Tag Archives: marsh

What Amazon’s Insurance Play Means

I’ve waited for years now to see how insurance might fit with Jeff Bezos’ quote that “your margin is my opportunity.” Amazon’s announcement last week that it will help sellers find product liability insurance through a network facilitated by Marsh may provide the answer.

Assuming the product liability offering is popular — and Amazon is relentless when pursuing new opportunities — it’s easy to imagine the company expanding into other types of insurance for small businesses. For a lot of small businesses.

Amazon currently has 1.9 million active sellers on its site, so offering product liability insurance could quickly give Amazon a massive base of small businesses that could be interested in buying other types of insurance through the company. Not all of those sellers will buy via Amazon, of course. Many don’t meet the minimum level of sales ($10,000 a month) at which Amazon requires that they carry product liability insurance. Others will buy their insurance through other channels or are already covered by general liability policies. But what Amazon is calling its Insurance Accelerator could easily become the starting point for hundreds of thousands of small businesses purchasing product liability insurance.

Those customers will find it easy to buy, because the insurance offering will be embedded in the services that Amazon already provides sellers digitally. Those buying the insurance through Amazon will also benefit from the sort of simple, intuitive interface that Amazon provides customers, as opposed to the more complex approach that most insurance companies and brokers employ.

So, why wouldn’t those small businesses perk up if Amazon offered them workers’ comp insurance for whatever warehousing and shipping operations they have? Perhaps some business interruption coverage, too? Once these small businesses start buying from Amazon, why not go all the way to a general liability policy, property insurance, key man insurance and everything else a small business might need?

Now, it’s always possible that the Amazon Insurance Accelerator is just a fancy way of handing off leads to Marsh, in which case the arrangement could turn out to not be that significant. This would just be a way for Marsh to extend its already considerable reach and not the long-anticipated move by Amazon into insurance.

But using product liability as a launching point for a broad push into small business insurance fits the Amazon model of innovation going all the way to its beginnings. Bezos always hoped to build what he called an “everything store” but knew he needed to start small and thus began merely as a bookseller in the mid-1990s. Once he had a foothold in electronic commerce, he expanded as fast as he could in every direction.

Amazon’s approach to insurance also lines up with the model it has scaled to enormous success. Amazon is providing an interface but otherwise serving as a platform, using Marsh to pull together outside resources (insurers Chubb, Harborway Insurance, Hiscox, Liberty Mutual Insurance, Markel and Travelers, as well as technology from Bold Penguin and Simply Business to help match insureds to the right coverages).

It’s even possible to imagine Amazon moving well beyond small business if this initial push succeeds as broadly as it could. Amazon doesn’t shy away from complexity, so it could keep climbing the ladder, developing expertise that would let it serve ever-larger companies. Amazon could also move into personal lines, especially because many owners of small businesses don’t see a clear demarcation between their corporate and personal lives.

“Customers are going to have other insurance needs,” says Karnina Szymanski, president of insurance at Bold Penguin, which was acquired earlier this year by American Family Insurance. “I’m not in the head of Amazon… but I think the possibilities are endless.”



Marsh/JLT: What Happens Next?

With the E.U. having approved the deal, only one question remains: Just how much of a train wreck will the Marsh/JLT merger be?

Before answering that question, however, it is first worth understanding the circumstances that led to the deal happening in the first place.

Let’s clear one thing up straight away. The one thing this deal wasn’t, despite all carefully crafted protestations to the contrary, was strategic. JLT did not in my view sell because it believes that the combined business will be a better or faster-growing one or because it had run out of road — the 5% organic revenue growth, 25% growth in underlying trading profit and 18% improvement in the underlying trading margin contained in the last set of results would certainly suggest otherwise! Rather, JLT’s hand was forced because Jardine Matheson decided it wanted out, and management decided that a sale to Marsh was the least worst option. At least, that’s the rather convenient line that I’m sure is being peddled internally.

Of course, there would be an element of truth to this: The changing of the senior guard at JM over recent years — in particular, the untimely death of Rodney Leach — would inevitably lead to an internal re-evaluation of the wisdom of JM holding such a significant investment outside of its core Asian markets. But there were other factors at play, too.

First, JLT’s bold U.S. retail strategy was unlikely to meet the commitments made when its plans were announced in September 2014 ”that the business will start to contribute to profits in 2018 and then generate an accelerated return thereafter,” despite the huge progress that had been made. Selling out now avoided some very awkward questions from increasingly impatient investors. Second, JLT had signally failed to put in place a credible CEO succession strategy, not helped by a sense that anyone else would hold the group together – which would have no doubt played a major role in JM’s own thinking and willingness to fund staff retentions to the tune of £50 million in its anxiety to get the deal away. Louis XV once said, “Après moi, le deluge.” A sale solved a problem that JLT’s board had been unable or unwilling to tackle for years.

From Marsh’s perspective, it is also hard to see the deal as in any way strategic, unless getting bigger is a strategy — which in the case of Marsh of course it may well be! Combining the two businesses will not magically boost Marsh’s organic growth rate – if anything 2+2 here may well equal 3, at best. It is also hard to believe that the merged business will allow Marsh – lest we forget, already the world’s largest broker – to access markets or territories that were somehow previously closed to it.

In fact, the biggest factor here — beyond CEO ego, which is probably the single most under-appreciated factor in all large scale M&A — was almost certainly the fear that, if Marsh didn’t buy JLT, Aon would. A fear almost certainly shared, by the way, by the JLT management team, who have demonized Aon for years. The opportunity for Marsh to put clear blue water between itself and its nearest competitor, could not be missed, even if the result is something of a Frankenstein creation. Aon’s aborted pursuit of Willis shows that these things matter, and no doubt that deal will also happen at some stage.

Coming back then to my original question around the prospects for the merger: Perhaps the best way to answer that is by using the litmus test that JLT has long claimed to use to assess all major decisions, namely the desire to balance the interests of “our four key stakeholders: our clients, our colleagues, our trading partners and our shareholders.”

From a JLT shareholder perspective, this was clearly a stunning deal – all credit to JLT’s management team for bending Marsh so far over the barrel that they must almost have been touching their toes on the other side. If anything proves Marsh’s white-knuckled determination not to let JLT slip through their fingers into Aon’s embrace, it was the price they paid. Given that the JLT’s board’s primary responsibility is a fiduciary one, who can blame them or have any complaints? What this means for Marsh’s shareholders though is another matter.

From a client perspective, it is hard to see the deal as anything other than negative. These were already two very good businesses – putting them together may fill in some gaps here and there for Marsh (e.g. LatAm, Asian EB, Australian public sector) and bring some extra capabilities to JLT (e.g. analytics and engineering), but it doesn’t radically improve the overall customer proposition. In fact, it may have the exact opposite effect for many customers as, in a market already dominated by three silverbacks, the loss of the one challenger willing and able to upset the natural order of things will be keenly felt. Inevitably, this will lead to client losses, particularly from some of the larger accounts, who will not be willing to put their eggs in one basket or in the same basket as one of their major competitors.

See also: Distribution: About To Get Personal  

What, for example, are the prospects for JLT’s U.S. wholesale business, which had previously managed to convince its producing brokers that JLT’s U.S. specialty-focused play didn’t really compete with them but may now find that argument ringing somewhat hollow! What is the outlook for JLT’s hard-won U.S. specialty business, which has been largely built off the back of its ability to position itself as radically different from the big three? What is the future for JLT Re, whose strong march over the past few years has been fueled by its clients’ desire to diversify their placement and its team’s ability to bring a fresh perspective? Don’t also forget that much of JLT’s success has come from winning share from its major competitors, including Marsh. The idea that these same clients will allow themselves to be tamely shepherded into the Marsh fold is wishful thinking. At best, they might tender the business — but, with JLT out of the way, Aon and Willis will now be as likely to win the business as the enlarged Marsh is to retain it.

From a trading partner, or insurer, perspective, the deal is nothing short of disastrous. The forced sale of JLT’s market-leading aviation business to AJG by the E.U., at what seems to be a knockdown value for the best franchise in the market, probably deals with the biggest area of market concentration but doesn’t solve the bigger issue. I don’t know what Marsh/JLT’s combined share of Lloyds’ is, for example, but I would have thought it could be 30% to 40%. In some classes, a lot more. It will be the same picture elsewhere. That is a big problem, albeit one of the market’s own making, as it has consistently rewarded increased placement scale with better commissions, thereby slowly strangling itself to death.

The growth of JLT has been at least partly due to the markets deliberately nurturing it as a counter-point to the dominance of the big three and offering it terms that allowed it to compete on something approaching a level playing field. Of course, some of the larger markets will be seeing this as an opportunity to grab an even bigger slice of the combined book. But the prospects for many of the smaller markets, which JLT had supported by eschewing the programmatic placement of its larger competitors and distributing risk far more widely across the market, are bleak.

Which brings us finally to people. And this is where the harsh reality of the deal really hits home. Job reductions of 2% to 5% of the combined workforce of 75,000 are planned. That is 3,500 people, with families and mortgages and careers, effectively funding the bulk of the short-term deal benefits. And whatever has been said about selecting the best of breed, etc., everyone knows where the brunt of these job losses will fall. In the words of Sen. William L Macey – “to the victor belong the spoils.” Hard to see who the winners are here, apart from those cashing in their share options and heading for the race track.

What then are the prospects for Marsh’s own shareholders? Well, there are some positives to cling to. There will be some geographic complementarities in Asia, Australia and LatAm, where JLT is strong. JLT’s fantastic offshore operation in India also provides a template for Marsh to replicate on a far larger scale, creating a huge opportunity to drive cost and operational efficiency through the business. The cost synergies, as already mentioned, will be significant – I would guess that the stated target of £250 million will be comfortably beaten – Marsh has been around the block enough times to know to under-promise and over-deliver in this area. And from a revenue perspective, there is a big opportunity to re-engineer JLT’s book and take advantage of Marsh’s more aggressive approach to squeezing insurers for enhanced commissions, work-transfer fees, consultancy arrangements, re-insurance placements and all the other weapons in the broker’s arsenal of dark arts.

The only problem, of course, is that this is all one-off. Extracting the cost synergies and re-engineering the book will significantly improve short-term profits. But it won’t deliver the long term organic revenue growth that will be required to justify the nose-bleed multiple that Marsh has paid. Although of course, by the time anyone runs the actual numbers, it will probably be someone else’s problem to deal with!

The real question, therefore, is whether the profit improvement will offset the unavoidable attrition that will result from the combination of the two businesses. Attrition born partly by clients voting with their feet, for the reasons already set out above, but more out of the collateral damage caused by the inevitable clash between the two business’ cultures.

It is hard to overstate just how big an issue this is likely to be. JLT was a disruptor. It deliberately positioned itself (not always very accurately!) as the nimble, entrepreneurial, innovation-led counterpoint to Marsh, Aon and Willis’ slow, monolithic and commoditized approach. In a market drowning in a sea of sameness, JLT was able to articulate a distinctive message with real cut-through that was hugely successful in attracting some of the best people in the market from the big three, by making them feel special and part of something different and better. It was almost tribal – you were either lucky enough to be invited to be part of JLT, or you were against them. Whatever the cold economic logic of the circumstances that led to JLT selling out, many will always view this decision as an unforgivable betrayal of trust, such was the power of the “cult” that JLT had created.

It is patently nonsensical to now expect these same people – who in choosing to work at JLT had in most cases consciously rejected the opportunity to work at one of the big three to benefit from JLT’s culture and more delegated approach to management and placement – to accept life under Marsh’s command-and-control management style. It makes you wonder whether Marsh really understand what they have bought or the challenge they will face in hanging onto it. The story I have heard (which I have no way of verifying) is that the deal was struck in little over a week – if true, I’ve spent longer choosing wallpaper!

The oddity, of course, is that if there was one real strategic opportunity from this deal it would be JLT injecting some of its entrepreneurial DNA into the Marsh culture and giving it some of JLT’s street-fighting swagger. I’d love for that to happen. But history tells you that it is the one thing that is most likely to be lost.

See also: Insurtech Is Ignoring 2/3 of Opportunity  

Whatever retentions are put in place – and a staggering £75 milliion has been earmarked for this purpose up until the deal completes — the best people will surely leave, as they always do. And there will be no shortage of people looking to offer them a home, or private-equity companies willing to back the right management teams.

If I had to make a prediction, I would say that Asia, Australia, U.K. mid-market insurance broking and EB will be pretty stable. But JLT’s European network will fragment, as I doubt any of them will take the Marsh shilling. JLT’s LatAm minority interests will sell out to Marsh, providing some short-term stability, but good luck enforcing a restrictive covenant in Peru or Chile when their earn-out comes to an end in three or four years’ time! JLT Re will, you would think, given the over-concentration of the broker market, have largely re-constituted itself somewhere else within a few years. JLT’s London market wholesale and specialty business will fragment, attracted either to specialist competitors or to one of the various PE-backed start-ups that are circling JLT’s carcass. JLT U.S. will also fragment as the team disperses, whether together or across the market, bringing to an end one of the most impressive market entry initiatives in recent memory.

How much business could be lost? Your guess is as good as mine, but if I had to speculate I would say 30%, maybe even 40% in some areas over the next few years, as people leave and clients move.

But here’s the best part: The Marsh shareholders may well not even care! When you lose the revenue, you lose the associated costs, as well, and many of these brokers are very well paid indeed. The combined impact of the cost savings and the portfolio re-engineering, plus the undeniable benefits of scale in today’s market, may well mean that Marsh can afford to take this level of revenue loss and still deliver a good return to its shareholders, having in the process also taken out an increasingly annoying thorn in their side.

The big winners here – apart from the headhunters who must already have their new Porsches on order and the deal advisers pocketing hundreds of millions of dollars of fees – will almost certainly be the next tier of brokers, who stand to hoover up talent and business in the biggest feeding frenzy the market has seen for a long time. In particular, Hyperion and AJ Gallagher would seem to be well-positioned as the natural successors to JLT’s crown, with a growing global footprint and a proposition (at times more aspirational than actual) focused around specialty and agility, that many within JLT will find reassuringly familiar and attractive. I would also have thought that some of the bolder U.S. brokers such as Acrisure, Alliant or Assured Partners, looking to grow outside of their domestic markets, may well also see this as an unprecedented opportunity to build an international bridgehead.

Overall, though, it is hard not to feel sad as another great London market name bites the dust. JLT’s shareholders are undeniably richer, and maybe in the modern world that’s all that matters – what choice did they really have at the end of the day? But JLT’s clients, colleagues, trading partners and the market at large will be a lot poorer for its passing. Couldn’t a BlackRock or a KKR have taken JM’s stake off its hands and …. we will unfortunately never know.

But perhaps this isn’t the end of the JLT story. Some phoenixes will almost certainly rise from the ashes of this deal.

This article originally appeared here.

In Age of Disruption, What Is Insurance?

“Somehow we have created a monster, and it’s time to turn it on its head for our customers and think about providing some certainty of protection.” – Inga Beale, CEO, Lloyds of London

In an early-morning plenary session at this year’s InsureTech Connect in Las Vegas, Rick Chavez, partner and head of digital strategy acceleration at Oliver Wyman, described the disruption landscape in insurance succinctly: while the first phase of disruption was about digitization, the next phase will be about people. In his words, “digitization has shifted the balance of power to people,” forcing the insurance industry to radically reorient itself away from solving its own problems toward solving the problems of its customer. It’s about time.

For the 6,000-plus attendees at InsureTech Connect 2018, disruption in insurance has long been described in terms of technology. Chavez rightly urged the audience to expand its definition of disruption and instead conceive of disruption not just as a shift in technology but as a “collision of megatrends”–technological, behavioral and societal–that is reordering the world in which we live, work and operate as businesses. In this new world order, businesses and whole industries are being refashioned in ways that look entirely unfamiliar, insurance included.

This kind of disruption requires that insurance undergo far more than modernization, but a true metamorphosis, not simply shedding its skin of bureaucracy, paper applications and legacy systems but being reborn as an entirely new animal, focused on customers and digitally enabled by continuing technological transformation.

In the new age of disruption …

1. Insurance is data

“Soon each one of us will be generating millions of data sets every day – insurance can be the biggest beneficiary of that” – Vishal Gondal, GOQUii

While Amazon disrupted the way we shop, and Netflix disrupted the way we watch movies, at the end of the day (as Andy G. Simpson pointed out in his Insurance Journal recap of the conference) movies are still movies, and the dish soap, vinyl records and dog food we buy maintain their inherent properties, whether we buy them on Amazon or elsewhere. Insurance, not simply as an industry but as a product, on the other hand is being fundamentally altered by big data.

At its core, “insurance is about using statistics to price risk, which is why data, properly collected and used, can transform the core of the product,” said Daniel Schreiber, CEO of Lemonade, during his plenary session on day 2 of the conference. As copious amounts of data about each and every one of us become ever more available, insurance at the product level– at the dish soap/dog food level–is changing.

While the auto insurance industry has been ahead of the curve in its use of IoT-generated data to underwrite auto policies, some of the most exciting change happening today is in life insurance, as life products are being reconceived by a boon of health data generated by FitBits, genetic testing data, epigenetics, health gamification and other fitness apps. In a panel discussion titled “On the Bleeding Edge: At the Intersection of Life & Health,” JJ Carroll of Swiss RE discussed the imperative of figuring out how to integrate new data sources into underwriting and how doing so will lead to a paradigm shift in how life insurance is bought and sold. “Right now, we underwrite at a single point in time and treat everyone equally going forward,” she explained. With new data sources influencing underwriting, life insurance has the potential to become a dynamic product that uses health and behavior data to adjust premiums over time, personalize products and service offerings and expand coverage to traditionally riskier populations.

Vishal Gandal of GOQuii, a “personalized wellness engine” that is partnering with Max Bupa Insurance and Swiss Re to offer health coaching and health-management tools to customers, believes that integrating data like that generated by GOQuii will “open up new risk pools and provide products to people who couldn’t be covered before.” While some express concern that access to more data, especially epigenetic and genetic data, may exclude people from coverage, Carroll remains confident that it is not insurers who will benefit the most from data sharing, but customers themselves.

See also: Is Insurance Really Ripe for Disruption?  

2. Insurance is in the background

“In the future, insurance will buy itself automatically” – Jay Bergman

Some of the most standout sessions of this year’s InsureTech Connect were not from insurance companies at all, but from businesses either partnering with insurance companies or using insurance-related data to educate their customers about or sell insurance to their customers as a means of delivering more value.

Before unveiling a new car insurance portal that allows customers to monitor their car-related records and access a quote with little to no data entry, Credit Karma CEO Ken Lin began his talk with a conversation around how Credit Karma is “more than just free credit scores,” elucidating all of the additional services they have layered on top of their core product to deliver more value to their customers. Beyond simply announcing a product launch, Lin’s talk was gospel to insurance carriers, demonstrating how a company with a fairly basic core offering (free credit scores) can build a service layer on top to deepen engagement with customers. It’s a concept that touches on what was surely one of the most profound themes of the conference–that, like free credit scores, insurance only need be a small piece of a company’s larger offering. This may mean embedding insurance into the purchase of other products or services (i.e., how travel insurance is often sold) or it may mean doing what Credit Karma has done and layering on a service offering to deepen engagement with customers and make products stickier.

Assaf Wand, CEO of the home insurance company Hippo, spoke to both of these models in his discussion with David Weschler of Comcast about how their two companies are partnering to make insurance smarter and smart homes safer. When asked about what the future of insurance looks like, Wand put it plainly when he said: “Home insurance won’t be sold as insurance. It will be an embedded feature of the smart home.” Jillian Slyfield, who heads the digital economy practice at Aon, a company that is already partnering with companies like Uber and Clutch to insure the next generation of drivers, agrees: “We are embedding insurance into these products today.”

Until this vision is fully realized, companies like Hippo are doing their part to make their insurance products fade into the background as the companies offer additional services for homeowners, “Can I bring you value that you really care about?” Wand asked, “Wintering your home, raking leaves, these are the kinds of things that matter to homeowners.”

3. Insurance is first and foremost a customer experience

“The insurance industry has to redefine our processes… go in reverse, starting with the customer and re-streamlining our processes around them” – Koichi Nagasaki, Sompo

To many outside the insurance industry, the idea of good customer experience may seem unremarkable, but for an industry that has for so long been enamored by the ever-increasing complexity of its own products, redefining processes around customers is like learning a foreign language as a middle-aged adult. It’s hard, and it takes a long time, and a lot of people aren’t up to the task.

The insurance industry has been talking about the need for customer-centricity for a while now, but many companies continue to drag their feet. But customer-centricity is and remains more than a differentiator. It’s now table stakes. How this plays out for the industry will look different for different companies. Some will turn to partnerships with insurtechs and other startups to embed their products into what are already customer-centric experiences and companies. Chavez of Oliver Wyman would rather see the industry “disrupt itself,” as he believes it’s critical that companies maintain the customer relationship. In his plenary sessions, he cited the German energy company Enercity as a company that disrupted itself. Operating in a similarly regulated industry, rather than becoming just a supplier of energy, the company invested heavily in its own digital strategy to become a thought leader in the energy space, to be a trusted adviser to its customer and to deliver an exceptional digital experience that, among other things, leverages blockchain technology to accept bitcoin payments from customers. For Chavez, insurtech is already a bubble, and, “If you want to succeed and thrive in a bubble, make yourself indispensable.” The only way to do this, he believes, is to maintain ownership over the customer experience, because, in today’s digital economy, the customer experience is the product.

But to own the customer experience and succeed will require insurance companies to completely reorient their business practices and processes – to start with the customer and the experience and work backward toward capabilities. In the words of Han Wang of Paladin Cyber, who spoke on a panel about moving from selling products to selling services, “It’s always a questions of what does the customer want? How do they define the problem? And what is the solution?”

4. Insurance is trust

“The world runs on trust. When we live in a society where we have lots of trust, everyone benefits. When this trust goes away, everyone loses.” – Dan Ariely, Lemonade

During a faceoff between incumbents and insurtechs during one conference session, Dylan Bourguignon, CEO of so-sure cinched the debate with a single comment, calling out large insurance carriers: “You want to engage with customers, yet you don’t have their trust. And it’s not like you haven’t had time to earn it.” This, Bourguignon believes, is ultimately why insurtechs will beat the incumbents.

Indeed, the insurtech Lemonade spent a fair amount of stage time preaching the gospel of trust. Dan Ariely, behavioral economist and chief behavior officer at Lemonade, delivered a plenary session entirely devoted to the topic of trust. He spoke about trust from a behavioral standpoint, explaining how trust creates equilibrium in society and how, when trust is violated, the equilibrium is thrown off. Case in point: insurance.

Insurance, he explained, has violated consumer trust and has thrown off the equilibrium–the industry doesn’t trust consumers, and consumers don’t trust the industry, a vulnerability that has left the insurance industry open to the kind of disruption a company like Lemonade poses. As an industry, insurance has incentives not to do the thing it has promised to do, which is to pay out your claims. And while trust is scarcely more important in any industry as it is in insurance, save in an industry like healthcare, the insurance industry is notoriously plagued by two-way distrust.

What makes Lemonade stand out is that it has devised a system that removes the conflict of interest germane to most insurance companies – as a company, it has no incentives to not pay out customer claims. In theory, profits are entirely derived by taking a percentage of the premium; anything left over that does not go to pay out a claim is then donated to charity. The result: If customers are cheating, they aren’t cheating a company, they are cheating a charity. Ariely described several instances where customer even tried to return their claims payments after finding misplaced items they thought had been stolen. “How often does this happen in your companies?” he asked the audience. Silence.

And it’s not just new business models that will remedy the trust issues plaguing insurance. It’s new technology, too. In a panel titled “Blockchain: Building Trust in Insurance,” executives from IBM, Salesforce, Marsh and AAIS discussed how blockchain technology has the capacity to deepen trust across the industry, among customers, carriers, solutions providers and underwriters by providing what Jeff To of Salesforce calls an “immutable source of truth that is trusted among all parties.” Being able to easily access and trust data will have a trickle down effect that will affect everyone, including customers, employees and the larger business as a whole–reducing inefficiencies, increasing application and quote-to-bind speed, eliminating all the hours and money that go into data reconciliation and ultimately making it easier for carriers to deliver a quality customer experience to their customers.

See also: Disruption of Rate-Modeling Process  

While the progress in blockchain has been incremental, the conference panel demoed some promising use cases in which blockchain is already delivering results for customers, one example being acquiring proof of insurance for small businesses or contractors through Marsh’s platform. With blockchain, a process that used to span several days has been reduced to less than a minute. Experiences like these–simple, seamless and instantaneous – are laying the groundwork for carriers to begin the long road to earning back customer trust. Blockchain will likely play an integral role this process.

5. Insurance is a social good

“We need insurance. It is one of the most important products for financial security.” – Dan Ariely, Lemonade

For all of the the naysaying regarding state of the industry that took place at InsureTech Connect, there were plenty of opportunities for the industry to remind itself that it’s not all bad, and its core insurance is something that is incredibly important to the stability of people across the globe. Lemonade’s Schreiber called it a social good, while Ariely told his audience, “We need insurance. It is one of the most important products for financial security.” Similar sentiments were expressed across stages throughout the conference.

In fact, in today’s society, income disparity is at one of the highest points in recent history, stagnating wages are plaguing and diminishing the middle class, more people in the U.S. are living in poverty now than at any point since the Great Depression, the social safety net is shrinking by the minute and more than 40% of Americans don’t have enough money in savings to cover a $400 emergency, so insurance is more important than ever.

For Inga Beale, CEO of Lloyds of London, insurance has a critical role to play in society, “It goes beyond insurance–it’s about giving people money and financial independence,” she said during a fireside chat. She went on to describe findings from recent research conducted by Lloyds, which determined that, by the end of their lives, men in the U.K. are six times better off financially than women. When designed as a tool to provide financial independence and equality for everyone, insurance can play an important role in addressing this disparity. While this has been a focus in emerging markets, financial stability and independence is often assumed in more developed markets, like the U.S. and Europe. In reality, it is a problem facing all markets, and increasingly so. Ace Callwood, CEO of Painless1099, a bank account for freelancers that helps them save money for taxes, agrees that insurance has an important role to play. “It’s our job to get people to a place where they can afford to buy the products we are trying to sell,” he said.

You can find the article originally published here.

What Is Really Disrupting Insurance?

In a recent SMA blog, Karen Furtado, SMA partner, posed this question: “Have you ever found yourself hearing a word so frequently that it begins to lose its meaning?” The word she was referring to was “transformation,” but I think that everyone who reads that question immediately has a specific word of their own that pops into their heads. For me, it is the word “disruption” or any iteration of it – disrupt, disruptor, disruptive, etc. In the insurtech movement, those “disruption” words surface again and again.

At SMA, we love the word “transformation.” It’s this year’s umbrella theme of the annual SMA Summit. We spend a significant amount of time with our insurer customers helping them with transformation strategies. We help our technology customers dig deep into their transformation messaging and outcomes. But disruption – well, not so much! SMA believes that it is very difficult to truly disrupt the insurance industry (even though there is a tendency among some people to throw the word about with unwarranted abandon). So, you can imagine how surprising it was that, after a long and detailed research initiative earlier this year, we actually hung the “disruptor” tag on Munich Re!

See also: How Analytics Can Disrupt Work Comp  

The goal of the research was to analyze annual reports, quarterly analyst statements, magazine articles and public presentations to gain insight into, and maybe some best practices from, the innovation and transformation journeys of some of the largest insurers – Munich Re among them. SMA’s recent research brief, Who Is Really Disrupting the Insurance Industry? And What You Can Learn from Munich Re’s Journey, reviews the findings. There are many lessons to be learned from their journey, but three things in particular resonate:

  • Munich Re did not let traditional reinsurance roles place rails around their innovation strategies and tactics. For example, they worked with a broker (Marsh) to develop a pandemic product. Neither of the participants is a traditional player in the product development process.
  • Munich Re has stayed true to its heritage and traditional competencies of risk knowledge and risk management but approached change through a new lens of innovation and brave technology exuberance. We also saw this with Chubb as it has stayed true to its deep underwriting heritage in its innovation strategies.
  • Business units are focused on specific innovation and emerging technology initiatives. They have not cordoned off these responsibilities within IT or stand-alone innovation organizations. Business is an active force, not simply a recipient of innovation outcomes.

It’s a bit surprising and even inspiring that a reinsurer is an industry disruptor. Insurers need to study innovation and transformation activities at all industry levels because the traditional (or hyped) competitors may not be the ones that are changing the industry landscape.

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

To be clear, Munich Re is not the only reinsurer that is on an innovation and transformation path. Others are, as well, most notably Swiss Re. However, early on, Munich Re noted unprecedented external forces emerging and, rather than reverting to traditional and frequently successful strategies, the company boldly placed new lenses on business challenges. And the results are – and continue to be – disruptive. (There, I said that word again!)

Complying With New EU Data Rule

The EU General Data Protection Regulation is set to bring far-reaching changes to Europe’s data protection and privacy rules. The GDPR, which will take effect in May 2018, establishes requirements governing how organizations around the world manage and protect personal data while doing business in the EU. The regulations are strict, and the potential penalties are high — fines up to 20 million euros ($23.5 million) or 4% of global turnover, whichever is greater.

But new rules can also inspire positive change. Such is the case with the GDPR, which has prompted many companies to evaluate and improve on how they manage their overall cyber risk. With the GDPR deadline fast-approaching, some companies appear to be further ahead than others in compliance planning, according to a global survey regarding corporate cyber-risk perception conducted by Marsh.

Marsh’s independent analysis of the survey’s findings highlight three key points:

1. Cyber risk is a top priority at organizations that report they are also preparing for GDPR.

The regulation comes at a time when cyber risk is — or should be — on every company’s radar, a fact underscored by survey respondents. In an age of technology-driven disruption, the threat of evolving cyber risks is real. The WannaCry and Petya ransomware attacks in 2017 had an impact on the share prices of several global companies and did significant damage to a number of smaller firms. They served as one in a string of reminders that any company that is connected to the internet, that uses technology or that stores customer or employee data is at risk — a list that excludes almost no one.

2. GDPR compliance efforts are encouraging broader cyber-risk management practices.

Organizations preparing for the GDPR are doing more to address cyber risk overall than those that have yet to start planning, according to survey respondents. And this is happening despite the fact that the GDPR does not showcase a “prescriptive” set of regulations with a defined checklist of compliance activities. Instead, GDPR preparedness appears to be both a cause and consequence of overall cyber-risk management.

See also: Cyber Crimes Outpace Innovation  

Survey respondents who said their organizations were actively working toward GDPR compliance — or felt that they were already compliant — were three times more likely to adopt overall cybersecurity measures and four times more likely to adopt cyber resiliency measures than those who had not started planning for GDPR.

Source: 2017 Marsh Global Cyber Risk Perception Survey

Practices such as cyber-incident planning and cyber insurance are not explicitly required by the GDPR, but those respondents who said their organizations had high levels of GDPR readiness had also adopted these measures. This works both ways — organizations that have adopted a cybersecurity measure such as encryption also have a jumpstart on GDPR compliance because encryption is strongly encouraged. And, while cyber-incident planning and cyber insurance are not explicitly required, they still enable firms to quickly marshal the resources to meet the GDPR’s 72-hour data breach notification requirement.

3. Even organizations with a higher degree of GDPR readiness may not be fully prepared for a cyber incident.

Consider third-party vulnerabilities. For years now we have known that weaknesses in suppliers, vendors and other third parties are prime entry points into a system for threat actors. The good news is that most organizations now realize this, as indicated by the 67% of respondents who said they assess the cyber risk of vendors and suppliers.

However, digging into what such assessments entail shows a somewhat alarming lack of detail. For example, only 17% of respondents said they have assessed the financial strength of their suppliers/vendors, something that is at the heart of the ability to pay compensation in the event of a loss.

With GDPR implementation just months away, among organizations subject to the GDPR, 8% said they were fully compliant, 57% were developing a compliance plan and 11% had yet to start. Given the effort needed to comply, this suggests many organizations will face challenges meeting all requirements by the time GDPR takes effect in May 2018.

See also: 4 Steps to Achieving Cyber Resilience  

Those who are ahead recognize the GDPR compliance process as a game-changing opportunity. Preparation has effectively focused executive attention on broader data protection and privacy issues, prompting related investments and commitment. In preparing for the new rules, organizations are strengthening their overall cyber-risk management posture and turning what is often viewed as a constraint into a competitive advantage.