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:

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  • 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?

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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).

How does One Consume an Ocean of Data? A Meaningful Sip at a Time

So many data, so many ways to use it, ignore it, misapply it, co-opt, brag, and lament about it.  It’s the new oil as suggested not long ago by Clive Humby, data scientist, and has been written of recently by authorities such as Bernard Marr in  Forbes wherein he discusses the apt and not so apt comparison of data and oil.  Data are, or data is?  Can’t even fully agree on that application of the plural (I’m in the ‘are’ camp.)  There’s an ongoing and serious debate on who ‘owns’ data- is possession 9/10 of the law?  Not if one considers the regs of GDPR, and since few industries possess, use, leverage and monetize data more than the insurance industry forward-thinking industry players need to have a well-considered plan for working with data, for, at the end of the day it’s not having the oil, but having the refined byproduct of it, correct?

Tim Stack of technologies solutions company, Cisco, has blogged that 5 quintillion bytes of data are produced daily by IoT devices.  That’s 5,000,000,000,000,000,000 bytes of data; if each were a gallon of oil the volume would more than fill the Atlantic Ocean.  Just IoT generated bits and bytes.  Yes, we have data, we are flush with it.  One can’t drink the ocean, but must deal with it, yes?

I was fortunate to be able to broach the topic of data availability with two smart technologists who are also involved with the insurance industry, Lakshan De Silva, CTO of Intellect SEEC, and Christopher Frankland , Head of Strategic Partnerships, ReSource Pro and Founder, InsurTech 360″.  Turns out there is so much to discuss that the volume of information would more than fill this column- not by an IoT quintillions’ factor but a by a lot. 

With so much data to consider, it’s agreed between the two that
understanding the need of data usage guides the pursuit.  Machine Learning (ML) is a popular and
meaningful application of data, and “can bring with it incredible opportunity around
innovation and automation. It is however, indeed a Brave New World,” comments
Mr. Frankland.  Continuing, “Unless you
have a deep grasp or working knowledge of the industry you are targeting and a
thorough understanding of the end-to-end process, the risk and potential for hidden technical debt is real.” 

What?  Too much data, ML methods to
help, but now there’s ‘hidden technical debt’ issues?  Oil is not that complicated- extract, refine,
use.  (Of course as Bernard Marr reminds
us there are many other concerns with use of natural resources.)  Data- plug it into algorithms, get refined ML
results.  But as noted in Hidden
Technical Debt in Machine Learning Systems
, ML brings challenges of which
data users/analyzers must be aware- compounding of complex issues.  ML can’t be allowed to play without adult
supervision, else ML will stray from the yard.

From a different perspective Mr. De Silva notes that the explosion of
data (and availability of those data) is, “another example of disruption within
the insurance industry.”  Traditional methods
of data use (actuarial practices) are one form of analysis to solve risk problems,
but there is now a tradeoff of “what risk you understand upfront”, and “what
you will understand through the life of a policy.”  Those IoT (or, IoE- Internet of Everything,
per Mr. De Silva) data that accumulate in such volume can, if managed/assessed efficiently,
open up ‘pay as you go’ insurance products and fraud tool opportunities.

Another caution from Mr. De Silva- assume all data are wrong unless you prove it otherwise. This isn’t as threatening a challenge as it sounds- with the vast quantity and sourcing of data- triangulation methods can be applied to provide a tighter reliability to the data, and (somewhat counterintuitively,) with the analysis of unstructured data with structured across multiple providers and data connectors one can be helped to achieve ‘cleaner’ (reliable) data.  Intellect SEEC’s US data set alone has 10,000 connectors (most don’t even agree with each other on material risk factors) with 1,000s of elements per connector, then multiply that by up to 30-35 million companies, then by the locations per company and then directors/officer of the company. That’s just the start before one considers effects of IoE.

In other words- existing linear modeling remains meaningful, but with the instant volume of data now available through less traditional sources carriers will remain competitive only with purposeful approaches to that volume of data.  Again, understand the challenge, and use it or your competition will.

So many data, so many applications for it.  How’s a company to know how to step
next?  If not an ocean of data, it sure
is a delivery from a fire hose.  The
discussion with Messrs. De Silva and Frankland provided some insight.

Avoiding Hidden Debt and leveraging clean data is the path to a “Digital Transformation Journey”, per Mr. Frankland.  He recommends a careful alignment of “People, Process, and Technology.”  A carrier will be challenged to create an ML-based renewal process absent involvement of human capital as a buffer to unexpected outcomes being generated by AI tools.  And, ‘innovating from the customer backwards’ (the Insurance Elephant’s favorite directive)  will help lead the carrier in focusing tech efforts and data analysis on what the end customers say they need from the carrier’s products. (additional depth to this topic can be found in Mr. Frankland’s upcoming Linked In article that will take a closer look at the challenges around ML, risk and technical debt.)

In similar thinking Mr. De Silva suggests a collaboration of business facets to unlearn, relearn, and deep learn (from data up instead of user domain down), fuel ML techniques with not just data, but proven data, and employ ‘Speed of Thought’ techniques in response to the need for carriers to build products/services their customers need.  Per Mr. De Silva:

“Any company not explicitly moving to Cloud-first ML in the next 12 months and  Cloud Only ML strategy in the next two years will simply not be able to compete.”

Those are pointed but supported words- all those data, and companies need
to be able to take the crude and produce refined, actionable data for their operations
and customer products.

In terms of tackling Hidden Debt and ‘black box’ outcomes, Mr. Frankland
advises that points such as training for a digital workforce, customer journey
mapping, organization-wide definition of data strategies, and careful application
and integration of governance measures and process risk mitigation will  collectively act as an antidote to the two
unwelcome potential outcomes.

Data wrangling- doable, or not? 
Some examples in the market (and there are a lot more) suggest yes.

HazardHub

Consider the volume of hazard data available for consideration within a jurisdiction
or for a property- flood exposure, wildfire risk, distance to fire response
authorities, chance of sinkholes, blizzards, tornadoes, hurricanes, earthquakes
or hurricanes.  Huge pools of data in a
wide variety of sources.  Can those
disparate sources and data points be managed, scored and provided to property
owners, carriers, or municipalities? 
Yes, they can, per Bob
Frady
of HazardHub, provider of
comprehensive risk data for property owners. 
And as for the volume of new data engulfing the industry?  Bob suggests don’t overlook ‘old’ data- it’s
there for the analyzing.

Lucep

How about the challenge sales organizations have in dealing with customer requests coming from the myriad of access points, including voice, smart phone, computer, referral, online, walk-in, whatever?  Can those many options be dealt with on an equal basis, promptly, predictably from omnichannel data sources?  Seems a data inundation challenge, but one that can be overcome effectively per Lucep, a global technology firm founded on the premise that data sources can be leveraged equally to serve a company’s sales needs, and respond to customers’ desires to have instant service.

Shepherd Network

As for the 5 quintillion daily IOT data points- can that volume become meaningful if a focused approach is taken by the tech provider, a perspective that can serve a previously underserved customer?   Consider unique and/or older building structures or other assets that traditionally have been sources of unexpected structural, mechanical or equipment issues.  Integrate IoT sensors within those assets, and build a risk analytics and property management system that business property owners can use to reduce maintenance and downtime costs for assets of any almost any type.  UK-basedShepherd Network has found a clever way to ‘close the valve’ on IoT data, applying monitoring, ML, and communication techniques that can provide a dynamic scorecard for a firm’s assets.

In each case the subject firms see the ocean of data, understand the
customers’ needs, and apply high-level analysis methods to the data that
becomes useful and/or actionable for the firms’ customers.  They aren’t dealing with all the crude, just
the refined parts that make sense.

In discussion I learned of Petabytes,  Exabytes, Yettabytes, and Zottabytes of data.  Unfathomable volumes of data, a universe full, all useful but inaccessible without a purpose for the data.  Data use is the disruptor, as is application of data analysis tools, and awareness of what one’s customer needs.  As Bernard Marr notes- oil is not an infinite resource, but data seemingly are.  Data volume will continue to expand but prudent firms/carriers will focus on those data that will serve their customers and the respective firm’s business plans.

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).

Innovation from the Customers’ Needs Backwards- InsurTech Startups that Found Service Nails that Needed Hammers

In the interest of full disclosure this column was not the
planned piece for this week, but as the original plan became an exercise in
distilling a wonderful volume of great information down into 1200 or so words,
I was thankful for a discussion with an insurance startup I had where this
observation was reiterated by a founder:

“We did not want to be
a hammer looking for a nail.”

That phrase reminded me why the research for a following week was conducted- there are InsurTech companies that have made great efforts in seeing customer or service needs- that exist- and devising innovative ways to deal with the respective issues’ pain points and taking the innovations to market.  So why not wait to publish that theme?  Well, because the industry needs constant reminders that innovation needs a purpose, and that there are startups who are purposing real service needs.  So I took my own advice with the topic- be the finder of the nail, first.

There are many InsurTech startups across the global market,
and one can’t place the spotlight on all. 
The approach for this column is discussion of four companies that in
their own unique way have found an unmet purpose (nail) by research or
accident, have dug into the issue, and produced a solution (hammer) that is
tech-based and somewhat unique.

Empowering Patients for Provider Choice

The unexpected needs of parents Cole Sirucek and Grace Park prompted
the sequence of events that resulted in the patient empowerment firm, docdoc
Now founders as well as parents, Cole and Grace identified a need for
medical patients to have better control over who provides them services than which
was traditional for the profession.  A
medical concern within their family highlighted that the medical profession
(including hospitals) held full sway over who provided service, even if the
provider was not the most apt choice. 
Working to ensure others wouldn’t have options when medical needs arose,
the company worked with a team of medical and tech professionals to develop the
largest, most comprehensive network of medical professionals in Asia, a network
that identifies professionals by characterizing what each does extremely
well.  Need knee surgery?  The network identifies a patient’s best
option, not only for an orthopedist, but a knee expert.  And why would this be important within the
medical services value chain?  Having the
best expert results in more positive outcomes, which results in less unexpected
cost and patient issues post op.  In the
bigger picture, docdoc has created a Knowledge Model that can be leveraged by
other health networks (not ‘here are the providers in your network,” but ‘here
are the best fit providers’).  Options
for the patient, networks for the providers, and less after-effects for the
insurers.  (contact:  Madhurima Dutta
)

Highest and Best Use of an Entrepreneur’s Time is not Getting Insurance Quotes

There are more than 7.5 million self-employeds in the UK.  That’s a lot of hard-working individuals (and
the number is growing), says Sherpa ‘s
CEO, Chris Kaye
.  And if averages are extended, each of
these folks shop for up to seven insurance policies annually, time spent
chasing what carriers provide, and not necessarily what the self-employeds need.   Chris Kaye (along with Sherpa founders Lachlan Gillies and
Greg McCafferty)
identified the need for these customers to have an insurance service that
covers them for all risks,
can be tailored to their lifestyle and keeps up-to-date as their life changes.  Not rocket science (seems intuitively like
what a good agent could do), unless one can promptly assess each customer and then
provide an AI-driven personal insurance solution. Here’s the firm’s tech
innovation- Sherpa’s “Brain,” a proprietary AI risk assessment
engine, takes data given by members and makes personalized recommendation
for what cover they need.  But- Sherpa is not an insurance plan, it’s a subscription
based membership organization, has a fully-digital process, wherein a Member
can be underwritten and get ‘on risk’ in about seven minutes, and Sherpa
charges a transparent, flat fee that gives members access to a personal
insurance solution that matches their advice. 
Of course the members benefit from cover provided by an affiliated
global insurance company, and have the comfort that as life changes occur their
personal choice for insurance cover remain. 
The firm’s intention is to not only broaden UK available lines from Life
and Critical Illness covers, but to other markets and other personal lines
covers.

Digitizing Life Insurance Claim Processes, No, Making Life Policies about the Beneficiaries

Benekiva founder Brent Williams had a
successful financial advisory business in which he continuously found issue- life
insurance settlements were an administrative nightmare for beneficiaries, typically
driving settlement periods to three months from the respective carriers’ notice
of policyholder death.  Brent served as
apologist for the carriers, and also found in addition to delays in benefits,
recipients of policy proceeds were reluctant to take that next step- financial
care of proceeds- because the claim processes were so convoluted.  In collaboration with the current Benekiva
team members and co-founders, Bobbie Shrivastav and Soven Shrivastav, (and after more
than two years’ research) Brent, et al, introduced a digital approach to claim
process that focused on beneficiaries’ needs backwards through the admin of the
policy.  In this case, an industry expert
collaborated with tech and innovation experts, jointly identified a customer
issue, developed universally applicable methods that carriers could implement,
and the end result is prompt payment of policy proceeds.  Sure, unclaimed property laws helped
facilitate the end result, but the digital answer to customer needs is the key.  Benekiva now works with carriers to streamline
what in great part are legacy process wrought with workarounds, and to the
benefit of the industry cut through the Gordian Knot of the paper chase.  Oh, and the firm is helping carriers with
Blockchain options for claim and beneficiary management.

Helping Leverage Customers’ Ownership of Data  

Customers don’t know what they don’t know, and for data collection and use (particularly telematics), that knowledge is lower in great part due to who has taken control of telematics- companies (including insurance carriers.)  If data are the next oil boom, then those who own the wells are not the current beneficiaries of the wells’ output.  That’s the identified service opportunity for RevdApp , best described by its founder, Filipe Pinto, thusly:

“to offer consumers a way to own and manage their
mobility records and to leverage them in a trustworthy marketplace where
service providers bid to offer them services without compromising their
privacy. We eliminate data silos and unleash value.”

What, you say, what has that got to do with InsurTech and insurance service?  Well, picture customer possession of an open ledger of performance within a digital ecosystem, data that can be provided by the customer to support value-based access to services?  Customer owns driving data, can leverage that data for insurance purchases, or perhaps more favorable lease pricing based on positive performance than someone who has a history of more risky behavior.  Telematics have to date been the bailiwick of companies who collect those data, and have been leveraged to the benefit of the companies in terms of user-based insurance (UBI), e.g., Metromile, Progressive (Snapshot), and Allstate (DriveWise), along with most other larger carriers.  RevdApp is developing a digital ecosystem where beyond UBI customers can benefit from the service value of trust- companies may extend favorable terms to those with relative good performance data ledgers, and surcharge those without.  Customers control their data, how it’s applied to services, and how it’s applied to pricing.  At this time the firm’s IoT data ledger service access is applied for exotic auto use, but customer focus can bridge to almost any partnered service.

Are there many solution ‘hammers’ in the InsurTech orb looking for nails?  Sure are.  But there are many customer service ‘nails’ just waiting for observant entrepreneurs that can be open to understanding what solution is being called for.  The four examples noted above have unique starting points, and certainly unique solutions, but each developed from the kernel of an idea-  the need to #innovatefromthecustomerbackwards, and in spotlighting those I could keep my journalistic hammer tucked in my work bag- for another week.

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).

Parametric Insurance- The Least Known Best Response to Unfortunate Happenings

What if a policyholder could be immediately paid when an event or circumstance occurred, with no claim to file, no investigation other than confirmation that the triggering circumstance did happen?  This type of payment does happen now- consider travel insurance hybrids that provide benefit for delayed flights, and pay immediately based on a delay parameter. Could the same be accomplished for natural disasters, failure of crops, or other situations that can be set as a parameter?  Yes, it can.  Welcome to the world of parametric insurance.

Insurance is a known product- in return for payment of a premium a policyholder can expect (within the terms of the insurance contract) indemnification for a covered loss.  The loss occurs, a claim is made, the claim investigation proceeds, an estimate of loss is made, and a claim settlement is paid.  Outside of health and life cover this is the typical framework of the contract that is insurance.  The value of the insured property is determined at policy inception, a premium is generated based on underwriting guidelines re: probable loss characteristics for covered perils, and the insurance contract is bound.

A nagging problem with that centuries old framework is the need to prove a value of property, to experience an occurrence or claim, prove the claim, and wait for indemnification- if the claimed damage is covered by a policy.  There are many perils that are not covered by most policies, e.g., flood, earthquake, long-term effects of weather (drought), wear and tear, and so on.  Additionally, in some circumstances the nature of the damage exceeds the ability of individual policyholders to adequately respond- of particular note flooding, cyclones, earthquakes and agriculture issues where damage is a regional problem that simply requires regional response.

Parametric insurance, or, “a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy” (NAIC) is becoming the insurance option that allows a policyholder a payment for an occurrence or circumstance that can be defined and established at the inception of coverage.  An apt example of a parametric option is provided by Jumpstart, a firm that will make payment to U.S. policyholders when a seismic event occurs and reaches a ‘peak shaking intensity’.  The firm simply monitors US Geological Survey data, when a trigger event occurs the firm identifies policy holders within the affected area and sends them a payment.  No claim action needed by the customers- the agreed parameter occurrence happens, the policy pays.  Traditionally an earthquake would need to damage covered property, the respective property owner would need to have earthquake coverage (an optional cover in most jurisdictions), a claim be filed, investigated and settlement made.  Indemnification for damage.  Parametric products simply promise payment if an agreed parameter is met- in Jumpstart’s case a ground shake of a certain magnitude.

One must keep in mind that parametric insurance is not intended to be a full ‘indemnification style’ coverage- it’s meant as a first payment option for traditionally covered perils, and an alternative/immediate recovery source for perils that may otherwise not have practical insurability.  Prudent insureds may even layer parametric cover onto traditional policy coverage, almost to act as a hedge against a large deductible.

Applying the method to the market is not as simple as generating the policy- there must be an identified, measurable trigger for the respective policy, and the carrier needs to be able to conduct that ages-old act- apply probability of risk to the potential payout.  What makes that exercise more direct than with indemnification policies is that there is a specific trigger, and there is an agreed payment.  If X occurs, amount Y is paid.  Claim adjustment expense is administrative cost only, and customers may not even have to report or confirm the triggering event as the carrier may have methods in place to automatically confirm the triggering event.  Consider if the parametric agreement is captured as a smart contract in a distributed ledger format- perhaps an inroad into Blockchain as an equal to other methods in administering insurance?  (see Etherisc )

So what uses are there for parametric cover?  Not everyone is in a high frequency earthquake zone, and awareness of parametric cover is relatively low.  If we look to the current placements of the cover there can be an understanding of where the industry sees opportunities.    Travel insurance options have been noted, and exemplify how the cost of inconvenience can be reimbursed. There are insurance organizations that have established themselves as industry experts, e.g., Swiss Re, who have initiated parametric plans in collaboration with individuals and governments in many areas for:

  • Earthquake
  • Cyclone
  • Crops  (Better Life Farming) – also includes comprehensive agricultural advice
  • Wildfire

And the firm’s thought process does go beyond individual policyholders to regional parametric programs that partner with government agencies, for example, Sovereign Insurance (options for regions across the globe), or other organizations such as Hiscox Re ILS with ongoing involvement  in a variety of initiatives including the linked Philippines plan.

Broad spectrum parametric programs have been in place for some years to assist governments in more prompt recovery from disasters:

  • Caribbean Catastrophe Risk Insurance Facility (CCRIF)- provides post-disaster assistance to nineteen Caribbean and Central American countries, is funded by various governments and government organizations, and makes payments to participants’ governments for earthquake, hurricane and excess rainfall triggered events
  • African Risk Capacity (ARC)- planning and guidance program that also funds/administers a primarily agriculture parametric cover for participating countries

And in addition- there are initiatives being developed as this article is written where counties in China are being used as model plans for regional parametric cover, particularly earthquake-prone areas and regions subject to landslides (see Insurance Asia News ).

Are there also funding opportunities for parametric insurance, both from a provider and recipient standpoint?  One would think so as this cover fills a gap for recovery, and, in combination with existing schemes for catastrophe and disaster bonds capital can be encouraged to make a foray into parametric plans.  Insurance linked securities (ILS) that have taken some hits during the last few years with unexpectedly frequent and unexpectedly severe cost events might have more stability functioning within a more predictable loss environment of parametric programs.  Improvements in data collection, analysis, AI and immediacy of event data have all contributed to the increasing viability of the programs.

So the unexpected benefit and under-publicized parametric insurance industry may be the best hedge for many against uninsurable (in a traditional sense) perils, and for almost anyone that needs a source of immediate payout when a trigger event occurs.  Picture the coastal towns of the U.S. after a major hurricane as recipient of a parametric cover distribution, a ‘prime the pump’ amount to give some immediate recovery light for residents, or tsunami victims whose livelihoods have been washed away receiving funds to re-establish businesses, or wildfire victims who need immediate distributions until primary insurers can catch up.  Yes, insurance payments can be made without the burden of proving a claim- set the trigger point/parameter, and count on the underutilized benefits of parametric insurance.

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).

 

Collaboration, not Confrontation for InsurTech- an Ides of March Warning No Longer Needed for Incumbents

It wasn’t long ago that the figurative tools of InsurTech were being sharpened against imperious legacy insurance.  In contrast to plans however, effecting insurance change has been found to be significantly more nuanced an effort than that which was foretold to occur within the Roman Senate on the Ides of March.  And, as with the limited effects of the Ides on the crowds in the Forum, InsurTech change to date has been primarily a focus within the inner sanctum of insurance that has remained transparent to its customers- and their perception of the industry. 

As noted in my last column, InsurTech has proven its worth in theory, and in many ways in practice – developing innovative methods that allow more efficient operations, devising effective methods to underwrite, distribute, engage, sell, service and retain customers and staff.  Very cool – but have the innovation efforts had an effect where they need to, customer satisfaction?  And, are there indications that InsurTech-founded carriers are economically viable?

There are two primary lines of insurance business to consider regarding customers’ response to InsurTech’s effects:

  1. New business lines, ostensibly where new business methods are simply the only business methods the customers know.  Innovation is simply part of the customers’ experience.
  2. Incumbent/legacy business that has in some part been changed in the service provided to the customers.  This could be back office changes, underwriting, distribution, sales, claims, after-sale service, etc.

New business lines

There have been many entrants to multiple lines of insurance since the advent of the ‘InsurTech’ initiative, in essentially all major markets around the globe.  There are carriers with explosive growth involving tens to hundreds of millions of customers such as Zhong An , a China market startup whose customers have voted their initial satisfaction with their overwhelming participation in the carrier’s ecosystem approach.  Other markets have seen the advent of online auto (motor), renters’ and homeowners’ options, including owner usage-based auto provider Root Insurance , behavioral economics/charitable giveback player Lemonade, proactive homeowners carrier Hippo, and German health insurance ‘hybrid’ start up,  DFV_AG (incumbent with a clever tech solution for claims).  In each case the firms’ primary customers are in majority digital ‘natives’ whose expectations for performance are not colored by legacy operations’ processes.  In great part these firms’ customer experiences comprise not much more than a few written premium/earned premium cycles.  Considering that, traditional financial success has been a difficult measure  (see assessment work by Adrian Jones and Matteo Carbone,  e.g., mo-premium-losses-insurtech-start-ups-get-big )  and service satisfaction is in great part solely the success of getting customers to pay the premiums.  Niche carriers such as Dinghy Insurance (cover for freelancers), or Pineapple  (peer to peer personal effects cover) are endorsed by participants as being just the right unique item for the respective policyholders.  Satisfaction by default.

Incumbent/Legacy Business

Global insurance companies have been present in some form for three hundred years (and certainly risk management has been a principle since the days of Hammurabi, and since things have changed a least a little since 1750 B.C.); it can be said that societal innovation carried risk management along for the ride and insurance customers have at least begrudgingly maintained satisfaction with the purpose of the industry during the ensuing 3750 years. 

So what about innovation/InsurTech being the dramatic industry change since 2015-16?  Have customers embraced and celebrated all the wondrous technical and process improvements that have burst forth from the slide decks of very smart InsurTech folks?  It sure is hard to tell.

Not all markets and lines of business solicit and/or maintain customer service responses from their insurance customers, so customer satisfaction changes due to InsurTech advances are not much easier to gauge for incumbents as would be for new entrants.  Certainly the P&C markets within the U.S. have more than one authority capturing customer service tendencies:  J.D. Power is a recognized provider of service data, and Clearsurance  (an InsurTech firm in its own right) is an online aggregater of customer service responses.  But can survey tendencies be attributed to tech innovation?

A review of J.D.Power auto insurance customer survey data from 2016  and 2018 find the top players remain at or near the top, that the industry average satisfaction has increased a little, and that the 2018 customers voice approval of having multi-channel access to their policies/carriers.  No overt celebration of tech advances but some tech mention is worth something.  There has not been a wholesale abandonment of incumbent carriers within the US as the top-ten carriers’ market share in 2016 (71%) and 2018 (72%) has changed little (http://www.naic.org). 

Continuing the discussion to Homeowners carriers, J.D. Power data for 2016  and  2018 find some customer tendencies being noted across the two year period, but no actionable changes that can be attributed in the majority to innovation/InsurTech.

As for customer satisfaction data for other global markets- it’s difficult to obtain comprehensive results for insurance lines across national borders, and unified markets such as in India and China do not yet have the tradition of longitudinal study of customer survey data.  It can be suggested as those markets ‘homogenize’ with influx of firms that are outside the domestic current growth there may be cross-pollination of survey habits.  And in terms of health insurance surveys, the mix of national health programs, private programs, national programs for select portions of populations, it’s an apples and pomegranates situation for customer sat information.  As for life products, annuities, etc.- efforts to collect those tendencies mirror the efforts the industry has held for a while – a little underwhelming from the customers’ perspective.

After a lot of blah, blah, blah, it’s difficult to say that InsurTech is a concept that insurance customers embrace as a reason to buy insurance, change who they buy from, or give warm, fuzzy feelings about the product, any more than the change from cuneiform text to Roman/Greek to Arabic writing changed the industry.  The overarching point- InsurTech has awakened initiatives that are blending many digital and tech methodologies with finance and insurance, e.g., API integration (thanks, Karl Heinz Passler) but not on a seismic, customer based level- yet.  Give the industry a generation and the customers will force the issue by default acceptance of societal tendencies.

Until that wave of change occurs, insurance innovators can better effect change through sharpening skills in understanding what customers indicate they need, innovating from the needs of the figurative forum-first- and helping the firms that hold the bulk of the public’s business- the legacy players- avoid the need to be warned of an Ides of March initiative.  InsurTechs might even find that in collaboration there are profits to be made.

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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’.

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Welcome Pat Kelahan to Daily Fintech

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I am delighted to announce that Pat Kelahan will be writing the Thursday Insurtech column from now on. We interviewed Pat a week ago and then asked him to write the regular column each Thursday. You can see the first post from earlier today. Pat joins the other 4 Authors, one for each day of the week covering a different domain within Fintech from different parts of the world:

– Monday = Blockchain, Bitcoin & Crypto = Ilias Louis Hatzis from Greece

– Tuesday = Wealth Management & Capital Markets = Efi Pylarinou from Switzerland

– Wednesday = Small Business Finance = Jessica Ellerm from Australia

– Thursday = Insurance = Pat Kelahan from USA

– Friday = Consumer Banking & Impact Investing = Arun Krishnakumar from UK.

One reason why senior people give us their attention is that we connect the dots between Fin and Tech. We translate Fin to Tech and Tech to Fin. To do that in Insurtech means combining a) a deep understanding of how Insurance really works b) a customer-centric mindset c) an ability to explain complex subjects in engaging ways. Pat combines all three. You can read more about Pat from his interview last week and on his LinkedIn profile and follow Pat on Twitter. Here is an extract from last week’s interview for Pat to tell us about himself in his own words:

I am a father of seven, husband, multi-tasker and someone who strives to see and communicate the need to keep customer service as the focus of business, including insurance. Having been involved in insurance claims assessment and management for almost twenty years, retail and business ownership for another decade and one half, and construction/disaster work, my customer-focus has seen many iterations. In addition to the direct work of insurance I have remained a student of the industry, gaining understanding of how the ‘pieces’ fit together, and how effects on one facet affects the others. My current role is as Building Consultant/Forensic Market Strategist for H2M architects + engineers, a large engineering firm located in Melville, NY. How does that keep me in the insurance world? Well, the firm has an active division that assists property insurance carriers with forensic cause and origin work, including assessing mold, asbestos, and environmental damage claims, and consulting with adjusters for understanding of what causes claims. In addition, I am charged with helping the firm anticipate changes in property insurance and what comes next. Toward that end I network extensively with insurance stakeholders across the globe, and have introduced the insurance persona, ‘The Insurance Elephant’, to better focus the industry’s need to keep customer service in all it does, particularly as InsurTech efforts evolve. My duties also include presenting at industry conferences, conducting industry training, and consulting on building damage with insurance adjusters and others within the industry. I have a graduate degree in business from a top 50 university, have served as mayor of a village in upstate, NY, and been seated as a member of boards for not-for-profit organizations.

 

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.

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