In an era dominated by digital transformation, the demand for cyber insurance has surged as organizations grapple with the evolving threat landscape. As underwriters strive to stay ahead, they face a myriad of risks, emerging trends and formidable challenges in crafting robust policies. This article explores the intricacies of underwriting cyber insurance policies, shedding light on the evolving landscape.

Rising Risks in Cyber Insurance Underwriting:

1. Cybersecurity threats evolution:

Exhibit 1: Source McKinsey & Co.

The ever-evolving nature of cyber threats poses a considerable challenge for underwriters. 

According to a report put out by the U.S. government, over 4,000 ransomware attacks happen every day. This makes it the most prominent method of malware to date.

As cybercriminals become more sophisticated, underwriting must adapt to anticipate and mitigate risks associated with advanced persistent threats, ransomware attacks and other malicious activities.                                     

2. Data Privacy Regulations: 

The tightening grip of data protection regulations worldwide adds a layer of complexity to underwriting. Insurers must navigate the intricacies of compliance with laws like GDPR and CCPA, considering the potential financial impact of non-compliance for both the insured and the insurer.

3. Supply Chain Vulnerabilities: 

With the increasing connectedness of businesses, the risks associated with third-party vendors and supply chain partners are on the rise. Underwriters must scrutinize the cyber hygiene of connected entities, as a security lapse in one can have cascading effects on others.

See also: Cyber Insurance Market Hardens

Trends Shaping Cyber Insurance Underwriting:

1. AI and Predictive Analytics: 

Leveraging artificial intelligence and predictive analytics is becoming pivotal in underwriting. By analyzing vast datasets and identifying patterns, underwriters can better assess risk profiles and price policies more accurately, staying one step ahead of potential cyber threats.

2. Parametric Insurance Models: 

Parametric insurance, which pays out based on predefined parameters rather than actual losses, is gaining traction. This innovative approach can streamline the claims process, providing faster payouts and better aligning with the fast-paced nature of cyber incidents.

3. Cybersecurity Assessments and Audits: 

Insurers are increasingly incorporating cybersecurity assessments and audits into their underwriting processes. This approach helps in understanding an organization's cybersecurity posture, enabling underwriters to tailor policies to specific risk profiles.

Challenges in Cyber Insurance Underwriting:

1. Lack of Standardization: 

The absence of standardized frameworks for assessing cyber risks makes underwriting challenging. Differing methodologies and criteria among insurers can lead to inconsistencies in risk evaluation, hindering the establishment of a cohesive and transparent market.

2. Limited Historical Data: 

Unlike traditional insurance, cyber insurance lacks a robust history of claims data. The scarcity of historical data makes it difficult for underwriters to accurately predict and price cyber risks. Developing models that can effectively navigate this uncertainty remains a significant challenge.

3. Dynamic Regulatory Environment: 

The rapid evolution of data protection and privacy regulations globally poses a continuing challenge. Underwriters must stay agile to adapt policies to comply with ever-changing legal landscapes, adding a layer of complexity to an already intricate process.

See also: Cyber Insurance at Inflection Point

Mitigating Risks and Meeting Challenges:

1. Collaboration and Information Sharing: 

Collaborative efforts among insurers, businesses and cybersecurity experts can enhance collective resilience. Sharing threat intelligence and best practices can help create a more informed underwriting process, fostering a united front against cyber threats.

2. Continuous Learning and Adaptation: 

To stay ahead in the cyber insurance landscape, underwriters must embrace a culture of continuous learning. Regular training and updates on emerging threats and technologies can equip underwriters to make informed decisions in an ever-changing environment.

3. Technology Integration: 

The integration of cutting-edge technologies like blockchain and machine learning can enhance the efficiency of underwriting processes. Blockchain, for instance, can provide a secure and transparent platform for managing policy data, while machine learning can improve risk assessment accuracy.

Conclusion:

Navigating the complex world of cyber insurance underwriting demands balancing understanding evolving risks, embracing emerging trends and overcoming formidable challenges. As the digital landscape continues to transform, underwriters must evolve their methodologies, leveraging technology, collaboration and continuous learning to craft policies that provide effective protection against the ever-growing specter of cyber threats. Only through an adaptive approach can the insurance industry effectively manage and mitigate the risks associated with the digital age.

It’s a tale as old as time. 

An insured is in need of a surety bond, and when they go to fill out an application, they are prompted to input their Social Security number. Confused, they reach out to their insurance agent for clarification on why this information is required. 

“Why do I need to provide my Social Security number on an insurance application?”, they ask their agent. Now, unless the agent is attuned to the intricacies of surety bond underwriting, their answer will probably be, “Because the insurance company requires it.” Unsatisfied with this answer, the insured still provides this information (because they need the bond), but the question lingers in both the minds of the agent and their customer.

Alternatively, the insured may enter a state of blind fury, immune to rationality and reason, and abandon the application process altogether. A few days later, the insured admits defeat and begrudgingly provides the information, although dissatisfied with the entire process. 

We see variations of these conversations every day, and to help your agency better explain this unique requirement to your customers, we’ve put together this article answering the age-old question of why surety companies sometimes ask for Social Security numbers. 

A Process Unlike Any Other 

To be fair, wondering why the surety company needs a Social Security number is entirely reasonable. Traditional insurance products don’t require applicants to provide this information, so what makes surety bonds so special? 

A lot, actually. 

Unlike other types of insurance, surety bonds (excluding fidelity bonds) do not protect the person who purchases the bond but rather the person or entity requiring it. For example, auto dealers need to obtain a bond as a prerequisite to receiving a business license. However, the license bond does not protect the dealer but rather the state Department of Motor Vehicles and the dealer’s customers. Additionally, and this point is key, if a claim is made against the dealer’s bond they are required to repay the surety company for all claims and claims handling expenses (a provision known as indemnification). 

All surety bonds are indemnified, meaning all principals (persons who purchase a bond) must repay the surety company for valid claims. Claims made against surety bonds are completely avoidable and only occur if the principal commits fraud or engages in unethical conduct.

In essence, think of surety bonds as a line of credit that the principal must pay when and if it is used. 

See also: Commercial Underwriting: Risk Factors That Matter

It’s All About the Risk 

The unique nature of surety bonds compared with other types of insurance requires a similarly unique underwriting process. When underwriters determine whether to issue a bond, they are considering two factors: 

1. The likelihood the principal will repay the surety company for valid claims

2. The likelihood that a valid claim will occur 

Aside from a review of a person’s financial statements (which surety companies do for high-risk bonds), what better way is there to determine the likelihood of getting repaid than to examine the applicant’s credit history? Unless you know the person dearly, the answer is there isn’t one. 

Surety companies run soft credit checks (that don’t affect the applicant’s credit) on applicants to assess the risk that the applicant won’t repay them in the event a valid claim occurs. 

The Moment You’ve Been Waiting For 

To run a credit check, surety companies need the applicant’s Social Security number. This is because credit bureaus use individuals’ Social Security numbers when generating the report as a means to identify the individual and their loan/payment history. 

And there you have it, the long-awaited answer to the question that’s been eating at the curiosity of insurance agents and their customers since time immemorial. Surety companies don’t require Social Security numbers simply because they feel like it, but rather because they need to run credit checks on applicants to determine if they qualify for the requested bond.

See also: The Future of Insurance Fraud 

What About the Second Point? 

To determine the likelihood that a claim will occur, surety companies will: 

1. Consider the claims history of the bond as a whole 

2. Examine whether the applicant has had any valid claims made against a previous bond 

3. Determine the applicant’s years in business 

Those factors help surety companies make informed decisions on whether issuing an applicant’s bond will result in claims. This is why your customers oftentimes must input their years in business on bond applications (so the surety company has proof they are reputable), and it also explains why the same applicant may pay more for the same bond type in different jurisdictions. (If one jurisdiction has a history of high bond claims, the surety company will consider the bond riskier.) 

Surety companies consider the factors outlined in this article when determining an applicant’s premium rate and eligibility. Applicants with good credit and multiple years of business experience often get the best rates, while those who don’t typically pay higher rates or get declined altogether. 

Why Do Some Bonds Not Require Credit Checks? 

Certain surety bonds are considered so low-risk that surety companies are able to issue them to all applicants at the same price without conducting any underwriting. These bonds are categorized as “instant issue,” and the process for providing them is: 

1. Your customer submits an application 

2. The carrier/broker copies this information onto the bond form 

Whenever you or your customers are not required to provide a Social Security number, then the bond being applied for is an instant-issue bond that has no underwriting criteria. 

The Truth of It All 

What often happens within the surety industry is companies advertise their ability to write these instant-issue bonds as a sign of their technological prowess and innovative solutions. 

What these companies don’t tell you is that whenever you or your customers need a higher-risk bond subject to credit and financial underwriting, they will have to manually review the submission, review the credit report and financial statements, wash their hair, clean their car read "War and Peace" and finally, after what feels like an eternity, provide you and your customer with a quote. 

With this in mind, make sure your agency is partnering with companies that are capable of automated credit and financial underwriting.

Labor shortages are growing in the insurance sector, making it increasingly hard to recruit anyone, let alone knowledgeable, experienced and compassionate professionals. However, despite labor economy fluctuations, a few innovative companies have identified the secret weapon to scaling their workforce strategically ahead of the Medicare annual enrollment period, a critical stretch for medical beneficiaries and insurance organizations alike. 

Managing this staffing initiative is no simple task. Each year, organizations not only need to hire exceptional insurance talent en masse but also add these professionals to their payroll well before enrollment starts, to ensure they're prepared to help Medicare beneficiaries find the best coverage possible. So what strategy is helping teams scale so seamlessly? The secret lies in creative marketing. 

See also: Overcoming the Talent Crisis in Underwriting

Starting Early Is Key

Amid labor shortages, starting the search early is more important than ever. This will allow you enough time to thoughtfully recruit and thoroughly onboard someone without making it stressful. In fact, if you implement a pipelining element to your recruiting efforts, you can add people to your applicant tracking system year-round to tap into whenever you need. 

This is one way SelectQuote, a pioneer in direct-to-consumer insurance shopping, found much success in recent years. The SelectQuote recruitment team starts prepping for the next enrollment season shortly after the previous enrollment season ends to ensure they can recruit, pipeline and onboard compassionate insurance professionals in time. A full year has proven to be the perfect timeframe for this team to scale for the anticipated need for the next season. 

However, it wasn't always like this. Before deploying creative recruitment marketing tactics, the company rarely made recruitment quotas. Now, the team receives so many candidates that they have to strategically narrow them down to the compassionate insurance pros with the problem-solving skills needed to guide Medicare beneficiaries through the complexity of open enrollment. 

Creative Recruitment Marketing for Insurance

Innovative companies that want to attract top talent in the industry should think like a chief marketing officer to reach a wider breadth of potential candidates. For example, companies should be using a combination of branding channels and direct response marketing. Branding channels often consist of owned social media channels and the company's career site and can be used to show the benefits of working for the company, including company culture. This is where having trusted external partners, like a creative recruitment advertising agency, can help. 

See also: The Next Generation of Talent

Direct-Response Marketing

Direct response marketing focuses on eliciting an immediate reaction out of the target persona. The most common use for this type of marketing can be seen in consumer advertisements urging viewers to "call now" or "click here," but it is often used in recruitment marketing on sites such as job boards. For instance, if a company is primarily focused on driving applicant volume, direct response channels such as Indeed and ZipRecruiter would be a great place to allocate budget. 

With local insurance companies, it's especially common to ensure job posting content and locations are optimized when using direct response advertising. This helps capture the highest volume of quality and realistic applicants. For example, it wouldn't benefit a company in Utah to be advertising to potential candidates in Florida. However, we have seen success when leveraging "statewide" targeting for some insurance roles where candidates don't have to be based in a specific location -- such as field agents. 

Incorporating advertising into recruitment strategies can assist companies in reaching a more extensive talent pool. But the platforms on which companies should advertise remain elusive.  

Let's Talk Platforms

Some sourcing channels that have shown the most success in the insurance industry include LinkedIn, Indeed Resume, SeekOut and Handshake -- especially for early career job seekers. Those direct, personalized touchpoints can help source passive candidates for hard-to-fill insurance roles.

Recruitment advertising partners might also recommend consumer advertising channels as a complement to direct response advertising to help promote a client's employer brand in addition to specific job openings. That means that on top of placing ads on career-related sites such as Glassdoor and LinkedIn, it might also behoove companies to experiment on sites like Forbes, Weather.com, ESPN, Reddit, Facebook and even TikTok. In fact, streaming audio sites are also common among insurance clients, such as Spotify, Pandora and iHeartRadio. 

Your company can expand the available talent pool amid talent shortages by going beyond the job boards to target passive candidates with direct-response marketing on a mix of career and consumer sites. Additionally, implementing a recruitment strategy with a pipelining element can also ensure you have talent whenever you need it, especially if you have cyclically busier times of the year. 

It may have started with changing the plastic straws at restaurants to paper ones, but sustainability is expected to continue trending in a much bigger way in the new year driven by consumer demand. Not only are consumers shifting behavior to embrace sustainability in the retail sector, but we’re also starting to see the popularization of B2B companies prioritizing sustainability. In fact, a global survey by Solera recently found that 75% of drivers are willing to switch insurance providers for a greener policy. While some companies might look at this finding as a challenge to overcome, it’s more aligned with a golden opportunity for insurance companies to prioritize sustainability goals and, contrary to popular belief, improve their bottom line.

See also: We Need to Rethink the Future of Cars

Challenge vs. Opportunity

While 99% of insurers recognize the importance of prioritizing sustainability, they are up against some seemingly large hurdles. For example, there is a misconception that it will require a larger budget to invest in sustainable solutions. However, by understanding the cost-reduction benefits associated with adopting sustainable practices, especially in auto claims and repair, this myth can be easily dispelled. Even small things like switching office lights to be more energy-efficient or implementing a recycling initiative can start to accrue cost reduction over time.

On a larger scale, sustainability is becoming a much heavier regulatory requirement with the E.U. Corporate Sustainability Reporting Directive (CSRD) set to take effect in 2024, among other sustainability initiatives across the globe. Stateside, we’re also seeing regulations like Senate Bill 261 in California apply pressure to companies to report climate-related financial risk. In fact, as these changes begin to mount, a sizeable 61% of insurers don't consider themselves "very well prepared." Staying proactive can help avoid large fines and any potential blows to your company’s reputation, which can result in decreased revenue. 

However, staying proactive is made harder with the lack of available data to leverage in the insurance industry, auto insurance specifically. For example, Scope 3 emissions measures indirect emissions occurring in the organization's value chain, such as those produced in the vehicle repair process. Despite it being a critical metric, only 53% of auto insurers surveyed across Europe currently monitor Scope 3 emissions. This could indicate a glaring gap in knowledge of a company’s carbon footprint.

Better tracking and management of emissions data can provide the information needed to make informed sustainability decisions, which can in turn reduce cost if done effectively. For example, using green parts can reduce cost in repairs for vehicle owners and their insurers while also cutting down on CO2 emissions in the manufacturing process. 

Good Intentions Only Go So Far

While demand for eco-friendly practices in auto claims and repair is certainly surging, good intentions alone won't suffice. The future is sustainable, so it’s imperative companies make moves toward sustainability, especially if they want to stay ahead of impending regulations. Fortunately, there are things that can be done to get a head start. 

See also: The Journey to Sustainable Aviation

Start by implementing a recycling process or, even better, a paperless process altogether. This can help reduce waste while saving money and improving the user experience. Companies should also seek out a partner to help reduce carbon emissions in their auto claims and repair process. There are also tools available to improve measurement of metrics like Scope 3 emissions, which can make a huge difference in implementing effective carbon footprint reduction initiatives. 

It is obvious there has been a significant shift in consumer preferences and a pressing need for insurance companies to align with sustainability goals. Embracing sustainable practices is no longer just a responsible choice but also a necessary one. The future is green, so the sooner companies hop on board, the better. 

U.S. insurers appear to be optimistic about investment conditions for 2024 (see Figure 1) and expect to take on more investment risk, according to a recent survey of 300 investment decision makers in the U.S. insurance industry commissioned by Conning.

And while insurers expect their investment risk tolerance may rise, higher yields in traditional public market fixed-income sec- tors have made those one of the larger areas of expected portfolio increases. Other sectors that insurers expect to allocate more to include private equity, private credit and private placements, and real assets including infrastructure and real estate.

Insurers also said that, despite their concerns about use of artificial intelligence (AI) and machine learning (ML) tools in the investment process, they believe the benefits of the technology outweigh the risks (see Figure 2) and have already begun to incorporate the tools into their investment processes.

The responses suggest U.S. insurers remain resilient and ready to embrace new challenges following a year of significant inflation, falling bond portfolio values as interest rates rose and the rapid growth of AI technologies. (The survey was conducted prior to the U.S. Federal Reserve’s December outlook suggesting multiple interest rate cuts in 2024.)

The growing complexity of managing insurance portfolios may also lead more insurers to consider outsourcing some or all investment duties, and the survey probed insurers’ considerations in these decisions.

See also: Building an Effective Risk Culture

Optimism Is High – But Inflation Remains Top Concern

Survey respondents showed significant optimism about the 2024 investment environment.

Across all company sizes and sectors, “optimistic” was the leading sentiment versus “pessimistic” – in most cases by significant margins. Insurers managing assets internally (about half of our respondents) were more optimistic than those that outsourced some or all of their assets (86% to 73%) while those outsourcing were more pessimistic (18% to 7%). Very few respondents were “unsure what to expect”; the largest “unsure” group (20%) was insurers with less than $500 million of assets.

Inflation remained the top portfolio concern in the next two to three years, consistent with our two previous surveys (see Figure 3), but its relative level of concern has been declining. Market volatility remained a leading concern. The impact of monetary policy reappeared as a top concern in 2023, not surprising given how interest rates rose significantly during the year. It is also a prescient response given the recent news that rates may soon head in the opposite direction. Fiscal policy remains another high-ranking area of concern among insurers, given the significant level of federal and local government spending, as well as the potential for policy changes in a presidential election year.

Meanwhile, investment yields, regulatory changes and geopolitical concerns have been consistently among the lowest of insurers’ worries during the past three annual surveys. These issues may signal troubles ahead for insurers but appear less of a concern than events with more immediate portfolio impact.

Domestic politics and AI were added to Conning’s latest survey as potential concern responses. Domestic politics was the second-most important concern to insurers, while impact of AI was sixth.

See also: From Risk Transfer to Risk Prevention

Adding to Risk

Insurers also strongly believe their investment risk will rise during 2024 (see Figure 4). Their risk expectations generally rose with the insurer’s asset base, although firms with $5 billion to $10 billion in assets were most in agreement with the sentiment.

Firms outsourcing asset management had lower expectations for rising risk in their portfolios versus firms that manage assets internally (57% versus 68%) but as noted previously expressed less optimism about the investment environment (73% versus 86%).

Focusing on the customer has resulted in increased sales and cross-sales, improved brand reputation and improved customer satisfaction and retention for insurance carriers. The use of generative artificial intelligence (AI), as well as large language models, low-code and no-code (LCNC) software and machine learning are increasingly a part of this new customer paradigm. These technologies have allowed carriers to refine, refocus and prioritize the customer experience (CX) more quickly and effectively. They have also had an impact on adviser/agent relationships where carriers have been able to improve working efficiencies across distribution channels. 

The use of AI in CX initiatives will also affect the broader business objectives of carriers, such as revenue growth, market differentiation and long-term sustainability. AI speeds and simplifies time-consuming efforts like underwriting processes and claims processing. And it doesn’t end there. Other areas AI may be able to affect include: 

• Web applications
• Order entry platform upgrades
• Digitized licensing and appointments 
• Mobile personalization
• Business process reengineering
• Sales enablement programs
• Robotic process automation projects 
• Business enablement optimization (paperless)

A steady move to digital, AI and the cloud, while gathering and analyzing existing data sets and running periodic testing of ideas and asking for feedback, is a prudent strategy for carriers looking to accelerate their digital transformation. This will help to identify risks, product misconceptions and process bottlenecks along the way, thus driving higher loyalty and customer satisfaction and advocacy. Understanding how data can give carriers information they need to make informed decisions is key, but AI won’t draw accurate conclusions on its own.

See also: 5 AI Trends You Can't Ignore in 2024

From a distribution viewpoint, advisers and agents have fully embraced the digital world. Many have actually become dependent on digital tools and see this trend continuing to improve customer engagement. They have a desire to do more for their clients and seek improvements in online applications, online illustrations and calculators, new business submission, tracking, performance reporting, policy delivery, transaction reporting and administration. The emphasis should be to collaborate with financial professionals to provide a simple but effective partner experience and build capabilities that help them to better engage with their clients, increase their productivity and enable new business opportunities.

Of course, distribution is still people-focused. For example, referrals are critical for new business, and many financial professionals depend on seminars and webinars. They use social media, email, television and radio to recruit for these events. Advisers and agents prefer these face-to-face meetings, either in their offices or in clients’ homes or online, to develop relationships. Can AI help here, too?

Digital tools proliferate, and most customers are tech-savvy. Smartphones, smart pads and tablets, smartwatches and other mobile devices are part of the modern landscape. AI may be able to help carriers fully benefit from them and keep up with advisers, agents and their customers. AI can be a market research resource for monitoring the sales cycle and determining what products are selling and why, and for mining customer data for insights on what their journey with a carrier’s brand is like. This research could be coupled with automated, AI-driven marketing programs that seek to engage customers, and their advisers/agents, and deliver more personalized solutions. Leveraging data, analytics and AI together could provide near-real-time contextualized insights to financial professionals that augment the personalized client experiences and improve cross-sell/up-sell.

Carriers have largely been compelled to explore this new technology. There wasn’t really an option. Celent, a research and advisory firm focused on technology for financial institutions globally, recently said the competitive gap established by early adopters could be persistent (due to a generative AI model’s inherent ability to learn and improve). So doing nothing comes with its own risk—and that risk exists across the board, from operational efficiency to customer engagement.

See also: 3 Key Uses for Generative AI

With all these potential improvements, risks have to be considered to balance enhancements with customer protections. AI has multiple challenges that need to be addressed to defend against reputational and brand risks. Among the concerns:

• data security
• data accuracy and misinformation (called hallucinations)
• privacy (such as in cyberattacks or misuse)
• functional limitations with creativity, ethics and common sense
• inherent bias or stereotypes
• copyright and consent issues

Don’t forget the human element! 

AI is a tool to assist in, not define, outcomes. It offers numerous capabilities that can assist insurance carriers in gathering both distributor and customer insights and feedback, interpreting findings and even implementing engagement efforts. But insurance is still a people-first business, and carriers need to keep a balance between AI and the customer/adviser/agent that are at the center of their strategic initiatives. This balance allows for a refined and refocused customer experience.

The only thing better than having smart friends is having smart friends who've been around a little while, gaining perspective.

In my case, the smart friend often turns out to be Chunka Mui, whom I've had the pleasure of working with for more than 25 years and with whom I've written four books. He recently published some sharp insights on how the lessons from the dot-com bust of the early 2000s should shape our thinking about today's boom in generative AI, and I'll summarize for you here.

Chunka knows whereof he speaks. He was one of the pioneers of digital strategy back in the mid-1990s--I first heard the term from his lips when we were partners at Diamond Management and Technology Consultants. He was also co-author of "Unleashing the Killer App: Digital Strategies for Market Dominance," a best-seller that has been described as the bible of the internet boom. 

Diamond became known as "the killer app firm," and he advised on loads of projects. After he and I published "Billion Dollar Lessons" in 2008, on what to learn from major corporate failures, we consulted with major companies on how to tell whether they had a killer app or a killer flop, before they risked tens of millions of dollars.

So Chunka has seen the good, the bad and the ugly in major innovation efforts, like those companies are considering for generative AI.

A couple of his six pointers are tricky. He tells you to be aggressive but not too aggressive. Good luck with that, right? But even there, he explains how to sense if you're straying from a winning path.

Let's have a look.

Chunka begins his column on LinkedIn with a tight summary of the major successes and failures of the dot-com era, showing that both are possible, with results that measure in the trillions of dollars -- yes, trillions, with a "t."

"On one hand," he writes, "this Cambrian-like explosion of the commercial internet led to enduring successes such as Salesforce, Google, Netflix, Amazon, Apple and Meta," which have a combined market cap of more than $7 trillion. "On the other hand, this exuberant period also produced notable failures like Webvan, Pets.com and the AOL/Time Warner merger. The total investor losses from the peak of the boom to the bust are estimated to exceed $8 trillion (adjusted for inflation)."

How do you make sure you're on the plus side of one of those big numbers? Here are Chunka's pointers:

• Don't Mistake Investor Enthusiasm for Market Dynamics
• Resist the FOMO Trap
• Don't Mistake Complacency and Denial for Thoughtful Deliberation
• Sustainable Business Models Do Matter (Really)
• Integrate Digital With Traditional Business Strategies
• Think Big, Start Small, Learn Fast

1. Don't Mistake Investor Enthusiasm for Market Dynamics

This pointer especially resonates with me. I couldn't tell you how many times during the initial internet boom that someone acted as though a stock market valuation was conclusive proof that some startup was the wave of the future. But stock prices are merely bets about the future. Many turn out to be wrong. That's the nature of bets. And when a company that, say, has a shot at being more or less the operating system of the generative AI wave -- a la Microsoft for PCs, Apple for smartphones and Google for search -- turns out to have no shot, the stock price can plunge from a stratospheric number to zero overnight.

Chunka cites the failure of the AOL-Time Warner merger as an example of what can go wrong when you base strategic decisions on stock market euphoria, AOL acquired Time Warner in a deal valued at $350 billion when it was announced in 2000, right before the internet bubble burst. Shareholders in the upstart AOL got 55% of the stock in the combined entity, while shareholders in Time Warner, a media behemoth at the time, received only 45%. The value of the combined entity soon fell to $20 billion, and AOL, after steadily shrinking, was sold to Verizon in 2015 for just $4.4 billion. In a final indignity, Verizon sold what was left of AOL plus what was left of Yahoo -- another dot-com high flyer, valued at more than $110 billion in April 2000 -- to a private equity firm in 2021 for $5 billion. 

Chunka's words of warning:

"Remember this each time you see venture capital data or short-term market value blips used as prompts for strategic action."

2. Resist the FOMO Trap

This is the don't-go-too-fast part of Chunka's advice. In the research for "Billion Dollar Lessons," we found plenty of companies -- impressive companies -- that fell into the FOMO trap. For instance, FedEx got suckered by fax machines in the 1980s. It decided that "absolutely, positively overnight" would be even better as "absolutely, positively that afternoon," so it spent hundreds of millions of dollars to roll out a fax-based service at a time when few businesses had their own machines. A driver would come to your office, pick up a document and take it to a FedEx store, where it was faxed to the FedEx office nearest the recipient, so a driver could then deliver the fax. The problem, of course, was that every business soon had slews of fax machines, and FedEx wrote off the whole value of the business it rushed into existence. 

Chunka's advice:

"Prioritize strategic patience and thorough market analysis over the impulsive pursuit of the herd. Resist the urge to jump on the AI bandwagon without a clear understanding of how it aligns with specific business problems and real value propositions in your industry and market."

3. Don't Mistake Complacency and Denial for Thoughtful Deliberation

On the other hand, you can't be too slow -- and many companies moved far too slowly in the dot-com days, kidding themselves that they were simply being prudent. I so remember interviewing the CEO of Sears in the late '90s in his office in what was then still known as Sears Tower and having him tell me that the company was carefully studying the internet but saw no need to do anything just yet. Now look at the company. You don't see much evidence of it anywhere, certainly not in what's now Willis Tower. 

Chunka cites the examples of Borders, Kodak and Blockbuster from the dot-com days. Borders actually outsourced its online sales to Amazon, handing the future over to an omnivorous rival. Kodak invented the sensor for digital cameras but never really committed to turning that into a business. Blockbuster so misread the future that, among other missteps, it passed on a chance to buy Netflix early on.

Chunka's recommendation:

"Embracing new technology requires careful consideration, but this should not be confused with inaction or denial of evolving technology and market realities. As Voltaire observed, perfect is the enemy of good. Strategic deliberation involves actively evaluating new technologies, understanding their potential impact and integrating them into the business model where appropriate."

4. Sustainable Business Models Do Matter (Really)

This reality seems to have set in in the world of insurance over the last year or so. When money was basically free, with interest rates near zero, startups could afford to invest in growth at all costs and worry about profitability later. With interest rates far higher now, companies have to show that they can generate profits and cash for the long term. 

As Warren Buffett has said, "Only when the tide goes out do you discover who's been swimming naked" -- and the tide eventually goes out for every business. 

Chunka cites the dot-com era failures of Pets.com and Webvan. Pets.com had high-profile marketing (an old friend of mine was the chief marketing officer responsible for the much-mocked sock puppet Super Bowl ad; true story) but never had a real business model. Webvan burned through $800 million before it even paused to test the viability of its business model -- there's that FOMO again -- and the model didn't work.

Chunka's summary:

"As AI technology evolves, it's tempting to focus on the technology's novelty and potential for (eventual) disruption. However, success lies in building businesses that are not just technologically innovative but also strategically viable. This requires ample focus on revenue generation, cost management and market demand, ensuring that the business model is robust enough to withstand investor pressures, market shifts and continued technological advance.

5. Integrate Digital with Traditional Business Strategies

This recommendation reminds me of something Matteo Carbone said recently in a webinar we did on the prospects for the Internet of Things (IoT). He said he had made the mistake of initially thinking of the IoT as a product for insurance companies, when it's really a capability that should be incorporated up and down the product line.

The internet has certainly turned out to be an enabler, rather than a separate business, and Chunka cites Walmart as a prime example of a company that blended the new capabilities into the established business. He says the blending "included developing a robust e-commerce platform, employing data analytics for inventory management and enhancing customer experiences through technology. This strategic integration helped Walmart compete effectively, even as Amazon grew at a prodigious pace and demolished many other retailers."

For those innovating with today's AI, he recommends "ensuring the technology complements rather than overrides established operational processes."

6. Think Big, Start Small and Learn Fast

This has been our mantra since our days at Diamond, one we cover at length in our 2013 book, "The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups." In our experience, companies miss out if they don't imagine all the possibilities of a breakthrough technology like generative AI. But then you have to test inexpensively -- the big pilots and the rollouts need to wait until you actually know what you're up to. You also have to learn as quickly as possible, which means killing the little tests that aren't proving fertile.

My brothers, both former professional poker players, tell me that amateurs lose much of their money because they look at the two down cards in Texas Hold 'Em and think, "Well, these might turn into something," even though the odds are long. That approach may be okay in a neighborhood game, but businesses need to be far more disciplined about how they spend their time and money.  

Chunka cites Microsoft and Nokia as examples of companies that didn't think big enough on smartphones and acted too incrementally, leaving the field open for Apple.

He mentions Kodak and Borders as companies that waited so long to try to innovate that they gave themselves no time to start small. They had to swing for the fences when they finally realized they were in trouble, and they missed. I'd add Blockbuster, which was positively floundering toward the end. With Netflix banging on Blockbuster about its late fees, Blockbuster announced that it would end the hated fees -- without even taking the time to realize that it wouldn't turn a profit without them.

Chunka's final advice?

"The key lies in striking a balance: leveraging the potential of AI for innovation and progress while remaining grounded in provable business strategies and market realities. By applying lessons from the past, businesses can not only surf this technological wave but also create enduring, successful ventures."

I can't say it any better.

Cheers,

Paul

KEY TAKEAWAY:

--Insurance software solutions add meaning and value to the new, less linear customer journey in five ways: workflow optimization, improved policyholder experience, self-service capabilities, personalized risk mitigation services and omnichannel communication.

----------

Although customer journeys are perpetually evolving, the rate at which they have changed in the insurance sector is nothing short of phenomenal. With the digital maturing of the industry paired with the shift toward customer-centricity, modern-day insurance customers or policyholders enjoy richer and more engaging experiences. In such a dynamic environment, cloud-based insurance software has been a blessing in keeping operations afloat. Such software for insurance companies lends agility to the business and keeps them resilient even in changing times.

Here’s a deep dive into how insurance industry software solutions enhance customer journeys.

See also: Tips for Improving Customer Experience

How Has the Insurance Customer Journey Transformed?

When it comes to the insurance industry, the traditional marketing funnel took prospects from initial product awareness to the point of purchase, drawing inspiration from nearly identical customer decision journeys. Traditionally, the usual customer journey adhered to a linear course and involved stages of awareness, familiarity, consideration, intent, decision and loyalty. Customers typically purchase insurance policies by researching potential brands and then narrowing down the options until they find the one that best meets their needs. 

However, modern customers now have a number of ways to discover, research and purchase policies. As a result, the customer journey has become less linear. The new purchase experience of empowered customers renders the traditional "sales funnel" obsolete. The modern customer journey consists of 5 broad stages: 

• Awareness: Prospective customers realize the need to get insurance as insurance companies use tools and channels such as websites, email and social media. 
• Initial Consideration: Potential customers consider various options based on brand position and recent interactions.
• Active Evaluation: Customers research different insurance options and compare policies, coverage details and premiums across various websites and comparison platforms. 
• Purchase: Modern customers use quote comparison websites and other tools to get instant quotes from different insurance companies. They select a suitable policy and complete the purchase, often without the involvement of any agent.
• Post-Purchase Experience: Customers experience the insurance product or service and form an opinion or expectation. Post-purchase customer engagement is a crucial component of the modern customer journey.

5 Ways Insurance Software Improves the Customer Journey

We have different categories of insurance software considered by carriers and brokers depending on their usage. Some of them are: document management software, customer relationship management software (CRM), insurance workflow automation software, policy management software, claims management software, mobile apps for different stakeholders, etc. The following are five ways in which insurance software solutions add meaning and value to the customer journey.

1. Workflow Optimization

Insurance software streamlines the entire policy lifecycle, from creation and issuance to cancellation and renewals. Customers can use the portal to check the policy details and modify them as needed. A comprehensive software for insurance company management also automates a number of tasks such as quoting and policy approvals. This results in faster service for customers and improves customer journeys. Automation also streamlines customer onboarding.  

2. Improved Policyholder Experience

Self-service portals improve transparency and empower insurance policyholders. Policyholders can use the portals to find relevant information, resolve queries and get suitable suggestions. As such, the best insurance software solutions offer self-service portals to improve convenience and customer satisfaction.

Further, the data stored in insurance software can be used for personalizing each interaction with customers, right from marketing communication to customer support interactions. It improves customer engagement and boosts loyalty. 

3. Self-Service Capabilities

Insurance software can provide customers with intuitive self-inspection or self-service tools integrated into user interfaces or mobile apps. These tools guide homeowners through the process of conducting self-inspections by providing step-by-step instructions, checklists and visual aids. Such features facilitated by modern software for insurance companies help customers assess their property's condition, safety measures and potential risks, ensuring they provide comprehensive and accurate information to insurers.

4. Personalized Risk Mitigation Services

By harnessing insights obtained from telematics and connected devices, insurance industry software can offer tailored suggestions to reduce risks. For example, telematics can offer alerts to improve the safety of drivers and homeowners. Insurers can recommend specific safe driving practices to alleviate risk, potentially leading to perks such as discounted premiums. 

5. Omnichannel Communication

Insurance software enables insurers to manage interactions with current and prospective customers across multiple channels such as email, social media, chat and chatbots. This enhances communication flexibility. Insurance industry software also integrates with other tools to unify customer interactions across different platforms. Having a consolidated view of all customers enables insurers to offer consistent and personalized experiences at each stage of the customer journey. 

See also: Computer Vision Means Satisfied Customers

Conclusion

Customer journeys are changing rapidly in the insurance sector. Whether it is the diversification of communication channels or the need for personalization, such demands have been a driving force behind challenging the status quo. Most importantly, this transformation will not stop right when such needs are met; new ones will mushroom in due time.

Such a state of flux calls for capable and feature-rich insurance software tools that can handle such requests and implement appropriate solutions to elevate organizational capabilities and product or service offerings. 

While traditional methods of risk management have served well, there is an increasing need for innovation, driven by a deeper understanding of employees along with the advent of new technologies. 

A significant factor that often goes unnoticed in decision-making is the influence of biases. Our brains, unlike computers, use mental shortcuts to make decisions quickly. This is advantageous for efficiency but can lead to skewed perceptions and choices. 

Some common biases in risk management can include confirmation bias: seeking information that aligns with pre-existing beliefs, often reinforced by what we choose to consume and see daily. Availability bias: relying on immediate, easily accessible information, leading to a narrow view of options. Hindsight bias: overestimating our ability to have predicted past events. Negativity bias: giving more weight to negative information or outcomes. Anchoring bias: relying too heavily on the first piece of information encountered. Lastly, sunk cost fallacy: continuing investment in a failing product due to past investment.

Recognizing these biases is the first step toward understanding their impact, enabling more balanced and strategic decisions. 

See also: Building an Effective Risk Culture

Peter Hollins, in “The Art of Strategic Decision Making,” suggests simplifying complex decisions. This involves understanding transaction costs and managing decision fatigue. Effective strategies tend to include making decisions when fresh and rested and delegating or simplifying minor decisions. Additionally, it’s important to allow ample time for important decisions. 

Often, a reliance on luck or superstition is the default method. However, as amusing as that practice might be, it is not a substitute for a well-thought-out strategy. Effective risk management is about applying solid principles and strategies, not leaving things to chance. 

A pros and cons list is useful. By assigning a value to each pro and con based on personal or organizational priorities, we can quantitatively evaluate the weight of each factor in a more structured and less-biased way. If you want to overcome bias and make your list more realistic, you will add a third choice, as many risk decisions aren’t black and white.  

The most successful companies practice fanatic discipline and maintain consistency in actions, values and long-term goals. These companies also rely on realistic evidence rather than opinion or whim. Productivity paranoia is used to prepare for the worst and maintain vigilance even in good times. Another effective strategy is SMAC (specific, methodical and consistent) practices. 

The landscape of risk management is evolving, and so must the approaches to decision-making. By understanding and mitigating biases, simplifying the decision-making process and learning from successful companies, businesses can navigate the complexities of today’s environment more effectively. Taking an innovative approach to risk management not only enhances the decision-making process but also prepares organizations for a future where uncertainty is the only certainty.

KEY TAKEAWAYS:

--Modernizing legacy systems and accelerating as many manual steps as possible is crucial. Legacy systems can often be a bottleneck, as they can be slow, difficult to update and prone to errors.

--Another important way to accelerate processes like claims is by automating some of the necessary communication with policyholders.

----------

The need for speed in the insurance industry is evident, especially when it comes to claims. According to a recent report by Insurance DataLab, the claims management process still draws the highest number of complaints from policyholders. In fact, more than 80% of complaints about each of the top five insurers over the last five years were about the claims process. 

So why is assessing and approving claims still so time-consuming and complex? 

The short answer is that there are still too many manual steps involved. Imagine a scenario where a policyholder submits a claim for a car accident. With traditional legacy systems, the insurer has to go through the physical evidence, manually input the claim details into their system and then assess the claim’s validity. This process can take days, if not weeks, leading to frustration and dissatisfaction for the policyholder.

These legacy systems can often be a bottleneck for insurance companies, as they can be slow, difficult to update and prone to errors. This is why modernizing legacy systems and accelerating as many manual steps as possible is so important. Accelerating claims processing times is not only essential for staying competitive but also for driving growth and profitability. 

See also: Making the Claims Process More Efficient

Putting claims underwriting on the fast track

The good news is that digital platforms and tools are making it easier to accelerate many of the manual processes insurers deal with every day, including claims underwriting. 

With these digital platforms, policyholders can submit their claims online or through a mobile application, and insurers can instantly receive all the necessary details and supporting documentation. Once a claim is submitted, advanced algorithms and artificial intelligence (AI) can accelerate the process even further, for instance in assessing the validity of the claim or detecting fraud. These algorithms can analyze various factors, such as policy coverage, accident reports and historical data, to determine the appropriate amount of compensation to be paid. 

According to a PwC study, insurance companies typically allocate 70% of their IT budget toward maintaining legacy systems. Before diving into full automation with AI, upgrading legacy systems to accelerate as many manual steps as possible is a priority that insurers shouldn’t overlook. As these systems age, the cost of upkeep increases, but this cost is often surpassed by the missed opportunities and higher expenses incurred from manual processes.

By modernizing existing systems, insurers can be confident that any new technologies they wish to introduce, such as AI, will integrate seamlessly with their existing infrastructure and data and put them on the right path toward faster, more accurate underwriting decisions and a better customer experience.

Making space for more customer self-service solutions

Another important way to accelerate processes like claims is by automating some of the necessary communication with policyholders. Instead of time-consuming phone calls, insurers can use online portals or mobile applications to provide updates on any claim’s status. Policyholders can easily track the progress of their claims, eliminating the need for constant follow-ups and reducing frustration. 

Today’s consumers expect to receive immediate support when they need it, and providing exclusively in-person or phone support no longer meets these expectations. Additionally, it’s not just the younger generations that prefer digital options. Among customers 55 and older, 71% prefer processing claims through digital platforms like video or chat.

By providing these self-service options, insurers can empower customers to initiate claims or manage their policies independently, reducing the time and effort required. This not only accelerates the claims process but also boosts customer satisfaction and fosters loyalty.

See also: 5 Ways Generative AI Will Transform Claims

Moving into the era of automation 

Accelerating the manual steps involved in claims is crucial for insurers to maintain efficiency and customer satisfaction overall. Modernizing legacy systems is a critical first step in achieving this goal. It's not just a technological upgrade but a strategic move toward future-proofing the business and seamlessly transitioning into the era of AI and automation.