Recently, the Centers for Medicare and Medicaid Services (CMS) released an update to its rules that has significant implications for insurance agents and Medicare agencies that market Medicare plans. These changes aim to enhance transparency, protect participants and ensure that any information provided is accurate. They take effect Sept. 30, 2023.

Let’s look at some of the changes: 

Direct Submission of Marketing Material by TPMOs 

One of the most significant changes is the requirement for third-party marketing organizations (TPMOs) to submit their marketing materials directly to CMS for approval. In previous guidelines, TPMOs were responsible for submitting material to the respective Medicare Advantage (MA) organizations or Part D sponsors. The new rule mandates that TPMOs obtain prior approval from each organization or sponsor and submit the material directly to CMS for review. This ensures that marketing collateral meets CMS guidelines and receives the necessary approvals before participants see it. 

This change means TPMOs must streamline their internal processes to accommodate the direct submission to CMS and ensure compliance with the approval requirements of individual organizations and sponsors. Partners, such as Total Expert, can help TPMOs streamline marketing collateral development and approval workflows while remaining compliant at every step with automated workflows and pre-built content templates.

Disclaimer Changes for TPMOs

TPMOs must also include standardized disclaimers in their marketing material. These disclaimers will inform participants about the TPMO’s representation of MA organizations or Part D sponsors and the range of plans available. The disclaimers differ based on whether TPMOs represent all MA organizations or Part D sponsors in a service area or only a select number. Insurance agents and Medicare agencies must incorporate the required disclaimers accurately in their marketing collateral and provide participants with clear information about available plan options. 

See also: Navigating Confusing Insurance Regulations

Guidance on Misleading Use of Medicare or CMS Name and Logo 

To protect participants from misleading information, the new CMS rule strictly prohibits the use of the Medicare name, CMS logo and products or information issued by the federal government in a misleading way. However, a slight modification to the rule now permits the use of the Medicare card image with authorization from CMS. This change aims to strike a balance between accurate representation and preventing deceptive practices.

For insurance agents and Medicare agencies involved in marketing Medicare plans, this rule demands that you adhere to the guidelines and obtain proper authorization from CMS when incorporating Medicare-related branding elements like the Medicare card image in marketing collateral. Ensuring accurate and transparent representation builds trust of participants and avoids potential compliance issues that could lead to significant fines for each violation. 

Clear Identification of MA Organizations and Part D Sponsors 

To provide participants with clear and accurate information about the entities behind the marketing material, the new CMS rules require marketing materials to clearly identify the MA organization or Part D sponsor offering the products or plans. If the MA organization or Part D sponsors involved are clearly identified, participants can make informed decisions about their Medicare plan choices. 

For insurance agents and Medicare agencies, transparency is not optional. Participants must have clear and easy access to further information about the plans and services being advertised.

Restrictions on Unsubstantiated Superlatives 

The new CMS rule introduces limitations on the use of superlatives such as “lowest premium” or “largest network” in marketing collateral. Such superlatives must be supported by documentation, which should reflect the current or prior year and be easily accessible to participants. 

For insurance agents and Medicare agencies, many of today’s common marketing communication approaches will no longer be allowed. Any claims about service quality, price, etc. must be backed by reliable data and documentation. Incorporating such supporting information not only complies with CMS guidelines but also earns trust with participants who seek reliable information to make informed decisions about their Medicare plans.

Penalties for Violating CMS Rules

CMS exists to protect Medicare and Medicaid participants, a group that has often been targeted by misleading and predatory marketing practices. As a result, CMS will not hesitate to levy fines of up to $5,000 for each violation of their policies.

See also: Balancing Innovation, Compassion in Life Insurance

Compliance with the new CMS rules is critical for ensuring transparency and protecting participants but also for avoiding potentially costly financial penalties. 

Outdated technology and internal processes will make it difficult to comply with the new CMS rules. By embracing a modern technology platform like Total Expert, agents can feel empowered to deliver compliant communications and marketing collateral.

KEY TAKEAWAYS:

--Companies can measure productivity on key metrics and compare work-from-home employees against those in the office, whether now or in the pre-COVID days. Those comparisons will allow a deep look into relative costs.

--Companies also need to explore cultural issues, which can be key to attracting and retaining talent. While values can be shared in written format, discussed in Zoom meetings and reinforced with remotely observed behavior, companies will still find it a challenge to develop a strong culture if team members don’t see each other in person frequently.  

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Like many others, I’ve written extensively about work-from-home issues in the last few years. At this point, most articles seem redundant. Rather than write another of those, I’d like to look at how work from home is evolving – both developing opportunities and creating pitfalls.  

The advantages of remote work for both employers and employees are now well known. They include geographic and time zone flexibility and work flexibility for part-time employees, as well as the ability to reduce costs of physical locations for both parties. 

At the same time, we also have come to see that disadvantages for work-from-home include increased difficulty in employee development due to less frequent supervisory contact, challenges with team building and other social benefits of in-person work and a decreased commitment of employer and employee to each other. The problems have shown up in “quiet quitting” and increased employee resignation rates.

While employers currently bear the brunt of the problem, I think that is likely to change with an economic downturn, not to mention technology improvements. I suspect employers will find they have more distant relationships with remote workers and will find it easier to let them go when times get tough.

How do you know if work-from-home is right for your business? It’s all about productivity, cost and culture.

Taking a Look at Productivity

As we think about pitfalls in the work-from-home evolution, we have to acknowledge that the utopian descriptions of its potential for a permanently new way to work may not be bearing the abundant harvest predicted by its earliest advocates. This, I think, is why many larger organizations like X, formerly Twitter, and the U.S. government are calling for or requiring a return to the office.  

The principal reason large employers (and many smaller ones) are calling for a return to office work is a measured decrease in productivity. Despite workforce challenges, those employers that can carefully measure productivity, and have adequate talent recruiting capabilities, are compelling workers to put their pants back on and come to the office. Does this imply that all employers will do the same eventually? I do not know, but the question does point to the importance of measuring productivity. In a professional services businesses like insurance, employee cost measured against business revenue and profit is the key driver of success.   

Whether you are a remote work advocate or not, work from home raises the useful issue of productivity.  

See also: Has the Remote-Work Trend Peaked?

Diving Deeper Into Costs

A key challenge for every business in a relentlessly competitive industry is lowering costs. While technological innovations like artificial intelligence hold exciting promise, they aren’t fully realizable yet. Even when they are, how many activities each employee performs per hour or week still holds the most promise for affecting cost control. If a business doesn’t have a robust set of key performance indicators or isn’t comparing results over time (particularly between in-the-office and remote workers) an opportunity for improvement is being missed.  

As a starting place for developing key performance indicators (KPIs), I suggest you look backward from the end of your process. For many in the insurance industry, this would be a sale. Then, ask what the milestones are. For example, in an insurance agency, an issued quote is a milestone, as is a completed submission. Indicators to measure, in addition to those two items, might include the number of closing attempts or number of lines of coverage sold. Then, with the KPIs established, look back into your business records for a year or two before the business moved to remote work to establish a baseline benchmark. You can then measure your results against a period of remote work and see how productivity was affected and what improvements might need to be made.

Obviously, businesses that started after the COVID era began have no pre-pandemic in-office benchmark. As a result, they have had to focus on creating processes that work regardless of where an employee is located. This is an excellent exercise for hybridized existing businesses to complete, as well. As you examine each process in the business, ask if changes need to be made to maintain or improve from your baseline benchmark. You may find that teamwork involving different time zones may allow you to improve some time-critical tasks like submission to quote to bind, for example.  

Fostering Workplace Culture

Even with improved processes and reduced costs developed from the learning created by increased experience, companies still have to solve culture issues.

“Culture eats strategy for lunch” is often attributed to management guru Peter Drucker. But whether he first said it or not, culture is critical to business. Culture founded on a set of shared and constantly reinforced values is not just a key contributor to business success but is also a key contributor to attracting and retaining the best talent. While values can be shared in written format, discussed in Zoom meetings and reinforced with remotely observed behavior, companies will still find it a challenge to develop a strong company culture if team members don’t see each other in person frequently.  

See also: Opportunity Now and in 2024

Looking Toward the Future

As the trauma created by the business disruption of COVID fades, businesses must increasingly ask the questions of whether remote work improves or impedes productivity and business results. As we enter, inevitably, into an economic slowdown and perhaps begin to see the productivity improvements of a generation of iterative artificial intelligence, business owners might no longer be held hostage to work-from-home demands. They could be in more of a position to call for a return to office. But ultimately whether remote work makes sense for both the business and the employee depends on progress and results related to productivity, cost and culture. The jury is out on those.

KEY TAKEAWAY:

--Usage-based insurance for drivers shows the potential of continuous underwriting. Based on telematics and automated analysis, drivers' risks are continually being evaluated based on their driving behavior and miles driven.

--That capability is now spreading to numerous other types of insurance, providing ways for insurers to keep tabs on their portfolios in real time. 

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Much is said about the need to modernize insurance, an industry rife with legacy carriers tethered to outmoded systems. In spite of the apparent opportunities, insurtech has had a hard time displacing large incumbent organizations and their traditional approach to underwriting. The plodding carriers, driven by their risk-averse cultures and bureaucratic inertia, survive without being on the forefront of tech advancements. Meanwhile, some insurtechs are here today and gone tomorrow, due in part to approaches that produce unsustainable loss ratios. A focus on growth over everything else has rarely been a winning strategy.

The other part of the challenge is that insurtech has been slow to effectively harness the data needed to build better rating models. Setting aside regulatory obstacles, new data acquisition strategies were heralded as the path to more accurately and efficiently pricing risk and modernizing the industry. Several prominent insurtechs, with pressure to grow rapidly in a short time, have since back-pedaled on their data-centric prophecies when it became clear they had not achieved the levels of underwriting profitability they had forecasted. The incumbents consistently outperformed the newcomers by remaining diligent in prioritizing underwriting basics and enjoying the luxury of years of proprietary, historical experience data.

So can growth and the pursuit of a healthy loss ratio co-exist?

It may seem the insurtech innovators have waved the white flag in their battle to conquer the traditional insurance mechanism, but we are in fact seeing a new commitment to enhanced technologies being deployed in insurance. Insurtech VC funding exceeded $2.3 billion in the first half of 2023, a robust sum even if significantly down from peaks experienced during the pandemic. While early insurtechs attempted to disrupt an industry that is built on a resilience to disruption, the next wave of insurtechs has conceded that certain fundamentals are non-negotiable if they are to foster a reliable insurance ecosystem promoting financial stability.

In this vein, an insurtech concept that is innovating the industry is continuous underwriting.  

Continuous underwriting is the process of leveraging data and technology to apply underwriting strategies throughout the policy life cycle. Those of us who have spent time in the traditional small commercial underwriting space have experienced first-hand how a risk gets bound and then essentially forgotten. How many times have you seen a risk and thought “that carrier doesn’t even know what they’re on!”? 

Underwriters have also been taught that the most profitable business is that which is already on the books. While this can be true, a failure to remain sensitive to the portfolio’s evolving risk can lead to detrimental results. Companies have long made this trade for the savings on expenses associated with detailed underwriting processes (but, let’s be honest, the situation usually ends with the book being re-underwritten anyway).

Instead of limiting the use of data to the initial submission, we can now monitor risk throughout the policy life cycle. The tools and systems are available for carriers to continuously underwrite more efficiently than ever, providing opportunities to proactively control the loss ratio while reducing disruptive and costly re-underwriting processes.

One form of continuous underwriting, in which technology promotes safe behaviors, is usage-based insurance (UBI). UBI strategies have been successfully implemented in large sets of homogenous risks, such as telematics devices/apps that measure driving behaviors. Now, a consumer’s auto insurance rates can be reduced based on safe driving and fewer miles driven. Beyond auto, UBI is manifested in areas such as cargo and handyman insurance, where the purchaser can only pay for the amount of coverage they actually need, and only when they need it.

See also: The Next Era of Underwriting

As consumer expectations evolve, more dynamic strategies and tactics will continue to progress into larger, more complex risk evaluation processes. Vertical software solutions (software built for specific industries and use cases) — such as bookkeeping software and point-of-sale (POS) systems — are increasingly critical for small businesses. The software contains vast stores of rich exposure information in real time, allowing the automation of continuing eligibility and pricing decisions by using another UBI concept called pay-as-you-go (PAYG). PAYG allows the accurate tracking of risks after the policy is bound, reduces premium leakage, provides cash flow benefits to the insured and can even help up-sell new cover when additional exposures are identified.

The use of always-current payroll data in workers' compensation started to take off decades ago and has evolved to become a default standard. Other small commercial coverages have evaded the adoption of this common sense approach to underwriting — until now. With the explosion of digital systems centrally managing the business data that underpins many classes of small business, we believe the same benefits can be passed on to small business insurance, such as a business owner’s policy (BOP) or liquor liability, that have exposure bases measured by sales.

Sustainability deserves consideration here. For a concept such as continuous underwriting to achieve commercial scale, carriers must be able to deploy the solution without correspondingly more onerous overhead and manual process. An automated continuous underwriting process will help insurers avoid unanticipated claims by identifying new hazards before the loss occurs — but where does the automation come from? 

The simple answer is that automation from thoughtfully developed software has been built specifically to monitor risk factors and data. It doesn’t happen overnight, and legacy carriers will struggle to shoehorn another piece of software into their antiquated IT infrastructure. This industry dilemma requires a clean start approach to practical innovations.

Facilitating the adoption of continuous underwriting is a shift in insurance buying habits and general comfort in digital privacy controls. Younger generations are more amenable to sharing their data in exchange for products and services that fit their lifestyles. The expectation for immediate digital experiences is on the rise, and consumers are showing increased preferences toward mobile apps and AI-based virtual assistants. Further, underwriting investigations are now streamlined through integrations with external data providers that instantly address advanced considerations -- geospatial imagery can show deteriorated roof conditions in hail-prone areas, and AI-powered machine learning models can identify policies most expected to generate losses.

Automation that continuously brings current data into the underwriting process will allow insurers to more efficiently expand their operations. The human bias inherent in the traditional underwriting process will be reduced, generating greater confidence in the result and forging a path to sustainability. 

The insurance industry readily admits that it must continue to innovate to remain effective. Insurance consumers have demonstrated willingness to adopt technological advancements, as they already have with UBI and PAYG. Underwriters unwilling to commit to continuous underwriting risk being left behind.

Up next: In Part 2, we explore practical examples for unlocking the potential of continuous underwriting for small business and address the impacts and benefits to key stakeholders.

When Chunka Mui and I researched 2,500 corporate disasters to look for the patterns that led to failure, we found that one of the seven strategies most commonly associated with major write-offs or bankruptcy was the roll-up. 

While we conducted our research more than 15 years ago, for our 2008 book "Billion Dollar Lessons," the work springs to mind because insurance agencies have been rolled up for years now by Acrisure, Hub and others. The make-or-break point likely isn't far off. 

The basic problem with roll-ups is that acquirers are tempted to overstate the potential cost savings while underestimating the costs, including those that come from managing the complexity of a sprawling empire that began as a host of idiosyncratic little businesses. 

The main example we explored in "Billion Dollar Lessons" was the Loewen Group, which went from a single funeral home in Canada to more than 1,100 throughout North America in a little more than a decade and employed more than 15,000 people -- then collapsed and filed for bankruptcy. 

Loewen projected major savings from having funeral homes in a metropolitan area share undertakers and hearses, as well as from the efficiencies that were supposed to come from standardizing back-office systems, but few of those savings materialized. Sharing undertakers, hearses and drivers was complicated, and those in charge of business operations resisted change or even quit. Funeral homes were typically operated by families (not unlike many small insurance agencies), and there was no incentive for an older generation to stick around after they cashed out through a sale, especially given that the giant corporate acquirer would have no loyalty to the next generation of the family. Loewen often found itself scrambling just to keep an acquired funeral home operating.

Meanwhile, the funeral homes lost much of the hometown appeal that had made many of them mainstays in a community for decades. The small businesses earned goodwill by sponsoring kids' sports teams and participating in local events. Often, the owners had kids who went to school with the children of clients. But nobody thrilled to the sight of a Loewen corporate logo on a funeral home's front lawn, so business sometimes drifted away.

For good measure, roll-ups typically happen so quickly that the growing pains can be frightful. Scale is the whole rationale for a roll-up, and a growth-at-all-costs mentality can lead to ignoring little problems with acquisitions and integration that become major problems after they've accumulated and festered. Management can become overwhelming, and some management may not be up to the task -- Raymond Loewen did great with one funeral home in one town in Canada, but operating 1,100 in a whole variety of towns and cities throughout North America was far more than he could handle. 

Now, there is reason to think that the insurance agency roll-ups can dodge many of the problems that we documented for Loewen and others in "Billion Dollar Lessons." In particular, the source of the funding for the insurance roll-ups makes a lot more sense. 

Loewen and the others in our research typically were publicly traded. As they grew, investors got excited about the growth prospects, and the stock price soared. That gave the acquirer a currency it could use to buy lots more companies -- but only as long as exponential growth continued. As soon as growth slowed even a bit, the stock crashed. Investors began focusing on the bottom line, not the top line, and management suddenly had to seamlessly integrate all the purchases. Disaster almost always awaited. 

By contrast, the insurance agency roll-ups are largely happening via private equity, which is much more patient money than stock market money is. The pressure to expand too rapidly is more muted. Private equity money is also smarter money, so it insists on more professional management than, say, Bernie Ebbers, who started his career operating a motel, could provide after he bought 60 telecommunications companies, eventually including MCI, and presided over a scandal and then the collapse of WorldCom. 

The insurance agency roll-ups will still face many of the integration problems that other roll-ups must confront, including how to introduce a corporate brand without losing the appeal of a boutique, local one. And the roll-ups are big enough now that I'd say we're getting to a point where we'll going to see, one way or the other, just how successful they can be. 

That question serves as the starting point for this month's interview, with an old friend, Mark Breading, a partner with Strategy Meets Action, who has been tracking the world of agents and brokers for decades. I hope you'll dig in.

Cheers,
Paul

AUTOMATING INSURANCE WORKFLOWS

An MGA is saving $65 million a year by reducing from 25 to two the number of clicks required to issue each policy.

OPPORTUNITY NOW AND IN 2024

The chance to grow or sell an agency can present itself quickly. Here are five steps to take to be ready when opportunity comes knocking.

THE POWER OF EFFICIENT CONTENT MANAGEMENT

Drawing on AI and machine learning, modern content management systems drive intelligence into processes and decision-making. 

CONTINUOUS IMPROVEMENT COMES TO INSURANCE

Process intelligence tools let operations leaders “see” digital products being built, enabling use of statistical process control techniques.

OPERATIONAL EFFICIENCIES IN LEAD ALLOCATION FOR AGENTS

ML-based lead allocation revolutionizes insurance lead distribution, ensuring optimal matches for agents and boosting conversion rates.

THE NEXT PHASE OF GROWTH FOR INSURANCE BROKERS

Value creation through tighter integration.

When I ventured into the garden section at my local Wal-mart last week, I saw they hadn't just been preparing for Halloween by setting up alluring candy displays throughout the store. They were already getting ready for Christmas, setting up displays for decorations, lights and even fake trees. 

Those displays reminded me that we are, in fact, in the fourth quarter of 2023 and that, while I'll still probably start my Christmas shopping on roughly Dec. 23, it's not too early to begin planning initiatives for 2024. And it happens that a smart analyst I follow on LinkedIn posted a list last week of what he sees as the 10 trends that will dominate next year. 

They are: generative AI, the human touch, the solution to the skills shortage, sustainability, personalization at scale, the data economy, the customer service revolution, remote and distributed work, diversity and inclusion and resilience.

I think some of those are more important than others and have a suggestion or two of my own, but that list is a good place to start. Let's dig in.

The article by Bernard Marr opens with generative AI, which I agree should be a major focus but which I won't go into here, because I wrote about it last week and have gotten into it extensively in other pieces, including in this interview with a longtime friend and colleague, John Sviokla, who said generative AI will be bigger than the internet.

#2 on Marr's list is "Soft Skills and the Human Touch." He writes: 

"As it becomes increasingly feasible to automate technical aspects of work - coding, research or data management, for example - the ability to leverage soft skills for tasks that still require a human touch becomes critical. For this reason, in 2024, we will see organizations increasing their investment in developing and nurturing skills and attributes such as emotional intelligence, communication, interpersonal problem solving, high-level strategy and thought leadership."

I agree and, in fact, have for many years been pushing the idea of "bionic" processes and employees, who take advantage of the efficiencies of digitization, including AI, while maintaining that human touch. Here is a recent piece on how to combine digital efficiency with human empathy.

#3 is the "Skills Solution." Marr writes: 

"We’ve been hearing about the skills shortage for several years now. Changes in hiring practices that emphasize selecting candidates with the specific experiences and skills needed for a role, rather than qualities such as educational attainment or age, are a part of the industry's response and will continue to be a strong trend."

Again, I agree. While universities increasingly offer risk management and insurance programs, we can't expect them to produce such a steady stream of graduates that they will fill all the industry's needs. Instead, the insurance industry will need to get creative in finding talent, as explained in this piece on winning the war for talent.

#4 is "Sustainable Business." I'd say insurance is still finding its way on how to support sustainability. If you're interested in a more detailed analysis of where we stand and how we can progress, I'd suggest you listen to this webinar I recently conducted with Sean Kevelighan, president and CEO of the Insurance Information Institute, and Francis Bouchard, managing director, climate, at Marsh McLellan. I found the discussion exceptionally informative and think you will, too. I'd also recommend the interview I did recently with Alex Wittenberg, a partner at Oliver Wyman, on resilience. 

#5 is "Personalization-at-Scale." I've long identified with this approach. Part of what attracted me to Diamond Management & Technology Consultants after a long career at the Wall Street Journal was the startup's alliance with Joe Pine, who pioneered the idea of mass customization. That was in 1996. The possibilities have only expanded since then. But insurance starts at the opposite end of the spectrum, focusing on pooling of risks, so I suspect the personalization emphasis will lag in the insurance world.

#6 is "The Data Economy," which is a massive opportunity for insurers. Marr writes:

"Data is an increasingly valuable business asset. By 2024, more companies will have streamlined their operations and improved their customer offerings by taking a strategic approach to their data. As a result, they will be ready to take the next step - monetizing data itself to drive new business opportunities. Leading the way are companies like John Deere, which has pioneered the model of selling data from its sensor-laden farm equipment back to farmers as insights to improve productivity. As access to large-scale data collection and AI-driven analytics becomes increasingly democratized, we'll see this trend adopted by smaller companies in niche and diversified sectors."

Insurance is the ultimate data business, and companies have a huge opportunity to turn data into revenue. Some of that opportunity will arise because insurers will go beyond "insure and pay" and shift to a "predict and prevent" business model, as described in this recent piece. Some will come because companies find creative ways to gather and process data, then sell it to others -- a la Allstate's Arity.

#7 is "The Customer Experience Revolution," which is desperately needed in insurance and which we've published about extensively. 

#8 is "Remote and Distributed Work," which seems to be here to stay and which insurance seemingly could benefit from as much as almost any industry. 

#9 is "Diversity and Inclusivity." This is another topic that feels like it's especially important in insurance. We serve a diverse population. Shouldn't we have a diverse work force, including leaders, who empathize with the needs of those diverse customers? 

#10 is "Resilience." Marr writes:

"[That means] ensuring an organization is protected from whatever threat is around the corner. That could mean cyber attacks, economic downturns, environmental events, war, global pandemics or the emergence of a disruptive new competitor."

We've certainly had plenty of recent lessons about the need to plan for resilience, including the attack by Hamas on Israel over the weekend and, just a year and a half ago, the Russian invasion of Ukraine. Both are having massive, unpredictable effects not only on geopolitics but on business. Just imagine what will happen if China follows through on threats to invade Taiwan.

To Marr's list, I'd add two sorts of skills that I think many businesses will want to develop. 

First are partnership skills. We talk a lot about ecosystems and about using technological capabilities such as application programming interfaces (APIs) to plug into what partners are doing, but being a good partner takes practice. Companies shouldn't assume they'll be great at partnerships, or even adequate, in the first go-'round. Companies should engage in a number of low-level partnerships, to understand what they do well and what they do poorly, before attempting any partnership that could be game-changing. Develop those partnership muscles before trying to use them.

Second are M&A skills. These aren't necessary for many in the insurance industry but are required by many others, especially agents and brokers, lots of whom are aggressively expanding. Historically, the rule of thumb was that only about one in three acquisitions succeeded. More recent research suggests a higher success rate, but only because acquirers are making a steady stream of smaller purchases and developing M&A skills rather than swinging for the fences with a massive takeover by a first-time buyer. 

So I'd suggest you start planning for 2024, even as you accept that geopolitical events such as the Hamas attack on Israel could derail some of those plans.

Cheers,

Paul

KEY TAKEAWAYS:

--Premiums are soaring, and there is no relief in sight, as people keep moving into areas where homes are at higher risk to natural catastrophes, as electric vehicles and other new technologies raise repair costs, etc. 

--But improved construction and greater building resilience standards can help, as can major preventive measures such as building a sea wall for Manhattan. There are also numerous insurtech solutions emerging that use sensors, AI and other technologies and that can switch the traditional insurance model from "insurance and pay" to "predict and prevent."

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In 1735, Benjamin Franklin wrote that “an ounce of prevention is worth a pound of cure.” He was referring not to medicine but to fire safety, because central Philadelphia, where he lived, consisted of connected wooden row houses. In fact, he was a founding member of the Philadelphia Contributorship, the first fire insurance company in America. Today, prevention may very well be the cure for the ailing insurance industry.

Throughout the history of risk and insurance, there have been periods of crisis and reform. In 1971, no-fault auto insurance was adopted in Massachusetts and spread to 19 states by 1974 with promises of lowering high auto premiums. In the mid-1980s, liability insurance rates soared, leading to tort reform. Most recently, Florida, California and Louisiana are enacting reforms in the face of threats from weather, inflation and legal system abuses. 

As the property & casualty insurance industry struggles with the severe impact of extreme weather events, rapidly shifting market conditions, growing social and economic inflation and a rapidly transforming automotive and alternative transportation landscape, it has become obvious that fundamental, structural change is necessary and inevitable. Each of these single pressure points is striking. Collectively, they may represent the “new normal.” In any case, cost of insurance is on the rise while availability has become problematic, with both consumers and businesses absorbing the impact.

How Did We Get Here?

Catastrophic weather trends receive the most attention for good reasons but are not exactly new. According to a study by the Insurance Information Institute, average insured CAT losses were up 700% from the 1980s through 2020, spiking throughout each decade with noteworthy hurricanes: Andrew, Katrina, Wilma, Rita, Harvey, Irma and Maria. There’s little argument that events are more frequent and causing more costly damage, but these trends have been moving upward for some time.

Since the adoption of special, all-risk homeowner policies from previously limited or named peril policies in the 1980s, courts have further broadened insurance coverage. There is a residual tension between coverage for fortuitous loss and what some say are - or should be - uncovered maintenance costs, with much debate over exclusionary language. Meanwhile, U.S. homes have grown in size, averaging 2,522 square feet, doubling from 1975 to 2022, according to Statista. Likewise, home building materials, amenities and construction design have added to rebuilding costs, with increased construction in more disaster-prone regions as population shifts to the Southeast and Southwest, in particular. Between 2018 and 2021, the average annual homeowner rate change was 3%, and through the first three quarters of 2023 averaged 8.8%, according to S&P.

Just prior to the pandemic, auto insurers were engaged in a race to the bottom. Switch and save marketing flooded the market. Fast-forward, and inflation on auto parts, building materials and labor rates are perpetual “sticker shock” realities, despite some leveling-off. Auto repair technician shortages, social inflation and distracted driving behavior are newer and growing influences with no signs of alleviating in sight. Meanwhile, though less obvious, global reinsurance premiums are also driving up rates.

On the commercial lines side, business auto has struggled, with combined ratios for 11 of the last 12 years over 100, amounting to underwriting losses, per Fitch Ratings. Miles driven, demand for commercial trucking and driver shortages are among the causes, again with no clear change in sight.

See also: The Promise of Predictive Models

Just the Beginning

P&C insurers are pulling all the levers. Rate increases are across the board in auto, home and commercial lines. Tighter underwriting rules, restrictions on new writings, pullbacks in select states or product lines are reverberating throughout the industry. Some insurers are scheduling roof limits based on roof age or only offering ACV protection. Higher deductibles or percentage of limit deductibles are emerging or instantly become the only option in coastal areas when homeowners have little to no choice and are pushed into state wind pools or non-admitted E&S insurers. The result is more cost and less coverage, serving as a shift to greater self-insurance.

Allstate told its captive agents in August that it will effectively be reducing their commissions, and other insurers are trying to reduce their administrative costs, but the costs of insuring risks are projected to increase and remain high for the next few years – double-digit rate increases are just the beginning.

High Premiums Here to Stay

There’s lots of evidence to forecast that high premiums are here to stay. Thus far, loss costs have outpaced rate increases, and once they do catch up there is no reason to believe premiums will decline. Insurance to value (ITV) is emerging as an issue as property values and rebuilding costs have soared. The population shift to disaster-prone areas is not slowing. Auto technology, EV repair and parts costs on top of more expensive original equipment car manufacturer repair procedures are all on the rise. Social inflation fueled by juror attitudes, nuclear verdicts of $10 million or higher and litigation funding are gaining more attention (even though the term was coined by Warren Buffett as long ago as 1977 in a shareholder letter, according to the NAIC/CIPR Research Library). In many cases, consumers choose to reduce coverage or drive uninsured. Bankrate says there are an estimated 32 million uninsured drivers in the U.S., a number that is likely to grow.

The implications can be distilled to a greater proportion of self-funded risks for consumers and businesses.

Predict and Prevent

A new paradigm of predict and prevent is gaining traction. The Insurance Institute for Building and Home Safety (IBHS) has encouraged the insurance industry to influence improved construction and greater building resilience standards. Sensor technology combined with preventative measures, such as moving assets from harm’s way, show promise but have a long way to go, balancing efficacy with pragmatic actions. Distracted driving avoidance and driver coaching is making a difference in larger fleets, with much room to improve smaller fleets and personal auto. However, predicting and prevention is also being applied more broadly, such as shoring up storm walls in places like Manhattan and Miami. Meanwhile the devastating Maui fires illuminate major gaps in prevention and how controversial measures to clear vegetation get in the way of progress.

The Role of Insurtech in Risk Transformation

Enabled by new and emerging technologies and funded by professional investors with the highest amount of available capital in history, numerous insurtechs have introduced first-generation solutions to insurance risk management. These solutions have primarily focused on a small number of high-visibility applications, including quoting, underwriting and distribution and claims. But few if any of these products have materially affected combined ratios and thus profitability, leaving insurers with no good response to current conditions other than talking rate.

See also: Convergence and the Insurance Ecosystem

Enabling Insurtech Solutions

• Sensors are a relatively low-cost, easy-to-deploy technology with large numbers of applications across homes and businesses and “wearables.” The sensors can alert users and carriers of impending risks, providing time to respond and avoid a loss, or at least limit the damage. 
• Telematics widen the uses of sensors to include the integration of large volumes of contextual data to more accurately predict and prevent accident frequency, severity and injury. Crash detection, automated first notice of loss (FNOL), accident response and emergency services are powerful applications emerging from smartphone enables telematics.  
• Artificial Intelligence (AI), while it has been used for many years in information and data management, has grown to include other more powerful iterations, including natural language processing (NLP), robotic process automation (RPA), machine learning (ML), computer vison CV) and the latest and most fascinating, generative AI. While not all of these AI solutions support risk prevention, many enable material cost savings. Computer vision has already been adopted for almost 40% of auto physical damage claims, enabling early total loss identification, automated repair estimate generation and parts procurement with limited human interaction.
• Geospatial data and analytics have high potential to identify, limit and avoid property risks from extreme weather and catastrophes. On the front end of the insurance process, pricing and underwriting, this data can ensure higher accuracy as well as risk avoidance. Insurtech geospatial platforms are expanding through partnerships and integrations, making it faster, easier and less expensive for insurers to consume and use multiple applications.
• Parametrics is a form of risk prevention in that it limits a carrier's exposure to a specific, narrowly defined “micro-event,” which vastly simplifies the pricing and underwriting of each covered event, eliminates most traditional claim costs and provides greater predictability of total exposure.

Many of these young companies, and their existing and emerging solutions, have the potential to enable the insurance industry to shift its paradigm from “insure and pay" to "predict and prevent.”

Of course, none of these solutions can have real impact until insurers decide to aggressively embrace and comprehensively implement them. Otherwise, the industry will continue to react ineffectively to elements of the current crisis, which will then be followed by reform that could well lead to greater customer self-funded risk management -- defying the founding insurance principle of risk transfer. 

We trust that the industry will recognize that Benjamin Franklin was right about prevention and cure and will embrace innovative solutions, sooner than later.

KEY TAKEAWAY:

--the life insurance industry must innovate to appeal to the next generation of consumers' appetite for fast, personalized and digital-first experiences.

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The COVID-19 pandemic threat led to a surge in life insurance sales: In 2021, the life insurance industry saw its greatest nine-month sales growth in 25 years. However, a LIMRA study shows this trend is reversing, especially for younger markets. In 2023, only 40% of Gen Z adults and 48% of millennials say they own life insurance, and nearly half say they don't have sufficient life insurance coverage. That figure represents 53 million adults.

Still, the same report finds interest in life insurance products is at an all-time high for younger adults, as 44% of Gen Zs and 50% of millennials intend to purchase life insurance this year.

Therefore, life insurers have an opportunity to grow their life insurance sales in untapped younger markets by leveraging technology and digital sales techniques.

Here's how carriers can close the gap with these younger markets:

AI Digital Assistants and Education

Lack of knowledge about life insurance is the greatest obstacle preventing younger adults from purchasing coverage. 40% of Gen Z and 29% of millennial parents say they haven't purchased coverage because they don't know how much coverage they need or what type to buy.

How life insurers educate and engage with younger adults will be critical. While Gen Z and millennials value personalized advice and education from human financial advisers, it's impossible to provide human assistance to each policyholder with different needs and levels of knowledge.

As a result, insurers are using chatbots powered by artificial intelligence (AI) to drastically speed up and simplify the purchasing process and provide an always-on, contextual, educational experience.

For example, digital assistants and generative AI-powered chatbots can answer questions about coverage, simplify complex insurance jargon, coach users through the insurance purchasing process, articulate why each step is necessary or connect prospects and policyholders with human advisers.

Omnichannel Customer Experiences

Today's younger generations of customers aren't just expecting online experiences; they want Amazon-like levels of efficiency and convenience. Despite the demand, a McKinsey study finds that only 11% of life insurers facilitate multichannel online product sales.

An omnichannel customer experience occurs when multiple marketing and service channels work independently but provide an integrated and seamless customer experience across all online and offline channels. This means designing customer journeys that allow for seamless channel-switching and ensuring the customer receives the same experience whether they are interacting through email, text, telephone, website, social media or customer portal.

While the life insurance sector has yet to reach a standard for omnichannel outreach, insurers have an opportunity to differentiate their offering by providing a cross-channel experience that meets the next generation of consumers on their preferred platform.

See also: Balancing Innovation, Compassion in Life Insurance

Personalized Pricing, Products and Customer Experiences

LIMRA says high premium costs and inflation are critical reasons why younger people do not purchase life insurance. The problem is lowering premium prices is easier said than done. Instead, insurers can capitalize on personalizing pricing, products and customer experiences.

Personalization enables prospects and clients to get the exact information and policy they want, allowing them to understand their policies and pricing better. Of course, life insurers will have to obtain large sums of customer data to provide personalized experiences and products. The good news is that many Gen Zs and millennials are comfortable exchanging personal health data (i.e., step counts, sleep data, etc.) from their Fitbits or Apple watches for discounts and personalized policies.

This opens up a massive opportunity for insurers to maximize customer engagement and attract more millennial and Gen Z customers with personalized experiences, discounts and rewards for healthy behavior.

Relevant Marketing and Creative Policies

Life insurers must find unique ways to make their products relevant to younger generations. Life insurance marketing often focuses on financial protection for a traditional family structure. Because a childless 25-year-old would likely have different priorities than a 45-year-old with a family, younger individuals usually skip life insurance. However, if life insurers allowed customers to customize their policies to support a particular cause, customers may be more open to purchasing coverage.

For example, some innovative life carriers position life insurance as a way to buy a tattoo for a friend, activate a charitable donation, care for a beloved pet or send a friend or family member on a trip to Europe. Life insurance is positioned as an act of love. The customer feels in control.

Through relevant marketing and creative policies, personalized life insurance can appeal to younger demographics by making it easier to understand and helping them protect and pay for things they care about. Personalization is critical to filling generational gaps in coverage.

Social Media as a Channel for Education and Digital Distribution

Younger people are likelier to use social media platforms like YouTube, TikTok, Twitter and Instagram rather than financial company websites to get financial advice and information and buy coverage.

According to a LIMRA study, 81% of Gen Z and 75% of millennials turn to social media for discussion, advice and information regarding financial topics. Over three-fourths of millennials use their smartphones for financial transactions.

Almost every insurance organization uses social media primarily to promote its brand and market products. While this will remain important, leveraging social media channels to engage, educate and provide self-service policy options to younger customers will play a significant role in the distribution and marketing strategies of life insurers wanting to capture the next generation.

Accelerated Underwriting

The traditional process of getting insured, which includes paperwork, in-person medical testing (i.e., blood work and urine tests), and a reputation for complexity, are key reasons younger generations don't bother purchasing coverage.

Younger customers want to buy life insurance the same way they buy anything else online: quickly and easily. As a result, many leading life insurers are embracing accelerated underwriting. According to a LIMRA study, three out of four life insurance companies in the U.S. and Canada have automated or accelerated underwriting programs.

Accelerated underwriting enables life insurers to make quick decisions on an application. Accelerated underwriting processes use predictive analytics, machine learning algorithms and various data sources, such as medical records, claims history and credit history, to evaluate the applicant's risk.

This lets customers skip tedious underwriting processes. Accelerated underwriting programs can reduce policy wait times for life insurance from 27 days to just 24 hours.

It is essential to position the speed and ease of accelerated underwriting in campaigns targeted to Gen Z consumers.

See also: Life Insurance Digitalized

Attracting the Next Generation of Life Insurance Customers

Owning life insurance can be life-changing for younger generations and their families. While 71% of insured younger parents would feel financially secure if a primary wage earner were to pass away, only 48% of uninsured parents would feel the same.

With so many uninsured and underinsured young adults, the life insurance industry must continue to innovate to appeal to the next generation of consumers' appetite for fast, personalized and digital-first customer experiences.

Let's get creative and think of new ways to reach these younger markets and close generational coverage gaps.

KEY TAKEAWAYS:

--Due to quantum computers' ability to solve problems like prime number factoring, which is used to protect internet communications, this technology poses a significant threat to the security of traditional cryptographic systems.

--Insurers must not only switch as quickly as possible to encryption algorithms that are impervious to quantum computing but must develop cryptographic agility, which allows them to switch encryption methods and algorithms as needed.

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As the world becomes increasingly reliant on connected technology, the threat of cyberattacks and data breaches continues to grow. These breaches can have significant financial and reputational impacts on businesses and organizations, and insurance companies have stepped in to offer protection against these risks.

The impact of security breaches can be severe, not only for the affected company and its customers but also for their insurers, investors and shareholders. The Firewall Times report on data breaches shows several high-profile data breaches at Discord, T-Mobile, Yum Brands and Uber, among others, just in recent months. The T-Mobile breach exposed personal information of 37 million customers. Past historic breaches where hackers gained access to sensitive information such as Social Security numbers, birth dates and addresses of over 100 million Americans had a significant impact on the insurance industry, with insurers facing payouts in the range of half a billion dollars.

These examples highlight the critical role insurance companies play in covering the costs of cyberattacks. The examples also underscore the need for insurance companies to keep up with the ever-changing nature of cyber threats and invest in new technologies to protect their customers. And a new form of computing is causing concern.

Quantum computers are a new breed with the capability to break the current public key encryption we all use. Insurance companies must evaluate this technology and its risks to continue providing effective cybersecurity protection coverage for themselves and their customers.

Quantum computing is a revolutionary technology that promises to solve certain complex problems that are impossible for classical computers. However, due to the ability to solve problems like prime number factoring, which is used to protect internet communications, this technology poses a significant threat to the security of traditional cryptographic systems. As quantum computing continues to advance, businesses and governments must protect against potential security threats.

The National Institute of Standards and Technology (NIST) is leading the charge in protecting against quantum computing threats. NIST is responsible for setting standards and guidelines for cryptographic systems used by the federal government and businesses. In 2016, NIST launched a competition to develop quantum-resistant cryptographic algorithms, known as post-quantum cryptography (PQC). In 2019, NIST announced the finalists for its PQC competition, which included 17 algorithms. These algorithms underwent further testing and analysis to determine their effectiveness and suitability for widespread adoption. In 2022, NIST announced four finalists, with four more being researched. As of December 2022, U.S. federal agencies are now required to shift to post-quantum security, with their private-sector vendors likely following suit.

PQC algorithms are designed to resist attacks by quantum computers. These algorithms use mathematical problems that are believed to be computationally difficult for both classical and quantum computers to solve, providing an extra layer of protection for sensitive data.

A critical component for post-quantum cybersecurity solutions is cryptographic agility, which involves the ability to switch encryption methods and PQC algorithms as needed. By adopting a framework for post-quantum cryptography and cryptographic agility for themselves and their customers, insurance companies can stay ahead of the curve and quickly adopt new encryption methods as they are developed. This approach can help to mitigate the risks of quantum computing and ensure that customer data remains secure.

See also: Quantum Technologies, Cybersecurity and the Change Ahead

Insurance companies have not developed products that provide risk protection against cyber security attacks specifically from quantum computing. With "steal now, decrypt later" (where cyber thieves hack into systems and steal data that they can't decrypt now but will decrypt later once they have a powerful enough classical or quantum computer) businesses might already be vulnerable, and the loss might not be adequately factored into the lifetime revenue of cyber products. However, some insurance companies are taking the lead by getting involved in quantum computing through quantum accelerators and innovative startups. This method has let many industry leaders dip their toe into quantum computing technology and understand the future opportunities and risks of this new technology.

Startups that have graduated from these accelerators have already developed post-quantum crypto-agile products that can be easily integrated into existing systems. One example is QuSecure. Their Post-Quantum agile products are already being evaluated in government agencies. These products provide secure communications and data protection resistant to attacks by quantum computers. By following the direction NIST and U.S. government agencies are taking and bringing these necessary risk management products and technology solutions to their customers, insurance companies can improve their own future bottom line and their customers' reputations by reducing quantum cyberattacks that happen down the road.

Insurance companies have a critical role to play in protecting businesses and organizations against the financial and reputational damage caused by cyberattacks and data breaches. However, as the threat landscape evolves, insurance companies must stay ahead of the curve by adopting new technologies and solutions. They can go a step further by connecting with existing companies providing post-quantum cryptography and cryptographic agility. By embracing these technologies, insurance companies can improve their bottom line by setting security policies and standards for their customers and ensure the security of their customers' data even if it gets in the hands of a nation state-sponsored quantum hacker today.

As wildfires continue to escalate in number and intensity, businesses across the U.S. face unprecedented challenges in safeguarding their assets and ensuring business continuity. The urban encroachment into once-rural areas, combined with overgrown forests and changing landscapes, has made wildfire preparedness a year-round necessity. Exploring the key challenges businesses encounter as well as the practical steps they can take to protect themselves is vital, especially now during National Fire Prevention Week. 

Understanding the Wildland Urban Interface (WUI)

The term "Wildland Urban Interface," or WUI, refers to areas where human development and natural landscapes intersect. These regions are particularly susceptible to wildfires due to their combination of urban and wildland characteristics. According to the National Association of State Foresters, more than 60,000 communities throughout the U.S. are at risk for WUI fires. 

As our cities expand, they often sprawl into previously undeveloped, rural territories. This expansion places more communities in closer proximity to wildlands and forests.

Additionally, mature forests with an accumulation of undergrowth and deadwood have become significant risks. These areas are more prone to intense wildfires that spread rapidly and emit scorching heat.

Businesses must maintain awareness of the landscape and environmental conditions around their locations year-round. Regular assessments of the risk factors, such as dry vegetation, deadwood and proximity to forests, should be conducted.

Businesses may implement defensible space practices, including using fire-resistant building materials, maintaining fire-resistant landscaping, clearing deadwood and vegetation and creating controlled pathways. Businesses can seek guidance from organizations such as the National Fire Protection Association (NFPA), which assesses vulnerability and provides valuable recommendations.

See also: Here Come the Wildfires

Businesses must also collaborate. A prime example is the Falls Creek area in Durango, Colorado, where a community approach, combined with defensible space strategies, helped protect homes during the 416 Fire in 2018. The mitigation work done by residents, such as clearing brush and cutting dead trees, was noticed and appreciated by firefighters. This collaborative effort saved homes and demonstrated the power of community-based resilience.

Leveraging Innovative Approaches

In the quest to mitigate wildfire risks, businesses should also turn to innovative approaches and technologies. Organizations like the NFPA, the Insurance Institute for Business & Home Safety (IBHS) and the Federal Emergency Management Agency (FEMA) offer valuable resources and guidance.

Here are some innovative strategies and technologies that businesses can consider:

1. Advanced Building Materials and Designs: Invest in fire-resistant building materials and designs that can withstand wildfire heat and embers. These innovations include fire-resistant roofing materials, ember-resistant vents and non-combustible siding. Embracing these construction techniques can significantly reduce the vulnerability of structures to wildfires.
2. Ember-Resistant Landscaping: Implement landscaping practices that minimize the risk of embers igniting vegetation around your business. This includes using fire-resistant plants, creating defensible space and replacing flammable mulch with non-combustible alternatives such as gravel or stone.
3. Firebreaks and Controlled Burns: Collaborate with local authorities and fire management agencies to create firebreaks and engage in controlled burns. These practices can help reduce the buildup of flammable vegetation and create fire-resistant zones around your business.
4. Smart Sensors and IoT: Deploy smart sensors and Internet of Things (IoT) devices to monitor environmental conditions, such as temperature, humidity, wind speed and direction. These sensors can trigger automated responses, like activating exterior sprinkler systems or closing fire-resistant shutters, when fire-related conditions are detected.
5. Community-Based Initiatives: Participate in community-based wildfire mitigation programs such as Firewise USA. These initiatives encourage collaboration among homeowners and businesses to create fire-resistant communities. They often provide resources, training and recognition for wildfire safety efforts.
6. Regulatory Compliance: Stay informed about local building codes and regulations related to wildfire resilience. Ensure that your business complies with wildfire safety requirements and incorporates them into construction and renovation projects.
7. Insurance Solutions: Work with insurers experienced in wildfire risk to tailor insurance solutions that cover the unique risks faced by your business. These solutions can include business interruption coverage, wildfire-specific endorsements and risk assessments.

Innovative approaches to wildfire mitigation should be tailored to the specific risks and challenges faced by your business and its location within wildfire-prone areas. By embracing these innovations, businesses can enhance their resilience and reduce the impact of wildfires on their operations and communities.

Balancing Cost-Effectiveness

Balancing wildfire preparedness with cost-effectiveness involves creating a comprehensive business continuity plan. This plan identifies key operations, personnel and potential shutdowns, enabling organizations to save money in the long run. 

These plans should often include performing a cost-benefit analysis of different preparedness measures, outlining the critical operations, key personnel and assets that need protection during a wildfire event, prioritizing proactive measures over reactive ones, reviewing your insurance policies, investing in wildfire safety training for employees and exploring government grants and incentives for wildfire mitigation. 

Remember that cost-effective wildfire preparedness is a continuing process that requires careful planning, regular assessments and a commitment to adapt to changing circumstances. By finding the right balance between cost and protection, businesses can mitigate wildfire risks without compromising their financial stability.

See also: A Breakthrough in Wildfire Safety

Insurance Considerations

Businesses operating in wildfire-prone areas should prioritize insurance considerations to ensure they are adequately protected. Key considerations include reviewing property insurance policies for coverage of wildfire-related damage, evaluating business interruption insurance to cover lost income and expenses during shutdowns and exploring wildfire-specific endorsements for enhanced protection. It's important to regularly update coverage limits, understand deductibles and maintain thorough records for claims purposes. Additionally, consider preventive measures for potential premium discounts and be aware of policy exclusions. Consult with insurance experts and incorporate insurance considerations into your business continuity planning.

In wildfire-prone regions, businesses should also assess post-wildfire risks such as flooding and evaluate the need for separate flood insurance. Periodic policy reviews and collaboration with experienced insurers can help align coverage with evolving business needs and risk profiles. By addressing these insurance considerations, businesses can better prepare for the financial impact of wildfires, ensuring a smoother recovery process and the protection of their assets and operations.

Closing Advice

Drawing from years of experience as a safety officer and former deputy fire chief, I encourage business owners and decision-makers to prioritize wildfire resilience. Wildfire prevention and protection can be summed up into five p’s: stay proactive, plan, practice, perform perpetual maintenance and partner with your local community.

Additionally, the FireWise community initiative, led by the NFPA, enhances community awareness and preparedness. It can help businesses stay informed, collaborate with neighbors and embrace wildfire safety as a continuing effort.

In the face of evolving wildfire challenges, together, we can build resilient communities that stand strong against the wildfire threat.

KEY TAKEAWAY:

--Outside experts play a vital role in accurately valuing the insured's belongings and providing like, kind and quality (LKQ) replacement products at best pricing.

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Inflation can have a significant impact on both policyholders and insurance companies. Failure to account for inflationary costs can result in underinsurance, where the insured value of the policy may fail to cover the actual costs of replacing or repairing damaged goods. This can leave policyholders facing financial burdens and disputes with insurance companies over coverage limits.

Let’s explore the importance of updated policy coverage and how insurance carriers and adjusters can help insureds recover under existing coverages.

Rising Costs of Goods Quickly Eats up Policy Coverage

As inflation drives up the prices of products and services, the existing coverage value may no longer support actual product replacement costs. This can leave policyholders bearing most of the replacement costs for structure and contents. 

Labor Shortages and Delays Affect Replacement Costs

Labor shortages and manufacturing or shipping delays can complicate the inflation and insurance coverage dilemma. With supply chain disruptions, certain items may become unavailable or difficult to replace. Even if replacement options are available, they will likely come at a higher cost. This can complicate the claims process and result in delays or unsatisfactory compensation for claimants. 

See also: What to Do About Rising Inflation?

How Carriers and Adjusters Can Help the Insured Recover More

Insurance carriers may try to save costs by avoiding hiring outside experts to perform contents valuations. However, this cost-saving measure can have long-term consequences, affecting the policyholder-carrier relationship. Outside experts play a vital role in accurately valuing the insured's belongings and providing like, kind and quality (LKQ) replacement products at best pricing.

Contents valuations enable the insured to recover more under the policy parameters. Without the help of contents valuators, carriers may appear to underpay policyholders and be seen as failing to provide adequate coverage.

Carriers should also offer additional help to the insured by allowing complete valuation of all loss items. Continuing the pricing past the policy limit allows the insured to use that data to possibly recoup their losses through deductions on their taxes.

Communicating the Importance of Updating Policies to Compensate for Inflationary Impact

Policyholders need to be aware of the importance of updating their policies to compensate for the inflationary impact of rising costs. This awareness gives them the opportunity of whole recovery during the claim process.

Similarly, insurance carriers must recognize the value of expertise and avoid short-term cost-cutting measures that can result in low policyholder confidence. By recognizing the negative impact of inflated goods, carriers can support policyholders by allowing for expert valuations of products to recover more under the policy parameters.

Awareness on the part of policyholders and insurance companies is crucial to account for the inflationary impact of rising costs, thus avoiding inadequate coverage and underpayment.