Paul Carroll

To jump right in: I see the format is rather different this year. It’s more compressed, with three panels all in one afternoon. What’s behind the change?

Sean Kevelighan

In this day and age, we're all trying to figure out the best way to do in-person events, now that we've all been introduced to virtual events. Short, concentrated events are a great way to use the time efficiently while still allowing for networking on the back end. So that's the format we're going with. People aren't necessarily having to take a day or days out of their work but can come to Washington, DC, and potentially do other meetings besides just the Town Hall.

This is a good time of year to have an event that sets up the following year, especially here in DC.

Paul Carroll

How did you come to the title, "Attacking the Risk Crisis," for what you’re calling a Town Hall?

Sean Kevelighan

I'll break that up in a couple of ways. We're focusing on climate risks, which we see as a collective, community issue, and town halls historically have been a place where people gather and try to figure out action items that can tackle issues at hand. For this climate risk issue, which many people would consider a crisis, we wanted to bring in not just the insurance industry group but the policy-making group, as well, which, again, suits Washington, DC.

We want to bring in others who are perhaps not necessarily or directly tied to insurance but have an important role to play in the climate risk discussion. For example, Fannie Mae will be part of this. So will the FHFA [Federal Housing Finance Agency]. We're bringing in the Brookings Institution and their economics team, as well. We’re taking a more holistic view of climate risk, with the idea that we want to come away from this with some behavioral changes that we can work toward.

This is something we at Triple-I have been working very hard on for the last few years. Even this last year, in 2023, we had a project with the National Institute of Building Sciences, which was named Roadmap 2.0, to drive behavioral changes toward resilience.

That is where we want to go with this event. We want to talk about what climate risk means for insurance and others, what AI and innovation can bring to the table and what policies we need to look at.

Paul Carroll

The federal agencies are there because climate risk affects mortgages.

Sean Kevelighan

Yes, a big part of climate risk in this country is that we're seeing more and more people living in harm's way. And when you're living somewhere, chances are you're looking at either renting or purchasing property. As you're doing that, we believe at Triple-I that we need to bring risk management into that

discussion and into that transaction much earlier on, whether it's first-time homebuyers whom the FHA [Federal Housing Administration] would cover or the mid-market, which the FHFA covers, or even commercial development. In all of these cases, perhaps we're developing or we're purchasing real estate, and we're perhaps not thinking about risk at the time when it should be considered. As a result, by the time we get into these areas and into these properties, we're having to rebuild or back build, whereas we prefer that we understand the risk and can build forward and be more proactive about it.

Paul Carroll

That makes a lot of sense. I shouldn’t enter a contract to buy a house and only then learn that it’s at risk from flooding, severe storms, wildfires and so on. I should know about those risks right as I’m starting to look at houses, including information on what my insurance premiums would be.

I want to ask about a few specific climate-related items I’ve read about recently, including one I saw in your daily newsletter, about the Fortified program, which seems to be doing quite a bit of good in Alabama. That seems to exemplify the kind of thing you're trying to do to get people to build resilience into their properties from the get-go.

Sean Kevelighan

Absolutely. That Fortified program that's done in conjunction with Alabama and the University of Alabama's Risk Center is an ideal example of what communities can do when they look at things more collectively, more holistically. Fortified is a certified home building process developed by the Insurance Institute for Business and Home Safety, and it helps us withstand the likes of hurricane-strength winds or other natural catastrophes. And Alabama has embraced this. I think they are a unique example in the Gulf Coast community. Neighboring states arguably have many more issues because they haven’t focused as much on resilience.

The program has been featured in your alma mater, the Wall Street Journal, as something that is working. We're hoping our Town Hall will lead to more of these types of community-based projects.

Paul Carroll

Another thing I saw is that five insurers are getting back into the Florida homeowners market. That sounds like at least a bit of progress.

Sean Kevelighan

That is a sign of progress. We're cautiously optimistic about the state of Florida. In the last year, we saw some legal reform take place.

We had significant amounts of legal system abuse in the state of Florida, so much so that it was causing insurers to pull out of the state or declare insolvency. In fact, six insurers went insolvent before Hurricane Ian ever hit last year. The insolvencies occurred during a relatively quiet time for hurricanes, so they were going insolvent because there was so much legal activity. In fact, about 90% of all homeowner litigation in the entire country resides in the state of Florida, whereas only about 9% of the total claims for homeowners reside in that state.

The state legislature got at the problem, especially after they saw what was happening with Ian, which brought national attention to the problem.

We often say that climate risk plus legal system abuse creates a property crisis. And that's what was happening. There simply wasn't enough insurance availability or affordability in the state. And when you're a state where more and more people are moving because it's one that is preferred for the likes of retirement, you need to fix that problem.

We do commend the legislature for addressing it and fixing it. However, in the days between when the legislature passed that legislation and when it was signed into law, the plaintiff side of the legal system dumped about 280,000 cases back in. So, there's a little ways to go to get through all of these litigation costs in that state.

Nonetheless, to your question, some insurers are seeing the light at the end of the tunnel, and they're beginning to want to go back and do business in that state. Insurance thrives in these large, growing economies. Insurance is designed to sustain economic growth. Thankfully, with this reform, we'll see more opportunities to do that.

Paul Carroll

Separate from climate change, but also related to Florida, there was a piece the other day in the Washington Post about automobile glass. It sounded like the same sort of issue – one-way attorney fees -- that was messing up the homeowners market. You had people going around in parking lots, saying, "Sean, you've got a nick in your windshield. Sign the rights over to me, and I’ll get it replaced with no deductible.” Then the glass companies would charge the insurance companies a bizarre amount of money, and attorneys would file lawsuits, knowing that any kind of settlement at all by the insurers would entitle the attorneys to charge their full fees.

It sounds like there is some progress on that front, as well, although with the same sort of lag you're talking about with homeowners litigation, because there still are lots of cases that have to work their way through the system.

Sean Kevelighan

Yeah, absolutely. You've touched on what, down in the state of Florida, they refer to as Assignment of Benefits. That allows a claimant, sometimes unknowingly, to sign over the insurance benefits to a contractor or a lawyer. People were actually camped out in parking lots and walking around looking for cracked glass, waiting for the person to come back to their car and get the benefit assigned to them. And lo and behold, we've got a big claim coming the insurance companies' way.

We actually call the Assignment of Benefits legalized fraud, because it's really designed to inflate claims. Claims are filed at 10, 20, 30 times what they should have been and, again, put into the legal system with the intent to settle. You'd sometimes see a claim being put into the legal system for $1, meaning it was just $1 over the threshold of what an insurer was willing to pay – to set the stage for a settlement and for attorney fees.

Paul Carroll

By contrast, it seems like reform has just started in California. Is that right?

Sean Kevelighan

Yes, and I would say they are different circumstances. In Florida, we've talked a lot about legal system abuse, while in California, we've pinpointed what I call antiquated regulation.

When insurers in this day and age are pricing risks, they use modeling and reinsurance. Another factor is inflation. Well, the state of California decided back in the ‘80s that modeling shouldn't be allowed when pricing insurance, reinsurance shouldn't be taken into account in the pricing of insurance and insurers were not allowed to adjust for times like this, when we're seeing heightened periods of inflation. That makes risks very hard to underwrite.

With the state of California excluded, personal lines and homeowners lines both have a combined ratio of over 110% right now, and California is making the situation even more challenging. So they have to make some difficult decisions.

Paul Carroll

Louisiana is the other state I should ask about, just because you talked about Gulf states. I'm less clear on what's going on there.

Sean Kevelighan

Well, it's a combination of a lot of things in the state of Louisiana. Legal system abuse is a big one. Obviously, it's a state that's vulnerable to natural catastrophe, perils, hurricanes. And it's, again, very challenging to get underwriting to where it should be. In fact, the industry average combined ratio for homeowners insurance in the state is 462% -- remember, anything over 100% means you’re paying more on claims than you’re taking in as premium.

We are seeing some changes, particularly at the regulatory personnel level, that hint toward progress.

Paul Carroll

Those are the issues that are top of mind for me on climate. Is there anything else we should discuss?

Sean Kevelighan

I’d note that the industry has an important role to play in terms of leadership. By definition, we're risk managers, and we provide a product to help manage risk and promote resilience. So Triple-I is trying to forge these important discussions and make sure insurance has a seat at the table. Sometimes people think insurance is going to take care of all the problems. But the industry simply can't do that. And when you get to points where markets may be uninsurable, that doesn't help things, either.

The insurers and the insurance industry want to be in these important communities. They want to be able to underwrite the risk. We just need to help people understand that there's a collective responsibility.

I think this Town Hall discussion will help, and we’ll have more discussions like this in the coming year. We need people to be more top of mind about risk management to make the necessary behavioral changes.

Paul Carroll

That's great. I look forward to seeing you at the Town Hall next week.

The Triple-I Town Hall is being held on Nov. 30 at The Mayflower Hotel in Washington, D.C. There are still a few seats lefts. Register now >

---

Sean Kevelighan joined the Insurance Information Institute as President and Chief Executive Officer in August 2016. Previously, he was Group Head of Public Affairs for Zurich Insurance Group where he oversaw Government and Industry Affairs as well as Corporate Responsibility. He joined Zurich in May 2013 as Head of Government and Industry Affairs for North America, with responsibility for driving the public policy agenda in the region. Prior to that, he worked at Citigroup, Inc., as Head of Strategic Communications for its Global Consumer Banking business, and for Zurich, as Head of Group Media Relations in North America. He has served in various public sector posts in Washington, D.C. As a political appointee in the administration of President George W. Bush, he served first in the Department of Treasury as a spokesperson for economic issues, and eventually became Senior Advisor for the Office of Tax Policy. He was also the Press Secretary for the White House Office of Management and Budget. Additionally, he worked on Capitol Hill, serving on the staff of members of Congress; most notably as Legislative Director for Representative Bob Schaffer of Colorado. Sean's private sector experience in Washington, D.C. included positions at public affairs firms such as Edelman and Hill & Knowlton. He advised numerous multinational and FORTUNE 100 corporate clients on policy issue management programs, corporate reputation campaigns and crisis communications. Sean is a graduate of the University of Colorado at Boulder. He and his wife Annik have three children. He is an avid enthusiast of exercise and outdoors, participating regularly in triathlons and other sporting events.

I'm headed to Washington, DC, next week for the Insurance Information Institute's Town Hall on "Attacking the Risk Crisis" and took the occasion to chat with Triple-I CEO Sean Kevelighan about the climate-related issues that will be the focus.

I hope to see many of you there. (You can register here. Use the code WELCOMEITL, and you'll receive a $200 discount off the non-member price.)

The event is a compressed, single-afternoon affair, designed to generate action items for the insurance industry while creating opportunities for networking and for attendees to conduct other business in DC while they're there. Representatives from various federal agencies, as well as from think tanks such as the Brookings Institution, will be there, because discussions will straddle the roles of the insurance industry and of public policy.

While I encourage you to attend the event, or at least to read my full interview with Sean, I'll share some highlights here.

Because climate change is such an existential issue for humankind, writ large, as well as for the insurance industry, we at ITL have been leaning into the search for innovations for many years. For instance, here is a thought-provoking webinar I conducted recently with Sean and with Francis Bouchard, managing director, climate, at Marsh, as part of our Future of Risk series. On my own time, I got deeply into potential solutions in my most recent book (written with Chunka Mui and Tim Andrews), "A Brief History of a Perfect Future: Inventing the World We Can Proudly Leave Our Kids by 2050." So, I was delighted to see that climate risk is the focus of the Town Hall (including in a panel moderated by David Wessel, a longtime colleague of mine at the Wall Street Journal who is now a senior fellow at the Brookings Institution.)

Sean said a major goal of the Town Hall is to identify ways to change behavior by helping people understand the risks of buying or building a house or commercial property early in the process, rather than after they've committed. In other words, don't wait until I'm signing on the dotted line to tell me that a property is at risk from major storms and flooding or wildfires and that I'm going to have to pay astronomical insurance premiums. Tell me early in my search for a place to live or invest. Steer people away from places that put them in harm's way.

He said he hopes the industry and policy makers will rally around programs such as Fortified, which Alabama has embraced and which sets standards that make buildings far more resilient, even in the face of the hurricanes that hit the Gulf Coast.

We also talked quite a bit about the need for legal reform, so insurers can price risk fairly in vulnerable states such as Florida and California, where many insurers have pulled out of the homeowners market. Sean sees real progress in Florida, though it will take time to clear through all the lawsuits there. He is less optimistic about California and Louisiana, where the work toward legal reform is in much earlier stages. 

Climate risk is a massive problem that won't be solved in an afternoon, but here's hoping we at least see some progress next week. 

Cheers,

Paul

 

 

 

In recent years, the insurance industry has been on the brink of a transformation, largely driven by advancements in artificial intelligence (AI) technology. As we stand on the cusp of 2024, it is essential to delve into the profound impact AI has had on the insurance sector in 2023 and explore the promising outlook for the year ahead. This article will provide you with an in-depth analysis of how AI is reshaping the insurance landscape and the key trends to watch out for in 2024.

Revolutionizing Underwriting and Risk Assessment

AI has changed how insurance companies underwrite policies and assess risks. Traditionally, underwriters relied on historical data and actuarial tables to make informed decisions. However, AI has ushered in a new era of data-driven underwriting, where algorithms analyze vast datasets in real time to provide more accurate risk assessments. These AI-driven underwriting processes consider a plethora of variables, including an individual's personal data, social media activity and even internet browsing history. As a result, insurers can tailor policies more precisely and offer competitive premiums, enhancing the overall customer experience.

Streamlining Claims Processing

One of the most significant pain points in the insurance industry has always been claims processing. Thanks to AI, this cumbersome process has become significantly more efficient. AI algorithms can process and assess claims in a matter of minutes, reducing the time it takes for policyholders to receive compensation. Furthermore, AI-powered chatbots and virtual assistants have improved customer service by providing quick answers to frequently asked questions and guiding customers through the claims process. This not only enhances customer satisfaction but also reduces operational costs for insurance companies.

Predictive Analytics for Fraud Detection

Insurance fraud has led to billions in losses annually. However, AI has emerged as a powerful tool for fraud detection. Machine learning models can analyze historical data and identify patterns that indicate potentially fraudulent activity. In 2023, insurers integrated AI-based predictive analytics into their operations to flag suspicious claims and reduce fraudulent payouts. This not only safeguards the financial health of insurance companies but also helps in keeping premiums affordable for honest policyholders.

Personalized Customer Experience

AI has paved the way for a more personalized and engaging customer experience in the insurance industry. Chatbots and virtual assistants, equipped with natural language processing, can understand customer inquiries and provide relevant information promptly. Moreover, AI-powered recommendation engines use customer data to suggest additional coverage options, ensuring that policyholders have the most comprehensive protection tailored to their needs. This personalized approach not only builds customer loyalty but also boosts cross-selling and upselling opportunities for insurers.

Enhancing Operational Efficiency

AI has not only affected customer-facing aspects but has also revolutionized back-office operations. Robotic process automation (RPA) is being used to automate repetitive and time-consuming tasks, such as data entry and document processing. This has resulted in increased efficiency and reduced operational costs. Furthermore, AI-driven data analytics tools are helping insurers gain valuable insights into market trends and customer behavior, enabling them to make informed decisions to remain competitive in the evolving insurance landscape.

The 2024 Outlook

As we move into 2024, the insurance industry is poised for even more significant changes driven by AI. Here are some key trends to watch out for in the coming year:

• AI in Customer Service

Expect to see more extensive use of AI-powered chatbots and virtual assistants in providing seamless customer support. These AI-driven solutions will continue to improve response times and enhance the overall customer experience.
 

• Personalized Policies

Insurance companies will increasingly leverage AI to offer personalized policies based on individual behavior and preferences. This approach will result in policies that are more in line with the specific needs of policyholders.
 

• Advanced Fraud Detection

AI-based fraud detection systems will become even more sophisticated, enabling insurers to stay one step ahead of fraudsters. This will lead to reduced losses and more accurate underwriting.
 

• Autonomous Vehicles and Insurance

With the rise of autonomous vehicles, insurance companies will need to adapt to new risk assessment models. AI will play a crucial role in assessing the unique challenges and risks associated with self-driving cars.
 

• Continued Efficiency Gains

The adoption of RPA and AI-driven analytics will continue to drive operational efficiency, allowing insurance companies to streamline their processes and remain competitive.

AI has been a game-changer in the insurance industry in 2023, and the trends for 2024 indicate that this transformation is far from over. As AI technology continues to advance, insurance companies will be better equipped to provide more accurate underwriting, efficient claims processing and a personalized customer experience. The insurance landscape is evolving, and AI is at the forefront of this revolution.

According to Verified Market Research, blockchain in the insurance market was valued at more than $200 million in 2020 and will reach $25 billlion by 2028, with an astonishing compound annual growth rate of more than 80%. These remarkable figures raise the question about the future of conventional insurance software. 

In this article, we'll go over the key benefits and drawbacks of traditional and blockchain-based insurance solutions and explain how custom insurance software development allows embracing the strengths of both.

Traditional software in modern insurance

Pros:

A wide variety of features and tools. Because there’s a wealth of traditional solutions on the market, insurers can cover a broad spectrum of operations and tasks with them, from policy management and underwriting to claims processing and billing. 

Established processes. Traditional software has been used for decades, so insurance professionals are accustomed to how it operates.

Built-in security and regulatory compliance. Insurance software vendors are expected to apply robust security measures to safeguard sensitive customer data in their solutions. Moreover, they design their software to align with relevant regulatory frameworks, significantly reducing the legal risks associated with compliance breaches.

Cons:

Insufficient automation. In traditional insurance software, tasks such as policy issuance, claim processing, underwriting, third-party verification and reimbursements often rely on manual data validation and verification. These routine procedures eat up time and fraught with human errors.

Issues with centralized databases. If an insurance company’s server or database suffers a technical problem or a security breach, such an accident will affect the entire system and lead to downtime or data loss. Such databases can also experience performance issues when facing high traffic, which slows down the response to customer inquiries or claim processing and decreases customer satisfaction. 

Vulnerability to fraud. With traditional insurance software, communication among individuals involved in claim processing often doesn’t happen in real time. Delays in sharing information and lack of real-time data analysis complicate detecting inconsistencies or suspicious details. There’s also the risk that insurance agents can conspire with policyholders to make fraudulent claims.

See also: Blockchain's Future in Surety Industry

The growing use of blockchain in insurance software  

Pros:

Faster workflows. Smart contracts running on blockchain technology eliminate the need for intermediaries, because they automatically execute actions, such as policy issuance and claims processing, when specific conditions are met. This results in less administrative overhead, faster settlements and fewer errors. 

Fraud prevention. Cryptographic hashing used in blockchain secures sensitive insurance data, such as policyholder details and financial transactions. Once this data is recorded on the blockchain, it’s impossible to alter or delete it. With real-time data access to data on blockchain, insurers can stay vigilant, ready to spot odd patterns, such as unusual claim frequency or duplicating claims. 

Additionally, insurers can easily double-check information with third parties. For example, an automated request can be sent to a healthcare provider that either uses blockchain technology or connects to the insurer’s blockchain network via application programming interface (API) to verify the details of a claim.

Transparency. Smart contracts provide better visibility into agreements, and real-time data access allows monitoring information as soon as it’s recorded on the blockchain. What's more, blockchain doesn't just keep records; it time-stamps them. As a result, all stakeholders can access the contract terms and transaction history and be sure that the insurance process is fair.

Cons:

Heavy upfront investments. Creating a blockchain-based insurance solution requires skilled specialists to research and develop smart contracts, consensus rules, advanced security and company-specific insurance features. In addition, insurers have to pay for setting up the necessary infrastructure, including nodes, servers and various software components. Altogether, such a project can cost much more than the development of a traditional insurance solution.  

Adoption hurdles. Integrating blockchain solutions with existing systems, databases and workflows in an insurance company can be challenging due to the fundamental differences in architecture and data structures. Insurance professionals used to traditional software will have to make an effort to get blockchain's benefits. 

Lack of established standards. Blockchain best practices and standards are still evolving, so insurers need to deal with a lot of uncertainty when it comes to security and compliance.

Customer concerns. Not all policyholders will be enthusiastic about blockchain transformation. They might worry that blockchain is too complicated or that it'll make their insurance dealings more complex.

How to choose

Given the inherent strengths and limitations of both software types, companies must carefully consider their unique needs and resources before making a choice. Traditional solutions are a great fit for companies on tight budgets with standard operations and low transaction volume. Insurers in stable regulatory environments may also lean toward traditional solutions.

But blockchain automation and transparency can prove beneficial if your company operates internationally or interacts with a diverse range of stakeholders, such as policyholders, beneficiaries, brokers and reinsurers. For those looking for cost-effectiveness and innovation, custom insurance software can help strike that balance.

Why custom insurance development is the optimal solution

Custom development allows insurers not to choose between traditional and blockchain software and integrate the necessary technologies within a tailor-made insurance solution. This approach can also offer such benefits as:

• Increased performance due to targeted automation of company-specific routine tasks and complex processes.
• Improved data protection combining secure blockchain mechanisms with time-tested security measures.
• Wider customization capabilities and better scalability, allowing insurers to cover their unique requirements and accommodate to growth plans.
• Great user experience with personalized interfaces, enabling policyholders, agents and brokers to easily interact with the system.

See also: Guide to Insurance on Cryptocurrency

To sum it up

Traditional software offers a rich feature set, familiarity, security and compliance but needs more flexibility and agility. On the other hand, blockchain-based software promises enhanced performance, fraud prevention and transparency but requires significant upfront investments and is fraught with adoption challenges.

Custom insurance software empowers companies to blend the best features of traditional and blockchain-based systems. What’s more, it has higher chances to remain relevant to the company’s operations over time, sparing insurers from significant modifications or costly replacements. 

The world of mergers and acquisitions is evolving fast, and the process, speed of execution and complexities of transactions are always increasing. Those changes are putting pressure on the traditional, labor-intensive manual processes used to create representations and warranties (RWI) policies, meaning the need for digitization is now pressing. 

In recent years, there has been a significant increase in the number of investors purchasing RWI insurance when making acquisitions. This was virtually unheard of 10 years ago, yet recent statistics show RWI products are now being used in roughly 30% to 35% of U.S. private M&A deals. This is because RWI bridges gaps in expectation: Sellers wish to reduce their liability in the share purchase agreement (SPA) to a minimum, and buyers seek financial comfort that the business they are purchasing is all it appears to be. 

This huge growth has created a global, multibillion-dollar market, yet it is far from reaching all of its potential customers; the vast majority of transactions completed each year are still done without insurance. One particularly underserved segment is small to medium-sized enterprises (SMEs), which are the lifeblood of American, Asian and European economies and account for more than 90% of all businesses across the world. 

See also: Biggest Business Trends for 2024

Acquirers of M&A targets with deal values less than $25 million in the U.S. rarely buy RWI insurance. Smaller deals do occasionally enter the RWI market, but they are often left unprotected for several reasons:

1. RWI is time-consuming – by offering bespoke cover for each individual deal, underwriters must review a huge amount of information and take time to understand the nuances of a transaction.
2. Cost – while costs have decreased, a prospective policyholder would struggle to get a RWI policy for much less than $170,000 all in, which is prohibitively expensive for a small acquisition.
3. Underwriters’ capacity – RWI underwriters can get incredibly busy, meaning smaller deals are often pushed to the bottom of their pile. At certain peak times of year (pre-Christmas, for example) underwriters can significantly reduce their appetite to quote new deals, leaving a narrower and more selective pool of remaining underwriters. This will often leave smaller deals either unable to obtain quotes at all or left with very high-cost options.
4. Information flow – to get underwriters comfortable with taking on the risk of a transaction, a huge amount of due diligence is required. In fact, due diligence is now driven more by underwriter requirements rather than the end client.

While insurers have tried to resolve these issues and provide cover for smaller transactions, they have often been hamstrung by the traditional and manual nature of the processes involved in providing protection on M&A deals. Reaching SMEs, therefore, requires a fundamental rethink.

This involves a streamlined digital approach, with simplified but valuable products, full coverage, a more affordable price-point and a convenient digital platform brokers and advisers can access with their buyers and sellers. Armed with the necessary due diligence information captured by the platform, an underwriter can offer a policy that can be bound and paid for via the platform. The process can take two days instead of two to four weeks. Advisers say they use the digital questionnaires to guide their due diligence.

See also: Opportunity Now and in 2024

While the M&A insurance market has tended to focus on larger deals, continuing global economic uncertainty means investor appetite for large transactions is subdued. Private equity firms are considering smaller transactions, and some insurers are looking again at SMEs. As conditions improve, and investor confidence returns, the focus is likely to revert to larger transactions. However, a recent study by Harvard Business School found that for companies seeking growth, smaller M&A transactions provide far better success:

“The bet-the-company deal isn’t the route to success. Indeed, infrequent large deals do tend to hurt value creation. Instead, it is a steady stream of transactions — known as programmatic M&A — that delivers the real wins.” 

This approach to growth also applies to institutional investors with private equity houses increasingly launching enterprise funds and using platform bolt-on acquisitions to drive value from their portfolios.

The need for a more streamlined, digital approach to M&A protection becomes, therefore, increasingly pressing and immediately relevant.

When it comes to M&A, SMEs have largely been ignored by insurers, brokers and advisers and, thus, face an M&A protection gap. Digitalization is the key to bridging this gap and solving the inefficiencies that, for too long, have left SMEs exposed and stifled the development of transactional insurance.

KEY TAKEAWAY:

--My vision is that employer-sponsored health insurance will disappear, giving employers a blank slate upon which to reimagine their approach to benefits. Defined contributions will become the default position, leading to lifestyle accounts and intense personalization of insurance at every level. 

-----------

The insurance landscape is on the brink of a transformation that will redefine the industry over the next two decades. At the heart of this seismic shift lies the impending collision between soaring employer-sponsored health insurance premiums and ever-tightening budgetary constraints. The result? Employers may decide – or be forced – to abandon sponsoring health insurance altogether.

Such a scenario would change every employer’s approach to employee benefits. Gone will be the days when health insurance consumed the majority of the benefits budget and organizational attention. In its place, employers will have more freedom to focus on non-health insurance benefits. I predict a profound reimagining of how businesses provide these alternative benefits, which will have huge implications for employers and insurers alike.

The evolution of workplace health coverage

If you talk to any employer today, they’ll tell you that health insurance is the core of their employee benefits, where it absorbs as much as 80% of their budget and attention. Again, I don’t believe that will be the case 20 years from now. If the surge in health premiums over the past decade continues, it simply won’t be possible. Consider the stark fact that the average premium for family coverage has risen from $15,745 in 2012 to $22,463 in 2022. That’s a 43% increase, over twice the inflation rate during that time.

Health costs could even surpass employee salaries, and there’s just no way any business will stand for that.

At a minimum, more employers will switch to individual coverage health reimbursement arrangements (HRAs), enabling employees to buy individual marketplace health insurance, with reimbursement from employers. But if health premiums continue to grow at the current rate, even HRA models will eventually become unworkable as employees are forced to pay ever higher premiums on the individual marketplace.

At the most, employers will abandon health insurance entirely, leading to a potential federal intervention of extending Medicare coverage to all. That scenario isn’t as extreme as it might sound. Medicare already exists as a proven system, and the only reason we haven’t yet expanded it to everyone is politics. This could be the tipping factor that forces legislative action to extend Medicare, which is honestly the only way to bring spiraling health costs under control.

Moreover, an extension of Medicare would benefit everyone. The consumer would gain access to guaranteed coverage and could have their out-of-pocket expenses covered by a private supplement plan that can be purchased on the individual marketplace. The health insurer would benefit from lower risk exposure and simpler regulatory requirements because they would now be in the supplement business rather than the primary insurance business. And employers would be free from having to devote most of their time and budget to health insurance, giving them a fresh start to reimagine employee benefits.

See also: Insurance in 2030: What Does the Future Hold?

Employee benefits in a new era

How would employee benefits look in a world where employers no longer have to concern themselves with health insurance? For a start, employers would be able to switch from a defined benefit model to a defined contribution model. Currently, we live in a defined benefit world in which the employer chooses the benefits and then works out what they need to contribute. It's an inflexible system that has led to spiraling costs and robs employees of the chance to choose their own benefits.

But with a defined contribution model, the employer can give each employee a lump sum that they can spend on whichever benefits they wish. It doesn’t take a lot of convincing to help an employer see the advantages in that. I know that from my own experience of working with companies on their benefits plans. Starting with the contribution means the employer can confidently and concretely decide what the annual benefits budget will be. It also means that employees can choose the benefits that align with their specific needs, whether it’s life, dental, vision or pet insurance or wellness perks.

The burden of health insurance is the only reason more employers aren’t already on a defined contribution model. Businesses haven’t made the change for fear of shifting the burden of future health insurance cost increases onto employees, a move that wouldn’t look good in the marketplace for talent. 

But if we take health insurance out of the picture, leaving us with just the ancillary benefits like life, dental, and vision insurance, the issue disappears. These ancillary insurance products would become the core of an organization's benefits system, and because the premiums on these products tend to increase along with inflation, sometimes less, employees needn’t worry about future costs becoming unsustainable.

As for how companies can adopt a defined contribution model, lifestyle accounts may be the best available option. Each employee gets a lifestyle account that the employer can pay into. A huge benefit here is that any individual insurance products that people choose will stay with them from one employer to another, providing full portability and personalization. This kind of customized setup is already happening in the benefits industry, and given the societal trend toward increased personalization, lifestyle accounts may only be the start of even greater change.

What lies ahead for insurance carriers?

If we assume that all this change comes to pass, there will be at least two ramifications for carriers.

First, hyper-personalization of every facet of an insurance product will become the base expectation for consumers. This means that insurers will need to tailor their offerings to individual preferences, needs and circumstances, as customers will increasingly demand highly customized coverage.  

However, to bring this level of personalization to their offerings, carriers will need to lean more heavily on the use of AI and big data for underwriting. This is unavoidable in a world where everyone is on a lifestyle account. Big data allows carriers to easily segment their customers by risk and market, leading to greater personalization in premium rates and product recommendations.

So far, most carriers are still only using AI and big data on an individual basis when they could be using these tools for all of their underwriting. The only thing that’s holding them up is their small data pool, which remains a hindrance to market analysis and to accurately assessing risk. But as more employers embrace defined contributions through lifestyle accounts, carriers will have more direct contact with end users from whom they could collect data. Eventually, the law of large numbers takes over, making risk predictions more reliable.

Second, widespread use of lifestyle accounts will lead to more customers choosing individual insurance products over group products. Individual products are far superior to group products in almost every way. The only reason more people don’t choose individual products is because the underwriting can require a lot of time, documentation and medical tests. But once more carriers start using AI and big data for underwriting, those difficulties disappear 

The inevitable conclusion here is that traditional group insurance could lose its raison d'etre. If individual policies can now be underwritten with the same ease as a group policy, why, an insurer might ask, should we keep offering group policies? As a result, more carriers may shift to offering individual insurance. 

With that in mind, I foresee a shift in group carriers offering individual products on a group chassis. What I mean by that is, to the employee, they're getting individual products with all the benefits that come with that, such as portability and fixed rates. But because these products are on a group basis, the carrier will be underwriting and administering to these people as a group. The efficient scaling of this process, however, relies on the use of AI and big data, emphasizing the need for carriers to embrace these tools. 

See also: AI: The Future of Group Insurance

Final thoughts

My vision for the next 20 years is that employer-sponsored health insurance will disappear from the market. This will result in employers receiving a blank slate upon which to reimagine their approach to benefits. Defined contributions will become the default position, leading to lifestyle accounts and intense personalization of insurance at every level. 

For carriers of all types, the future of their business hinges on their ability to adapt to these imminent shifts. That means getting on board with AI and big data and using them in a more systematic way. Those that can successfully navigate this transformative landscape stand to thrive in a rapidly changing industry.

KEY TAKEAWAY:

--The technology has the potential to lower claims costs by up to $1,000 per claim and eliminate the historical delay in the traditional accident reporting process, which averages five days from accident to first notice of loss. 

-----------

Too many headlines contain wild hyperbole meant to grab readers’ attention while conveying the enthusiasm of the author. In particular, the word “transformation” has been severely overused and often misplaced, particularly when applied to the auto insurance claims process. This is NOT the case here!

It is our opinion, as experts in auto physical damage claims information technology, that the more sophisticated crash detection as defined here will indeed be transformative to auto claims in multiple ways. 

But first it is critical to understand the relationships among various telematics programs and crash detection technologies.      

Telematics: A Brief History

Telematics, in one iteration or another, has been around since GM introduced its OnStar in-vehicle telematics technology and related safety services. OnStar was initially a dealer-installed device offered in several 1997 Cadillac models. OnStar enabled drivers to connect from their cars with safety advisers in the event of an accident, breakdown or other roadside emergency.

Since then, the convergence of telecommunications and information processing – broadly referred to as telematics – enabled the use of information such as vehicle location, driver behavior, engine performance and vehicle activity. Numerous telematics service providers (TSPs) emerged globally to offer a wide variety of uses across a number of market verticals. In 2002, Octo Telematics was founded in Italy specifically for use cases in the auto insurance industry, originally including fraud, theft and location services.

These early applications required the installation of some type of in-vehicle hardware device (dongles, sensors, windshield tags, etc.). TSP solutions included commercial applications for fleet management, as well as personal lines auto insurance applications including usage-based insurance (UBI) and pay-as-you-drive (PAYD). 

In 2015, a smartphone app-based driver behavior tech company was spun out of Harvard Innovation Labs. Censio was renamed True Motion and was acquired by Cambridge Mobile Telematics (CMT) in 2021. The company’s mission was safer and more affordable driving. CMT has grown to become the world leader in telematics and powers many of the largest insurance telematics programs in the U.S. and globally. 

Consumer adoption within the auto insurance landscape still remains in the low double digits but continues to gain traction as loss costs and premiums continue to rise and consumers seek savings options. Adoption in North America has lagged other global markets for a variety of regulatory and cultural reasons.

More recently, a specific application of telematics – namely crash detection – has emerged as new model smartphones include high-dynamic-range gyroscopes, GPS location, barometers, microphones and advanced motion algorithms that can detect a crash.

See also: How to Reduce Distracted Driving

Accident Detection and False Positives

With the introduction of smartphone accident detection in 2015 by Zendrive, a driver-centric analytics company, variations of crash detection began to emerge, mostly for notifying emergency services, tow trucks and family members. Other applications included the gathering of accident- related data for future use in insurance claims.     

Most recently,  there have been a number of stories about new model smartphones and connected devices with crash detection features alerting early responders to crashes – both real and not.

But beyond these kinds of crash detection, another application is emerging for use specifically in auto insurance accident claims that has the potential to truly transform this process by lowering claims costs by up to $1,000 per claim and eliminating the historical delay in the traditional accident reporting process, which averages five days from accident to first notice of loss.  

Crash Detection and the Auto Insurance Claims Process

Before any insurer would consider deploying a crash detection program, there are two critical technical issues to be overcome: namely, accuracy in detecting real accidents (at speeds below 25 mph) and the elimination of “false positives,” in which sensors misinterpret motion as accidents when it may be something as simple as an accidentally dropped phone, energetic dancing at the Bonnaroo festival or a wild ride on a roller coaster. 

No carrier would want to waste valuable resources and risk annoying their policyholders by contacting them unnecessarily when no accident has occurred. On the other hand, all carriers would find it valuable to be alerted to real crashes in real time. In addition, documented crash details would have great value.      

Right on cue just last month, Sfara, a global telematics technology provider that launched the first mobile phone-based crash detection in 2014, introduced capabilities that solve both of the technical issues.

The distinction between basic crash detection and all-speed, false-positive-free crash detection is critical for effective deployment in an auto insurance claims application.

Low-speed accident detection for claims is more valuable than many may think. Sfara research finds that 70% of crashes occur under 25 mph, as do 48% of crashes involving injuries--and solutions that only capture high-speed accidents miss all of them. 11% of fatalities occur when a vehicle is not moving at all. 

Sfara Crash Detection

Sfara has formed strategic partnerships with Mercedes Benz; Bosch; CCC Intelligent Solutions, the industry’s leading auto insurance physical damage information provider; and Solera eDriving, a global digital driver risk management provider for fleets. These relationships enable insurance companies and fleets that are already integrated with these companies’ solutions to operationalize Sfara’s crash detection results quickly and easily through the simple addition of the Sfara SDK to their flagship smartphone apps. Several top 10 carriers have already begun. Thus, real crash detection becomes available to all policyholders, not just the minority who are enrolled in telematics programs.     

See also: Could Auto Accidents Be Reduced by More Than Half?

Insurer Adoption

Crash detection, and its first cousin accident response, are poised to see real traction with auto insurers.

In September, State Farm joined USAA, which incorporated crash detection capabilities into their respective mobile applications a year earlier. In February, Progressive Insurance announced the planned introduction of their app-based accident response service to offer towing and emergency services and to start a claim after an accident. 

Importantly, however, none of these programs have indicated that they can offer service at all speeds.

The Future

Real crash detection, such as that offered by Sfara, is poised for rapid adoption by auto insurers and will literally transform the auto insurance claims process, including first notice of loss (FNOL), which has historically occurred many days after an accident and been labor-intense. Crash detection will enable digital FNOL in real time and can include accident management, triage of roadside services, automated scheduling of vehicle repairs, photo estimating, parts ordering and other use cases not yet envisioned. And because it is low- to no-touch and technology-powered, its cost to carriers will be nominal.  

Crash detection is perfectly aligned with emerging claims process digitization initiatives and will significantly reduce loss costs, thus materially improving combined ratios. It is also well-aligned with the industry’s strategic shift underway in claims strategy from a "repair and replace" to a "predict and prevent" mindset: Crash detection can be the portal through which future advances in vehicle and driver safety can be delivered.

Real-time crash detection and FNOL will help transform the traditional mindset in claims operations to focus on speed of resolution. Equally valuable is the crash data captured with detection, which is instrumental in the claim investigation process. Think of crash detection as an unbiased “witness” gathering all the critical information on speed, direction of travel, point of impact and more.

Auto insurance financial performance is under extreme pressure as costs continue to rise, as vehicle complexity increases, as the workforce is aging out and taking critical expertise with them and as unsustainable, higher insurance premiums are meeting resistance from regulators. Crash detection can deliver significant relief quickly and at low cost.

Policyholders will embrace crash detection once they understand that it is all upside and no downside. Emergency services and accident response will be especially welcome, as will the elimination of irritating phone calls that require repeating accident details to multiple agents. Claims resolution and cycle times, including the return of repaired vehicles, will be materially improved. 

Auto insurance ecosystem partners will see operational benefits and savings through increased real-time, digitally integrated workflow and the elimination of legacy communications and labor intense processes.

See also: Auto Insurance in an Existential Crisis

Call to Action

With the arrival of true crash detection, auto insurers should learn, test, pilot and implement this technology as one of their highest priorities. Their stakeholders and partners will be most appreciative, and their customers will reward them with greater loyalty.  

Crash detection will transform auto claims and become table stakes, and it will be no accident – which is definitely not hyperbole.

The challenges of inflation have significantly impacted our nation, and the insurance industry is no exception. Despite hopeful projections that inflation will be regulated by the end of 2024, the current situation is becoming increasingly expensive for businesses, particularly insurance organizations. Inflation, coupled with supply chain issues, has resulted in a substantial rise in costs, especially in the form of claims spending. Estimates suggest that underlying inflation contributed around 45 to 50% of the total increase in claims spending by the end of 2021, and this trend has persisted through 2022 and into 2023. 

However, it’s not just costs that have been affected; workloads within the insurance industry have also been swelling, leading to higher rates of burnout among employees. This combination of factors poses a significant risk to both the insurance workforce and the financial bottom line of organizations. In order to navigate these challenges, insurers need to effectively combat the rising workloads and costs they are facing—and that’s where automating premium payments can help. 

Read More Here

 

Sponsored by ITL Partner: InvoiceCloud

When a panel of experts recently voted that a gene-editing technique was safe for clinical use, it rang the opening bell for a new era in healthcare. 

The one technique, alone, could have a profound impact on the more than 100,000 Black Americans and 20 million people worldwide who suffer from sickle-cell anemia and who could now be cured, rather than just managing what can be a painful and debilitating condition. 

And that technique is just the first of many research efforts to get out of the lab. Hopes are high that other, related techniques could cure a host of cancers and blood disorders, some forms of blindness, cystic fibrosis, muscular dystrophy, high blood pressure related to LDL cholesterol and much more. 

We're just at the opening bell. It will take many years to fully understand the effectiveness and potential dangers of the sickle-cell treatment, and a lot could still go wrong. It will take decades for the full array of gene-editing treatments to be vetted and rolled out. As a result, the effects on health insurance will be slow to play out. 

Still, the achievement is stunning, and I think it's both worth celebrating for a moment and worth digging into a bit to understand where science can take humanity.  

The sickle-cell technique stems from the work on CRISPR that won the 2020 Nobel Prize in Chemistry for Jennifer Doudna and Emmanuelle Charpentier. CRISPR is a family of DNA sequences that can be used to target and shut off a specific gene in a person's genome that causes disease, such as the one that causes sickle-cell anemia.

More recent research suggests CRISPR can even be used to fix "typos" in the three-billion-letter sequence of the human genome and treat genetic disease.

Because CRISPR is altering body chemistry at such a basic level, researchers are proceeding cautiously, initially focusing on conditions such as sickle cell where a single gene defect has been identified as the cause and where editing the gene should have no side effects. 

Even with sickle cell, the work has a very long way to go. The panel of experts who have found the treatment safe for clinical use have only seen it tried on 44 patients, and just 30 have been followed for at least 16 months. No side effects have been recorded, but, as this article in the New York Times explains, snippets of genetic material created by CRISPR could conceivably bind to an unintended part of someone's genome and turn off the wrong gene.

The treatment is rough on patients. The Times says: "Patients first have eight weeks of blood transfusions followed by a treatment to release bone marrow stem cells into their bloodstream. The stem cells are then removed and sent to the companies to be treated. Next, patients receive intense chemotherapy to clear their marrows for the treated cells. The treated cells are infused back into the patients, but they have to remain in the hospital for at least a month while the new cells grow and repopulate their marrows."

The treatment is also very expensive -- likely to cost millions of dollars per patient. But the healthcare system in the U.S., alone, spends $3 billion a year treating sickle cell, and gene-editing offers a full-on cure, so Medicare and private insurers have indicated that they'll cover the treatment. 

To me, the milestone here is that we now have the prospect of actually curing chronic diseases like sickle cell, many cancers, hypertension and more, not just managing them. 

And capabilities will only accelerate from here, largely because AI lets researchers sort through exponentially more possibilities than unassisted humans can as they wrestle with the mind-boggling complexities of human biology. Already, AI has let researchers understand how hundreds of thousands of proteins fold themselves, which determines a lot about how they interact with other proteins and with any drugs; previously, just determining the shape of a single protein required a chemical process that took more than a year and cost in the six figures.   

As you keep reading about the great prospects for generative AI -- and they are great -- realize that other strains of AI are at work, too, and some are helping usher in a new, gene-editing era in healthcare that will benefit millions and millions of people.

Cheers,

Paul

As inflation and increasing global risk push up the cost of coverage, a powerful tool has gained traction in recent years: partial or total self-funding of workers' compensation.

While companies assume more risk, they get significantly more control over coverage, claims management and associated costs. The result is often highly cost-effective.

For example, when OneDigital client Wheeler Health, a healthcare and human services provider, was grappling with an increase in its workers’ compensation premiums, the answer came in the form of a partially self-funded plan. This program did two things for Wheeler Health: It helped manage the financial burden (workers' compensation expenses had soared to nearly $1 million for a $25 million payroll) and gave the client a more active role in claims management. 

The plan leveraged an A+ national insurance carrier without the need for unconventional claims-handling methods or a third-party administrator and offered a smooth transition – claims reporting continued as usual to the insurance carrier, with fixed monthly premiums. The fixed-rate premium increased less than 2% annually.

Savings have run into the millions of dollars over the past decade. Had Wheeler remained on their fully insured plan, their annual workers’ compensation costs would hover around $1.8 million to $2 million. 

Partially self-funded workers' compensation programs offer greater financial control and cash management by allowing companies to only pay for actual, incurred claim expenses, reducing the need for fully valued traditional insurance premiums. This approach fosters a stronger safety culture, as companies see precisely where their premium dollars are going and become more invested in preventing workplace accidents and injuries to minimize claims and costs.

By tailoring their self-funded plans, companies can align workers' compensation strategies with industry-specific needs and risk profiles, optimizing coverage and cost-effectiveness. This transformative model can also greatly enhance employee well-being and productivity and overall organizational resilience.

See also: Case Study on Using AI in Workers' Comp

Why Don’t All Groups Take Advantage?

While the financial benefits of well-designed partial or fully self-funded workers' compensation plans are extraordinary, they aren't that common. Some possible reasons are a general lack of understanding and limited product knowledge. Quite frankly, it’s also less profitable for insurance companies when clients move to this type of plan. 

But, as you can see, the benefits can be substantial.

Employers with a substantial payroll, a strong commitment to workplace safety and a desire to reduce workers' compensation expenses should consider this option.