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The Insurance Renaissance, Part 3

This is Part 3 of a four-part series. Part 1 can be found here. Part 2 can be found here.

What if Leonardo Da Vinci had been alive to witness the digital revolution? Perhaps he would have been a sought-after consultant and speaker (after his start-up had gone public and his paintings were selling for millions)! Da Vinci was, according to historian Will Durant:

“The most fascinating figure of the Renaissance… [He] took fondly to mathematics, music and drawing. In order to draw well, he studied all things in nature with curiosity. Science and art, so remarkably united in his mind, had one origin — detailed observation.”

According to Da Vinci, a scientist should look at experience and observation before applying reason to any experiment. He uniquely had both a right brain and left brain perspective, the art and the science view, that looked at facts but then creatively used them to innovate — highlighting the power of observation. And Da Vinci’s observations are still with us today.

For insurers, the power of observation is no less important than it was during the Renaissance. In fact, observation’s power for change and growth, using nearly any measurement (e.g. dollars, longevity, capacity for change, lowered risk) would certainly far exceed its Renaissance power. Insurance’s pervasiveness and necessity (it underpins economies to enable them to grow) make it globally and individually life-altering.

If insurers wish to tap into the power of observation, in which direction should they look?

The simple answer is that they should look at trends. But to fully explore trends, it will help us to split them into subcategories, such as purchase trends, lifestyle trends, customer preferences and commercial/industrial trends.

Observing Purchase Trends

This is the most obvious of the trends, yet it may be one of the most overlooked trends. How do people buy? What differences are there between segments such as millennials, baby boomers and small business owners? This goes beyond, “Well, they seem to be using the internet and mobile phones.” Observing purchase trends takes everything into consideration — Where are people when they are using their mobile phone or other mobile device? Where are people when they realize they have the time, need and inclination to purchase insurance? Is there a cosmic moment when the right offer at the right time with the right channel yields a magical response?

See also: Data Science: Methods Matter (Part 2)

This kind of observation can certainly be informed by trends and disruption within other industries. For a quick example, consider how iTunes created a profitable shortcut in the music purchase process (as well as dispensing with a physical product, all of its delivery methods and costs). Then think about how Spotify, Amazon Music, YouTube, Pandora and SoundCloud have all dented iTunes demand and caused its prices to look exorbitant. The lesson for insurers is twofold: 1. Capitalize on opportunities to be in the right place at the right time with market targets, and 2. Be vigilant in price response, service response and capitalizing on the next idea.

Now that insurance is changing, it won’t stop. Perpetual observation, along with incubation and concept testing, will provide a foundation of market safety — if the organization is committed to acting on what it learns. This means continuous incubation and market testing of innovative products and services, likely outside of the normal insurance operations and systems structure — being creative and acting like a start-up.

Observing Lifestyle Trends

Insurance is so tightly bound to lives and lifestyles that it is imperative that insurers keep tabs on how lifestyles are changing. For example, in 2014, single adults in the U.S. began to outnumber married adults. How does that affect insurers with products that may seem to reward families with discounts and lower rates (i.e for multiple vehicles)? The sharing economy is also becoming mainstream, not only with services like Uber and Lyft, but also with shared office spaces, shared living arrangements and shared vacation residences growing in popularity. The sharing economy is all about the sharing of assets rather than ownership of them. Is it time for insurers to start thinking less in terms of insuring property owned or mortality and instead begin thinking in terms of insuring life experiences that may occur over short spaces of time, rather than for years? The rider in the Uber and the vacationer in the Airbnb may feel far more comfortable if they have the insurance for that specific time and need  — knowing that no matter where they are, and no matter what happens, they have access to insurance.

Once again, this requires direct observation and then using the observations to creatively rethink insurance. Demographic studies that account for the next three, five and 10 years can even help insurers predict lifestyle patterns before they become mainstream, capturing the opportunity early and gaining market share.

Observing Customer Preferences

Many newspapers are losing money or are fading away. Bookstores are closing. Large department stores are somewhat outmoded. Bricks and mortar retail outlets are struggling to stay relevant. Purchases of used goods have never been higher. Online purchases have never been higher. What does this tell us about consumer buying preferences? What does it mean to insurers?

The digital transformation of buying that is playing out is unprecedented. But does it mean agent sales aren’t the future or that un-tailored, high-volume products are no longer needed? The answer is no. In many cases, the answer is to increase an understanding of preferences at both a high level (market trending) and an individual level (preference trending). Preferences change frequently, so market analysis and segmentation underpinned by data and analytics play an important role in understanding where reality is at any one point in time. For observant insurers that care about growing their business, building an excellent customer experience and acting on a real knowledge of market trends and individual preferences will strengthen customer satisfaction and retention. It will also build loyalty among market segments that are changing or traditionally hard to keep.

See also: 3 Skills Needed for Customer Insight

Observing Commercial/Industrial Trends  

What do Samsung clothes dryers, FitBits and connected cars have in common? All of them have IoT sensors, all of them have digital connectivity to mobile devices and … they are all relevant to insurers.

When skateboarders started using GoPros (and posting videos to YouTube) and iPhones started locking themselves in cases of theft, insurers should have started paying attention. Drone technology, camera technology, GPS tracking, step measurement — all of these advances will play a role in insurer offerings, capabilities and services. But technological advancements are only the beginning of commercial trends that insurers can use. As commerce changes and as processes and products adapt, informed insurers will be able to support the changing needs of organizations. Start-up businesses and small businesses will be looking for ways to insure venture capital and other investments against loss. Drone and unmanned aircraft insurance needs will grow. Data protection and cyber security insurance needs will continue to grow.

The insurance Renaissance will change the needs of companies and individuals as they embrace new market trends, technologies and as they reshape their preferences. This will likely mean a decrease in demand for some traditional products such as auto insurance or individual life insurance. But, at the same time, it opens the door for new products that embrace the changes. Just look at companies like John Hancock with its Vitality product, as well as insurers providing risk avoidance services using IoT in their homes or those offering shared transportation insurance. For observant insurers that grasp the way financial and business models are changing, there will be excellent opportunities to supply innovative products and risk preventive services. The key will be in the observation.

Insurance is the economic foundation for economies, businesses, families and individuals, enabling them to operate or live life fully and with confidence. Our responsibility as an industry is to continually observe the changes that are happening inside and outside of the industries we serve, adapt to those changes with innovative products and services that meet changing customer needs, and do it with speed, capturing the opportunities unfolding before our eyes.

In my next post on the insurance Renaissance, we’ll see how re-envisioning financial and business models may be one of the ways that insurers can prepare for a new era of progress and success.

Ransomware: Your Money or Your Data!

Your client, ABC Corp. is going about its business and then gets this message:

police

The above is a typical ransomware message, according to a recent Symantec Security Response report. What’s next? Pay the “ransom” and move on? Ransomware is a type of malware or malicious software that is designed to block access to a computer or computer system until a sum of money is paid. After executing ransomware, cyber criminals will lock down a specific computer or an entire system and then demand a ransom to unlock the system or release the data. This type of cyber crime is becoming more and more common for two reasons:

1. Cyber criminals are become increasingly organized and well-funded.

2. A novice hacker can easily purchase ransomware on the black market.

According to the FBI, this type of cyber crime is increasingly targeting companies and government agencies, as well as individuals. The most common way that criminals execute their evil mission is by sending attachments to an individual or various personnel at a company. The busy executive opens the file, sees nothing and continues with his work day. However, once the file has been opened, the malware has been executed, and Pandora has been unleashed from the box!

Now that the malware has been unleashed, a hacker can take over the company’s computer system or decide to steal or lock up key information. The criminals then make a “ransom”demand on the company. The ransom is usually requested in bitcoins, a digital currency also referred to as crypto-currency that is not backed by any bank or government but can be used on the Internet to trade for goods or services worldwide. One bitcoin is worth about $298 at the moment. Surprisingly, the amounts are generally not exorbitant (sometimes as nominal as $500 to $5,000 dollars). The company then has the choice to pay the sum or to hire a forensics expert to attempt to unlock the system.

The best way companies can attempt to guard against such cyber crime attacks is by educating employees on the prevalence and purpose of malware and the danger of opening suspicious attachments. Employees should be advised not to click on unfamiliar attachments and to advise IT in the event they have opened something that they suspect could have contained malware. Organizations should also consider backing up their data OFF the main network so that, if critical data is held hostage, they have a way to access most of what was kidnapped. Best practices also dictate that company systems (as well as individual personal devices) be patched and updated as soon as upgrades are available.

Finally, in the event you are a victim of a ransom attack, you would need to evaluate it constitutes a data breach incident. If the data hijacked is encrypted, notification is likely not necessary (as the data would be unreadable by the hacker). However, if the data was not encrypted, or you cannot prove to the authorities that it was, notification to clients or individuals is likely necessary.

Takeaway

Cyber extortion is more prevalent than most people realize because such events are not generally publicly reported. To protect against this risk, we recommend that companies employ best practices with respect to cyber security and that they consider purchasing a well-tailored cyber policy that contains cyber extortion coverage. Such coverage would provide assistance in the event a cyber extortion threat is made against the company, as well as finance the ransom amount in the event a payment is made.

The Power of Crowdsourcing

From Ben Franklin (inventor of the lightning rod and bifocals) to Thomas Edison (the phonograph and popular form of the incandescent light bulb) to Tim Berners-Lee (the World Wide Web)/Internet, inventions have spawned new generations of ideas and disrupted, transformed and created businesses. That process continues. . . but at a much faster pace, with smart phones, social media, the Internet of Things and much more.

Today, there is the shared economy movement, built around crowdsourcing and open innovation. There is no turning back … only moving forward.

Now, we instantly interact with businesses and individuals on different mobile devices. Collaboration via the Internet has quickly become mainstream in our daily lives, both personally and professionally. Mass collaboration is rising to new heights via crowdsourcing and open innovation, creating transformative outcomes.

Crowdsourcing enables companies to tap into the power of the masses and communities, while open innovation helps identify, develop and market new ideas, products, services and more within these communities. Together, the combination obliterates the traditional internal, hierarchical or linear thinking and development approaches and creates an entirely new playing field that accelerates the execution of innovation within organizations.

Just a few years ago, crowdsourcing was viewed as a method for ideation – a method to have people collaborate online, in an open forum, to develop the best ideas. But today crowdsourcing has moved well past this to new, more sophisticated and disruptive levels.

Crowdsourcing is eliminating the traditional boundaries between companies, creating a porous environment to engage the rest of the world, whether customers, partners or others. It is fueling open innovation and the development of new businesses at an unprecedented pace that, in turn, fuels change in traditional businesses. It is reshaping business and the economy, creating a major new outside industry trend – the shared economy.

According to a Forbes article, “Airbnb And The Unstoppable Rise Of The Share Economy,” in January 2013, for 2013 the revenue flowing through the shared economy directly into peoples’ wallets surpassed $3.5 billion, with growth exceeding 25%. It was noted that this rate of peer-to-peer sharing was moving beyond being an income boost to becoming a disruptive economic force. Fueling this trend are the Millennials, a large and influential economic group. Strapped with high college loan debt that limits their ability to purchase homes, cars or other high-value items, they are trending toward subscribing instead of buying music, movies or TV shows (thanks to the likes of Pandora, Netflix and others). They prefer to access news from Twitter, Facebook or Flipboard, or to buy used goods from eBay or Craigslist. Millennials have grown up with the technology that enables sharing, accessing or subscribing as an acceptable alternative to owning.

The shared economy empowers people to become co-creators, funders and customers of new businesses that are disrupting traditional industries. Just consider Airbnb and Uber, two companies viewed as leaders in the shared economy that are reportedly worth billions, rivaling in value their traditional counterparts, taxis and hotels.

In this new shared economy, traditional companies – like insurers – must quickly adapt to be relevant. Insurers need to begin to ask themselves these questions: What new products and services can we provide to these new business models? How will the new models reshape discounts or the bundling of insurance products? How could we partner with some of these new businesses? How will we need to rethink the customer relationship?

The shared economy is empowering individuals and businesses to access specialized skills, resources, goods or services from anyone, anywhere, anytime. New business models are challenging decades of business assumptions that were based on ownership rather than short-term access or subscription. As a result, the fundamentals of insurance are being redefined, from risk models to pricing, products and services.

While many insurers may see crowdsourcing and open innovation as risky, other industries are experiencing the transformative power. They are fueling the intensity and raising customer expectations that will affect insurance.

Collaboration must happen both within and outside the insurance industry because the challenges and opportunities have become much bigger and broader. Insurers must reorient their business practices from product development to services aimed at creating more value and a deeper customer experience.

There is an unparalleled opportunity for any company, in any industry, to ignite a new future that is powered by the human imagination through crowdsourcing and open innovation.

The overriding and most critical question for insurers is not if, but how will they embrace the shared economy, crowdsourcing and open innovation – first to get in the game, then to influence change, and ultimately to win.