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Why Sustainability Is Becoming Big


In recent years, there has been a global shift toward more environmentally sustainable ways of working. The world’s biggest companies are also increasingly disclosing their greenhouse gas emissions and other energy metrics – and being judged on them by consumers – with 71% of the world’s top 500 companies opting to externally audit their environmental impact numbers.

Although most countries don’t yet require companies to disclose such information, this is likely to change. China has recently issued a draft environmental tax law, and the U.S. has announced plans to cut carbon dioxide emissions;  both are aimed at encouraging businesses to become more green and proving that to the government. The E.U.’s Directive 2014/95/EU entered into force in December 2014, requiring companies with more than 500 employees operating in the E.U. to report on a range of non-financial (including environmental and sustainability) issues by the end of 2016.

While there is some debate on the business benefits of shifting to a more sustainable model, evidence is mounting that companies with lower greenhouse gas emissions perform better on average. So is being environmentally friendly about good PR — or just good business?


Tracking your company’s environmental impact

The challenge in assessing both your businesses’ environmental impact and the potential benefits of becoming more sustainable is in working out the true extent of your operations. While some aspects are relatively easy to identify — amount of recycling, office energy efficiency or the number of flights taken by employees, for example — the connections among our increasingly globalized supply chains and business operations can make monitoring broader ramifications incredibly complex.

Though there are no universal standards for environmental business reporting and impact analysis, there are a number of initiatives under way to encourage more transparency and provide guidance:

• The United Nations Global Compact devotes three of its 10 principles to environmental issues and boasts more than 10,000 corporate signatories. It promotes taking a precautionary approach to environmental challenges, encourages businesses to promote environmental responsibility and is pushing for the development and adoption of environmentally friendly technologies.
• The Global Reporting Initiative has produced guidelines for sustainability reporting that have now been adopted by more than 7,500 companies. With 30 environmental indicators, the focus is around energy, biodiversity and emissions.
• The Carbon Disclosure Project offers guidance on the kinds of data needed to identify ways to reduce negative environment impact, with more than 5,000 corporate signatories by the end of 2014.
• The Leadership in Energy and Environmental Design program takes a more focused approach, offering guidance and certification for the development and running of more environmentally friendly buildings. Operating in more than 30 countries, and with 20,000 organizations signed up, LEED-certified buildings are not only better for the environment but also more cost-effective because of the reduction in energy use.

The benefits to the bottom line

Analyzing your environmental impact may not yet be universally mandated, but it can be worthwhile. The detailed analysis of the true costs that thorough environmental reporting necessitates can not only help you avoid being accused of a “greenwashing” PR exercise but can also help identify potential savings. The guidelines provided by these organizations can serve as a handy blueprint for identifying more sustainable ways of working.

With energy price volatility “the new normal,” making your operations more energy-efficient and less wasteful can reduce the unpredictable impact of shifts in costs. At the same time, the cost of installing on-site sources of renewable energy is decreasing as technologies improve. Some governments offer subsidies and tax breaks to implement renewable energy, and others (like the U.K.) even pay for renewable energy generated. Even without subsidies, installing renewable energy sources can prove to be a good investment, depending on your location. In the U.S., solar panels may still be expensive to install, but they tend to pay for themselves within 10 to 20 years.

Making your supply chain more sustainable is also a sensible long-term investment, albeit considerably harder to develop. When Puma became the first company to publish the cost of the carbon emitted and water used throughout its supply chain back in 2011, it helped identify ways to reduce water, energy and fuel consumption by 60%, resulting in potential savings of millions of dollars.

You may not need to invest as much as Swedish furniture giant Ikea with its plan to invest €1 billion in projects to encourage sustainability, or Google with its $2 billion investment in solar and wind projects. With the climate challenge too big for any one company (or country) to tackle alone, every little bit helps — and, at a big enough scale, even the smallest changes can make a huge difference.

The starting point of identifying ways to reduce your environmental impact and maximize your efforts’ business benefits is understanding what you’re currently doing through detailed analysis and reporting. Only then can you identify what you can do and what impact this can have on both your business and the planet.

Talking Points

“The fact is… big businesses assess risk and opportunity at a global level, which means that their actions can reverberate across the planet. They develop systems that not only scale up, but require stability and continuity to be good investments.… These days, it is Big Business – not governments or consumers – that is stepping up… because they know their own corporate futures are at stake.” – National Geographic

“Understand that for markets to grow, and for your own future prospects to be successful, it makes sense to integrate, in your strategic thinking and operations, environmental, social and governance issues” – Georg Kell, executive director, UN Global Compact

“Planners, presidents and prime ministers might sign sweeping ‘deals’ but the CEO is where the real power lies, and they will not move a muscle unless change makes sense financially – nor should they.” Robert Clarke, entrepreneur-in-residence, School of Business and Entrepreneurship, Bath Spa University

“The challenge is to distinguish between the (environmental, social and governance) factors that have a material influence on company performance and those that do not. But the data that companies currently report are inadequate to enable investors to make this distinction.” – Laura Tyson, Haas School of Business

Further Reading

Dark Web and Other Scary Cyber Trends

We have all heard the continued drum beat regarding hacking. Anthem, Sony, Target, Home Depot, Experian and various government and military branches have all been hacked and have received their fair share of negative press. In each case, people were harmed, leaders were fired, brands were damaged and no one was really surprised.

I am not a singularly focused cybersecurity expert, but I have been up to my neck in tech for 30 years and have a knack for seeing emerging patterns and macro trends and stitching those together to synthesize consequences and outcomes. In the case of the Dark Web, none of that is good news; The emerging patterns should worry us all. As English historian (1608-1661) Thomas Fuller wrote, “Security is the mother of danger and the grandmother of destruction.”

See also: Best Practices in Cyber Security

Below is my list of the “Top 10 Scary Macro Cyberthreat Trends” –and this is still early days for them.

1. The Dark Web Pareto 

Over the last decade, the hacker population has gone from 80% aficionados/hacktivists/deep-end-of-the-pool techies and 20% professional criminals to 80% professional criminals and 20% “other.” To be clear, by “professional criminal” I mean organized criminals who are there for the money, not just to someone who broke the law.

2. “Lego-ization” of the Dark Web

Over the last few years, technology in the Dark Web has been changed from intricate, end-to-end hacks to a place where one merely assembles “legos” that are commercially available (albeit inside an anonymized criminal environment.) People don’t just buy tool kits with instructions but also the ability to buy “lego-ized” services like illicit call center agent time for more complex criminal activities such as getting access to someone’s bank account. Parts of the Dark Web look like IKEA without the assembly difficulty or the inevitable leftover parts.

3. The Dark Web embraces the capital-lite approach

Of course, the Dark Web has embraced the cloud-computing model for the reasons we see in the enterprise world. What this means to the criminal hacker or, more likely, hacker organization, is that they can now go asset-free and rent the assets they need when they need them.

For example, there are services for running a few hundred million password permutations in less than an hour for a few hundred dollars. Hackers no longer need to infect a massive amount of computers to fire up a denial-of-service hack; they can simply rent time on a botnet, a massive amount of “hijacked” computers up for sale in the Dark Web. Most companies still do not have a botwall to deflect bots.

Gameover ZeuS is a massive example of a botnet with one variant able to generate 10,000 domains a day with more than three million zombie computers — just in the U.S. Botnets are sometimes referred to as “zombie armies” (surely there’s a TV series in there somewhere.) The Bredolab botnet may have had as many as 30 million zombie computers.

See also: Demystifying “The Dark Web”

4. Clandestine versus brazen 

The bragging rights for revealing a hacking “accomplishment” was once a hallmark of this space. Over the past decade or so, that factor has greatly diminished. The criminal enterprise would like nothing more than to go unnoticed. The recent massive Experian hack only came to light after the Secret Service let Experian know some of its stuff had been found for sale in the Dark Web. Focusing on avoiding detection by adopting smarter methods, targets, distribution models and revenue capture is better business and is in line with a longer, sustainable view of profit. None of the criminal organizations have boards of directors that pressure them to hit the quarterly sales and operating income figures. A hack is not a moment in time; if a hacker can go undetected, he or she can milk the hack for years. This is worrisome.

5. The total available market has grown and is target-rich 

The target space for crime connected to an IP node has grown tremendously, and so has the value of the content. The massive increase in mobile IP addresses, the online transactions we do and IP-related things like stored value cards or mileage points makes a rich target for crime. It is 100x bigger than what it was just 10 to 15 years ago.

The target space’s growth is accelerating. After banking regulations on the minimum size of banks were relaxed in 1900, 2,000 banks were added in two years along with growth in the relatively new credit union sector. This increase in “target space” spawned bank robbers. The target space for Dark Web crime loves the increase in the target area and doesn’t mind that the “banks” are smaller. The number of people using the Web and the average amount of time spent on the Web continues to increase. I think with the advent of things like the Internet of Things, 5G, Li-Fi and a quantum leap in cloud computing capacity per unit cost, this increase will accelerate.

6. Small many versus big few 

Over the past decade, the trend in conjunction with the above items moved toward smaller “heists” but a lot more of them. Someone in Venezuela took $2 a month off my credit card for 18 months before it stopped. How many people would miss a dollar or two off a stored value card/account that has an auto-refill function like my Skype account does?

What sort of statistical controls would you put on your revenue flows (as a business) to even recognize that leakage? Of course, there are still big hacks going on, but a lot of those are just the front end of a B2B transaction that then sells off that big pool of hacked data to buyers in the criminal bazaar. Small, often and dispersed is harder to catch and more clandestine by nature.

7. Automation of the Dark Web

Timing is everything. As the Dark Web evolved into a scale-based, organized criminal environment, it leveraged modern automation from provisioning to tool sets to communications and even to billing.

Blackshades creepware is a great example of automation extending into the consumer product end. Available for $50, it has a point-and-click interface and has internalized all of the complexity and has automated hacking even for actors with very low-level tech skills. It allows the bad actor to browse files, steal data/passwords and use the camera (often relating to extortion). Blackshades infected more than 500,000 computers in more than 100 nations. A lot of the people who bought this did not have the skills to do any hacking without this kind of automation.

8. Tech getting better, faster, cheaper while talent improves

Late last year, TalkTalk, an ISP quad-play provider in the U.K., got hacked and held for ransom by four teenagers. The company estimates $90 million of cost tied to this hack, and no one really knows what the cost of the brand damage has been. There’s also a third of the company’s market cap gone, and it lost 95,000 customers. In all fairness, TalkTalk’s security was poor. The point here is that the technology in the Dark Web is getting faster, better and cheaper. At the same time, the average talent level is rising, which may not be the case in the non-criminal tech world.

There are three factors at play:

  1. Communities of collaboration and learning are becoming commonplace. Blackshades is a great example of a malicious tool with a super-low point of entry (price and tech skills) backed up by great online help and a community site.
  2. The likes of the Metropolitan Police Cyber Unit (London), the FBI, Interpol, etc. are all very effective and are continually improving organizations that stop crime and lock up cyber criminals. In some ways, this is a culling of the herd that also serves to create a positive Darwinian push on the average talent in the Dark Web.
  3. The giant upside financial opportunity to using tech skills for nefarious purposes creates a big gravitational pull that is only enhanced by recent economic and national turmoil, especially in places like Eastern Europe, Russia and Ukraine. In addition to that, state-sponsored or affiliated hackers with military-like rigor in their training can often make money moonlighting in the criminal world.

The combination of forces raising the talent level and the continued improvement of technology make for a bad combo. The Dark Web is also embracing open sourcing. Peer-to-peer bitcoin-based plays may become the next dark commerce platform.

9. The Dark Web itself

The Dark Web has evolved over the past decade or so from a foggy, barely penetrable space to a labyrinth of loosely connected actors and now to a massive, modernized bazaar thriving with commercial activity with a huge neon sign on the front door saying “Open for Business.” It is not just a bazaar, it is a huge B2B marketplace where the best criminals can resell their wares whole or in “lego-ized” pieces. Some of these criminals even offer testimonials and performance guarantees!

The Dark Web has moved from what economists call “perfect competition” to a more imperfect model trending toward oligopoly. In simpler terms, it is not a sea of malevolent individuals but, rather, the domain of organized businesses that happen to be largely illegal. These are organizations of scale that must be run like a business. This new structure will evolve, adapt and grow so much faster than the prior structure because these organizations have mission-focus and cash-flow pressures. Of course, the market forces common in a bazaar will winnow out low-value and defective products quickly, simply because word travels fast and customers vote with their wallets. 

10. The truly ugly “What’s next?” section

Like many thriving businesses, there is a tendency to move into adjacencies and nearby markets. This has already happened.

There is a lot of money in fiddling with clickstreams and online advertising flows. Bots account for about 50% of the traffic on the Internet; of those, about 60% are bad bots.

There is money to be made in transportation. One can buy fake waybills on the Dark Web to ship a crate to, say, Kiev at a fraction of the price FedEx or UPS would charge, even though the package will travel through FedEx or UPS.

Here are four emerging and even more worrisome areas that could be leveraged (in a bad way) by sophisticated, tech-savvy commercial criminal enterprises that are alive and thriving today in the Dark Web.

  • Internet of Things – It is just the beginning for the IoT. If you click here, you can read a paper on what may drive the amazing growth and where the potential is. The available talent who know how to secure devices, sensors and tags from hacks and stop those hacks from jumping five hops up a network are few and far between, and they don’t normally work in the consumer and industrial spaces that make stuff and that have decided to make an IP-enabled model. Few boards in the Fortune 500 can have an intelligent conversation about cybersecurity at any level of detail that matters. In short, over the next few years, IoT may be a giant hunting ground. For instance, what if a hacker goes through the air conditioning control system to point-of-sale devices and steals credit card info? That is a target with a big bull’s eye on it. (That is what happened to Target.)
  • Robotics – This is a little further out, and the criminal cash flow is a little harder to predict, but IP-connected robots is a space that will grow exponentially over the next decade and be at key points in manufacturing, military and medical process flows. What is the ransom for holding a bottling plant hostage? The Samsung SGR -1 (no, not a new phone) is a thermal imaging, video-sensing robot with a highly accurate laser targeting gun that can kill someone from 3,000 yards out. The Oerlikon GDF005 is a less-sophisticated antiaircraft “gunbot” that is, in part, designed to be turned on and left to shoot down drones. These things are both hackable. 
  • Biochem – What if some of the above Dark Web trends extend into this area, renting assets and expertise, point-and-click front-end designs? The bad news is that this seems to have started. 
  • The over-the-horizon worries – Nanotech, Li-Fi, AI, synthetic biology, brain computer interface (BCI) and genomics are all areas that, at some point in their evolution, will draw a critical mass of criminal Dark Web interest. The advances in these areas are at an astounding pace. They are parts of the near future, not the distant future. If you have not looked at CRISPR, google it. Things like CRISPR, coupled with progressively better economics, are going to supercharge this space. Li-Fi, coupled with 5G and the IoT (including accelerated growth in soft sensors), will create a large target space. The Open BCI maker community is growing quickly and holds enormous promise. Take a look at the Open BCI online shop and see what you could put together for $2,000 or  $10,000. The Ultracortex Mark IV is mind-blowing (not literally) and only $299.

All of this is going to get worse before it gets better. This is clearly not a fair fight. This is a target-rich environment that is growing faster than almost anyone anticipated. The bad actors are progressively getting better organized, smarter and better built for “success.” Interpol, the FBI and other law enforcement agencies do great work, but a lot of it is after-the-fact.

Enterprises need new approaches to network-centric compartmentalized security. New thinking about upstream behavioral preventative design is needed for robustly secure IoT plays.

National organizations in law enforcement and intelligence need to think through fighting a borderless, adaptive, well-funded, loosely coupled, highly motivated force like those under the Dark Web umbrella. Those national organizations probably need to play as much offense as defense. Multiple siloed police and intelligence units that are bounded geographically, organizationally, financially and culturally probably will start out with a disadvantage.

This article was originally published on SandHill.com. The story can be found here.

Seriously? Artificial Intelligence?

I don’t know about you, but when I think of artificial intelligence, I think Steven Spielberg and Arnold. That was until I saw a solution offered by Conversica, a Salesforce partner.

AI is here, it’s happening now and it’s a lot more pervasive than you think. The rise of “robo advisers” in financial services, Ikea’s “Anna” customer service rep and Alaska Airline’s “Jenn” all point to the growing adoption of technology that personalizes customer experiences….at scale.

One of the 5 D’s of Disruption in insurance is “Dialogue.” And AI is driving it.

Today, in insurance, AI is used to create natural dialogue with customers, nurture those leads, prioritize them for agents and follow through as needed. Conversica, for example, gets smarter as it interacts more with customers. And, yes, it has passed the Turing test.

It is particularly well-suited for B2C because the volume of interactions with prospects can be overwhelming for insurance agents. As insurers embrace omni-channel, new prospects can be created from any source, whether it be a contact center, social media or a face-to-face meeting. Not only is lead volume increasing, but it takes as many as six before an agent can get a prospect on the phone. This becomes a time and energy suck for agents; he is unable to follow through on every lead, and the quality of interactions goes down.

So how are insurers and agents responding? In this webinar, Eric (Conversica) and Alex (Spring Venture Group) explain to me how AI is used to nurture and convert leads.

My takeaway: AI is not just a science project. It works. It’ll become more invisible to consumers. And it creates real value to both customers and employees.

As Marc Benioff, CEO of Salesforce, said recently in Fortune magazine, “We’re in an AI spring. I think for every company, the revolution in data science will fundamentally change how we run our business because we’re going to have computers aiding us in how we’re interacting with our customers.”

How to Maintain a Competitive Edge

The recent speculation about Google entering the U.S. insurance market adds to the growing list of non-traditional competitors turning their attention to insurance — a list that already includes Overstock, Facebook, IKEA and Walmart. While personal auto remains the popular entry point for these outside competitors, the impact is more far-reaching for property and casualty insurers. The question is no longer “if” outside competition will affect the insurance industry, but rather “how” agents and insurers can maintain a competitive edge and protect their businesses.

Agents need to adjust their customer service approach to reflect the reality that younger consumers are not as loyal as their predecessors, while at the same time facing the increased threat of a direct sales channel. Insurers must grapple with the reality that tech companies will be relentless in finding ways to lower costs for consumers and circumvent agents.

Insurers like Progressive, Geico and State Farm are already playing in the digital arena and are better positioned than mid-sized and small insurers, because they understand how the online game is played. The same is true for large national agents vs. regional or local agents. The big question is: Will the industry as a whole take a step back, identify its distinct advantages in today’s rapidly changing insurance market and start a wave of unprecedented innovation? Or, will the industry go the way of those that have come before (i.e., Blockbuster, credit card lenders in the ’80s, travel agents, Yellow Pages, taxicabs, etc.)?

The New-Entrant Advantage

Before we discuss agents, let’s look at the advantages of the non-traditional competitor. It should come as no surprise that major tech companies and e-commerce giants have an interest in insurance. It’s one of the last remaining industries to not reach full digitization and root the business in analytics — a weakness that can be exploited by the data-rich competitors with deep pockets.  Additionally, with the lack of customer loyalty, the struggle will boil down to who will win the customer: the agent or a company like Google.

At the forefront of customers willing to jump ship are Millennials, who have surpassed the Baby Boomers to become the largest population in the country at 76.6 million strong. If insurance doesn’t take the extra steps to innovate and entice this generation, Millennials will more than likely gravitate toward a well-known tech company that already understands what they are searching for and what they are buying. Most Millennials were raised on Google — whether it be for research, directions or email — so why wouldn’t they feel more comfortable purchasing insurance from Google?

For this reason, it’s no surprise that the top three priority areas for agents this year are found in retaining and servicing customers, as opposed to growing their business. The opportunity for agents is that this disruption from new competitors is forcing an urgency to evolve the customer engagement model to better serve Millennials, who have grown up using technology. This needed to happen regardless, and the sooner the industry modernizes its customer acquisition and retention strategies, the better.

The Agent Advantage

Though there is increased pressure for agents to stay relevant in this quickly evolving insurance industry, agents who leverage their distinct advantages for both customers and insurers will thrive. According to an Accenture consumer survey, customers value the insights they gain from face-to-face interactions with their insurance agent more than any other method, yet agents themselves often downplay the importance of their expertise as a competitive advantage. This is a mistake.

When you consider that insurance enters our lives at times of personal turmoil, agents serve as a trusted adviser during critical moments. Agents help both the consumer and the insurer navigate the process of making the consumers’ lives whole again when tragedy strikes. Agents who adopt digital technologies and analytics will gain greater customer insights and will bring insurers the right business at the right price.

According to a recent Applied Systems survey, 48% of participants listed competition as a top factor driving agency technology investments. Agents who allow a disparity in analytically driven risk management between themselves and their insurers will begin to lose their foothold in the industry.

The Insurer Advantage

There’s only one place where mass adoption of data-driven decision making, product innovation and modern customer engagement strategies can all take off at the same time. Insurers alone yield the largest ability to transform the industry in better service of their customers and fight back against the pure commoditization of insurance. There’s likely no stopping this trend, but there is a lot of opportunity to provide innovative solutions so that traditional insurance players maintain ownership of the customer.

There is no time to waste, however. Just because the early focus is on personal auto, it should not drive a “wait and see” mentality for the property and casualty industry. Learn from industries that have gone before us in the digital revolution and suffered from technology disruption. Once the trend takes hold, the ripple effect of change industry-wide happens very quickly.

The Bottom Line

The best chance for agents to stay competitive and relevant is to work together with insurers, utilize data-driven strategies and engage consumers on a more personal level using technology as an enabler. The face-to-face interaction with clients is still extremely important, and analytics can effectively collect and store invaluable insights so you can make the best connection between insurer and consumer. Remaining a relevant and trusted adviser is the name of the customer relationship game.

How to Win in Commercial Lines

Commercial lines insurance is tricky. On the one hand, it’s one of the last bastions of niche underwriting expertise — there are specialist writers who know their markets better than anyone else and enjoy customer loyalty and consistently superior profits as a result. On the other hand, it’s still simply insurance — and it’s experiencing many of the same symptoms that the rest of the P&C insurance industry is facing:

  • Increasingly sophisticated underwriting and pricing models, opening the door to adverse selection
  • An ever-shrinking number of market-dominating insurers
  • An evolving marketplace, with technology companies entering insurance and a customer base increasingly made up of Millennials

These three issues are forcing fundamental changes in the way insurers operate, creating a dynamic in which there will be clear winners and losers. It’s important to recognize the changing conditions to be successful both today and in the future.

New players entering insurance
A look at recent headlines reveals some well-recognized brands that are now turning an eye toward insurance. Tech companies like Google and Facebook, e-commerce giants like Amazon and Overstock and retailers such as Walmart and IKEA are all making waves. It’s also not just personal lines that’s being affected; Overstock’s new insurance agency offers business insurance, including workers’ compensation. Why is there a sudden interest from new players? These companies oftentimes see opportunities for profit and growth in industries when there are fundamental inefficiencies that can be exploited, and generally start by employing data-driven strategies to compete on customer acquisition. Insurance executives understand this threat, as evidenced in a recent survey by the Economist that identified distribution (i.e., acquisition of customers) as the No. 1 vulnerability for disruption.

What’s particularly troubling is that half the respondents in the survey were unsure of how well prepared the industry is for the changes coming in the next five years. With competition from non-traditional companies that are technologically savvy, are trusted by consumers and have money to burn, insurers simply cannot afford to be uncertain about their future.

Catering to a new generation
Numbering 76.6 million in the U.S., Millennials are the largest population in the country. Unfortunately for the industry, this group also happens to be the demographic most dissatisfied with insurance products and services. The U.S. Census Bureau notes that Millennials represent $1.68 trillion in annual purchasing power, which means insurance has no choice but to adapt to the needs of their future customers, business owners and employees. The industry tends to categorize Millennials as a personal lines concern (homeowners and personal auto, specifically), but commercial lines will fall behind and be caught off guard without a new mindset.

Although insurance doesn’t carry the best reputation among Millennials, there is an opportunity to educate them and win their loyalty. According to a poll by the Griffith Insurance Education Foundation, Millennials know very little about the insurance industry — 80% of students answered that they didn’t know anything about the industry at all (and only 5% claimed to be very knowledgeable. This is likely why Millennials tend to purchase insurance from companies with easy-to-navigate websites and don’t always base decisions based on price alone, according to a 2014 J.D. Power survey. If insurers don’t make the Millennial generation a priority, the likelihood of them buying insurance from other companies with better name recognition grows more and more likely, even if that company isn’t a traditional insurer.

The risk of adverse selection grows as insurers get smarter
The increased use of advanced technologies among insurers spells trouble for those that are still playing catch up — the risk of adverse selection grows as competitors leverage predictive modeling techniques and gain access to new data sources that provide a broader view of the market.

As analytics becomes more pervasive in commercial lines underwriting, leading insurers will become more adept at increasing their market share. Insurers without advanced analytical tools are more likely to bind higher-risk policyholders at inadequate rates and less likely to bind lower-risk policies by failing to match their competitor’s lower-price offering.

Adverse selection is an insidious threat, because it’s completely invisible until well after it has infected a portfolio. Accurate pricing and superior risk selection are key, and predictive techniques have served as an important competitive advantage, going beyond traditional heuristics alone.

How winners gain their advantage
Workers’ compensation is, in many ways, a leading example for the rest of commercial lines. Combined ratios continue to decrease, making it more attractive for companies (both traditional and non-traditional) to come in. This crowds the market, forcing the industry to adopt more sophisticated competitive strategies.

When properly developed and implemented, the use of predictive models is a recipe for success. It helps to achieve the pricing precision needed to stay ahead of the competition while avoiding adverse selection in the marketplace. Insurers without the ability to identify and react to adverse selection will lose their competitive advantage and simply not survive.

As we’ll share in Valen’s annual outlook report for commercial lines this week, the benefit to using the latest analytical tools are huge, and the cost of doing nothing is equally as significant. Working the hard and soft market cycles no longer brings competitive differentiation — the competition is fierce in target market segments ,where superior risk selection and pricing clearly determines who the winners and losers are.

This article first appeared on WorkCompWire.