Figure 1: The Rise and Fall of Personal Computing, Asymco.com (January 17th, 2012)

The data suggest profound disruption. Smartphones are the most quickly adopted technology in history. We now spend more time in mobile apps than on the PC Web. But has mobile adoption turned industries upside down? In the last decade, the internet has upended the music industry, advertising industry, media, among others. It has created new entrants into the insurance industry and transformed how traditional insurance companies acquire and retain customers.

But if one looks at the impact of mobile, the opposite appears true—only 2% of online commerce came through mobile in 2011^[1]. And when one looks at the impact of mobile on the insurance industry, it’s only to the extent that it extends those trends already started by the Web. Mobile technologies in and of themselves have not had meaningful impact.

How can adoption of mobile technology be so dramatic yet its impact almost negligible? The answer to this question has direct implications on an insurance company’s mobile strategy.

Some historical context may help answer the question.

We sit at the precipice of a golden era in which technology will transform society…again. In a few years, Web and mobile development trends will merge to create an experience far more profound than either alone. Many services will be accessed primarily by mobile users; Facebook saw 33% of its updates from mobile in 2011. More importantly, we will see the profound effect that having a computer, the internet, and a dozen always-on sensors in your pocket has on the Web itself. It will be an era of living our lives on the Web and the Web permeating our physical space.

When the Web first entered the mainstream, it was described as the “Information Superhighway”, an electronic, always up-to-date encyclopedia of knowledge (Web 1.0 in the table above). Even the terminology we use today reflects the notion of electronic books—we visit web pages and create bookmarks. It was up to established authorities to create that content, whether food recipes or goods available for purchase online.

A decade later, far more web content was being created by individuals than by organizations—we dubbed this evolution Web 2.0. While Web 1.0 was about explosive growth in readers of the Web, Web 2.0 was an explosion in the number of writers of the Web through blogging, social networking, user-generated content, and enterprise collaboration applications.

In the last two decades, the Web has disrupted countless industries. It’s difficult to imagine life in the modern world without the Web. It is certainly the most significant technological invention since at least the semiconductor.

Mobile technologies, on the other hand,  have not yet made this type of impact, despite rapid adoption by users. To understand why, mobile adoption must be understood in the context of the larger trend of Web adoption.

Mobile 2.0 born of the Web: 2007 to 2012
In the last five years, nearly everything of importance in mobile to the mainstream has been about enabling access to – and providing richer interactions with – services also available on the Web.

Mobile 2.0 started with the release of Apple’s iPhone in 2007 and revolutionized the mobile industry by:

• Making the end-user experience paramount
• Enabling the real Web through Mobile Safari
• Creating developer frenzy through the App Store
• Extracting unprecedented economics from a wireless carrier (AT&T)^[2]

The open-source Google Android platform subsequently allowed the leaders of Mobile 1.0 to compete with Apple; and today it is the fastest-growing personal computing platform, mobile or otherwise.

But why is Mobile 2.0 about the Web when so much of the conversation around iPhone and Android devices is about native applications?

First, we need to examine the types of activity that native mobile applications enable for insurance customers today, which are largely the same ones already possible through the company’s desktop website. The experience has been vastly improved, so investment in native applications is clearly important, but it’s still about access to services already available on the Web.

Second, hybrid apps—native apps with imbedded web technologies—are becoming the standard  as newer apps are being developed  by market leaders using the hybrid pattern. Apple’s iBooks and the Apple Store app are hybrid applications and Facebook has announced that they are converting their pure native iPhone application to a hybrid version. Thus, the oft-heard debate about using HTML5 vs. native app technologies is short-lived. Most companies will have an HTML5 experience for the browser and a similar experience in an app that adds features only available on the native platform.

The combination of these two factors suggests that Mobile 2.0 is really about the Web and enabling better access to it from all devices. It has been more about evolution than disruption in its own right.

In this light, two recommendations should guide insurers for the next couple of years:

Build One Web. Insurers need to make users happy no matter how they connect with your business. Users require a single set of functionality no matter how they connect, yet the user-experience of that functionality needs to be tailored for the specific screen size (tablet vs. mobile), input method (touch vs. mouse), and use case (kiosk user making purchase vs. PC Web user browsing for information). The same user is utilizing different touchpoints and will expect largely the same functionality. Users expect One Web, whether accessing from a PC, a mobile phone (via native app or browser), tablet, television, kiosk, or whatever else may come.

At the level of IT/implementation, One Web can have many forms: Responsive Web, web services (often enabled by services-oriented architectures^[3]), and web transformation technologies. And given the growing trend of building hybrid applications, One Web also includes native applications.

Focus on learning. Many insurers have started creating One Web, and as they begin delivering better experiences to mobile users, their primary focus should be about learning what users want to do while mobile. Learn by watching the behavior of mobile users and by experimenting with internally generated ideas, independent of what customers are actually doing. Learning should be the primary focus. If the focus is solely on generating an ROI, you may find yourself unprepared for the radical impact of mobile usage in the years to come.

Web+Mobile 3.0 will disrupt the insurance industry: 2013 and beyond
Web+Mobile 2.0 allow us to express ourselves on the Web. But Web+Mobile 3.0 will be about living our lives while constantly connected to the Web. It’s the truly disruptive impact of what it means to have a computer, the internet, and smart sensors in your pocket at all times. It might be called the Analog Web. It’s a world in which the smartphone’s sensors are bringing the Web deeper into our lives. Early examples are apps that utilize a mobile device’s camera (Instagram, Red Lazer, or Atol^[4], an augmented reality commerce app that allows you to try on new glasses), microphone (Shazam), or location sensors (Highlight). But increasingly, these sensory nodes will be always-on, passively capturing data in real-time and alerting us proactively about ourselves and our surroundings. For example, the music app Spotify passively posts to Facebook the tracks to which you are listening.

Mobile technology will be the key enabler of this third evolution of the Web. So much so that later this decade it will be difficult to tell the difference between web channels that are separate today: PC web, mobile web, and native applications. By then, it will be almost impossible to fathom the Web of today, one that needs to be “visited”. The Analog Web is always-on, always-listening, embedded everywhere and interacting with us naturally as we move about.

This type of mobile technology will be even more disruptive than the Web has been in the last two decades.

Retail will be transformed. Mobile will blur the distinction between online and in-store retail.

Figure 2: Apple Store App

Apple’s “Apple Store” app, used for buying MacBooks and other Apple products, is a small pointer to our retail experience in the future. Most of the time, the app acts as a standard commerce app, allowing users to purchase items available on apple.com. But when a customer walks into a store, the online commerce app animates away and the screen in Figure 2 appears allowing the customer to scan physical items and pay using his credit card on file at apple.com. The app also displays the number of customers in line at the Genius Bar and wait times for getting support or attending a workshop. Similar features would be useful to AAA customers as they enter a branch office.

With Amazon’s PriceCheck and Prime shipping, the company hopes to turn the retail stores of the world into showrooms for its millions of products. Checking prices on smartphone is already starting to have an effect on retail pricing as shoppers are empowered with information. Customers are bringing the Web into stores.

To combat this trend, offline retailers are bringing the Web to its customers. Retailers are arming their store associates with tablets that allow customers to browse items that complement those they are currently holding.

As mobile payments become popular, insurers have the ability to add truly unique capabilities. For instance, a personal auto carrier may allow customers to pay for authorized car repairs directly with their iPhone app.

Health and well-being will be transformed. Mobile health tracking devices that sync with smartphones will bring about a revolution in how Americans think about being healthy. Today, early-adopters are using devices such as Fitbit, Basis Band, Nike+ Fuelband, and Zio to better understand their activity levels, food intake, sleep quality, stress levels, and moods. In a few years, when the devices become more convenient, ingestible, more capable, and we better understand how to use the data to improve well-being, it will become normal for people to wear trackers. The technology will provide new levels of awareness: “I consume more sugar when I don’t sleep enough” and “I get stressed out whenever I meet with John at work.” And it can enable smart reminders:  “Eat Item #7, Ahi Tuna, at the restaurant in which you are currently seated; it’s the best balance to your meals earlier today.”

We will transform from a society that fixes illnesses to one that prevents them through lifestyle changes.

And health insurers have the power to fundamentally improve the American public’s health by promoting healthy habits. Imagine giving customers a discount on premiums for demonstrating healthy activities such as walking five miles a week.

Your organization will be transformed. The transformation of the Web being always-on and always aware will create profound opportunities for insurers. Agents will be more closely linked to policy holders, provide better service, be more informed and make decisions quicker.

Insurance products are complex. While consumers are far more informed about insurance products than they were a decade ago, agents will for many years continue to play a crucial role in helping customers make decisions.

Imagine a visitor to your website expressing interest in a policy. He has questions and asks to call an agent. Instead of being routed to a national call center, he’s routed to a local agent who happens to be on the road nearby. The agent, via font-facing camera, is able to have a video conversation and answer the prospective customer’s questions. The customer enjoys the service, and the agent offers to stop by to meet face-to-face minutes later to close the transaction.

Insurers should prepare for these profound transformations by creating One Web. Many insurance companies are not ready for this kind of change, nor should they be. User behavior is not there yet. Companies should focus their limited resources on ensuring that they deliver One Web to their users, no matter how they connect. One Web is a prerequisite to understanding how to participate in the truly disruptive business models and technologies enabled by mobile in 2013 and beyond.

Conclusion
Despite the unprecedented adoption of smartphones, mobile technologies are not yet disruptive to the insurance industry and have not changed the dynamics of business in their own right. Today, mobile impact is solely an extension of the impact caused by the Web. This is because Mobile 2.0 (2007—2012) is a period in which companies are attempting to extend what has worked for them on the Web to mobile devices. It’s been about reacting to the tremendous growth in mobile usage by extending access to services already possible on the Web.

Insurers should embrace this growth in mobile usage by ensuring that their web infrastructure is equipped to create a consistent experience for customers no matter how the customers choose to connect with their insurance company. Insurers should work to deliver One Web, focusing resources on core offerings such as customer acquisition, billing and account management, policy management and claims support. Once insurers have started this effort and begin delivering better experiences to mobile users, their primary focus should then be on learning what users want to do while mobile.

Those insurers that work to build One Web and focus on learning will be best prepared for the radical impact of mobile usage in the years to come.

Ajay Kapur has been involved with mobile since 2002, when he left his job investing in startups on Sand Hill Road to write apps for the first smartphones. The mobile companies he founded have created apps downloaded by tens of millions of users and have generated billions of page views. Ajay is currently CEO of Moovweb, creator of the Moovweb Experience Layer, a Platform-as-a-Service (PaaS) that unifies web development across the desktop Web and all emerging touchpoints, allowing businesses to easily keep pace with the Post-PC Era. Customers of the PaaS include Walmart, Kroger, Macy’s, Blue Cross Blue Shield, Redbox, 1-800-FLOWERS.COM, and dozens of others. He grew up in SF Bay Area and earned an MBA from Stanford and bachelor’s degrees in Physics and Computer Science from UC Berkeley.

I have to trust our subject matter experts/technical folks to ensure product details, technical specs, etc. are properly represented in collateral and campaigns. However, the trust seldom seems to extend back my way in terms of accomplishing what I need to do from a branding/marketing angle. In my mind, it is a fairly straightforward conflict resulting from the fact that us creative marketing types focus on abstractions, whereas the technical folks focus on endless exceptions. As a result, marketing copy gets chewed up and rewritten to the point that it might make absolute perfect sense – but loses meaning. As another example, I choose artwork for brochures that is visually compelling and conforms to a common theme. On the other hand, the technical folks want photos that are literal representations of their services. So, whereas we focus on engagement, the technical folks focus on right/wrong, up/down, zero/one.

In general terms, our friend’s predicament is the result of his subject-matter experts (SME) ignoring Immutable Rules 1 – 3. If you ignore those, you also have the luxury of ignoring the fact that your marketing materials and messages – along with everything else you do and say – are reflections of your brand. That, in turn, gives you the luxury of converting your materials and messages – which should be audience-serving – into some combination of a popularity contest and a fashion show – which are self-serving. In more specific terms, the wicket gets even stickier.

Immutable Rule #4: If technical people could communicate with non-technical people, God wouldn’t have invented marketing.

Left to their own devices, technical people will employ terms and taxonomies, the nature of which they know and love – and by which they’re comforted and reassured of their status as SMEs; that is, technical. And the more arcane the better. According to The Front Line Center for Genetic Anomalies, that's because technical people experience congenitally limited functionality of informatio sententia, the gene that enables the experience and expression of conceptual thought. This is why technical people are highly capable of recognizing, eating, and writing manuals about the construction of a sandwich — even a dagwood — without being able to conjure, communicate, or depict the delectable essence of the sandwich or care what it tastes like.

Immutable Rule #5: If technical people could communicate with non-technical people, God wouldn’t have invented marketing.

As our friend’s note indicates, it’s not just terminological and syntactical impairment from which our technical teammates suffer. They seem to be visually challenged, as well. While no specific diagnosis has yet been made for this condition, its symptoms include difficulty simplifying; a preference for mazes, rather than straight lines; and penchants for screen shots and arcane diagrams in lieu of evocative illustrations or engaging photographs. This is why, when employed as car salesmen, technical people will show prospects the diagram on the left, instead of pointing the prospect to the item in the manufacturer’s brochure that says, “Anti-Lock Braking System.”

Immutable Rule #6: If technical people could communicate with non-technical people, God wouldn’t have invented marketing.

Our friend’s allusion to his technical cohorts being concerned about right/wrong is close but not completely accurate. The fact is they’re more concerned about right/left because, as indicated by the predominance of their left-brain thinking, the left sides of the cerebella of technical people are highly enlarged. That’s why all technical people eat, bat, throw, write, and draw diagrams with their left hands. It’s why their left eyes are significantly larger than their right eyes. It’s why so many of them prefer to drive in the United Kindom, rather than in the United States. And because of the added weight in the left sides of their crania, it’s why they list to the left when they ambulate, causing them to walk in counter-clockwise circles.

Epidemiology

As it pertains to marketing and communication, all of these terminological, visual, and left-brain matters precipitate a phenomenon called B.C. Syndrome (BCS). BCS derives its name from one particular episode in the B.C. comic strip (created by the late Johnny Hart). In the pertinent episode, B.C. and Peter are out for a stroll. As they walk, they have the following exchange:

Peter: Der shnickety blim za milfer blat.

B.C.: What?

Peter: I invented a new language so no one will know what I’m talking about.

B.C.: What for? You were batting a thousand with the old one.

The technical folks who plague our friend – and who similarly haunt marketing types across the universe – don’t create new languages. But they precipitate BCS by draining the languages we already have of suggestive meaning, of nuance and style, of voice and personality, of conceptual abstraction, of the abillity to engage the imagination, of the power to persuade and convince. They denote, rather than connote. As a result, trying to digest their prose is like trying to eat sawdust.

They Know Not What They Do

But let’s not be unduly harsh to our technical tormentors. While their brains may be a little off kilter, their hearts are just fine; and those hearts are definitely in the right place. Technical folks just need not to be put in charge of marketing or marketing decisions. Then, with a little guidance, a little patience, a few kind words, constant reminders of Immutable Rules 1 – 6, mined hallways, and armed sentries posted at the door of the Marketing Department, people like our friend can go about their work in peace and conceptual harmony. And our abstruse antagonists can while away their minutiae as it suits their own punctilious predilections. With any luck, they may even heed the words of George Eliot, from her novel, Middlemarch:

He said he should prefer not to know the sources of the Nile, and that there should be some unknown regions preserved as hunting-grounds for the poetic imagination.

Author's note: Off topic and off schedule, I publish this today to commemorate the passing of a writer whose like we'll never see again. He found his tone, his style, and his persona in Hell's Angels. He established them in Fear and Loathing in Las Vegas. He honed them in Fear and Loathing: On the Campaign Trail '72. He spent his life trying to sustain the tone and style. He lost his life trying to maintain the persona: Gonzo Journalist. It was too big, even for him.

Hunter Thompson died by his own hand seven years ago today. I found out at about 10:00 the next morning. Despite my brute incomprehension of what I was reading, it struck me as a rather Thompsonesque moment: It was snowing – bleak, cold. I'd gone to my home page to check the local weather forecast, and HST's death was one of the AP headlines.

My first thought was of reading Thompson’s work, of all the reverent conversations I’d had with friends and colleagues about Thompson’s incisive intellect and his ruthless honesty. Those memories stay with me always. The fact that we often idealized his work – that it made us wish to be possessed of the same kind of apocalyptic voice, to be the same kind of incendiary conscience – sometimes haunts me.

My second thought was of the price that always seems to be exacted from those endowed with such prophetic voices, visions, or propensities. In our conversations, my friends and I had talked about the likelihood that Thompson would have been killed had he lived in another place or time. We never extended that topic to the likelihood that it becomes impossible to live – like Jesus, Socrates, Chet Baker, Frederick Exley, and Jerzy Kosinski, or those minced by the celebrity machine like Jimi Hendrix, Heath Ledger, Michael Jackson, Amy Winehouse, Whitney Houston, et al. – when one is possessed of such voices, visions, or propensities.

It's not the possession that undoes the possessed. It's the things neglected, sacrificed, or disdained in deference to the possession that conspire to take them from lives so singularly unbalanced. It's easier to withdraw than it is to reach out. It's easier to scorn than it is to accept or to be accepted. It's easier to wrap oneself in work, ideology, and compulsion than it is to be vulnerable and to belong. What appears to be courage reveals itself to be a frequently fatal fear.

The possessed represent for us many things – ideals, extremes, taboos, single-mindedness we can't afford, personal asceticism we can't abide, a lack of courage and self-awareness we can't tolerate. That's why we marry, have children, form friendships, compromise, trust, and say 'yes' to the whole ride, regardless of our inability to like or control every dip and turn. Drugs, alcohol, and myriad other self-abuses are not the prices of imbalanced lives: they're the band-aids and the crutches. They're not the coping: they're the obliteration.

Thompson chose to obliterate himself. I miss his voice. His death taught me the lesson of his life.

We are not going to get any traction unless we have the following in operation:

1. Monthly newsletters going out to all our clients and prospects about our products and successes
2. Advertising in an insurance publication
3. Website that is “high tech” (after all we are a high tech company, right?)
4. White papers on PanaceaOne and SilverBulletOne
5. Drip marketing campaign
6. Product branding and positioning statement.

We need HELP!

The situation evoked in the email is as common as it is unnecessary – common because it reflects consistent misconceptions about brand, its relation to marketing communication, strategic hierarchy, and marketplace positioning; unnecessary because a simple inversion of the order in which tactical elements and strategic activities were perceived and presented would have put the gentleman, his intentions, his company, and the program he seeks on the right track.

By the Numbers

Given the order of the items presented in the email, it would not be illogical to presume the company already was thriving, at least judging by its lead-off item. Here’s why:

Newsletters: If the company has achieved enough successes to generate adequate content for monthly newsletters – to provide a meaningfully and persuasively engaging read every 30 days – why does it need help? If the company has achieved so much success with its clients, don’t those clients know? Aren't they the source of that success? Why tell them again? Is it necessary to preach to the converted? If the newsletter intends to create constructive account-management and new upselling opportunities then, by all means, send a newsletter to clients. Routine, ongoing communication with clients is necessary to communicating the work the company is doing to deliver continually increasing value, to maintaining and contributing to client relationships. But the messages delivered to clients (on the books) must be different from those delivered to prospects (in the pipeline). Otherwise, neither audience will consider itself satisfactorally served.

Advertising: If any tactic is a combination of a red herring and a hot potato, it's advertising. Gastronomy aside, it can’t be judged to be good or bad in the absence of context. What are the objectives the advertising is intended to serve? Brand awareness? Product/service promotion? Special offers? Once those things are determined, what is the nature of the audience? Technical? Business? Operations? Finance? Especially with advertising, expectations without objectives can be as disappointing as they are costly.

Website: In relation to websites, high tech can be used interchangeably with cool stuff. They translate to precisely the same thing: form over substance. In the absence of the objectives that would have precipitated meaningful content, companies often hold the mistaken conviction that their websites must contain two things. First, they positively must contain gimmicks, be they Flash animation, news tickers, video testimonials, flashing banners, and/or anything else the companies can think of. While these things are intended to attract attention, they don’t. They won't. They do, on the contrary, distract attention because the first things visitors want to know are these: Am I in the right place? Can I get what I want? High bounce rates on home pages indicate the cool stuff trumped the right stuff at the expense of new prospects and new entrants into the sales pipeline.

Second, high-tech websites must contain everything the companies they serve can think to say, in response to every question they have ever been asked, in any context or conversation, in no particular order, In no coherent and/or consistent design, and in every conceivable place it can be shoehorned in. Core messages? Nope. Contemplation of accessibility, navigability, sensibility, or readability? Not right now, thanks. Any regard for the user, or what he might want or need? No. That's not what we want. Bolt it on, stuff it in, stitch it up, and let's go. The result is the Frankensite, a monstrous and repulsive thing, indeed.

White Papers: Perhaps nothing is so misunderstood as the white paper. White papers are intended to be technical documents, written in technical terms, for technical audiences. Because they’re so misunderstood, one can never be sure if those asking for whitepapers actually want a brochure, a sell sheet, an advertorial, or simply some sort of narrative explication of how and why fire, wheels, sliced bread, bottled beer, the hammock, the Flowbee, and flush toilets can’t hold candles to whatever they're selling. Like websites, white papers all too frequently exist regardless of their raisons d'être.

Worse, companies asking for white papers typically assume the non-technical visitors to their marketing websites (as supposed to some sort of technical portals or other access media) will want to download the paper from there. When website analytics indicate no such downloads are taking place, the companies who asked for the white papers typically blame the white paper (which no one has read), the website (which no one can navigate), or the subject matter (which no one cares about). They typically don't acknowledge that the white paper's whiff was attributable to the fact that it was the wrong message, in the wrong medium, for the wrong audience.

Drip Marketing Campaign: This typically means a particular form of direct marketing, in which a story is told to a target audience, in narrative increments, over a pre-determined period of time. It’s by no means a bad idea or an ineffective tactic. In fact, traditional direct mail is likely to make a comeback as the response rates for direct email continue to decline. But, as it has been here, direct mail frequently becomes a horse-leading cart, rolling out ahead of any strategic purpose, cohesively constructed story, or definitive direction.

Product Branding and Position Statement: This one’s the heartbreaker because it comes so close and misses so narrowly. Had this been #1, rather than #6 – and had it omitted Product – it would have teed up the strategic hierarchy under which the five remaining tactics could have been prioritized, created, executed, and implemented in objective-achieving order.

Go Fetch the Cavalry, Tonto!

Perhaps the gentleman who sent the email, and his company, can be helped. We won't know till the horse soldiers reach him. And I don’t mean to hedge my bet. But a surprising number of companies realize they need help, ask for it, pay for it – then won’t take it. ("But that's not the way we've done it before.") All we can do is be the faithful companion, riding across the lonesome prairie to summon the necessary reinforcements, hoping we get there in time. In the meantime, that solitary seeker of assistance is The Lone Ranger. Hi, Yo, Silver!

Slightly more than 1% of fans of the biggest brands on Facebook are actually engaging with the brands, according to a study from the Ehrenberg-Bass Institute, an Australia-based marketing think tank that counts Procter & Gamble, Coca-Cola and other major advertisers as its supporters … That means less than half a percent of people who identify themselves as like a brand actually bother to create any content around it.

As Grandpa O'Brien loved to say, "Strange things are happening." Leaving questions about what’s going on in all those groups aside, one really does have to wonder: If so few folks are using Facebook to engage with household-name consumer brands, what has so many people trying so hard to find so many crannies for social media in insurance? I smell a rat.

Eek! A Mouse!

According to research conducted by The Front Line Center for Textbook Cases, this is a textbook case of BMS: better mousetrap syndrome. In fact, social media constitutes BMS on steroids because it’s free. We’re going to reach more people, more quickly, all of whom are going to fall in love with us. Our phones are going to be ringing off the hooks. Our marketing people are going to be hailed as geniuses. Our salespeople are going to be transformed into feverishly overworked order-takers, their frantically flying fingers worn to nubs on keyboards smoking from the fervor. And the medium through which we’re going to accomplish all this is free – FREE, I TELL YOU! IT'S ALIVE! IT'S ALIVE!

Really? No.

If just one percent of Facebook users are engaging with Coca-Cola, it ain’t gonna happen here folks. Sorry. Numbers do lie.

The Facebook pages for GEICO and Progressive have 209,555 and 1,766 likes respectively. But those likers aren’t there to engage with the brand, to provide the sacred content. They’re there because they’re fans of geckos, cavemen, and Flo. Those aren’t brands, they’re personae. Aflac’s Facebook page has 15,459 likes. But those likers aren’t there because they’re buying supplemental insurance. They’re there because the duck is cool and Gilbert Gottfried wasn’t.

Beyond that, customers of companies like GEICO and Progressive are shopping on price. That’s why GEICO and Progressive advertise their pricing. And beyond relatively commoditized products like personal auto ("Fifteen minutes can save you 15 percent or more on car insurance"), buying insurance requires big decisions. Buying commercial insurance requires bigger decisions. And buying insurance systems and software requires even bigger decisions and bigger budgets. The guy who woke up this morning, slapped his head, and said, “Dang! I gotta go online and buy car insurance today” is not going to wake up tomorrow morning and say, “Dang! I gotta go online and buy insurance for my national fleet of trucks today,” or “Dang! I gotta go online and buy a policy administration system today.” People who need to buy the latter two will be engaging with agents, brokers, consultants, and/or lawyers long before they’ll be engaging with any brand. If they don’t, they’ll likely be engaging with the unemployment line.

Watch Your Fingers

Yes. There will be opportunities for small insurance companies and agents with local and regional practices to use social media to cost-effectively engage folks. If the relationships they build are personal enough (this is, after all social media we’re talking about), if their reputations are sound enough to elicit customer references, and if their intent to treat their customer bases as affinity groups — rather than as fish in barrels — is genuine enough, they may succeed in building social media communities. Within those communities they will be able to converse about products, services, and programs. But social media will not be effective if the personal relationships and customer references don’t come first. Products, services, and programs do not a community make.

The World Wide Web's manifestation of BMS wore out its welcome so effectively it precipitated the evolution of banner blindness. If you don’t think social media has the same potential to push saturation and overload to dismissiveness, just watch.

Folks don't fancy Internet spam nearly as much as they do the canned variety. And the purpose of the better mousetrap isn’t to trap the trapper. Caveat emptor.

For the first time in ages, smaller companies in the property/casualty insurance market have taken back some ground.

The top ten insurance companies continue to grow, the number of companies overall continues to diminish, and the list of billion-dollar-revenue companies is shorter today than it was five years ago. But there is a ray of hope that the small can survive and grow. Consolidation and scale are critical, but so are attracting and retaining customers. And that's a game not only for the large — because vendors can provide scale, and everyday workforce champions of growing companies can dramatically accelerate innovation and advancement.

There are innovative champions at each of today's 330 personal auto insurance companies, but in the last 15 years, more than 100 other companies have failed or been absorbed by larger enterprises. Modern-day workforce champions know that the survival of their organizations and retention of staff and customers are foremost when creating strategy. Meanwhile, they need to produce, sell, and serve like never before.

For all insurance business leaders, staying relevant is more difficult every day as the market devises new ways for customers to access insurance products and services. Consider that spending by a single company for its auto insurance advertising soared toward a billion dollars in just one year — more than the entire premium revenue of 90 percent of its competitors writing personal auto business in the United States. In that light, knowledgeable executives at many insurance companies realize it's essential to differentiate by customer segment to attract and retain policyholders.

They also understand that the overarching value of data lies in the knowledge it reveals about customers. And the purpose of that knowledge is to take forceful action. Consequently, companies require insight from disparate data sources to execute strategy across key market segments. Today's executives need to identify trends and best practices that drive success, and they must implement process and technology improvements to maximize results by customer segment and channel. They also need to guide top-performing product management and R&D teams, distributors, vendors, and internal departments to coordinate overall strategic efforts.

Data analytics is critical to move from risk selection to risk management and to transition from adverse selection to pricing every risk with the expectation of a long-term relationship. The ability to mine customer data is essential, and a company's analytics experts must work as close to real time as possible. Even the needs of on-the-go mobile constituents and agent channels should be addressed so operations can be seamless.

The smaller the operation, the more important for champions and their predictive analytics experts to concentrate on execution instead of research. In reality, building and supporting all systems and processes in-house is a luxury even the largest competitors seldom enjoy anymore. That's because there's little room for margins and surplus to erode before credit and financial security ratings are threatened. So help from vendors and consultants is a viable solution — especially for companies under a few billion dollars in premium, where technical guidance or a systematic push can unlock potential and overcome data, asset, or market limitations.

In building or sustaining market share, larger companies may have the advantage of economies of scale. But small companies can emphasize a customer-centric strategy by leveraging automated workflow, document management, and self-service.

Deriving value from data-driven process improvements is a new frontier in the analytically competitive insurance marketplace. At a practical level, insurers are increasingly aware that using predictive models to focus on meaningful claim outcomes can foster the creation of best practices in customer service.

Even then, maintaining customer loyalty requires solid management backed by discerning awareness of market conditions. Strong business leaders continually examine their customer portfolios and ask themselves where they are and how they got there. They consider the ramifications and results of geographic expansion into different markets, the introduction of new products, or the addition of alternative channels. They're also realizing very quickly that advanced analytics — including market research and competitive intelligence, web analytics, social networking, geocoding, vehicle telematics, graph mining, and much more — can enhance business intelligence to address persistent strategic challenges.

Figure 1: Market Share by Rank in Market: U.S. Personal Auto Direct Written Premium

In this environment then, how do advanced analytics, quality databases, and refined decision support provide measurable value? Management can streamline operations for proper execution of strategies and goals. Underwriting staff gain point-of-service insight from diverse data sources and sophisticated pricing systems with geospatial precision. Marketing and agency experts can interact with customers and producers unhindered. Claims personnel become more mobile — even in severe weather — to verify coverage as quickly as possible. The company and the industry have the means to organize efficiently and effectively in the fight against fraud, waste, and abuse.

All business champions need to take personal risks to achieve success through day-to-day triumphs and marketplace victories. They must commit to the growth of the enterprise by ceaselessly innovating. Predictive analytics is at the leading edge of business innovation, be it in the domain of product pricing, underwriting, claims, marketing, distribution, customer lifetime value, portfolio optimization, or finance.

On this business front line, the mantle of the champion is the same now as it was in days of yore. Armed with the science and skills of analytics, even smaller insurers can achieve striking business outcomes — for the company, employees, shareholders, and customers alike.

This article was originally published in Verisk Review.

Marty Ellingsworth is president of ISO Innovative Analytics (IIA), a unit of ISO focused on advanced predictive modeling tools for the property/casualty insurance industry. Mr. Ellingsworth joined IIA from Full Capture Solutions, Inc., where he was cofounder and executive vice president. He has more than ten years of experience in the property/casualty insurance industry, with a focus on applied analytics and claims. For five years, he served the Fireman’s Fund Insurance Company. Mr. Ellingsworth’s 24-year career also includes positions at RiskData/HNC Software, Workers Compensation Research Institute, Beech Street Managed Care, and the U.S. Air Force. He received his bachelor of science degree in operations research from the United States Air Force Academy and his master of science degree in operations research from the Air Force Institute of Technology.

Contrast: Because believers in common sense tend to have abnormally acute Malarkey Meters, mine went off shrilly when I read this article by Rodney Mason about this book by Oren Klaff. If the substance of either one’s writing weren’t so troubling, I might have taken issue with the fact that they’re crowding the joint with authors. But it is. So, I didn't. But let's not call The Front Line Center for the Relief of Authorial Claustrophobia just yet. Instead, let's see if we can't blow away some smoke and shatter a few mirrors.

Trouble Brewing

For openers, the substance is troubling because Mason’s first observation is this:

Like it or not, every day you and the brands you market are engaged in a never-ending pitch. That's because, according to … Klaff, pitching is a direct result of our basic quest for acceptance and survival.

Wait. Field of Dreams doesn’t apply to business? If we build it, they won’t come? To be or not to be is NOT the question? Seriously. If we weren’t capable of recognizing that, would we be allowed beyond our front doors without adult supervision, let alone to be in business? (Spoiler alert: Klaff’s next books are about Santa Claus, the Tooth Fairy, and the Easter Bunny. Discretion is advised for younger readers.)

Secondly, the substance is troubling because Mason’s second observation is that Klaff has branded his own technique (the marketing equivalent of reading his own press releases). In the immortal words of Adam West, “Stand clear, Robin”:

Klaff, an investment banker who has raised hundreds of millions of dollars by applying neuroeconomics, contends that we have highly evolved brains and very sophisticated thoughts. What makes pitches fail is that we misunderstand how people receive, process and interpret them.

“Applying neuroconomics.” I love that. He’s not just making it up, by golly. He’s applying it. No mere communicator, this Oren Klaff. He’s not stooping to anything so meager or mundane as common sense and simple, engagingly persuasive storytelling. No, sir. And why should he? He, after all, has neuroeconomics. (That buckling sensation you’re feeling is your knees giving way under the enormity of the concept. Who in their right minds would even think of competing with neuroeconomics? Egad!)

And for strike three, the substance is troubling because:

Klaff believes that instead of just thinking about the end of the pitch, it is far more effective to focus on commanding the audience's attention first, then proceed to the details. Not because it's creative and different, but because it's literally how the brain works. This is an extremely compelling idea for anyone in marketing, since it essentially mirrors what marketing itself has evolved into: a mixture of science and salesmanship that work together to stir and move an audience to action.

No. You mean that blurting out, "Buy this!" before you've told the story that will help your audience members understand what you're selling and why it's meaningful to them might not be the way to go? Have the marketing and sales worlds really been doing it wrong for all this time? Oh, the humanity! (Bubble buster: that’s not neuroeconomics or any other faux-scientific/pseudo-intellectual buzzword. It’s common sense, self-faith, and simple, effective storytelling.)

The Pitch for the Pitch

In case you haven't yet gone for Klaff's thesis — and on the off chance that you might not have begun applying neuroeconomics right off the bat (or better yet, clicked through to buy Klaff's book on Amazon) — Mason winds up and delivers a meatball in the hope that you'll swing for the fences:

This is an extremely compelling idea for anyone in marketing, since it essentially mirrors what marketing itself has evolved into: a mixture of science and salesmanship that work together to stir and move an audience to action.

"Extremely compelling idea" is Mason's substitute for another favorite tactic of would-be promotional writing — using all capital letters. Translation: "YO! NUMBSKULL! GO BUY KLAFF'S BOOK BECAUSE I THINK IT'S IMPORTANT! AND WHILE YOU'RE AT IT, DON'T BE OFFENDED BY THE FACT THAT I'VE JUST REDUCED THE EVOLUTION OF MARKETING TO JUNK SCIENCE AND HUCKSTERING!" (Note: When writing in all caps, exclamation points at the end of every word, phrase, and sentence are optional. They can be used at the author's discretion because authors who write in all caps are, of course, nothing if not discreet. If authors think so little of their readers that the combination of capital letters and exclamation points still won't convince the poor ninnies of what's really important, they may combine all caps with BOLD TYPE to bludgeon the point home.)

But even after his display of authorial restraint (nary a capital nor bold letter in sight), Mason still fears he may not have sealed the deal. So, after an appeal to our vanity (authority, power, status), he plays the neuroecomics card one last time:

In some ways, Mr. Klaff believes that "setting the frame" is the most important part of this process, because it's how you package your authority, power and status. Own the frame and you win the game, because you have captivated the croc brain … where messages are first received and filtered before moving on to other more highly evolved parts of the brain. It has very little capacity for reasoning and thinks in basic "fight or flight" terms. Fail to satisfy your audience's croc brain, and you're done before you've even begun.

Non Compos Mentis

Yes, folks. The neuro in neuroeconomics relates to the brain. More important, we are given to understand that parts of the brains of your audience members are like those of crocodiles — primitive, defensive, uncomprehending, and maybe even dangerous. Call me jaundiced. But that's a croc. And representing your brand in such terms, to say nothing of positioning your marketing to condescend to your target audience in such terms, is as insulting as it is absurd and uncalled for.

The best we can hope for Klaff and Mason is that they read a little more Lundberg. This might be as good a place as any for them to start:

You will never get your message across – and you certainly won’t be able to influence anyone – if you don’t have their attention. Period. And guess what: A person’s attention is not something that is yours by right; it is something you earn – by being genuine, relevant and focused.

I suspect that if Abbie Lundberg knew me, she’d have plenty to say about my reptilian nature. But unlike Oren Klaff, she is gracious and authorially decorous enough not to generalize about it. And unlike Rodney Mason, she didn’t fall for such generalization. Neither should you.

In a world of immediate, ubiquitous, and relentless news updates; in the day of instantaneous access to functionality via SaaS; in the age of forward looks (mobile technology) vs. backward recognitions (companies still run DOS-based systems), where do we actually stand? What's happened since Y2K? What does it mean? Does it matter? It's amazing how far we've come and how little has changed.

In the (Alphabet) Soup

We've surely fallen in love with terminological legerdemain, as evidenced by the rabbit-like fecundity of abbreviations and acronyms. Consider: we've produced – and invested faith in – everything from SOA (service oriented architecture) to SOAP (simple object access protocol). We've effervesced over everything from SODA (simple objects determining access) to SUDS (systems using direct security). We've run the gamut from SOUP (service oriented upload protocol) to NUTS (no useful terms selected). Even in this late stage of the operational/IT game, we've fallen for the introduction of BOA (business oriented architecture – really? Did we need someone to tell us architecture – like absolutely everything else – should stand in service to business objectives? Wouldn’t we all have been better off if this had remained a snake or a scarf?). And judging from our rhetoric, we've held fast to the conviction that innovation means, suggests, or implies anything. It doesn't. But we don't care.

No new paradigms have been introduced in recent years. No new anomalies have sent normal IT science off in directions unforeseen and unanticipated. The consolidations we predicted in October of 2001 continue to occur. Otherwise, we’ve been adhering to a universally recognized set of achievements that continue to provide model problems and solutions to our community of practitioners, just as Thomas Kuhn predicted in 1961. The only things that have changed fundamentally are nomenclature and delivery, deployment, and implementation methods. The technology remains largely the same.

Stasis as Philosophy

Intending no disrespect for my many friends in the publishing industry, I have a theory: If you ripped the covers off of any trade magazines published in the last five years at least – the abbreviations and acronyms therein notwithstanding – I’d wager you’d have a devil of a time discerning the year in which the content was written.

There are three ways to view this phenomenon: First, it could be a matter of stability within the insurance-technology industry. Things are sailing along quite nicely, thank you. No need to rock the boat. Differences between brands, price points, and delivery/implementation methodologies are all we need to pique our competitive interests right now. We’re good.

Second, it might be a rather protracted lack of energy or imagination. Why, it hasn’t been that long since we vanquished that wretched Y2K beast. Why go looking for new conquests so soon? We solved most of Y2K’s attendant problems. Why create new ones? We’ve moved all the way from mainframes to the cloud. Good God, man! What do you want from us?

Third, it could be a kind of existential hope. We’ve never seen the Promise of The Next Big Thing fulfilled. Yet we continue to believe it will come. We never ask for validation of most of the information presented to us. But we get in line to believe it. We don’t fully understand the myriad abbreviations and acronyms coined annually. But we love to read and talk about them. We’re starved for meaningful intelligence. But we can’t write the checks fast enough for reports that tell us what we could have read anywhere or learned with a phone call.

Back to the Future

For now – and in the absence of the next anomaly, which will shake us back into galvanized, directed action – our present state doesn’t so much recall The Structure of Scientific Revolutions as it does another, arguably more romantic work. At the end of The Great Gatsby, Nick Carraway, the novel’s narrator, sits on the shore of Long Island, reflecting on Gatsby’s demise; contemplating the enduring allure of promise; recalling the dreams of the Dutch sailors who once discovered Long Island, and recognizing the power of dreams – theirs and ours – even to deceive:

For a transitory enchanted moment man must have held his breath in the presence of this continent, compelled into an aesthetic contemplation he neither understood nor desired, face to face for the last time in history with something commensurate to his capacity for wonder … Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that’s no matter — tomorrow we will run faster, stretch out our arms farther … So we beat on, boats against the current, borne back ceaselessly into the past.

So, with no new technological breakouts or breakthroughs to attract our attention as the green light at the end of Daisy's dock attracted Gatsby's, we ride adrift on the currents of Kuhn’s normal science, awaiting another Big Bang.

See you at the next revolution.

I wonder if all of us find ourselves thinking more about time as we grow older. I’m sure we’re all aware of its passing. I want to know if we share a preoccupation with what we’re doing with our time. We have such a perverse relationship with it.

When we’re young, there often seems to be too much of it. A summer day can seem endless if there’s nothing to distract us, if we can’t get access to the comic books of our best friend’s older brother, if there’s no mischief to instigate or risks to take. When we get older, there seems to be too little time. No day provides enough of it in which to eliminate all of our distractions, to work on the graphic novel we’ve been drafting in our heads since we fell in love with Stan Lee’s writing 45 years ago, to manage the mischief – however deliberate or unwitting – of spouses and children, to find the next risk, or figure out how many more we might have time to take. How do we learn who we are if we don’t take risks; if we don’t challenge and re-invent ourselves; if we don’t discern, discover, or develop aspects and capabilities? What beauty is there in a gem without facets?

Tense About Tenses

Some of us know who we are right away. When we were in third grade, Kenny Carpenter knew he’d become an engineer at NASA. He was right. He’s an engineer at NASA. Even then, I couldn’t figure out how he knew. I wasn’t envious, just curious. Why didn’t he do what the rest of us did – talk about becoming a doctor, or a lawyer, or President of the United States? How did he know he wouldn’t become a priest, or Marilyn Manson, or Charles Manson? I’m still curious. Was he lucky? Or did he miss the processes of discovery, re-birth, and re-invention the rest of have to struggle through, learning to live with disappointment and further re-invention when we fail, celebrating each achievement and looking forward to the next one when we succeed?

And how does Kenny manage tenses? I imagine he celebrates his past. Why not? It must be chock-full of the accomplishment that got him the gig at NASA. I imagine his present is fairly engaging, too. There must be lots of stuff to plot and calculate at NASA, right? Maybe Kenny was the guy who was coaching the space-walkers who recently repaired the Hubbell Telescope:

Kenny: No! Don’t use the Vise Grips to remove the lens cap! Just tap the side of it with a table knife. That’s how Grandma Carpenter used to get the lid off the pickled beets.

Astronaut: Roger that, Houston. Wow! That baby popped off like the lid of Grandma Carpenter’s cookie tin the time you put the homemade C-4 in there.

Kenny: Hey! How’d you find out about that?

It’s his future I’m most curious about. Do NASA engineers continually learn enough that they’re constantly re-inventing themselves? I’m tempted to think not, since Kenny’s still the NASA engineer he knew he’d become in third grade. But I don’t want to sell him short. When he thinks about what he doesn’t know, does it make him yearn to learn it? Does it make him consider the possibility that once he learns it, he might have to invent himself as something other than an engineer at NASA? Does the idea scare him? It’s been a long time since third grade. The idea of becoming something other than what you’ve always known you’ll be might be a tad unnerving to a guy like Kenny. On the other hand, he’d probably think of a guy like me as just another loose screw on some cosmic telescope. He probably always did.

Peace in Our Time

I guess the upshot is that there are the Kenny Carpenters of the world. They have their particular, peculiar relationships with time. Then there are the rest of us. We’ll never make friends with time. We’ll keep working against it, like salmon against the spring run-off. We’ll always be afraid there won‘t be enough time for the next learning, the next yearning, and where it will lead us. We’re not unhappy. We just choose to be unfinished. We work toward our next re-invention, while the clock ticks toward us from the other end. Maybe we win. Maybe the clock wins. What difference does it make? Time is all we have. And the only bad attempts are the ones not taken.

We’ll have plenty of time to compare notes with Kenny when the clock stops.

Immutable Rule #1: We are not the target audience.

Exhibit A: In one of myriad idle moments during my employ at The Travelers, lo these many years ago, I read an article in Business Insurance that stayed with me because it was so direct and because it remains unflaggingly true. Recalling that article, I contacted my kind and patient friend, Rodd Zolkos, who rummaged through the archives until he found it. And there was that large, bitter pill, dated June 18, 1990:

[Insurance advertising] is incestuous. It’s blind following. They’re usually trying to please the CEO of the insurance company, instead of reaching the consumer … As a result, insurance company advertising executives are very cautious. They’re asking themselves, “What should I do to play it safe?” It’s safer doing something you know is going to work, even if it doesn’t work really well, than trying an unproven approach.

As suggested in #4 and #5 here, writing for ourselves or for the boss is a foolproof means of guaranteeing job security – as long as we consider ourselves and the boss to be the target audience and as long as we won’t be judged on the actual business results of our work.

Immutable Rule #2: We are not the target audience.

This campaign was cracked.

Exhibit B: I don’t intend to criticize New York Life. My retirement planner is an agent of New York Life. It remains a very highly rated company. But I do intend to suggest that hen fruit is not the likely first thing that leaps to mind when one thinks of life insurance. If the company were marketing a life product specifically targeting not-yet-borns, newborns, or toddlers – to be purchased by parents or grandparents – maybe the concept would be logically coherent. But spring chickens don’t dwell much on life insurance. And, yes, life is fragile. But life insurance isn’t going to protect a life any more than a shell or a carton will protect a dropped egg. Life insurance protects the survivors of the deceased – not the deceased. So, this ad made the folks at New York Life feel safe. But the target audience? Not so much.

Immutable Rule #3: We are not the target audience.

Exhibit C: Business has been profoundly effective at obscuring, if not eliminating, the meaning of language. Case in point: the Liberty Mutual “responsibility” campaign. Again, I don’t intend to criticize Liberty Mutual. But the people in these spots are not demonstrating responsibility. Rather, they’re manifesting the vanishing arts of thoughtfulness, kindness, and common courtesy. And they’re presumably not intended to be Liberty Mutual employees. Beyond that, insurance is not a responsibility: it’s a contractual obligation. By accepting the small contributions of the many – our premium dollars – the insurer is contractually obligated to indemnify the large losses of the few. The insurer isn't being thoughtful, kind, courteous, or responsible in paying our claims. It's doing that to which it's legally bound. But saying so won’t make the folks at Liberty Mutual feel anywhere near as good, or safe in their own eyes and the boss’s, as saying they’re responsible. So, they show us pretty pictures, played against catchy music, leaving the target audience to scratch its collective noggin.

After adhering to the Three Immutable Rules, the only things required are some critical thinking, a determination to make our language meaningful, and a willingness to step out of our proverbial comfort zones. The folks in our target audiences live in very different zones.

Yes. Words do matter, especially to the people to whom we direct them. And since it appears we may be having company soon, we may as well get our linguistic house in order, no?

This particular story isn't new. In fact, storytelling is the oldest form of verbal communication. The Roman statesman, Propertius, wrote in his Elegies, circa 51 BC, "The seaman tells stories of winds; the ploughman of bulls; the soldier details his wounds; the shepherd his sheep." While storytelling should be simple, it does require some artfulness because it needs creativity, imagination, and a degree of salesmanship to make it any good. Aye, there's the rub.

Brevity is the Soul

In 1824, Washington Irving wrote in Tales of a Traveller, "I am always at a loss to know how much to believe of my own stories." Irving wasn't in the marketing business, of course; but he was a storyteller. And he did face the dilemma of the marketer:  toeing the line between persuasive explication and creative license, putting the message in its most favorable and engaging light without casting the truth into the shadows. It's the line between light and shadow that turns many a wary eye toward marketing. But that needn't be so, especially today when the proliferation of media gives us every opportunity to tell our stories incrementally, plausibly, and completely, without relying on volubility and hyperbole.

When implementing an integrated communications program, strategy clearly needs to be part of your planning. It also needs to be part of your storytelling. To effectively tell your story:

• Determine the one thing you want your communications to do or convey. What do you do? Why do you do it?
• Size up your audience. For whom do you do what you do? Who needs to know? Why do they need to know? What might preclude their finding out?
• Clearly articulate what you're providing and its benefits. Try to say what you're providing in a word – and describe its value in a sentence.
• Craft your message carefully and critically. That may seem easy; but as Henry David Thoreau wrote in 1857, "Not that the story need be long, but it will take a long while to make it short."

Honesty is the Heart

Because honesty ultimately will out, establish a truthful stance from the outset. Adopt a tone and terminology that will be credible with and persuasive to your audience. That may sound like painfully obvious advice; but if you fall into rhetorical traps like first, leading, uniquely positioned, innovative, best-of-breed, cutting-edge, and end-to-end – or if you refer to anything other than salt water or milk of magnesia as a solution (of what? to what?) – you'll likely lose your audience, your credibility, and the sale. Whether you position yourself as an authority, a facilitator, or just the un-invested bearer of information, your audiences will more readily accept your message if they accept its legitimacy – and yours.

Marketing 101 tells us it's better to be first in mind than first in line. The challenge, of course, is to make your message distinctive, while treading this side of the spin line. The surprisingly easy solution to that challenge is to bolster your position with creative copy, combined with enthusiastic honesty. Because everybody else is selling their stuff, too, the key is to sell yours with engaging style, contagious energy, and a prudent show of personality.

In Politics and the English Language, George Orwell wrote that marketing "is designed to make lies sound truthful and murder respectable and to give an appearance of solidarity to pure wind." Similarly cynical perspectives pervade our business. At a recent conference session I moderated, attendees told me they view collateral materials and websites (even feature articles in the trade press) as infomercials. Ironically, they seemed less jaundiced about advertising because, "It is what it is, and it doesn't make any pretenses about not lying to us." Ouch!

As painful as such cynical perspectives are, they're equally instructive. And they needn't be warranted. Marketing serves itself best by telling its stories artfully and truthfully. It serves its constituents best by telling their stories strategically, creatively, and enthusiastically. Everyone appreciates a good story, well told. So, KISS and tell. Your new customers will like it.

* KISS = keep it suggestively simple

I’m not sure how this happened. And I don’t know when. But it’s gone.

As a reminder of that sad truth, I came across this column the other day. It indicates two things: First, how and why self-help books were an $11-billion industry as of 2008. Second, the fact that abbreviations and acronyms have become panaceas – surrogates for self-faith, hard work, and staying the course. Bill Barnett didn’t make this stuff up. He’s just observing and reporting. He reports this:

Your personal value proposition (PVP) is at the heart of your career strategy. It's the foundation for everything in a job search and career progression — targeting potential employers, attracting the help of others, and explaining why you're the one to pick. It's why to hire you, not someone else.

At its core, that paragraph manifests nothing more or less than common sense and self-faith. Translation: Your PVP (I love that kind of talk) is you. As it represents you to others, it’s your brand. Period. Beyond its core, it suggests there may be a kind of formulary magic to branding. Consider:

Your PVP can be accompanied by a personal value statement (PVS), perhaps the profile statement on your résumé. The combination of your proposition and your statement can be abetted by a personal value commitment (PVC), presumably an indication of your determination to fulfill the promise of your PVP and your PVS. If so, you and those you persuade via your proposition, your statement, and your commitment can expect a pretty valuable outcome (PVO). Hence, our magic formula for success becomes:

[PVP + PVS] x PVC = PVO.

The only thing scarier than the very idea is that – if we put this formula in a book today – it would be a bestseller tomorrow. Good grief.

In lieu of such formulaic pie in the sky, consider this alternative. It comprises four simple questions, all of them answerable by anyone or any organization properly focused and, so, on the way to being optimally positioned:

A. Who are you?
B. What do you do?
C. How do you do it?
D. Why do A + B + C make you different from everyone else?

The exercise of answering those questions is best undertaken in full awareness of branding’s Three Dirty Little Secrets. Here they are:

1. It’s simple but not easy. In fact, if you do it right, it’s the hardest work you’ll ever do. It’s easier to settle for common than it is to find the truth and state it clearly.
2. It’s not magic. In fact, the results of the exercise – if it’s conducted truthfully – will be decidedly devoid of illusion.
3. If it were easy, everyone would do it. That’s why the world comprises those who win and those who don’t.

How can you know who’s succeeded at branding and who hasn’t? That’s equally simple: The next time you wonder whether some person or company has undertaken the exercise truthfully, ask for his elevator pitch. If he answers quickly and concisely – in one to three clear, jargon-free sentences – you’ll understand the pitch and know he’s done his homework. If he asks how many floors the elevator has to travel, wish him well and move on.

Oh. And in case you were wondering if any of this is new, let alone magical, it’s not. The last word belongs to Ralph Waldo Emerson, from his 1841 essay, “Self-Reliance”.

A man should learn to detect and watch that gleam of light which flashes across his mind from within … Yet he dismisses without notice his thought, because it is his. In every work of genius we recognize our own rejected thoughts: they come back to us with a certain alienated majesty. [We should learn] to abide by our spontaneous impression with good-humored inflexibility … Else, to-morrow a stranger will say with masterly good sense precisely what we have thought and felt all the time, and we shall be forced to take with shame our own opinion from another … Trust thyself: every heart vibrates to that iron string.

Introduction
Insurance is defined as a “system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.”[1]  A multitude of sources not only define insurance terminology but provide educational opportunities as well.  However, the business of insurance is generally poorly understood by those who do not work directly within the industry.

Consider, for example, a new consumer’s perspective of establishing a new relationship with a company for auto or homeowners insurance.  Many first-time buyers of personal insurance are in their late teens or early twenties.  They know that in order to drive off the lot or to get through closing, they need a policy and in some cases, this may be all that they know.[2]

Determining whether to accept a new customer is part of underwriting.  The underwriting process is designed to ensure that the expected financial risk to the company as presented by new customers does not exceed the price of the policy.  Once a policy offer by the company is accepted by the applicant, the relationship between the insured and company is governed by the contract issued by the company to the insured.  Multiple decision points exist throughout the initial and renewing policy terms to ensure that the risk originally accepted remains acceptable to the company, and if not, that appropriate underwriting action be taken.

The complexities in the underwriting process of the personal lines insurance industry are to a great extent based upon the contract and compliance with various categories of laws.  The affects of legal requirements as they apply to insurance consumers are found throughout all decision points of the underwriting process, which is first presented from the contractual perspective to serve as a comparison to the changes made to be legally compliant.

U.S. P&C Personal Lines Insurance Underwriting Process – Contractual Perspective
The life cycle of the underwriting process includes these steps:

1. An applicant requests a quotation or a policy.
2. When the risk is not acceptable, the agent or a company underwriter would so advise the applicant and the process would stop.  Until a policy has been issued, the company has no contractual obligations towards the applicant.  The risk may become acceptable if the applicant accepts a premium increase by:

a.     application of a surcharge

b.    placement in a higher rating tier

c.     placement in an underwriting company with a higher rating structure as compared to the company that received the applicant’s request, or

d.    partial acceptance of the coverage request.  For example, if an applicant requested towing coverage for a vehicle for which several towing claims were recently made, the policy may be acceptable so long towing coverage was not included for that particular vehicle.

These four decisions are types of an “adverse underwriting decision”, which refers to any decision in which the consumer is told “no” in any fashion.  “No, we won’t offer you a lower price” is why a surcharge or placement in a higher rated tier or company is adverse.  “No, we won’t offer everything you requested” is a restriction of requested coverage, and “No, we won’t offer a policy to you” is a refusal to issue.

3. When the risk is acceptable or made acceptable, the application will be rated, a quotation provided, and an offer to insure is made.  The offer may be good for a short time, perhaps a week.  Should the applicant not request coverage during this time, the underwriter may flag the file to follow-up with the applicant shortly before a competitor’s policy would expire (“x”-date follow-up) six or 12 months in the future.  When the applicant accepts an offer to insure, a policy will be issued.
4. By contract, a newly issued policy may be cancelled within a specified period of 30-60 days from the inception date.  Companies want to retain newly acquired business but reserve the right to cancel should additional information be received which, if known before offering to insure would have resulted in the offer not being made.  Cancelling a policy for underwriting reasons is another type of adverse underwriting decision. When an applicant did not fully disclose the driving record of all drivers to be rated on the policy, the underwriter may elect to cancel the policy rather than continue.  Or the policy may be acceptable if the insured agrees to an increased premium or a coverage restriction.  By contract the insurance company must send a written notice to the insured which conforms to contractual provisions when making an adverse underwriting decision.
5. The insured is contractually obligated to make timely and adequate premium payments to maintain the policy.  When adequate and timely payments are received by the company, the policy will continue. Otherwise, the policy would be cancelled based upon the contractual provisions regarding cancellation for nonpayment of premium.
6. Insureds have the right to request cancellation of the policy at any time.  When an insured requests cancellation and the risk is acceptable to the company, the company may attempt to keep the insured as a customer.  If successful, the policy will continue and if not successful, the company will cancel the policy and may set an “x”-date follow-up.
7. Insureds may requests policy adjustments during the policy term.  When there are no underwriting concerns with the policy or the request, adjustments will be made as part of routine servicing of the policy.  Also during the policy period, the company’s claim department may provide information about the insured or the insured property to the underwriting department.  If the information forwarded by the claim department is not judged to materially change the risk, the information would be noted in the file but no further actions would be taken. An underwriter will review requests to adjust the policy and information provided by the claim department.  When the characteristics of the policy, the adjustment request, or the information from the claim department is not acceptable to the underwriter, a review of the contract takes place to determine if an adverse underwriting action may be taken.  If permitted by contract, the underwriter may elect to send an adverse underwriting notice at that time.  If the risk is not acceptable but the contract does not permit action at that time, any changes requested by the insured may still be made.
8. The last type of adverse underwriting decision to be discussed is not renewing a policy, which is contractually permitted so long as sufficient notice is given to the insured.  Before the expiration date of the policy, a review of the policy for continued acceptability will be made.  When it is determined that the policy is no longer acceptable as written, written notice of nonrenewal, adverse modification, surcharge, tier placement, or company placement needs to be sent to fulfill the contract.  If the policy is continued, either as is or after certain adverse underwriting decisions, it is rated and a renewal offer is sent to the insured.

The underwriting process starting at step 5 then repeats until the policy is terminated, either by the customer or the company.  The link below is a graphical illustration of this entire cycle.

Figure 1 – Underwriting Process – Contractual Perspective

The effects of complying with the major categories of laws on the underwriting process follow.

U.S. P&C Personal Lines Insurance Underwriting Process – Contractual and Compliance Perspective
The contractual perspective of the underwriting perspective is simple when compared to the changes required to comply with federal and state laws that affect the business of insurance.[3]  Federal laws generally apply to entire industries or identified activities.  These two federal laws have a significant impact on the personal lines underwriting process.[4]

1. U.S. economic sanctions, administered by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).  The emphasis on compliance with OFAC sanctions increased greatly following the terrorist attacks of September 11, 2001 on U.S. soil.  OFAC regulations affect the underwriting process by prohibiting financial transactions with individuals named on government sanction lists.
2. The Fair Credit Reporting Act, as administered by the Federal Trade Commission.  The FCRA, enacted in 1970 and last amended in 2010, affects the underwriting process when consumer reports are used in the underwriting process.

Each state has unique requirements but the focus here is on laws that are common to most states (with two exceptions).  To further narrow the focus, the illustration is limited to personal auto insurance although it would generally apply to all personal lines policy types.

The categories of state laws that significantly affect the underwriting of personal auto insurance are:

1. Generalized rating and service laws, referring to requirements that affect how a risk is rated or how service to the applicant/insured is provided.  Many of these requirements are derived from the National Association of Insurance Commissioner’s (NAIC) Model Act 880 – the Unfair Trade Practices Act. Introduced by the NAIC in 1947, the Act prohibits unfair discrimination between similar risks and offers other protections.  All states have adopted this model act, at least in part.[5]
2. Underwriting, referring to the initial determination of risk acceptability and continued acceptability.  All jurisdictions regulate adverse underwriting decisions of auto insurance, although the specific application varies (as to how restrictive or permissive the law is, the number of days notice required, type of mailing, etc.). 
3. Privacy and Underwriting combined, based on the 1980 NAIC Insurance Information and Privacy Protection Act, Model 670, and applied to P&C insurance by 13 states.[6]  The Act requires that insurers notify consumer of privacy rights and specific notices associated with adverse underwriting decisions.
4. Privacy based on the state insurance privacy laws required by the Gramm-Leach Bliley Act (GLBA) of 1999.  Forty states used NAIC Model Act 672, the Privacy of Consumer Financial and Health Information Regulation.[7]  The Act requires that insurers notify consumers of privacy rights and to take certain actions based on choices made by consumers.
5. Residual market or assigned risk plans provide basic insurance coverages for applicants who cannot obtain coverage in the voluntary market.  All locations have some variation of a residual market.[8]  Two states (New Hampshire and North Carolina) have reinsurance facilities which require insurers to service risks that the insurer would not voluntarily provide coverage for while the state is the reinsurer.  Both states also have “take-all-comer” requirements – an insurer must accept an applicant and cannot terminate coverage for underwriting reasons.

How these laws affect underwriting is discussed in general terms.  The affects of each unique state law have their own complexities in procedures, notices, training, etc., and the specific details of each requirement are intentionally undeveloped.  The color key below identifies these laws throughout the various steps of the underwriting process.

Figure 2 – Color Codes

How these categories of laws affect underwriting is presented in a time sequence begining with a new applicant requesting a policy and ending with the policy being renewed.  All of the individual sequences are part of the underwriting process and are used as to graphically display the entire process with the color coding above.  The first category to discuss is economic sanctions.

U.S. Economic Sanctions (OFAC) Compliance – Confirming Consumers Are Not Sanctioned on U.S. Government Lists
This process starts when an applicant contacts an insurer, or an agent of the insurer, and requests a quotation for a policy.  From the insurer’s perspective, applicant means someone who:

• has not had a previous relationship with the insurer,
• obtained quotations or insurance with the company in the past but presently does not have any active business, or
• an active policyholder who is requesting a quotation for a new policy.

The U.S. Treasury, through its Office of Foreign Assets Control (OFAC), requires all American citizens and businesses to confirm that all persons they do business with are not named on government lists of sanctioned individuals.  This may be done by collecting from applicants the same information that appears on the government lists:  name, date of birth, address, Social Security Number (SSN), and the number and issuing country for a passport.  This information would then be used to screen the applicants against the lists.

All U.S. citizens are required to have a SSN.  Some but not all non-U.S. residents of the United States have been issued Social Security Numbers.[9]  Simple collection of the SSN of all applicants having a SSN will not necessarily lead to compliance with OFAC requirements.  Validation edits in the SSN field to prevent collection and reliance on duplicate numbers, invalid numbers, or number combinations that have not or will not be issued are needed[10].  If the applicant is not a U.S. citizen and does not have a SSN, then the passport information should be obtained to screen against the government lists.

When after screening there is a positive match, then financial transactions between the insurer and applicant is prohibited unless a license is obtained from OFAC before proceeding with the transaction.  Declining a risk is typically an underwriting function; however, according to OFAC, a declination in this case would be based on an Executive Order addressing foreign affairs which preempts state insurance laws.[11]

Figure 3 is a picture of the underwriting process with respect to an applicant requesting a quotation for a policy and compliance with OFAC requirements.

Figure 3 – OFAC and Applicants for Insurance

Consumer Report Compliance
Once it is determined that an applicant and all other prospective insureds are not sanctioned by OFAC, or if sanctioned but a license was obtained from OFAC, the next process is determining if a consumer report will be used to underwrite the policy.  Typical examples of the types of consumer reports used in personal lines insurance are investigative consumer reports, insurance scores, motor vehicle reports (MVR), and loss history reports (often generically referred to as a C.L.U.E. report, or Comprehensive Loss Underwriting Exchange).  Two laws affecting privacy, rating, and underwriting need to be addressed.

The Insurance Information and Privacy Protection Act (IIPPA) requires that before personal information about a consumer is obtained from a source other than the consumer or a public database that the insurer is to apprise the consumer of rights available under the act.  To comply with this requirement for applicants who do business over the phone when a consumer report will be ordered, a verbal scripting of these rights is required.  The Fair Credit Reporting Act permits insurance companies to obtain a consumer report when the report will be used in the underwriting process with an individual consumer.

Figure 4 – Consumer Report Compliance

The next phase of the underwriting process is determining if the risk is acceptable.

Quoting and Risk Acceptability and Adverse Underwriting Decision Compliance
The same three outcomes when determining acceptability exist:  acceptable as is, acceptable with modifications, or not acceptable.  The first two outcomes result in the risk being rated.  The last two outcomes require written notice of an adverse underwriting decision.

Two states require insurers to offer auto liability insurance to all who request it because such coverage is mandatory (often called a “take-all-comer” (TAC) requirement).  Insurers may not refuse a TAC under state law.  However, OFAC has issued an opinion that an insurer must refuse to write any request for insurance from for anyone on a sanction list or to obtain a license from OFAC before writing the policy.  The Fair Credit Reporting Act requires notice when the adverse underwriting decision is made, in whole or in part, upon information contained in a consumer report received from a consumer reporting agency.  IIPPA requires notice when the adverse decision is made regardless of whether a consumer report was relied upon.  The wording of an adverse underwriting notice is dependent upon:

•  whether the individual consumer is named on an OFAC list
•  the type of policy
• whether a consumer report was used
• where the consumer resides
• provisions of the state’s version of the Unfair Trade Practices Act and any other applicable state laws, and
• the contract between the insured and the insurance company.

When a quotation is provided and an offer to insure is made, the consumer will decide to accept the offer or not.  When the offer is not accepted, many insurers will follow-up.  When the consumer ultimately agrees, it may be necessary to order consumer reports.

Figure 5 shows how all this fits together.

Figure 5 – Adverse Underwriting Decisions and Applicants

If a request is made to issue the policy, then determining which written privacy notice or notices must be sent needs to be determined next.

Consumer Privacy Notice Compliance and Adverse Underwriting Decision Compliance
Insurers send consumers a privacy notice to comply with the requirements of the Gramm-Leach-Bliley Act (GLBA) privacy provisions.  IIPPA has separate privacy provisions than those of the GLBA.  In an IIPPA location, the consumer will receive both the GLBA and IIPPA privacy notices if the insurer does not voluntarily extend IIPPA privacy rights to consumers outside of IIPPA states.

GLBA requires the notice be given to all new consumers and then annually thereafter.  However, it would not be necessary to send an additional GLBA notice to an existing consumer.  IIPPA requires the notice to be provided with each new policy and also at least annually with renewal policies.

While a company may simply provide the GLBA notice with every new policy, there are consequences to doing so.  There is an expense associated with printing, paper, postage, etc.  More practically, a company may not legally alter its data sharing practices without having first notified all affected consumers.  This means that if the company relies on its annual GLBA notice, it could time changes to when the mass mailing is sent.  If, however, the company routinely sends a GLBA notice, then it would have to send an off-cycle notice, thereby changing the date of the mass mailing.  From a consumer perspective, there could be several notices received in the mail addressing privacy matters.

Once the privacy notice process is complete, the company enters into the initial underwriting period in which it may re-assess its risk decision.

Figure 6 – GLBA and IIPPA Privacy Notices

Initial Underwriting Period Risk Acceptability and Adverse Underwriting Decision Compliance
Some companies avoid the expense of consumer reports when preparing a quotation.  If the applicant decides not to buy a policy, this expense is not incurred.  Most locations allow insurers a set amount of time, typically 45 or 60 days, in which to evaluate its risk decision.  For insurers that wait to order consumer reports until after a policy has been issued, the company evaluates the information provided by the consumer report and determines if the risk is acceptable.  The outcomes are the same as before:  acceptable as is, acceptable with modifications, or not acceptable.  Once again, the first two outcomes result in the risk being rated.  The last two outcomes require written notice of an adverse underwriting decision.

When the policy is continued, either as is or following an adverse underwriting decision, the insured is contractually obligated to make timely and adequate premium payments to maintain the policy.  This is a continual process occurs which occurs throughout the life of the policy.  When appropriate amounts are timely received by the company, the policy will continue.  Otherwise, the policy would be cancelled in accordance with the contractual provisions regarding cancellation for nonpayment of premium.

Figure 7 – Initial Underwriting Period and Adverse Underwriting Decisions

The next process, which is also continuous, encompasses insured’s requests to cancel the policy, making decisions regarding consumer requests for policy changes and/or communication from the company’s Claims Department that may be made during the life of the policy.

Consumer Requests (Policy Cancellation or Policy Adjustments), Claims Department Communications, and Adverse Underwriting Decision Compliance
An insured may request to cancel the policy at any time during the policy term.  If the company’s experience with this consumer is favorable, the company may attempt to change the insured’s decision.  If this effort is favorable, then the policy is allowed to continue.  If not, then the policy is cancelled and any unearned premium must be timely returned.  If the company’s experience is not favorable, then the request would likely be fulfilled without any further action or follow-up.  Also throughout the life of the policy, the insured may make requests or the company’s claims department may send notices to the underwriting department.  The request or the information provided has to be evaluated, after which it may be determined that request or information means the risk is acceptable as is, acceptable with modifications, or not acceptable.

The first two outcomes result in the risk being rated.  The last two outcomes require written notice of an adverse underwriting decision, if the laws of that jurisdiction permit sending notice at this time.

If the policy is continued, the next process is the review of the risk to determine continued acceptability before the company agrees to renew the policy.

Figure 8 – Midterm Requests/Communications and Adverse Underwriting Decision

Periodic OFAC Compliance, Renewal Risk Acceptability and Adverse Underwriting Decision Compliance
Periodically, OFAC expects that businesses check the government lists again to validate that there are no matches.  This may be done as often as determined by the company to be prudent, but it is likely done before a policy renews or paying a claim.  Renewal risk reviews are usually completed by insurers before each policy renewal, regardless of the periodic OFAC review.  Insurers typically check all insureds’ experience with the company.  Unfavorable factors, such as a poor payment or loss history are considered.  If it is decided to obtain a consumer report, it may be necessary to provide the appropriate notifications before doing so.

If a consumer report is obtained, it must be evaluated with sufficient time to send a notice of adverse underwriting, if that is the ultimate decision.  Any information provided by the company’s claims department is evaluated during this review also.  Once again, the outcome of the evaluation is acceptable as is, acceptable with modifications, or not acceptable.

The first two outcomes result in the risk being rated for an offer to renew the policy.  The last two outcomes require written notice of an adverse underwriting decision, if it is permitted to send notice at this time.

If the policy is continued, it is then rated and renewed.

Figure 9 – Renewal Risk Review and Adverse Underwriting Decision

The final process is determining which privacy notices to send with the offer to renew the policy.

Renewal Consumer Privacy Notice Compliance
As previously noted, if the GLBA notice was already sent within the past year, it is not necessary to send it for the renewal of this policy.  However, the IIPPA notice must be sent with the policy at least annually.

From here, the cycle continues throughout the life of the policy. While this may not be the exact steps or sequence of steps that are followed from company to company, this presentation shows the essential processes and complexity of personal lines insurance underwriting.

The link below shows how all of these processes fit together into a cohesive flowchart.

Figure 10 – Underwriting Process – Contractual and Compliance Perspective

Summary
Most insurance consumers believe the business of insurance is difficult to comprehend, even though there are educational opportunities to learn more about insurance.  Insurers are bound by the contract issued to insureds and have incentive to maintain positive customer relationships in order to remain profitable.  When insurance companies do not abide by the contractual language or fail to comply with statutory requirements, the consequences to the company range from negligible to catastrophic.  Additionally, not only consumers but regulators, examiners and auditors, rating agencies, and courts expect insurers to comply with all applicable contractual provisions and regulations.

As demonstrated in the preceding graphs, insurance is made even less comprehensible to consumers and others outside the industry based on changes to processes necessitated to comply with the various laws that affect the business.  Although both consumers and companies would benefit from consumers being better informed, when considering the range of regulatory requirements above the contractual provisions, the insurance industry has limited opportunities to simplify its processes so that insurance consumers achieve a level of understanding with any significant depth.

Appendix A:  Major U.S. Federal Laws and General Affects on P&C Personal Lines Insurance Companies

Appendix B:  Insurance Information and Privacy Protection Act State Populations[12]

INTRODUCTION
Companies in the United States employ many processes in running their businesses.  Laws from various sources affect these processes, so that the processes and administration of them are specialized.  When company management does not acknowledge the need for common understanding and for specialization, the results are confusion, subsequent errors, and increased costs.

Being aware of the need for specialization assists in “knowing how to use and respond to language appropriately, given the setting, the topic, and the relationships among the people communicating.”^[1]  Two specialists who are fluent in using and responding to the language of their specialty will comprehend each other.  The conversation between a specialist and a non-specialist may be fluent, but unless both parties use the language appropriately, they will not comprehend each other while two non-specialists conversing about a specialty may unknowingly lack both fluency and comprehension.

In regards to “compliance”, the word can be used to mean anything to do with laws, working with regulators, or even auditing.  To assure fluency and comprehension, “compliance” is used to mean abiding with the requirements of “laws”, i.e., constitutions, laws, statutes, regulations, court rulings, etc., promulgated by a governmental body with appropriate jurisdictional authority.

For property and casualty insurance companies^[2], there are five major categories of laws to comply with:

1. Federal economic sanctions

2. Money, or financial matters

3. Employees, or human resources issues

4. The business of insurance, or operations

5. Activities that support insurance operations

A discussion of compliance with federal economic sanctions and notable laws specific to insurance follows.  (The Appendix has a listing of laws that generally apply to financial, human resources, and business activities of all industries.)

FEDERAL ECONOMIC SANCTIONS COMPLIANCE
Federal economic sanctions apply to all United States citizens and businesses, arching over other compliance requirements.  The regulations enforced by the United States Treasury’s Office of Foreign Assets Control (OFAC) prohibit insurers from “engaging in [financial] transactions not licensed by OFAC that in any way involve”^[3] individuals named on federal terrorist or narcotics trafficker lists or in certain countries^[4] unless OFAC has pre-approved the transaction by issuance of a license.  This applies to insurance companies, brokers, business partners, and employees, and includes transactions such as collecting premium to issue a policy^[5],[6] and paying a claim^[7],[8].  Although OFAC has published risk matrices as guidance for financial services, charities, and securities firms to assess their risks in relation to compliance with the economic sanctions administered by OFAC,^[9] no risk matrix has been published for the insurance industry.^[10]

The next category of laws deals with financial issues affecting property and casualty insurance companies.  These laws are typically administered by a corporate finance department.

INSURANCE FINANCE COMPLIANCE
Insurance companies are expected to comply with laws addressing these financial matters.

• Company Formation and Capitalization

• Domiciliary jurisdiction – compliance with the business laws of the jurisdiction where the company is domiciled, filings with Secretary of State and capitalization requirements of insurance regulatory authority.

• National Association of Insurance Commissioner’s (NAIC) Uniform Certificate of Authority Application (UCAA) – required filing of financial documents with a state’s insurance regulator to obtain a certificate of authority to sell insurance in a state.

• Accounting Practices

• SAP (Statutory Accounting Principles)

• Solvency

• Reinsurance

• Guaranty Funds

• Internal controls over financial reporting, including revisions to the Annual Financial Reporting Model Regulation (the Model Audit Rule)^[11]

• Reinsurance

• Guaranty Funds

• Premium Taxes (state, county, municipality)

• Producer commission payments

• Environmental Compliance – Insurers with direct written premium over $300 million must complete the Insurer Climate Risk Disclosure Survey to provide regulators and insurance consumers a method to “assess insurers’ risk assessment and management efforts” regarding climate change risks, focusing on insurer solvency and insurance availability and affordability.^[12]  Twenty-one states require insurers to complete the survey.^[13]

The next category addressed is compliance with laws regarding employers and employees.  These laws are typically administered by a staffing or human resources department.

INSURANCE HUMAN RESOURCES (HR) COMPLIANCE
Most of the laws that address how companies and employees interact apply to all industries.  There is a short list of laws that specifically apply to insurance companies.

• Payroll Administration (requires interaction with Finance)

• Commission payments – to company employees who are licensed and paid as producers

• Employee Ethics

• Violent Crime Control and Enforcement Act of 1994 (18 USC §§ 1033-34)

The discussion continues with a focus on compliance with laws specifically addressing the business of insurance.

INSURANCE OPERATIONS COMPLIANCE
Some laws, especially at the state level, affect only the business of insurance (operations) or only a specific type of insurance, such as auto or homeowners.  The major topics are:

• Advertising/Marketing (Sales and Service)

• Unfair Trade Practices Acts

• Producer advertising materials

• Risk Selection (Underwriting)

• Declination

• Rescission

• Terminations

• Initial Underwriting Period

• Midterm Cancellation

• Nonrenewal

• Partial (policy modification to remove a coverage or impose a higher deductible)

• Consumer Reports Used by Insurers

• FCRA (Fair Credit Reporting Act, as amended by the FACT Act of 2003)

  • Permissible use

  •  Disposal

  •  Adverse use

• Various laws restricting or prohibiting the use of credit information, including “freezes”

• Acquisition and Retention (Sales and Service)

• Assigned Risk (automobile) and Residual Markets (property Market Assistance Plan [MAP], Fair Access to Insurance Requirements [FAIR] program, and Wind, Beach and Coastal Plans)

• Rating – charging the same rate for the same risk, prohibited rating factors

• Accounts Receivable (Customer Accounting)

• Billing

• Payment Posting

• Refunds

• Claims Handling

• Unfair Claims Practices Acts

• Adjuster Licensing

• Continuing Education

• Notice to insurance regulators following “for cause” termination

• Privacy – affects all operations processes (Most notably, state insurance privacy laws passed in response to the federal Gramm-Leach Bliley Act and the NAIC Model Insurance Information and Privacy Protection Act)

• Notice of Information Practices

• Opt Out provisions

• Use and display of customers’ Social Security Numbers

• Security

• Ensuring information collected from customers is secure from unauthorized access

• Notifying customers in the event of a breach of security

• Business Continuation/Disaster Recovery

These laws affect the major processes of insurance operations, which are:

• Underwriting – risk acceptability selection and routine monitoring for continued acceptability

• Sales and Service – acquisition of new business and retention of insureds

• Billing – customer accounting or accounts receivable

• Claims handling – settling claims based upon contractual language and facts of the loss

OPERATIONS SUPPORT PROCESSES
To support the major processes of insurance operations, insurers engage in at least six additional distinct processes.  None of these involve routine customer contact except complaint administration.

1. A company is responsible to validate licenses and continuing education, to appoint, and to notify states when appointments are terminated for employees who are producers and adjusters.

2. For companies that use agents or brokers to sell and service its insurance products, the insurer needs to administer contracts, commission payments, and business relationships with the agents and brokers.

3. Product development and management works closely with actuarial services and with regulatory filings and handles:

• The development of new policies, coverages, and endorsements and the maintenance of existing products

• Ensuring that wording used by contracts, forms, endorsements, and general correspondence for use with customers meets all legal and business requirements

• Production and maintenance of rate and form manuals for the use of employees who deal with customers

• Release of new or revised rates, forms, etc., into production after all necessary filings have been approved

Companies sometimes establish one business area for the development of new products and another for the maintenance of existing products.

4. Actuarial services supports product management by developing adequate and competitive rates for underwriting risks accepted by the company.  A company’s claims department relies on actuaries to develop loss reserves for probable future liabilities related to unpaid and incurred but not reported claims.

5. Various laws require companies to file rates, forms, manuals, or data in response to new laws or changes in laws, when the company initiates changes to its products, or at the request of an insurance regulator.  The regulatory filings department administers this process. Filings must be made in specific formats and provide details about issues such as the purpose of the filing, premium affects upon insureds, and an actuarial memorandum that supports any rate changes.  Filing of data to fulfill regulator requests requires validation of the data accuracy to ensure the regulator is provided with reliable information. Various regulatory agencies at both the state- and federal-level require insurers to file periodic routine reports, such as a state law requiring insurers to notify the state department of transportation of vehicles no longer insured by the company or federal law requiring liability, no-fault, and workers’ compensation insurers to report payments made to Medicare beneficiaries to the Centers for Medicare and Medicaid Services (an agency of the Health and Human Services Department).^[14]  Many states also require ad hoc reports, such as monthly updates regarding the numbers of claims presented and closed after a catastrophe.

6. Consumer protection laws require companies to respond to and keep record of complaints.  Regulators thoroughly review complaint-tracking reports and/or directly review complaints when conducting market analysis and during market conduct examinations.

The next section addresses how a property and casualty insurer coordinates compliance with all of these laws by the establishment of various processes.

THE PROCESSES OF A PROPERTY AND CASUALTY INSURANCE COMPANY

VERTICAL PROCESSES. Project management refers to a process that drives the flow of knowledge as a “vertical process.”^[15]  All of the insurance processes discussed above are vertical processes.  How they fit together is demonstrated in Table 1.

Table 1

Table 1 – Vertical Processes – Insurance Company

The laws affecting finance and HR issues to a large extent determine the processes within a company’s finance and HR departments.  Accordingly, the compliance process is often integrated within the finance and HR processes.  The finance and HR processes generally do not involve contact with customers.

Insurance operation processes provide service to insurance customers by directly interacting with customers.  The compliance process is either integrated in each of the operations and operations support processes or it may be centralized within a compliance department.  If centralized, the employees supporting the operations and operations support processes are able to fully focus on and maximize their skills directly related to their respective specialties.

INTEGRATED VERTICAL AND HORIZONTAL PROCESSES. Horizontal processes drive the flow of work^[16] and integrate vertical processes into a coherent system.  Table 2 illustrates how an insurance company’s vertical and horizontal processes may be integrated and also displays the points of interaction between insurers and governmental authorities.  As was done with vertical processes, the discussion is limited to compliance with laws specific to insurance companies.  (The Appendix provides a discussion of the horizontal processes which are not specifically addressed by insurance laws.)

Table 2

Table 2 – General Business and Insurance Business Processes

A corporation’s entity type and method of capitalization form the foundation of its processes.  The requirements for an insurance company vary based on state insurance laws regarding formation as a stock company, mutual, reciprocal, etc., and whether capital funding is private or public.  State insurance laws require that insurance companies have a board of directors and company officers.  Company officers are responsible to develop and maintain business practices and procedures appropriate for the business.

To comply with new or changes to existing laws, an insurance company may need to alter its operations or operations support processes or periodically introduce new horizontal processes, such as privacy and security.  In addition, training and procedures may need to be changed.  Many states require insurance companies to develop plans for minimal disruption of service to its insureds in the event of a disaster.  Disaster recovery laws are an example of an insurance law that applies not only to the operations processes but financial and HR processes as well.  State insurance laws require companies to submit to regulatory examinations, with authority to require internal audits, and to participate in administrative hearings and arbitration.

How these vertical and horizontal processes interact is discussed next.

INTERACTION OF AN INSURANCE COMPANY’S PROCESSES

PARALLEL HORIZONTAL PROCESSES. The four major vertical processes of an insurance company – finance, human resources, operations, and operations support – are demonstrably different from each other, based distinctly upon the laws being complied with, the customers being supported, the different skills and aptitudes of employees, and the specialized professional certifications available to employees.  However, recognizing horizontal processes as separate and distinct may not be as evident.

For example, although compliance and auditing are parallel processes, and there are laws requiring a company to conduct audits, the two processes are distinct.  The compliance process focuses on the implementation of requirements from laws within the appropriate process or processes, while auditing focuses on the validation that these requirements were implemented properly, completely, and timely.  Therefore, a compliance process reacts to new laws and proactively drives changes to the company’s other processes to assure there are no gaps in compliance.  Conversely, auditing is a post-implementation process that proactively assesses the quality of the process being audited by validating whether processes are performing as expected and is reactive when non-compliance issues are uncovered.  Only when those conducting an audit are not the same persons who assisted in the development of compliant processes are the audit results are objective and independently verifiable.^[17]

Another example of parallel horizontal processes is compliance (with laws) and adherence (to contracts and policies).  Governmental authorities establish laws and expect businesses to comply with those laws.  A company signing a contract with another company expects the other company to fulfill its contractual obligations by complying with the terms of the contact.  A company establishes its own policies and expects its employees to follow those policies consistently.  It is expected that laws will be complied with and contracts and policies adhered to.  With only the authority behind the requirements being different, the compliance and adherence processes are similar; however, even so, the scope of a compliance process is properly limited to requirements from laws.

INTERSECTING PROCESSES. To ensure the roles of a horizontal and vertical process that intersect remain separate, the interaction should be limited to the intersection point of the two processes.  When the interaction is not limited, those outside of the intersecting processes many times see the roles of the intersecting processes as similar and indistinct.  These examples will demonstrate the importance of establishing and maintaining separate roles for distinct processes.

Upon the identification of changes because of a new law or an amendment to an existing law, a compliance department is responsible to communicate those changes to the affected operations area.  A compliance department would notify the claims department of a new law that affects claims handling.  The claims department would then alter its processes as needed to comply.  In so doing, the two departments focus on their respective specialties – compliance and claims – and the compliance department would not start performing work that properly belongs to the claims department.

In regards to customer complaints, the role of the compliance department is to identify new laws or changes to laws addressing complaint handling and ensure that a compliant process for responding to complaints is in place.  Usually, either an operations support area or the operations area to which the complaint is addressed will respond to the complainant.  A compliance department would not have line authority over operations staff and would not be able to administer corrective or disciplinary action to the employees whose actions have caused the complaint.  Accordingly, the compliance department should not have responsibility for vertical processes such as responding to customer complaints.

Separate administration of all distinct processes focuses and limits the scope of responsibilities of all processes.  When distinct processes are combined, the distinctiveness of each becomes blurred, from the perspective of those familiar and those unfamiliar with the processes.  Blurred processes become inefficient and ultimately ineffective.  The result of maintaining distinct processes as separate processes is the maximization of efficiencies and effectiveness.

Specialized skills, knowledge, aptitude, and, in some cases, a professional license or designation are needed required to effectively handle the flow of knowledge within the finance, HR, operations, and operations support activities.  The availability of a professional certification or designation may be used as a straightforward method of distinguishing among processes.  If a certification or designation is available for a specialized function, then that function and the process supported by it are distinct from other specialized functions and warrants administration as a separate process.

ADMINISTRATION OF THE COMPLIANCE PROCESS
Insurance companies have several options when determining which of the company’s departments will administer compliance.  Many workable arrangements are possible that account for the complexities of general and insurance business laws, the multiple processes of any company, and the unique characteristics of individual companies.  The structure below is an example that shows compliance both as a separate process and systemically embedded.  In any configuration, hiring staff with the appropriate professional designations merits strong consideration.

1. Dedicated staff supporting the specialized processes of finance, HR issues, and operations support are responsible for all of the compliance responsibilities associated with their specialized processes.

2. An operations compliance manager supports all operations processes by identifying new compliance requirements for these operations.  In this arrangement, the operations functions each concentrate fully on their core processes.

3. A corporate compliance department supports the business having:

   1. Oversight of the compliance process for the entire company.  To accomplish this, corporate compliance has authority with respect to compliance matters over the vertical processes of finance, HR, and operations, and operations support.

   2. Conducting the compliance process for laws that affect more than one horizontal process.  This will ensure that the integration of these laws throughout all processes is generally consistent.

4. Both the corporate compliance and auditing functions report to the Audit Committee of the Board of Directors.  This will ensure board awareness and involvement in the separate parallel processes of compliance and auditing.

5. The internal audit department, in addition to conducting audits to validate compliance, also audits for adherence to corporate policy. Additionally, based on the similar roles in post-compliance validation of audit and regulatory examinations, the internal audit department also supports regulatory examinations of the operations and operations support processes.  The company that has only one source that drive changes required due to regulatory examinations and internal audits.

This configuration covers the height and breadth of compliance for insurance companies; including horizontal processes such as corporate policies and auditing, and vertical processes of finance, HR, and operations.  The implementation of such an arrangement is one way to ensure that the company’s compliance process is holistic and systemic, which fosters fluency and comprehension between a company’s departments.  With strong reporting relationships in place, the company’s board of directors is assured that the board’s corporate governance responsibilities regarding compliance are fulfilled.

SUMMARY
Every business is obligated to comply with a variety of laws from state and federal legislatures, regulatory agencies, and courts.  Although states are the primary regulators of the business of insurance, some federal laws also affect the insurance industry, either directly or indirectly.  Laws that affect insurers can be general, specific to an activity, or specific to certain types of insurance policies.  To comply with changes to existing laws or new laws, companies must first be aware of the laws, regardless of the source, and then react to the laws.  The processes companies follow in reaction to changes to laws are part of a compliance process, which proactively makes changes to business processes for the company to remain compliant.

All processes can be categorized as either vertical or horizontal.  A vertical process drives the flow of knowledge while a horizontal process drives the flow of work.  Horizontal processes are necessary to link all vertical processes into a coherent system.  The effectiveness and efficiency of these links determines the effectiveness and efficiency of the business.  The availability of a certification or designation for a specialized function is a sound indication that a vertical or horizontal process is distinct from other processes and should be maintained and administered as a separate process.

In the insurance industry, companies have many choices in determining the best method of administering the compliance process.  A compliance process is often integrated within the finance, HR, and the various operations support processes.  Operations processes may also have integrated compliance or a centralized compliance process may support operations.  Each company’s compliance process should recognize both the company’s unique characteristics as well as the need the unique aspects of specialization within laws and the efforts taken to comply with specialized laws.  When done, this ensures that the company specialists are fluent in and comprehend both the legal requirements and the company’s processes, resulting in harmony instead of confusion, fewer errors and cost savings.  In turn, this provides assurance to the company’s directors that its corporate governance responsibilities regarding compliance are fulfilled.

APPENDIX

A.  VERTICAL PROCESSES – GENERAL BUSINESS COMPLIANCE ISSUES

1.  Finance Compliance^[18]

• Treasury Management^[19]

  • External Financing

• Borrowing

• Leasing

• Investor relations

• Cash Management

• Collection

• Disbursements

• Short-term investing

• Investment Management

• Long term securities and equities

• Risk Management

• Employee Benefit Fund Management

• Controller

• SEC Oversight (limited to publicly traded companies) through the Securities Exchange Act

• Accounting

• Financial reporting

• Internal Accounting

• GAAP (Generally Accepted Accounting Principles)

• Auditing

  • Sarbanes-Oxley Act of 2002 (some provisions apply to both public and private companies)

  • Public Company Accounting Oversight Board (PCAOB) – auditing standards

  • USA PATRIOT Act

• Tax reporting and tax filings (federal, state, local)

• Bank relationship management

• Payables – payroll (requires interaction with Human Resources), accounts payable

• Budget and Financial Planning

• Management Information Systems

• Credit and Accounts Receivable

• Electronic Funds Transfers

  • ACH (Automated Clearing House) Coding

• External Auditor Relations

2.  HR Compliance^[20]

• Consumer Reports Used by Employers

• FCRA (Fair Credit Reporting Act, as amended by the FACT Act of 2003)

• Permissible use

• Disposal

• Adverse use

• Discrimination Protections

• ADA (Americans with Disabilities Act) and ADA Amendments Act of 2008

• ADEA (Age Discrimination in Employment Act of 1967)

•  Civil Rights Act of 1964

•  Civil Rights Act of 1991

• Equal Employment Opportunity Act

• EEOC’s E-RACE Program (Eradicating Racism And Colorism from Employment)

• Discrimination protections in connection with background checks

• The Employee Polygraph Protection Act of 1988 – employers may not request or require applicants or discipline employees for declining to take a polygraph test

• Family and Medical Leave Act

• Genetic Information Nondiscrimination Act of 2008

• OWBPA (Older Workers Benefit Protection Act)

• Immigration Reform and Control Act of 1986 – employers may not discriminate against individuals based on national origin or citizenship

• Sarbanes-Oxley Act of 2002, Whistleblower Protection

• The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) – provides re-employment rights to military personnel and prohibits discrimination by employers

• Health Benefits/Retirement

• ERISA (The Employee Retirement Income Security Act of 1974)

• Family and Medical Leave Act

• Payroll Administration (requires interaction with Finance)

• Internal Revenue Act

• FLSA (Fair Labor Standards Act)

• Tax reporting

• Workplace Safety/Workplace Injuries

• OSHA (Occupational Safety & Health Administration)

• Workers’ Compensation Insurance

• Release of Employees – Mass Layoff

• Worker Adjustment and Retraining Notification (WARN) Act

• Employability Standards

• Immigration Reform and Control Act of 1986 – only persons who are able to prove they are authorized to work in the United States may be hired by an employer

3.  General Business Compliance Issues

• Advertising/Marketing

• Telemarketing Sales Rules (”Do Not Call”) issued by the Federal Trade Commission or similar rules issued by a comparable state agency to protect the public from unwanted telemarketing

• Intellectual Property

• Patent, Copyright, Trademark, Servicemark, Patent and Trade Secret protections

• Obtaining, Using, and Protecting Information

• Gramm-Leach-Bliley Act

• HIPAA (Health Insurance Portability and Accountability Act of 1996)

• Products/Services Sold to Members of the U.S. Military

• SCRA (The Servicemembers Civil Relief Act of 2003) and related state laws

• Conducting Business Electronically

• UETA (Uniform Electronic Transactions Act)

• E-Sign (Electronic Signatures in Global and National Commerce)

• Document Retention (Sarbanes-Oxley Act of 2002)

B.  HORIZONTAL PROCESSES – GENERAL BUSINESS COMPLIANCE ISSUES

1.  Corporate Governance Issues

The Sarbanes-Oxley Act requires publicly traded companies to have a corporate governance plan.  The New York Stock Exchange requires every company listed by the Exchange to have “certain standards regarding corporate governance,” regarding “corporate responsibility, integrity and accountability to shareholders.”^[21]  Companies not listed by the Exchange may opt to develop corporate governance policies based on the Exchange’s standards to be modernistic, before going public, or because a lender requires it.

2.  Establishment of Various Corporate Policies and Departments

A board establishes an ethics policy to provide general oversight and direction for corporate behavior.  Corporate counsel serves as consultants for the company’s board and management with the development of corporate policies.  In addition to supporting policy formation, corporate counsel should be involved in nearly every aspect of the company’s processes, particularly all issues regarding laws and contracts.  Risk management is sometimes set up as a separate department with responsibility to identify and reduce exposure to all types of risks to the company.  A corporate compliance department may be established and have responsibility to administer the overall compliance process.  Counsel’s legal interpretation of risks and laws is supportive of the risk management and compliance processes.

A company’s ethics policy, or code of business conduct, often states that the company will comply with all known laws.  (The three largest P&C insurers in the United States from the 2011 Fortune 500 list^[22] make a similar statement,^[23] and others very likely do as well.)

Many companies form departments to administer contracts the company signs.  In support of risk management, the contract department should validate that all employees adhere to corporate policies in areas such as contractual data-sharing agreements.  A corporate training department may be formed.  Policies to address the topics of security of its employees, customers, premises, systems, and intellectual property may be established.  A corporate audit or internal audit department would be formed in part to validate that the company’s various processes are compliant with laws and adhere to corporate policies.  The company would also establish departments for computer processing and advertising and marketing.

REFERENCES

ENDNOTES

Joseph L. Wiest, CPCU, ARC, ACP, is a corporate compliance director of market conduct with a top ten P&C insurance group.  He is a graduate of the University of Nebraska, having earned a B.S. in business administration. Since 1984, he has been employed in the insurance industry, working 20 years for a major personal lines direct writer, holding positions in customer service, line underwriting, staff underwriting, and compliance.  He also served as the compliance officer of a nonstandard auto carrier for two years.  He has earned a business ethics certificate from Colorado State University in addition to nine other professional insurance designations.