Innovation can start simple. It does not always have to start with a big bang. We all know that doing anything in insurance across 50 states is often complex and expensive and a long process, but it is possible to begin with an idea around a new model, product, channel or line of business. Decide on which state(s) to start with, and then run with it. What a great way to launch and experience innovation.

This past year, we have seen new distribution models springing up on both coasts -- auto in California and life in Massachusetts. Let your imagination take over, and you can envision innovation spreading across our industry... across every state in our nation... and beyond.

We have two great examples of East Coast and West Coast success stories. The West Coast example is Google Compare. Google is essentially acting as a partner for insurers -- helping them become more customer-centric by taking distribution capabilities to where the customers are, on the platforms that customers are using. With a history of being very accurate at predicting what customers want, Google is bringing that strength to the insurance industry. Google Compare started with personal auto, for the state of California, and with only a few insurers -- all with the goal to add more states, more lines and more insurer partners.

The East Coast reference to innovation in Massachusetts involves Haven Life. Haven Life is offering a totally-online customer service experience for buying term life insurance. In addition to 'instantly' quoting, Haven Life offers information and tools that help take the complexity and the complications out of the process of buying life insurance -- making it a much quicker process and simpler decision for the customer.

The East/West examples demonstrate how creative thinking and novel approaches are delivering new, profitable and productive business models that will reshape tomorrow -- by starting simple.

At SMA, we regularly track solution investment trends and the progress of maturing and emerging technology. There isn't a day that goes by that I don't see or hear about something exciting and inventive taking place in our industry. That wouldn't have been true five years ago. This is a critical time for our industry -- a time of great opportunities. It is a period when the possibilities are endless -- thanks to a formidable combination of technology capabilities and changing customer expectations and behaviors.

Policyholders insure against business risks to protect their financial integrity. When these risks become a reality, claim recovery is the return on investment. Unfortunately, it's not quite that easy. Claim recovery is a process that requires expertise to secure a fair settlement. As you know, your carrier has experts assigned to adjust and audit your claim, so, in turn, you should have experts to help you quantify your losses and prepare a well-documented claim. But expertise is not enough. If you want the best chance to be made whole, independence matters.

Many companies promote themselves as focused on client needs, but, in claim preparation, it has to be more than a slogan. When it comes to preparing claims, true independence isn't as common as you might think.

Is your loss accountant independent? The most common claim preparers are forensic accountants. Let's take a look at where they exist in the insurance industry:

• Insurance company forensic accountants
• Insurance broker forensic accountants
• Consulting firms with forensic accounting service offering
• Accounting firms with forensic accounting service offering
• Independent loss accounting firms

It should go without saying that the firms that are hired by the insurance companies cannot provide independent and unbiased service to policyholders, but many still do rely on the insurers' accountants to measure their losses. If asked, the insurers' accountants would likely recommend the insured retain an independent firm to assist them, yet there are those who don't know and don't ask. For the policyholders in this category, I hope you see the light after reading this article.

Broker-owned accounting firms have their own set of potential conflicts, starting with the strategic relationship they have with insurance companies. As a former broker, I can tell you these relationships are sacred. The carrier's profitability is directly related to claims paid, and the carrier will reward brokers for profitable accounts with a bonus commission, aka contingent commissions. If you are on a fixed-fee arrangement, it does not mean there's no contingent commission in play. Your broker wants to serve your needs and will work hard for you, but, when you have a loss, the broker has a conflict of interest.

It's also important to remember that your claim can last longer than your broker agreement. It's hard enough to end a relationship with your broker, but if the broker is preparing an outstanding claim it will prolong your dealings with the broker. If you change carriers and your broker at the same time, the situation can be harder to resolve. If you are using your broker for claim preparation, consider an independent option that only serves one master, you.

The large accounting firms with consulting practices will scale back their consulting activities when faced with financial debacles that cause regulators to scrutinize their independence. The inherent conflict of an auditing firm preparing a claim for a client should be obvious. The audit firm will have a direct impact on creating an asset or revenue stream, which the firm would then audit as part of the financial results. Those two activities need to remain separate to maintain independence.

Also consider what it means if your claim preparation firm is also the auditor for your insurer. As you can see, there are potential conflicts on both sides. Why not avoid potential conflicts and work with an independent specialist?

Hiring consulting firms presents similar conflicts to consider. Is it a provider of another service to your company? Does it also serve your carrier in some capacity? Making this determination can be time-consuming, and conflicts can be easily missed. Any firm you consider should be clear about possible conflicts, but it's your recovery at stake, so it's best to do the proper vetting.

In the insurance industry, it's the policyholders' right and obligation to value their own losses for submission to their insurer. Your insurer may be more than willing to help, but is that's what is best for your business? Claim recovery is the reason policyholders invest in insurance, so be sure to hire a firm that knows how to prepare a claim and is working on your behalf. Loss accounting is a specialized craft that comes as a result of experience and expertise with insurance claims. Seeking an independent, third-party valuation of your losses is not only smart business but may be a fiduciary responsibility, especially with a large property and business interruption claim.

Heathcare is changing, creating opportunities but also dangers. Here is where healthcare is changing and why you should care in the insurance industry.

Providers. The physician you once saw and had a relationship with is now maybe a physician assistant or a nurse practitioner. Healthcare has turned care over to "mid-levels" and concentrated physician time on revenue-intense practice like surgeries or high relative-value-unit (RVU) patients such as elderly, as a reaction to the pressure on revenue and proliferation of data, The coding needs to be high for a patient to get physican attention, and the low coders, the healthy, are attended by mid-levels.

A mid-level is paid only a fraction of a physician. Makes sense? Expect care to reflect the nuance of matching. The result will be variation in diagnoses in health benefit insurance and workers' compensation.

Isn't there better data now? Yes, but who has time as a caregiver to be giving it thought? The ACA has driven more people to buy insurance, but that means less time per office interaction. Hospitals have bought physician practices, which now face new effectiveness expectations such as referral level and relative value unit per caregiver.

Caregivers are under enormous pressure to produce at your expense. Who can question "do no harm"?

Insurance industry. If you are a medical malpractice insurer, how does higher-deductible health insurance affect you? How does higher premium for health insurance mean you are at higher risk in offering medical malpractice? Can data be working against you?

The onus of care is now on the patient, and the patient is relying on engagement and education from anywhere it can be found. Google and the Mayo Clinic have teamed up to help by presenting search results verified by suitable medical communities, but the patient is on her own under the direction of a healthcare practice that is inundated with new patients and lots of data she can't get to. And don't forget that the attention is now being guided away from your physician. The standard of care has not changed, but the frequency of visits has lowered, and the time for every visit has decreased. Less care, too much data, too much patient expense and the same expectations of medical care. Not a picture of profit in medical malpractice. Maybe time to raise the price?

Workers' compensation will get hit with increase in frequency and severity as care is slid to less dependable providers. You get what you pay for. One miss is worth a thousand hits in health. Providers are seeing patients too briefly to be always trusted, and the data...the providers are not even looking at the data. They are too busy plugging in data to appropriately spend effort on what it means.

General liability is a scarier risk as more patients mean more chaos and more visitors to the facilities. Who is watching security when the waiting room is packed up? Who is shoveling the lot? By the way, a patient fall is either medical malp-practice or general liability. Forget the $1,200 annual GL premium. Think $2,000.

Cyber liability is a huge concern as hackers get more sophisticated and the stakes in stolen health profile skyrocket.

Insurers can be venture capital. VC has figured out that there is a ton of money in health, but do they know much about health and what it does for insurers? Aetna's CarePass was a great idea that needs to go on. Insurers should get on board with funding innovation. The VC money is slow. Technology is a VC specialty, yet health desperately needs people in play who know health. Physicians generally are not greatly interested in innovation. A tremendous opportunity is here for insurance companies to innovate with technology. Silicon Valley and insurance could team up and solve lots of issues. Now that it Google is out there, it is a great innovator in insurance. The opportunity is to bridge technology and insurance acumen. But VCs like to invest in people they know, like technology folks, so a gap indeed exists. Just saying.

Patients. High deductibles and high premiums for health insurance, combined with busy caregiving and new technology to grasp, mean the patient has a place at the healthcare table, finally, but no one to help much. It is up to the patient to take care of the patient. And your caregiver is very busy now that everyone has some kind of insurance. What a time to be finally given a place at the table.

How long of a visit does a patient get with his provider? Is it enough to rightly ascertain what is going on with a patient? Is surgery really the solution? Does chiropractic seem all that bad, Mr. Insurer? Does the caregiver get managed by how many referrals it proffers? Does the patient need to call the caregiver every time there is a stuffy head? Waiting rooms are filled, and time with the caregiver is down. Having a place at the table should mean more.

Innovators. Lots of techies are going after health care. Do they know healthcare? Not as much as you would hope. The right approach is to find innovators who get insurance and health and then parse technology. Not the other way around. Innovators look for faster capital and more knowledgeable partnership.

Make the data personalized and simple, as even caregivers cannot find time to analyze data. Health has a consumer face today, and lots of people looking for care guidance. The consumers want it simple and mobile. Anybody think insurance could be an available partnership candidate?

Healthcare vertical recombination is a major opportunity in insurance. Are you ready to lead?

As insurers continue to replace core systems in record numbers, at some point one has to ask whether modern systems are in fact the norm rather than the exception. In short, the answer is "sort of."

On the one hand, the percentage of total systems that carriers have in place that have been replaced by modern systems is quite low. Though the idea early on was to consolidate carriers' myriad legacy systems onto a single modern platform, in reality most carriers either replaced systems on a one-for-one basis or simply put in a new system for a new line of business but never migrated additional lines onto that system.

So while implementing a modern system has become a popular path for insurers to take, the overwhelming majority of business processed today is still on legacy solutions. In addition, some of the "modern" systems that were put in place as recently as seven or eight years ago are quickly becoming modern legacy systems themselves. Systems that were built using C++, early iterations of Java or other technologies that didn't scale well, didn't offer an N-tier architecture or didn't lend themselves to easy upgrades or customer/agent-focused user experience won't likely last the 30 years that their predecessors did. Some are already being considered for replacement, and so the cycle begins anew.

Are modern systems the new norm? For those shopping for a new system, absolutely. But if you step into most carriers' home offices, you'll more likely find a legacy system or a mix of old and new. And while the pace of replacement continues to climb, there's still a long way to go before we can say-without qualification-that modern systems are indeed the new norm!

While industry analysts and thought leaders speculate on the adoption and impact of telematics, driverless cars and the Internet of Things on insurance, it is worth revisiting how we are doing with more mainstream technologies. Electronic signatures and e-apps have been around for years, yet paper-based applications remain the norm. A survey of 113 insurance professionals conducted late in 2014 by e-SignLive and PC360 revealed only 33% of respondents are using e-signatures.

Because insurance is a regulated industry, "paper" work is inevitably at the heart of all we do. For that reason, any effort to digitize the business of insurance needs to start by eliminating paper and manual signatures. From there, digital records and the data they contain can flow seamlessly through distribution, policy administration, ratings, billing, claims and other core systems. Digital insurance is not a theoretical, utopian concept. It is not only possible - it is being done with great success.

E-signatures are a relatively quick and easy technology to add to your existing core systems and workflows. Yes, it is possible to get started overnight, but don't let the minimal investment of time and money fool you - the impact of going digital is significant for everyone involved.

BENEFITS FOR CARRIERS

Full Visibility

Digital transactions have unique advantages over paper. When your business mails out a paper package for a customer to sign, you have no control once the documents leave your hands. Similarly, if your business takes place through the agent channel, you have little control over the process. Were the proper procedures followed at every stage of the process?

The blind spot that exists with paper is eliminated online. Insurance companies gain real-time visibility into what is taking place at the time of signing. Overnight, you can monitor the status of in-progress transactions, track drop-offs and transactions about to expire and analyze trends in customer behavior.

NIGO Rates Bottom Out

In the digital world, customers go online, get quotes, choose coverage and complete an application through the channels and devices of their choice. They enter application data electronically, and workflow rules are enforced to ensure an error-free application.

Overnight, this eliminates the average 60% Not-in-Good-Order (NIGO) rate that occurs with paper-based new business applications. It saves the industry hundreds of millions of dollars, in hours that no longer have to be spent fixing documents. This is significant, considering that an error-free digital process costs a third to a fourth of what a process with errors costs.

Easily Demonstrated Compliance

Once your new business applications become completely digital, compliance teams will be one of the biggest winners. By automating, they gain the ability to:

• Capture digital audit trails, including an active audit trail that allows you to replay any transaction exactly as the customer experienced it;
• Minimize exposure to risk because of misplaced or lost documentation;
• Make the process of demonstrating compliance less resource- and time-intensive.

Online transactions with strong audit trails provide a record of every action taken by customers. You know when they signed, how they signed, how much time they spent reading each page, what IP address they transacted from. Plus, audit trail data can be extracted for analytics purposes and even greater insight into your business.

Once your company has gone digital, you no longer spend weeks preparing for audits and market conduct exams, identifying paper files or getting them out of storage. How would your VP of compliance react if you told her that you could quickly pull any signed record from a database of millions of documents, guarantee it is in good order and replay the entire transaction to prove that your company followed all regulatory rules?

Virtually All Legal Disputes Defused

When carriers think about going digital, many have concerns over legal risk. Fortunately, the legal framework has been in place since 2000. Case law has shown that if the process is clear to the signer, and signer intent is properly established, the courts will accept e-signatures and e-records as evidence.

A top auto insurer can attest to the fact that e-signatures decrease the risk of legal disputes compared with paper signing. This carrier has been capturing customers' signatures electronically for the last 10 years and has only seen one case involving e-signed records go to court - despite more than one million customer inquiries.

Costs Cut

Keeping transactions digital helps your bottom line. Gartner Research reported on a large carrier's digital process, noting, "E-signatures saved $10 per transaction, with the potential of annual recurring savings of millions of dollars. This includes costs for mailing, postage, paper handling and processing." There were 275 million life insurance policies in force in the U.S. in 2013. Multiply that by $10, and the potential industry-wide savings climb into the billions.

Immediacy

Across all channels, closing the deal when the customer is ready and engaged is critical. By offering e-signature capability on its website, one global insurer is able to convert visitors immediately and avoid dropoff rates that occur when the process falls to paper.

This is as advantageous for new business and renewals as it is for claims. Clearly, the immediacy of submitting a signed claim from a smartphone on the spot is a differentiator. For the customer, that means faster resolution in moments of stress - ultimately improving satisfaction and increasing retention.

BENEFITS FOR CUSTOMERS

Customers want convenience and speed and a company that is easy to do business with. McKinsey recently confirmed that, "more than 80% of insurance customers began their shopping process using direct channels. Online is increasingly the initial channel of choice even among customers who value the agent relationship."

Clearly, expediting the process of buying insurance is important across all channels. Someone who starts insurance shopping on Google Compare may very well still appreciate having an informed agent talk him through the policy options, but not if that means dropping back to an antiquated, paper-ridden, offline process.

Keeping the transaction digital just makes it so much easier to purchase, renew or modify a policy. Carriers repeatedly find that e-signatures help lower NIGO rates, increase customer loyalty and boost referrals. In fact, one insurer experienced a 14% higher retention rate with customers who e-signed their new business policy.

BENEFITS FOR AGENTS

Both captive and independent agents spend too much time on administrative work. Insurance Journal reported that, "Only about one-third of producers spend more than half their time selling [...] Instead, they are spending more time than they think they should on administration and client service."

Even when using a modern agency management system or e-app, productivity is lost when you have to print to paper for signatures. Those applications must then be photocopied, shipped, faxed, chased down, corrected, scanned and archived. All of this creates a huge time and productivity drain. The good news is, e-signatures save as much as 90% of the time and cost of administrative labor.

GOING DIGITAL MAKES SENSE FOR INSURANCE

Clearly, the insurance industry is moving down the path to digital. However, the pace of change is accelerating, and carriers and producers that don't offer a fully digital process online and on mobile devices will be left behind. Analyst firm Novarica sums it up best: "The time for insurance carriers to take concerted action with an e-signature strategy is, in Novarica's view, now. The technology, legal framework and customer expectations have all reached a point where carriers need to proceed in order to compete."

If there is one thing that is consistent within the group and voluntary benefits market, it is that nothing is consistent. From year to year, market changes make it very difficult for insurers to get settled into a comfortable framework for moving forward.

Consider what insurers have to contend with:

• Shifting mandates and regulations within the Affordable Care Act.
• An increasing number of benefit administration firms and benefit enrollment partners.
• Employer interest in increasing the number and type of voluntary benefits to produce well-rounded packages.
• Employer requests to administer products and billing in ways that fit their systems and processes.
• Increased need for accessible reporting so HR departments can track usage within their employee populations.
• Market saturation from companies wanting to enter the voluntary and worksite space.

Though we can't cover solutions to all of these in this blog entry, we can quickly look at strategies that make sense with the increasing number of players in the market.

In the past, carriers had a very close relationship with the employer market. Because of the complexity of employee benefit communication, especially in the large employer market, employers are engaging benefit administration firms and benefit enrollment partners. These partners will often offer a free or subsidized service; they bring relationships to the carrier and earn commissions that offset enrollment cost for the benefit partner.

The key benefit partners in the industry have begun to integrate with carriers before the sale. This allows a benefit partner to offer multiple carrier products for a single employer. Further, this will help ensure that the communication between the benefit partner and the carrier is predictable. Because brokers and benefit partners are, more than ever, responsible for bringing the benefit relationship to the carrier, integrating with them is as much a strategic need as it is an efficient way of transferring data.

Insurers are attracted to the group market because one sale means hundreds or thousands of premiums. Catering to and selling through brokers and benefit partners takes that multiplication to exponential proportions AND supplements an insurer's own sales efforts. But many brokers will only carry lines of business that are simple to administer and prepared for the higher volume from a wider array of companies. Both of those questions are answered with technology solutions.

Most insurers are by now familiar with shifting sales channels. The difference in this case is that group benefits providers need to prove their abilities to meet employer needs and remain flexible to broker requests. In this and other areas, insurers need to prepare their systems for the future by building a foundation that is solid and proven, yet agile enough to handle the market's unpredictability.

Teleradiology and telemedicine have increasingly become popular as hospitals and other healthcare providers outsource their radiology and other specialty work to independent practitioners. These practitioners often operate from remote locations, with some based in the same city but many based in distant states or even overseas.

Telemedicine organizations provide diagnostic and clinical medical services to urgent care facilities, hospitals, trauma centers, imaging centers, mobile imaging units, jails, nursing homes, corporate health departments and outpatient medical facilities. As many physician practices enter into this dynamic field, they will find that their current malpractice carrier and the insurance coverage they offer cannot provide them with the pricing and coverage flexibility they will need.

The most common problems encountered will include:

• Inability to cover reads that come from states outside of where the practice is located.
• Lack of premium pricing flexibility to base premium on exposures (number of reads or revenue).
• Lack of portability of coverage and "tail" issues for departing physicians.
• Inflexibility in underwriting requirements for pre-approval of new or last-minute physicians reading for the group.

Any one of these issues can trigger the need to seek alternative coverage tailored for these exposures. Physicians in the telemedicine field will need to recognize their changing medical malpractice insurance needs and, with the help of their brokers, find insurance coverage that is designed for these types of practices and exposures.

When it comes to covering the telemedicine provider with professional liability insurance, here are five important questions you should ask when searching for the right coverage for this unique risk:

#1: Does your current policy allow for additions of employed or contracted physicians automatically or with a minimum amount of information about them up front?

Just about every telemedicine company will have a situation where it needs to add a provider quickly. Many carriers require a completed application and loss history prior to their approving additions to the provider roster. This creates an unnecessary logjam when telemedicine groups need to fill a spot in a hurry.

#2: Does your policy cover contracted services provided in any state?

As a growing telemedicine provider, you want to be able to obtain contracts in any state. Many carriers cannot cover exposures in all states.

#3: Does your current policy have continuous coverage for terminated/departed physicians after they leave the group?

It's called Rolling IBNR coverage (Incurred but Not Reported), and having this coverage in place is critical for many telemedicine groups because of the transient nature of the physician labor force in this area. Having the coverage affects up-front negotiation of contracts as well as provides for a much smoother transition when a physician leaves the group as it eliminates the problem of having to purchase a tail for each departed doctor.

#4: Does your current policy provide individual limits for each employed or contracted physician?

Many carriers can provide only "per event" limits for the employed and contracted physicians. In a lot of cases, this is completely acceptable, and many telemedicine groups operate fine with this coverage. However, some groups encounter situations where the healthcare entity or governmental body they're contracting with requires individual limits, not just per-event limits, for each employed or contracted doctor providing services on their behalf.

#5: Can your insurance carrier provide you with limits up to $5 million or more if statutes or contract clauses require it?

Many healthcare systems and governmental bodies are requiring higher limits from their contractors.

Physicians specializing in the areas of teleradiology or telemedicine should discuss these questions with their insurance broker to be sure they are adequately covered. As the healthcare landscape changes, so will the potential liability of the healthcare professionals. Finding the right malpractice insurance program can benefit these companies in many ways.

Once upon a time, the auto insurance industry relied on motor vehicle reports, drivers' records, business addresses, financial credit reports, claims histories, policyholder-stated VIN and mileage information, etc. to make an underwriting and rating decision. This scant information provided a fuzzy picture of risk, at best, so insurers built in a pricing cushion to protect against losses and figured it all out at the end of the year.

Fast forward to today, and insurers have volumes of real-world driving data at their fingertips to inform more precise underwriting and pricing. With the proliferation of telematics devices, whether after-market or factory-installed, and mobile tracking and recording apps, we now can know where, when and how an individual vehicle is driven. We can know area and hours of operation, driving behavior, route histories, vehicle performance characteristics and much, much more. We can even re-create collisions using the data.

With data-driven usage-based insurance (UBI), we now can formulate a clear picture of driving risk and remove the guesswork. In short, we have the potential to write for a group of one, based on observable, verifiable data.

Some numbers to consider:

• Currently nearly 30% of all commercial vehicles have some form of telematics device installed. This figure is expected to reach 70% in 2017. (C.J. Driscoll & Associates)
• Today's telematics devices record nearly 300 billion miles of driving data annually.
• 94% of all small businesses report using smartphones in their businesses. (2014 AT&T-SBE Council Small Business Technology Poll)
• Approximately 30 auto manufacturers (original equipment manufacturers, or OEMs) are busily equipping vehicles with data devices today.
• More than 70 telematics service provider (TSP) fleet management services companies in the U.S. are equipping trucks, cars and utility vehicles with telematics.
• More than half of small fleet managers are likely to stay with their current insurance carriers if their insurer offers UBI (Lexis Nexis' 2015 Commercial Usage-Based Insurance Study)
• Global sales of insurance telematics products are projected to grow at a compound annual growth rate (CAGR) of 80% from 2013-2018, and the subscriber base is expected to reach 85.5 million in 2018. (Research & Markets).

We are quickly reaching a tipping point for UBI programs that rely on data collection and analysis as the basis for a "pay how you drive" approach to auto insurance.

However, insurers looking to take advantage of this driving data face some tough questions: Where does all this data come from? How is it collected? How can different data sets be normalized? How can insurers store, analyze and manage such a huge volume of data?

The solution for insurers large and small very likely will be a telematics data clearinghouse.

Multiple Data Sources: OEMs, TSPs, Mobile Apps and More

The first problem insurers face is negotiating with 70 different TSPs and 30 OEMs for their data, which adds complexity, time and expense to the process of acquiring the driving data needed for an effective UBI program. A clearinghouse solves the problem of accessing data on millions of vehicles by aggregating data from available sources. Rather than negotiate with dozens of data suppliers, an insurance carrier merely subscribes to the clearinghouse for access to all of that data, at a single price. 

Multiple Formats: Not All Data Is the Same

With so many data sources, each using different telematics devices and software, pulling data from different types of vehicles, the aggregated data is a jumble of formats, with no two data sets the same. A clearinghouse plays a critical part in scrubbing, authenticating and normalizing this data for handoff to underwriting.

Making Big Data Digestible... One Byte at a Time

UBI represents a monstrously big IT effort for an individual insurer. With nearly 300 billion miles of driving data available, we're talking about petabytes of data to acquire and analyze. Even the largest insurers must weigh the benefits of devoting precious IT resources to developing and running a complete UBI data collection, storage and analysis effort. In contrast, a clearinghouse is built to manage big data in a big way, delivering a clean, authenticated data set to the insurer, integrated seamlessly into the underwriting process for easy access and use.

Evolution of a Safe-Driving Scoring Standard

With access to data from millions of vehicles, a clearinghouse is also able to provide comparative analytics and calculate a fleet's safe-driving score, the driving equivalent of a FICO financial credit score and a much more accurate predictor of risk. A complement to current driver score cards offered by many TSPs (which measure individual driving behaviors such as speeding, harsh braking and hard cornering), a fleet score factors in all drivers, as well as the vehicles they drive and the environment in which they drive. The fleet score analyzes variables including weather, time of day, road surface and traffic dynamics. An overall fleet safety score compares fleets of similar SIC codes and territories to derive an indexed score and ranking - a meaningful risk assessment and underwriting tool more powerful than anything else in use today.

Data Privacy and Protection: Permission-Based

Yet another crucial role played by a clearinghouse is data protection and privacy. Clearly, the vehicle owner owns the data generated by that vehicle in the course of a driving trip. But once it is in the UBI transaction chain, how is that data protected? Who sees it, and what is done with it? The clearinghouse serves as gatekeeper. With the consent of the vehicle owner/policyholder, the clearinghouse facilitates the secure sharing of encrypted data with the insurer, allowing the data owner to control who sees the data and why. Such protection encourages voluntary participation by vehicle owners, helping fuel the growth of UBI. 

Data Transparency and Portability: You CAN Take It with You

Data transparency and portability go hand-in-hand with data ownership. As a consent-based data sharing service, the clearinghouse offers complete transparency to the data owner. The vehicle owner knows what data is being requested and has the option of permitting or denying access. The clearinghouse allows the data owner to share his data and driving safety score with multiple insurers.

Data Clearinghouse or Data Exchange: What's the Difference?

Aggregated driving data services are taking different forms. While all share the purpose of providing a "one-stop" storehouse of driving and vehicle data, they do not all operate in the same manner or provide the same services.

The primary distinction can be explained as an open marketplace vs. a closed system.

As an open market, a clearinghouse merely facilitates the transfer of data from vehicle owner or TSP to insurer. The insurer then underwrites a policy based on this data (and other factors the insurer deems important) and determines a policy premium. In this open system, there are no regulatory filings required; data is used in the insurer's existing underwriting process, and the insurer retains complete control over pricing, applying credits as warranted. Furthermore, the marketplace determines the value of the data: How much is an insurer willing to pay for detailed trip histories, for example?

In contrast, an exchange uses driving and vehicle data to compute a rating and pricing recommendation for the insurer. Because the exchange is determining price, this rating system must be filed with state regulators. In this closed system, the exchange assumes the role of underwriter and pricing specialist, leaving the insurer with little room for proprietary pricing, segmentation or differentiation. The exchange controls the data and the insurance product.

Data-Driven, UBI: A Return to Profitable Auto Underwriting

UBI offers auto insurance carriers an unprecedented view of vehicle use and driving behavior. Insurers that embrace UBI and develop a data-driven underwriting and ratings process will benefit from more consistent underwriting, improved segmentation and better selection. Those that do not will likely suffer from adverse selection and an underperforming book of business.

The key to successful UBI adoption will be access to, normalization of and correct interpretation of all this data. Undoubtedly, auto insurance carriers will be hearing more about the clearinghouse concept and the pivotal role it plays in UBI.

This is part of a series of interviews by Shefi Ben Hutta with insurance practitioners who bring an interesting perspective to their work and to the industry as a whole. Here, she speaks with Kevin Kerridge, the head of Hiscox Direct, who says, among other things, that the UK is five years ahead of the U.S. on small business insurance.

To see more of the "A Word With Shefi" series, visit her thought leader profile. To subscribe to her free newsletter, Insurance Entertainment, click here.

Describe what you do in 50 words or less:

Building a business in the USA for Hiscox that is reinventing small business insurance -- selling policies direct to consumers and through a select group of distribution partners.

What led you to your career in insurance?

I wish I could say it was some form of grand plan, but it wasn't. I come from a very humble background and from the age of 11 found small jobs around the neighborhood to earn some extra pennies. It's served me well over the years in relation to work ethic and never taking anything for granted. Despite good grades at high school, my parents couldn't afford to send me to college, and so I decided to go straight into work -- the most attractive offer being an insurance company. The rest is history.

Describe the Hiscox brand in one sentence:

Bold, courageous and contemporary -- coupled with a sense of tradition where it matters, in areas like integrity, honesty and being human. As an insider, it feels like we're in the insurance industry but not of it.

Name one similarity and one difference between how consumers shop for insurance in the U.S. vs. the UK:

The UK is five years ahead of the U.S. in the small business insurance space. In the UK, the first place most small businesses go for insurance is the web, whereas in the U.S. it's still the local agent who dominates. One similarity is that small business consumers see insurance as a low-interest purchase -- they want to get the right coverage, fast and at good value for money -- so that they can focus their energy on running and growing their business.

Do you think insurance agents are a thing of the past for small business insurance?

Absolutely not -- but they will look different than they do today. At Hiscox, we've leveraged our investment in the direct-to-consumer infrastructure to enable agents to access our custom small business products for their existing customer base. Our wholesalers love it because it gives them a very efficient and effective way to win in the $500 premium space -- our slick technology solution coupled with their valued expertise is a powerful mix.

What has been instrumental in establishing Hiscox's presence in the U.S. small business insurance space in a relatively short amount of time?

Two things came together very quickly for us in 2010 - an obvious market opportunity where business consumers were moving to the web, and no market incumbents were serving that need. Having already built this business in the UK, the ace up our sleeves was our crystal ball in relation to an intimate understanding of what it takes to make that business model a success. In addition to our crystal ball, we are also lucky enough to have an executive team with the stomach to invest behind this opportunity - the investment required for success is material (think hundreds not tens of millions of dollars) and the path to profit is a long one. A patient executive team and shareholders are critical.

In 2010, Hiscox was the first insurer to allow the actual sale of small business insurance to occur online for your products and classes. What allows Hiscox to truly deliver the promise of omnichannel?

Too many insurance businesses are still inwardly focused; going into dark rooms to build very complex solutions they think they can sell to consumers. At Hiscox, we try to build around the customer. As an aspiration, we talk about being a marketing and technology company that just so happens to provide insurance products -- we're not quite there yet, but having that mindset is important.

What do you find the most challenging in Hiscox's digital operation?

The speed of change and building a technology infrastructure to keep up with that. We started building the blueprint for our U.S. small business operation in 2009 -- it feels like it was just yesterday, and yet the iPad didn't even exist then, and I think I was still using a 56k dial-up modem at the time.

Five years later, are small business owners ready to really buy insurance online?

I'm still trying to figure out whether that's a trick question! Hundreds of thousands of small businesses have already purchased insurance online in the U.S., and those numbers will only continue to grow. The real question is whether the insurance industry is ready to make the material shift needed to provide small business consumers with the online purchasing experience they're accustomed to experiencing online.

What is the strategy or the thinking behind Courageous Leaders, and what do you hope to achieve with it?

In our overall U.S. business, our brand platform is Encourage Courage. It's not about courage in taking insurance risk, but a more holistic view of the courage needed to build successful businesses and embrace those emotional fears we all have in life. In this respect, we have huge affinity with the small business community - many of whom put everything on the line to follow their passion. Courageous Leaders is a celebration of entrepreneurial courage -- and us tipping our hat to the courage they show. I hope it inspires others.

What other insurance brand (insurer, vendor etc.) do you admire and why?

There are a handful of small brands in the online small business insurance space that are showing tremendous entrepreneurial spirit in grasping the changing small business insurance landscape -- I have great admiration for them. They truly are the gold prospectors of our industry in these times.

Favorite quote?

Two come to mind, both from people who have had a massive impact on my career and life, and both quotes said to me in person. The first, from Robert Hiscox, was, "I don't mind you losing me money occasionally, Kevin, but never lose me my reputation." The second was from our Group CEO, Bronek Masojada: "In life there are good bets. And there are bad bets. But not all good bets are winning bets."

When you are not working in insurance, you are most likely…

I love spending time with my amazing wife and four wonderful children -- just taking in everyday experiences together, from cooking to traveling. I'm blessed that they've all been willing to make sacrifices along the way to support my passion for what we're doing at Hiscox. Outside of that, my one selfish passion is fishing -- the thrill of the catch, coupled with some downtime in the fresh air to collect my thoughts...

Are you allowing insurance premium trends to "soften" your approach to preventing injuries and accidents? Or are you following the lead of the most astute risk managers and improving your company's financial results?

Regardless of the industry or corporate strategy, those risk managers have discovered that a culture that values employees, accompanied with a rigorous pursuit of loss prevention and safety, pays dividends through engaged, satisfied workers and low turnover. Forward-looking risk managers also are leading their organizations' efforts to protect their reputations and brands with clearly defined strategies that prevent regulatory actions.

A key is to understand how workers truly think and work to shape their mindsets, rather than take the traditional, rules-based approach to safety.

In 2013, there were some 3.8 million recorded accidents (Bureau of Labor Statistics) for a workforce of 155 million (Department of Labor). When you consider that the average work-related injury costs $38,000 (National Safety Council) to companies, we now have losses to America's industry around $140 billion, or almost 1% of the GDP. "Far too many people are still killed on the job - 13 workers every day taken from their families tragically and unnecessarily," U.S. Secretary of Labor Thomas Perez said when he commented on the 13% increase in fatalities to women and an overall workplace increase of 2% from 2013 to 2014.

Phil Walker, a national trial counsel for employers in California workers' compensation cases, predicts that cases will double within 10 years. It should be expected that the cost of accidents is going to continue to rise. Insurers will be forced to increase premiums, and providers will raise consumer prices if we continue to approach safety from the present paradigm.

Additionally, there is the risk of criminal prosecution. A recent article by Howard Mavity and Edwin Foulke, former head of the Occupational Safety and Health Administration (OSHA) from 2006 to 2008, stated: "The administration and many of its allies really do want to put employers in jail." The authors were struck by statements from the administrator of OSHA Region 4 at the recent Georgia Safety, Health and Environmental Conference, indicating that he's recently contacted all the U.S. attorneys in his region to encourage increased criminal prosecution of workplace fatalities and OSHA violations, and will soon do the same with state attorneys general.

While workplace deaths and reported occupational injuries have dropped more than 60% in the 40-plus years since OSHA was created, the biggest factor causing accidents has yet to be addressed - the person's mindset. If you review the OSHA website, you will see that programs focus on the work environment and safety procedures. You will NOT see programs focused on changing the individual's mindset that caused the accident. Years of study have proven that "rules-based behavior modification" has limited effects and is often simply confined to the modification environment.

Today's approach, while improving results, still misses an opportunity to identify underlying mindsets that drive the behaviors leading to accidents (and errors). At the core of every individual are motivations that affect the way they seek life's rewards. Employees who remain safe in their work environment have different motivations from those who have accidents, according to a five-year study conducted in four separate industries. In that study, 37 components of an individual's motivations were analyzed, comparing participants who were accident-free to those who had a reportable incident. The differences were quantifiable and distinctly different in the two groups. The most interesting factor was that the counterproductive factors were remarkably similar, regardless of the industry. The study proved conclusively that there are distinct motivational differences between people who are involved in accidents and those who are not, and these differences can be quantified and used as a basis for addressing the mindset that "caused" the accident.

It should be noted that this problem is not going to be quickly resolved, because you are dealing with individuals who have taken a lifetime to formulate a value system that justifies non-productive beliefs, like:

• "If I do not sacrifice some of my personal desires, then I will never be promoted, move ahead or improve my financial status in this company."
• "I realize that I should be more careful, but we are under deadlines, and if I do not meet those deadlines it is going to cost me."
• "The odds are against that happening to me. I have done this for a long time, and I've never had a problem before, therefore I will continue to do things my way."
• "Yes, there may be a better solution, but I have to work in this environment with my co-workers. We have bills to pay - they gut it out, and I will, too."

To change those types of mindsets, there is no quick fix. Therefore, the sooner an organization initiates the mental benchmarks and addresses the counterproductive motivations, the sooner the impact to the organization's bottom line. A minimum of 12 to 15 hours of workbook application, seminars or training sessions are required to implement mindset and process change. With a methodical approach using human data and people metrics, the impact will be individually targeted and last longer, producing productive environment and behavioral mindset changes.

OSHA's gains over the past four decades have been a positive beginning. However, if the insurance industry and Corporate America want to continue to improve the risk and productivity factors affecting safe working environments and profitability, they must address the mental source of accidents, not just the environment in which they occur. This will require a focus on the employee's motivations and how they get their "rewards." Reducing reportable incidents, increasing employee engagement and improving the organization's bottom line will only occur when the factors affecting an employee's motivations are addressed.

While each organizational culture is distinct, the process for reducing accidents requires reducing counterproductive mindsets. For example, some people may view love and attention as much more powerful than a $100 bonus for being safe the past month. Being pampered, receiving special attention and meals and having people you love visit you while you are injured can be a powerful incentive: To someone who feels isolated, it's priceless! A common belief in our society is, "No pain, no gain," and, in this case, the reward for this counterproductive mindset is worth the agony.

In my next article, I will address the various types of motivators that should be addressed and how a person's inner dialogue changes the mindsets. In the following article, I will provide you with a five-step process any insurer or company can use to identify, quantify and address removing counterproductive motivations from their work environment. As with any prescription, it takes some time, but not four decades.