2013, 84% of U.S. households reported computer ownership, with 79% of all households having a desktop or laptop computer and 64% having a handheld computer. 74% of all households reported Internet use, with 73% reporting a high-speed connection. Complementing this growth in computer home ownership is the increasing popularity of tablets. In just three short years (between 2010 and 2013), tablet ownership increased from 3% to 34%. With this advance in personal technology there comes access to information. All these statistics raise the question, "Why is technology growth at the individual level important to the insurance industry?" Because many products offer information on the web just by clicking, there is a fundamental shift in buying behavior because of the speed of information. There is a certain convenience factor individuals currently enjoy by using digital channels for research. Convenience is a key factor along the customer journey. As an example, when buying an airline ticket, do you call the airline or simply log on to a travel site to research options and make a purchase? Many in the insurance industry state that insurance products’ complex nature will require that consumers use agents and specialty advisers to assist with product selection. Many would agree with that statement, with some qualification. For large commercial and other extremely complicated risks, the agent and broker channel will exist, but for small commercial and personal lines the delivery channels will blur. Some consumers will always pick up the phone or meet with someone to get a better understanding of risk products. That preference, however, may be a generational one. People born in the 1960s and 1970s did not have computers and tablets from a young age. The millennial generation is used to the convenience and the speed that digital technology affords. As an example, a 24-year-old told the story of his first experience purchasing automobile insurance. He called a national firm’s local office to inquire about a policy. The agent was friendly but was not available to meet with him for several days. Thinking that was ridiculous, he declined the appointment and used a website to research, evaluate and price a policy. Following that, he spoke to a customer service representative who explained coverages and what they were. At the conclusion of the phone call, he paid for the policy and was done. His primary goal was to 1) get information quickly, 2) evaluate the coverages, 3) determine that the price was fair and 4) purchase his policy. This was also accomplished after business hours when it was convenient for him, not the agent. All told, using digital channels first and later interacting with a call center was the optimal delivery channel path for him. Technology and New Channel Formation With the widespread growth of personal computing devices in the U.S. increasing each year, insurance companies have begun to take notice. It’s not uncommon to see websites that outline the company’s products. As a general rule, however, when it comes to pricing policies, insureds are still referred to agents. Consumers of insurance products demand information on multiple channels. Many want the ability to research and evaluate products on their own, without an agent (this is an evolutionary change), but this does not mean they might not want to BUY insurance from the agent. The agent will be there to answer any final questions and to fit the product into the overall financial situation of the consumer. The real challenge for most agents is remaining relevant and finding a way to create value within the digital customer journey. To that end, agents must find a way to help expedite how information is distributed and consumed. If agents relegate themselves to becoming just order-takers, they will quickly become irrelevant and will add very little value to the process. In other words, the agent’s role must evolve to avoid obsolescence. The agency distribution channel is not dead. While there will always be agents representing insurance companies, their roles and their interactions with the industry and insureds will change over time as new distribution channels manifest themselves. The questions of "where" and "how much value" are what is changing. Some customers will use channels differently, but it is up to agencies and brokers to understand their target market’s preferences for channel selection. Agencies who do not use an omni-channel strategy will lose business to other agencies that do. Also, agencies need to create value through content, creating a clearly defined holistic- and flexible-guidance value that resonates with customers. Those who are able to evolve will continue to thrive, but those who do not will either continue to lose business or will close their doors. If you look at the travel agent industry, the number of travel agents has declined markedly, but there are still agencies in business that provide value to their customers. These agencies simply evolved and realigned their value proposition and targeted their customer segments quite successfully. The result is that there are far fewer agencies than there were 10 years ago. The same will occur with the agency channel. The Rise of Omni-Channel Delivery Under the old insurance distribution model, consumers were expected to shop for insurance with their agent, who would also be there for their subsequent questions or for submission of claims. Today, consumers increasingly expect to interact with their insurance provider on the consumer's schedule through omni-channels. Subsequently, the agency delivery channel’s role is changing. Perhaps, spoiled by a streamlined customer experience in other industries, consumers now want to research their purchases online and then decide whether to buy online or through brick-and-mortar stores. Blogs and consumer reviews are also important to today’s consumer. The way people shop is evolving at a rapid rate, and insurance companies need to recognize that. Carriers like Plymouth Rock, for example, are experimenting with an “option direct” delivery strategy. It allows prospective insureds to quote policies and, at their option, bind the business directly with the company. If the prospective insured does not purchase the policy online, it is released to an “agent exchange” where an agent purchases the lead and then follows up to cross-sell, up-sell or quote other companies. Using this approach, Plymouth Rock allows for a direct distribution channel with an option to work with an agent for coverage advice. Time will tell if Plymouth’s model is successful, but, given the demands for omni-channel availability, it certainly makes sense that the company tests the model’s efficacy. This test presents an interesting business practice. Testing new distribution channels is a must. No one person—or expert—truly knows how distribution channels will evolve over the next few years. What is widely known, however, is that these channels exist and that they are viable alternatives with lower cost structures to insurance carriers. Also, what doesn’t work this year may work quite well five years from now. These new channels may just be a step in the customer journey, or they may turn out to be the point in the customer journey where purchases are made: i.e. the moment of truth. Either way, understanding target customer preferences is critical in an omni-channel world. Successful insurance companies will constantly test their channels to determine what the most effective strategy is for sales conversions. Omni-Channel and Commoditization With the proliferation of multiple distribution options, insurance companies are increasingly forced to compete on price instead of features. The growth of price comparison sites and aggregators makes buying insurance based on price even easier for the consumer. These channels provide a list of insurance policies ranked in ascending price order. On the surface, this presents challenges. From the carriers’ perspective, this is not the optimal solution because price alone does not explain the value of a policy or a company’s ability to pay claims. From the consumers’ perspective, buying solely on price potentially subjects them to improper or incomplete coverage. Yet, despite these challenges, over the last decade insurance product commoditization has occurred (e.g. personal auto). To counter commoditization, insurance companies need to position themselves effectively to differentiate their product offerings. Evaluating the demographic preferences and buying habits allows insurance companies to more effectively target their customer base and not rely on price alone as the distinguishing factor. Deciding on a differentiation framework is even more important today given the changes in the market. Companies can compete on service (e.g. fast, no hassle claims), 24/7 accessibility, customer experience, unique product offerings, speed to market, leadership in the industry, etc., but they must fight to make sure these differentiators are made known in the midst of increasingly commoditized interfaces, distribution and thinking. To counter commoditization in the digital era, it might behoove insurers to select strategies other than price to compete and stand out from the competition and, secondly, to make sure these strategies are obvious and well understood by the consumers who might tend to look first at price. The Importance of Millennials and their Preferences The demand for omni-channel customer journeys is in its infancy. Consequently, there are fundamental differences in Internet use and shopping behavior by millennials, as compared with other generations. As baby boomers and Generation X age out, millennials and the subsequent generations who have experienced technology from an early age are going to drive market behavior on a larger scale. They are comfortable with an omni-channel approach and expect to find information available on the Internet so they can research their purchases. These consumers have skills, beliefs and requirements that previous generations did not have. (How many children help their parents and grandparents with their online challenges?) If one were to summarize some of the millennials’ characteristics and their digital preferences, a number of the following points deserve mention:

• Based on their familiarity with technology, they are open to using digital channels as an option for purchases;
• Millennials currently make up 25% of the population but will make up 75% of the population in 2025. Some of them are going to rise to the management level;
• Convenience and ability to purchase goods and services 24/7 is important to them;
• Online reviews and blogs are widely used in their decision making;
• Millennials interact with brands on Facebook and other social media sites;
• Opinions of others—particularly friends and family—influence buying decisions.

The power of insurance customers to voice their opinion is particularly strong with digital channels. A dissatisfied customer has the ability to vent his negative experiences to a massive audience. Online reviews and blogs are a powerful information source for current and potential customers, and these sources can—and do—influence customer behavior. This shift in power drives home the importance of customer experience. With today’s social media, a negative experience could go viral and give a company a public relations nightmare. Conversely, publishing success stories that prove alignment with customer needs is an excellent way to demonstrate a company’s core values and reinforce its positioning as an insurer that fosters an excellent customer experience. As stated earlier, over time, millennials’ buying preferences will become more and more important to numerous industries, including insurance. Because the millennials’ demographic will make up 75% of the workforce in 2025, many insurers will need to evolve their distribution channels and their customer interaction strategy to better serve this demographic. As far as personal lines are concerned, this demographic group will influence distribution channels more immediately because millennials are now at the age where they need to purchase insurance products. What is not clear today is which omni-distribution channel is the most effective for insurance distribution. Recognizing that, providing omni-channel delivery ensures that all options are covered and that marketing opportunities for customer touch are available. It is the prevailing wisdom that the more an insurance company interacts with its customers, the more likely it is that customers will renew their coverage. In the old agency model, the only touch points for an insurance company are the claims and billing processes. To accomplish additional touch points, publishing content works quite well. Today, content- and information-sharing is one of the main avenues for adding value to customers. As an example, some homeowners insurance companies send out text warnings to areas in the path of a hurricane or tornado to guard against loss of life and property. Others use content quite differently. Topics that are relevant to a customer base (that are not insurance-related) work equally well. As another example, one insurance company sends out gardening suggestions based on demographic data. Because insurance is a low-interest category to most consumers, insurers that publish content that interests their customers will create engagement and, consequently, develop a connection with their insureds. Only a small percentage of consumers actually file claims, and most insureds have little or no contact with their carrier. As a result, a content strategy allows insurers to interact with the majority of their customers other than just in claims or billing situations. This greatly increases customer touch and provides the opportunity to improve the customer experience. In the near future, however, content will become commonplace and expected, while user experience will determine the winners and losers in the marketplace. Additional Demographic Shifts The U.S. of 2050 will look very differently from that of today: Caucasians will no longer be the majority. The U.S. minority population, currently 30%, is expected to exceed 50% before 2050. No other advanced country will see such diversity. In fact, most of the U.S.'s net population growth will be among its minorities, as well as in a growing mixed-race population. Latino and Asian populations are expected to grow threefold, and the children of immigrants will become more prominent. Today in the U.S., 25% of children under five years old are Hispanic; by 2050, that percentage will be almost 40%. As a direct consequence, insurance companies need to start their long-term planning for these demographic shifts and must have strategies to serve these segments. In addition, the number of women in the workplace is increasing. As women grow in the management ranks, their influence on buying decisions will increase accordingly. Currently, women are responsible for 85% of all consumer purchases, including everything from autos to healthcare. Farnaz Wallace—the founder of Farnaz Global, a strategic consulting firm—said, "In the New World Marketplace, women, youth and multiculturalism are shaping our future economically and culturally, and companies must find ways to stay relevant in a world different than the one taught in textbooks." He also said, "Millennials are the most racially and ethnically diverse generation in American history—gender-neutral and colorblind—transforming business norms." Conclusion Throughout business history, products have fulfilled human needs. Think about how the automobile, air travel and the microwave oven changed the way we live. All these innovations took place on the company side of the value chain. In the past, these products disrupted other products. What makes disruption more likely in the insurance industry today? The major shift in the customer journey. Today, information is available to consumers on a massive scale and is virtually free. The agent is no longer the sole channel for information and product delivery. This disruptive cycle is substantially different because it empowers customers to use different channels during the purchase journey, channels that never existed before. Additionally, a generation of insurance purchasers are coming online with a major predisposition for utilizing omni-channel approaches. Companies that ignore these shifts are taking a major risk with their future viability because these shifts have already occurred and will continue with tremendous momentum.

An organization the size of the University of California system—10 campuses, five medical centers, a student body of 239,000 and nearly 200,000 faculty, staff and other employees—requires the close attention of individuals who help assess and manage risk and insurance. Kevin Confetti, the UC deputy chief risk officer in the Office of the President, is one of those people who keeps the University of California operating and its employees satisfied. Born and raised in Pittsburg, CA, Confetti grew up in a hardworking blue-collar family with parents who worked at DuPont and at U.S. Steel. While in high school, he aspired to be a teacher and football coach, and he attended UC Davis, where he played on the varsity football team and graduated with a B.A. in rhetoric and communication. After graduation, he hung up his cleats and got his first real job working in claims adjusting for Cal Comp, where he found he really liked the variety of work. That experience led him to promotional opportunities at Fireman’s Fund, Ernst & Young and Octagon Risk Services. Serving for five years as a claim unit manager at Octagon—the UC system's third-party administrator (TPA) at the time—Confetti was hired by the UC system in 2006. Now, he's in the process of achieving his ARM (Associate Risk Management) designation. Kevin Confetti Within the UC system, Confetti reports to the chief risk officer, Cheryl Lloyd, and he provides overall management of self-insured workers' comp (aka “human capital risk”), employment practices, general and auto liability, medical malpractice, construction risks and $50 billion of property risks. Confetti said the UC system's various campuses and medical and research facilities are actually quite autonomous, while the Office of the President strives to manage the overall risks without using too many mandates. It's a program that responds to needs as it sees fit, and it helps set up system-wide policies. To do his job well, he said he needs to be a good communicator, a good listener and someone who facilitates collaboration and cooperation among his various facility risk management teams. He described the job as, essentially, convincing his campus teams that something is the right thing to do.  He loves the variety of what he manages, and his passion is to save the UC system money, whether it’s $1 or $1 million, so those savings can go to the UC system's mission. Confetti said, “Leadership requires the ability to convince others in the UC system of the value of our propositions and decisions." With an in-house risk management staff of 10 to 12, Confetti serves each campus risk management department (ranging from about two to three at UC Merced to 12 at UCLA) as clients. The UC system uses Sedgwick as its TPA for its self-insured programs, which provides in-depth metrics, data mining and monthly and ad hoc reports. Sedgwick also provides assigned analysts in virtually every UC risk area. Confetti also manages the UC Risk Management Leadership Council, which meets monthly on various campuses. In addition, his office hosts a Risk Summit conference once each year for every campus and facility risk management team. These teams come together to discuss trend statistics and emerging issues that are key risk factors for each unit as well as the overall UC system. While each campus team does things a little differently, they all operate with a similar mindset that fits within the UC system’s overall objectives. At the moment, Confetti's biggest area of concern is cyber security; cyber issues can be difficult to identify and prevent and can be one of the most destructive risks, threatening things such as power grids and other infrastructure. The UC system employs several different IT structures, and, because most insurance coverage excludes cyber risk, the risk is extremely dangerous from a risk manager’s perspective—especially given the size and nature of electronic data managed by the UC system. A second issue Confetti is currently concerned with is the risk to students and faculty from active shooters or other terrorist-minded groups. A third risk he's focusing on is the use of drones; Confetti said the federal government, businesses and institutions haven't been able to effectively manage the growing number of drones operating freely in the U.S. Confetti said he would tell newcomers to risk management that technology continues to propagate new risks. He advised, “Be willing to take on risks, but learn from your mistakes and know that you don’t have all of the answers. You have to take risks to move forward, but negative experiences should provide the knowledge and skills to mitigate risk more effectively. ... Be flexible and open to new ideas. ... Avoid reliance on statistics. Data will give you a trail of facts like breadcrumbs to show you what trail you need to follow. But get out of the office and make the rounds to see and hear what’s going on.”

When WorkCompCentral released a report, The Uncompensated Worker, I wrote about how a work injury affects family finances. I applied several realistic work injury scenarios to each state. In 31 states, workers receive a reduction in take-home pay of 15% or more when they’re injured on the job. In half the states, households with two median wage earners—one on work disability and the other working full time—cannot afford to sustain their basic budget. These findings confirmed what workers’ comp claims adjusters, attorneys and case managers already know: Many injured workers live on the edge of financial collapse. But the findings are by no means conclusive.  The research done for "The Uncompensated Worker" was too limited. I know, because I did it. To really understand the financial experience of being on workers’ comp benefits, one should run not a handful but thousands of scenarios through a statistical analyzer and then compare the data results with actual cases researched through interviews. The research agendas of the workers’ comp industry rarely involve looking at the worker her or himself. Instead, the industry has funded research mainly to understand the drivers of claims costs, specifically medical care. This focus can be explained. Over the past 25 or so years, the workers' comp industry has absorbed a huge rise in medical costs, more and more layers of regulation relating to medical treatment and even more specialties needed to deliver or oversee medical care. To illustrate the extent of this industrial-medical complex: Nationwide spending on “loss adjustment expense,” a proxy for specialist oversight of claims, has grown annually on average by 9.4%  since 1990, while total claims costs have risen on average by 2.5%. The quality of industry-funded research has improved, because of better data and strong talent pools in places like the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute and the National Council for Compensation Insurance. Their research focuses on cost containment and service delivery. These two themes often intertwine in studies about medications, surgeries or medical provider selection. It’s time to pay more attention to the worker. Close to a million workers a year lost at least one day from work because of injury.  We hardly know them. Bob Wilson of Workerscompensation.com predicts that, in 2016, “The injured worker will be removed from the system entirely. … Culminating a move started some 20 years ago, this final step will bring true efficiency and cost savings to the workers’ comp industry.” Industry research, one might say, has left the worker out the system. An example of how the worker is removed can be seen in how the WCRI did an analysis of weekly benefit indemnity caps. These caps set a maximum benefit typically related to the state’s average weekly wage. (The methodology has probably not been critiqued by states for generations, despite better wage data and analytical methods.) The WCRI modeled different caps to estimate the number of workers affected. But it did not report on what this meant to workers and their families; for example, by how much their take-home benefits would change. As it happens, Indiana is one of the worst states for being injured at work; it has close to the stingiest benefits for a brief disability. You are not paid for the first seven calendar days of disability. Benefits for that waiting period are restored only if you remain on disability for 22 calendar days. Take-home pay for someone who is out for two weeks or less will likely be 83% less than what it would have been without injury. An Indianapolis couple, both at the state’s median wage, cannot afford a basic month's budget for a family of three when one is on extended work disability. These poor results are partly because of Indiana’s benefit cap, which is one of the lowest in the country. The weekly benefit cap used in the report, a 2014 figure, was $650. Les Boden, a professor at Boston University’s School of Public Health, read a draft of "The Uncompensated Worker." For years, he has studied the income of injured workers and the adequacy of workers' compensation benefits. He told me, “Studies have shown that many people with work-related injuries and illnesses don't receive any workers' comp benefits. I don’t think that the problem is too little research. It’s political. Unfortunately, workers are invisible in the political process, and businesses threatening to leave the state are not.” I am not sure how the politics of this issue can change until the strongest research centers in the industry begin to pay attention to the worker. This article first appeared at workcompcentral.com.

Reform is changing healthcare delivery models, but there is a large gap between the healthcare related to workers' compensation and the group health approach. As a result of healthcare reform, the industry has experienced significant consolidation of health systems and medical practices, with an added emphasis on patients as consumers of healthcare, all as providers continue to evolve. As employers, though, our message is confused. We tell employees that we have a great healthcare system for them, encourage them to choose the best physician to meet their needs and remind them to get regular checkups. However, if an employee gets injured, we have a separate system with a separate set of doctors and a separate set of rules. If employers can find better doctors to treat workers, they can improve the quality of the workers’ compensation system. Employers are not going to get better doctors just by paying more; but, if they can identify which doctors are doing a better job and reward them, results improve. California’s model has been experimenting with the concept of rewarding doctors for providing superior care, which has resulted in significant cost reduction. Great doctors are actually reducing the amount of medical attention required and, overall, workers’ compensation claims costs. As a result of better care and employee satisfaction, litigation costs have also dropped. Quality matters. With advancements in technology, reimbursement models, a focus on quality and the movement of connected care, health systems across the U.S. are offering accountable care organizations (ACOs) for employer benefit solutions. Many think mergers and consolidation are a bad thing, however, in this consolidated world where health systems have changed, mergers and consolidation are changing "well care" to "sick care." By taking a holistic approach, you are able to take a patient from wellness to injury care. Workers' compensation needs to be part of this discussion. If not, we cause an even greater divide. This holistic approach is not a new concept. In the 1990s, there were three 24-hour care pilot programs that tried this approach and resulted in lowered cost and improved medical control. At the same time, 10 states also mandated 24-hour pilot studies. Employers generally liked the pilot programs, which resulted in benefits such as increased medical control and reduced costs. On the national front today, the National Institute for Occupational Safety and Health (NIOSH) has a total worker health program that considers the total person and the factors that affect the individual’s health. The workers' compensation system could borrow and apply successful elements from these programs. When you send an injured worker to the best and brightest, you make the workers and their families feel like you are treating them well. This gets the patient to do what the doctor wants and stops the unfortunate spiral of delays in care. Technology is going to refine this approach even further. Technology will enable patients to get in touch with doctors immediately and will make the worker feel like he was properly cared for. This has the potential to be extremely effective and efficient for the system. When a connected care system is not in place, the gaps in care are leading to needless disability and extended absence. Technology and telemedicine are essential components of this connected care. Gathering and analyzing health data is also important to drive positive behavior and improve overall quality of care. The patient base is also more complicated, and that is where finding the great doctor comes into play. Today, if you have a patient with a broken arm, you may, in fact, have a patient with a broken arm and diabetes, which is much more difficult to treat. We need to find these great doctors and find systems for them to work with that operate far more efficiently. Technology is a very big part of that. The current workers' compensation system is not set up to reimburse for payments under this new model, including the use of nurse practitioners and physician's assistants. The system needs to move in this direction. There are simply not enough physicians to see everyone. These healthcare professionals are essential elements of the group system, and the workers’ compensation system could be improved significantly by recognizing the need for these important providers. Workers' compensation currently works in silos, and that is an obstacle. The health system ACO model is communicating directly to the employers. As this model becomes adopted, the board room is not seeing the financial benefits just yet. However, when employers decide they want change, change happens. It is just a matter of getting their attention. Employers are paying attention to the data they receive on the types of health systems. If the data around what is working in group health becomes available to employers, they will evolve. Holistic care is certainly a trend that is largely becoming a reality. Workers with sedentary lifestyles who become injured on the job bring complicated connections between injury and pre-existing conditions that are hard to separate. It makes sense to treat people as they are—as a whole person. It is very important to try to get all of the systems to work together to treat the employee as one person. We need a network that drives total employee health, and we can only have that if group health and workers' compensation can talk to each other. Data is going to drive this evolution. The best-case scenario is if all this wonderful science and data can be put to use to help patients and merge what currently are parallel systems. These issues were discussed in more details during an Out Front Ideas with Kimberly and Mark webinar, which was broadcast on Sept. 30, 2015. The archived webinar can be viewed here.