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Insurtech in 2018: Beyond Blockchain

At year end, in our personal lives, we reflect on and plan strategies relating to our health, wealth and family. In our business lives, we reflect on and plan strategies for our sales, costs and overall business direction. For writers, consultants and the like, we write predictions on the areas where we specialize.

I’ve read a lot of these top 10 predictions in the past. I always think to myself: “Gosh, how do these people make such predictions? I hate doing crystal ball exercises where one is taking a shot in the dark…I’m not sure if I could ever do one.”

So much for that.

Here are my predictions from last year. Most were on point: 2017 was the year that insurtech, at least the word, became everyday nomenclature that we all have grown to love.

While the hype increased, so did the substance. We have seen an online-only insurer do an IPO (Zhong An), investment pour into insurtech startups like it’s running out of style and more insurtech conferences, blogs, podcasts and events than one can handle.

Will the train keep rolling? Or will the hype subside? My 10 predictions this year are based on some self-selected categories that I think affect all areas of insurance and insurtech. I have also included links at the end of this article to other 2018 predictions that I think are great reads.

Prediction #1 – Defining Customer Engagement

There are many insurtech solutions that have helped to enhance the traditional touch points of the customer value chain: prospecting, quoting, purchasing policies, servicing policies, claims.

Wearables, sensors and telematics have opened a host of ways to engage and personalize the customer experience.

Most notably and importantly, this has helped with pricing and preventative care. These new solutions allow carriers and customers to have more real-time pricing, which can be beneficial for both sides. For preventative care, the opportunities are only now being explored.

In addition, I’ve heard and read a lot that customers want more engagement from their carriers. Receiving notifications from your carrier on how to live better lives, in an effort to not have as many claims, could be great. But how much is too much?

I think this question will be tested this year. Engagement will still be key. The most important customer engagement point for insurance is the point of claim. If this cannot be improved, then policyholders are going to tell carriers to cool it with the other engagement.

Prediction #2 – Insurtech Buzzwords

2018 will be underpinned by these two buzzwords this year – “API” and “ecosystem.” I think these two buzzwords/themes make so much practical sense for our industry.

On the API (application programming interface) side, we have seen this trend from startups like Qover and Lemonade, both of which have an open API to enable traditionally non-insurance platforms to offer insurance.

As I will mention below in Prediction #9, what has made Zhong An so successful is the power of its partnerships. From a distribution perspective, partnerships just make sense.

How about from an operational perspective? One of the scariest word that can be uttered when it comes to an innovation implementation is “integration.”

See also: Top 10 Insurtech Trends for 2018  

Why?

Because integration of a solution with another solution takes time. The more that insurance carriers can have API-enabled policy admin systems and startups can build API-enabled value chain solutions, the easier it will be to do implementation with a carrier and start seeing benefits quickly.

On the ecosystem side, we at Daily Fintech have recently covered some of the remarkable insurance ecosystems that have been built in China with Ping An.

Insurance ecosystems excite me the most — anything that can bring the insurer, insured and provider together, for treatment and transactions. Further enhancing the ecosystem proposition is the ability of preventative care through the use of wearables, telematics, smart sensors and IoT.

Insurance ecosystems will be one of, if not the biggest, contributors to an improved customer experience.

Prediction #3 – Specific Technology

The two biggest technologies I see having an impact on the insurance industry, in 2018 and beyond, are blockchain and AI.

Again, both just make sense.

Blockchain has so many use cases for insurance. The most practical one for me is a smart contract. Looking at the ecosystem, if all parties can view the same information from a contract, in real time, the whole claims process will be simplified. This would be for almost all lines of insurance.

AI is the same. Again, looking from a practicality standpoint, I see two forms – chatbots and data analytics.

Chatbots will bring a better customer experience to both customers and distributors alike. I have been studying different use cases on chatbots since my article a few weeks ago on insurance agent enablement. I can see chatbots helping in:

  • General customer service questions/help – this will free up time from call centers and agents/brokers to focus on more meaty issues
  • General questions from agents/brokers – how many times do agents/brokers call you just to confirm how a certain product works? Chatbots can help with that
  • Direct-to-consumer (D2C) sales
  • Claims
  • And more

I’m not the only one who is bullish on AI and chatbots. Just ask Softbank and Lemonade.

For data analytics, someone needs to sift through all that data that an insurer has (including the new sets provided by wearables, sensors, telematics and other third-party sources). Someone will need to identify from that data when there is appropriate time for a) cross-sell, b) preventative care, c) wellness tips, d) positive reinforcement for good behavior, e) identify fraudulent claims, etc…

That “someone” will be AI.

Both blockchain and AI are prevalent in today’s market and are currently being explored more and more within insurance (some recent examples being NationwideAXA and E&Y).

I see these two technologies as being the most commonly used by carriers in 2018 and beyond.

Prediction #4 – Lines of Business/Risk Covers

Three areas to look at in this prediction are:

  1. Traditional lines of business/risk cover – i.e. life, health, home, auto, commercial, etc.
  2. New lines of business/risk cover – i.e. cyber, gig economy, sharing economy, etc.
  3. New business models

When it comes to D2C for the traditional lines of business, a lot of the new insurtech entrants/startups have been in the personal auto and home lines, with some in term life and health. I see more entrants in the life and health business, possibly in the annuity space, too.

For new lines of business, I see an increasing focus on the ones I mentioned above (cyber, gig/sharing economy), as well as some new risk covers/business models coming out. I think there will also be an increased focus on more time and usage-based insurances, as well, with Slice leading the way by “removing the annual policy.” Insurance for bitcoin may also be a thing.

I also see the emergence of some new business models, like LakaInsurepal and Getsafe. Laka just went live with bicycle insurance, which collects premiums in arrears and up to a cap. Insurpal is insurance using social proof, blockchain and cryptocurrency. Getsafe will be launching a multi-line single policy. It has just gone live, starting with liability Insurance.

Prediction #5 – Areas of the Value Chain (B2B2C)

A lot of the early insurtech innovation for carriers has been related to distribution, product, marketing/customer engagement and claims. I still see these areas being focused on (especially claims for life and health), with an added focus on cyber security and fraud-related initiatives.

Prediction #6 – Geography

The U.S., U.K. and Germany have been the main areas of insurtech over the last couple of years. China (driven by Zhong An and Ping An) has helped Asia become an insurtech leader.

On the geographical front, I still see the U.S., U.K., Germany and China “doing their thing” when it comes to insurtech.

I see Zhong An and Ping An expanding into other parts of Asia (the world?), as can be seen here for Zhong An and here for Ping An. Looks like this is a 2018 and beyond trend for some of the financial heavyweights in China. Ant Financial just signed a memorandum of understanding (MOU) with Standard Chartered, too.

I also see an explosion of growth in some of the emerging markets, namely Africa, the Middle East and Latin America. The technologies that are being created will help to benefit the emerging markets by giving them low-cost access to insurance that they may not have had before. These are big populations with massive protection gaps. Insurtech innovation is ripe for the picking in these areas.

As I was working on this article earlier this week, I came across this piece of news, in which Allianz invested $96.6 million in mobile insurance startup BIMA.

Prediction #7 Investments

According to the Q3 quarterly briefing from Willis Towers Watson/CB Insights, through Q3 2017, total investments in insurtech were about $1.5 billion. There has been a lot of activity in Q4, and I would expect the total for 2017 to be somewhere between $2 billion and $2.5 billion.

I think investment will remain high but will come from some different sources.

I see more startups trying to raise money via initial coin offering (ICO) (depending on regulation).

I also see more insurers taking an active role in investing. Many insurers have set up their own investment arms over the past few years. Now that they’ve been able to do more homework and research in this space, I see them investing more heavily in and possibly acquiring startups. It may ultimately make more sense for the ones with bigger balance sheets to take on a startup within their business rather than having an annual recurring/per-user expense.

Additionally, I think there is an interesting dynamic of an insurer working with a VC-backed startup. Typically, the payback periods for these VCs range from anywhere between three and five years. However, insurance carriers have an annual target to hit, which adds pressure to show a return on innovation quickly. I’m not sure if startups fully understand this dynamic or if it has started to play out yet. This is another reason I see insurers taking a more active role on investing; then they can ensure the startup is fully focused on them, not paying back their investors.

Prediction #8 Regulation

Regulators have been taking a more active role in understanding insurtech. 2018 will be the year that they start homing in. I see there being more regulation in general that relates to customer data protection. The increased use of wearables, sensors and telematics will call for it. By the same token, I see more regulators coming out with rules on how the increased data can be used for pricing purposes.

Prediction #8.1 – Perhaps call this a wish list item: The U.S. will get its first regulatory sandbox. I’m not sure where it would be, but I would say that top candidates would be New York, Connecticut, Massachusetts, Iowa and California. Looks like this conversation is moving in the right direction.

Prediction #9 – Big Tech

This has been a hot topic lately within the insurance community, specifically with rumors as it relates to Amazon.

In China, we already see big tech with Tencent and Ant Financial (Alibaba) being major shareholders in Zhong An and Tencent also setting up an insurance platform with WeSure.

Looking at the West, specifically when it comes to GAFA (Google, Apple, Facebook and Amazon), I think Amazon (and perhaps Apple) makes the most sense. Why is Zhong An so successful? Aside from their tech capabilities, it is their partnerships that make them thrive. The company’s insurance is plugged into any one of its partners (via API), making the process seamless and a no-brainer for customers.

Trend 2 from the Digital Insurance Agenda’s 2018 predictions is “invisible insurance”: “You purchase a product, and there is already an insurance embedded in that.”

I was speaking with a friend about this recently. He has a few blue chip U.S. insurance stocks that he said have not been performing as well as he’d like. I told him to look out east to Zhong An. He asked what makes them unique. My reply was, “For one, they embed insurance for just about everything that is bought through Alibaba’s platform.” He stopped me there and said, “That’s a business model I understand; what’s the symbol?”

Amazon is the only one of GAFA that already has a very established product purchase process with its customers. They know about their buying behaviors and can offer insurance for new risks based on the things they offer through their site. It would be easy for them to have an online store with stand-alone insurance products, as well.

Apple would be the  runner up. It also has an established purchasing process via its app and iTunes store. With all of its investment in wearables and knowledge of how to embed its own line of Apple products in one’s life (i.e. ecosystem), Apple could be a threat in the insurance space.

Google has information on its customers but had a bad insurance experience with Google Compare. Facebook has a lot of information on its users and knows a thing or two about ecosystems, too. However, I don’t see it offering insurance (though I do see Facebook Messenger and Facebook Marketplace as some potential enablers for the insurance value chain).

Here are two good thought pieces on why Amazon and Apple, written by Dr. Robin Kiera and Dustin Yoder, respectively.

See also: Insurtech: Breaking Down the Walls  

Prediction #10 Macroeconomic

When I look at the investments, focus and excitement in insurtech, part of me feels that it also goes along with the overall gains we have seen in the global economy. We often talk about the amounts of money that have gone into insurtech startups, but look at the spending on conferences, research, consultants, events and the like, too. There is a lot of money pouring into this subject.

However, will that change if the markets take a turn for the worse?

As Brexit hasn’t completed yet, neither have its global effects. In the U.S., effects of the recent repeal of net neutrality and the new tax plan are also unknown. Tensions could not be higher between North Korea and the U.S./world. Bitcoin/cryptocurrency are currently being used as a speculative asset versus a different payment method.

Couple any major macroeconomic event with the recent surges in drastic weather around the world, and we could see a major change in plans/focus from insurers on their innovation initiatives as well as an outpouring of investment into new, unproven startups.

Bonus Prediction – Global collaboration will continue to be the real driver of change.

I can’t end the predictions list with a negative point on macroeconomics (though, if you couldn’t tell, my overall outlook on the macroeconomy is a bit more bearish).

Regardless of what happens on the macro level, I think the real drivers of change are going to be all of us. By all of us, I mean people who are reading this, who work in this space and who work on innovation and insurance every day. I have seen so much cross-border collaboration personally and through my daily readings in the past year.

The excitement of being able to innovate in an industry that has been around for hundreds of years and is worth trillions of dollars is exciting to people both new and old to the industry. People are flying and getting flown all over the world just to hear or speak about what is happening at the other end of the world. Regulators are signing MOUs on fintech/insurtech almost weekly, it seems! Startups are getting opportunities to present their solutions to carriers in different countries all the time. It is truly remarkable and will be exciting to be a part of.

You can find the original article here.

Other 2018 predictions from others – in no specific order

Predicting innovation and transformation for insurance in 2018 – Insurance Thought Leadership

InsurTech Year in Review 2017 – Eos Venture Partners

10 Insurtech trends at the insurance crossroads 2018 – Rick Huckstep

Top 10 Insurtech Trends for 2018 that set the Digital Insurance Agenda – Roger Peverelli and Reggy de Feniks

2018 predictions: Insurtech hits its stride- KPMG

2018 Insurance Industry Outlook – Deloitte

What Trends Will Shape ‘Fintech’ In 2018?- Seeking Alpha

Insurance industry predictions 2018 – Clyde and Co.

Security in InsurTech – Predictions for 2018 – Manta Labs

Gartner’s 10 Technology Predictions for 2018: The Good, the Bad & the Obvious

How Is Insurtech Different in Asia?

A few weeks ago, for my work outside of Daily Fintech, I attended the InsurTech Asia Association Roadshow in Japan and Singapore. During the roadshow, Pivot Ventures (the company I work with), together with the association, brought together 15 startups with 15 insurer/reinsurers.

This was my first trip back to Asia since moving back to the U.S.  It got me thinking: What are some similarities and differences between Asia and the U.S. when it comes to insurtech?

At a high level, I found two clear similarities between Asia and the U.S:

  • Incumbents are trying to find the right balance between upgrading legacy systems/other operational efficiencies with innovative solutions (both in terms of identifying the right corporate strategy plus prioritization)
  • They are also trying to identify how to do innovation when it comes to distribution (in Asia, many have issues expanding D2C because of large captive agency and exclusive bancassurance tie-ups)

When you get a bit deeper, though, there are some very clear differences between the two continents, which lead to differences in terms of pace of change/adoption of insurtech solutions as well as the actual solutions that are being put in place:

1.  Many times people talk about Asia as one place.  Yes it is one continent, but with many countries. I have grouped some of the countries below based on my experience in the region:
a.  Northeast Asia – Korea, Japan and Taiwan
b.  Emerging Southeast Asia (ASEAN less Singapore) – Malaysia, Indonesia, Cambodia,  Vietnam, Laos, Myanmar, Thailand, Philippines, Brunei
c.  Mature Southeast Asia – Hong Kong, Singapore
d.  India
e.  China
f.  Central Asia (Mongolia, Kazakhstan, etc.)

I group these countries based on where I believe they are in terms of insurance/insurtech innovation as well as similarities in culture. India and China are kept on their own because they are so big and so different. “Others” would include Central Asia and some other parts of Asia not specified in a-e.

2.  Coupled with the differences in culture of the different countries above is that of the consumer. This can be two-fold – 1) in terms of their preferences/needs and 2) in terms of their disposable income.  In general, there are some similarities in terms of income/earning of consumers in the countries/groupings that I label above, but there will be some big differences in terms of what customers need/want when it comes to Insurance in each market.

3.  Regulation is different in each country. This means, for an insurtech startup wanting to expand to Asia, it will need to deal with multiple regulators (which could be entirely different regulations, language, cultural dynamics). U.S. startups have to deal with different state regulators, but, on the whole, it is the same language and overarching national guidelines (though the dynamics of each state could make it just as difficult as launching in multiple countries across Asia).

See also: My 4 Ps for Investing in InsurTech  

Also, on regulation, there seem to be more regulatory sandboxes in Asia (HK, Singapore and Malaysia all have one), which allow for startups to try their solution in a market without having to go through all approvals. I believe the U.S. could really value something like this.

Any specific examples?

A whole paper could be written on the differences between each country in Asia, especially as it relates to insurance and insurtech. So, I will include the top question/comment that I received/heard in each market, which may help to shed some light on some of the key differences (though I only attended Singapore and Japan, we had one colleague with us from China, and I have also included one from my experience in Malaysia):

  • Singapore – “Who else is using this solution? We’d like to know that it works, but we want to adopt a solution that will be new and exciting to the market.”
  • Japan – “Who else is using this solution, in Japan? By the way, who is using you guys in Japan?”
  • China – “Many times, the Chinese firms will have startups present to them just so they can learn the technology and then build it themselves.”
  • Malaysia – “What can we do to make our agents/banks happy while also doing something to expand our direct capabilities?”

Willis Towers Watson/CB Insights Quarterly Briefing

Two weeks ago, Willis Towers Watson and CB Insights released their Quarterly Insurtech Briefing. This quarter’s focus was on Asia, primarily China, and the “shifting global balance of power” as it relates to insurtech. There are a lot of great things with the report and I encourage you to read the whole report when you have time.

A few key themes/figures resonated with me from my recent trip to Asia and my experience working in Malaysia. All graphs/pictures below have been taken from the Quarterly Briefing.

1) Insurance penetration is low and populations are growing, meaning there are tons of opportunities in insurtech.

Looking at the picture above highlights two interesting things:

  • For countries like China and India, the two biggest countries in the world, the insurance penetration is one of the lowest, meaning there are hundreds of millions of people who need to be served/provided insurance
  • In contrast, Japan and Korea are among the top countries in terms of insurance penetration. Hence, the needs for insurtech may be a bit more specialized, as the focus will not be as much on distribution/reach as it will be for China and India

2)  Products and distribution need an upgrade

On the product front, just like everywhere in the world, there are opportunities for innovation. The products in each market in Asia will be primarily driven based on customer need and affordability. Hence, the offerings in each market will vary widely from country to country. Additionally, due to the massive amount of e-commerce in Asia, particularly in China, there are a lot of opportunities for new products in this space as well as insurance as a bolt-on (API) to web-purchased products.

On the distribution front, things become a bit more interesting. I have mentioned this a few times above.

In Asia, when it comes to agency distribution, in most countries, the incumbents operate on a captive agency model. Some of the agents/agencies will have been with the company for upward of 20/30 years, only representing that incumbent. On the partnership distribution side, many of the agreements with banks in Asia are exclusive agreements (particularly on the life side), whereby banks are the exclusive distributor of an insurer’s products.

What does this mean?

The potential for channel conflict for incumbents, when it comes to new direct channel (i.e. online) sales, is very high. Both agents and banks will want the new digital tools/investment to be made in them, and will see any other distribution channel as a threat.

Just look at the graph above. This is quite telling.

This, however, means that there are lots of opportunity for new full-stack players that come into Asia (that doesn’t exist as much in the U.S. because the agents/financial advisers in the U.S. typically represent more than one carrier). Because of these captive agents/exclusive bancassurance deals, full-stack startups can offer a different proposition because they are not encumbered by legacy system or legacy distribution.

3)  Enter tech giants and APIs

Leveraging partnership platforms is what has made Zhong An so successful. It has also opened the door for a lot of new types of products based on the needs and offerings from the e-commerce platforms that Zhong An partners with.

This trend will not go away. Not in China, not anywhere else. There will be tons of opportunities for insurtechs to partner with insurers and non-insurers alike to find new ways to offer insurance directly to a consumer. I like the three points below that were in the briefing:

There have been some write-ups recently about Apple and Amazon potentially entering the insurance space. How can you read Bullet B&C and not think of these two companies?

Summary

Asia is a fascinating place with different people, cultures and topographies. Aside from the similarities and differences outlined above, one thing for sure is that Asia is “always on.” Every time I go there, I feel a certain buzz around me. It doesn’t matter what country I am in, I always feel that buzz, because almost everywhere in the continent is growing (albeit some places moreso than others).

China is one market that is so intriguing. Geographically, it is so big. This means that each area is so diverse, as well. Things happen there at a pace much faster than anywhere else in the region.

See also: Innovation: ‘Where Do We Start?’  

As I’ve mentioned in a few articles before, cross-border collaboration and best-practice sharing is what is going to help make insurance and insurtech thrive.

What is your experience of the difference between insurtech in Asia and the U.S.? Please share your knowledge in comments  or on the Fintech Genome.

This article first appeared at Daily Fintech.

U.S. Healthcare: No Simple Insurtech Fix

I hadn’t worried much about U.S. health insurance in years, eight to be exact. I was interested, but not worried, because while I was living abroad I didn’t need it. Furthermore, I had a health insurance plan that covered me wherever I lived in the world. When I returned to the U.S. this past July, I was faced with buying an individual health insurance plan, which was something I’d never done (all my previous work experience in the U.S. gave me insurance as part of a group plan).

In August, I bought a policy with a carrier and used an agent.

As this is Open Enrollment season and I just purchased my first policy in the post-ACA world, I thought it would be a apt to talk a bit about the U.S. healthcare system and how I think insurtech can help. I will focus on three areas.

First is my experience with Open Enrollment this year (to, I hope, help some who are going through the same experience right now!). Second is areas that need to be considered when looking at U.S. health insurance. Third is a summary and ideas for insurtech startups.

Healthcare, especially U.S. healthcare, is very, very complex.  Hence, I will only dive into a few areas, and as usual, my recommendations at the end will be fundamental and principle-based.

While there are a lot of politics surrounding U.S. healthcare, I will endeavor to not touch on the political aspects (though through the reading you should understand my opinions on the current state of affairs).

Open Enrollment – How Open Is It?  

As of the writing of this article, I am in the final steps of selecting my plan for 2018.  If you are currently going through the Open Enrollment process yourself, I have included some links at the end of the article that are some great guides on the overall process (including one from Oscar for “solopreneurs”).

What follows, is my experience of preparing for Open Enrollment.

A few weeks ago, I received this in the mail:

And about a day later, an email from my agent that said this:

Well, neither one of these were very encouraging.

I started with the Covered CA website and PolicyGenius to do my search to see what carriers/plans were available.

As I went through both sites, I realized that I was going through a modified needs analysis (these questions were a combination of what I went through on both sites):

  1. How much am I willing to spend a month?
  2. How much of a deductible am I willing to have? (These two questions were followed by a lot of math playing between the variables of 1 and 2 on different scenarios.)
  3. Do I want to be able to book my own specialist, or do I care if I have a referral. Plus, do I want to have the ability to go out of network or not? (HMO or PPO?)
  4. Do I have any doctors whom I need to keep in my network? By the same token, which hospitals/doctors do I want in my network?

Regardless of the answers to 1, 2,  and 4, number 3 was the key: Do I want an HMO or PPO? Because I wanted a PPO, I had a whopping TWO carriers available to me.

See also: High-Performance Healthcare Solutions  

In addition to this, I think it’s worth it to mention that (I think) the US is the only developed country in the world that has a 2 month period of time in which one can purchase a health Insurance plan.

So much for ‘Open’ Enrollment…

As I was going through this process, I realized some of the biggest challenges with this whole thing

Some of the points that I mention below may seem like old news to many that have been dealing with US health Insurance since ACA came into effect.  Though, since this is my first time going through it, that is the case.

Hence, I will share what I think is wrong with US health Insurance and subsequently, how Insurtech may be able to help.   As mentioned earlier, this is not meant to be a political stance and I will focus on the fundamentals of Insurance as I go through this.

These are the a few key things wrong with the the current US health Insurance:

  1. It’s mandatory (if you’re not covered by a group plan)
  2. If one buys an individual plan – they may not choose the specific coverage that’s right for them (other than premium and deductible)
  3. There is no underwriting for it (it’s all guaranteed issuance)

While these things aren’t likely to change, it’s important to understand why these three pillars are here, because there are some guiding principles here which are meant to help individuals; namely 1) making it more affordable and 2) making it more accessible. There still may be some opportunities to shape US health Insurance within the current confines of the regulation, which will have to be adhered to as long as the current regulation is in form.

Aside from cost and access, what else needs to be looked at?

Some of the key areas to look at when it comes to health care are:

  1. Participants/Users – how to interact with them?
  2. Provider coverage – which doctors/hospitals will be ‘in network’/accessible to participants?
  3. Claims process – how can this be made easier?
  4. Treatment and monitoring – in addition to 2&3, how will ongoing monitoring be done?

This relates back to the triangle I had a few weeks ago and how all 3 parties needs need to be looked at when looking at the overall Insurance value chain (regardless of line of business):

Before I go into the summary, a quick note on Oscar.

I took a serious look at Oscar a consideration for my health Insurance.

Not only did I read through their policy and network coverages (as they were cheaper than every other network out there), but I did all the research on Oscar that I would do for any other start-up I would consider working with for my work outside of Daily Fintech.

I started with the Coverager Companies tab (especially the News tab, where I like to see to see their past reporting of the company which usually outlines the good, bad and ugly of the company itself).  I also read the Oscar Health Strategy teardown from CB Insights.  I read consumer reviews and even asked my doctors and their receptionists about dealing with Oscar.  I did not do this much research for any other company I was considering (even though there were only 2 PPO providers from my initial search, I still took a quick look at all 6 providers in California…).

Ultimately, I think they are really on to something and I salute them for going after such a big and complex area (both in terms of product line and geographic area of that line!).  I would encourage everyone to read the teardown above to see what some of their strategies are.  Tackling US health Insurance is no easy feat, and they did take a long term view as described below:

While I do like them and some of the things they are doing, the reviews are not up to scratch yet.  My guess is that the long term view somewhat backfired on them, as customer expectation for a product that is so highly despised by many would have to have a real good experience very early on.

I have had real good experience with my current carrier and they are the most well known/biggest in my state.  As such, I’ll likely need to stick with them.  Health Insurance is too important to try something new on in my opinion.

I do think Oscar is very well positioned for the future, and they have outlined their strategy clearly above.  Building of an Insurance company takes time.  Health is a whole other animal.  Health in the US…well, that’s just going right for the gullet.  But, if done right, it can be a big prize (not only monetarily, but also for the sanity and health of US citizens!).  I’ll definitely be keeping en encouraging watchful eye on them.

Summary: It’s Complicated…

As I was preparing for this article, I read a few posts on Daily Fintech last year from Amy Radin, which I encourage you to read in conjunction with this post.  I have included them at the end for easy reference.

In her first post, she mentions four lenses to look at when it comes to US health Insurance: ‘the health of the American people, marketplace trends, the role of regulation, and the players’.

In her second post, she mentions that ‘Incumbent health insurers are pursuing legacy tactics to compete in the ACA world: M&A…; increasing premiums …; and reevaluating participation in the public exchanges…

As well as ‘the root of user pain points can influence how plans are selected and health care is consumed’:

# 1 People don’t see value because they don’t understand what they are buying.

# 2 People are being held accountable for health decisions that they are not equipped to handle.

# 3 People don’t always make rational decisions.

Fast forwarding 15 months since her last posts, other than some slight changes announced earlier this year and the recent subsidy cuts, not much has changed in terms of health of Americans, incumbent tactics and pain points for users.

See also: Healthcare: Need for Transparency  

Currently, CVS and Aetna are working on a merger.  It is rumored that Amazon is trying to expand into pharmaceutical sales as well (not to mention it’s other Insurance aspirations).  It’s also no secret that Apple has been preparing itself for a run at health care too.  Are all of these in the name of helping out the customer or just trying to get a slice of a pie that is so huge that everyone in the tech industry can taste it?

Recommendations for Insurtechs

Given that current regulation is both stringent and has an unknown future, it can be challenging for Insurtech start-ups to know where to start.  However, here are a few areas where I think can help the US health Insurance value chain, irrespective of regulation:

  • Education – I know this seems like something basic, but shopping for health Insurance was a nightmare.  Policy Genius was good, but it didn’t have it all.  Also, since health Insurance is so complex, there needs to be something that makes it really easy for people to understand.  Aside from how the subsidies work, which can be a challenge in it of itself, the specific clauses, terms and coverages for health Insurance is really complex and the majority of the population would likely not understand it.
  • Blockchain – With such a wide variety of illnesses, coverages and benefits, blockchain make a ton of sense for health care.
  • P2P – I wrote a couple weeks ago that I didn’t think P2P could be useful for health Insurance.  As I wrote this article, I do see some benefits, especially with a model like Inspeer, may be able to help.
  • Ecosystems – I’ve been reading more about ecosystems lately as it relates to Insurance/Insurtech, specifically with some of the things being some in China. When it comes to health, look at Ping An and Good Doctor (see below for infographic too). Talk about user experience.  The value proposition (image) below says it all..the more this can be integrated for the user, the better.  Though it doesn’t come without it’s challenges:
    1. Wearables – how much will people trust Insurance companies with all of their ongoing health information?  This is a big debate when it comes to information asymmetry.  Those that are healthy and live healthy lifestyles will be happy to, and others, may not be.
    2. Integration with hospitals/doctors – This will enhance the customer experience greatly, both for ongoing monitoring of the health from their doctors as well as with the claims process.  I recently had a few check ups at various doctors, having to fill out loads of paperwork that asked the same questions, bringing my images with me wherever I went, and having to re-explain my history over and again was a bit cumbersome.  It would be nice if the paperwork process was easier, if all doctors in my network had all the information on me (not just the ones in the same hospital) and the claim processed could be seamless after treatment received.  Integrating all of this is not easy when the infrastructure is not there and legacy systems exist for all parties.

I know the motto of many entrepreneurs/founders out there revolves around solving challenging problems, so, despite my feelings at the moment about US health Insurance, I am confident about the future of it!!

This article was originally published on Daily Fintech.

Why #Insurtech Doesn’t Matter

Last week, I included my summary of what we do in Insurance:

Insurance is a business where we provide people with peace of mind, allowing them to know that there will be a monetary solution provided when they suffer a major loss/accident (or minor, depending on coverage purchased). This loss/accident can either in the form of health, death or to some sort of property, and the solution is at a time when a person typically needs it most. That is the core of our business. 

This summary also relates to the three pillars of Insurance, which I mentioned a few weeks ago:

  1. Pricing –  Was the policy I purchased priced properly to take care of the costs of the insurance company running its business, and will it have enough?
  2. Reserves – to pay my
  3. Claims – in a timely manner.

As with many of us, I read and follow a lot of news on insurance and insurtech. Every day, my LinkedIn feed and email inbox is flooded with insurtech news, including new investments in startups, new insurtech partnerships formed, expansion of startups into new markets/states, etc.

I love reading all of this – as it shows the growing level of awareness of how new technology solutions can enhance the customer experience and also help companies with operational efficiency.  I am a huge fan of what the future entails.

However, I am also cautious of the risks currently present in the world of Insurance (and the world in general!).

See also: Insurtech Innovator – CyberWrite  

Currently, the pace of change and adoption of insurtech solutions is faster than ever before. It seems there are no signs of slowing down. However, as with any good plan, it is important to have risk mitigation and contingency plans.

The new technology solutions that we are building for the insurance industry (i.e., insurtech), are just an enabler. It’s not that these solutions don’t matter…. But, if the risks are not managed properly and plans are not in place for these solutions, then the progress of the many insurtech initiatives may slow down, or in some cases, not be around to matter.

What are some risks as it relates to insurtech? I will focus on three, which have been themes in the news for the past couple of months. In fact, these are risks that exist in our industry regardless of insurtech.

By no means are these the only risks that need to be mitigated, yet I do see these as some of the big ones:

  1. Macroeconomics
  2. Weather/Natural Disasters
  3. Regulation

Macroeconomics

Since 2008, global stock markets have been on a tear. It’s no wonder that there is so much money pouring into insurtech investments.

What happens if there is a market correction and we go into another global recession? Will we see the same sort of investment in insurtech solutions as we have been seeing?

And that’s just the equities market. What about fixed income?

In this FT article from August, Chubb’s CEO Evan Greenberg warns about the low interest rate environment and its effect on insurers. He says, “Many companies are not earning their cost of capital — and many are losing money, or will lose money in the future.” This is a big deal. This may have an impact on an insurer’s ability to pay claims in the future. Obviously, insurers will have to keep their solvency requirements due to regulation, but if this continues, we could see massive premium increases for customers and withdrawal from certain product lines.

Stock markets and fixed income aside, the next big risk that could affect the progress in insurance and insurtech has to do with climate change.

Weather/Natural Disasters

Over the past few months, we have seen Hurricanes Irma, Maria and Harvey ravage much of the Southeastern U.S. and islands nearby. California has been blazing in fire. In other parts of the world, there have been many natural disasters, too. I’ve seen a number of articles on this subject. They range from “how to claim from your insurance company in wake of natural disaster” to “how much insurers will be out of pocket for weather-related claims.” With climate change increasing, the unknowns also grow. I’ll admit, I’m not an expert in catastrophe pricing, but I would suspect that this increasing factor will make it much more difficult to price products.

So, equities may fall. Interest rates may not come up. And natural disasters could be on the rise. These risks are big, but the last one could take the cake: regulation.

Regulation

President Trump has signed two executive orders – one that will allow customers to purchase cross state border and one that limits funding for Obamacare (though that has seemed to change course).

The impact that these have on the U.S. healthcare and insurance market is unknown for now. This is a topic that deserves its own write-up, and I plan to cover this sometime in the near future.

Regulation can really screw things up; if not looked at properly. I wrote about government collaboration a few weeks ago. Some governments are more open to collaborating with incumbents to better understand fintech and insurtech. However, for those of us who have worked with regulators, we know that their minds can change quickly, and knee-jerk reactions can be made, forcing our plans to change.

Different product lines have different opportunities and different risks

For some lines of insurance, mainly P&C, insurtech has a huge play, and there are many opportunities to disrupt and change the current Insurance value chain. If autonomous cars come into existence, the whole auto Insurance industry will change. For property insurance, smart homes and devices to monitor buildings will help to better optimize pricing and policies for consumers.

For travel Insurance, insurance to protect material objects (mobile phones, electronics, etc), UBI and insurance for the sharing economy, there will be opportunities to disrupt and enhance the customer proposition, too.

For life, health and catastrophe, it becomes a different story.  We see a lot of term life online, but what about whole life, universal life, annuities, etc? What about other, more complex products for individuals/businesses (disability, long-term care, commercial)?

See also: Innovation — or Just Innovative Thinking?  

My biggest worry comes from within these types of products. My years in insurance have primarily been on the life, health and annuities side. The pricing structures of these types of products have a longer tail than P&C. Health is annually renewable, but the cost of healthcare and frequency of visits to doctors have been increasing, which will make pricing more difficult.

So what can we do about this?

First and foremost, every startup and incumbent needs to have a risk mitigation strategy and contingency plan as it relates to their insurtech initiatives. It is easy to get caught up in the excitement of what we are doing, and talking about risk is not always the most fun. The risks above are just a few macro ones. Each company and each initiative will carry its own set of risks, which need to be assessed accordingly.

Second, collaboration continues to be key. Especially cross-border collaboration. We need to share best practices globally. Regulators will also need to continue to work with incumbents and startups to understand the solutions being put in place and risks to customers.

Third, actuaries need to get with it – quick. They need to use their skills of actuarial modeling and work with the data scientists out there to better understand all the data points available to them and how this can be incorporated into pricing models.

The marrying of actuarial pricing principles and data science will be one of the most powerful forces of change in our industry. Incumbents have been managing risk for hundreds of years. The nature of managing risk has changed with the explosion of data. It’s no longer about just looking at what has happened in the past and predicting what will happen. Let’s also get underwriters in this conversation.

We need to find opportunities to know what is working where, and what is also not working, so we can plan accordingly. We are all in this together, and we need to help enhance our industry together. We all have a collective responsibility, ultimately, for our customers.

This is a repost of my article on Daily Fintech. I look forward to reading your comments on this article and engaging in some discussion.

10 Ideas That Could Fix Healthcare

I’ve written a fair amount over the years about what is wrong with the American Health Care System from ethics to pricing, structure, incentives etc.  So, what needs to be done to fix it? In the end, is there a better way? Listed below are some of the ideas that I think would have a profound impact on lowering costs and improving quality.  None are new, but taken together they could be very powerful:

1. Get rid of Fee For Service (FFS) medicine. Yes, its cliche but it needs to be gotten rid of and the best solutions are to move the risk to the providers, through global capitation or other bundled payments. Providers will need to put in the resources and expertise to manage this and work to drive the 30% of waste out of the system, thereby potentially making more profit than before.  This is one of the reasons why it is so important to continue the various bundled and capitated payment programs now being implemented by CMS and others.  Providers need to learn, and learn fast, no more sticking one’s toe in the water, take the dive. Another example of how bundled prices or capitation can save money.  If a hospital has a fixed bundled price for knee replacement, how hard is it to bill that?  You don’t need a bunch of billing clerks and others to be sure every item is on the bill the hospital submits, and on the payer side, they don’t need a bunch of people reviewing the hospital bill to re-price the $75 aspirin or remove the extra band aids that were not provided. Who cares whether the hospital used an additional band aid at that point if the service was appropriate and high quality.

2. Revise the 80/85% Medical Loss Ratio (MLR) requirement.Let’s say you manufacture cars and sell each one for $10,000. Per the MLR rule, you would have to spend $8,500 (85% of your sale price) per car on all the parts and labor, excluding marketing and management. Your cost for marketing and management would come out of the remaining 15% and then whatever is left over is your profit. In this example assume marketing and administration are $1,000 (10%) leaving your profit at $500 (5%) per car. You as the manufacturer now negotiate lower prices on your supplies and it now costs you $8,000 to make the same car. According to the MLR rule, you can no longer charge $10,000 for your car, but can only charge $9,411.76 because the costs of parts and labor must make up 85% of your total charge; and unless your marketing and management fees were reduced, you now would only legally make $411.76 per car.

So why would you get more efficient?  In healthcare, the question is, why as a health plan would you want to improve the health of your members and seek to prevent illness, thereby reducing the 85% you paid for their medical care; ultimately reducing the 15% for other expenses and profit?  Current health plans want to get 15% of an ever-growing number, they want 15% of $10,500 the next year and on and on. This was a fundamental flaw in the ACA. I understand it was to ensure that health plans do not make money by denying services, but there is an upper and lower range to most quality measures not a fixed point and the same goes for healthcare services. Health Plans or those accepting the risk should have a range that their MLR must fall in and/or some way to benefit when they can show that their efforts improved the health of their members and thereby reduced costs.

See also: So Here’s an Idea on Healthcare Reform  

3. Target Medication Pricing and the Supply Chain.  We pay way too much and there are so many people in the middle of this that there are multiple opportunities. Here are two.  The first is to allow importation or other means to get access to cheaper medications.  Want to see prices drop fast, that’ll, do it.  We’ll reach a happy medium somewhere below what we pay now and what we allow developing countries to pay for the same medicines. At the same time, we need a new system of medication purchasing and distribution, an Amazon type system that gets rid of the many middlemen adding a piece of cost/profit at each touch point. Think also beyond the pharmacy:  Imagine a system where you go online and take the order direct from the manufacturer through Amazon with a drone delivering the medications to your door. In healthcare medications are one of the best “onion” examples, it just keeps adding layers to the service and each layer adds costs.  Just the fact that companies often hire consultants to review their PBMs who are supposedly getting them the best rate is all you need to know.  In fact, one major corporate chief medical officer told me verbatim “I’m sick of getting ripped off by my PBM.”

4. Watch out for Aggregation to increase prices versus lower costs. Hospitals are rapidly embracing this philosophy, driven by the ACA, as they are buying up practices, opening free-standing ERs and the like.  It’s amazing to watch as these efforts more often than not increase admissions and costs.  I was at an American College of Healthcare Executives meeting where the panel topic was how hospitals would survive the move from inpatient to outpatient services. In a stunning show of honesty, two of the three senior hospital executives said they were not going to move to a more outpatient based approach and were in fact doing everything they could to increase admissions. They both claimed to have been so successful at pushing people into their hospitals that their inpatient census continued to rise and were at record levels.

Well at least they were honest (in front of a friendly audience). Going back to number one, if they have a fixed price (capitation) for the person or population, they’ll figure out once and for all that the hospital is a cost center and reducing beds, not building more, while allowing services to occur through the lowest cost point in their network is the key to profitability. And yes, maybe constructing less gorgeous and elaborate facilities might lower costs as well. Here’s another classic hospital aggregation approach to increase costs, acquire the oncology doctors and then stop providing infusion services in the clinic. Why?  Because hospitals can charge 2-4 times as much when the infusion is completed in a hospital outpatient or inpatient facility versus the doctor’s office.

5. Sell healthcare services on eBay or Amazon. I spoke with eBay years ago about this concept, but they were not interested.  Why they wouldn’t want a piece of the $3.2 trillion healthcare market is beyond me, but hey perhaps Amazon? My dream is to go online and schedule my MRI at 3 am for $150 or $200 because the radiologist has an open slot and I am paying out-of-pocket. Sure, I know, what about quality? Well vet the places, provide real outcomes and quality data and publish it.

6. Narrow the networks based on quality and price.  Most people say they hate narrow networks, and of course when done based solely on price, I hate them too.  But I experienced a narrow network in action long before they came into the lexicon.  As a child, I was a frequent visitor to the ER, I broke a lot of bones and had a few other stitches and scrapes. My father was a Professor of Medicine.  I can’t tell you how many times he narrowed my network and told the physician who was walking in to see me that they would not be treating me. He knew all the doctors, the good and the bad.  I healed up well, thanks to him.  I also experienced issues with poor quality during his later years with Lewy Body Dementia and other ailments. There were more than a few times I wish I could have thrown the doctors out who were suddenly assigned to treat him because he was now covered by a Hospitalist and some specialist he had never seen. They nearly killed him a few times.  As in any field quality varies.

7. Allow Medicare and Medicaid the flexibility to send patients outside of the United States.  As an add-on to number 2, why not save billions by flying surgical patients or those with Hepatitis C out of the country to get much cheaper services or drugs?  I’m sure after a few flights, the providers and manufacturers will come running back with lower rates. And while we’re at it, how about the prisons, there are a lot of Hepatitis C patients now incarcerated who should be getting treated.

We need to look at issues like Hep C from the patient side. Because of the high costs of the drugs in the United States, there are hundreds of thousands of people who are not getting access to the treatment. Is that good?

8. Don’t let Congress be bought. Not sure how to do this except through an election, or changing the rules of lobbying while remaining within constitutional bounds, which is well out of my wheelhouse. The healthcare industry uses Congress to protect their interests at the expense of average Americans who are now burdened with excessive costs and poor outcomes compared to other developed countries.

See also: Wellness Isn’t the Only Scam in Healthcare

9. Send Crooks to JailHealthcare has a fair amount of fraud, and you know what, its perpetrated by people, people who hide behind corporations.  Typically, the corporation settles, without admitting guilt of course, pays a fine and moves on.  But what about the people who directed the corporation to do this stuff? If we sent more people to jail, we’d reduce the fraud. Recently, there have been more announcements by the DOJ holding  individuals personally accountable; so it seems this is moving in the right direction.

10. Invest in our communities and social services. These phrases have become mantras now:

    1. healthcare only accounts for 20% of your health;
    2. your zip code is one of the best indicators of your health status;
    3. how you live determines how you die,

We must invest more in the areas that affect health like community, safety, schools, parks, access to housing and food, but, and it’s an important but, we have to hold the organizations that we fund accountable, too many of them exist to exist and offer limited value. Much of this funding could come from savings in healthcare costs. Together we can create healthy communities for all our community members.

These ten ideas are but a start and I am certain that there are many other good and viable ideas for fixing our healthcare system. It’s time we got serious and began implementing more of them.

What are your thoughts and ideas?