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Insurance Disrupted: Silicon Valley’s Map

With $5 trillion in premiums, an incredibly low level of customer satisfaction, aging infrastructures, an analytically based, high-volume business model and a “wait until we have to” approach to innovation, insurance is now fully in the sights of the most disruptively innovative engine on the planet, Silicon Valley. The tipping point for insurance is here.

More than 75 digitally born companies in Silicon Valley, including Google and Apple, are redefining the rules and the infrastructure of the insurance industry.

Inside the Insurance Tipping Point – Silicon Valley | 2016

It’s one thing to listen to all of the analysts talk about the digitization of insurance and the disruptive changes it will bring. It’s quite another to immerse yourself in the amazing array of companies, technologies and trends driving those changes. This post is the first of a series that will give you an inside look at the visions, culture and disruptive innovation accelerating the digital tipping point for insurance and the opportunities that creates for companies bold enough to become part of it. (Join us at #insdisrupt.)

Venture firms are catalysts for much of Silicon Valley’s innovation, and insurance has their attention. Frank Chen of Andreessen Horowitz sees software as rewriting the insurance industry, AXA insurance has established an investment and innovation presence here. Others, including Lightspeed VenturesRibbit Capital and AutoTech Ventures, are investing in data and analytics, new insurance distribution plays and other technologies that will change the shape of insurance.

New business models: MetromileZenefitsStride HealthCollective HealthClimate Corp., Trov and Sureify, are using technologies to redefine and personalize insurance and the experience customers have with it.

Rise of the Digital Ecosystem – Expanding the Boundaries of Insurance

Digital ecosystems are innovation catalysts and accelerators with power to reshape industry value chains and the world economy. They dramatically expand the boundaries within which insurance can create value for customers and increase the corners from which new competitors can emerge.

Silicon Valley is home to companies acutely aware of how to establish themselves as a dominant and disruptive platform within digital ecosystems. That includes Google, which is investing heavily in the automobile space with Google Compare and self-driving vehicles and has acquired Nest as an anchor in the P&C/smart homes market. Fitbit is already establishing health insurance partnerships. And let’s not forget Apple. The Apple Watch already has insurance-related partners. Apple has clear plans for the smart home market and has recently launched AutoPlay, its anchor entry into the auto market. There are rumors that Apple plans to develop an iCar. And that’s just what we know about.

There are a host of other companies placing digital ecosystem bets in Silicon Valley, as well: GE, which is driving the Industrial Internet of Things; Parstream, with an analytic platform built for IoT; the IoT consortiumJawboneEvidation HealthMisfit Wearablesicontrol NetworkGM and its advanced technology labcarvi; and DriveFactor, now part of CCC Information Services.

Then there are the robotics companies, including 3D robotics, the RoboBrain project at Stanford University and Silicon Valley Robotics, an association of makers.

Customer Engagement and Experience – New Digital Rules, New Digital Playbook.

When your customer satisfaction and trust is one of the lowest in the world and companies like Apple and Google enter your market place, it’s really time to pay attention. There is a customer value-creation and design led innovation culture in the valley unrivaled in the world, and the technology to back it up. Companies like Genesys, and Vlocity are working on perfecting the omni channel expereince. Hearsaysocial and, declara, are working on next gen social media to help customers and the insurance industry create better relationships. Many of the next generation of insurance products will be context aware, opening the door to new ways of reaching and supporting customers. Companies like mCube and Ejenta, are working to provide sensor based insight and the analytics to act on it. TrunomiBeyond the Ark, and DataSkill via cognitive intelligence are developing new innovative ways to use data & analytics to better understand and engage customers. Lifestyle based insurance models are being launched like Adventure Adovcates and Givesurance, And some of digital marketing automation’s most innovative new players like Marketo, and even Oracle’s Eloqua are rewriting and enabling a new digital generation of marketing best practices.

Big Data and Analytics – Integrated Strategies for the New “Digital” Insurance Company

The techno buzz says big data and analytics are going to affect every business and every business operation. When you are a data- and analytics-driven industry like insurance that deals with massive amounts of policies and transactions, that buzz isn’t hype, it’s a promise.

The thing about big data and analytics is that when they are used in operational silos, they provide a tactical advantage. But when a common interoperable vision and roadmap are established, analytics create a huge strategic advantage. That knowledge and the capability to act on it is built into the DNA of “born digital” entries into the insurance market like Google.

The number of companies working on big data and analytics within the valley is staggering. We have already discussed a few in the Customer Engagement section above. Here are a few more, In the area of risk: RMS is building its stable of talent in the big data spaceActian is delivering lightning-fast Hadoop analytics; Metabiota is providing epidemic disease threat assessments; and Orbital Insights is providing geo-based image analysis. In the areas of claims and fraud, PalantirScoreDataTyche and SAS are adding powerful capabilities for insurance. Improved operational effectiveness is being delivered by Saama Technology, with an integrated insurance analytics suite; by Prevedere, with data-driven predictive analytics; by Volumetrix, with people analytics; and by Sparkling Logic, which helps drive faster and more effective decision making.

Insurance Digitized | Next Generation Core Systems

With insurance boundaries expanding, integration with digital ecosystems, increasing reliance on analytics and the demand for personalized and contextualized outcome- and services-based insurance models, core systems will have huge new sets of requirements placed on them. The requirement for interoperability between systems and data and analytics will grow dramatically.

Companies like GuidewireISCS and SAP are building a new generation of cloud-based systems. Scoredata and Pokitdoc are bringing new capabilities to claims. SplunkSymantec and FireEye are addressing emergent cyber risks. And companies like Automation EverywhereOcculus RiffSuitable Technologies and Humanyze are enabling the digitally blended and augmented workforce.

The latest investment wave includes artificial intelligence, deep learning and machine learning, which core systems will need to incorporate.

Surviving the Tipping Point – Becoming One of the Disruptive Leaders

This is a small sampling of the technologies, trends and companies just within Silicon Valley that are shaping the digital future of insurance. The changes these will drive are massive, and they are only the tip of the iceberg.

An Insurance Tech meetup group open to all the insurance-related companies within Silicon Valley was just announced by Guillaume Cabrere, CEO of AXA Labs, and already has 64 members. For established companies to survive the tipping point and thrive on the other side of it requires more than handing “digital transformation” off to the CIO or marketing team. Success requires a C-Suite that has become an integral part of the community and culture building the digital generation of insurance companies.

For technology companies and next-generation insurance companies, success requires building partnerships with established and emerging players.

This blog series is designed to inform and accelerate that dialog and partnering formation. It will include a series of interviews with disruptive leaders from industry and Silicon Valley. If you or your company would like to be a part of that series, please let me know.

Join us for the next Insurance Disrupted Conference – March 22-23, 2016 l Silicon Valley

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ITL readers receive a 15% discount when registering here.

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13 Emerging Trends for Insurance in 2016

Where does the time go?  It seems as if we were just ringing in 2015, and now we’re well into 2016. As time goes by, life changes, and the insurance industry—sometimes at a glacial pace—does, indeed, change, as well. Here’s my outlook for 2016 on various insurance topics:

  1. Increased insurance literacy: Through initiatives like The Insurance Consumer Bill of Rights and increased resources, consumers and agents are both able to know their rights when it comes to insurance and can better manage their insurance portfolios.
  2. Interest rates: The federal funds target rate increase that was announced recently will have a yet-to-be determined impact on long-term interest rates. According to Fitch Ratings, further rate increases’ impact on credit fundamentals and the longer end of the yield curve has yet to be determined. Insurance companies are hoping for higher long-term rates as investment strategies are liability-driven. (Read more on the FitchRatings website here). Here is what this means: There will not necessarily be a positive impact for insurance policy-holders (at least in the near future). Insurance companies have, for a long period, been subsidizing guarantees on certain products or trying to minimize the impact of low interest rates on policy performance. In the interim, many insurance companies have changed their asset allocation strategies by mostly diversifying their portfolios beyond their traditional holdings—cash and investment-grade corporate bonds—by investing in illiquid assets to increase returns. The long-term impact on product pricing and features is unknown, and will depend on further increases in both short- and long-term interest rates and whether they continue to rise in predictable fashion or take an unexpected turn for which insurers are ill-prepared.
  3. Increased cost of insurance (COI) on universal life insurance policies: Several companies—including Voya Financial (formerly ING), AXA and Transamerica—are raising mortality costs on in-force universal life insurance policies. Some of the increases are substantial, but, so far, there has been an impact on a relatively small number of policyholders. That may change if we stay in a relatively low-interest-rate environment and more life insurance companies follow suit. Here is what this means: As companies have been subsidizing guaranteed interest rates (and dividend scales) that are higher than what the companies are currently (and have been) earning over the last few years, it is likely that this trend will continue.
  4. Increasing number of unexpected life insurance policy lapses and premium increases: For the most part, life insurance companies do not readily provide the impact of the two prior factors I listed when it regards cash value life insurance policies (whole life, universal life, indexed life, variable life, etc). In fact, this information is often hidden. And this information will soon be harder to get; Transamerica is moving to only provide in-force illustrations based on guarantees, rather than current projections. Here is what this means: It will become more challenging to see how a policy is performing in a current or projected environment. At some point, regulators or legislators will need to step in, but it may be too late. Monitor your policy, and download a free life insurance annual review guide from the Insurance Literacy Institute (here).
  5. Increased complexity: Insurance policies will continue to become more complex and will continue their movement away from being risk protection/leverage products to being complex financial products with a multitude of variables. This complexity is arising with products that combine long-term care insurance and life insurance (or annuities), with multiple riders on all lines of insurance coverage and with harder-to-define risks — even adding an indexed rider to a whole life policy (Guardian Life). Here is what this means: The more variables that are added to the mix, the greater the chance that there will be unexpected results and that these policies will be even more challenging to analyze.
  6. Pricing incentives: Life insurance and health insurance companies are offering discounts for employees who participate in wellness programs and for individuals who commit to tracking their activity through technology such as Fitbit. In auto insurance, there can be an increase in discounts for safe driving, low mileage, etc. Here is what this means: Insurance companies will continue to implement different technologies to provide more flexible pricing; the challenge will be in comparing policies. The best thing an insurance consumer can do is to increase her insurance literacy. Visit the resources section on our site to learn more.
  7. Health insurance and PPACA/Obamacare: The enrollment of individuals who were uninsured before the passage of Obamacare has been substantial and has resulted in significant changes, especially because everyone has the opportunity to get insurance—whether or not they have current health issues. And who, at some point, has not experienced a health issue? Here is what this means: Overall, PPACA is working, though it is clearly experiencing implementation issues, including the well-publicized technology snafus with enrollment through the federal exchange and the striking number of state insurance exchanges. And there will be continued challenges or efforts to overturn it in the House and the Senate. (The 62nd attempt to overturn PPACA was just rejected by President Obama.) The next election cycle may very well determine the permanency of PPACA. The efforts to overturn it are shameful and are a waste of time and money.
  8. Long-term care insurance: Rates for in-force policies have increased and will almost certainly face future increases—older policies are still priced lower than what a current policy would cost. This is because of many factors, including the prolonged low-interest-rate environment, lower-than-expected lapse ratios, higher-than-expected claims ratios and incredibly poor initial product designs (such as unlimited benefits on a product where there was minimal if any claims history). These are the “visible” rate increases. If you have a long-term care insurance policy with a mutual insurance company where the premium is subsidized by dividends, you may not have noticed or been informed of reduced dividends (a hidden rate increase). Here is what this means: Insurance companies, like any other business, need to be profitable to stay in business and to pay claims. In most states, increases in long-term care insurance premiums have to be approved by that state’s insurance commissioner. When faced with a rate increase, policyholders will need to consider if their benefit mix makes sense and fits within their budget. And, when faced with such a rate increase, there is the option to reduce the benefit period, reduce the benefit and oftentimes change the inflation rider or increase the waiting period. More companies are offering hybrid insurance policies, which I strongly recommend staying away from. If carriers cannot price the stand-alone product correctly, what leads us to believe they can price a combined product better?
  9. Sharing economy and services: These two are going to continue to pose challenges in the homeowners insurance and auto insurance marketplaces for the insurance companies and for policy owners. There is a question of when is there actually coverage in place and which policy it is under. There are some model regulations coming out from a few state insurance companies, however, they’re just getting started. Here is what this means: If you are using Uber, Lyft, Airbnb or a similar service on either side of the transaction, be sure to check your insurance policy to see when you are covered and what you are covered for. There are significant gaps in most current policies. Insurance companies have not caught up to the sharing economy, and it will take them some time to do so.
  10. Loyalty tax: Regulators are looking at banning auto and homeowners insurance companies from raising premiums for clients who maintain coverage with them for long periods. Here is what this means: Depending on your current auto and homeowners policies, you may see a reduction in premiums. It is recommended that, in any circumstance, you should review your coverage to ensure that it is competitive and meets your needs.
  11. Insurance fraud: This will continue, which increases premiums for the rest of us. The Coalition Against Insurance Fraud released its 2015 Hall of Shame (here). Insurance departments, multiple agencies and non-profits are investigating and taking action against those who commit elder financial abuse. Here is what this means: The more knowledgeable that consumers, professional agents and advisers become, the more we can protect our families and ourselves.
  12. Uncertain economic and regulatory conditions: Insurance companies are operating in an environment fraught with potential changes, such as in interest rates (discussed above); proposed tax code revisions; international regulators who are moving ahead with further development of Solvency II; and IFRS, NAIC and state insurance departments that are adjusting risk-based capital charges and will react to the first year of ORSA implementation. And then there is the Department of Labor’s evaluation of fiduciary responsibility rules that are expected to take effect this year. Here is what this means: There will be a myriad of potential outcomes, so be sure to continue to monitor your insurance policy portfolio and stay in touch with the Insurance Literacy Institute. Part of the DOL ruling would result in changes to the definition of “conflict of interest” and possibly compensation disclosure.
  13. Death master settlements: Multiple life insurance companies have reached settlements on this issue. Created by the Social Security Administration, the Death Master File database provides insurers with the names of deceased people with Social Security numbers. It is a useful tool for insurers to identify policyholders whose beneficiaries have not filed claims—most frequently because they were unaware the deceased had a policy naming them as a beneficiary. Until recently, most insurers only used the database to identify deceased annuity holders so they could stop making annuity payments, not to identify deceased policyholders so they can pay life insurance benefits. Life insurers that represent more than 73% of the market have agreed to reform their practices and search for deceased policyholders so they can pay benefits to their beneficiaries. A national investigation by state insurance commissioners led to life insurers returning more than $1 billion to beneficiaries nationwide. The National Association of Insurance Commissioners is currently drafting a model law  that would require all life insurers to use the Death Master File database to facilitate payment of benefits to their beneficiaries. To learn more, visit our resources section here. Here is what this means: Insurance companies will not be able to have their cake and eat it too.

What Can You Do?

The Insurance Consumer Bill of Rights directly addresses the issues discussed in this article.

Increase your insurance literacy by supporting the Insurance Literacy Institute and signing the Insurance Consumer Bill of Rights Petition. An updated and expanded version will be released shortly  that is designed to assist insurance policyholders, agents and third party advisers.

Sign the Insurance Consumer Bill of Rights Petition 

What’s on your mind for 2016? Let me know. And, if you have a tip to add to the coming Top 100 Insurance Tips, please share it with me.

What Are Other Marketers Doing?

“Insurance Marketing & Distribution Summit Europe 2015” proved to be a great event.

There were interesting speakers, a range of topics and plenty of opportunity for interaction. Plus, it was a pleasure for me to share with this group, but more on that later.

Following events that were useful for getting close to leaders on whom insight leaders focus less (IT, digitalcustomer experience), I was back with marketing  and sales. Most likely, the primary customer for most insurance insight teams is their marketing leader. So, I hope it’s helpful to hear the thoughts and plans of a number of leaders from the insurance marketing community.

Here are key messages from these insurance marketers:

  • Marco Brandt (Agila) shared about Agila’s journey from being a broker-based pet insurer to focusing on the Internet channel. It uses digital capabilities for personalization of communication and pricing. Perhaps the biggest opportunity for the company, though, was to use its digital communication and free content to dramatically increase the number of touch-points with their customers (a recurring theme). Agila has a strong story to tell about growth of customer satisfaction and premium income (which doubled in five years). The company’s next, self-identified challenge is to embrace mobile.
  • Stephan Dequaire (Towergate) provided a review of the growth of price comparison sites in the UK car insurance industry. I was surprised at how much Compare the Market now dominates, above even MSM and Go Compare. It was also interesting to see how much this model varies across the world. By comparison with the U.S., intermediaries (including tied agents) are more the norm across Europe, where there is also a larger share for bancassurers. Some research suggests the shine is coming off them, though, with even consumer advice sites pointing to direct insurers. What was more shocking was to hear how a consumer advice site suggests consumers lie about data to get a better price (“optimizing your job title,” etc). It really brought home the erosion of consumer trust, in the UK market especially.
  • Phil Bayles (Aviva) reminded us that, across Aviva and insurance as a whole, the intermediary channel still provides the largest profit and volume. He provided a nice segue into my later talk because he stressed how more than 25% of management time was now taken up by conduct risk agenda. The challenge with succeeding with your intermediary channel, including independent financial advisers (IFAs), is that they deal with you day in and day out. You can’t persuade an intermediary channel with some catchy or emotive brand advertising. Bayles stressed the need for a focus on adviser satisfaction and ease as well as fixing problems quickly. With a strategy to be “No. 1 for Brokers,” there is nowhere for Aviva to hide if tracking does not match up. Transactional net promoter scores (TNPS) suggest that Aviva is well on its way.
  • Simon Green (The FCA) talked about how FCA’s behavioral economics expertise was influencing policy and reviews, as well as the important role of technology innovation.
  • Pollyanna Deane (Simmons & Simmons) brought legal expertise to our proceedings and talked about increasing regulatory scrutiny, including the likely impact of the Insurance Distribution Directive. She also mentioned the risk of European Insurance & Occupational Pensions Authority (EIOPA) becoming a third regulator for UK insurers!
  • I then presented on customer insight and conduct risk, where I shared a number of the lessons I’ve learned from training insurance marketing teams on using customer insight to mitigate conduct risk. This included briefly covering consumer spotlight, behavioral economics and vulnerable customers. I’m pleased to say there was considerable interest afterward as marketing leaders could see the benefits of more focus on conduct and on embedding insight in their processes.
  • Louis de Broglie (InsPeer) focused on innovation. He explained the interesting concept on which his start-up, InsPeer, is based. Returning to the insurance origin of mutuality and governance in community, his company provides consumers with a way to pool their excesses. Currently, only available in France, this unregulated solution combines the purchase of high-excess cover from an insurer with a community that contracts to cover a proportion of others’ excess in the event of a claim. This results in lower premium and zero excess for each individual, as well as social pressure on claim veracity and lower claims frequency for the insurer. The next stage is intended to be peer-to-peer insurance, akin to the evolving models from Guevara in the UK, as well as others worldwide. Given the explosive growth of Uber and AirBnb, it seems likely some model of peer-to-peer disruption will take off.
  • Monika Schulze (Zurich) returned to the theme of greater engagement through marketing. Her recurrent theme was the importance of emotion, using your brand and an emotionally engaging narrative consistently across channels to provoke positive responses and engagement from consumers. Inspired by “Transmedia Branding,” Schulze really brought this topic to life through a number of videos that made an impact and examples of clever use of social media. Perhaps the most surprising part of this event was a story about Lidl selling milk in Sweden. Through active monitoring of Facebook comments, Lidl spotted a Swede named Bosse who said he didn’t want to buy German milk. Lidl used this as a chance to humanize its brand, and the company renamed its milk “Bosse’s Milk” across Sweden, including a photo of Bosse and an explanation that the milk actually is Swedish milk. This action, in response to an individual, captured the public imagination and boosted sales. For a great example of fleet-of-foot and creative marketers using emotional advertising, check out Zurich’s #SaveThe Snowmen.
  • Gordon Rutherford (Axa) also stressed the importance of emotional communication in brand engagement. Along with warning to not be one of those needy brands that basically use social media to say “please love me,” he highlighted the impact of finding a noble cause to really make a difference and to improve brand sentiment. An example is Axa’s “glass of consciousness” exhibitions in Mexico, which engage the public with the need to change attitudes about drinking and driving. Axa has found a way to humanize its brand and engage its own employees, all the while making a social difference.
  • Edward Rice (AIG) shared AIG’S progress in digital transformation, where the company has gone beyond just using digital as a marketing channel and is using it to reengineer business and customer experience. He noted that the right comparison for customer experience isn’t the low bar currently set by the insurance industry but is, rather, the personalized, digital ease provided by retailers. He  then shared numerous examples of how, once you have the basics delivered consistently, you can surprise and delight your customers with personalization and relevance. One interesting example was marketing done by Boden and easyJet that shows customers that the brands remember past purchases and have an apparent growing understanding. Rice also touched on the power of responding to one individual on social media as a way to humanize your brand and be playful and on the importance of providing timely advice and warnings that help customers reduce risks.
  • Isabelle Conner (Generali) explained the huge cultural transformation that she is leading, changing a 184-year-old business from product-centric to customer-centric. She stressed the importance of emotional brand marketing and reminded everyone that we are in an ideal position to put this into action, with insurance being about protecting what people love and being there when the traumatic happens. But the marketing has to be grounded in changing the customer experience reality and the internal brand reality, not just be about broadcasting a message. Perhaps the part that had the most impact was when she shared videos of Generali’s CEOs from Spain, Switzerland and France calling customers who left detractor net promoter score (NPS) ratings. It is so important to include timely response and resolution in your NPS metric programs, but it has even more of an impact on a company’s culture when CEOs get engaged in the experience.
  • Stephen Ingledew (Standard Life), although not an insurer, has many of the same challenges in the world of retirement savings, investment and income solutions. Ingledew focused on the importance of customer engagement in redesigning improved experiences. He shared some details of co-creation sessions and agile development, the latter being more than just an approach to IT development but also a mindset of continual learning and iteration. Some of his examples of online tools included elements of “gamification,” which is helpful for consumers in the baffling world of pension reform choices. The brand approach of “#ReadyWhenUAre” nicely balances a range of enablers, while avoiding being paternalistic. Another critical customer need is education, but it becomes tricky to do it in a way that is neither boring nor patronizing. Selecting Steph and Dom from the British reality show Gogglebox to host a series of videos to chat in the pub about the issues was inspired choice, and one can see why it has gone viral.
  • Zach Goren (Media Alpha) brought the world of West Coast U.S. innovation to the conference. Media Alpha is helping auto insurers, among others, buy targeted “in market” customer leads in real time, rather than just relying on mass market advertising through Google (where insurance keywords cost a fortune). Media Alpha is basically an innovation on the traditional market of selling unconverted quotes, but the company does this in real time and stays on the insurer’s site. So, the insurer becomes both a seller of insurance as well as a seller of advertising space to competitors, especially where customer details show this person is unlikely to convert. Media Alpha provides real opportunities to offer consumers more choice.
  • James Baker (Vitality) leads the insight team and helps the company’s brand understand how to bring about behavioral change in its customers. The company has an interesting approach, providing health insurance but also helping motivate you to not need it, through rewards for a healthier lifestyle. This approach provides more opportunity for engagement with insurance customers and offers tangible value back on your policy (many insurers would love to achieve either). Vitality’s insight, built on a hybrid segmentation of FSS and behavioral analytics, has identified a number of actions and rewards, under the concepts of “we’ll be there for you” and “we’ll make it more rewarding to be well in the first place,” that have driven significant engagement and behavior change. Ideally placed to exploit wearables and other IoT innovation, given the importance of employers and employee benefit consultants to Vitality’s business, the company can also demonstrate benefits in reduced absenteeism.
  • David Stevens (LV=) brought to life the complex world of automated advice in the pensions/retirement income sector. The company has innovated with so called robo-advice (although the process also includes human interaction). LV=’s innovation with Wealth Wizards (which it acquired) and the fact it has broken down the steps into manageable chunks should really help. With the high cost of advice, too many in the public are not engaging with such an intangible service. A fixed price of £199 for personalized options after automated fact finding is much more accessible, and the offer is communicated in an emotionally warm way. Once again, you can see the influences of both personalization and gamification in the company’s communication. The style of communication and the ease of playing with the tools also contribute to humanizing insurance (as does clear fixed pricing).
  • Adam Kornick (Aviva) heads up the company’s global analytics capability, and he shared how it is using predictive analytics in pricing and risk modeling. Kornick gave an important reminder that price is the primary selection criteria consumers cite with insurance, so personalized pricing matters every bit as much as, if not more than, personalized communication. One of Aviva’s key innovations has been to build on the individual price for quoting (based on captured and average data) that others have done for home insurance and to give customers the price of a product that they are most likely to buy next. It was also interesting to hear of Aviva’s progress in broker analytics, another reminder as to the importance of the intermediary channel and how predictive analytics can help there, too.

Phew. Well done for making it to the end of this post! Key themes I took away are the need for: personalization, emotions, humanizing insurance, more frequent engagement through communication, innovations and continued focus on the intermediary channel.

Hope all those topics and ideas were useful. Please share the insurance marketers’ innovations you are generating from customer insight.

Meanwhile, if you’re interested, you can download a free copy of my presentation here.

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InsurTech Trends to Watch For in 2016

The excitement around technology’s potential to transform the insurance industry has grown to a fever pitch, as 2015 saw investors deploy more than $2.6 billion globally to insurance tech startups. I compiled six trends to look out for in 2016 in the insurance tech space.

The continued rise of insurance corporate venture arms

2015 saw the launch of corporate venture arms by insurers including AXA, MunichRe/Hartford Steam Boiler, Aviva and Transamerica. Aviva, for example, said it intends to commit nearly £20 million per year over the next five years to private tech investments. Not only do we expect the current crop of corporate VCs in the insurance industry to become more active, we also expect to see new active corporate VCs in the space as more insurance firms move from smaller-scale efforts — such as innovation labs, hackathons and accelerator partnerships — to formal venture investing arms.

Majority of insurance tech dealflow in U.S. moves beyond health coverage

Insurance tech funding soared in 2015 on the back of Q2’15 mega-rounds to online benefits software and health insurance brokerage Zenefits as well as online P&C insurance seller Zhong An. More importantly, year-over-year deal activity in the growing insurance tech space increased 45% and hit a multi-year quarterly high in Q4’15, which saw an average of 11 insurance tech startup financings per month.

In each of the past three years, more than half of all U.S.-based deal activity in the insurance tech space has gone to health insurance start-ups. However, 2015 saw non-health insurance tech start-ups nearly reach parity in terms of U.S. deal activity (49% to 51%). As early-stage U.S. investments move beyond health coverage to other lines including commercial, P&C and life (recent deals here include Lemonade, PolicyGenius, Ladder and Embroker), 2016 could see an about-face in U.S. deal share, with health deals in the minority.

Investments to just-in-time insurance start-ups grow

The on-demand economy has connected mobile users to services including food delivery, roadside assistance, laundry and house calls with the click of a button. While not new, the unbundling of an insurance policy into financial protection for specific risks, just-in-time delivery of coverage or micro-duration insurance has already attracted venture investments to mobile-first start-ups including Sure, Trov and Cuvva. Whether or not consumers ultimately want the engagement or interfaces these apps offer, the host of start-ups working in just-in-time insurance means one area is primed for investment growth in the insurance tech space.

Will insurers get serious about blockchain investments?

Thus far, insurance firms have largely pursued exploratory investments in blockchain and bitcoin startups. New York Life and Transamerica Ventures participated in a strategic investment with Digital Currency Group, gaining the ability to monitor the space through DCG’s portfolio of blockchain investments. More recently, Allianz France accepted Everledger, which uses blockchain as a diamond verification registry, into its latest accelerator class. As more insurers test blockchain technologies for possible applications, it will be interesting to monitor whether more insurance firms join the growing list of financial services giants investing in blockchain startups.

Fintech start-ups adding insurance applications

In an interview with Business Insider, SoFi CEO Mike Cagney said he believes there’s a lot more room for its origination platform to grow, adding,

“We’re looking at the entire landscape of financial services, like life insurance, for example.”

A day later, an article on European neobank Number26, which is backed by Peter Thiel’s Valar Ventures, mentioned the company would like to act as a fintech hub integrating other financial products, including insurance, into its app. We should expect to see more existing fintech start-ups in non-insurance verticals not only talk publicly but also execute strategic moves into insurance.

More cross-border blurring of insurance tech start-ups

Knip, a Swiss-based mobile insurance app backed by U.S. investors including QED and Route66, is currently hiring for U.S. expansion. Meanwhile, U.S. start-ups such as Trov are partnering and launching with insurers abroad. We can expect more start-ups in the U.S. to look abroad both for strategic investment and partnerships, and for insurance tech start-ups with traction internationally to expand to the U.S.

Blockchain Technology and Insurance

What if there was a technological advancement so powerful that it transforms the very way the insurance industry operates?

What if there was a technology that could fundamentally alter the way that the economics, the governance systems and the business functions operate in insurance and could change the way the entire industry postulates in terms of trade, ownership and trust?

This technology is here, and it’s called the blockchain, best known as the force that drives Bitcoin.

Bitcoin has gotten a pretty bad rap over the years for good reason. From the collapse of Mt. Gox and the loss of millions –  to being the de facto currency for pedophilia peddlers, drug dealers and gun sellers on Silk Road and the darling of the anarcho-capitalist community – Bitcoin is not doing well in the public eye. Its price has also fluctuated wildly, allowing for insane speculation, and, with the majority of Bitcoins being owned by the small group that started promoting it, it ‘s sometimes been compared to a Ponzi scheme.

Vivek Wadhwa writes in the Washington Post that Chinese Bitcoin miners control more than 50% of the currency-creation capacity and are connected to the rest of the Bitcoin ecosystem through the Great Firewall of China, which slows down the entire system because it is the equivalent of a bad hotel Wi-Fi connection. And the control gives the People’s Army a strategic vantage point over a global currency.

Consequently, the Bitcoin brand has been decimated and is thought by too many to be a kind of dodgy currency on the Internet for dodgy people.

The blockchain, a core technology behind what drives Bitcoin, has been slow to enter the Zeitgeist because of this attachment to Bitcoin, the bête noire of the establishment.

But that is changing fast. Blockchain as a tool for disintermediation is simply too powerful to ignore.

People are now beginning to really look at the blockchain as an infrastructure for more than monetary transactions and what it has done for Bitcoin. Just as Bitcoin makes certain financial intermediaries unnecessary, innovations on the blockchain remove the need for gatekeepers from a number of processes, which can really grease the wheels of any business, including insurance companies.

How blockchain works and can work for the insurance industry

Because of the way it distributes consensus, the blockchain routes around many of the challenges that typically arise with distributed forms of organization and issues such as how to cooperate, scale and collectively invest in shared resources and infrastructures.

In the blockchain, all transactions are logged, including information on the date, time and participants, as well as the amount of every single transaction in an immutable record.

Each trust agent in the network owns a full copy of the blockchain, and, in the case of a private consortium blockchain (more relevant to the insurance industry), the transactions are verified using advanced cryptographic algorithms, and the “Genesis Block” sits within the control of the consortium.

The mathematical principles also ensure that these trust agents automatically and continuously agree about the current state of the blockchain and every transaction in it. If anyone attempts to corrupt a transaction, the trust agents will not arrive at a consensus and therefore will refuse to incorporate the transaction in the blockchain.

Imagine there’s a notary present at each transaction. This way, everyone has access to a shared, single source of truth. This is why we can always trust the blockchain.

Imagine a healthcare insurance policy that can only be used to pay for healthcare at certified parties. In this case, whether someone actually follows the rules is no longer verified in the bureaucratic process afterward. You simply program these rules into the blockchain.

Compliance in advance.

Automation through the use of smart contracts also leads to a considerable decrease in bureaucracy, which can save accountants, controllers and insurance organizations in general an incredible amount of time.

While the global bankers are far out of the blocks when it comes to learning, understanding and now embracing blockchain technology, the insurance industry is lagging. Between 2010 and 2015, a mere 13% of innovation investments by insurers were actually in insurance technology companies.

There are some efforts to tap innovation, as the Financial Times in the UK recently wrote. European insurers such as Axa, Aviva and Allianz, along with MassMutual and American Family in the U.S. and Ping An in Asia are setting up specialist venture capital funds dedicated to investing in start-ups that may be relevant for their core businesses.

Aviva recently announced a “digital garage’ in Singapore, a dedicated space where technical specialists, creative designers and commercial teams explore, develop and test new insurance ideas and services that make financial services more tailored and accessible for customers.

And others are sure to follow in the insurance industry, particularly because both the banking industry and capital markets are bullish on investing in innovation for their own sectors – and particularly because they are doing a lot of investment in and around blockchain.

Still, the bankers and capital markets are currently miles ahead of the insurance industry when it comes to investing in blockchain research and startups.

Competitors in the capital markets and banking industries in terms of blockchain solutions include: the Open Ledger Project, backed by Accenture, ANZ Bank, Cisco, CLS, Credits, Deutsche Börse, Digital Asset Holdings, DTCC, Fujitsu Limited, IC3, IBM, Intel, J.P. Morgan, London Stock Exchange Group, Mitsubishi UFJ Financial Group (MUFG), R3, State Street, SWIFT, VMware and Wells Fargo; and the R3 Blockchain Group, whose members include the likes of Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland, State Street and UBS.

Then there are start-ups like Ripple and Digital Asset Holdings, led by ex-JPMorgan exec Blythe Masters, who turned down a job as head of Barclays’ investment bank to build her blockchain solution for banking.

There are others in the start-up world moving even faster in the same direction, some actually operating in the market, such as Billoncash in Poland, which is the world’s first blockchain cryptocash backed by fiat currency and which passed through the harsh EU and national regulatory systems with flying colors. Tunisia is replacing its current digital currency eDinar with a blockchain solution via a Swiss startup called Monetas.

There are both threats and opportunities for the bankers… so what about the global insurance industry?

Every insurance company’s core computer system is, at heart, a big, fat centralized transaction ledger, and if the insurance industry does not begin to learn about, evaluate, build with and eventually embrace blockchain technology, the industry will leave itself naked and open to the next Uber, Netflix,  AirBnB or wanna-be unicorn that comes along and disrupts the space completely.

Blockchain more than deserves to be evaluated by insurers as a potential replacement for today’s central database model.

Where should the insurance industry start?

Companies need to start to experiment, like the bankers and stock markets, by not only working with existing blockchain technologies out there but by beginning to experiment within their own organizations. They need to work with blockchain-focused accelerators and incubators like outlierventures.io in the UK or Digital Currency Group in the U.S. and tap into the latest start-ups and technologies. They need to think about running hackathons and start to build developer communities – to start thinking about crowdsourcing innovation rather than trying to do everything in-house.

Apple, Google, Facebook and Twitter have hundreds of thousands of innovators creating products on spec via their massive developer communities. Insurance companies that don’t start lowering their walls might very well find themselves unable to innovate as quickly as emerging companies that embrace more open models in the future and therefore find themselves moot. Kodak meet Instagram.

The first step for insurance companies with blockchain technology will likely be to look at smart contracts, followed by looking for identity validation and building new structural mechanisms where parties no longer need to know or trust each other to participate in exchanges of value.

Blockchain technology, for instance, can also allow for accident or health records to be stored and recorded in a decentralized way, which can open the door for insurance companies to reduce friction in the current systems in which they operate.

Currently, the industry is highly centralized, and the introduction of new blockchain-fueled structures such as mutual insurance and peer-to-peer models based on the blockchain could fundamentally affect the status quo.

As comedian and writer Dominic Frisby once penned, “The revolution will not be televised. It will be cryptographically time stamped on the blockchain.”

Some of the many questions that the industry should explore:

  • What kind of effect will blockchain technology adoption in markets have on the the public’s perception of risk?
  • Today, the insurance industry is centralized, but what could it look like if it were decentralized?
  • How could that affect how insurance companies mutualize?
  • Can the blockchain improve customer relations and confidence?
  • Can smart contracts built on the blockchain automate parts of the process in how business is done in the insurance industry?

If you want to explore further, sign up to express interest here about our coming event in London: Chain Summit Blockchain Event for Insurance.