News and Views Roundup: Wearables for Wellness, Disruption to Risk Analysis, the DOL, and Plug and Play Insurance

Novarica’s team comments on recent insurance and technology news

Tom Benton

Tom Benton on Aetna and Apple partnering to offering wearables for wellness

Steven Kaye

Steve Kaye on the first round of startups participating in Plug and Play’s insurance technology business development program

Rob McIsaac

Rob McIsaac on what the DOL could mean for mutual fund fees

Matthew Josefowicz

Matthew Josefowicz on the implications ofthe joint venture between Two Sigma Investments, Hamilton, and AIG to streamline underwriting and buyer experience using predictive analytics.

Plug and Play Insurance Selected its First Round of Participating Startups

Steven Kaye

The Plug and Play Tech Center winnowed down 800 candidates to choose 23 to participate in its Plug and Play Insurance technology business development program, working with global insurance partners ranging from agencies (e.g, Pronto) to aggregators (e.g, to carriers (e.g., Farmers Insurance, Munich Re, SOMPO Digital Lab). A few themes jump out when looking at the companies that were chosen:

  • AI and machine learning (DigitalGenius, Inbenta, Omniscience, RiskGenius)
  • Analytics (Cytora, Vivametrica)
  • Connected vehicles and telematics (Driveway, Nauto, splitsecnd)
  • Customer engagement (Amodo, ClientDesk, Sureify)
  • Mobile (ClientDesk again, Cover, Driveway again)
  • Video (Dropin, Livegenic)

Several of the companies fit in more than one category – for example, Safesite’s safety and compliance solution has a mobile component, but also has proprietary safety scoring algorithms (analytics). Amodo and Safesite can both gather data from IoT and wearable devices.

These companies offer carriers the opportunity to tailor their products to individuals’ behaviors, as well as providing a markedly less painful experience of selecting and purchasing insurance offerings. One may quibble over whether these are disruptive or incremental innovations, but either way they offer carriers a way forward, if they’re interested. And judging from the participants in Plug and Play Insurance, several are.

Never mind the start-ups, here’s the quants


Matthew Josefowicz

While the insurers have been nervously watching Sand Hill Road and the billions of dollars pouring into the InsurTech start-ups that are taking aim at the industry’s weaknesses in customer experience, a potentially more ominous development is taking place a little closer to home: the Quants are coming, and they’re targeting the industry’s ability to model risk.

Yesterday’s WSJ featured a profile of Two Sigma Investments and their joint venture with Hamilton and AIG to use predictive analytics to streamline both the buying experience and the underwriting of commercial risk.

According to the article:

Small and medium-size business insurance is a “gigantic market” and a “data science” problem, [Mr. Siegel] said.

“It’s not just about taking manual processes and automating them,” Mr. Siegel said. “By using our data science, we think we can do a better job of underwriting.”

The algorithms being used by the Two Sigma group’s venture, called Attune, will draw on detail that Two Sigma has obtained from vendors who collect public records and other sources that can tell AIG and Hamilton what they believe they need to know to understand the risk to be insured.

As our recent report on Understanding Insurance Industry Disrupters noted, there are three axes of disruption for insurers: Distribution, Cost Basis, and Product/Risk Analysis.

Most of the Silicon Valley-funded players are focusing on Distribution. While this creates noise and uncertainty, it does not strike at the heart of the industry’s core capability of underwriting risk.
But initiatives like this have the potential to change radically both the cost basis and effectiveness of underwriting risk. That strikes at the industry’s core value the same way that the capital markets’ moves into cat bonds are undermining reinsurance.

The Future is Already Here.

Back in 2011, we wrote about the Deloitte-Aviva pilot program that indicated that risk could be modeled entirely with third-party data, and advised the industry to plan for the days of zero-question underwriting. As far as we know, this Aviva project stayed in the lab and was never operationalized. But last summer, we highlighted MetLife’s Xcelerate program, which brought a similar approach to group auto insurance.

Now, the Two Sigma/Hamilton/AIG partnership is bringing it to commercial lines.

Meet Your New Competitors

Two Sigma’s founders, David Siegel and John Overdeck, cut their teeth at legendary Wall Street Quant shop D. E. Shaw & Co., the same firm that Jeff Bezos left to found Amazon. You know, the guy who says “Your margin is my opportunity.”

Insurers need to suit up. The future is coming at them fast.

Related Research:

News and Views: Disrupters, Autonomous Vehicles, Blockchain for Claims, Reinsurance

Novarica’s team comments on recent insurance and technology news

Boston is launching an Urban Mobility program to test driverless cars, and the U.S. government is proposing 15 benchmarks that autonomous vehicles must meet.

Tom Benton

Novarica comment by Tom Benton, Senior VP of Research and Consulting: “The future of self-driving cars may be fewer accidents, but the immediate impact will be an unpredictable mix of human-driven and self-operating vehicles taking the road together. Coverages will inevitably become more complicated as the convergence of these two vehicle types pose new risks. Some insurers may be choose to profit from this period, while others may choose to exit the market. Pilot programs and legislation may help to smooth what is likely to be a somewhat volatile period, however they are also a move to normalize self-driving vehicles for more rapid entry to market. No matter the case, the gears are in motion to bring self-driving vehicles to the mainstage, and carriers should prepare for the changing car and driver landscape that will ensue.” More from Novarica on autonomous vehicles.

Synechron debuted a blockchain-based accelerator that offers financial services applications in the cloud .

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting “Synechron’s blockchain offering for claims is part of an ever-growing dialog around various use cases for blockchain. Paying claims automatically based on a trusted source- a disinterested third party- is being discussed for a number of new products. An example we have heard is paying CAT claims for homeowner damage automatically based on weather service data (the trusted third party). There are other possible uses of blockchain for insurance including intercompany charges between entities in large global insurance holding companies, reinsurance negotiations, surety bonds, etc. Blockchain has been the topic of many conversations we have been having with carriers over the last few months. Expect to see more innovation and new product offerings in 2017.” More from Novarica on blockchain.

Both Coverhound and Lemonade launched their websites this week, and MetroMile will begin selling auto insurance.

Steven Kaye

Novarica comment by Steve Kaye, Associate VP of Research and Consulting: “MetroMile, Coverhound, and Lemonade demonstrate three different approaches. MetroMile developed a good front-end and customer service as well as a useful product, and brought underwriting in-house with the purchase of Mosaic. CoverHound also focused on the front-end and customer service and partners with carriers who provide the actual products, the most recent being small commercial insurance. Lemonade has a different business model from other insurers, taking a percentage of premiums as a fee to cover reinsurance and the cost of paying claims, while paying any left-over funds to charities.

All three companies emphasize improved customer service (which includes taking advantage of technology) and making typical insurance processes less painful. With plenty of capital seeking investments, smaller insurers and shell companies to purchase for their licenses, and changes among large established players constantly making experienced industry personnel available, it doesn’t suit the industry to dismiss the potential for genuine innovation.” More from Novarica on insurance industry disrupters.

Customizing coverage to specific risk may be a lifeline for reinsurers

Rob McIsaac

Novarica comment by Rob McIsaac, Senior VP of Research and Consulting: “The reinsurance world, like many other parts of the insurance industry, continues to suffer in the low interest rate environment. Industry projections suggest that combined ratios could increase further in 2017, creating added pressure to find ways to improve operational and underwriting performance. Investment income won’t cover gaps. For big reinsurers an emerging and attractive alternative is to write increasingly customized coverages that use their analytic and technical skills to hone specific prices for more clearly understood risks. In addition to making it harder for smaller, less sophisticated carriers to compete, this can insulate big carriers in other ways. Harder, for example, to take away customized, versus commoditized, business. This trend of customization and tailoring is something we’ve seen in other lines (and for that matter in other industries). We have said before that technology and analytics represent something of an arms race in insurance and this is yet another example. The future is already here, it just is not evenly distributed!” More from Novarica on reinsurance.

News and Views: UBI, On-Demand Insurance, and the DOL

Novarica’s team comments on recent insurance and technology news

The growth of connected cars could make usage-based insurance ubiquitous

Chuck Ruzicka

Novarica comment by Chuck Ruzicka, VP of Research and Consulting: “Adoption of telematics and usage-based insurance has plateaued in recent years, and market penetration has been lower than expected. This partly reflects a lack of consumer excitement around the traditional discount model, but also the reality that UBI schemes require some effort on the part of consumers to implement. As cars become more connected, and smartphone-based telematics apps improve, it will be interesting to see if uptake of UBI increases once it’s as easy as tapping a button on your car’s screen.” More From Novarica on telematics and UBI

Munich Re will underwrite Trov’s on-demand insurance platform

Tom Benton

Novarica comment by Tom Benton, VP of Research and Consulting: “The recent partnership between Munich Re and Trov to provide on-demand insurance is an interesting experiment in providing new kinds of coverage that are more aligned with modern consumer demands. Today’s consumers have come to expect a completely digital purchasing experience, and insurance is no exception. Most customers won’t have the patience to sit through what is often a long and complex process, involving multiple waits and slow correspondence, to obtain specialty insurance, and Trov’s on-demand platform provides a way to for individuals to cover items on their own terms, for less money.”

State farm will start selling impacted annuities in 2017 through their call center as a response to the DOL ruling

Rob McIsaac

Novarica comment by Rob McIsaac, Senior VP of Research and Consulting: For carriers, the timeline remaining for implementing the necessary business process, technology and compensation related changes in order to fully comply with the DOL Fiduciary rules is getting ever shorter. While there remains a hard date for implementing key changes by April of 2017, for many carriers, their distribution partners do not want to run ’17 as a split year. As a result, some important changes need to be made in as little as 15 weeks. What’s notable at this point is that many carriers have really not made public their plans for addressing the compliance requirements for this brave new world. State Farm’s recent move will allow them to provide for a controlled and compliant experience for customers that specifically want to explore their options. This is a notable change in direction for the distribution of these products and it will be very interesting to see if there are similarly significant alternations to the “business as usual” model which emerge as carriers get ready to roll into the New Year.” More from Novarica on the DOL

News and Views: Renters Insurance, Defined Contribution M&A, Reinsurance, Startup Activity

Novarica’s team comments on recent insurance and technology news

Bungalow offers a simplified platform for purchasing renters’ insurance

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “The founders of Bungalow, being Millennials themselves, are well placed to sell insurance to their peers. They have begun by understanding the kind of experience Millennials want, based on simplicity and ease of use, and molding the insurance buying experience to these priorities. This story shows that disruption, especially distribution disruption, can and will emerge from within the insurance industry. Even if tech companies don’t figure out how to handle insurance licensing, there will be people within insurance who understand and respond to the consumer desire for a kind of customer experience traditional carriers are not providing.” For more on Millennials and insurance, check out our new report on the subject.

Ameritas Finalized its deal to acquire Guardian’s 401(k) plans business

Rob McIsaac

Novarica comment by Rob McIsaac, Senior VP of Research and Consulting: “In our upcoming Business & Technology Trends report on the Defined Contribution Retirement Plan business, we highlight the degree of competition carriers face, as well as the significant cost pressure they find themselves under. Last week’s announcement that Ameritas is purchasing Guardian’s 401k business is the most recent example of a carrier choosing to exit this market because they could not attain the required scale. The M&A route allows both companies to achieve something important for their own longer term strategies; we fully expect to see more of this activity in the coming year as carriers look to better position themselves for long term profitability.”

DropIn’s video streaming service has the potential to significantly reduce the cost and labor associated with the claims process.

Chuck Ruzicka

Novarica commentary by Chuck Ruzicka, ,VP of Research and Consulting: “Not all emerging tech poses a disruptive threat to insurers. DropIn, a recently launched startup, could significantly reduce claims processing costs and time. DropIn’s service is just one example of the type of value that startups can provide to the industry. Although this company didn’t incubate in an insurer accelerator or receive funding from a carrier, it offers insurers an innovative solution to a problem that has plagued the insurance industry. Outside entrants aren’t always a threat, and keeping a finger on the pulse of the startup community can work to the advantage of the industry.” More from Novarica on how startups and insurers can work together.

The market continues to be tough for reinsurers.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “AM Best’s report on tough times in the reinsurance market is encapsulated by this simple quote: “low investment yields, and continued pressure from convergence capital.” As I wrote recently on LinkedIn, disruption is not just about distribution. The capital markets are realizing there’s nothing stopping them from pricing and selling risk coverage directly. Like primary insurers, reinsurers will need to think about other ways to monetize their distinctive knowledge of risk, since the loss reimbursement market is under pressure.” More from Novarica on reinsurance.

Tesla has entered the auto insurance business.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “Tesla, a company whose main business is manufacturing electric cars, is launching an auto insurance program business to serve their customers. This program is a response to a perceived gap between the consumer need for an innovative, flexible auto insurance product that will cover an automobile whose properties can be changed almost at will by the owner, and the inflexible coverages offered by traditional auto insurance. In the future, consumer demand will mean more insurance products are bundled with a broader offering and experience. Either insurers will actively partner with third-parties to create these offerings or those third-parties will control the entire customer experience and relegate the insurer to the back-end risk holder.”

News and Views: the DOL, UBI Adoption, Locating Lost Life Policies, Blockchain Research

Novarica’s team comments on recent insurance and technology news

According to a new DOL ruling, states are now allowed to create retirement plans for the private sector .

Rob McIsaac

Novarica comment by Rob McIsaac, Senior VP of Research and Consulting: “Not all employers can support traditional Defined Contribution retirement plans, and the impact of this is most significant for the employees of small businesses, where the difference in maximum tax advantaged savings rates between ITAs and 401ks can be vast.

The DOL recently enabled states to create plans for private sector employees who work for companies that aren’t able to provide or support plans on their own. This is a potentially significant development which has a positive impact on a broad group of people spanning all demographic cohorts. It can also represent a significant new opportunity for carriers to adapt existing products and capabilities to a new market reality. Exactly how it will play out remains to be seen, but carriers should consider watching this development carefully.” More from Novarica on the DOL.

Findings from a recent study suggest that lack of UBI adoption may be due to lack of opportunity, but targeting parents of teen drivers and the elderly could fix this.

Tom Benton

Novarica comment by Tom Benton, VP of Research and Consulting: “As insurers increasingly compete on customer engagement and innovation, many are offering products that link to device-based information provided by insureds. Since the early days of UBI devices (Usage-Based Insurance), such as Progressive’s Snapshot device, carriers have most commonly offered discounts in exchange for collecting usage data, a trend which continues with newer entrants such as Metromile,. However, the recent results from the 2016 LexisNexis Usage-Based Insurance Study provide interesting insight into what may better motivate consumers to purchase UBI products. The survey seems to indicate that awareness of UBI products is less of an issue than providing incentives other than premium discounts, an argument we made in our report on the current state of UBI from earlier this year. An interesting finding was that potential UBI customers would mostly look for reviews and others they know who’ve enrolled before deciding, which opens the door to using social media to better reach potential UBI customers.” More from Novarica on telematics and UBI.

NAIC launched an app to locate lost life insurance policies.

Chuck Ruzicka

Novarica comment by Chuck Ruzicka, VP of Research and Consulting: “The NAIC’s recent launch of a life insurance policy locator app is a striking comment on the current customer experience provided by the life insurance industry. By building out a system for locating “lost” life insurance policies, they are essentially admitting that life insurers, and the regulatory landscape around life insurance, have made it so challenging for beneficiaries to find the policies that were supposed to protect them that regulatory action is needed to sort out the issue. It’s hard to see consumers today, who have a wide variety of ways of providing for retirement and their survivors, continuing to favor products that are so user-unfriendly that their loved ones might never be able to find and claim what’s rightfully theirs.”

MetLife joined a partnership to research and develop blockchain usage in the financial system .

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “The distributed ledger technology of blockchain will have many applications in insurance because of its unchangeable and encrypted storage capabilities. We have already seen ideas as diverse as use in contracts (recording iterations during negotiation), verification of personal data (confirming authentic documents), confirming policy issuance date and time, and P&C claims. In claims, some use cases discussed include settling claims based on uninterested third party data, not paying duplicate claims, and integration with IoT devices which could send info to an insurer to trigger automatic claims payments. MetLife is the latest of a number of insurance heavyweights to enter this arena, and we only expect interest, and the number of applications, to grow over the next few years.” More from Novarica on blockchain.

News and Views: Predictive Analytics, Mobile for Claims, Blockchain, Distribution Startup

Novarica’s team comments on recent insurance and technology news

Predictive analytics reduces risk in Workers’ comp.

Jeff Goldberg

Novarica Comment by Jeff Goldberg, VP of Research and Consulting: “Workers’ comp carriers are prone to high claims associated with complex injuries and medical handling, and also frequent claims fraud. So any technology that reduces the risk and uncertainty associated with claims is going to be enthusiastically embraced by carriers in this line. Predictive analytics solutions are being used to predict claims severity, to increase reserving accuracy, and identify fraudulent activity. While most insurers have not fully adopted predictive modelling, it has the potential to become a centerpiece of data strategy.” Novarica will be publishing a Novarica Market Navigator™ report on predictive analytics solutions in the coming week. For more Novarica vendor analysis, see

Two insurers have started to use IBM MobileFirst for claims handling – Amica in the US, and RIMAC in Peru.

Chuck Ruzicka

Novarica Comment by Chuck Ruzicka, VP of Research and Consulting: “Amica’s adoption of IBM’s MobileFirst claims app is a timely reminder that it’s not just policyholders who are affected by a carrier’s technology choices, but staff as well. Creating a richer mobile workflow for claims adjusters isn’t just going to improve adjuster productivity or the customer experience for policyholders, important though these are. Amica is explicitly doing this in part to match the way the millenials entering the workforce are used to interacting with technology, and ensure they are able to recruit and retain a younger generation of claims adjusters.”The “Novarica New Normal for P/C Insurers” benchmarking study found that 20% of large PC insurers have some mobile field adjuster app deployed today, and another 30% have current or planned pilots.

SAP will start integrating with Blockchain.

Mitch Wein

Novarica Comment by Mitch Wein, VP of Research and Consulting: “We have previously suggested that blockchain distributed ledgers could allow for claims settlement where an uninterested third party provides key data that can be used to trigger a claims payout. SAP, as part of its new blockchain strategy, is doing just that, designing a system for farmers’ weather insurance that would pull rainfall data from sensors in the field (or perhaps the weather service), then automatically inform insurers if there’s a drought that would trigger a payout. If SAP successfully integrates blockchain with HANA, insurers could start storing key transaction and GL activity in this format, potentially creating an unprecedented level of straight-through processing. This is a clear signal that use of blockchains in insurance is only going to become more widespread.” More from Novarica on Blockchain.

The CEO of Principal Financial estimates the price of the DOL Fiduciary Rule Change to be $1 Million per month, and some analysts believe the ruling could set indexed annuity growth back by a year.

Rob McIsaac

Novarica Comment by Rob McIsaac, SVP of Research and Consulting: “Carriers and distributors alike continue to prepare for the significant changes that the DOL Fiduciary ruling will bring to the annuity business in 2017. For carriers, as reflected by Principal Financial’s comments, there may be significant business process and technical changes that will be required to meet the needs of their broker dealer and other distribution partners. One of the key issues facing many companies now is getting clear business requirements from distributors, a particularly daunting challenge since many distributors want to have any changes impacting compensation and recognition programs in place by the end of 2016.

One might suspect that the adverse impact of the rule changes could actually be more significant on the indexed products than it will be on their variable annuity counterparts. For registered products, the broker dealer infrastructure and compliance capabilities provide a framework for managing rule changes as defined by the DOL. For many producers who are not securities licensed and therefore not affiliated with a retail BD, the implications of the rule could be far more significant. Some manufacturers are beginning to contemplate how they could step in to take on the Fiduciary responsibilities associated with the rule changes, but it is too early to know at this date how, or even if, that would be implemented. This could have a further dampening issue on sales for these products in the new year.” More from Novarica on the DOL ruling.

A former executive at a disruptive insurance distribution startup has founded a slightly less disruptive insurance distribution startup, with MassMutual among the investors.

Steven Kaye

Novarica Comment by Steven Kaye, Associate VP of Research: “Through its funding of Apliant, MassMutual not only gets to shape the future of distribution, but has the potential to make itself more attractive to independent agents by offering a distinctive technology platform. Novarica has said there will continue to be a place for agents in insurance distribution, and the more promising distribution startups empower agents to provide better service. As we keep saying, ‘cyborgs beat robots.’”More from Novarica on VC funds and accelerators.

News and Views: The “Uninsuranble Underclass”, Startups, Brexit, Annuity Sales, and AI

Novarica’s team comments on recent insurance and technology news

Advances in FinTech and analytics could lead to the creation of an “uninsurable underclass”.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “As more customer data sources become available—social media, telematics, wearables, sensors, and drones—at what point do insurers have enough real-time information to switch from a demographic-based risk-pooling model to true individualized pricing? A new report questions whether such advanced analytics could lead to an “uninsurable underclass.” The insurance industry has always tried to assess the risk of a potential policyholder to the best of its abilities, but limitations in technology and data had a secondary impact of allowing a socially beneficial distribution of risk across larger pools of people. Does the industry have a social obligation to maintain some abstraction between its customers and its risk/pricing analysis in order to maintain this approach? If insurers move too far down this path, or start eliminating broad communities of people from affordable coverage, it’s likely the government will step in with healthcare-like regulations.”

Oscar, a health insurance startup, announces cuts in coverage.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “This story has been covered with a certain amount of gloating that self-proclaimed disruptors are not immune from the pressures faced by traditional providers. We saw a similar tone in the media, especially the trade media, when Zenefits stumbled on regulatory compliance. But none of this voids the fact that consumers are eager for the ease of use and customer-experience focus that these companies are trying to deliver, nor does it change how dissatisfied customers are with the experience that traditional players offer. On the bright side for incumbents, it may be easier for them to improve their customer experience than for new entrants to effectively operate in the insurance industry.”

Hiscox may set up an EU-based insurance firm in the wake of Brexit and the future loss of “passporting” rights.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Hiscox is thinking of setting up an EU based Insurance Subsidiary. This is important since today Hiscox has access to the continent from the UK through the “passporting” rights that allows regulatory capital for product reserves to be in any EU country and the regulatory oversight to be in the EU country of origin, historically the UK since they sell their specialty products through Lloyds of London. In the near future, when the UK is not in the EU, they would lose access to EU countries for their products since “passporting” will no longer be applicable. As I have discussed in a number of blogs on the topic, we expect many carriers to set up EU companies in places like Frankfurt, Paris or Dublin to retain access to EU markets.” More from Novarica on Brexit.

Annuity sales plummeted in 2016.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “While much of the reporting on the precipitous fall in annuity sales in 2016 seems to focus on the impact of the Department of Labor rules announced earlier in the year, the actual causes of the sales decline are likely more complex. Market volatility earlier this year, the election year, and other influences, some of which would actually tend to increase annuity sales, are all having an effect.

A more important question is how the Fiduciary responsibilities will be delivered to the market for indexed annuities. Since these are frequently sold by agents who are not themselves registered reps, the broker-dealer structure for variable products does not universally apply. This could force notable changes in how indexed products are distributed in the future or in the willingness of carriers that manufacture these products to step into the breach to provide support for the fiduciary function. This will be an important element to watch over the balance of 2016.” Here is another perspective on declining life/annuity sales. More from Novarica on the DOL Fudicuary Ruling here.

Fidelity officially launches robo-advisor platform, and the Economist has more to say about AI in general.

Don Metz

Novarica comment by Don Metz, VP of Research and Consulting: “The long awaited promise of AI may finally becoming a reality as significant progress has been made utilizing a new technique called deep learning. Taking advantage of extraordinary advances in computing power and data storage and the increasing availability of large quantities of data, large neural networks are now beginning to learn rather than just process information. This deep learning technique has the potential to enable new disruptive capabilities in the insurance industry, impacting areas such as data analytics, actuarial modeling, underwriting, and predictive analytics.”

Sun Life announces a new partnership with Plug and Play.

Steven Kaye

Novarica comment by Steven Kaye, Associate VP of Research and Consulting: “As noted in our report Buying Innovation: Insurer VC Funds and Accelerators One Year Later, more carriers are launching corporate development programs and venture capital groups, as well as serving as mentors to startups lacking insurance industry know-how. Carriers can also offer startups capital and partner networks, while in turn benefiting from a chance to get ahead of innovations rather than reacting to them. Startups can provide carriers an outside-in view of their processes. Novarica regularly attends events in Silicon Valley, and talks to accelerators, carriers, and private equity and VC firms on an ongoing basis.” More from Novarica on innovation and Silicon Valley

News and Views: The US Treasury’s 2% Rule, Workers’ Comp, Direct Small Commercial, UBI

Novarica’s team comments on recent insurance and technology news

As the Worker’s Comp line reports significant profits for 2015, a class action lawsuit alleges that women receive fewer Workers’ Comp benefits than men for the same injuries.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “A recent class action lawsuit alleges that women are being systematically awarded lower disability payments for Workers’ Compensation claims than men for similar injuries. Without getting into the merits of this particular case, it does raise an opportunity to discuss how insurers can use analytics across their business to do more than just optimize pricing and risk selection. Insurers want to thread the needle of remaining profitable while also best serving their policyholders, and no insurer would set out to intentionally under-indemnify a particular group of people. But, if unrecognized societal bias results in individuals making biased decisions at an institutional scale, proper business intelligence would show these kinds of trends and allow a company to put policies in place to rectify them. Whether an insurer has a legal obligation to apply data analytics to identify such trends is a matter for the courts, but–even if the courts say no–it would certainly allow an insurer to make better long term decisions and, just as importantly, improve their service and their ethical standing with clients.”

Forbes profiles another startup trying to disrupt insurance distribution, this time from insurance veterans rather than the startup world.

Martina Conlon

Novarica comment by Martina Conlon, SVP of Research and Consulting: “As we note in our recent Business and Technology Trends report on Commercial Lines, direct small commercial is a market with great potential for a company that can reach small home office businesses and provide a swift and seamless process for potential policyholders to close. This isn’t about coming up with a great new idea for how to sell insurance, it’s about racing to be the first company to provide a really easy, efficient customer experience for small business owners.” More from Novarica on direct online small commercial.

Another insurer has rolled out a UBI based offering, this time based on incentives rather than pure discounts.

Chuck Ruzicka

Novarica comment by Chuck Ruzicka, VP of Research and Consulting: “Answer Financial’s innovative Streetwise Driver club has the potential to energize policyholder’s and change the tone of insurance company conversation in social media. As we note in our recent report on Telematics and UBI, a purely discount-based approach is unlikely to generate substantial market penetration beyond the current, low levels. Some insurers seem to be reaching the same conclusion, but a scheme like this is still essentially financial in nature – the next step will be to find ways for telematics to drive service differentiation and customer engagement.”

The US Treasury has adopted a formula defining a threshold of 2% of community median income for Auto Insurance Affordability,.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “While this ruling on affordability has no direct impact, insurers are not unreasonably concerned that, having quantified an affordability problem, the next step would be to address it. Whether this will be through subsidies, mandated rates, or other methods remains to be seen. As we noted in January 2011, once the industry accepted minimum medical loss ratios under the Affordable Care Act, the door would be open to additional intervention in insurers’ operating models in the name of consumer protection and preserving accessibility.”

The IAIS is moving towards a Global Capital Standard, but US insurers are resisting the move.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “The Switzerland based IAIS has recommended a risk-based capital standard that conflicts with a US Federal Reserve Capital Standard that was proposed last month. The IAIS has 140 member countries, many of which are outside Europe, so this effectively means the US and the rest of the world are moving towards different capital standards. Capital standards drive product mix and type/configuration, since different types of products require different levels of reserves. Additionally, liability valuation has been different in Europe which uses Market Adjusted valuation vs. GAAP in the US. The new proposals compound this difference, adding complexity to global insurers financial accounting and decision making. Global software deployments for PAS and GL will need to take these differences into account. The global patchwork of insurance regulations does not look like it’s getting simplified anytime soon.”