ITL FOCUS puts a spotlight each month on a different topic that is driving innovation in risk management and insurance. A collection of curated content from our vast library, each month’s FOCUS includes webinars, featured authors, and more to offer a comprehensive look at the topic of the month.
This Month's Focus: Embedded Insurance
ITL FOCUS: Resilience and Sustainability
Alex Wittenberg, a partner at Oliver Wyman. Plus: How to Prepare for Extreme Weather; The End of Globalization? The Journey to Sustainable Aviation; How Digital Twins Help on Climate; AI, Aerial Imagery Can Help Spot Flood Risks; and more.Read More
What We're Focusing on in 2023
In the going on 10 years that I've been editing ITL, there have been two truisms about claims.
First is that claims are "the moment of truth" for insurers. That's certainly true, and, taking that notion to heart, insurers have made real progress. They've made it easier for insureds to report claims -- via app, sending in their own pictures rather than waiting for an adjuster, and so on. They've used new technologies, such as drones to survey damage after a storm, and have become much better at triage so they respond faster to the situations that are the most important and most urgent. Many have institutionalized compassion, for instance by quickly providing money to people forced out of their homes in a major storm, rather than making them wait for a full inspection and settlement. I could go on.
The second truism, which has taken its full form more recently, is that the industry needs to get to straight-through processing. It's certainly worth heading in that direction. You can already see the benefits that have come from those apps for reporting claims, submitting photos of damage, etc. But it also seems to me that making straight-through processing has obscured some real opportunities for progress.
The thought that keeps rattling around in my head as I think about underwriting these days is: How can you make accurate predictions about risk based on historical experience... when the world has decided to throw so much of that experience out the window?
COVID-19 changed all sorts of assumptions about life expectancy, at least in the short run and perhaps in the long run; we just don't know yet. The pandemic also reset our patterns of work, changing the risks associated with buildings and with those who work in offices and factories -- or maybe not, as more companies insist on a return to the office.
Inflation came out of nowhere for the first time in decades and made just about every sort of claim more expensive, especially in auto, where supply chain issues sent car prices through the roof. Now, inflation is subsiding... we think... but how fast?
And don't get me started on the Russian invasion of Ukraine, a stunner that not only created tons of business risks but that greatly stepped up the general geopolitical uncertainty, including on the possibility that China will invade Taiwan.
I wish I had an answer for underwriters. Instead, as usual, I have a story. It's one that was told to me in 2000 by Gary Loveman, a Harvard Business School professor who rather unexpectedly found himself being asked to be COO at Harrah's and who reinvented loyalty programs, initially for Harrah's and eventually for the whole gambling industry.
The analogy is far from perfect. Regulations will prevent insurers from implementing many of the ideas. That's why I used the word "dream" in the headline, rather than offering a concrete proposal. But there may be aspects of his ideas that can help with underwriting -- and it's a good story....
For me, the emergence of cyber insurance as a separate line dates back a decade, to when Target was hacked and had 40 million credit card numbers and personal information about 70 million customers stolen. Target was seemingly so well-protected, with its massive IT department and careful security procedures, and the vulnerability so seemingly trivial (in an HVAC system) that the news sent everyone scrambling.
But what to do?
Well, policyholders hoped their general liability policies covered cyber issues, or at least could be easily extended to cover those risks. Insurers, meanwhile, worked to make a clear division between GL and cyber and, in the face of such uncertainty and potentially enormous payouts, set rates as high as they could. Hackers, of course, plunged into what they saw as a huge payday.
Ten years on, we seem to finally be approaching some stability.
Maybe a dozen years ago, I read a book called "Half the Sky," about the need to end oppression of girls and women. It's a great book, full of powerful examples, but it's really the title that has stuck with me. It comes from a Chinese saying, that "women hold up half the sky." That's hardly a surprise, but I'd also never seen it put that simply. Women hold up half the sky, and half of everything else, too. Extend that thinking just a touch, and you see the sort of talent that exists in minorities of every ilk -- and how much we all miss if we don't recognize that talent, nurture it and find ever-more-important roles for those with that talent.
Insurers complain about a talent gap. Well, there's a lot out there that has historically been overlooked.
The way I was raised, there was never any question about the diversity of talent. My mother was the first in her family to graduate from college and had the temperament and intellect to run a large organization -- which she more or less did by having eight of us kids. My five sisters not only all have college degrees but have four advanced degrees among them, including a juris doctor and a Ph.D. The schools granting those degrees include Harvard, Wellesley and Johns Hopkins. My daughters graduated from Cal and Yale, and one has a law degree from George Washington.
The attitude of the women in my life has basically been: Do try to keep up.
When I think of the customer experience, I imagine a warm handshake or smile from someone I'm dealing with, empathy about my concerns, expertise, etc., but two experts I spoke to recently say I'm greatly overstating the importance of the softer side. They say the key for customers these days is simple: They want speed.
Fast. Faster. Fastest.
Jay Baer, long a guru on the customer experience, says speed is almost as important to consumers these days as price. David Samuels, chief commercial officer at Pie Insurance, a startup that initially focused on workers' comp for small businesses and recently added commercial auto, says the company draws on some 18 to 20 data sources and has built algorithms that let it make decisions automatically on more than half the submissions it receives. A spokeswoman says decisions are made automatically for 73% of class codes.
Of course, while speed may be the most important thing, it's not the only thing, and Jay and I run through the whole list in this month's interview. Here is his summary:
Despite all the possibilities I've read about and considered for the Internet of Things, Dave Wechsler managed to raise a new one in the conversation we had for this month's ITL Focus interview. He suggested that water leaks, fires and other household hazards could be handled as a service that would insulate carriers from the complexity and from the claims, in return for a per-household annual fee.
Many of you have seen Dave in action as a speaker at conferences during his time as the leader of IoT business initiatives at Comcast or, more recently, as the vice president of growth initiatives at Hippo. He's now a principal with the venture fund at OMERS, the Ontario pension fund, and had some thoughts on how IoT could get to massive scale.
The IoT, under the name of telematics, is taking hold in transportation, mostly because phones are full of sensors that can be used to evaluate someone's driving and because just about everyone has one with them at all times. But homes have been a trickier proposition. The vast majority are many years or even decades old, so they have to be retrofitted with sensors that can detect water leaks, fires and other hazards. That can be expensive. It can also be unreliable: The sensors may be installed wrong if homeowners do the work themselves or may be placed in areas where they somehow don't quite get hit by, say, the leaking water.
Jamie Yoder, the president and general manager of Sapiens North America, jokes that driverless vehicles are no big deal. The Amish had them decades ago, he says. A farmer would get drunk and fall asleep on the front of bench at the front of his cart, and his horse would eventually start trotting and take him home.
Jamie would know. Even though he now runs the North America operations of a major provider of software products and tools and has made a career out of digital technology, he grew up in an Amish community.
I've heard that joke a few times because I've known Jamie since 1996, when we met via Diamond Technology Partners, where we were partners. I've heard a few other stories, too, because Jamie has been my go-to on lots of insurance-related subjects as he became the insurance practice leader at PwC (which bought Diamond in 2010) and then the president at Snapsheet, an insurtech that has been an innovator in claims management, even before taking on his senior role at Sapiens.
In "Billion Dollar Lessons," a book that Chunka Mui and I published in 2008 on the lessons to be learned from 2,500 corporate bankruptcies and major writedowns, we found that companies often kidded themselves about the benefits that would come from synergy. We argued that the only real synergy was, "Do you want fries with that?"
Embedded insurance basically asks a customer, "Do you want some insurance with that?", so I've warmed to the concept over the years.
The benefits seem clear: Embedding insurance could allow for much lower distribution costs, letting insurers lower premiums, attract more customers and narrow the protection gap -- while giving insurers a massive new customer base.
So far, not much has happened. There is travel insurance and warranties, and bancassurance is popular in some parts of the world, but that's about it.
Sponsored by Oliver Wyman
"No insurance, no finance. No finance, no project. No project, no transition."
Alex Wittenberg, a partner at Oliver Wyman, says that phrase governs the transition from fossil fuels to a clean energy economy. By now, everyone acknowledges that the transition is under way, but it has to begin with insurance.
And the insurance piece of the puzzle can be so very complicated.
Think about an offshore wind farm. The turbines have to be erected under difficult conditions. The mast may stick 260 meters out of the water. Each blade can be 100 meters long, so the rotor can be 220 meters long.
Wind turbines are huge, powerful, complex machines, and it's hard for insurers to find the technical expertise to fully understand them -- there are few enough experts, and the field is new enough that the experts want to be on the front lines, innovating. Adding to the complications: Installations are tailored to their environment, so even if you can figure out all the technical issues on one project, you can't just apply that learning across the board.
There is, of course, limited historical data, given how innovative these projects are... and the technical issues are just the start.
The ITL team will focus on Blockchain for the month of October 2023. Check back at the start of the month for six feature articles, exclusive commentary from Editor-In-Chief Paul Carroll and an expert interview. If you have interest in sponsoring this month's Focus, please reach out to firstname.lastname@example.org
Sponsored by IntellectAI
The ITL team will focus on AI for the month of November 2023. Check back at the start of the month for six feature articles, exclusive commentary from Editor-In-Chief Paul Carroll and an expert interview.
Sponsored by ICW Group
The ITL team will focus on Workers Compensation for the month of December 2023. Check back at the start of the month for six feature articles, exclusive commentary from Editor-In-Chief Paul Carroll and an expert interview.
2022 Focus Topics
When you strip insurance down to its essence, there are just three components related to indemnification. There is a client/contract. There is a yes/no mechanism for determining whether a payment is triggered to that client under that contract, as well as the amount. And there is capital, whether from an insurer, a reinsurer or the capital markets. That’s it: a client, a judgment mechanism and money.
For an industry that has long been considered sleepy, life insurance has a lot going on.
Sometimes, innovation takes time.
Some 30 years ago, I wrote an article for the front page of the second section of the Wall Street Journal that declared a revolution in forms. We were far enough along in the personal computer revolution that software companies were coming out with products that would let users fill out forms on-screen, speeding the process and eliminating the errors that occurred as someone had to interpret people's handwriting. Even more magical, the spread of local area networks meant that information could flow straight from my screen into a corporate database, with no never to ever print the form and have someone re-enter the data.
Everything I wrote was correct, and forms did take a major step forward, but, here we are three decades later, still drowning in forms. And the insurance industry is Exhibit A.
In this month's interview for ITL Focus, my longtime friend and colleague John Sviokla takes us through some of the unintended consequences that digitization could bring to insurance claims.
Not quite a decade ago, a colleague and I did some consulting on innovation for the CEO of one of the biggest personal lines insurers, and he expressed great frustration with his agent force. "Every time I try something new, even when it's going to benefit the agent channel, they turn around and kick me in the [crotch]," he said.
In the years since, I've watched the power of agents and brokers only grow -- just look at how much valuations for agencies and brokerages have been climbing and at the much slower increases for carriers. And agents and brokers have mostly guarded the model that has let so many prosper for so long: They get paid commissions on product sales, rather than being paid for advice, and are rewarded for building and then maintaining a book of business rather than primarily for continually adding clients.
Certainly, the industry's push for digital innovation has led to more cooperation. In particular, insurers are trying to make themselves easier to work with, if only to try to become the carrier of choice for independent agents. But is that really the best we can do?
Bill Walrath thinks not.
Sponsored by AgentSync
When my younger daughter was a freshman at Yale, I was encouraged that her intro to economics class included a fairly long section on the economics of insurance -- essentially, an exercise in determining how much people valued the peace of mind they get from having a policy in place. Insurance certainly never came up in any of the economics classes I took way back when, and I took the material as a good sign: A top-tier college was making insurance intriguing for smart, young students.
Alas, I couldn't interest my daughter in the insurance industry. And there seems to be a lot of that indifference going around, based on the persistent concerns in the industry about the talent gap.
Jenn Knight, co-founder and chief technology officer at AgentSync, offers some intriguing thoughts on a way forward in this month's interview.
Workers comp has things doubly bad -- it has to deal not only with its own staffing issues but those of its clients.
As Mark Walls, vice president of client engagement at Safety National, explains in this month's interview, many companies are having to ask employees to do more to cover for gaps in staffing. Companies are also being less rigorous about pre-employment physicals and may rush people into action. The risk of injury is rising as a result.
At the same time, workers' comp carriers and third-party administrators are having to deal with their own shortages of adjusters, nurse care managers and so on, while dealing with caregivers that are struggling to line up enough doctors and nurses.
The result? Not pretty.
When I think of the potential for artificial intelligence, I hark back to my days at the Wall Street Journal, taking notes in my home-brewed shorthand in one of those long, skinny notebooks you may have seen reporters carrying around in their suitcoat pockets. I still break out in a sweat when I recall interviewing the president of Mexico in the mid-'90s, in Spanish. I only knew how to take notes in English, so I had to translate on the fly, while still thinking about my line of questioning—and concentrating furiously so I would quote him so accurately that I wouldn't cause an international incident.
While AI would have been zero help back then, today it's remarkable. I just record an interview on my phone, and AI transcribes the conservation in real time with remarkable accuracy.
So, if you want to think about where AI can go from here, you can look back 25-plus years and see that the difference between then and now is, well, like magic, and then start to think about 10, 15 or 25 years from now.
Sponsored by IntellectAI
The cyber insurance market is full of good news and bad news, good news and bad news, good news and bad news.
Let's start with the good news.
Targets are getting smarter about how to defend themselves. That's by far the biggest bit of good news. The improved defense is partly because employees are being trained to avoid phishing and other types of attacks.
Sponsored by Oliver Wyman
As I talked with speakers following the recent Global Insurance Forum about resilience and sustainability, I got the sense that the industry is leaning into climate change much more than in the past.
That's partly because events such as Hurricane Ian dramatize the risks but also because insurers are seeing ways to help clients and, more broadly, society, while also seeing business opportunities.
We obviously have a long way to go on resilience and sustainability, and I don't think we're moving fast enough, but we do seem to be making some progress, both in helping society, writ large, and in finding new ways to serve customers.
Read more about Resilience and Sustainability
Sponsored by Chubb
I recently read a fascinating book, "The Dream Machine," about the intellectual history of the computer world through the early 2000s.
As a geek of long-standing, I was amused to learn that a mythic figure from the early days would end animated conversations on the streets of Cambridge, Mass., by asking which way he'd been facing when the conversation began -- that way, he'd know whether he'd been leaving the Harvard faculty club and had thus eaten lunch or whether he was on the way there.
The book also filled in details for me about how computers had passed through key stages: from glorified calculators in the 1940s, to mainframes for batch processing in the 1950s and 1960s, to minicomputers and time-sharing in the 1960s and 1970s, to personal computers in the 1980s and 1990s and to the internet in the 1990s and beyond. Progress has obviously continued since the book was published 20 years ago: with smartphones, in particular, and Wi-Fi changing the world in the 2000s and beyond, but also with search engines, social media and a host of other innovations.
Based on that history, I'm confident that one of the biggest drivers of innovation -- maybe THE biggest -- at the moment is the Internet of Things.
Read more about IoT
2021 Focus Topics
Much of the focus on innovation has related to personal lines. That makes some sense: Policies tend to be more cookie-cutter than in commercial lines, and individuals, spoiled by Amazon and other online resources, have demanded a better experience from insurers. But don’t sleep on commercial lines. As businesses see what’s changing in personal lines, they aren’t going to be left behind.
Blockchain has held out promise for some time now and it may finally be coming into its own, with some uses starting to move into production. We’ve collected our thought leaders’ latest thinking on the topic in this month’s ITL FOCUS, as well as an interview with John Sviokla about the future impacts and strategic implications of blockchain, the ITL On Demand ‘Future of Blockchain’ webinar series, and more.
Strategy is what you don’t do. That was the dictum of the late, great Mel Bergstein, who way back in 1994 founded the pioneering digital strategy firm Diamond Management & Technology Consultants. (It became part of PwC in 2010.) I heard Mel’s line a lot, as a partner with Diamond from 1996 through 2003, and I think his are words to live by in the insurance industry these days. Everyone seems to have gotten the memo about the need to digitize insurance and to explore innovative ideas, but the present typically creates a real drag that slows movement toward the future.
Mark Twain reportedly once responded to a rumor of a serious illness by saying, “Rumors of my death have been greatly exaggerated.” Insurance agents and brokers could have said the same thing over the past decade and will likely be parrying those rumors for years to come. There’s no doubt that agents & brokers inhabit a world going digital and not every agent will migrate easily into the ever-more-digital world, but those who do will find the work more rewarding, both for themselves and for their ever-more-loyal clients.
In high school, a friend of mine had a poster on his wall that read, “Just because you’re paranoid doesn’t mean they aren’t out to get you.”
That pretty well summarizes how the world of cybersecurity and insurance works. Companies may feel paranoid for looking over their shoulder all the time, expecting something back to happen, but we all know that there are plenty of bad guys out to find all the victims they can.
The world of work turned upside-down and inside-out beginning 15 months ago, as the pandemic shut down offices and forced so very many of us to work from home.
Now that we’re beginning to reverse this process, insurers will have to sort through all sorts of new issues. Here’s one: When is the place where a worker works a “workplace,” and when is it not? Welcome to the new world of workers’ compensation
Insurance companies are finding that they have to reinvent chunks of their businesses to really get the customer experience right. Yes, they have to focus on the ways that they touch customers, through agents and brokers, through call centers, through adjusters and through an increasingly broad array of electronic means. But a customer doesn’t just experience a company through a direct communication. Customers also experience, for instance, how long and painful an underwriting process or a claim is.
And here’s the thing: This emphasis on customer experience requires a revolution for companies.
Cognitive computing is a funny beast. Every time you hit your target, you find that another pops up off in the distance.
When I first saw a demonstration of speech recognition, some 30 years ago, I was mightily impressed that the computer understood a few words. If I had seen what would be possible today, I’d have been stunned. But now? Oh, that’s just Siri or Alexa. And why didn’t auto-correct guess exactly what I wanted to say?
“…It seems to me that the lines will increasingly blur between life insurance and financial management, given that life insurance is an important financial asset; people often think about their finances, and life insurance can become a natural part of that focus. I could also see the trend toward embedded insurance expanding the life insurance market — why couldn’t a term life policy be, for instance, embedded in a mortgage when someone buys a building, to make sure the purchase is secure even if something happens to the buyer?
Over the years, I’ve had people tell me life insurance is boring. I don’t see it that way at all.”
In the face of catastrophic weather, insurers are doing what insurers do: helping identify, quantify and mitigate the risks, while making customers whole when disasters strike.
They are also increasingly digging further into the roots of the problem. As you’ll see in the articles we’ve highlighted for this month, insurers are focusing more on how to raise the alarm about climate change and on how to make the world more resilient in the face of the challenges that we face today and that are surely.
In all my years covering all manner of technology, telematics may have caught me off-guard the most. When I first wrote about Progressive’s auto telematics program, Snapshot, in 1998, it seemed like a slam dunk. Of course, it made sense to monitor how people drove and to price their insurance accordingly.
For nearly 30 years, I’ve been hearing about smart homes. Even before a commercial version of the internet browser was invented in the early 1990s, the rich, geeky types I dealt with in my travels at the Wall Street Journal were figuring out ways to wire their homes to ward off possible intruders.
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