Digital strategy for insurances

images-14The nature of competition in property and casualty (P&C) insurance is shifting as new entrants, changing consumer behaviors, and technological innovations threaten to disrupt established business models. Though the traditional insurance business model has proved remarkably resilient, digital has the power to reshape this industry as it has many others. Innovations from mobile banking to video and audio streaming to e-books have upended value chains and redistributed value pools in industries as diverse as financial services, travel, film, music, and publishing. As new opportunities emerge, those insurers that evolve fast enough to keep up with them will gain enormous value; the laggards will fall further behind. To succeed in this new landscape, insurers need to take a structured approach to digital strategy, capabilities, culture, talent, organization, and their transformation road map.

Though the P&C insurance business has long been insulated against disruption thanks to regulation, product complexity, in-force books, intermediated distribution networks, and large capital requirements, this is changing. Sources of disruption are emerging across the value chain to reshape:

  • Products. Semiautonomous and autonomous vehicles from Google, Tesla, Volvo, and other companies are altering the nature of auto insurance; connected homes could transform home insurance; new risks such as cybersecurity and drones will create demand for new forms of coverage; and Uber, Airbnb, and other leaders in the sharing economy are changing the underlying need for insurance.
  • Marketing. Evolving consumer behavior is threatening traditional growth levers such as TV advertising and necessitating a shift to personalized mobile and online channels.
  • Pricing. The combination of rich customer data, telematics, and enhanced computing power is opening the door to usage- and behavior-based pricing that could reduce barriers to entry for attackers that lack the loss experience formerly needed for accurate pricing.
  • Distribution. New consumer behaviors and entrants are threatening traditional distribution channels. Policyholders increasingly demand digital-first distribution models in personal and small commercial lines, while aggregators continue to pilot direct-to-consumer insurance sales. Armed with venture capital, start-ups like Lemonade—which raised $13 million in seed funding from well-known investors including Sequoia Capital—are exploring peer-to-peer insurance models.
  • Service. Consumers expect personalized, self-directed interactions with companies via any device at any hour, much as they do with online retail leaders like Amazon.
  • Claims. Automation, analytics, and consumer preferences are transforming claims processes, enabling insurers to improve fraud detection, cut loss-adjustment costs, and eliminate many human interactions. Connected technologies could allow policyholders and even smart cars and networked homes to diagnose their own problems and report incidents. Self-service claims reporting such as “estimate by photo” can create fast, seamless customer experiences. Drones can be used to assess damage quickly, safely, and cheaply after catastrophes.

 

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All these disruptions are being driven and enabled by digital advances, as Exhibit 1 illustrates with examples from auto insurance. No single competitor or innovation poses a threat across the entire value chain, but taken together, they could lead to the proverbial death by a thousand cuts: many small disruptions combining to fell a giant.

Data enablement for the common good

The tremendous impact that digital services have had on governments and society has been the subject of extensive research that has documented the rapid, extensive adoption of public-sector digital services around the globe. We believe that the coming data revolution will be even more deeply transformational and that data enablement will produce a radical shift in the public sector’s quality of service, empowering governments to deliver better constituent service, better policy outcomes, and more-productive operations.

The data revolution enables governments to radically improve quality of service

Government data initiatives are fueling a movement toward evidence-based policy making. Data enablement gives governments the tool they need to be more efficient, effective, and transparent while enabling a significant change in public-policy performance management across the entire spectrum of government activities. As Exhibit 2 shows, data applications can transform operations and service delivery in everything from tax compliance and collections to economic development to healthcare to education—and much more.

To raise quality of service, optimization applications are necessary but not sufficient in themselves. Governments also need to deploy a comprehensive and open performance-management system: data enablement provides a solid fact base for policy making while allowing transparency and public accountability. With this perspective in mind, governments need to launch data initiatives focused on:

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  • better understanding public attitudestoward specific policies and identifying needed changes
  • ƒƒdeveloping and using undisputed KPIs that reveal the drivers of policy performance and allow the assignment of targets to policies during the design phase
  • ƒƒmeasuring what is happening in the field by enabling civil servants, citizens, and business operators to provide fact-based information and feedback
  • evaluating policy performance, reconciling quantitative and qualitative data, and allowing the implementation of a continuous-improvement approach to policy making and execution
  • ƒƒopening data in raw, crunched, and reusable formats.

The continuing and thoroughgoing evolution taking place in public service is supported by a true data revolution, fueled by two powerful trends.

First, the already low cost of computing power continues to plummet, as does the cost of data transportation, storage, and analysis. At the same time, software providers have rolled out analytics innovations such as machine learning, artificial intelligence, automated research, and visualization tools. These developments have made it possible for nearly every business and government to derive insights from large datasets.

Second, data volumes have increased exponentially. Every two years the volume of digitally generated data doubles, thanks to new sources of data and the adoption of digital tools. And a new explosion of data is on the horizon, thanks to the wide-scale deployment of connected devices, which are expected to increase from 10 billion in 2013 to 50 billion by 2020.1Many of those devices will be associated with smart-city programs, such as sensors embedded in streets and other public areas. By 2020, smart-city usage in European cities2will generate 100 e-bytes of data per day—four times more than the global data generated daily from all usages in 2015.

Even without the data generated by connected devices, data enablement is already making a difference. A few examples suggest just how big that difference is.

Smart defense. One large national-defense organization increased equipment and weapons-systems readiness and availability through a data-enabled redesign of spare-parts sourcing and supply strategy. Data-analytics engines provided full transparency on the performance and fully loaded costs of spare parts, while also allowing analysts to simulate the impact of modifications in sourcing and supply strategies. The redesign produced optimized expenditures equal to 10 to 12 percent of the country’s overall military operations and maintenance budget.

Smart policing. An advanced-analytics engine has enabled several major cities to improve the quality of police services and prevent threats from organized crime and terrorists. One of the tools was analysis of factors suggesting imminent gang activity, such as four or more Twitter posts from gang members within ten minutes.

More broadly, these cities integrated and analyzed open-source data (such as social media) and traditional police data to monitor public sentiment in order to provide early warning of actual or potential criminal activity and enable targeted and appropriate intervention; continuously track city-specific threats from organized crime and terrorist organizations; and monitor and preempt the potential radicalization of local populations.

Perspective on Wellness Programs

In recent years, an increasing number of companies have begun to offer their employees a corporate wellness program — an employer-funded initiative designed to provide the type of preventive care and screening that can both ward off employees’ future health problems and improve their current fitness levels. Indeed, 98 percent of firms with more than 200 employees that responded to a Kaiser Family Foundationsurvey in 2014 offered their employees some form of wellness program. And PwC’s 2016 Health and Well-Being Touchstone Survey found that 76 percent of the companies it surveyed offered such programs. By implementing preventive programs, companies can try to keep their employees in fine fettle and reduce their future insurance outlays by having a healthier workforce.

But these programs, although seemingly well intentioned, must avoid violating any federal employment laws against discrimination. Specifically, companies walk a fine line when negotiating the Americans with Disabilities Act (ADA), which mandates that firms avoid any type of disability discrimination toward their employees. For example, wellness programs often emphasize the importance of exercise, but in certain cases, people with disabilities can struggle with physical movement.

To provide companies with some legal perspective, the authors of a new studyanalyzed several recent ADA-related court challenges to corporate wellness programs filed by the Equal Employment Opportunity Commission (EEOC). For example, Orion Energy Systems offered to pay its employees’ health insurance premiums if they signed up for its wellness program — which required participants to get blood tests and divulge their medical history — but charged them the full premium if they declined. One employee who refused to participate was fired two months later. This caused an EEOC attorney to contend that the voluntary wellness program wasn’t exactly voluntary and that it violated the law because “having to choose between responding to medical exams and inquiries — which are not job-related — in a wellness program, on the one hand, or being fired, on the other hand, is no choice at all.” The case is still pending as of August 2016.

Flambeau Inc., a plastics manufacturer, was also challenged by the EEOC over its wellness program, which required employees to complete biometric testing and fill out health-risk surveys; if they did not, they would lose their medical insurance. However, a judge ruled in the company’s favor, holding that the wellness program’s provisions fell under the ADA’s “safe harbor” exception, which stipulates that the ADA cannot prohibit or restrict an employer from implementing an insurance plan that is based on underwriting or classifying risks.

Another case involved Honeywell International Inc., which asked employees and their spouses to submit to tests of their blood pressure, cholesterol, body mass index, and nicotine levels. Employees who refused to participate were assessed surcharges on their medical plan and lost certain company contributions to their health savings accounts. A judge ruled against the EEOC’s request for a preliminary injunction, while admitting, “There are a number of fascinating issues for debate at a later time.”

After reviewing the legal landscape, the researchers came up with a set of guidelines to help firms stay out of the courtroom. The authors suggest that companies:

• Seek to improve employees’ health. The best way to avoid a legal challenge is to demonstrate that a wellness initiative has a realistic possibility of increasing workers’ fitness and helping them avoid disease. The use of periodic test screenings or health questionnaires can meet this standard, but firms should always emphasize a plan’s intended potential benefits to its employees.

• Ensure that voluntary programs are truly voluntary. According to the EEOC, when it comes to voluntary wellness programs, employees can’t be forced to participate; denied coverage if they don’t join in; or be fired, demoted, or arbitrarily transferred for refusing to take part. The EEOC also states that incentives for participation can’t exceed 30 percent of the cost of the employee’s healthcare.

• Handle mandatory programs carefully. Companies that still believe they should implement mandatory wellness initiatives should at least comply with the ADA’s safe harbor rule. This means companies should make their mandatory wellness initiatives a part of their sponsored health plans and insurance risk assessments.

• Be prudent about dependents. The EEOC hasn’t made clear how it will evaluate firms’ requests for the health histories of an employee’s spouse or child. For now, companies should probably hold off on extending wellness programs to dependents.

• Accommodate employees with disabilities. This accommodation can take many forms in addition to making allowances for physical conditions. The authors cite the example of a firm hosting a smoking cessation seminar and hiring a sign language interpreter to aid hearing-impaired employees at the seminar.

• Spell things out. The EEOC requires employers to provide a written description of their wellness program. This should exist as its own separate document, and not simply be folded into other healthcare material, and it should outline what type of medical information will be assessed, who sees the data, how the information will be used, and how it will be safeguarded.

• Protect employees’ privacy. The confidentiality of medical records is a key legal issue, and the authors suggest that companies store information in aggregate to avoid identifying specific employees. Medical files must remain separate from personnel records and cannot be used by managers to make staffing decisions.

Know the business story of you

We all spend a good deal of time polishing our public personas. We pour our professional accomplishments into LinkedIn profiles. Facebook has become a channel for sharing events both momentous and meaningless — a new job, a family vacation, what we had for breakfast. Twitter allows us to engage in stream-of-consciousness commentary on almost anything.

None of these, separately or together, fully tell the important and compelling story of you. Something is missing.

Knowing your story — understanding what makes you you — is essential, and part of who you are is your setbacks and failures. Acknowledging your own missteps, struggles, and pain is necessary to acquire the emotional intelligence central to leadership effectiveness. In particular, empathy for others comes from admitting mistakes. Receiving a promotion may be testament to your talent and hard work, but getting laid off presents a test of your character, adaptive capacity, and resilience. When life stops being easy, you have to dig deep to find your true passion. Executive coach Eddie Erlandson calls this discovering your genius zone, the work you’re so passionate about you’d do it for free — but which you figure out how to get paid for.

In their 2002 book Geeks and Geezers, Warren Bennis and Robert Thomas noted the ability to identify “crucible” moments as something that leaders have in common. These experiences ranged from mega-events such as serving in World War II to highly personal ones like a battle with a life-threatening disease. They identified the capacity for positive adaptation through adversity as the most important skill of the individuals they profiled.

Crucible moments are exactly the events and experiences that do not appear on our social media profiles, CVs, and the other instruments we use to present ourselves to the world. Yet they are the sources of the self-understanding and awareness central to your ability to connect with others — and to motivate them toward a shared goal, persevering to overcome obstacles along the way. The true story of you is the key to why you lead and informs why others are drawn to follow you.

One of the most effective and courageous exercises in exploring the fullness of a personal story that I have witnessed was demonstrated in an executive-education session by my colleague, retired Brig. Gen. Dana Born. Born, who had a successful career in the U.S. Air Force before coming to Harvard’s Kennedy School of Government, used a technique taught to her at the Authentic Leadership Institute, with which she is also affiliated. She first introduced herself with a recitation of the high points of her impressive background. Just when people were beginning to think that she was quite full of herself, she stopped. Born then began again, this time using the experiences one doesn’t usually share — the disappointments, failures, pain, and regrets of that career. When she paused, the room was silent. Her point was crystal clear. The true story of you has two equally important parts. Your essence is woven from your good and your bad experiences.

Know the Advantages of Continuing Education for Digital Leaders

Whether you’re a newly minted MBA or an experienced leader, you’re always honing your skills and navigating change. And technology is one discipline in which you really can’t afford to stagnate. With digital transformation so central to strategy for most companies, all executives — especially CEOs — must embrace a learning mind-set. Gone are the days you can delegate the job of keeping up with technology to the IT staff.

Chief information officers (CIOs), of course, should regularly brief the management team and the board on new developments, demoing exciting new technology, bringing in external speakers and vendors, and using other tactics that promote tech learning and engagement. But keeping up on technology trends is also the responsibility of every executive. And while that can be daunting given the vast tech landscape and seemingly limitless avenues for learning, it’s also incredibly exciting.

So, if your job title doesn’t include the words information, technology, ordigital, how do you stay current? And how do you ensure your organization isn’t falling behind? Consulting digitally literate kids, grandkids, or Millennial staff for help, as many chief executives tell us they do, won’t cut it. Here are three easy ways to begin boosting your digital acumen:

1. Get hands-on with new technology. Firsthand experience is a great way to better understand how your organization can apply technology to improve processes, better engage with customers, or create new lines of business.Personal exploration with emerging technologies not only adds to your knowledge base, it also puts you in the shoes of customers and employees. This forces you to think about the human experience, which is often ignored as companies think primarily about the strategic or technological implications of their digital projects.

So go ahead: Play Pokémon Go with your kids. Download an AI assistant app. Take a VR walk-through of your kitchen remodeling project at the home improvement store. Or tinker with Internet of Things devices for your home like smart locks or automation hubs. What you learn in the process may surprise you.

2. Become a maker or a mentor. Take the hands-on approach one step further by mimicking makers, those intrepid do-it-yourselfers who play, experiment, and build tech-based projects. Attend a local Maker Faire, design a stapler, jar handle, or other household gadget on a 3D printer at your local library, join a makerspace in your community, and get inspired.

Even if you’re not inclined to roll up your sleeves in the workshop, you can still get involved — and get smarter in the process. I recently had the opportunity to serve as a mentor for my son’s high school robotics team. Now, in my role as PwC’s chief technologist, I am immersed in technology innovation on a daily basis and need only pop into our Emerging Technology Lab or visit one of ourExperience Center digital hubs to see the art of the possible. Yet even I learned a lot from the experience of guiding a group of smart and enthusiastic teens as they envisioned, prototyped, tested, and competed with their robots. In particular, I came away with insight into effective innovation practices that all enterprises would do well to emulate.

3. Get schooled online. Massive open online courses, or MOOCs, have grown in popularity. Learning platforms like Coursera, edX, and Udacity allow people to sample courses from leading universities. Indeed, the art of continuous learning itself may be the most sought-after skill for tomorrow’s workforce as well as the key to solving tomorrow’s problems. Explore the catalog of courses on any of these platforms to find the fields of study you’d like an introduction to, including design thinking, machine learning, and cybersecurity. In fact, at PwC we’re so bullish about the concept, we’ve recently rolled out a data analytics specialization on Coursera that’s available to everyone, not just our own people.

Can’t commit to a MOOC? Become a regular downloader of tech-focused podcasts, such as those produced by 99% Invisible, A16Z, and Freakonomics Radio. And don’t discount the many TED talks, blogs, and newsletters that highlight tech developments, deals, and industry happenings. The trick is to take a disciplined approach, devoting as little as 15 minutes a day to as much as several hours a week.

What about your company’s Digital IQ?

Now that you’ve charted your own personal digital learning path, take a look at what your organization is doing. Has it been successful in raising its collective Digital IQ?

At PwC, we’ve been studying how companies turn technology investments into competitive advantage for nearly a decade — well before digital was a regular part of the corporate lexicon. In February 2017, we’ll publish our 10th anniversary Digital IQ study, which will focus on digital’s evolving definition, its leadership challenges, and the growing role of emerging technology. In addition to our analysis of data from more than 2,000 companies around the world, we’ll also identify those practices most highly correlated with better performance.

What’s driving your company’s digital strategy? How are your leaders meeting its challenges? Which technologies are you betting on? How much have things changed over the last decade? Pleaseclick here to share your insights and reserve a free copy of the report as well as a one-year digital subscription to strategy+business magazine.