This is the last in a series of three articles. The first is here. The second is here. From the impact of analytics, digitization and more exacting customer expectations to the disruptive effect of regulation, geopolitical instability and two-speed global economic growth, the insurance marketplace will look very different in 2020. With the industry at a tipping point, the future belongs to businesses that can make sense of the gathering transformation and act strategically rather than simply reacting to events. While some of the drivers of change in the insurance industry are common to all business lines, we believe that the impact will be seen in different ways and occur at different speeds. So what are the implications for each key insurance segment and how can businesses capitalize on them? Property and casualty personal lines

• A combination of automated underwriting and competition from aggregators and new entrants will drive down prices and accelerate the commoditization of motor, property and other core business lines. At the same time, new opportunities
 will continue to open up through new information-based models, both within traditional areas of insurance coverage and new fields, such as maintenance and concierge services. This "home intelligence" could pave the way for a broader range of concierge services built around a combination of customer knowledge and sensor technology.
• Some customers might go further by giving the insurer – or information company, which might be a better description for this evolving business model – access to much of their personal data, which the company would use to tender for a range of personalized services on customers’ behalf.
• Pressure on costs will make agency channels less economically viable and could lead to digital becoming increasingly dominant. But there will continue to be 
a strong role for agents in helping people to understand and manage what can often be complex protection needs. People may own more but have less time to manage the risks, be this damage, theft or breakdown, making the agent a valuable partner.
• Opportunities for partnerships exist with travel companies and motor manufacturers, with insurance forming part of a bundled service. However, such partnerships could limit the insurer’s opportunities to build customer relationships and take advantage of policyholder data.
• Data from car and equipment diagnostics, along with user behavior, will be exchanged with manufacturers and repairers, breaking down commercial boundaries and opening up further opportunities in design and maintenance. Further instances of this new ecosystem of information and assets include the integration of home sensor data with utilities’ and emergency services’ systems.
• We estimate that the reduction 
in accident, personal injury and
other auto-related claims as advanced driver assistance systems (ADAS) technology becomes more widespread could reduce annual auto insurance losses in a developed market such as the U.S. by at least 10% by 2025. But the risk and claims profile would be more complex as the driver switches between self-driving (and hence driver liability) on the one side and ADAS driving (and hence product liability) on the other. While there 
are regulatory prohibitions on autonomous driving at present, it may eventually not just be permitted in many countries, but even be obligatory, especially in high-risk situations.
• Revenue models will shift from premiums to premiums plus subscriptions in offerings such as maintenance, prevention and vehicle management.

Commercial lines

• As the risk environment and client demands continue to evolve, commercial lines insurers have considerable growth opportunities in areas such as cyber risk and supply chain risk. Holistic analyses open the way for broader risk prevention and mitigation discussions with both agents and policyholders.
• Alternative risk transfer will continue to develop and expand, moving beyond catastrophe into areas such as cyber and supply chain risk.
• Advanced analytics that help to quantify exposure change patterns could help to mitigate the frequency of accidents, business interruption and other losses.
• Given the potential for sharply rising losses and ever more complex loss drivers, there will be a growing need for coordinated risk management solutions that bring together a range of stakeholders, including corporations, insurance/reinsurance companies, capital markets and policymakers across the globe. For some of these risks, such as cyber risk, some form of risk facilitator, possibly the broker, will be needed to bring the parties together and lead the development of effective solutions.

Life, annuities and pensions

• The focus of life coverage will shift from life benefits to promoting well-being and quality of life. This new model will combine digital data and partnerships with gyms, diet and fitness advisers and healthcare providers. Well-being benefits are likely to appeal to typically affluent segments that tend to focus on staying fit and healthy, including both younger and active older customers. For a sector that has had significant challenges attracting young, single, healthy individuals, this represents a great opportunity to expand the life market, as well as attract older customers who normally would think it is too late for them to purchase life products.
• Advanced analytics will enhance
 the precision, customization and flexibility of financial planning and risk protection, paving the way for solutions that easily adapt to life changes and stretch beyond insurance to cover a comprehensive range of financial needs.
• Sensor technology will lead to increasing integration between insurers and healthcare providers, marked by information exchange, better understanding of risks and costs and the potential to not only make cover for people with pre-existing conditions more accessible but also improve health and prolong life.
• Life coverage will shift to shorter-term contracts. At present, typical life insurance contracts are for the long term. However, this is a deterrent
 to most customers today. Moreover, behavioral economics shows us 
that individuals are not particularly good at making long-term saving decisions, especially when there
 may be a high cost (i.e. surrender charges) to recover from a mistake. Therefore, individuals tend to delay purchasing or rationalize not having life insurance at all. With well-being benefits, contract durations can be much shorter – even only one year.

To help dramatize how the different markets may look, here are three possible scenarios: Scenario One: Property and Casualty in 2025 All-'round prevention and protection “I got a text in the morning saying there’s a potential fault with the boiler. But by the time I got home it was fixed,” says Akil Badem from Istanbul. “I don’t worry about breakdowns anymore, because I know that my insurer will have it all sorted out.” Akil’s boiler, security and other home equipment are all connected to automated sensors that optimize performance and minimize fuel usage. The connected devices can also detect potential faults and, if they can’t be put right automatically, alert the nearest repair and maintenance team. No more breakdowns, no more waiting. The comprehensive coverage provided by market leader, There When You Need It, also takes care of all Akil’s transport requirements, including best-price bus and rail fares, a car when he needs one and insurance that automatically adjusts to how far he travels, his speed, the road type and other risks, and whether he or the automated driving system is in control of the car. “It’s just so easy. A couple of clicks on my mobile, and it’s all up and running. I can’t believe how people got along before,” he says. Grace Nkomo, CEO of There When You Need It, says, “In 2015, we saw that everything was changing in our marketplace, be this how auto insurance is underwritten or the possibilities opened up by the Internet of Things. We knew that if we use the technology to change how we connect with and serve our customers, we could create an early-mover advantage that we’ve maintained ever since.” Scenario Two: Life, Annuities and Pensions in 2025 Fit for the future “I’ve never felt better,” says Karen O’Neil from Seattle. “Every time I go to the gym, the cost of my health insurance and life coverage comes down. My insurance company even got me a great deal on trainers.” Karen’s lifestyle, health and financial planning coverage is designed to make it easier to stay healthy, manage her finances and plan for the future. A wearable sensor monitors key aspects of her health and alerts her to fitness advice and any medical issues that need following up. The healthcare and life insurance package includes tie-ups with gyms, well-being counselors and sports-wear providers, putting the emphasis on how to stay fit and healthy, as well as medical and life benefits when they’re needed. There is also a savings plan that puts aside any money left over from the rent, food and other spending and automatically adjusts investments to market movements and Karen’s investment goals. “At 29, I thought that these kind of schemes were for people a lot older and wealthier than me,” Karen says. “But my personalized package helps me to feel good now – and I know I can adjust as my needs change.” Scenario Three: Commercial Insurance in 2025 Advanced risk detection averts cyber attack Remote monitoring centers operated by a major insurance company have thwarted a coordinated attack on a retail group’s online network. Cyber gangs were planning to bring down the group’s server and then hack into the accounts of its millions of customers. The insurance company’s monitoring centers were able to not only detect the breaches but protect the server from damage and ensure business carried on as usual. The cyber protection forms part of a comprehensive "business as usual" risk management package, which automatically anticipates and responds to any problems in supply, customer service and reputational integrity. The service is designed to zero in on any threats and take preemptive action. Advanced risk evaluation and pricing analytics enable the insurer to take account of multiple existing and emerging risk factors and determine a dynamic price based on the cost of reducing and mitigating the risks, as well as transferring the risks in alternative markets. Monitors continuously track real-time events (e.g. geo- political, technology, environmental and social events) around the world to build an accurate and evolving qualitative profile of the exposures facing clients and how they can be managed. How to Design Your Strategy to Face the Future For many – if not most – insurers, this changing market is likely to require a significant change in products and the redesign of long-established business models. This will not be easy. It’s important to develop a clear vision of where and how the business intends to compete. For some, it could include a wholly new value proposition. For life insurers, this could include a broader and more compelling offering built around quality of life and well-being on the one hand and the targeting of untapped segments on the other. For P&C companies, this could include assessing opportunities to enhance data and risk monitoring and looking at how this information could apply to a broader range of risk-prevention and protection needs. Having established strategic intent, it’s important to determine how to target individuals through different messages and channels, simplify product design and re-engineer distribution and product economics. Further considerations include how to reshape the underwriting process to capitalize on new analytics and sensor information, as well as steps to make the sales and policy administration process more straightforward and real-time. Such is the speed of market developments that it’s virtually impossible to predict what customer demand will look like in a few years’ time. Old approaches to strategic planning and execution may be too slow to keep up with the pace of change. Instead, we propose a four-step LITE (Learn-Insight-Test-Enhance) approach to marketing, distribution, product design, new business, operations and servicing.

• Learn your target segments’ needs
• Build the models that can provide insight into customer needs
• Test innovations with pilots to see whether they resonate with customers and refine the value proposition
• Enhance and roll out the new value proposition for specific segments

Using this approach, developments that would have taken years can be brought to market in a matter of months, if not weeks, and then assessed, adapted, and discarded/expanded to meet changing market needs. The result will be a much faster and more responsive business, capable of keeping pace with customer demands and capitalizing on unfolding commercial opportunities. In conclusion, the future should be bright for insurers. They have opportunities to engage more closely and become a much more valued and intrinsic part of people’s lives, be they individuals, families or businesses. Insurers will have more information upon which to base smart solutions and serve a broader range of needs. The challenge is how to make sure insurers capitalize, as the marketplace will be much more open and potentially less loyal. For the full report from which this article is excerpted, click here.

Every year millions of injured Americans confront critically important financial decisions as their personal injury litigation draws to a close. In planning the path forward and beyond their injuries, the stability and security of ongoing, lifelong income from their settlement, judgment or award proceeds becomes absolutely paramount. The money simply needs to last. Only one post-injury investment option - - structured settlement annuities or “structures” - - provides a continuing tax exemption for the growth of such benefits.  If the injured individual agrees to a lump sum settlement, the tax exemption for lifelong income disappears. As of 1983, the Periodic Payment Settlements Act (see also IRS regulation Sec. 104(a)(2)) has made all income from a structured settlement annuity over the lifetime of that individual entirely, unequivocally and absolutely tax-free. Contrasted with a lump sum payment in which only the initial payment is tax free and all subsequent earnings are subject to all applicable forms of state and federal taxation, the structured settlement is considered an insurance policy for payments rather than asset to be taxed upon growth. This view, accepted by Congress in that 1983 Act, makes the value of a structure staggering. For example, if the injured individual deposits the lump sum settlement proceeds in a bank account, any interest earned would be taxed accordingly. If the injured individual invests the money in taxable bonds or stocks, the interest and dividends would also be classified as taxable income. However, with structured settlement annuity payments, neither the growing COLA payments nor the lump sum scheduled payments, nor the payments beyond life expectancy are ever taxable. If the injured party were to decide on an annuity payout after receiving the funds, the tax benefit would be lost because the funds were accepted separately from the settlement. The critical element is that the structure must be accepted as the payout vehicle initially. The Tremendous Value of Tax-Free Status The tax-free effect is quite dramatic. Consider an injured individual in the 28% tax bracket with a 2% fee for a traditional, market-based investment portfolio. In addition to having the risk of a significant reduction or entire loss of funds, the individual's income from the investment when they are successful will face federal taxes that can reduce actual net income by 30% before accounting for state and local taxes that could tack on another 5% reduction. None of these risks or reductions exists with income from a structured settlement. For an individual in the 10% tax bracket, earning a 4% return would have the equivalent pre-tax return of 4.44%, and a 15% tax bracket would mean an equivalent pre-tax return of 4.7%. While a peripheral advantage, the tax-free nature of the structure payout means the individual recipient is not required to deal with the timing and accounting issues associated with the need to pay estimated taxes on this money. With a taxable event, the taxes would be the quarterly responsibility of the recipient. An error in dealing with the estimated taxes could create recurring tax problems. Therefore, structures not only safeguard the injured individual from the volatility of the stock market, they provide continuing income that one can count on down to the penny and to the day. No wild, market-swing surprises. No reductions in income for taxes. No tax filings and accounting homework. The Gift That Keeps Giving (and Gives in Other Ways) In addition to the tax-free opportunity, there are other critical reasons to value the structured settlement for the injured individual. First and foremost, the structure enables the individual to couple the tax advantages with the capacity to schedule weekly income and significant payouts for any future expenses like college tuition, wedding costs or retirement needs to the day and to the penny without any worry about market or 401(k) performance. In addition, because structures are considered a policy for payment rather than an asset, such proceeds generally do not affect eligibility for needs-based public assistance programs like AFDC or Medicaid, as lump sums do. Even if the injured individual is not on Medicaid at the time of the injury, eligibility for many programs -- in-facility care, for example -- often requires the absence of any significant assets.   As a policy rather than an asset, structure income would be immune from eligibility consideration. Lump sums such as an investment account or a bank account are highly likely to be considered assets that must be eliminated for Medicaid eligibility. Quite simply, structures may very well be the best way to make sure that the money is peace-of-mind predictable, maximizes other income and benefits and lasts for a lifetime. However, with only 5% of eligible dollars placed in structured settlement annuities, billions in tax exemptions -- as well as the opportunity for continuing income security -- are squandered every year. Is a Post-Injury Financial Portfolio “Balanced” Without a Structured Settlement? While frequently considered an all-or-nothing option, the structured settlement annuity can be used for whatever portion of the settlement, judgment or award that the injured individual chooses.  As with all responsible portfolio plans, balance is a critical value. With a structure, an injured individual can tailor and fund her entire financial future. In addition to continuing payments, what is scheduled today will be there, exactly as needed, for a lifetime of tomorrows. It is possible to establish a college fund, for example, as part of the settlement that would both schedule and quantify tuition -- all tax-free. Given its value, security and stability, is any post-injury financial plan truly “balanced” without taking advantage of structured settlements? As a highly unusual, tax-free, benefits-exempted gift from the U.S. Congress to the nation’s injured individuals, structures should be a critical feature to secure their financial futures.

There are lots of great technologies and innovative products being developed that can help redefine the future of the claims process. Most recently, real-time video has been taking its place among industry disrupters such as drones, the Internet of Things and telemetries. We’ve seen Esurance, USAA and Erie Insurance adopting various video technologies. Yet, the use of video is still very narrow, focusing on real-time applications. In fact, there are three types of video capabilities, not just one, that can deliver a powerful opportunity to redefine the claims process.

Live or Real-time Video Streaming With the Insured

Live video streaming and video collaboration is one of the most critical pieces in being able to acquire a quick visual of the claim from the hands of the policyholder at first notice of loss (FNOL) or in any subsequent conversation. This technology has proven to drive significant efficiency savings by accelerating the collection of claim information, improving triage and even being able to estimate and settle claims remotely. The largest impact of real-time video on the claims process is made by enabling quick resolution of small claims. Each organization defines its own thresholds for what defines a small claim, but typically any claim above a certain threshold will still trigger a traditional field loss inspection. Yet, the insureds who are communicating from an area of poor connectivity or insureds who may not be comfortable using the video streaming technology to settle their claims will still require a field inspection. This is where there is an opportunity to apply video in another way to help streamline the field inspection process.

Field Video Claim Documentation

Unlike live video interaction, which is designed to help an inside claims professional see a transmission of what the policyholder is pointing at with a mobile device's camera, video documentation focuses on a different problem – how to improve the field documentation process and accelerate the collection, delivery and preparation of the claim report. A deeper look into the field operations shows that a field claims professional is overloaded with many responsibilities - traveling to the loss location, documenting the loss with pictures and preparing a report. With multiple assignments back to back, it becomes an almost impossible task to document and prepare a report one claim at a time. Instead, many claims are inspected with pictures and notes quickly taken on-site, and all the reports are prepared together once every day, every two days or even once a week. This approach delays the delivery of timely field information and hence delays getting the claims to closure. Claim cycle time is critical in ensuring high quality of customer satisfaction. Video claim documentation breaks up the claims handling process in two. It allows field claim professionals to focus on getting to the customer and conducting quality on-site inspections. Meanwhile, the inside claim teams can focus on processing the claim as soon as video content is delivered. To enable this process, the field claims professionals simply document the claim in video rather than pictures, speaking freely as they capture the video of the claim. Think of it as “visual voicemail” for claims. You may think that is nothing new. Everyone can take videos using smartphones. The challenge, however, is not whether video can be captured. The challenge is how the video content can be delivered into the business in a uniform and timely business process. This is where the right technological solution is needed to provide the means for field claims professionals to conveniently capture video in the field and deliver it to the inside teams. This means providing support for handling large video files, synchronizing video content, alerting about the arrival of new information and being able to support well-connected, low-bandwidth and “offline,” unconnected environments. What if the customer has already captured the claim on video? This scenario identifies the next workflow – customer self-service.

Customer Self-Service Videos

Studies found that customers who participate in self-service during an issue that is well-handled experience higher rates of satisfaction. They feel that they have been a direct, significant contributor to the positive resolution. Hence, allowing the customer to deliver video claim information to the insurance company is a big opportunity to increase customer satisfaction. Most customers capture loss information. Some take pictures. Others prefer to take video. Yet, most organizations do not have a convenient way to acquire large files from the customer. Typically, pictures are acceptable as long as they can be sent over email or uploaded online or through a mobile app. Acquiring a large video file from the customer frequently encounters technical limitations and requires a different approach. To address customer self-service demands, it is important to account for two types of scenarios. First, imagine the customer calling to report the claim for the first time, before having recorded any visual information. In this scenario, the customer is instructed how to most effectively record the data and how to make the video available to the claims handling team. The second scenario provides the insured an ability to conveniently upload video of the claim to the organization after it has already been captured.

Takeaway

There are numerous additional workflows that can benefit from applying video capabilities, like underwriting, supplemental claims and contractor quality review. The key is that the right technological platform needs to be able to support all three key video workflows to cover the main scenarios that are encountered in the claims process. This includes not just providing the mobile technology to help capture or deliver videos to the inside claims teams, but also a convenient way for the inside claim handlers to receive, access and review the video content to complete the reports and settle the claims.

The current year has been characterized by increasing daily volatility in financial asset prices. This is occurring in bonds as well as stocks. In fact, through the first six months of this year, the major equity markets have been trading within a narrow price band, back and forth, back and forth. Enough to induce seasickness among the investment community. The S&P 500 ended 2014 at 2058. On June 30, 2015, the S&P closed at 2063. In other words, the S&P spent six months going up all of five points, or 0.2%. Yet if we look at the daily change in the S&P price, the S&P actually traveled 1,544 points, daily closing price to daily closing price, in the first six months of the year. Dramamine, anyone?

With a flip of the calendar, on July 1, Oregon became the fourth state in which recreational marijuana use became legal. For many Oregon employers, this status change from illegal to legal wasn’t a big deal. Medical marijuana is already legal in 24 states, including the Beaver State, and possessing less than an ounce was decriminalized in Oregon 40 years ago. Recreational marijuana is just a new twist on an old story. All it really means is you can’t go to jail (or be fined) for smoking pot recreationally. However, this “non-event” has made risk managers ponder the ramifications of recreational use, especially for their employees who work in the manufacturing industry. Manufacturers have strict policies to ensure a safe work environment. It goes without saying that people who are under the influence at work in a manufacturing or an industrial setting are far more likely to be injured on the job. Being stoned at work should be treated no differently than being under the influence of alcohol or prescription medication. You certainly can’t show up drunk for work. The employer is responsible for that employee as soon as he walks on to the job. Any drug use that affects an employee’s ability to perform the job should be a genuine concern for the employer. The difficulty for employers is that there is no scientific method to determine a marijuana intoxication level, unlike a blood-alcohol level. Until there is definitive scientific evidence, employers are being advised to err on side of safety and forbid an employee to be under the influence of marijuana. To do that, the employer needs a crystal-clear, zero-tolerance policy. Unless the employer has been living in a cave the past 50 years, it already has such a policy. But it should be updated to specifically address marijuana use, both on the job and recreationally, because it could affect the employee’s job performance. It is predicted that in 2016 – the third election cycle in which marijuana legalization measures will be on ballots across the country – as many as seven more states could allow recreational use of marijuana. As each state approves the recreational use of marijuana, there looms in the background the knowledge, that under federal law, its use remains illegal. Whether that will eventually force the feds to take a stand remains to be seen. Right now, the feds have just rolled over to let you scratch their belly. But as each state joins the ranks of approving pot use recreationally, what was a minor irritant to the feds could grow too large for them to ignore. The bottom line is that a stoned CPA might drop a number or two, but a stoned assembly line worker might drop a few fingers. It doesn’t matter if the cause is pot, alcohol or prescription medication. Smoke cannabis at work – or show up stoned – and you’ll be disciplined. It’s not about a worker’s rights; it’s about workplace safety.

Credit reports are a vital part of identity theft discovery and resolution, from revealing fraudulent transactions to removing errors and repairing a victim’s reputation. While that makes monitoring your credit reports for suspicious activity a valuable exercise, credit monitoring is reactive, not proactive. People who are considering using an identity theft protection service should make sure that the plan includes but is not limited to credit features, and pay attention to how credit reports are involved. What is a credit report? A credit report is a record of credit history that includes inquiries and information on things like credit cards, loans, bank accounts and payment history. It also includes personal information like addresses, employment history and Social Security information. Matters of public record may also appear on reports (e.g., liens or child support). Why is a credit report important? Recorded data is used to create a credit score, which speaks to a person’s creditworthiness and level of financial responsibility. The higher the credit score, the better, and it all boils down to what’s on the credit report. For example, a history of consistent timely payments boosts a person’s score, whereas, a delinquent account or bankruptcy lowers it. To top it all off, one in four people find errors or inaccuracies on their credit reports that are hurting their credit scores. Bottom line: Reviewing reports will help people figure out what they need to fix financially to improve their credit score, so they can get a better mortgage rate, raise their line of credit, etc. How do you get a credit report? Every person is entitled to one free credit report every 12 months, from each of the major credit bureaus (Experian, TransUnion and Equifax). People can request reports directly from the bureaus’ websites or through annualcreditreport.com. What does a credit report have to do with identity theft protection? Credit reports play a major role in discovering/resolving identity theft; for instance, someone might review a credit report and see a line item describing a bank account or line of credit that he didn’t open or authorize. The reported data could then be used to contact creditors and file fraud claims, dispute the information with credit reporting agencies and prevent further misfortunes by instating a credit freeze and extended seven-year fraud alert. Why should credit monitoring be included in an identity theft protection plan? Given the involvement of credit reports with finding and fixing fraudulent activity, credit monitoring is a vital feature. Credit monitoring will help catch problems faster than victims can on their own. On average, one in three identity theft cases involves financial or credit fraud, and not many people make a habit of checking their reports to see if they’ve been affected. In fact, one in four people have never reviewed their credit reports. Considering that more than nine million people become victims each year, just imagine how many of those people don’t even know they’re in danger. How do services incorporate credit features? Essentially, most products include two major features for credit monitoring. First is pulling credit reports from one or all three of the major credit reporting agencies. How often members can view or get an updated version of their credit report depends on the product: some are every 60 days, each quarter, once a year, etc. Keep in mind that getting all three reports through a protection plan generally costs more for the member, and it’s often limited to once a year. The second part is monitoring changes to your credit report(s), as well as monitoring credit activity that eventually ends up on the credit report. Members receive alerts for anything suspicious. Credit features may or may not include assistance from a Certified Credit Report Reviewer (CCRR), Certified Credit Counselor (CCC), Certified Identity Theft Risk Management Specialist or the like, as well as resources like letter templates for security freezes, victim statements, disputes and claim forms. What to be aware of… Credit monitoring is reactive, not proactive. If fraudulent activity shows up in a credit report, it means the fraudster already has that person’s information and is using it. Reviewing credit reports is just one part of finding and fixing fraud. There are so many other steps that must be taken once evidence of identity theft has been found – so much that a protection plan can’t be limited to annually reviewing credit reports. What's the answer? The answer is a comprehensive identity theft protection plan (such as we provide) that includes credit monitoring with real-time alerts, access to personal advisers and a secure personal dashboard with the member’s credit report and score. Members should be able to see their dashboards 24/7 and refresh their credit reports every 60 days. Features should include monitoring high-risk transactions involving a member’s Social Security Number, monitoring personal identifiable information and monitoring credit and debit card numbers in online and national databases. Available resources should include lost purse/wallet assistance, an emergency response kit, forms and letter templates.

The service of risk management within insurance companies needs to innovate. Today, a small fraction of commercial customers take advantage of risk management services provided by insurance agencies. And insurance companies are fine with this, as they have limited supply -- or people -- that can provide risk management services. But what if the same high level of risk management services could be offered to all customers of an insurance company? How would an insurance company go about offering widespread, and high-quality, risk management services? The Solution to Better Risk Management Is Your People (Plus Technology) Insurance agencies currently engaged in risk management services have a distinct advantage: the accumulated knowledge of its people that provide contract reviews for customers. I had this epiphany as I was reading through a slidedeck titled "Innovation is almost impossible for older companies," which states: "People have acquired skills that, at moments, have given significant advantages to companies in order to prosper." Insurance agencies now must figure out how to harness the risk management skills of its people in new ways. The alternative is scary for my insurance professional friends, because someone else -- someone with new technology and a new supply of risk management knowledge -- will figure it out instead. Insurance companies could quickly be out-innovated, as occurred to the taxi industry. For some time, the taxi industry had skills that allowed it to prosper. Taxi companies used technology and money to set up phone numbers that could be called to request a ride; these companies also stockpiled just enough cars and drivers to meet the minimum level of demand. But then Uber came along and created a better technology that connected riders to a different (and bigger) pool of drivers. The taxi industry got out-innovated. Insurance agencies are composed of people who have acquired risk management skills. My friends in the industry can review contracts with the best of them. But each of them has a limited capacity to complete contract reviews based on hours in the day. So not all customers get risk management services (either because they don't know about them or don't want to pay for them). A technology will come along that will expand the supply of risk management services. One insurance consultant thinks that technology will be a computer avatar that analyzes and predicts risks independently. I think the idea of an independently functioning risk management avatar is misguided. I am reminded of a quote from Zero to One, written by the founder of Paypal, Peter Thiel: "Better technology in law, medicine and education won't replace professionals; it will allow them to do even more." Better Technology Will Allow Insurance Professionals to Do More I continue to be drawn to the word "collaboration" as I envision the future of insurance technology. Recently, I spent time evaluating software solutions in the insurance industry. All of the solutions I reviewed are focused on step one, what I call "Make it Digital." Only within the last five to 10 years have insurance carriers and agencies gone paperless, and the insurance software companies are filling this need. Digital is not enough. Paperless is not enough. Insurance technology must connect people and the knowledge that they create. Don't think about just connecting to your customers. Think about connecting your team. Imagine if your entire risk management team could work as a living, breathing entity to assess and evaluate risk. When Agent Jim in Kansas City has a question about liquidated damages in Texas, he should be able to quickly identify work completed by Agent Bob in Dallas dealing with this exact issue. He can then evaluate the work and bring Bob in on any follow-up questions. I have yet to find an insurance carrier or agency that has figured this out. This is where the opportunity lies in insurance technology: collaboration.

Retailers do it. Auto dealers do it. From wholesale parts suppliers to craigslist sellers and kids with lemonade stands, everyone knows that if you are going to take the trouble to sell something you should sell it for its full value. Many insurers, however, are stuck within semi-fixed pricing models that don’t allow them to capture the most profit they can from each policy. Today, insurers can change that because they have the ideal vehicle to help them optimize pricing and improve their margin — quote data. Quote data, when analyzed and tested on a continual basis and kept within the boundaries of the rate filing, can yield dramatic insights into purchase patterns and price tolerance. Plus, optimizing price with quote data is an analytics concept that will excite nearly everyone in the organization. Why should insurers consider using quote data to modify pricing or products? Insurers have actuarial models and underwriters who understand the market, plus they have rate plans that have already been filed for specific products. Quote data is ripe with excellent, relevant insights. The reason we see Google, Overstock and Amazon dipping into insurance quoting is because they grasp the potential in marrying purchase pattern data with price testing. For insurers, quote data tested against purchase patterns is a gold mine waiting to be tapped. What do insurers have to gain?

• New data yields new insights and can result in new decisions. (The ability to analyze multiple risk factors, even at the quote stage, is improving.)
• Insurers can decide to charge more based on what they learn.
• Insurers can decide to go after lower-margin, high-quality business.
• They can go after low-margin, high-efficiency business.
• They can identify business that they don’t really want.
• They can answer the competitive threats of new entrants that are poised to capture an increasing share of the market.

Is optimization the right way to make decisions? For the most part, the days of “from the gut” decisions are over. Human brains are predictable enough that they can be mined for decision data and yield well-patterned insights across similar individuals with similar decision patterns. Amazon, Pandora and Google can effortlessly predict a consumer’s next areas of interest and likely purchases without the individual ever telling them anything. The messages we receive from nearly everywhere are “optimized” because they are proven to most likely produce a positive reaction from us. Optimization is data science that works. Pricing is the second step of optimization; it concerns itself with how much a certain type of prospect will pay at that point in time through that particular channel. As an example, consider a couple purchasing a boat two days before Memorial Day weekend. They are in the showroom using a quote aggregator on her mobile phone. They may be willing to pay more for insurance because of the need to move through underwriting quickly. Quote data over time may also prove that two boater certification questions need to be added to the quote process for first-time boat purchasers to keep the product profitable, either through adjusting price or filtering out applicants. Insurers have a leg up on traditional online retailers because prospects do tell us something about themselves before they purchase, to get an accurate price. This kind of pricing optimization isn’t limited to online purchases. It can be done through agency channels and even through traditional direct mail. But the best data accessibility and ability to test is through website and mobile channel metadata. How insurers optimize price — finding opportunities among the limits. There are several areas for insurers to consider when optimizing through quote metrics. First, insurers should be tracking every bit of data and metadata surrounding the application. Every submission document has the bits of a consumer story to tell. For example, how many days is it until renewal? Is a client making a last-ditch effort to get better auto pricing with you before turning elsewhere? Is a prospect shopping around in the last week before her home policy auto-renews? How many apps are coming through a particular channel in a particular day? All of these questions and many more could lead to pricing revisions based upon consumer behavior in the application process. Next, insurers should become highly adept at A/B testing. Consider variables as levers and raise and lower them to reach their limits, then continue monitoring and adapting. For example, begin with quote take-up rates on all submissions. Insurers should consider testing the limits available to the market. Do take-up rates improve when limits are raised? Website metadata can be informative in this regard, as well. What pages do consumers visit and when? Is there a standard path for the person who seems to rush through shopping, quoting and purchasing? Can the insurer raise the price for those who seem to decide quickly in their first visit and lower it for someone who has come back to the site repeatedly, conceivably price shopping? There are hurdles, however. Price testing must be done within the boundaries of the filing and the specific products. Some pricing changes may be able to be implemented immediately, but many will need to go back through the filing process. Pricing always has to happen within the regulatory box, so what is possible in testing may not always be feasible in pricing. But pricing optimization is only one part of the A/B testing equation when it comes to quoting. Quoting data can also be used to more finely tune risk factors and their relationship to take-up rates and claims. This kind of profit optimization is just as critical as pricing optimization, and it requires no regulatory refiling. It is data that can be fed back into actuarial models and may ultimately be useful when used in conjunction with mobile telematics data and a host of other data sources. Even if an insurer planned no immediate repricing of products, the ability to understand price tolerance based upon other quote factors (e.g. age, income, take-up rates, property value) would be helpful in the development of new products. The nuts and bolts of pricing optimization will vary with each insurer’s unique quote process and current market. But the promise it holds is not only a better overall margin per policy, but also the potential to grow volume through unexplored insights and the opportunities to deeply understand individuals, groups and their motivations to purchase insurance. Consumer data analytics is here to stay. The value in quote data is continuing to grow.

ITL Editor-in-Chief Paul Carroll recently hosted a webinar on "Captivating Customers With All-Channel Experiences,” featuring experts from Capgemini and Salesforce.com and the former chief customer experience officer at AIG. To view or listen to the webinar, click here. For the slides, click here.  To see how important it is to provide a seamless, multi-channel experience that will captivate customers, look at our experience with a large North American property and casualty company. Revenue was falling. Too many customers were leaving. Customer service and the overall customer experience were lacking. Antiquated systems – both those facing the customer and the back-end, legacy infrastructure – needed to be modernized. The company began a multi-year transformation, starting with its auto insurance business unit, and then expanded to other areas. With our help, the company designed and deployed a “Quote to Card” capability across multiple channels. The solution provides real-time information by integrating internal and third-party systems. The insurer is now able to complete the “end-to-end” quoting process (build/rate/bind a quote) for both the direct-to-customer channel as well as the agent channel, in a much more efficient and elegant manner. The insurer incorporated a rich analytics component. As a result, it can perform robust online analytics, capturing information such as time spent by a prospect on the site, analyzing when and why a prospect is abandoning the quote process, etc. The insurer can also personalize the user experience, using results from the analytics platform coupled with advanced techniques such as caching and multivariate testing. Subsequently, the insurer added self-service capabilities for customers to conduct billing activities such as reviewing their account summary, paying bills, viewing payment history and updating personal profiles and other information. As a result of the initiatives, the insurer is now able to create a 360-degree view of its customers across sales and service. There has been a 34% increase in customer retention and a 37% increase in customer satisfaction. Meanwhile, costs are dropping. Average times for handling issues are dropping at call centers. Less time is needed to train agents, and their productivity is up 40%. More customers are using self-service channels. Fraud is also declining because the insurer can, for instance, see when people are trying to game the process by fiddling with numbers to get a better quote. Additional capabilities are still being added as part of the multi-year transformation road map. This is the fourth in a series of four articles adapted from the Capgemini white paper “Cloud-Enabled Transformation in Insurance: Accelerating the Ability to Deliver Exceptional Customer Experiences.” The other articles are here, here and here. For the full white paper, click here.