Extending the insurance safety net (with responsive parametric product design)

Today’s news that the CCRIF SPC and the World Bank have successfully sold their first parametric insurance products for the fisheries industry got me thinking on a flight back from Zurich.

This product is a first of its kind (at least I think it is).

A parametric insurance product designed to protect an industry as well as those who work in it.

As the CCRIF explained, it’s both livelihood and sovereign risk transfer, in a single product.

Wrapped up beneath a parametric trigger is both tropical cyclone wind coverage for a Caribbean island or Central American nation fishing sector, alongside “bad weather” protection for the fishing communities’ jobs and income.

The trigger therefore will payout to protect assets and infrastructure associated with a country’s fishing industry when a tropical cyclone of a specific severity or greater occurs.

While also paying out when stormy weather impacts fishing communities’ livelihoods.

Alongside the CCRIF’s core tropical cyclone and earthquake parametric products for the sovereign buyers, this new industry-specific cover truly means the Facility is protecting both lives and livelihoods, as well as providing responsive and rapidly paying risk transfer protection.

In the same vein as my recent post on the need for the insurance and reinsurance industry to provide a more responsive, tailored, product design focused offering.

Providing contingent capital in a manner akin to shock absorbers for people’s lives and corporations business cycles.

This CCRIF / World Bank parametric product extends the safety net provided by insurance and risk transfer, something we need to see a lot more of.

It fills gaps in coverage, protects gaps and meets all the mandates of a product that helps at all economic levels (protecting government, industry, tax payers and all those relying on a sector).

This approach provides an almost layered risk transfer and protection product.

An all in one approach to covering a vertical slice of the economy, from top down to the smallest contributing people.

Can the same model work elsewhere?

Definitely. Think of any other industry or sector where there are impacts to productivity from severe weather or natural disasters.

By covering the economic productivity of a specific industry with a responsive parametric insurance product, the government benefits, the industry benefits, the workers benefit, and their communities do too.

Communities that rely on the ability of their fishing fleets (or farmers, or other relevant industry) to provide income, food and broader economic activity can benefit hugely from this approach.

While at the same time the sovereign level means the government can help itself, the industry in question and its people to recover, without needing to borrow, raise taxes, or apply pressure on communities at a time when they’re stressed anyway.

For years I’ve been thinking that the way to really narrow the much-vaunted protection gap is through tiered risk transfer approaches, responsive triggers, data / technology and efficient capital.

One of the issues that’s almost always missed in these discussions is that without some sort of coherent and complementary protection at each of sovereign, capital / investment, industry and community level, you leave key layers in the economy exposed to stresses.

In the event of disaster these stresses at any level cascade through the tiers and can even be amplified (especially when the gaps are from the top down).

When major natural catastrophes strike it can cause capital flows and investment to dry up, hurting the sovereign economy, industry and community layers.

Industry can be damaged and disrupted, affecting sovereign economy and community layers, with the potential to put off capital flows and investment as well.

Impacts to communities destroy lives, homes, businesses and that can affect productivity and all the other layers as well.

Confidence impacts can hurt across the tiers too.

The CCRIF’s new fisheries parametric product solves for some of these issues, by protecting across tiers right down to the economy.

It’s also a form of protection for the essential capital flows and investment that could back a country’s fishing industry as well.

That’s pretty unique to be honest (although I’m sure someone will know some other examples).

How effective it is has yet to be proven, it’s only just launched.

But this responsive parametric protection model has huge potential to be taken, utilised in other ways and means, to the benefit of millions of lives and livelihoods across sectors, continents and specific industries.

It’s intelligent and innovative risk transfer product design in action and for that I applaud the teams behind it.

It’s a sign of the future of risk transfer, a responsive, efficient, direct and highly complementary life and livelihood buffering financial support tool.

Add in real-time and a great deal of extra sophistication, which given the technology available to us now will in time transform the risk transfer sector. As well as the efficient, unbundled, lower-cost, product design focused approach I spelled out recently here. You have a good example of an insurance product (a shock absorber) that is fit for our future.

There’s a model for risk transfer product design emerging and it promises better protection, more closely aligned with user needs.

The old products of indemnity and the like won’t go away and are key here as well.

But, taking a step beyond designing new products alone, designing new systems for risk protection, where traditional and modern product designs dovetail neatly into a single ecosystem of protection, will get us all closer to the answers we seek.

Yes, I’m channelling Nicolas Colin and borrowed ‘safety net’ from his excellent book “Hedge: A greater safety net for the entrepreneurial world” (go buy it).

Rethinking re-insurance: Life belts or shock absorbers?

Insurance and reinsurance needs re-imagining.

For too long the industry has been focused on products that often only provide a limited financial injection when the absolute worst happens.

Of course that’s based on often confusing terms & conditions, only after proof of loss is provided, lengthy loss assessment, and negotiation over how much value was destroyed.

It’s not always clear-cut, or a quick and smooth experience for insurance and risk transfer customers.

For customers, so people, corporations and other end-users, traditional insurance (and reinsurance) operates like a life-belt.

The worst happens, disaster strikes, and the industry throws you a life-belt, to save you from drowning

But you still have to work out how to use it in the most efficient and effective manner, as well as make your own way back to the shore.

Given the way our lives and businesses work, in this fast-paced and rapidly changing environment, we need something new and more responsive than this.

Something more responsive to our needs, that dovetails into the cycle of our lives, businesses and communities.

What we need are shock-absorbers: financial and risk protection products that smooth out the bumps in the road that might otherwise have knocked our life or business off course.

Products that respond right when we need it, providing just enough in terms of recovery to push us back on track, helping us to help ourselves right at the point it’s most needed.

Insurance can become this shock-absorber for our lives.

Think of life or business like a wave-length.

wave-length

It has its ups and downs, which within tolerances is absolutely fine and expected.

But outside of those tolerances is when we really need help, something to soften the blows of peaks and troughs. Or to put us back on course.

In real-time and in a responsive manner, we need protection and services that kick in not on-demand but automatically (automagically), responding to the changes & challenges that our life or business cycles experience.

A more responsive and real-time, demand driven insurance ecosystem.

Living off the data we all create in our lives and businesses, this can not just better protect us against the bumps in the road, it can provide new product classes we don’t even know we need yet.

It’s about financial protection that offers true risk management, transfer, hedging and real-time protection. Responding to our needs, lives and the way we consume.

Not just a life belt, or ring, that is thrown to us in the hope we can save ourselves.

Financial products suited to our evolving lives, that can work for millennials and octogenarians, small businesses and the largest corporations.

A complete rethink of the insurance and reinsurance market structure could help, as for too long the industry has relied on policy limits and towers of protection, which may not be best suited to delivery of a more responsive set of re/insurance products.

It’s about rethinking the delivery and responsiveness of risk transfer (and insurance generally) to make it fit for the 21st Century and beyond.

This responsive approach to risk transfer and insurance should run through the layers, or tiers, of the market, with reinsurance protection designed to neatly match the exposures and wave-lengths of the real-time risk curves of the future.

It’s a vision of a better kind of financial product.

One that cushions you against the bumps in the road, rather than throwing everything it has at you in one go and then leaving you to work out your own recovery.

Of course the claims process needs to be entirely automated.

Today, the life-belt of insurance is only thrown out to save you after a lengthy and often frustrating interaction with the provider, called making a claim.

That’s got to go away.

It’s not in the slightest bit a user friendly, intuitive experience, and so often ends in a result that was never expected or wanted in the first place.

Insurance is among the only products we buy into based on our understanding of it at the time, but then when we actually need it, the experience often turns out to be something very different.

Ambiguity is rife in most people and businesses experience of interaction with their insurance provider.

Shock absorbers don’t come loaded with such ambiguity.

Yes, there will need to be tolerances set around what makes them respond (triggers), and these should to be as closely calibrated to our lives and businesses as possible, to offer the best protection and cushioning.

As well as being automated, in real-time, responding to the ever growing range of data outputs that our lives and businesses produce.

This will increasingly be augmented through new data sources as well, from sensors to remote sensing, and everything else in between.

Protection should be both “always there” and “always-on”, ready and waiting to respond and smooth out the bumps in our life/business/community cycles.

Backed by capital that represents whatever is most efficient, cheapest & secure.

An efficient and responsive risk pool, that pays its backers not just for bearing the risks but also for their responsiveness in paying out, as well as their willingness to top-up again.

In order to shift to this more responsive risk ecosystem, where risk transfer neatly fits into our lives and business cycles, responding to their needs in real-time, product design is so important.

As too is a focus on the customers needs and the user experience of insurance, reinsurance, risk transfer and hedging products.

Not enough focus has been put on designing risk transfer products that meet client and customer needs, resulting in a poor experience and negative opinions of providers as a result.

The usability of what we have today is, to be frank, shockingly bad in a majority of cases.

It is improving though.

Some are moving into rapid innovation and iteration to drive change in the insurance and reinsurance product.

But many are also overdoing the kool-aid, slurping down too much of the which has been liberally shared around the industry right now, resulting in questionable investments being made and super-expensive programs of work and change, that in too many cases are resulting in write-offs.

At the same time the insurtech world is adding incremental layers of lipstick to the insurance pig.

Not always in ways that will be ultimately successful, as this incremental beauty is often only skin deep, and the write-downs will be significant. But it is making the whole industry rethink itself, which is extremely positive.

There are some really fantastic insurtech start-ups coming through with innovative products and some of the incumbent giants in insurance and reinsurance are truly moving towards transformational change in the way they design and sell their risk product offerings.

Change is coming fast + only a few are truly embracing it in the right way = many incumbents are scared.

But unless the end-result is a radical departure from the insurance and reinsurance marketplace and product-set we see today, we’ll be selling the customer short and purely throwing them a shiny, modified life-belt for some year’s to come.

Profiles in Risk podcast interview

I was lucky enough to be invited to talk about the history of http://www.artemis.bm with Nick Lamperelli of Insurance Nerds for his Profiles in Risk podcast series.

We discussed how I got into the internet, some of the work we did at the first start-up I worked at in the mid-1990’s, how I discovered catastrophe bonds and insurance-linked securities (ILS), the labour of love that is http://www.artemis.bm, as well as my thoughts on the development of industry trends, including InsurTech.

Thanks to Nick Lamperelli for inviting me, it was a fun discussion. Check out Insurance Nerds and the epic Profiles in Risk podcast series here.

Brand usability: Your brand is an interface, make it simple to use

This is an old article, just reposting as it’s one that still resonates from my old blog.

Usability refers to the ease with which an interface (be that a screen, device, object or website; basically anything you can interact with) can be used by its intended audience. Usability takes into account how easy or efficient something is to use, how easy it is for a newbie to learn to use it and even how satisfying that experience is for users. I’m passionate about it, anyone working in online industries has to be (in my opinion). The ROI that results from getting usability right is huge and can be the difference between success and failure if you’re designing or creating anything.

Brands as interfaces

Every time a consumer comes into contact with a brand be that online, by walking into a shop, reading about them in a newspaper, receiving a piece of marketing or any one of the myriad other ways you can encounter a brand, an interaction takes place. The places where this contact occurs is the interface, the way that contact manifests itself is the interaction. An interaction can be physical, verbal, mental or social in nature and each interaction can result in success or failure for your brand. What you’re looking for, of course, is for each interaction to be a satisfying experience for the consumer where they go away with a positive impression of your brand. For that impression to be a good one, as a brand you’re going to have to be usable, accessible, communicative and sociable.

Your customers come first

I’m a big fan of getting customer service right. As a consumer myself I get so frustrated when I’m let down by a brand but can easily see how they could have avoided or fixed the issue. As a consumer there’s a journey you embark on with a brand and touchpoints where you interact with them, those touchpoints are the interfaces between you and the brand. Customer journey mapping is a great tool which allows an organisation to document all the touchpoints they have with their customers and audience, measure their success or failure at each touchpoint and then work to improve or optimise the journey. Undertaking this exercise can be eye opening and really shows where you need to focus to make customers interactions with you more enjoyable and successful both for them and for you. In these days where brands are seeking to expose themselves to their audience through social media this seems particularly relevant, it also sounds very much like usability at work to me. Mapping out and optimising a customer journey seems very much like an effort to improve usability.

In this sociable world

We’re seeing a lot of talk about business design lately with a lot of buzz around ‘social business design’ in particular. This new trend of brands trying to be engaging, communicative and open requires the customer (user) experience to be spot on. Given the fact your audience can now discuss you across multiple platforms and media it’s more important than ever that you remove the pain points in your interface to make the customers experience as smooth and hassle free as possible.

Brand usability

So, brand usability. The practice of measuring and optimising a brands user interfaces. It’s a practice that already exists (under many other names) and there are specialists out there who can help you with certain interfaces you want to optimise. However, people who can offer to give a holistic service to help you make your brand more usable are few and far between right now. I think that’ll change. As social becomes the norm and the customer comes back into focus, brands are going to be crying out for help in these areas as they realise they’ve brought all the focus onto their service through trying to run before they can walk in this new sociable world.

Brand usability, social business design or customer relationship optimisation; whatever you want to call it the future seems bright for those who understand these topics and it maybe even brighter for brands who understand the importance of practising them.