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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.

How Insurance Fits in Financial Management

There’s no better time than the present to shed light on an integral, yet commonly overlooked, aspect of financial planning: property and casualty (P&C) insurance needs.

New data from Chubb and Oliver Wyman finds that just 28% of financial advisers address their clients’ P&C insurance needs—leaving clients exposed to significant gaps in coverage and potential out-of-pocket costs. Yet, 77% of successful individuals want their advisers to provide this type of support.

This mismatch in expectations versus advisory services offered presents an opportunity for agents and brokers to build connections with financial advisers in pursuit of holistic wealth management strategies. Here’s how they can begin making in-roads.

Step 1: Articulate Why Holistic Wealth Management Matters

Advisers innately understand the importance of updating client financial planning strategies to respond to significant life changes—be it a new baby or new home purchase. But they often don’t know that failing to advise their clients to take the same approach with their insurance coverage can cost them millions.

Take Rick and Sue Smith. They recently moved into a new home and bought a backyard trampoline for their children but did not update their umbrella policy to reflect this purchase. One day, unexpected tragedy strikes—a friend of the Smiths’ children is injured while playing on their trampoline. Following a lawsuit, the Smiths must pay $2 million in damages.

Unfortunately, the Smiths’ standard umbrella policy only covers $1.1 million in liability—not including legal fees—and they’re required to pay the rest out of pocket. That means tapping into college savings and their nest egg. If the Smiths had an adviser who counseled them on insurance needs, they could have saved a substantial amount of money.

See also: The First Quarter in Insurtech Financials  

The unexpected will continue to happen, and it’s crucial that financial advisers ensure their clients are adequately protected. Helping them understand the P&C risk exposures their clients may face—many of which are often complex and difficult to grasp—is the best foundation on which to build a relationship.

Step 2: Explore the Roadblocks

Once advisers understand the role that P&C insurance plays in wealth management, the next step in the relationship is to help them grasp the three largest roadblocks that stand in the way of achieving holistic wealth management strategies.

First, many clients lack insurance products entirely or lack key coverages within the products they have. For instance, the Chubb and Oliver Wyman study found that, while most individuals have liability insurance, many don’t have high enough limits—similar to the Smiths. It was also shown that most Americans lack core insurance coverages, including for valuables like fine art (87%) or even flood insurance (76%).

Second, individuals who do purchase insurance often buy policies with the wrong features, largely due to using a standard carrier to cover their unique risk profile. As a result, these individuals could have an inadequate amount of coverage, overpay for features they don’t need or leave money on the table by not taking advantage of available discounts.

Third, and most importantly, clients are not receiving the right insurance advice from financial advisers. In fact, the same Chubb and Oliver Wyman research found that the driving forces behind sub-optimal client insurance protection is a lack of understanding of their risks and exposures, unpleasant prior experiences with insurers and little familiarity with insurance products.

No one expects financial advisers to become insurance experts. But, by understanding the core insurance challenges that clients face, financial advisers and agents and brokers can work together to build a holistic wealth management strategy tailored to each shared client.

Step 3: Explain the Business Benefits

Creating harmony between financial advisers and insurance agents and brokers doesn’t just benefit clients—there is also a business development case to be made.

As mentioned, more than three-quarters of Americans want their financial adviser to offer P&C support. If that isn’t convincing enough, 40% of successful Americans surveyed noted they’d consider switching to an adviser who does provide P&C support; 16% who would switch even if they had to pay extra fees.

See also: Why Financial Wellness Is Elusive  

There is clearly an opportunity for advisers to grow their business by working with agents and brokers (and for agents and brokers to increase their client base through referrals), while benefiting clients. The time for financial advisers and agents and brokers to act is now. Don’t wait.

Healthcare's Age of Agility Will Shuffle Market Leadership

Surgeon and author, Dr. Atul Gawande outlined how, at the turn of the 20th century, more than forty per cent of household income went to paying for food, and food production consumed roughly half the workforce. The drive to change that began in a small town in Texas where an array of new methods of food production were tested. The results were stunning. Today, food accounts for 8% of household budgets and 2% of the workforce.

As a swarm of small innovations led to the transformation of farming, so too is a rapidly building wave of innovative new care and payment models leading to similar breakthroughs in healthcare. The winners in the next epoch of healthcare will be those that have agility in contrast to the lumbering nature of traditional healthcare systems.

In old line models, attempting a new care or payment model meant long planning and development cycles. The cost and complexity of testing new models prevent many from being tried. Demonstrating how healthcare hasn’t experienced the benefits of modern, cloud-based software, the leading HealthIT vendor is known to charge $100 million and up for its software and it takes a year or two to start realizing any benefit. [See also Health Systems Spending Billions to Prepare for the Last Battle]

Iterative Testing And Refinement Will Prevail
There’s a striking parallel between the transformation of healthcare and what happened with advertising campaigns as a result of traditional media getting disrupted by digital media.

Once upon a time, because the stakes were high with large ad campaigns, 90% of the effort around an ad campaign was in the planning/building of a campaign — i.e., creating ads, focus grouping creative/promotions, planning where to place ads, etc. When ads were created and it was decided where to run the ads, marketers sat back and watched to see how it would play out with little ability to change the course of a campaign.

Today, as little as 20% of the marketing effort is done upfront before putting elements to the test. The Internet is much more effective at testing offers and ad creative than a contrived focus group. Likewise, smart marketers can tap very sophisticated tools to optimize their ad spending so that the actual place ads run can be radically different than what an ad director may have thought initally.

I’d expect a similar transition to happen in healthcare. As Dr. Farzad Mostashari (National Coordinator for Health IT) said, “what’s transformative isn’t just harvesting & analyzing Big Data — it’s instrumenting what we do, testing predictions, A/B trials…”

It’s well understood that the mega healthIT systems (e.g., a $900M implementation was announced not long ago in the Northeast) take a couple years to implement. The reason for the long implementation, in part, is due to all of the decisions that have to be made regarding customization. The stakes are high as it’s only logical to do system-wide changes when 100’s of millions are at stake, leading some healthcare providers to have weak operating results as a result of healthIT costs as Zina Moukheiber reported. The market leader is noted for its customizability. However, once customized, it’s also noted for its rigidity. That is, if a workflow changes, it’s a major project to change the supporting healthIT to support the new workflow.

Where processes are well understood and predictable (e.g., surgeries), applying a manufacturing mindset is very appropriate. It’s akin to setting up an assembly line at an auto plant at great expense. Once that is done, it can be used for a long period of time and is worth the upfront investment. The danger comes in when it comes to chronic disease management (where more than 75% of healthcare dollars are spent). With accountable models and recognition that the patient or family members have the greatest impact on outcomes (i.e., not healthcare professionals), setting up a rigid system is a recipe for disaster.

If there’s one thing we know for certain, it’s going to take iteration for many years to hone how to tackle chronic conditions as it involves complexity of the variety humans present to the healthcare system. In an agile system that has modern software economics (i.e., dramatically lower cost), it’s feasible to do smaller scale tests. If they prove successful, they can be expanded. Listening to a recent podcast from the Institute for Healthcare Improvement on reducing readmissions echo’ed this point — i.e., addressing an issue like this will take a series of changes vs. one silver bullet.

The rigid mega healthIT systems are a vestige of the “do more, bill more” model of reimbursement, particularly given that healthcare is a supply-driven market (e.g., MDs who own a stake in imaging equipment order scans at three times the rate of MDs who don’t). Spending nine figures doesn’t sound as bad when you have capital projects planned in excess of $1 Billion. Perhaps we should refer to the legacy model as the “build more, do more, bill more” model. Any health analyst will tell you that the cure for healthcare’s hyperinflation is NOT building more healthcare facilities. It would be as if a fire department argued that the way to solve a wave of structural fires was to buy more fire fighting equipment. Indeed, that might help, however there’s a much more cost-effective approach such as having buildings inspected for fire prevention capabilities.

In their book, The Innovator’s Prescription, Clayton Christensen and Dr. Jason Hwang point out how applying technology into old business models has only raised costs. Thus, buying new technology isn’t a silver bullet if it’s put into an old business model. Rather, the new technologies need to go hand-in-hand with agile, new processes. The organizations who optimize their approaches for a more agile model will prevail.

Plugging new technology into old business models has caused health care costs to rise rather than fall

Images are courtesy of Jason Hwang, M.D., M.B.A. Co-author of The Innovator’s Prescription.

Dramatic Gains From New Care And Payment Models
Innovators such as Iora Health, WhiteGlove Health and Qliance rethought the care delivery and payment models from the ground up. Their results have been impressive. For example, Qliance has Net Promoter Scores higher than Google or Apple, while reducing the direct costs of healthcare (i.e., their service coupled with a high deductible wrap-around policy) 20-40%. More impressively, they have reduced utilization of the most expensive downstream costs (surgical, specialist and emergency visits) 40-80%. Iora has reported similar outcomes with some of the toughest patient populations out there. [See “David Clause” in Obamacare Ready to Slay the Healthcare Cost Beast for more on the outcomes Iora and Qliance have reported.]

The next wave of innovators are taking advantage of second-mover advantage as the wave of healthtech startups provide them off-the-shelf software that is an order of magnitude less investment than the first wave of innovators. It’s a couple orders of magnitude less expensive than legacy healthIT. More importantly for the innovators is the speed that they can not only stand up the new technology but also easily iterate based on real world experience. Rather than months or years, it’s hours or days. This is a key component of IT agility. They also make the most of investment others make rather than be threatened by them. A simple example: WebMD is used by over 100M consumers per month. Clinicians can curate information that they think will be useful for patients from WebMD and others (e.g., medical societies) who’ve made large investments in consumer-friendly content. Healthcare can no longer afford to reinvent the wheel. [See Khan Academy Approach to Solve Wicked Problem in Healthcare for examples of new approaches taken.]

Change is already happening faster than many expected. Oliver Wyman’s recent paper highlighted the rapidity of the market shift in The ACO Surprise (PDF). When I was presenting to the Pioneer ACOs over the summer (see summary here), it was already apparent to the pioneering organizations that their new models required new systems. They went on to state they didn’t expect to get anything for the new requirements from their traditional healthIT suppliers for at least the next two years. Meanwhile, the market shift is taking place much quicker than that.

New York Digital Health Accelerator Is A Model To Emulate
Zina Moukheiber highlighted a program that is a key plank of perhaps the largest effort in the country to reinvent healthcare delivery and payment.

The New York Health Home program was designed to make obsolete the traditional uncoordinated and unaccountable “system” that has cared for Medicaid patients in New York. Managing a $50B budget gives Dr. Nirav Shah (NY’s state Commissioner of Health) the clout to attract hundreds of companies that want to enable the reinvention of healthcare. Dr. Shah and other leaders in New York’s public and private sector recognized that with an entirely new set of objectives a new set of technology requirements naturally emanates from that. Through the New York Digital Health Accelerator (NYDHA), they are supporting the growth of agile startups to meet these new requirements. [Disclosure: My company was one of the 8 companies selected for the accelerator program.] Just two months into the program, there are pilots and deployments with the accelerator companies underway in the leading healthcare providers in New York.

The graphic below depicts the transition from the slide rule to the mainframe and then back out to mobile devices. Dr. Shah’s comments in the video above echo’ed the shift from an old “mainframe” method of healthcare delivery to a more distributed “smartphone” model.

Centralization followed by decentralization in computing

New business models require new technology. As David Whitlinger (head of the New York eHealth Collaborative) highlighted in the video above, his organization has built a state health information network but what it needs are the applications riding on top of that network to realize its full value. The startups in the NYDHA will be the first to get access to the statewide network due to their agility in taking advantage of the state’s health information exchange.

A new ecosystem of disruptive business models must arise