Have the horse before the cart- problem first, then innovation solution

Image

TLDR Insurance is not complicated, say compared to sending a man to land on the moon, but it’s big, and its current challenges are like finding the proverbial needle in the haystack.  Innovation, digitization, virtual sales and service, and so on.  Not unlike the elephant in the fable, insurance is perceived differently by each beholder- is it tail, ear, leg, trunk, sales, or underwriting, claims, accounting, actuarial, or customers?  What is to be innovated?

The drum beat of innovation is in some part fashion, but a large part reality- insurers need to evolve with their customers.  But there’s the rub- what evolution is meaningful, useful, profitable, doable, and able to be integrated into a carrier’s strategy, tactics, and admin superstructure?

This week’s discussion- who is useful to consult when you want to do it, or how to tackle it, innovation idea-wise.

I had a very useful conversation this week with an insurance veteran, Joël Bassani, founder and consultant at jinnbee who is now looking to share his knowledge gained over years with the insurance industry.  Our discussion reminded me that there are many aspects to insurance, many lines, covers, regulations, regions, etc. that one must deal with in the globally interconnected insurance world.  And how does one determine what path to take from that which one is on to one that leverages innovation or change?

What Joël told me as a foundational message resonates well- it’s not necessarily knowing the tech to apply, but it’s knowing what problem you have and working from that to what innovation has to help you.  In his opus of an InsurTech study, Joël notes early on, “An InsurTech is a solution, you need to focus on your Problem!”

And how do you know your problem?  Simple- you ask your customers, both external and internal and you strive to #innovatefromthecustomerbackwards .

What jinnbee has compiled for the industry is a compendium of InsurTech purposes:

You have an insurance problem, jinnbee’s analysis can help find an InsurTech solution from organizations that exist, are experts in their fields, and are available.  So you don’t have to create the wheel, you simply need to know the makeup of the wheel and jinnbee will help find a fit.  Do you make the innovation in house, or connect with an InsurTech?  Jinnbee will help lead your decision matrix.

And as comprehensive a study as jinnbee has produced, there are other organizations who have blazed a trail in terms of aggregating InsurTech organizational data, firms’ purposes, an ability to play ‘matchmaker’, and in providing accessible data. The two most prominent examples are Coverager, and Insurance Thought Leadership .

Coverager

I asked Coverage founder Shefi Ben-Hutta what synopsizes Coverager’s business model, what is the ‘elevator pitch’ that would best describe her firm’s approach:

  • Focus on tech, strategy, and alternative insurance distribution
  • Create and curate coverage (news, not lines of insurance)
  • Address the needs of insurance professionals, those who need access to information regarding how to address their unique problems (sound familiar?)

If the reader has yet to access the Coverage website (or better yet, subscribe to Coverager’s daily email), rest assured you will not be disappointed by a simple blast of information.  Coverager approaches information sharing with a wry tongue in cheek, occasional snark, but always best in class, topical information.  The firm’s web splash page gives an indication of the depth of coverage and information:

Everything from an encyclopedic source of insurance company information, a searchable database of InsurTechs, hosting of industry events, and to the latest marketing scheme or the scoop on a company that has gone off path.  As Shefi recounted, their purpose is:

  • Learn from the past
  • Understand the present
  • Better bet on the future.

Insurance Though Leadership

Take Coverager’s avant-garde approach to InsurTech assistance and look to a somewhat organizational opposite, and one finds Insurance Thought Leadership (ITL).  ITL approaches InsurTech advisory services with more of a formal suit, but with no less breadth of information as Coverager.  ITL has developed through the efforts of its founder, Dave Dias  into a premier source of innovation source/need connections, and a premier host of innovation education.  And the firm is the home of the man with a knowledgeable grasp on the innovation world, Guy Fraker, AKA the man with a thousand sneakers (runners, athletic shoes).  Insurance company C-Suites are encouraged to subscribe to the matchmaking service, and the organization’s excellent editorial staff keeps the industry appraised of the latest concepts.  A look at the Innovator’s Edge page of ITL website provides the searcher an idea of what the firm can offer:

Three very good sources to search and consider, and there are other InsurTech informational resources, e.g., GR Capital’s recent summary article, Why Next Year Can Be a Turning Point for Global Insurance Innovation, and industry influencers who can make connections from personal experience, including those in this list, or this one, or even this one (companies).

 

But it still requires the asker to know what innovation problem needs to be solved, what the customers are expecting (maybe it’s no change?), and how efforts are to be focused.  Innovation is not fashion, it’s strategic application of resources and there are good resources at hand.  And in most cases it’s not part of the elephant, but consideration of the whole beast.

 

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

 

The post Have the horse before the cart- problem first, then innovation solution appeared first on Daily Fintech.

InsurTech and Innovation news- a great banquet but fill your plate wisely

Image

TLDR   The volume and variety of insurance/InsurTech news is almost too much to keep track of, even if one tries to keep focus on one insurance line, one region, one company, legacy vs. innovation, etc.  And of course, I like to keep up with all.  Foolishly, because a jack of all trades remains a master of none, even in the digitally aware environment. 

In any case here’s a sampling of what caught my attention during the past week:

Auto telematics help inform driving decisions for the elderly (and maybe create a sales opportunity for scooter sales  What was rolled out originally as an app to measure driving habits for taxis and fleets by Orix Auto Corp evolved into a clever tool for the elderly and their families to broach the subject of safe driving, and whether a person has requisite driving skills.  In turn, many who choose to surrender their auto driving rights have found a measure of freedom using motorized wheelchairs or scooters, e.g., devices rented by Whill, Inc.    Japan Today   Thanks, Robert Collins

InsurTech builds a market for a complementary product.

Equipment breakdown claims grow in a booming economy

“Equipment breakdown now rivals fire loss in both frequency and severity of claims, driven by the booming economy and human influence, according to an FM Global analysis of large property-related losses greater than $3 million released Tuesday.”

Sure, it’s one firm, but what??? Rivals fire losses for frequency and severity???

“Lack of maintenance was a factor in two-thirds of equipment breakdown losses in 2018, while nearly half had a significant human element impact or influence, FM Global said.”

InsurTech opportunity– IoT devices to monitor equipment performance, maintenance, automated repair, and controlled shut down.  Keep in mind equipment failure equates directly to loss of use and profitability issues.  This speaks to changes in underwriting, policy forms/exclusions, changes in indemnity paired with parametric for a new sort of indexed parameter.   Business Insurance

AIG unit off the hook for non-property damage arising from flood

“A flood sublimit in a property policy applied to all losses arising out of a flood, not just property damage, a federal appeals court ruled, reversing a lower court’s ruling against an American International Group Inc. unit.”

An AIG insured filed suit for loss of use (time element) claims, a contention the appeal court said was unfounded as the policy sublimit was deemed to include all claimed losses, not just direct property losses.  Policy provision/endorsement wording and existing case law- insureds need to understand and/or ensure their broker does.  While this is an insurance ‘due diligence’ issue that is not new, this is another innovation opportunity- policy language/unstructured data analysis.  Chris Cheatham of RiskGenius has done yeoman’s work in providing a service to allow companies to “better understand policy language and create more efficient underwriting workflows,” but that does not force a company to understand what coverage applies.  Business Insurance

InsurTech opportunity- automated learning from denials of coverage– this flows both from the insured to the carrier, and vice versa.  Same principle applies to analysis of litigation- learnings for all.

Which P&C Insurers Made the 2019 Fortune 500?

Let’s not consider the 500, let’s consider the top 100 companies on the list, of which 7 are P&C insurers.  Why care for this article?  Well, the seven firms represent $535 Bn in annual revenues, and employ in total 658,000 insurance professionals (not including those populating tens of thousands of agencies).  That’s a lot of financial clout, and 658K pros (estimated one million with all carriers included)?  Innovation opportunity– Think what the input from an informed constituency of that size could contribute to insurance innovation and the industry’s future but are in whole discouraged from doing so. (roll this up to the global top ten- $917 Bn capitalization, hundreds of thousands of staff)

Unleash the innovation Kraken, P&C industry, free the staff! – the only real problem that would be had will be what to do with all the great ideas.  PropertyCasualty360

GetSafe CEO Predicts Lemonade Will ‘Struggle’ In Germany

“Lemonade will have to struggle in Germany,” GetSafe co-founder and CEO Christian Wiens told Carrier Management vie email. “The market is regulated and complex, and the domestic InsurTechs are in no way inferior compared with Lemonade.”

“While Lemonade is a fantastic storyteller, they concentrated on their brand and not so much on their product and technology,” Wiens said. “Germans, on the other hand, prefer to do it the other way around.”

First sentence- seems the industry cognati agree- plenty of DE innovators already in play across all covers.

Second sentence- not so sure.  Lemonade has been a mostly transparent sharer of the principles behind its policy form, and certainly speaks a lot of its favorite bot, Maya.  GetSafe is no technological slouch as its easy app and MGA-based operation has brought together backing (Munich Re) and leverage of changing customer needs in its property insurance platform.

InsurTech opportunity- harken back to business school– what are your market threats, and who is manifesting a potential competitor’s novelty, and can you iterate more effectively based on what new entrants are bringing to your base?  Lemonade’s substantial financial backing can help them bring a ‘square peg’ to a DE ‘round hole’, so why not shamelessly and fashionably imitate?  Don’t denigrate the disruptor of the disruptors- re-disrupt (is that a word?)   Carrier Management

Plenty to see here, as they say, but don’t rest too long on one news feed- too much of one good thing could cause info-indigestion.

Best approaches I have found- watch what your respected connections watch and watch what smart persons in tangential industries watch- there are bound to be meaningful overlaps.  Don’t limit yourself to one region’s news, don’t limit yourself to one line of thought.  Read the contrarian’s point of view.  And understand that the next best thought may come from an unexpected source/country/post/medium/neophyte/expert/anything.

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

The post InsurTech and Innovation news- a great banquet but fill your plate wisely appeared first on Daily Fintech.

A Declaration of Innovation- Happy 4th of July

image

“When in the Course of financial operations it becomes necessary for people to disrupt the legacy bonds which have connected them with insurance and to assume among the powers of the industry, the separate and equal station to which the technology and innovation entitle them, a decent respect to the opinions of mankind requires that they should declare the cause(s) which impel them to the separation.”

No, Thomas Jefferson and his peers did not declare insurance innovation as a cause in 1776, and his well-known version of the United States Declaration of Independence is far more articulate than the paraphrased paragraph noted above.  But it’s July 4th, the U.S. Independence Day, and it seemed fitting to have a topic that tips its tricorn hat to the day.

It’s easy to declare a need for separation from the bonds of a multi trillion-dollar legacy industry, but as with any long-standing governance or tradition the declaring is much easier to accomplish than the doing.

Insurance innovation is a heavy lift of a heavy industry.  Insurance is many things, many covers, many types of service, many jurisdictions, many carriers, and of course- billions of customers.  As the Insurance Elephant has previously noted in “The Blind Men and the Elephant, InsurTech and its Many Perspectives” , insurance innovation is comprised of many disparate parts that make the whole beast, yet each person who has motive to adopt a ‘separate and equal insurance station’ perceives the beast as the activity in which the respective ‘each’ is involved.

The industry functions and provides the foundation upon which ownership and finance can rely, yet in its entirety the industry is held captive by the tyranny of technical, organizational and process fealty.  Process inertia and associated data management are ingrained within every aspect of the insurance system with which all are required to comply, and innovation must expend valuable energy in convincing incumbent management hierarchies of its worth.

And there are plenty of data that need to be processed- one by one, by ten, by one hundred, by one thousand, million, billion, trillion forms.  The industry employs millions globally to handle the volume of paperwork/data/forms.  Customers (for the most part), vendors, providers, service persons, agencies, and regulators are accustomed to the paper chase- but will that ensure an enduring, effective industry going forward?

These truths are self-evident- insurance must free itself from the shackles of legacy complacency.

There are many ‘patriots’ resisting the tyranny- companies that have developed clever methods to structure data that exists in native unstructured form, e.g. ExB Labs whose Cognitive Workbench can “search texts and images for content,…also classify, interpret, summarize and evaluate” unstructured data.  Or RhinoDox, whose document management innovations make captured, unstructured data easier to find and use (yes, it’s clear that for now that firm’s focus is on manufacturing innovation, but their heart remains available for insurers).  And insurance process management platforms that have developed-  These are, however, just tools to mitigate the overburden of legacy systems, not the inertia-busting change that is suggested for the long-term health of the industry and its participants.

Consider- there are a whole lot of persons employed in the legacy insurance industry, persons who understand what customers need, how processes function (or don’t), how to workaround systems that are obsolete, ensure customers have the appropriate cover, adjust claims within a patchwork of old and new systems, are subject to operating priorities that vary by the quarter, and are witness to the loss of intellectual capital due to attrition and retirement of tenured colleagues.

Yet despite those self-evident factors these millions are not encouraged to participate in the active dialog of innovation and InsurTech.  Not only is that wealth of staff knowledge generally unavailable, outside of participation in conferences most of those who are putative industry leaders are reluctant to be or missing in the discourse.  The drum beat of innovation is heard in the town square but remains surprisingly mute in many parts of the industry.  In the absence of the light of discourse, the tyranny of legacy insurance prevails!

As with established global governance two hundred and forty some years ago and the onset of the nascent United States, there is optimism for change.  Perhaps it is time to examine if the current indemnity model that exists for many covers has been outpaced by data availability and alternate means of claim reimbursement, e.g., modified parametric plans.  There are plenty of vested interests holding indemnity contracts near, but is a rebellion in the offing?

There are markets that have avoided the need to innovate- those are the digital native markets such as China, or India, or South America, where insurance products have taken hold for hundreds of millions of customers by working from innovation backwards- what does the product need to be to serve the delivery channel the customers expect.  There are niche customer segments that have been found and are being served by new products and new players, but these unique markets are an insignificant (statistically speaking) part of the whole.

So let’s talk about the incumbent markets that have the technical, organizational, and process debt that innovation has yet figured out how to amortize, but that is fodder for a declaration of insurance innovation independence.  A need to cast off the yoke of what has been and find the what can be.

A very heavy lift, indeed.

A Happy Fourth of July to my U.S. colleagues.  And apologies to Thomas Jefferson, et al.

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

The local insurance agent- insurance ecosystem re-defined

Source

You don’t have to look very far to find an active insurance ecosystem- just visit the neighborhood insurance agent or contact a commercial broker.  They have been fostering the ecosystem method of serving customers since before the term was moved into the front row at the innovation and InsurTech get-together.

TLDR.  Read any of the volume of current discussion regarding insurance ecosystems and you’ll find references to smart device apps, on-demand, shopping or ride sharing companies that are adding insurance options (Paytm and LIC, Amazon and Acko, Flipkart and Digit) but these are not surprisingly in insurance markets that are developing through a ‘digital native’ business culture.  Ecosystems per se have been a difficult ground up start in more developed insurance markets, e.g., U.S., Canada, and Europe.  But what of the US and Europe- forget being part of an ecosystem?

A quick look at defining an insurance ecosystem finds:

Ecosystem- “An ecosystem is a new business paradigm in which firms use digital tools to leap over traditional industry boundaries or forge partnerships.”  (WHY ECOSYSTEMS ARE THE FUTURE OF INSURANCE, Accenture).

Huh.  Leap over traditional industry boundaries or forge partnerships.

Or this-

“we suggest that middle-market insurers may want to consider expanding their horizon well beyond the standard product and service options they typically offer policyholders (see figure 2). This would involve creating or joining a much broader ecosystem offering a wider range of business support solutions, as well as facilitating educational and networking opportunities for customers.”  (Building new ecosystems in middle-market insurance, Deloitte)

Hmmm.  Offering a wider range of business support solutions, as well as facilitating educational and networking opportunities for customers.

I suggest if we look past the urge to see ecosystems as a new paradigm in developed insurance markets you will find- the agency model.  Not just the independent or captive agents who are churn and burn lead chasers, but the agents who have a holistic approach to building relationships (old school suggestion of recognizing inter-connectivity of business- nascent ecosystems.)

Digital ecosystems such as are noted above typically didn’t begin as systems; they were applications.  WeChat was launched in 2011 as a mobile chat app by China digital giant, Tencent.  Within four years it had developed by the popular demand of users and affiliate companies into being a 200 million users per month- wait for it- ecosystem of users and providers.  The application was adding value to what was originally a form of communication.  It was accessible, easy to use, had features that were meaningful in daily life.  It’s said that WeChat was the impetus behind the explosive growth in use of QR codes in China.

How does that tie into insurance, or insurance ecosystems?

There are tens of thousands of insurance agents in the U.S. alone, each of whom is working to build business, retain customers, increase the actual or perceived value customers find in the agent’s service, in other words- working to sell a reason for the customers to interact with the agency more often than once per year.

Smart agents have figured ways to do this for years before digitization- sponsor little league, be active in the chamber of commerce, bring a dish to pass at the service organization luncheon, donate bicycles to good readers at school (Chris Paradiso !), names on bowling shirts, filling sandbags, holding a customer’s hand when a claim occurs, referring the accountant next door, keeping a bank account in the local 1st National, keeping abreast of business and tech changes, and so on.  Building the value he/she could bring to customers, being a resource.

How is it that agents can be the insurance ecosystems of today?  If in China- have your QR code on WeChat, of course.  Piggyback on the platform Tencent has constructed.  But in mature markets where the insurance industry has tenure, the model has it’s own reference- ‘legacy’- and the availability of carriers is a fractured confusion to customers?

Active agents have the basis- relationships with collaborative businesses/organizations, and a pool of mostly content customers.  How might the agent leverage these resources?

  • What does an agent’s website say when it’s opened? Chances are it says, “I want to sell you something.”  So, people visit the site when they need to buy insurance.  Why not have a splash page that showcases the value/connections/resources that the agent has built over time?  A site that is a resource pool for clients that also serves as a selling tool when needed. (not like that of the Life Insurance Corporation of India– love their resources but the splash page is crazy busy).
  • Collaborate with business partners- what’s wrong with having synchronization of messages within the respective websites? If the agent resides in a smaller community then resources are common, success of one results in success of another, and there’s that synergy thing to take benefit from.
  • Be an active part of social media that makes sense for business. Not just a ‘like’ clicker, but a question asker, expertise sharer (Billy Van Jura )
  • Don’t try to re-create the wheel- link to existing resources customers are familiar with. Have an FAQ link on your site?  Did you know that Pinterest has an insurance info page? The details aren’t too tough to get a link onto your page, and cross-clicks builds your digital presence.
  • Be an easy source of information/links for emergency, weather, and government contacts. Be the source customers want to keep as a favorite.
  • Build a smart device application that makes sense- not a selling tool but a resource for the user that can also serve as a selling tool.
  • Leverage the digital resources your stable of carriers has- they know that being a digital resource is important; some are better at it than others.
  • There’s a lot more that the reader can think of- convert your analog ecosystem into a digital version.

There are agents who are working to perfect targeted ecosystem plays, e.g., cyber insurance (Brett Fulmer, Joe Hollier, Ben Guttman in the US), or in unique SME plans (Michael Porpora ), or in facilitating service tools for high net worth customers (Kurt Thoennessen).  A very good example of building an ecosystem/resource platform is Pat West whose firm, Hedgequote’s primary function is to be a resource for those needing information on insurance and potential firms from which to purchase.

I regret I do not know many agents working outside of the US, but some good examples who are building services beyond the basic sales model include Muhammad Ayodeji working in Lagos, Nigeria, (who in addition to representing insurance well posts traffic and accident updates through Twitter), or Mark Callanan in Sydney, Aus, who investigates crop and parametric options for the farmers and farm landowners in the country.  And one never knows- the transition that German insurer DFV-AG   has forged from being a more traditional carrier to digital expert may lead the firm into digital ecosystem land.

The point is that ecosystems can be insurance businesses that truly offer a wider range of business support solutions, as well as facilitating educational and networking opportunities for customers.  Perhaps a clever player will build an ecosystem of business connections that is a digital repository of business links.  Ecosystem is still be defined- agents can evolve beyond the world of sales quotas and discussions about premiums.

“Alexa, who does my insurance agent recommend for plumbing repairs?”

 

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

Insurers love NPS- can the IoT help show why it remains an important measure?

 

 

TLDR  What to do, what to do, in the InsurTech, innovation insurance world?  Insurance remains a ‘sold, not bought’, product.  Virtual service is not only becoming a demand of customers, but carriers are embracing the concept based on expectations of efficiency and economy.  Will there be a disconnect between service efforts and how customers perceive it?  As customers change their habits, can insurance change theirs?  What is the common thread?

How an insurance carrier performs is typically known only when an adverse situation occurs, i.e., a claim, and service is triggered for the customer, a customer who doesn’t really know what to expect during a claim experience.  So of course the industry knows this and has devised many ways of gauging service performance: from internal surveys, JD Power ratings (Customer Service Index), and most recently, by asking claim customers how they would rate the service they received in terms of one question,

How likely is it that you would recommend this company to a friend or colleague?”  

 The answers to that clever question are the basis of the calculations for a ‘Net Promoter Score’ (NPS), a service (loyalty) measure devised by Fred Reichheld and other clever minds at Bain and Co.  How does this tie in with InsurTech principles?  Seemingly through another three-letter acronym, IoT (Internet of Things).

 

What are you talking about, you say- NPS is a survey administered measure made available to but a fraction of insurance customers, is but one question, and disregards the experience of the majority of the customers.  IoT speaks to connected devices, ostensibly meant (to many in the insurance world) to detect adverse conditions, track adverse conditions, determine behaviors that might predict adverse circumstances, and by extension reduce carriers’ exposure to claims. One measures experience, and one works to predict experience.

Well, I’m here to say that the two concepts couldn’t be more intertwined, and as innovation within the insurance industry becomes more practical, and as IoT becomes more ubiquitous, the interplay of NPS and IoT will become clearer.

At its root NPS was developed as a means to measure what the folks at Bain found as the key driver of business growth and success- customer loyalty.  Loyalty has been a proven factor in business growth and businesses who foster customer loyalty not only retain those customers’ business, but those same customers are motivated to bring other business along.  Enhancing customer loyalty, adding value to the customers’ lives, and refuting the contention that “loyalty is dead” (see Mr. Reichheld discussing that here ) is the foundation of NPS.  And everyone touts their NPS results, don’t they?

So along comes IoT principles as part of the InsurTech wave, and its primary advocate in the InsurTech world, Matteo Carbone. (In an odd coincidence as with Mr. Reichheld, Mr. Carbone is also a Bain alumnus.)  Mr. Carbone has espoused the concept that “all insurers will be InsurTech”, but in addition to that his IoT Observatory has become a central authority regarding insurance effects of connected devices in autos, houses, and to some extent, wearables.  And a main principle he covers within his recent article, “Smart Home Insurance Strategy 101”, is loyalty :

This way of enhancing proximity and interaction frequency with policyholders (connected devices and value addition) – while creating new customer experience and expanding relationships – is one of the reasons for adopting IoT in home insurance. These interactions with customers are one proven way to earn higher loyalty and allow the differentiation from competitors.”

There’s that word- loyalty.  In an insurance world where virtual service is becoming the holy grail for carriers, how will loyalty remain a factor that can be influenced by carrier service?  Even the InsurTech poster child, Lemonade, has to have concerns that as long as NPS remains an important measure of customer service (Clearsurance may have ideas about that), interactions with insureds must remain focused on maintaining or building loyalty.  Can a bot do that?

IoT programs have that opportunity to integrate technology, virtual service, and value addition that can build customer loyalty, for example, value-added services as noted by Mr. Carbone.  “But the real opportunity is to solve customer problems by delivering enlarged value propositions for their homes. (Some) services enabled by home IoT are:

  • Safety/Security: remote monitoring and emergency services to provide peace-of-mind to the homeowner;
  • Efficiency: tracking and optimization tools to contain the expenditures (energy and water) at home;
  • Property services: concierge with a platform of certified service providers (such as plumbers, metal workers, carpenters, construction workers or electricians) for home administration;

Seems any or all of those points would serve to build customer loyalty in the absence of direct service from claim staff.  And what of agents?  Insurance sales and servicing of policies remain a predominantly agency-driven proposition in the US and Europe- agents/brokers are beginning to recognize the need for provision of more to customers than just quotes.  In markets where ecosystems and smart device access are the primary entry for customers to insurance, loyalty may be even more fragile as ecosystem change is simply an app away.  In all matters the focus must remain on enriching customers’ lives, on #innovatingfromthecustomerbackwards.

NPS and IoT- the concepts can’t make insurance a more ‘bought, not sold’ proposition, but effectively focusing on IoT in an increasingly virtual insurance world can help maintain or build loyalty, and as the architects of NPS found, that is the foundation of an effective growth strategy.  The two principles have previously marked different paths but are now on intersecting courses.

 

image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

Enjoying a cool discussion of InsurTech carrier Lemonade, not too sweet, not too sour

Lemonade- it’s not just a drink anymore

TLDR How can an interview with an insurance startup founder go from discussing InsurTech and innovation, and end up focusing on the concept of a Ulysses Contract, Game Theory, Prisoners’ Dilemma, and the Nash Equilibrium?  Simple- find some time to talk with Daniel Schreiber, serial entrepreneur and now CEO of Lemonade Insurance.  It’s certain that additional perspective would have been added by Daniel’s co-founder, Shai Wininger, but we’ll focus on Daniel’s views for this article.

Lemonade has been under intense scrutiny since its entry into the insurance world in 2016, and Mr. Schreiber has been the guest of many interviews since then.  As is expected for any figure that resides in a legacy industry, finances and insurance ‘stuff’ have in general been the main topics of those discussions.  It seems all the questions related to insurance accounting and finance had been asked, and those at Lemonade have been rather public in getting out their ideas of what the industry should know about the company, so I was not interested in simply conducting another ping pong contest of convention versus innovation.  In planning for this Daily Fintech interview I thought I’d take a different approach- ask others what they would want answered by the CEO of this very public startup- so I crowd-sourced the questions.  More questions came than there would be time to ask, but the questions were shared with Daniel ahead of time so we figured we could sort out some key points.

Spring boarding off a recent optimistic posting by the firm’s Chief Insurance Officer,  John Peters  (read that here ), Daniel was asked of his impression of Lemonade in the insurance market- customer impressions, marketing, industry reaction, any factor that was meaningful.

The primary response- gratification that the insurance incumbency is tolerant but somewhat unimpressed based on ‘backhanded’ compliments, e.g., “they are good at PR,” “have a delightful APP,”, “they don’t ‘get’ insurance,” “Lemonade is not serious,” and the like.  Not ‘getting’ insurance is due to the app that is at the core of change in insurance, with invisible to the eye analytics, transformed user experience (UX), and predictive risk tools that are unavailable to traditional broker systems.  Not getting it means the firm’s approach is truly different/innovative.  And as time passed, the firm’s growth prompted comments such as, “if it grows like a weed it probably is one.”

The discussion led to a general touch on the first of the crowdsourced questions (answers quoted but paraphrased from Daniel’s remarks):

At the very beginning of Lemonade’s creation, what was the vision, who was the target customer, what value could you add to them?”

DS:         This, of course, touched on a primary reason for the firm’s existence- how could insurance be made available to customers in a way that was entirely different than the legacy system that was by some estimation, “A business that involves selling people promises to pay later that are never fulfilled?” (Urban Dictionary) .  Early on, per Daniel (and recounted by co-founder Ty Sagalow in his recently published book, “The Making of Lemonade”) , the founders of Lemonade worked to form an insurance company that aligned the interests of the carrier and the customers, in a fashion that was economically viable, applied cutting edge technology, and contributed to a common good.  Insurance is a need for most and is not a product that people yearn for, it is as is said, ‘sold, not bought’.  The vision was to be a 24/7 insurance company that delighted customers, and not one that irritated them.

“What early action do you regret was handled in the manner in which it was?”

DS:         At the initial launch of the company we announced Lemonade as being the ‘world’s first P2P insurance company’, a designation that posed immediate issues.  First off, the phrase only made sense within the insurance industry, insurance customers didn’t know what P2P was and didn’t really care.  In addition, those within the industry questioned the definition and if Lemonade was truly peer-to-peer.  Rather than wrestle with semantics and the distraction we backed off from that marketing.

An important aspect of the firm’s make-up is the charitable contribution (up to 40% of premiums.)  Shouldn’t contribution levels be detached from an arbitrary loss ratio result?

DS:         We are very proud of the amount of premiums that Lemonade has shared with charitable organizations on behalf of our policyholders.   2018 found the contribution to be approximately 2% of premiums.  It’s understood that Lemonade is not the only company to make charitable contributions, but compared with other companies Lemonade’s efforts represent not a bilateral, traditional approach where a portion of a company’s revenues are donated to a charity, Lemonade expresses a trilateral approach- the policyholder, the company, and the designated charity.  As discussed, Lemonade’s financial operating model allows for a set percentage of earned premiums to be set aside for operations, a portion for reinsurance backing, and the balance for payment of claims.  When claim/loss payments have a favorable performance versus the set aside, the balance is apportioned by group to the respective policyholders’ choice(s) of non-profit.  As a B Corporation, or Public Benefit Corporation, Lemonade is proud of its efforts to be a social good that is also an insurance company.  

“When it’s said in Lemonade’s press and marketing that traditional insurance companies make money by denying claims, which claims do incumbents deny that Lemonade would pay?”

DS:         Lemonade clearly understands that an insurance policy is a contract between the carrier and the policyholder, and the intention is not to say that in handling claims from customers Lemonade will pay claims outside of the policy provisions.  What is being said is that for both parties to the contract incentives matter, and alignment of interests matter, and actions follow the incentive structure.  If there is a reduced temptation for the carrier to deny claims because the outcome is to do good, and there is a reduced temptation for the insured to embellish claims for the same reason, then the dynamic of denied claims, or incentive structure affecting both sides is reduced and in fact there becomes an even closer alignment of interest to do good.  In actuality the principle is a foundation of Lemonade- the Ulysses Contract and Game Theory (author’s note- these concepts will be addressed in more depth in a future article).  Just as Ulysses ‘tied his own hands’ to the mast due to his knowing that the sound of the Sirens would tempt even him, Lemonade ties its financial hands by setting a designated amount for operations, reinsurance, and claims, and the remainder is contributed to good.  There is not a unilateral financial benefit to denying claims (or arbitrarily not paying claims) because any excess is not the company’s.  And, customer knowing that if they embellish claims they are in essence reducing that which goes for the common good.  So it’s not that Lemonade is paying or not paying claims, it’s that the company has its own Ulysses Contract to guide its behavior.

“There are fans of the firm’s Instagram vids- How did you come up with the idea, and what else is the company doing like that to propagate your overall message of transparency and social good?”

DS:         Those videos with the pink goo and others are from a variety of sources, primarily from Lemonaders within the company.  The goo was an idea from a product designer, for example.  If you recall the publicity driven by the Banksy art piece that shredded itself in front of an auction audience not long after that a Lemonade quality assurance staffer came up with a quick homage here .  We are unafraid to encourage these types of contributions.

“A recent Forbes article and LinkedIn article by Chief Insurance Officer John Peters mentioned Lemonade’s loss ratio tracking in the high 80% range, a significant improvement/trend from the prior year’s results.  Is the reported ratio result being ‘subsidized’ by ceding premium and loss cost amounts to the firm’s reinsurers?

DS:         Lemonade are the guardians of the insurance ecosystem as established by the company, and operations are to the benefit of all stakeholders.  there is no financial ‘game playing’ to meet an arbitrary result.  The firm’s reinsurance agreement sets excess limits where the reinsurer accepts responsibility for claim costs above the set threshold.  There is recognition that traditional measures are what the market sees and holds as comparatives but we figure if the original business model is followed the results will speak for themselves.

“You’ve done great stuff, is there one thing of which you are most proud?”

DS:         The ability to create an insurance system that delights customers, allows growth, and generates data sets where the system begins to feed off the customer and claim experience.  Seeing the loop succeed gives us great pride.  90% of FNOL processed by Bot, and 100% of sales?  Validates our founding thesis.

So many questions, and not enough time for them all.

As I reviewed our conversation, recent results/articles, and Mr. Sagalow’s book several things were apparent:

    null
  • The company is ‘all in’ on allowing the data analysis approach to continue its development,
  • Growth within markets is driven as much by external forces, e.g., requests from European countries, as it is by internal plans.
  • The firm’s start and development benefitted greatly from the founders’ past experience in startups and connections developed therein,
  • Lemonade is impatient- that in itself is innovative in the insurance industry.
  • The firm remains too new to have financial trends that aren’t subject to variance from reporting period to reporting period.  86% loss ratio can be celebrated today but the vagaries of growth in a new carrier and claim volume can produce unexpected results, and some interesting ceding to reinsurers.  (keeping things grounded with ongoing analysis by Adrian Jones and Matteo Carboneinteresting summary here )
  • Customers who have provided service surveys like the insurance products and service they receive from Lemonade, see Clearsurance’s survey summaries here
  • There’s pride in how charitable contributions have been an important piece of the firm’s entry into the market
  • The entry into the industry is not a sprint- a carefully run marathon is what the firm needs.  The P&C business is a trillion-dollar (US) business and Lemonade holds a very small part of that; its operating premise is still fragile
  • There is strength and opportunity in the firm’s digital approach to operations

The original intention was to interview a CEO and produce a summary of the firm through crowd-sourced questions.  The interview came off well, the questions were presented in volume, where the problem arose was in the expansiveness of the firm’s concepts, the great interest in the entry and growth of the firm, and the author’s inability to distill the available information into one column.  The discussion with Daniel Schreiber did not change my status of being a pragmatic optimist where Lemonade is concerned, but many questions were answered.

I look forward to further examination of the Game Theory concepts as applied by Lemonade in a future column/posting. 

My thanks to those who provided questions in addition to my own (and apologies that not all could be addressed in this article):

Ben Baker Billy Van Jura Anand R (Lucep) Nick Lamperelli Pat West

image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers,
Attorneys & Owners. He also serves the insurance and Fintech world as the
‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people
mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our
research daily to stay ahead of the curve. Check out our advisory
services
 (how we pay for this free original research).

 

The smartest investment for your innovative insurance play just might be in cultural awareness

It’s not just the tech concept…

TLDR Having the correct idea for underwriting, distributing, selling, adjusting, or scaling insurance may not be the right idea if the scheme is introduced or sold where the customer understands the plan but simply doesn’t accept it in cultural context.  How and where one sells an idea in the connected global insurance industry might just be more important that what is being sold.

I had a great discussion with a very clever InsurTech company this week, Uncharted, a digital insurance sales facilitation and distribution entrant focused on health benefits and business SME markets (check out their website in the link- I won’t do their concept the justice they can).  They are Singapore-based, building toward a global reach.  The firm’s Chief Commercial Officer, Mark Painter, held my attention regarding how the firm was building its sales and distribution tools with the intention of giving carriers and brokers options and efficiencies from point of sale right through home office underwriting, binding and admin of data.  Taking the teeth out of the unstructured data beast, so to say.  Mark (who’s a pretty savvy finance and insurance guy now working alongside Uncharted’s founder, Nick Macey) recounted a recent experience in introducing the Uncharted system into a southeast Asia market carrier’s system, excitedly advising that significant sales admin improvement for the thousands of field agents will or had been gained for the carrier.  That’s very cool.

But my follow-up question was: If the carrier’s products are traditionally sold by agents say, working off of scooters, meeting with small shopkeepers over tea, or noodles, and with the bound policy traditionally taking a few weeks to present to the insured, will an ‘instant’ policy innovation resonate with the known culture of doing business in the neighborhood?  Will an app-based policy hold the same ‘worth’ to that analog customer? It might if the businessperson is comfortable with the growing use of digital ecosystems, it might not if the owner is not. 

How the customer expects to transact business is the key- are you practicing innovation from the customer backwards?

Well this prompted a comparison discussion of what the firm is working with in Zimbabwe, where most residents/customers transact business through smart devices using EcoCash, a mobile payment platform hosted by local telco, Econet.  In this instance EcoCash has an approximate 80% market use penetration, and as such adding services to the ecosystem is an accepted practice.  A company looking to make inroads into the market would be wise to joint venture with or leverage the Econet ecosystem rather than try to make inroads through traditional agencies.  However- once established in the market the firm would be better able to bridge to traditional insurance channels for more complex covers, riding the market awareness built through use of local, accepted practices.  Know what and how the customer expects to transact business and go with that flow.  It ofttimes does not matter how wonderful your product or service is if the customers simply are not accustomed to how you market.  The correct answer is not always the best answer.

There are plenty of examples of companies ‘growing’ their insurance products organically through other business relationships built through understanding local needs.  Take for example the relationship of ride sharing platform Go-Jek and one of its investor firms, Allianz X.  The ride sharing startup was a target of Allianz’s investment, but Allianz also recognized with Go-Jek that the drivers needed insurance, and the two firms collaborated within the bounds of the business model and driver culture to make insurance available within the local reach of drivers.  Don’t be surprised if a similar insurance partnership approach isn’t carried into east Africa’s burgeoning ride sharing environment as the pair of firms extends its reach with their investment into Uganda-based ride hailing entrant, SafeBoda  (a timely share by you, Robert Collins ).  Innovation and marketing developed from business and local culture needs.

There are many examples of firms developing insurance innovations, many successful and many not so much.  The takeaway for the reader from this posting- the firms noted above are working to apply clever innovation based on good ideas, but also on integrating the ideas into what fits a respective market’s expectations, and what businesses and customers are accustomed to.  Ground-breaking innovation might succeed by circumventing that of which a market is accustomed, but in most cases a firm’s best investment is understanding what the locals want and how they want it, and simply following their lead.  Is your approach just a correct answer, or the right answer?

Image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Digital transformation for insurance or simply competitive advantage?

Just when I thought the Elephant that is insurance was fully accepted as an aggregation of many participants’ perspectives, along comes Digital Innovation, Digitization, and Data Culture discussions as another example of many parts making the whole.  What makes effective digital innovation/integration for an industry or firm, is digitization the root of InsurTech, who in the firm should be taking the lead on evolving the firm into a digital world, all questions that crossed my media feed this week.  On one day!  And a big question- does digital transformation stand on its own as a business initiative, or is it simply one other activity that comprises a firm’s efforts to maintain or grow competitive advantage?

As for the academic approach to digital transformation, I’ll consider two authors of articles that make good points and have solid basis from which to speak. I contend that in some ways the authors are also subject to the potential narrow path of each of the vision-challenged men in the fable- a conceptual grasp primarily of what is immediate and not in consideration of whole issue.  Through whose eyes are the issues being considered?  Customers’? Staff? Leadership? The public?

While there as many definitions of digital transformation as there are discussions about it, this example is a pretty solid one:

“we define digital transformation as the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers. Beyond that, it’s a cultural change that requires organizations to continually challenge the status quo, experiment often, and get comfortable with failure.”  The Enterprisers Project 

(Consider though, that even this description does not embrace transformation from the customer-backwards perspective.)

Two authors who have a good grasp on digital transformation and its effects/integration on/in business provide us some bullet points:  Jim Marous, global authority on marketing and strategy for retail banks and credit unions in his article, “Becoming a ‘Digital Bank’ Requires More Than Technology”, and Claudio Fuentes, Product Manager at Pypestream, as noted in “5 requirements for building a strong data culture”

Areas or components that the authors suggest are needed or are present for effective digital transformation within an organization:

Digital Transformation Pathways

Good summaries, good advice, but are the bullet points actionable across the entire spectrum of insurance or banking businesses?  What if the subject firm is brand new, tech-based, with no analog process ‘baggage’ to wrestle?  The reality of digital transformation is that businesses need to consider the principle as part of being competitive within their respective industries, and in being responsive to what their customers need or expect.  Transformation for the sake of being fashionable might be considered a fool’s chase.

Consider the challenges for the Nigerian insurance industry- very low insurance product penetration, and lower than average acceptance among the population regarding the need/purpose of insurance products.  One hundred million potential insurance consumers, urban and extremely rural.  Does digital transformation make as much sense for that insurance market, when the delivery to existing customers is meeting their needs, and expanding penetration to the balance of the population can be effected through smart devices (much higher penetration of smart devices than insurance) and InsurTech players?  Are digital efforts potentially transformative to existing processes if the customers have no expectations of improvement?  Would it be focus and funds not well spent?  And if an industry is being built from ground up, there is little transformation to be had as any efforts are greenfield.  The point- it’s competitive advantage and customer responsiveness that should drive transformation or not.

(if you want to read a good summary of Nigeria’s FinTech/InsurTech activity and challenges, see Segun Adeyemi,  Where are the Digital Insurance Platforms in Nigeria? )

 A recent article by Richard Sachar, titled Who is Responsible for Leading Digital Transformation Within Insurance Companies  prompted a discussion with one of my favorite InsurTech connections, Thomas Verduzco-Weisel, wherein I opined:

“Better question, one might say- who is responsible for maintaining (or gaining) competitive advantage for a respective insurance organization? Digital transformation has been continuous since the advent of electronic data processing; it simply has a rallying cry now called ‘InsurTech’.   Customers may not know how (what methods) they want their insurance products delivered, but they do know what is important to them.  Keeping that pulse drives how the firm needs to maintain its edge, and then applying process, admin, or tech innovation to keep that edge will direct the firm in who/how/when/and with whom any transformation is needed. What if a firm’s culture, processes, staff, and delivery are driving growth and profitability now, should there be a transformation just to be fashionable?  Good business practices should drive any change, and by extension strategy at the senior level, tactics at operational levels, and all levels keeping track of how customers and staff are maintaining comfort with operations. “

(However, if there’s an urge to be fashionable, innovate/transform from the customer backwards.)

Digital transformation is as fashionable a concept as is InsurTech, and needs to be approached within business context.  There is no question that if transformation is undertaken prudent businesses should follow a framework as suggested by Messrs. Marous and Fuentes.  But before jumping into the fashionable approach, is any transformation being undertaken as a standalone concept, or as part of a firm’s competitive or growth strategy? Have to consider the entire beast, not just one facet or part. And as my fine colleague who knows of such things, Karl Heinz Passler,  states, Stop Confusing InsurTech With Digitalisation.

Digital transformation makes sense where it makes sense, and when undertaken, it makes sense to consider what all the organization’s stakeholders need.

image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

InsurTech adherents must see- the Elephant is insurance

A common approach to InsurTech- describing insurance by parts, not the whole

I’ve noted in the past that InsurTech is not dissimilar to the fable of six blind men describing an elephant solely on touch- each man ‘sees’ the elephant from the perspective of his narrow exposure to a very large creature. One sees a rope because he has grabbed the tail, another a tree because he’s grabbed a leg, another a snake due to the feel of the trunk, and so on.

InsurTech is that similar situation- many firms ‘touching’ the initiative from a narrow perspective. Not blind, surely, but not from a vantage of ‘seeing’ the entire concept. Of course it would be very daunting to try to grasp the industry from all angles, and very expensive too.

So,
there are the individual firms describing their unique parts- underwriting,
pricing, distribution, administration, claims, agencies, customer acquisition,
etc. And designing and/or applying technology- artificial intelligence
(AI), machine learning, IoT, algorithms, data science, actuarial science,
behavioral economics, game theory, and so on. Using technology and new
methods to help them see their part of the beast that is insurance innovation.

We get caught up in the thinking that InsurTech is a discrete concept– because each involved player has his unique approach to defining how change will be effected (and we can’t have multiple terms to describe what the movement is.) In the end each is convinced the efforts being made in their firm are defining the term. A recent article penned by Hans Winterhoff, KPMG Director, 3 Lessons European Insurers can Learn from Ping An, provides suggestions for legacy insurers based on successes Ping An has had in the China insurance market. The author makes three apt points but as with simply grabbing the Beast’s trunk and calling the animal a snake, is Ping An’s approach to insurance innovation the best InsurTech perspective for mature insurance markets?

Can the best innovative methods be applied to incumbent markets if a carrier’s staff are not engaged adequately in the evolution? 

Legacy markets are populated with customers who are content with the Beast that is insurance, and in spite of some years of InsurTech efforts the market penetration of innovative companies remains low.  Not that these customers don’t deserve the latest and best methods (surely most would trade the bureaucracy and cost of existing health care for the ease of service provided by a Ping An kiosk), but change must also come from within insurance company organizations.  If one looks at Fortune magazine’s best large employers by employee survey and finds two of the insurance market’s biggest employers, Allstate and Geico, not in the top 500 firms, one must consider absent employee engagement then innovative change may be inhibited for those major companies and their customers.

Virtually
every week there is a significant conference of InsurTech enthusiasts,
thousands of attendees per month, all seemingly with an idea of what InsurTech
is, where it’s going, and how they will capture innovation lightning in the
bottle they have designed. There are some very smart persons who are seen
as champions of the effort, and these persons publish/travel/post and remind
the industry of where it has been and where it’s going. They are adept at
describing the beast in terms that most can understand, and in terms that help
the holder of the ropy tail to see that there also is a snaky trunk, and that
the two parts are of the same beast.

What
is cool about how the InsurTech movement is evolving is that a solid
recognition is being realized by most (not all) that InsurTech is comprised of
multiple, important and integral parts, and even if your firm is not working
with idea A, it can leverage the knowledge in developing idea B. We pick
at the theories others espouse, nay say, comment, maybe even doubt or
criticize, but at the same time all the knowledge is to the common goal-
improving a product for the existing and as yet unidentified insurance
customers.

And
without belaboring the theme, we can be reminded that the elephant is not
InsurTech; the elephant is insurance. InsurTech is the trappings with which the
elephant is enhanced. And the elephant is the contractual agreement that
comprises insurance, and the elephant’s handler must be the customer. 

Let’s
all describe the beast well from our unique perspective, with the understanding
that in the end the elephant’s handler- the customer- must be why we are touching
the beast at all.

 

image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Not so fast, InsurTech- long-tailed and unique claims are the Kryptonite to your innovation super power

Nothing to fear, InsurTech Man! It’s just a busy claim!

Artificial intelligence, machine learning, data analysis,
ecosystem insurance purchases, online claim handling, application-based insurance
policies, claim handling in seconds, and so on. 
There’s even instant parametric travel cover that reimburses costs-
immediately- when one’s planned air flight is delayed.  There are clever new risk assessment tools
that are derived from black box algorithms, but you know what?  Those risk data are better than the industry
has ever had!  Super insurance, InsurTech
heroes!  But ask many insureds or claim
handlers, and they’ll tell you all about InsurTech’s weakness, the kryptonite
for insurance innovation’s superheroes (I don’t mean Insurance Nerd Tony Cañas)- those being-   long-tailed or unique claims.

If insurance was easy you wouldn’t be reading this.  That is simple; much of insurance is
not.  Determining risk profiles for
thefts of bicycles in a metro area- easy. 
Same for auto/motor collision frequency/severity, water leaks, loss of
use amounts, cost of chest x-rays, roof replacement costs, and burial costs in most
jurisdictions.  Really great fodder for
clever adherents of InsurTech- high frequency, low cost cover and claims.  Even more complex risks are becoming easier
to assess, underwrite and price due to the huge volume of available data
points, and the burgeoning volume of analysis tools.  I just read today that a clever group of UK-based
InsurTech folks have found success providing comprehensive risk analysis
profiles to some large insurance companies-  Cytora
that continues to build its presence.  A
firm that didn’t exist until 2014 now is seen as a market leader in risk data
analysis and whose products are helping firms who have been around for a lot
longer than 5 years (XL Catlin, QBE, and Starr Companies)  Seemingly a perfect fit of innovation and
incumbency, leveraging data for efficient operations.  InsurTech.

But ask those who work behind the scenes at the firms, ask
those who manage the claims, serve the customers, and address the many
claim-servicing challenges at the carriers- is it possible that a risk that is
analyzed and underwritten within a few minutes can be a five or more year
undertaking when a claim occurs?  Yes, of
course it is.  The lion’s share of
auto/motor claim severity is not found within the settlement of auto damage, it’s
the bodily injury/casualty part of the claim. 
Direct auto damage assessment is the province of AI; personal injury
protection and liability decisions belong in most part to human interaction.  Sure, the systems within which those actions
are taken can be made efficient, but the decisions and negotiations remain outside
of game theory and machine learning (at least for now).    There have been (and continue to be)
systems utilized by auto carriers in an attempt to make uniform more complex
casualty portions of claims ( see for example Mitchell) but lingering ‘burnt fingers’
from class action suits in the 1980’s and 1990’s make these arms’ length tools trusted
but again, in need of verification.

Property insurance is not immune from the effects of
innovation expectations; there are plenty of tools that have come to the market
in the past few years- drones, risk data aggregators/scorers, and predictive
algorithms that help assess and price risk and recovery.  That’s all good until the huge network of
repair participants become involved, and John and Mary Doe GC prices a rebuild
using their experienced and lump sum pricing tool that does not match the
carrier’s measure to the inch and 19% supporting events adapted component-based
pricing tool.  At that intersection of ideas,
the customer is left as the primary and often frustrated arbiter of the claim
resolution.  Prudent carriers then revert
to analog, human interaction resolution.  Is it possible that a $100K water loss can
explode into a $500K plus mishandled asbestos abatement nightmare?  Yes, it’s very possible.  Will a homeowner’s policy customer in Kent be
disappointed because an emergency services provider that should be available
per a system list is not, and the homeowner is left to fend for himself? The
industry must consider these not as outlier cases, but as reminders that not
all can be predicted, not all data are being considered, and as intellectual
capital exits the insurance world not all claim staff will have the requisite
experience to ensure that which was predicted is what happens.

The best data point analysis cannot fully anticipate how
businesses operate, nor how unpredictable human actions can lead to claims that
have long tails and large expense.  Consider
the recent tragedy in Paris with the fire at the Cathedral of Notre Dame.  Certainly any carriers that may be involved
with contractor coverage have the same concerns as all with the terrible loss,
but they also must have concerns that not only are there potential liability coverage
limits at risk, but unlike cover limits, there will be legal expenses
associated with the claim investigation and defense that will most probably
make the cover limits small in comparison. 
How can data analysis predict that exposure disparity, when every claim
case can be wildly unique?

It seems as underwriting and pricing are under continued
adaptation to AI and improved data analysis it is even more incumbent on companies
(and analysis ‘subcontractors’) to be cognizant of the effects of unique claims’
cycle times and ongoing costs.  In
addition, carriers must continue to work with service providers to recognize
the need for uniform innovation, or at least an agreed common denominator tech
level.

The industry surely will continue to innovate and encourage those InsurTech superheroes who are flying high, analyzing, calculating and selling faster than a speeding bullet.  New methods are critical to the long-term growth needed in the industry and the expectation that previously underserved markets will benefit from the efforts of InsurTech firms.  The innovators cannot forget that there is situational kryptonite in the market that must be anticipated and planned for, including the continuing need for analog methods and analog skills. 

image source

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).