Polo, the “game of kings,” is among the oldest, fastest, roughest and most dangerous team sports. Also known as hockey on horseback, the game is played with two teams of four players each. Polo combines physical skill, mental agility and quick strategic thinking. Players use a mallet to hit a small ball between the opposing team's goalposts, galloping on a horse at 30 mph. 

Polo and business both require leadership, teamwork and strategy. 

Leadership - No Two People Are the Same  

Each player has a specific role and responsibility on the field. There are two players: the horse and the rider. However, horses aren't machines. To be a great polo player, you must be an excellent horseman or horsewoman and develop a relationship with your steed.  

In my first polo season, I acquired my first pony, "JJ," an old racehorse, from a friend. Initially I "stick and ball" and fell off a lot. Then I played a couple of chukkas a game and got frustrated playing part-time, and soon more ponies followed. It kept my daughters and their friends busy exercising and grooming and was a great bonding experience.  

Looking after different horses taught us that each horse has a distinct personality and unique strengths and weaknesses -- like in business, where no two people are the same and can't be led the same way. Some employees need encouragement and confidence to take risks and chances, while you might need to let others run free or even rein them in occasionally.  

Employees and horses have unique motivators, skills and attributes that they bring to the table. Understanding who your people are and their skill sets will help to get the most out of the team, which is critical for strong business leadership and success. 

See also: Leadership Lessons From Sports

Try, Try Again, or Get Back on Your Horse and Try Again!

Polo can be a way of life for many players and enthusiasts. Polo fosters a sense of camaraderie, respect and fair play among the players and the spectators.

It is also an extreme sport. Whether galloping 30 mph with your opponent right beside you, getting a very hard ball shot into your back or being checked by your opponent on a 900-pound horse, danger exists everywhere. 

Fear can also be part of the game. Whether falling off your horse and suffering an injury, letting your teammates down or starting a new role at work, fear can shrink our confidence, make us hesitate and affect you and your team's performance.  

Every polo player will fall off their horse sometime. In fact, in 2015, 58% of polo players in the U.K. reported falls. What matters is how you respond, persevere and conquer your fears. You could give up and say this sport isn't for you. Alternatively, you could embrace a growth mindset and understand that great athletes and successful people get back on their horses and focus on progression and continuous improvement rather than perfection.  

After all, every expert was once a beginner. 

Teamwork - Play as a Team  

Only teams who play together and adhere to their positions can win in polo. For example, the number one player in polo is responsible for scoring goals. The number two player helps both in defense and offense. The number three player is often the captain and leads plays, and the number four is in charge of defending the goal. Without verbal and nonverbal communication, teams won't be able to coordinate plays effectively and ensure that everyone is playing their positions.  

In business, everyone on your team has a role and position that suits their specific skills and traits. For instance, while an insurance technology company might have talented software engineers, data scientists, etc., to develop products, they need advertisers, marketers and salespeople with different perspectives and niches to sell their technology and capture market share.  

Building a functional team requires leadership. Leaders must ensure that each team member, whether on the field or in the office, feels like they're a part of something meaningful and more substantial than themselves to be successful.

Play together and win together!

See also: 7 Things Sailing Taught Me on Leadership

Strategy and Time 

A polo game is divided into six periods called chukkas, each lasting seven and a half minutes. Your team can lose by being two seconds too slow off the mark, letting the opposition get ahead with the ball. The split-second decisions and small room for error have taught me never to second-guess myself or delay in chasing my goals. 

In business as well as polo, it is essential to keep communication open with all team members and, when you can, continue to evaluate and improve on; 

1. What is working 
2. What is not working 
3. What we can change 

Both polo and business leaders must have good communication, coordination and motivation skills to lead their teams effectively. 

My first polo game was on a farmer's field. Since then, the sport has taken me to places I likely wouldn’t have seen otherwise, including Argentina, the U.K. and all over North America.   

Business has also provided quite the journey. In 2000, I founded Global IQX, an employee benefits insurtech. During the COVID pandemic, our company saw remarkable growth, and recently we were acquired by Majesco, a global leader in cloud insurance software solutions.  

Whether you are playing a short or the long game, trust yourself and your team and continue to improve so you can knock that ball between the goalposts!

Traditionally, employer clients have looked to their insurance brokers and brokers have looked to general agents (GAs) or carrier sales representatives for information on the best rates and products. 

But client questions are increasingly shifting to technology matters.

Employers offering group benefits to their employees are now as curious about the features and capabilities of the technology used by carriers and ben-admin systems as they are about their rates. And according to a recent study by Ease, 50% of employers sourced their benefits technology from a broker. That new emphasis puts brokers -- and GAs -- in the unfamiliar position of tech advisers, intermediaries between clients and vendors.

That’s what we learned from a recent webinar with representatives from a leading brokerage and general agencies. Technology is transforming insurance, an industry that has traditionally lagged behind others in its adoption. It appears that this new prioritization is driven by clients demanding the same modern experiences, interoperability and ease of use from their insurance carriers that they have in other business functions and personal consumer experiences – also known as the “Amazon Effect.” 

For clients, easy data exchange is everything; in fact, 66% of employers prefer carriers that connect to their software over those offering the best-value insurance products.

At our recent convening event, which included experts from United Producers Group and Hub International, we posed question across three areas:

What’s going on with benefits technology today?

The role and versatility of technology is quickly advancing, due in part to the changes brought on by the pandemic and its new work models, as well as by clients and their employees’ expectations. Employees want to better understand their insurance benefits and have benefits experiences that help them use these valued assets in easier ways, which are essential pieces of their total compensation.

Employers are eager to provide modern, differentiated benefit experiences to retain and attract workers, and improved technology is necessary. According to a recent report by Guardian, 79% of employers expect to increase their spending on benefits technology in the next three years.

To get the desired result, clients need a digital benefits strategy, one that will not only please workers but help employers become more efficient and control costs by lessening administrative burdens, reducing manual transactions and addressing compliance. The optimal technology should reduce administrative costs by automating functions now done by people. 

The demand for this new technology isn’t only from large clients; small employers also want tech that will allow their various systems -- such as payroll, ben-admin, COBRA and cafeteria plans -- to interact seamlessly.

See also: Why Brokers Should Embrace AI

Where should benefits technology go next?

The panelists want the industry to emphasize investments in speed and accuracy, with a focus on getting insurance cards in new members’ hands as quickly as possible with no glitches or delays. That requires automating the process to minimize or eliminate the manual tasks that slow things down and introduce the possibility of errors.

In addition, brokers must be sure they’re up to speed on the latest industry technology, who offers what, and how different systems interact. If brokers don’t know how to deliver the tech experience their clients want, their clients will find other brokers.

Another point of emphasis was the importance of adopting technology that could help produce clean, accurate data right off the bat -- from the beginning of the process. Too often, insurance enrollment data is unavailable, incomplete or inaccurate. Incorrect data must be fixed at some point, which comes with a high cost in time, labor and strained relationships among sales teams, brokers, groups and more.   

See also: AI and the Future of Independent Agents

What do brokers want from ben-admins and carriers?

At the top of their wish list for carriers is application programming interface (API) integration for every policy to allow a single point of entry and an easy bi-directional flow of data so manual intervention is no longer required. There has been progress in this area, but fewer than 15% of carriers now offer it. The need is particularly great for medical insurers. 

From ben-admin platforms, the request is to add technology to make their systems flexible enough to accommodate and merge data from multiple sources and handle employers’ increasingly complex benefit structures.

The brokers also requested that carriers and ben-admins focus on speed-to-market for products, simplicity, improved communication and easy data flow among all parties. This, they noted, would allow brokers and GAs time to have the strategic conversations that bring the most value to their clients.   

As thought leaders and change agents in our industry, we regularly convene experts to get at the important nuggets in our industry. Talking with leaders like our panelists is a great way to assess where the industry stands and where it needs to be.

The recent cancellation of a major wind energy project off New Jersey's shore has cast a pall over efforts to limit climate change. But there are important signs of hope, too -- in particular, stunning declines in the cost of solar and wind power.

With the U.N.'s annual summit on climate set to start later this week, let's focus for a few minutes on the hope.

This chart from a recent article in the Wall Street Journal pretty much says it all:

 

 

You can see, in particular, how installations of solar power have consistently exceeded expectations -- by a lot. The 2002 projection the WSJ cites showed almost no adoption of solar by now in the grid because costs were expected to be higher than for alternative sources. Even in 2010, projections were for almost no use of solar in the grid by now. By 2020, the picture had totally changed -- but even that projection was far less optimistic than the current one. The 2023 prediction shows a full-on hockey stick of the sort that makes investors salivate. 

The reason? Technology has cut costs far faster than expected.

I have a personal point of reference here. I was part of a SWAT team at the Department of Energy in 2010 (led by Matt Rogers) that was investing $37.5 billion of Stimulus Act money to nurture innovation in a whole range of energy technologies, including solar, wind, batteries and electric vehicles. We took what seemed like a very aggressive view at the time about what technology could do and projected roughly a 60% decline in the cost of solar by 2020 -- while the WSJ article says costs fell fully 90% between 2009 and today. 

The cost of onshore wind power has declined by two-thirds over the same period, the article says, and there's every reason to think costs will continue to decline for both it and for solar. Not only will the technology keep improving, but costs steadily fall as manufacturing scales up. 

In fact, the New York Times ran a story yesterday about concerns that solar prices are falling TOO fast. The main concern addressed in the article is political: Falling prices might undercut profitability and lead to job cuts in Georgia, where production has boomed because of the clean energy push by President Biden  and where any disruption might cost him in the 2024 presidential election. However the politics play out, a plunge in prices will only accelerate adoption.

Solar and wind already have reached a tipping point: The WSJ article says four-fifths of global power capacity added last year uses renewables. 

There has been some concern recently about the adoption rate for electric vehicles. While Tesla has had to cut prices on its EVs to maintain momentum, Toyota, which has resisted the move to EVs, has been taking a victory lap because its sales of hybrids have soared this year. The CEO of Mazda, Masahiro Moro, told Fortune the other day that, “we have not put a goal on [the move to EVs]. We will move as fast as the customer. We never want to surprise them with new technology.” 

Still, the "disappointing" numbers for EV sales showed a 51% increase for the first three quarters of this year in the U.S. And the chart from the WSJ shows that expectations for growth remain stratospheric, as charging infrastructure will be built out and "range anxiety" will diminish.

The WSJ article says total cost of ownership for small and midsized EVs has dropped below that of cars with internal combustion engines in China and Europe and may cross that dividing line in the U.S. next year. (While EVs cost more up-front, they require far less maintenance, and electricity typically costs much less per mile than gasoline.)

As with solar and wind, costs for EVs will continue to drop as production scales up, and the technology will continue to improve. In fact, battery costs are projected to reach territory by 2025 that we would have considered the Holy Grail during my stint at the Department of Energy: Goldman Sachs predicts that the average cost for an EV battery will fall below $100 per kilowatt hour. That would be down more than 93% since 2008 and a 40% decline just since 2022. Goldman Sachs projects that prices will keep falling 11% a year through 2030. 

Of course, the context for all this improvement is a climate that is continuing to heat up. At this point, we're just trying to slow the rate of deterioration and minimize the increase in storms and wildfires that are devastating so many people and, in the process, generating massive insurance claims.

But we have to start somewhere.

Cheers,

Paul

P.S. As I said last week, I encourage you to attend the Town Hall being held on Thursday in Washington, DC, by my colleagues at the Insurance Information Institute. It will bring insurance executives and policy makers together to focus on how to attack the climate crisis. There are more details here, including a discount code. I hope to see you there.

In the ever-evolving landscape of employee benefits, self-funding of healthcare offers the potential for greater cost control, flexibility and customization and has become the choice for many employers. At the heart of a successful self-funded approach is a strong medical stop loss insurance (MSL). And employers must understand the pivotal role that different stakeholders hold in designing an optimized MSL strategy.

Collaboration for Success: The Crucial Stakeholders

An effective MSL strategy goes beyond a mere insurance purchase. It's a comprehensive approach that requires collaboration among various stakeholders, so employers need to have clear lines of communication with, and input from, those accountable to the execution of their strategy.  These range from captive insurers, reinsurers, clinical teams, underwriters and claims professionals to captive managers and participating companies – all essential for the thriving of the self-funded healthcare model.

Captive Insurer and Reinsurer: Building a Solid Foundation

The foundation of many strong MSL strategies lies in a well-structured captive insurance arrangement. The captive insurer, serving as the company's personal insurance segment, brings a degree of control and flexibility in managing risks. It facilitates a partnership with organizations to fine-tune insurance policies, ensuring they meet specific employee health demands and the participants' unique benefit needs. This customization can encompass coverage extents, terms, premium pricing and claim procedures.

Reinsurers, or excess risk protection through a fronting carrier, complement this structure by providing financial safeguarding, absorbing the shock of unusually high and unforeseen medical costs that could otherwise destabilize an organization’s financial health. These collaborative efforts between captive insurers and reinsurers provide a tailored, risk-mitigated coverage essential for the adaptability and durability of self-funded healthcare, addressing limitations often encountered in conventional insurance models.

See also: A Milestone in Healthcare

Clinical Team: Data-Driven Decision Making

The clinical team’s significance in formulating an effective MSL strategy is paramount. By scrutinizing data, evaluating risks and spotting health trends, these experts furnish employers with the necessary analytics to make informed decisions. Group programs like QBE North America's Agora stand out by embracing comprehensive health management, facilitated by a clinical risk management team analyzing claims utilization and costs to influence adoption of the most significant risk management strategies. 

Underwriting and Claims Professionals: Balancing Risk and Cost

The expertise of underwriters and claims professionals is central to maintaining stable operations of any captive strategy. Their expertise ensures that the MSL strategy strikes a balance between managing financial exposure and controlling costs. They navigate the complex realm of past claims data and the current and potentially continuing health conditions of the plan’s membership. This deep dive analysis provides critical insight into the particular health risks specific to each employer’s situation.

For example, QBE North America's underwriting team leverages data analytics to tailor solutions that not only meet employers' financial objectives but also provide a buffer against unexpected medical expenses. Customizing MSL plans ensures alignment with a company’s distinctive needs, taking into account the specific health demands and risk profile of its employees.

Captive Managers and Participating Companies: Seamless Administration

Captive managers play a crucial role in overseeing the day-to-day operations of the self-funded healthcare strategy, as well. They ensure compliance, handle administrative tasks and facilitate communication among all stakeholders. However, the insurer or reinsurer is often called on to provide specialized support in adjudication of MSL claims, as complications may disrupt the health plan, third party administrator and member’s medical provider. This streamlined approach through a partnership allows participating companies to focus on their core operations while reaping the benefits of self-funded healthcare.

Monthly Stakeholder Meetings: Continuing Innovation

A standout feature of successful MSL captives is consistent and diligent engagement of the stakeholders in the partnership. Regularly scheduled meetings or discussions reviewing historical and emerging claim trends and loss ratio performance meetings are engines of innovation, promoting transparent communication, collaborative learning and perpetual refinement of strategies. They allow for targeted discussions to draw wisdom from various experts, encouraging informed, forward-thinking decisions in managing healthcare costs.  

See also: How Digital Health, Insurtech Are Adapting

Transparency and Control: The Guiding Principles of MSL Captives

In an era where healthcare costs loom as a formidable challenge, MSL captives are guided by the principles of transparency and control. They represent the forefront of innovation in healthcare cost management, offering the industry a path toward sustainable solutions.

Conclusion

In the realm of self-funded healthcare, the significance of top-tier medical stop loss insurance partnerships cannot be overstated. A successful MSL strategy thrives on collaboration among diverse stakeholders, each playing a pivotal role in ensuring its effectiveness. Further, the importance of aligning with a fronting carrier with the financial class size and rating strength that demonstrates a track record and longevity cannot be overlooked.

As the landscape of employee benefits continues to evolve, the synergy among stakeholders will remain the cornerstone of a prosperous self-funded healthcare journey

If one topic has dominated industry discussion in 2023, it’s embedded insurance— the concept of bringing personalized insurance products to customers during relevant digital journeys. 

It’s not hard to see why. Allied Market Research reports that the global embedded finance market was valued at $66.8 billion in 2022 and is expected to reach nearly $623 billion by 2032. Within five years, more than 30% of all insurance transactions will likely occur within embedded channels, according to Ernst & Young. Nearly two in three Gen Zers and millennials and three in five Gen Xers are interested in accessing an average of 15 different embedded financial products from brand names they trust. And Deloitte predicts that, if as much as 20% of the U.S. personal auto market implements embedded insurance by 2030, $50 billion or more in premiums could be redirected away from the industry’s traditional distribution channels.

No doubt, embedded insurance is a hot topic. The problem is, because of all the noise and hype around it, this sought-after capability is often poorly understood. As the founder of Mylo—one of the first embedded insurance platforms—I think the term is overdue for reexamination. A better understanding of what “embedding” means can lead to smarter solutions for agencies, carriers and companies that want to connect their customers with the right insurance. 

A common misconception

The first mistake in my view is thinking of “embedding” as 100% digital insurance binding—just click a button, and you’ll have the right coverage. It’s true that embedded insurance has built serious momentum thanks to the successful adoption of simple add-on "insurance lite" products that can be easily bundled with other online transactions: Think travel, phone and pet coverage. But when it comes to more complicated (and essential) products like business, home, auto, group benefits and life, that model doesn’t stand up to reality. 

The truth of the matter is, no single carrier has the appetite for every type of product that an insurance shopper may want in a 100% digital transaction. When you add multiple carriers into the mix—which is important for finding every customer their best value—the challenge is even greater. Recommended products like business owners' policies (which combine property, general liability and sometimes cyber) or umbrellas (which provide extra protection when the limits of specific policies are reached) require the help of an expert adviser who can put all the pieces together. 

See also: A New Approach to Embedded Insurance

The right way to embed

That’s why I prefer a more nuanced definition. To me, “embedded insurance” means incorporating a simple, speedy and streamlined insurance shopping experience into a company’s digital experience—so customers have instant access to the guidance and options they need to make an informed decision when they need to make it. In other words, the entire process doesn’t have to happen online. For the foreseeable future, licensed agents will have an important role to play—to ensure every customer has the most personalized guidance.

So what exactly are companies “embedding”? Convenient access to everything a given insurance shopper needs—a wide range of insurance products, a suite of leading carriers, the guidance of expert advisers and a foundation of deep insurance expertise. We call this last piece “insurance intelligence,” and it’s one of the most important factors in a successful embedded platform.

Too many insurance websites use technology to rush their customers to complete the transaction. An online insurer or agency will typically present a list of coverages and ask the customer what they need—then use comparative rater software to show quotes with the lowest prices. Making the right choice is left to the customer, who may not know much more than they did when they started. 

What’s missing from the experience is insurance intelligence: the deep expertise that identifies what solutions are in the customer’s best interests based on the information they provided—then makes expert recommendations and finds the best available value from an insurance company that has appetite for that risk

Not just about price

Embedding isn’t just about finding customers the lowest rates. Our industry has long been driven by a “low price/big savings” mentality. But that’s not always the right value proposition. When a policyholder has a surprise loss and learns they’re not adequately covered, will they be glad they saved 15% in 15 minutes? Are they going to pat themselves on the back for choosing the lowest-cost carrier if they’re trying to be reimbursed for a valid claim and don’t receive high-quality service? 

The costs of not choosing a personalized policy from a top-rated carrier can be significant. In my view, technology should make customers aware of the right protections for their needs—instead of relying on shortcuts that can lower rates, such as reducing recommended coverage limits.

Make it easy

Most importantly, we need to make this experience as easy as possible. As I’ve said, I believe in putting a streamlined, guided experience directly in the path of shoppers who need insurance while they’re transacting other needs with companies they trust. This spares customers the need to research coverages and carriers on their own. 

For example, Verisk finds 43% of small businesses are uninsured, leaving them vulnerable to a variety of risks. By embedding access to insurance education and solutions into relevant journeys for small business owners – such as in the customer experience of a digital HR partner – agencies can benefit from closing policies while business owners can gain peace of mind in getting the protection they need, even if they didn’t know they needed it.

An embedded insurance platform should also interact with customers through all the channels they value – online, over the phone or through chat. Up to 70% of insurance customers make at least one channel jump, switching from digital to human assistance or vice versa, particularly toward closing, according to a recent Boston Consulting Group study. Starting a quote online, for example, should be paired with the immediate option to chat or speak with an agent. 

And customers should never have to answer the same question twice. Today’s sophisticated application programming interfaces (APIs) allow agencies and companies to pass data back and forth, which can enable a platform to automatically prepopulate customer information the partner was already given. This leads to a faster, stress-free shopping experience that can boost conversions. 

See also: Is Embedded Insurance the Wrong Idea?

The future is here

Bottom line, embedded insurance should be focused on making quality customized insurance recommendations easy. The goal should be doing what’s right for the customer: offering the right coverage at a fair value with the best experience possible, not always the lowest price. Your customers need to be able to trust the services and products you and your embedded insurance partner suggest. The good news is that, by using appropriate technology, recommending the right coverage and carrier and presenting the best value, you’re going to look attractive to insurance shoppers. Everyone wins.

Of course, effective technology and insurance intelligence engines aren’t built overnight. If you lack the necessary tech capabilities and insurance expertise internally, it’s important to collaborate with an external partner who can make your embedded insurance objectives a reality.

Embedded insurance is like a bullet train that’s preparing to leave the station. But before you jump on board, make sure you’re on the right track – one that will efficiently deliver you, your partners and your customers to the right destination of genuine insurance value.

In recent months, Paris has had a very unsavory problem. Videos circulating on social media have shown bed bugs crawling across seats on trains and buses. They have been spotted in restaurants, hotels and even at Charles-de-Gaulle Airport. However, such outbreaks are not just a problem for the French. Bed bugs have also hitched a ride to the U.K. -- pest control company Rentokil saw a 65% jump in cases during the second quarter of 2023, compared with a year earlier, sparking fears of international infestation.

Can bed bugs be prevented from invading a commercial place of business? In short: no. Bed bugs are opportunistic, non-discriminatory and – worst of all – stealthy.  They will find a way to get into unprotected buildings where necessary precautions have been neglected and where the right environment for infestation exists.

Because one cannot prevent bed bugs from infesting a place of business, the best course of action is early recognition and control. Implementing strict policies and procedures and best practices can prevent unnecessary customer complaints, eradication costs and business interruption. They can also protect the business’s brand and reputation.

See also: Top Causes of Business Insurance Loss

Control measures

In a new risk bulletin, Bed bugs: risk tips for avoiding infestations, Allianz Commercial outlines several dos and don’ts for helping to control and mitigate the impact of bed bug infestations, particularly in the hospitality sector. Important risk mitigation tips and control measures to consider include:

• Offer a refresher training for recognition and control to staff prior to peak bed bug season (summer)
• Implement focused inspections by housekeepers during room change-out periods to include baseboards, mattresses, pillows, etc.
• Encase mattresses and box springs with a cover
• Establish a referral/retention relationship with a local licensed, insured and reputable pest control company to respond to bed bug incidents. Include inspecting the adjacent rooms, as well as those above and below the infected unit
• Include K9 inspections (with dogs trained to sniff out bed bugs)
• Use garment steamers to treat luggage and clothing that may become contaminated with bed bugs
• Initiate procedures and protocol to have all the right tools on hand that can prevent guests from spreading bed bugs
• Use a trained response team who have high-resolution cameras and other tools, including clear tape to collect suspected bed bugs and physical signs (e.g. hatchlings and excrement) for validation
• Establish public relations protocols, referring all media inquiries to your corporate office. Unauthorized staff should never respond to media requests.

Bed bug basics – three things to know

1. They are small, parasitic insects that feed on the blood of people and animals. Found worldwide, they can withstand temperatures from around 32°F (0°C) to 122°F (50°C).
2. They typically hide in the seams of mattresses, bed frames, headboards and dressers and even behind wallpaper – in any small opening that is available. One of the first things you should do while traveling is to check your sleeping area thoroughly for bed bugs or signs that they are around (e.g., excrement).
3. Typically, they are nocturnal, coming out at night from their hiding places and traveling up to 20 feet, to where they can reach a human or animal for a blood meal.

For additional information, download the Allianz Commercial risk bulletin, Bed bugs: risk tips for avoiding infestations, which also includes a dos and don’ts checklist for responding to guest or customer complaints.

During the pandemic, agents and brokers found themselves in the unenviable position of needing to find ways to reduce the soaring costs being incurred by their construction clients. While certain inflationary factors, such as the cost of supplies, were out of agents’ and brokers’ control, they could explore new options for workers’ compensation insurance. 

Workers’ compensation claims are one of the most inefficient and costly aspects of a construction project. According to Insureon, construction carries the highest workers' compensation costs of any industry. While construction presents more risk for workers than most other industries, there are also issues with the traditional workers’ compensation claim process that drive costs without yielding better results.

The solution may lie in supplementing the traditional workers’ compensation model with programs that focus on pre-established, high-quality care that is agreed on by both unions and construction managers well in advance of any workplace injury. Alternative dispute resolution (ADR) programs offer a new route for injured workers to receive care from reputable doctors and caregivers in an efficient and cost-effective way. 

See also: Building an Effective Risk Culture

What is an ADR Program?

ADR programs require an additional agreement between construction managers and union labor, with a program administrator acting as an impartial intermediary. The program sets up pre-established processes for care for injured workers. Because these agreements are formed in partnership between labor representatives and the construction business, a reserve of agreed-upon doctors and caregivers can be established in advance, ensuring injured workers are driven to reputable caregivers with a history of focusing on healing injured workers.

Requiring workers to see reputable caregivers helps guarantee workers do not prolong care in the hopes of a larger settlement payout; it also removes layers of bureaucracy and wait times that are taken up by debate and litigation in a traditional workers’ compensation model. 

ADR programs do not replace traditional workers’ compensation coverage. Rather, they function in parallel with traditional workers’ compensation plans. As ADR programs are formed between construction projects and unions, any injured non-union labor would need to follow the traditional workers’ compensation process for filing a claim.

A Focus on Care

The traditional workers’ compensation process is often bogged down by debate and perspective about which caregivers are more credible. This often leads to long delays and negotiation between injured workers and construction businesses, slowing care and increasing the costs associated with the claim without providing better care.

Under an ADR program, this problem is resolved long before a claim is filed. Directing care allows for workers to get the help and care they need much faster, while simultaneously ensuring care providers are approved and accepted by all parties. This not only allows for faster care but allows representatives from construction companies and union labor to have a greater degree of confidence in the caregivers with whom they work. As a result, workers in an ADR program have a higher-than-average chance of returning to work, while also providing notable cost savings for the construction business.

Working Closely With Unions

While the traditional workers’ compensation model requires agreement and cooperation with unions, it often calls for conversation and negation at the worst possible time – after an injury occurs.

ADR seeks to solve for timeliness by both determining a plan of care in advance and ensuring the caregivers meet all the requirements of both the project and the unions. This allows for unions to use doctors with whom they have a history, while allowing the construction company to verify that caregivers have a history of good patient results and a focus on healing.

See also: Managing New Age of Construction Risks

Less Bureaucracy Through a Program Administrator 

While ADR programs provide a direct and clearly defined path of care for those enrolled in the program, there remains a need for some degree of administration to ensure all aspects of the agreement are met. There must also be a protocol to handle any disagreements or negotiations between the unions and the construction companies. This level of management requires far less time than it takes for an injured worker to receive care in a traditional workers’ compensation model. It also ensures all parties remain satisfied and compliant with the terms of the agreement. 

As the costs of building continue to increase, those who insure the workers on job sites are facing pressure to drive costs down while simultaneously increasing return-to-work rates. The traditional workers’ compensation model simply is not built to meet that demand. Only through new measures, such as ADR programs, will the industry be able to keep up and improve the return-to-work rates on job sites.

Businesses are undergoing unforeseen global shifts, and the commercial underwriting process is more intricate than ever. Understanding the complex commercial landscape requires both foresight into identifying the right risk variables and a modern technology stack to handle data efficiently.

Let’s start with the most influential risk factors in underwriting. 

The Prevailing Challenge in Commercial Underwriting: Fast, Accurate Classification Details

Supporting a profitable commercial insurance product starts with an underwriting process that captures accurate details of the business, including industry-specific information as well as the uniqueness of its operations. There are many factors that go into a business’s operations beyond when it started, what licenses it holds and the services it provides. The size of the business is not just about the revenue, but the number of employees, size of its physical occupancy and the types of products being offered. Smaller businesses might not have the resources to adapt to changes within the marketplace, which can cause them to become riskier by expecting employees to take on additional responsibilities or even broaden their offerings to attract and retain customers. This is why understanding what a business is doing matters more now than ever.

A business’s environment, quality of services and cleanliness also matter in underwriting. Review sites and social media channels can help form a complete picture of what the business is doing beyond how it is marketed by the owners, giving underwriters details that are authentic and current. This customer feedback can shed light on potential causes of loss that may not be evident through traditional channels. However, manually researching these clues for every business in your book is a time-consuming process, and when your underwriting team is already short-staffed, they need immediate insights, not additional homework.

As each industry has its unique types of risks, insurers need to adapt their risk assessment for different sectors. Some businesses offer a wide range of services or have unconventional models. For instance, a Mexican restaurant with a dance floor and a full bar faces different risks than one that does not offer alcoholic beverages. Similarly, a florist shop that has an expanded delivery radius introduces risks that must be considered. 

By leveraging advanced analytics and social listening tools, you can find valuable insights into such anomalies and complex businesses. This will help insurers identify businesses that may be expanding into new services or facing changes in their operations.

See also: The Defining Factor in Underwriting Success

Complex Businesses and Emerging Factors to Consider

In addition to traditional risk variables, there are emerging factors to consider. Businesses now pivot at a lightning pace due to economic conditions and technological advancements. Companies are implementing new technology that can change the dynamics of their operations and potentially open them up to cyber vulnerabilities. 

On top of this, diversification of services is becoming more common, as business owners seek to increase profits and grow their businesses. This introduces challenges of finding the changes when they happen. For example, a plumber who expands into roofing or other construction services presents another layer of complexity – especially if they lack proper training – and that information can be difficult to track down. Discovering these changes at scale requires automation, while using the data in new and renewal business workflows requires data integration to maximize the value of understanding these new operational risks.

Lastly, there has been a shift in risk priorities due to a heightened concern about catastrophes escalated by the impacts of climate change. Intense fires, floods, hurricanes and other natural disasters are a pressing issue at a macro-level that organizations have to navigate, and we’ve seen catastrophe risk take priority over risks such as social inflation. 

Such frequent pivoting profoundly affects underwriting, as traditional methods struggle to keep up. Furthermore, layoffs and staff changes at insurance companies are causing insurers to lose manpower and industry expertise, which can have significant consequences on the underwriting process.

See also: From Risk Transfer to Risk Prevention

Technology’s Role in Addressing Underwriting Factors

A lot of business activity can change during a policy term, leaving insurers without pertinent information for a comprehensive review of the businesses for renewals or new policy underwriting. In a post-COVID world where small businesses must adapt rapidly to survive, underwriters need tools that keep pace with modern businesses and provide the full picture, as the technology they've traditionally relied on no longer does the job. 

It's important to address the challenges in data consistency, as well. Each business, with its unique characteristics, may generate data of varying accuracy and consistency, so it’s imperative to adapt by using analytics tools to standardize, aggregate and cross-reference data from multiple sources. Another critical aspect is data integration. Comprehensive databases are paramount to successful underwriting, as they help insurers unearth hard-to-find information they might not have been aware of otherwise. Tapping into a variety of data sources enhances the understanding of businesses to make more informed decisions regarding coverage. 

With the use of predictive models and comparative analysis, insurers can easily translate this data into custom risk index scores. These scores play a crucial role in conducting a thorough evaluation of the risks associated with those businesses to help underwriters accurately forecast the likelihood of risks becoming issues. By converting complex data into actionable insights, insurers can make more informed decisions and better adapt to the dynamic nature of the business world. 

Streamlining the underwriting process is essential for adapting to a rapidly changing business environment, especially as shrinking underwriting workforces are burdened with the same workloads. With the right technology in place, insurers can garner a comprehensive view of a business by transforming complex data into actionable insights, streamlining the process and making informed decisions to best support the businesses they are underwriting for.

What’s the first thing you do when you're looking to purchase a new product or service? For most people, the answer would be to open up their phone or laptop, go to Google and begin searching for vendors. If the consumer needs a complex product like insurance, they will likely attempt to educate themselves by conducting research. This typically involves inputting searches such as “How much does this coverage cost?” or “What type of policy do I need for my business?” 

Imagine if your agency was the top result for these searches. How would this affect your revenue? How much new business would you generate? 

Ranking at the top of Google for relevant search terms increases your agency’s visibility and helps grow your book of business. Someone will show up first for these search terms, and you can either cede this space to your competitors or try to claim these spots yourself. 

Developing an effective search engine optimization (SEO) strategy can be difficult, and many agents simply don’t know where to start. With this in mind, we’ve written this article to serve as a launching point to help your agency dive head-first into the world of SEO marketing. 

First Things First 

Search engine optimization, or SEO, is the process of configuring your website in ways that increase its overall visibility on search engines such as Google, Bing and Yahoo. SEO involves getting your website to show up higher in organic search results, while search engine marketing, or SEM, involves best practices relating to sponsored search results. 

When a person types in a search query, what appears is a search engine results page, or SERP. Most SERPs will consist of sponsored ads, organic results and, depending on the specific search query, business listings, images, videos, etc. You want your website to rank on as many SERP elements as possible. 

The Road Ahead 

Everyone wants their business to rank highly on search engines. However, not everyone is willing to expend the time and resources needed to accomplish this. Increasing your agency’s SEO requires hard work that may not bear fruit for a time (it can take a few months for your content to begin ranking on Google). In our opinion, the effort required to implement an effective SEO strategy is well worth it, as the benefits overwhelmingly outweigh the costs. 

Now that you know what you’re getting into, let’s take a look at how to actually implement a successful SEO marketing strategy.

See also: The ABCs of Agency Planning for 2024

Keywords 

The first step toward implementing a successful SEO strategy is identifying relevant keywords. These are the keywords you want your website to rank on, and your SEO strategy will be catered toward targeting them. 

When identifying your target keywords, a good place to start is to consider the different types of coverages you offer. 

For example, at BondExchange, we target search terms relating to different types of surety bonds, such as: probate bond, contract bond and fidelity bond. What we just listed are some of our “broad keywords,” and we want to show up on all searches containing those terms. 

Once you’ve narrowed down your broad keywords, you’ll want to determine the most popular search queries involving them. To do this, we recommend using SEO tools such as ahrefs or Moz. If a paid subscription isn’t in your budget, Moz lets you input 10 free search queries per month. Simply type your broad keyword into either of these tools’ keyword explorer features, and you will be presented with the keyword’s monthly search volume, keyword difficulty, as well as the most common questions/searches involving this keyword. 

Content Is King 

So you’ve meticulously researched your keywords and know which terms and phrases you want to target. Now what? Well, the next step is to create high-quality website pages containing those keywords and search phrases. 

What does this look like? Five words: Blog articles and product pages. 

For individual insurance products, we recommend creating specialized pages devoted to answering any potential questions your target audience could have about that product and providing consumers with an option to purchase it directly from that page. For example, take a moment and look through BondExchange’s Auto Dealer Bond Page. You’ll notice that the page contains a prominent call to action (CTA) at the very top, answers to all the questions insurance agents are most likely to ask about the bond and multimedia elements (infographic and video). The structure of this page is intentional, and it has been optimized with the goal of ranking at the top of organic search results. 

Let’s take a look at each aspect of the page. 

Call to Action 

Google likes pages that consumers can transact on. You could write the best product page in existence but have trouble ranking if your customers can’t complete an action on it. The inability to transact on the page increases your bounce rate (the percent of website users who leave your page without taking action), which decreases the likelihood the page will be featured prominently by search engines. 

Additionally, not providing a way for users to purchase the coverage they’re reading about can cost you customers. Think about it, a consumer can spend 20 minutes on your page learning about the coverage, be willing to buy and then abandon the process because they don’t know how to make a purchase. It’s the website host’s job to make the purchasing process easy. 

Headings 

If you scroll through our Auto Dealer Bond Page, you’ll notice that all headings are in the form of a question (excluding the title) and most of them contain a variation of the phrase “Auto Dealer Bond.” This is done intentionally to mirror the most common questions insurance agents searching for the bond will input into Google. 

Have you ever typed a question into Google and received a highlighted answer prominently displayed above the other search results? This is what’s referred to as a featured snippet, which is a highly coveted SERP feature. Structuring our product pages in a Q&A format has helped us secure featured snippets for many of our targeted keywords and is a key part of our overall SEO strategy (plus, it reads better). 

Google categorizes headings based on their importance, and it’s your job to mark them as such. On our Auto Dealer Bond Page, the first heading, “Auto Dealer Bond: A Comprehensive Guide,” is categorized as an H1 heading, while all subsequent headings are categorized as H2 headings. Your website builder should allow you to determine each heading’s classification. Best practices for labeling headings include: 

• Only have one H1 - your page’s title 
  • H1 should contain all broad keywords the page is targeting 
• Subsequent headings related to the H1 should be marked as H2
  • Within H2s, mark subsequent headings contained within those sections as H3, H4, etc. 

It’s important not to over-saturate your headings with keywords, and you should not include your targeted keyword in more than 75% of a page’s headings. 

See also: "Intelligent Decision-Making" Is the Future

Content 

The content of the page (meaning the body text) is relevant and comprehensive and fully answers the questions posed by the H2s. You’ll notice that the subsequent answers repeat the questions. This is done purposely to ensure the content is well fleshed out, which, in our experience, increases the page’s SEO.

Additionally, pay attention to the links within the page. We’ve intentionally included both internal (linking to our own website) and external (linking to another website) links. Google wants to see a mix of both internal and external links within your content, as these links help increase the page’s reputability (and serve as valuable resources for readers). 

Your page’s content is arguably its most important SEO element, as it’s what your readers (and Google’s algorithms) pay the most attention to. Do not cut corners when writing your product pages, and do your best to ensure your website is publishing the highest-quality content possible. At BondExchange, our strategy involves meticulously researching each policy we write about and ensuring that the product pages we put out are the most relevant and comprehensive resources out there. In the end, the highest-quality content most often gets rewarded, which is why it’s important your agency prioritize quality over quantity when creating product pages. 

Do not under any circumstances use ChatGPT or other AI tools to generate content. Google knows when content is AI-generated and will limit your website’s visibility as a result. 

Multimedia 

Including multimedia elements such as images and videos in your product pages boosts SEO and increases the number of SERP elements your page will rank on. In our Auto Dealer Bond page, you’ll notice it contains an infographic detailing the bond’s key characteristics and a unique video providing an overview of the bond. 

Now, creating unique videos for each of your product pages requires subscriptions to video creation platforms and video production and editing skills. If creating unique videos is outside of your production capabilities, then at a minimum, you should include custom images within all your product pages. Additionally, it’s important to include at least one original image containing relevant information that is not a stock photo. Using a generic stock photo is fine for aesthetic purposes, but these photos will not provide you with the same SEO benefit that a custom infographic will. 

Why are multimedia assets important for SEO? A couple of reasons: 

1. Google recognizes that images and videos add value to pages and thus prefer to list results containing these elements 
2. Even if your page doesn’t rank in the organic search results, your images and videos might still rank on their respective SERP elements

It is crucial to include alt text on all non-generic images. Alt text is how you describe the image to Google. For example, the infographic within our Auto Dealer Bond Page has the alt text “Auto Dealer Bond.” The alt text signifies to Google that this image is relevant for all search terms related to “Auto Dealer Bond” and increases the likelihood that this image will be displayed for those searches. Additionally, make sure to include your agency’s branding on all custom images. Google displays full images under the “Image” tab on SERPs. Even if the person conducting the search query doesn’t click on your image, your brand awareness will still increase if your logo is featured. 

Google wants to show users relevant search results from reputable organizations/sources. They’ve meticulously built their algorithms to find and display quality content while neglecting low-level content that is poorly optimized. When creating product pages, strive to be the best resource on the internet. Conduct research on your competitors’ pages, and make it your mission to produce better content. Google (and consumers) will reward you. 

Blog articles serve a different purpose than product pages, but you will still want to adhere to all the same practices. As the name suggests, product pages are crafted with the goal of educating consumers on a particular product and providing them with an easy means of making a purchase. On the other hand, blog articles display more personality and should be used for explaining a topic unrelated to a specific product or trying to convince your audience of a certain point. For example, you might write a blog article explaining the benefits of purchasing insurance from an agent as opposed to directly from a carrier. The tone for product pages is direct and matter-of-fact, while blog articles are more persuasive and informal. (Notice the contrast in the tone of this article vs our Auto Dealer Bond Page.) 

See also: Customer Segmentation Is Key

Behind the Scenes 

While creating compelling content is the most important aspect of boosting your website’s SEO, it’s only half the battle. Behind the scenes (on the back end of your website), you need to ensure your website is structured for maximum SEO benefit. The most crucial component for this is making sure your website is being indexed by Google. 

“Indexing” is how Google notes your website so it can decide whether to feature it in search results. If your website is not indexed, Google has no way of knowing it exists, and all your SEO efforts will be for naught. No matter how great your content is, it will not show up on Google. Additionally, even if your website is indexed, individual pages, images and videos might not be indexed and will therefore be excluded from search results. Ask your developer or website service provider if your website is indexed. Chances are that it is, as you have to manually notify Google not to index your site via code, but it doesn’t hurt to ask as some website builders mark new sites as “noindex” by default. Additionally, you can use Google Search Console to view which of your website pages/assets aren’t being indexed, as well as the reasons why. Google Search Console is also a great tool for viewing your website rankings and should be used by every serious SEO marketer (plus it’s free).

Once you’re positive your website is being indexed, you’ll want to take a look at all individual pages and ensure that: 

• Each page URL contains the page’s targeted keyword(s) 
• Each page has a custom SEO title containing the targeted keyword(s)
• Each page has a meta description containing the targeted keyword(s). This is not strictly required, as Google will fill meta descriptions if you leave them blank. However, it doesn’t hurt to write your own and ensure they contain your targeted keyword(s). 

Your website builder should provide an easy way to comply with the above recommendations. However, it is generally worth it to install an SEO tool on your website’s back end to monitor the SEO metrics for each page and provide recommendations on how to further optimize them. There are many free tools (or free versions of tools) that do this. 

Mobile Optimization 

Upward of 60% of Google searches are conducted on a mobile phone. So Google takes great care to display search results from websites that are optimized for mobile viewing. If your website provides a poor experience for mobile users, you can kiss your dreams of search engine dominance goodbye. 

How do you optimize your pages for mobile? Well, simply ensuring your website functions properly and provides a good experience for mobile users is a great place to start. Google’s algorithms will ding you for obvious inadequacies like including text that is too small or too large, long load times and media assets that don’t fit the screen. Ask your developer(s) or web hosting team if your website is optimized for mobile. If they’re worth their salt, the answer should be an emphatic yes. If you maintain your website yourself, test out your site’s mobile functionality manually and fix all obvious errors. 

See also: Data Breaches' Impact on Consumers

Backlinks: More Valuable Than Gold 

You’ve created high-quality pages/articles, put together appealing infographics, recorded a live-action video to be featured on your most important page and optimized your website. However, in a cruel twist of fate, you’re not ranking on any of your targeted keywords. Worse than that, your page is nowhere near the first page of Google’s search results, all but guaranteeing few people will see and appreciate (and more importantly, transact on) the content you worked so hard on. 

How could this happen? Three words: Lack of backlinks

Backlinks occur when another website links out to your website or vice versa. For example, earlier in this article we provided backlinks to both ahrefs and Moz. Backlinks are one of the most important SEO elements and can make or break your agency’s SEO marketing efforts. 

Why does Google care so much about backlinks? Well, backlinks are essentially Google’s way of determining a site’s credibility. If multiple reputable websites link out to yours, then Google is more likely to consider your site reputable and thus be inclined to feature your website in search results. The inverse is also true. If no reputable website links out to your website, it becomes increasingly difficult to rank on Google. 

Backlinks can be categorized in multiple different ways, with each category sending Google a different message. Let’s take a look: 

Dofollow 

The cream of the crop. These backlinks provide significant benefits to your website, as they let Google know that the linking party trusts your website and considers it a reputable source. 

Obtaining dofollow backlinks should be a key component of your SEO strategy

Nofollow 

Nofollow backlinks do not provide any SEO benefit to your website. When a website tags a link as “nofollow,” they are specifying to Google that they cannot verify the reputability of your website and do not wish to lend it credibility. 

Many websites only provide nofollow backlinks as standard practice. 

Sponsored 

Sponsored backlinks indicate that you paid another website to link out to yours. There is nothing wrong with paying for a backlink, so long as you disclose to Google that you did so. Sponsored backlinks provide marginal SEO benefits. 

Not tagging a paid backlink as “sponsored” can have detrimental effects on the SEO of both the linking website and the website being linked out to. Needless to say, Google is not a fan of pay-to-win tactics when it comes to organic rankings. 

UGC 

These backlinks indicate to Google that the link was generated by a website visitor and is most often used for links placed in a website’s comments sections or forums. Obtaining a UGC backlink does not provide SEO benefits (don’t waste your time linking to your website in another website’s comments section). If anything, you should make sure your website is properly categorizing user-generated links as UGC, or else you risk spammers using your website to boost their SEO (at the expense of yours). 

Backlinks are categorized using html code. Website builders generally have a default tag for all external links (either dofollow or nofollow). Consult with your developer or web service provider to identify or change your website's default backlink tag. 

Tools such as ahrefs and Moz will automatically keep track of backlinks to your website and inform you of each backlink’s specific tag. Alternatively, you can manually check a backlink’s tag by navigating to the page containing the backlink, right-clicking, clicking “inspect” and then searching for your website’s URL (Control F for Windows, Command F for Mac). From here, simply examine the tag preceding your URL to ascertain how the backlink is categorized. 

How to Obtain Backlinks (the Right Way) 

Some websites are considerably more valuable than others. Google considers government and university websites to be the gold standard for credibility. Obtaining backlinks from .gov and .edu websites provides significantly more benefit than backlinks from standard .com and .org domains. 

Another aspect of a website to pay attention to is its domain rating/authority. “Domain rating” and “domain authority” refer to a website’s overall backlink profile and are scored on a scale of one to 100. Domain rating is calculated by ahrefs, and domain authority is calculated by Moz to help provide a general understanding of a site's backlink profile. Google does not disclose its internal domain rankings. Websites with high domain ratings/authority are considered more credible and thus provide more valuable backlinks. Websites with a low domain rating/authority are considered less reputable, meaning their backlinks provide less SEO benefit. Backlinks from websites with low domain ratings/authority are still valuable, but a single backlink from a website with a high domain rating/authority is much more valuable than that of a single website with a low domain rating/authority. 

While domain ratings/authority provide information on a website's backlink profile and reputability, you shouldn’t structure your SEO strategy around increasing your website’s rating/authority, as it’s much more important to gear your efforts toward creating high-quality content. 

Now that we understand why some backlinks are better than others, let’s take a look at how to actually obtain them. 

See also: How to Use Social Media Data in Underwriting

Quality Above All Else 

Writing high-quality content that is interesting and informative provides you with a major leg up in the hunt for dofollow backlinks. As we previously mentioned, websites have incentives to include external third-party links in their content. Websites are far more inclined to link out to high-quality content that complements their own work than poorly thought-out generic content that provides little to no value. 

As your content becomes more visible, don’t be surprised if other websites organically discover and link out to your work. 

Guest Posts 

There are many websites that are structured around and rely on guest posts. For example, websites like Insurance Thought Leadership and Suretypedia frequently publish guest articles on relevant industry topics within the insurance industry. In addition to providing exposure, these types of outlets often include a backlink to the author’s website. 

Submitting unique editorial content to platforms that accept guest articles is a great way to generate backlinks for your agency. 

Scholarships 

Starting a scholarship is a great way to do a bit of good in the world while also securing backlinks from universities. Colleges want to provide their students with access to as many scholarship opportunities as possible, and many schools provide links to external third-party scholarships (provided they are reputable). Check out BondExchange’s scholarship for help getting started, and once your scholarship is created, reach out to universities and ask them to feature it. 

Governmental 

Certain governmental agencies that require persons to purchase insurance coverage as a prerequisite to obtaining a license/registration will provide links to verified providers. Reach out to your state and local licensing authorities and ask if they will add you to their lists of verified providers.  

Obtaining backlinks takes time and requires hard work. We highly recommend against trying to cut corners by paying for backlinks or engaging in other similar practices. If Google finds out, it will significantly hinder your website’s visibility.

The Bottom Line 

Developing an effective SEO marketing strategy is paramount if you want to not only survive but thrive in today’s digital world. Ranking on all of your desired keywords is not an overnight process, but one that requires significant amounts of effort. However, those willing to put in the work are significantly rewarded, while those who aren’t often watch from the sidelines as their competitors outgrow them.

Forecasting often seems like a painful and unrewarding exercise. The economic environment and sentiment can be upended at any time in any number of ways by unanticipated events. But as Louis Pasteur remarked, “Chance favors the prepared mind.”

Risk mitigation is critical for insurers’ operations and their portfolio management. Insurance industry portfolios are as varied as the lines of business they support, but they all rely on the benefits of a strong underlying economy. From the demand for insurance that fuels their growth and prosperity to the markets in which they invest, the economic outlook, the path forward for equities and the level and direction of interest rates are pivotal to insurance companies’ successful risk mitigation.

What can we surmise about the future – and which strategies might help insurers navigate it?

Figure 1: Disposable Personal Income - In Decline?

A Recession in 2024?

Through the third quarter of 2023, the U.S. economy proved quite resilient, helped by the consumer. There are signs that the U.S. consumer might be pulling back (see Figure 1) and that higher rates are beginning to affect at least the lower tier of income earners. We believe that sometime in the first half of 2024, the rolling recession finally will hit consumers more broadly.

To date, though, we have had a Goldilocks economy, with everything just about right - not too hot, not too cold - in labor markets, manufacturing and housing. Stock market returns propped up by steady corporate earnings have supported surplus levels at many insurers. While total returns in bond markets have been nothing short of frightening, the higher interest rates available for newly issued bonds have allowed portfolio yields to rise and portfolio durations to extend to meet their liability targets.

See also: The ABCs of Agency Planning for 2024

Bears Threaten a Goldilocks Economy

There are, however, three major bearish threats that investors face as we move into 2024, each inflationary in the near term and negative for growth over time.

1. The first is geopolitical risk that global markets must absorb. It began with Russia’s invasion of Ukraine last year and continued with the Hamas attack on Israel. Energy markets have been the first to react, but the threat of a broader war and the protracted strain on trade will impose costs on domestic and global GDP while putting upward pressure on consumer prices.
2. A second factor is persistent inflation, which is winding down but continues nevertheless (see Figure 2), maintaining upward pressure on rates. This will cause central banks to push back until “something breaks,” which of course will be the economic expansion. Fallout would suggest an end to the decade-long dominance of U.S. markets, a weaker U.S. dollar and opportunities for non-U.S. investors and emerging market issuers.
3. Thirdly, U.S. political dysfunction allows unbridled spending to pump up demand without contributing to the supply side of the economy. This condition cannot persist. The House of Representatives was paralyzed for weeks while the narrow Republican majority wrangled over the selection of a speaker, losing precious time in trying to resolve important issues like the federal budget. The concern for investors is that all this is a precursor to another continuing resolution that maintains the unsustainable pace of spending growth and could cause a government shutdown.

We expect markets to look through the short-term disruption and focus on the longer-term persistence of inflation and policy drag on economic growth. For these reasons, we continue to think that the three bears will eat Goldilocks, that believers in a soft landing will be disappointed, and that a shallow and relatively short recession is likely.

Figure 2: Inflation - Down But Not Out

 

Managing a Late-Stage Credit Cycle

These factors suggest that insurance portfolio durations should approach – but not exceed – liability targets. Equity positions neutral to the guideline range and benchmark exposure are prudent, while the U.S. Federal Reserve, policymakers and the economy decide where to go next.

Corporate credit continues to be the major source of risk in insurers’ general accounts, while providing the investment income critical to the insurance business. Though credit metrics have begun to deteriorate, a natural development late in the credit cycle, the good news is that corporate management teams are responding in ways that support investors, such as being more conservative in capex and debt issuance, maintaining liquidity and financial flexibility and delaying expansion plans.

We’re less than a year away from another presidential election, one that promises no less volatility than 2022 or 2023. High-grade credit is a prudent choice for income and stability in turbulent times.

See also: Biggest Business Trends for 2024

A Lift From AI

One of the reasons we think the slowdown won’t be long or deep is the potential lift from artificial intelligence (AI). AI and chatbots are two of the hottest topics in media these days, both social and traditional. Technologies such as generative AI, large language models, machine learning and natural language processing have enormous potential, certainly for innovative benefits in scientific research, healthcare, industrial processes and, of course, markets and investment analysis.

But as often happens throughout human history, we must temper our enthusiasm for the potential of exciting new technologies with the challenges around us that slow growth. It is only through vibrant markets and a strong global economy that the challenges of today and tomorrow – in whatever shape they take – can be overcome. The insurance industry and its investment activity are critical to that effort.