As the tides of time shape the economic landscape, each generation grapples with distinct challenges on the path to financial security. While previous generations had their share of hurdles, Gen Z finds themselves facing an unprecedented set of obstacles when it comes to planning for retirement. 

The instability of traditional employment structures has cast a shadow over the conventional approach to retirement planning. Unlike their predecessors, who often enjoyed stable, long-term employment and had company-sponsored pension plans, Gen Z navigates a gig economy characterized by short-term contracts and freelance opportunities. This lack of job security makes it challenging for them to envision a stable financial future, let alone plan for retirement.

In addition, Gen Z and millennials feel more stressed about their finances than other groups, said John Carroll, senior vice president and head of insurance and annuities, U.S. and Canada, LIMRA and LOMA. In general, Carroll said, baby boomers have done OK, and Gen X is doing pretty well. But young adults tend to worry more about their finances and about “things” in general and are also concerned about job security. To make things worse, social media, which the older groups did not have, is amplifying the bad news that is out there.

See also: Strategic Guide to Unlocking 'Gen Zalpha'

The rising cost of education serves as another formidable barrier for Gen Z. Faced with astronomical student loan debt, young professionals are forced to prioritize debt repayment over contributing to retirement funds. The burden of educational loans delays the onset of saving for the future and may limit their ability to build a robust retirement nest egg.

The volatile nature of financial markets adds an additional layer of complexity for Gen Z. Traditional investment strategies that served previous generations may no longer be as reliable. The rapid evolution of technology and the advent of cryptocurrencies introduce a level of uncertainty that demands a new approach to investment. Gen Z, often characterized by a preference for digital solutions, may find it challenging to navigate these complex financial landscapes without the guidance of established financial norms.

The concept of retirement itself is evolving. Gen Z, known for their adaptability and inclination toward experiences rather than possessions, may not subscribe to the traditional idea of retiring at a certain age. The changing nature of work and the desire for a more balanced life may lead Gen Z to pursue alternative models, such as phased retirement or continued involvement in the gig economy post-formal retirement age.

The environmental and social consciousness of Gen Z further shapes their retirement aspirations. The prioritization of values like sustainability and social impact prompts them to seek retirement options that align with their ethical beliefs. This shift requires the financial industry to adapt and offer retirement plans that integrate environmental, social, and governance (ESG) factors, ensuring a seamless convergence of personal values and financial strategies.

The digital age, while providing Gen Z with unprecedented access to information, also introduces new challenges in terms of managing and securing their financial futures. The prevalence of online platforms and digital assets raises questions about the security and longevity of their financial investments. As the boundaries between physical and digital assets blur, Gen Z must grapple with the task of safeguarding their wealth in an increasingly connected world.

See also: Rethinking Insurance With a Gen Z/Millennial Mindset

How to address these challenges?

Financial institutions need to revolutionize their approach to financial and retirement planning to attract Gen Z. Tailored financial education programs that cater to the unique circumstances of Gen Z can empower them with the knowledge and skills necessary to navigate the complexities of the modern financial landscape. Having flexibility in retirement plans, acknowledging the dynamic nature of employment and accommodating non-traditional retirement goals will be crucial in capturing the attention and trust of Gen Z.

Here are a few tips I would like to give Gen Z:

1. Start small: You don't need to invest a lot of money to get started. Sign up for a term insurance policy as soon as you can
2. Set up a regular investment plan: One of the best ways to save for retirement is to set up a regular investment plan.
3. Increase your contributions over time: As your income increases, try to increase your retirement contributions.

Conclusion

Despite the growth in life insurance premium from 2021 through 2023, the gap in the number of young adults who say they need life insurance and those who actually own life insurance has been growing, said Alison Salka, senior vice president and head of research, LIMRA and LOMA. “We conduct the Insurance Barometer Study each year with Life Happens, and in general, the need gap has been growing, especially among younger groups, “ Salka said. Only 40% of Gen Z have life insurance, presenting a great opportunity to reach out to them.

The hurdles Gen Z faces in planning for retirement are a reflection of the rapidly changing economic, social and technological landscapes. As they navigate through gig economies, educational debts and the evolving nature of work, Gen Z finds traditional retirement paradigms increasingly irrelevant. Financial institutions and policymakers must adapt to these shifting dynamics, crafting innovative solutions that align with the values and aspirations of Gen Z. Only through a collaborative effort can we pave the way for a retirement future that meets the unique needs of this generation.

How can P&C insurers remain profitable in 2024?

Insurers ended 2023 with a combined ratio of 103.3%. Numerous challenges contributed, including inflation, climate change and rising reinsurance rates. While these challenges largely lie outside insurers' control, the times signal a need for strategic technological adoption to help them offset difficult seasons. 

AI has emerged as a formidable tool in this battle, particularly advancements in computer vision models and large language models (LLMs).

When we delve into these specific AI use cases, their real-time impact becomes evident. Computer vision and machine learning models trained on aerial imagery and geospatial data can generate detailed attributes of property condition. LLMs tell underwriters anything they need to know about a property to reveal otherwise unknown insights.

How does leveraging these tools help insurers streamline operations, minimize losses and cut expenses? Let’s explore.

Maximizing Insights Through Computer Vision

One key to overcoming profitability hurdles isn't relying solely on technology or aerial imagery alone. It involves unlocking deeper insights and better managing risk exposure through AI-driven insights from aerial imagery. Underwriters armed with this technology get a comprehensive view of risk exposure, allowing them to see the unseen for any property in their portfolio.

Computer vision models scan property imagery to detect and spotlight specific attributes, such as missing shingles on a roof, ponding and tree overhang. With up-to-date imagery, insurers can swiftly communicate any changes in risk exposure to the insured. For instance, a property with significant tree overhang may lead to problems with the insured’s roof. If the roof condition has dramatically degraded, insurers can demonstrate the new risk factors to the insured, helping both the insured and insurer. The insurer can also take immediate policy action and avoid surprises at renewal. Proactivity not only helps bridge insurer-insured communication gaps but also predicts and prevents potential losses before they happen. It’s a win for everyone. 

Consider the insurance customer that slashed time service from 5.5 days to 1.5 with the addition of property intelligence-based computer vision technology. The ability to bypass traditional, time-consuming physical inspections had a huge financial impact. That same customer produced a true run rate savings of over $1.4 million. For a company with $200 million in direct written premium, this reduction in budget and external inspection costs as well as the expedited service delivery was significant for our customer, the agent and ultimately, the insureds. 

See also: AI at the Center of CL-AI-MS

Generative AI and LLMs

As exciting as the boom of LLMs has been, with the rise of OpenAI, this form of AI isn’t new, but the nuances of its applications are. So what role do LLMs play in profitability?

Consider the use of computer vision to manage property risk already discussed, and now pair these insights with an LLM. You move from seeing every detail to being told every detail of property condition and risk exposure. This includes structural vulnerabilities and location-specific hazards, parsed from an aggregation of datasets that include real estate databases, weather patterns and claims history.

An underwriter can now say, “Tell me what I need to know about this property,” or, “Tell me what I need to know about the geography.” Or more specifically, perhaps the underwriter is looking at properties in a coastal, flood-prone area. They may first ask, “Can you tell me about the annual average precipitation in the area?” And then can follow up by saying, “Show me the first floor height of this property.” In essence, the LLM will not only relay factual data but apply advanced algorithms to project future risk scenarios, providing a probabilistic forecast of flood events and their potential impact on the property’s value and insurability.

This is significant when you consider what an underwriter typically does when writing new business. Rather than rely on a single source of truth, they are forced to order costly physical inspections, check multiple websites to ensure data is accurate and leverage mapping software without AI insights. Underwriters can dramatically reduce the time and expense of these tasks by incorporating holistic data on properties, in addition to ML-derived data, and fusing these sources together in an LLM. From there, an LLM sifts through the entire portfolio of properties, automating the extraction of key data points and synthesizing them into a clear view of risk. It's akin to consulting an insurance genie to surface the most comprehensive answers. This new process helps underwriters better understand their risk profile, manage policies and optimize their time and expertise where it’s needed most. 

See also: Balancing AI and the Future of Insurance

AI’s Future in P&C Insurance

P&C insurers should seriously consider leveraging AI for profitability and efficiency. Although it is still early to see AI’s full financial impact, and questions loom about bias and regulatory issues, it is likely here to stay. The insurance industry has highs and lows, but the right AI tools can be the constant that helps insurers remain steady when rough patches come. Not to mention, investing in it now will set new standards for innovation, streamline operations and dramatically enhance workflows for the future.

The bad news, of course, is that agents and brokers have had to deal with a lot of angry and confused clients as premiums for auto and homeowners insurance have soared.  "If you talk to any agent right now who has been in the industry for 20-plus years, they're saying that this has been the most challenging market they have ever seen," said Kasey Connors, vice president of marketing operations at the Independent Insurance Agents & Brokers Association. 

The good news? "There is a light at the end of the tunnel," she said, and "if we can make it through this, we can make it through anything."

I spoke to Connors for this month's interview because of a consumer survey the IIABA released in December that found a startling number of people considering changing carriers in the face of surging rates or even dropping coverage, despite legal requirements for auto insurance and contractual requirements for homeowners insurance for anyone carrying a mortgage. 

She said those trends are continuing but added that many agents and brokers have made headway with clients by communicating extensively with clients. Agents and brokers are helping them understand the numerous economic factors, including soaring costs for parts and labor and the surge in the number and severity of natural catastrophes, that are forcing premiums higher. Many customers are also learning from agents and brokers about how to save money by choosing higher deductibles, she said. 

In any case, inflation has dropped, and prices have even declined for some materials and parts. J.D. Power predicts that used car prices will drop 5.7% in the U.S. this year, after skyrocketing during the supply chain disruptions that the pandemic produced. So some of the pricing pressures are abating.

In a follow-up survey, agents reported having success in this still-tumultuous market by emphasizing four areas: communication with clients and partners; technology to improve efficiency; remarketing; and team morale. 

Elaborating on the need to improve efficiency, Connors said, "Our survey found that almost 80% of agencies are getting more phone calls, so demands on staff are increasing." In terms of boosting morale, she said, "We found that at least 30% to 40% of agencies were implementing additional staff training."

Connors added: "Agencies that are looking at improving their business processes are being the most successful."

So a bit of a mixed bag from the IIABA research, and there's plenty of work ahead of us. But for the first time in a while that light at the end of the tunnel seems to show an opening ahead for agents and brokers and isn't the headlight of an oncoming train.

Cheers,
Paul 

---

DOES THE P&C INSURANCE CYCLE NO LONGER EXIST?

The hard market/soft market cycle has reigned for decades, but COVID shocks and a host of new technologies may be ending it. 

A REALITY CHECK FOR GENERATIVE AI

It may require a 50X increase in processing workloads, which means P&C insurers need a modern, cloud-based infrastructure.

HOW PARAMETRIC INSURANCE FILLS IN GAPS

With many carriers excluding certain natural catastrophe perils, brokers can fill coverage gaps for clients with parametric policies.

NFL USES AI TO WIN; SO CAN WE

There is much to learn about how AI was used while we were eating buffalo wings and chips during the big game.

PREDICTIONS FOR LIFE INSURANCE IN 2024

For instance: 2024 will be the year that the wellbeing of those 65 and older becomes a major topic of conversation for their children. 

AI BIAS IN LIFE & ANNUITIES INSURANCE

Left unchecked, biases can lead to discriminatory outcomes, potentially putting certain individuals or sectors at a disadvantage.

Paul Carroll

I was interested in the consumer survey you published in December and figured we'd start there. Can you tell me a bit about the highlights? What are the situations that agents and their customers are facing these days because consumers are shopping more, or just acting differently than they have in the past?

Kasey Connors

For the last 18 months to two years, we have been hearing from agents on how much they've had to educate their clients on a number of factors and topics. We wanted to conduct that survey to really understand, from a consumer standpoint, how they're looking at their policies.

We saw that a little bit over 30% of respondents said they were not aware that there were external economic factors affecting their premiums, like supply chain issues, social inflation, rising litigation, soaring reinsurance costs, etc. Knowing that so many were not aware of these issues reinforces the value of independent agents, who serve as the information conduit between the industry and consumers.

Additionally, we learned, unsurprisingly, that consumers are really looking at price as a main driver and are putting their policies under a lot of scrutiny.

Paul Carroll

The survey was released in December, but I assume the basic trends are continuing?

Kasey Connors

I do think we’re facing the same main factors. We're starting to see inflation come down slightly. Insurance premiums can be influenced positively by interest rate decreases, but those things take time. I think we're going to continue to have a multitude of natural disasters. Overall, I think consumers are still looking at their price point, they're looking at their bottom line, they're putting their policies up for renewal.

At the same time, I think more consumers are starting to understand the effects of supply chain disruption and litigation, too. Now that we have been in a challenging market for a while, many agencies have adapted and are driving home with consumers the effects of the economics of the business.

As an aside, many of my friends don't work in the industry, but they've sent me emails from their agencies explaining the reasons that premiums are rising right now, and some of the bullet points are the very same that we shared with our members.

We have also seen some increase in consumers forgoing insurance altogether, which we hope will decrease as things stabilize. People are being educated that they can reduce rates by taking higher deductibles, but what is most important is that they are having that conversation with their agents to understand where that risk is really coming from.

Paul Carroll

So communication is big, to get in front of the confusion and dismay about rising rates. Is there anything more agents can do, beyond educating customers and preparing them for the fact that rates are going up all over the place?

Kasey Connors

Yes, and this is interesting timing, because we just released a follow-up survey with agents about how they're adapting to this marketplace. We really focused on four areas. The first is communication, with their clients and partners. There is also technology, and how agents are leveraging it to improve efficiency. Our survey found that almost 80% of agencies are getting more phone calls, so demands on staff are increasing. Agencies should also look at their remarketing ratio, as well as having renewal processes in place. Finally, we see that agencies can increase their focus on team morale.

Overall, agencies are thinking about their processes right now, and that is super important.

Paul Carroll

I'm curious about a couple things. One is, how do you recommend that people take the load off as long as 80% of agencies are getting more calls? Is this more self-service? Is this chatbots? How do you handle an influx of phone calls?

Kasey Connors

I think this varies depending on agency size and resources. We have seen some agencies leveraging technology more by using an AI feature to handle some of those direct communications via a chatbot. We have seen others automating their email workflows to really have that be more proactive in initiating renewals.

I think people have also looked at how they are aligning their staff and remarketing accounts based on how a client is affected. Many are only looking to remarket those that have a premium increase of 20% or more.

Some agencies are rethinking what the best client structure might be, as well. This might be a time where agencies are going to be looking at adding niche business lines or using other methods to increase their base book.

Agencies that are looking at improving their business processes are being the most successful.

Paul Carroll

The other question was about morale. It can't be a whole lot of fun to have clients calling up and yelling at your staff, who have to deliver bad news to people about rate increases. I'm wondering what agencies can do to improve the situation for their agents?

Kasey Connors

As part of the agents’ study, we found that at least 30% to 40% of agencies were implementing additional staff training. So, agencies are equipping their front end staff with ways to handle those situations. Agencies can also offer help to staff around mental health or just health in general.

There is a light at the end of the tunnel. If you talk to any agent right now who has been in the industry for 20-plus years, they're saying that this has been the most challenging market they have ever seen. If we can make it through this, we can make it through anything.

Agencies are having those important conversations with their staff and promoting the feeling that we're all in this together.

Paul Carroll

This is great. Do you have any final summary thoughts?

Kasey Connors

We know this market has been extremely challenging but Independent agents are positioned really well right now as they're able to be the real advocates and consultants to their clients and to support them.

It can be a lot more work for agencies currently. So it is important for agencies to review your business processes, as well as educating both your clients and your staff and leveraging technology when possible.

There's a lot of resources out there. Join an industry association, leverage your connections and talk to your peers about what technology is working for them and how you can get more out of what you already have. Leveraging your connections and relationships is even more important than ever as we lean on both our carrier partners and other industry contacts.

Paul Carroll

I’m certainly hoping things settle down this year and think they could.

Thanks, Kasey.

About Kasey Connors

Kasey Connors serves as the VP of Marketing Operations of Trusted Choice, the national brand representing more than 25,000 Independent Agents who are members of the Big "I". Kasey also oversees digital marketing support for members, helping independent insurance agencies nationwide with their websites, content, technology, and automation to improve efficiencies and grow their business. Kasey has been with the Big “I” for six years. Kasey serves on the board of the Insurance Marketing and Communications Association (IMCA). She is also an officer on Invest, a national program that educates high school and college students on insurance, financial services, and risk management topics.

Insurance fraud costs the US $308.6 billion dollars every year through higher premiums and elevated medical and legal costs. Broken down further, the FBI estimates P&C insurance fraud to be around $40 billion annually. It is estimated that the cost of casualty fraud adds another $6.8 to $9.3 billion to auto casualty losses every year. For Workers’ Compensation, claim and premium fraud is estimated at $34 billion annually.  

Following these numbers, it comes as no surprise that managing fraud within the insurance industry continues to be a global priority for stakeholders in the insurance industry. Insurance costs have been on the rise in recent years due to many different macroeconomic factors — and fraud only adds to the costs. Insurers must do all they can to mitigate and manage fraud in the insurance business. 

Read More

 

Sponsored by ITL Partner: FRISS

Several years ago, I took my daughters on a tour of Civil War battlefields so the younger one could search for ideas for her senior thesis. She came away with a great idea that helped her get an "A." I came away thinking: Holy smokes, there are a lot of personal injury lawyers in Alabama, Mississippi, Kentucky and Tennessee. 

It seemed that every single billboard in those states was an ad for a personal injury lawyer--and we saw a lot of billboards. With my antennae raised, I've seen ads for personal injury lawyers just about everywhere, ever since -- ESPN+ broadcasts of my Pittsburgh Penguins even do split-screens so they can show personal injury lawyer ads while the game continues. 

Is there really that much money floating around in personal injury law that they can make sure I see attorneys wherever I turn?

Apparently.

And that's not just an expanding version of an existing problem for insurers; the problem is morphing into a quite new sort of problem by drawing in the massive resources of private equity. Investing in lawsuits against insurance companies or in companies that facilitate those suits is becoming a standard investment type. PE companies invest in oil leases, farmland, manufacturing operations and... lawsuits against insurers.

So more lawsuits will be filed. Plaintiffs will be able to sustain them longer. Demands will be higher, and so will settlements. 

Unless insurers do something about them -- and a game-changer like a massive infusion of private equity demands a game-changer of a response.

Let's start with some data:

--Taylor Smith and John Burge write in a piece this week for ITL that EvenUp Law "has raised $65 million and has a valuation of more than $325 million. They use AI to craft demand packages for personal injury attorneys, including facts, damages, liability estimates and detailed special damage analyses.... EvenUp asserts that they drive up the value of claims by 30%.

"AI is being used by the plaintiff bar to pick the best cases and pick the best venues, right down to quantifying the impact of facing off against specific insurance companies.... A January 2024 Bloomberg Law article highlighted how AI will enable litigation funders to invest with greater precision and effectiveness, especially in smaller cases – a segment litigation funders have typically avoided."

--Wesley Todd writes this week that the term "nuclear verdicts" is becoming obsolete. Those verdicts are "merely" at least $1 million, when many verdicts now exceed $10 million -- which he calls thermonuclear verdicts. He estimates that insurers are paying about $75 billion in settlements each year. 

He writes that "the consequences of unfettered litigation are exemplified by events such as the world's largest personal injury firm filing an astonishing 25,000 lawsuits in a single week in 2023.... Business is so good that one $30 billion technology investment fund just purchased another litigation tech company. Wall Street is deploying hundreds of millions of dollars to remove any obstacles to plaintiff attorneys acquiring as many claimants as possible."

--Our friends at Triple-I report that an investment yield of more than 20% is being generated by publicly traded and private third-party litigation funders, "transforming the legal landscape into an investment market."

The Triple-I says every American household pays an estimated annual “tort tax” that averages $3,621 and cites a 2021 study by the Perryman Group that found that legal system abuse resulted in the loss of 4.2 million jobs, $110 billion in government revenue and $429 billion in output in the U.S. each year.

How to respond?

The key change that seems to be needed is to become more like the plaintiff bar and to focus on settlement amounts, not process.

Yes, regulatory constraints force insurers to document everything they do and to be able to prove that they're treating all clients equitably, in some ways tying insurers' hands. But many don't seem to have even begun to change their thinking. 

Taylor and Bruge say, "For most commercial carriers, the negotiated amounts written on the settlement checks represent the largest expense for the company.... [But} the P&C Industry has focused nearly all technology on managing legal expenses, which only make up about 20% of total loss cost."

They add that insurers can use AI just as aggressively as the plaintiff bar does. 

"AI can help us quantify the economic risk of facing a specific plaintiff attorney or being in a specific venue," Taylor and Bruge write. "It can identify which attorneys take cases to trial and which do not. It can identify the verdicts they have obtained. [And], in the same way EvenUp Law prepares demand packages for personal injury attorneys, AI can assemble facts and negotiation points for claims professionals and defense attorneys."

A fundamental change in the thinking about litigation will take a lot of discipline, mental force and communication, communication, communication -- but realizing that you're staring down the barrel of an industry with trillions of dollars of assets should focus the mind.

Cheers,

Paul

P.S. My one brush with a potential personal injury lawsuit came many years ago, when I was cycling along the Palisades in New Jersey, just north of the Lincoln Tunnel. A driver didn't see me at dusk and turned left right in front of me. I was going a good 25mph -- young and fit, as I was -- and couldn't avoid her. I smashed into her hard enough that I put a dent in her car with my hip and another with my head -- later, when I took off my helmet, it came apart in more than a dozen pieces. I was knocked unconscious. 

But I came to the moment I hit the pavement and felt fine. The driver was mortified and very responsible. She gave me her insurance information and took down my name and contact information. After assuring her I was fine, I got back on my bike and rode the final five or six miles to my condo in Hoboken. 

Six months later, I got a call from her insurer, Allstate, to let me know they were getting ready to close the file but first wanted to make sure I was still okay. And good for Allstate. But just imagine if I'd said I'd been having headaches or muscle spasms, or was thinking of hiring a lawyer. That could have been a nice check.

But I hadn't once thought of the accident in those six months, and I was raised as an altar boy, Eagle Scout kind of kid, so it never occurred to me to invent symptoms. I said I was fine, and that was the end of it.

As it should have been. 

 

 

The theme of 2024 is “new challenges, new rules, new mindset” for the personal lines insurance industry. While combined ratios are expected to improve this year as increased rates take hold, expediting the return to profitability will require finding new ways to solve profitability issues. According to McKinsey, carriers who double down on innovation can create up to 20 times more value than their competitors, making this year a prime time for insurance carriers to boldly innovate. Meeting market challenges will be accomplished utilizing the next-generation tools that are shaping the future for the insurance industry. Carriers standing head and shoulders above the competition are the ones embracing innovation and thinking of how they solve problems differently.

Keep Your Best Policyholders

Consumers hit hard with renewal policies fraught with rate increases and personal lines experiencing the industry combined ratio as high as 103.4% at the end of September 2023. P&C Specialist reported auto insurance rates were up 12.3% over the previous year, and homeowners industry-wide rates increased by 10.3%. It’s been a rough-ride for everyone.

As carriers experience loss ratios and combined ratios rising, the cumulative impact of inflation and rising loss costs are problems big enough they cannot be solved by one increase. The challenge will be to keep the best customers and move away from rating plans using the lowest risk individuals to subsidize the losses seen with their highest risks.

Rising Personal Lines Shopping

Additionally, the industry is seeing a rise in personal lines shopping. The first-quarter of 2023 saw the most shoppers in more than 2 years. Unlike previous years, shopping is not solely by price-sensitive consumers. P&C insurers have been seeing more of their best, most loyal, and most profitable customers shop around for new coverage to ensure that they are getting the best rate. A recent TransUnion study found over the past 2 years the insurance shopping population has had more people with high credit scores compared to the traditional  “shoppers” who were higher-risk consumers.

While carriers scrambled to increase rates in 2023 to fix profitability, many cut advertising. Yet, with rising price shopping, investing in advertising spend is advantageous due to the large groups of shoppers and will reap benefits. The key strategy is to avoid adverse selection and to understand which customers have an adequate rate and who falls outside of the rating plan at the earliest possible point.

Reduce Tech Debt To Win

Gone are the days of allotting all technical resources to replacing legacy policy administration systems and programming rate changes. In an effort to keep ahead of market challenges, carriers are starting to shift thinking about long-term initiatives that tie up technology resources. Those who are able to devote resources leveraging new tools and digitizing the service and claims experience, in addition to supporting core operational functions of their businesses, will emerge as big winners in the evolving industry landscape.

Development in AI Regulation 

Key states like New York, Connecticut, California and Colorado have been early in contemplation of how to regulate the industry’s use of Artificial Intelligence, and most recently the NAIC approved a blueprint for using AI and third parties. The bulletin provides guidance for development of AI-system programs to mitigate the risk to customers through governance, risk management controls and internal audits and guidance for contractual relationships with vendors providing AI solutions.

Carriers should continue forging the path forward to use AI-powered solutions to solve their biggest challenges, and become more educated on how to evaluate both internal controls as well as that of their vendor partners to understand the appropriate risk management framework while leveraging AI.

Measure Fairness Differently

Building on the focus on AI regulation, carriers focusing on understanding how to clearly define fairness in the industry will be well-prepared in the coming years. In 2021 Colorado’s governor signed Senate Bill (SB) 21-169 to protect residents from unfair discrimination “on the basis of race, color, national or ethnic origin, religion, sex, sexual orientation, disability, and gender identity” by requiring insurers to test their data, algorithms and predictive models to ensure they are not discriminating against protected classes. Through dedicated discussions, the industry seeks to understand how to objectively measure existing bias in current insurance rating and practices and how to measure this among various protected classes. It’s certain that new perspectives in rating and underwriting practices are required to ensure the industry upholds its standards of fairness.

Seamless Digital Service and Digital Claims Handling

With the price shopper market, carriers focusing on improving the service and claims experience can emerge successful by using technology to provide a more seamless customer experience in the policy service and claims process. JD Power reported personal lines insurance companies having a “very easy” digital claims process see twice as many customers renewing. However, the aim of efforts is not only to provide a great customer experience, but also drive efficiency to reduce expenses.  Incorporating new data sources at every operational point, furthers the seamlessness of how processes are designed. Optimizing the digital customer experience for customers with new policies, policy changes and during a claim is key to profitability, customer retention, and operational excellence.

Large Language Models (LLMs)

Generative AI and LLMs (large language models) are a hot topic as carriers consider how these technologies can be harnessed to automate processes. Key learnings for carriers can center on what LLMs can and cannot do, and where human support will be needed. As the rate of new technology increases, carriers are cautioned that the traditional approach of not being first-movers but fast-followers may not be a sustainable position.

Beyond Proof of Concept to Test and Learn

The insurance industry deserves high praise for its willingness to test new technologies and innovations. However, the number of initiatives lost in the operational priorities of the business are astounding. This often happens when the company culture penalizes failed initiatives. The most innovative insurers are those adopting a “fail fast” mindset where teams become less afraid of failing and see the opportunity cost of never trying to innovate. The message for industry leaders is to empower teams to move initiatives with compelling business results beyond the Proof of Concept phase into an environment of “test and learn” to see real-world results, and act in an agile manner.

2024 will no doubt bring about major changes as carriers course-correct to improve profitability. Some of these solutions will take form in the traditional measures of changing rates and revisiting underwriting rules and some will incorporate emerging technologies and new ways of thinking. Ultimately, insurers will need to start doing things differently to ensure a competitive advantage.

 

Sponsored by ITL Partner: Pinpoint Predictive

 

Pinpoint’s Head of Client Services is Shannon Shallcross, a TEDx speaker and 2021 Entrepreneur in Residence for the Breakthrough Lab Accelerator at Brown University. Shallcross has decades of experience as an executive leader, entrepreneur and advisor in insurance and data science. She has advised many Fortune 500 clients on analytics strategy and was the Co-Founder of BetaXAnalytics, a data science company that pioneered cutting-edge capabilities in artificial intelligence to pull actionable insights from data. Prior to this, Shallcross spent 12 years running operations in 18 states for Amica Insurance, where she was also responsible for the company's proprietary credit-based insurance scoring model. She has a Master of Science degree in Insurance Management from Boston University.

---

Paul Carroll

To start us off, would you give me your general sense of where we are as an industry at the moment?

Shannon Shallcross

This is a really challenging time, from so many angles. Going back to 2022, we started to see carriers feeling a lot of pain, specifically on personal lines, as inflation increased loss costs. All of a sudden, no one's rates were adequate for auto or homeowners, not even close. Carriers have been scrambling to get rate increases, but right now almost no personal lines carrier can say their combined ratio is at a profitable point.

Everyone is concerned about their AM Best rating, but even if you don't get downgraded, the industry still has a negative outlook.

Then we have reinsurance. P&C carriers are having to very tightly manage how they're bringing in money, but what they have to pay to get reinsurance is completely unregulated at a time when the market is very volatile. You see carriers that are getting squeezed from all sides.

I believe carriers need to get laser-precise about their ability to truly understand risk and act on those insights as early as possible because they just do not have the luxury to have any processes that are not optimized. That's really the key to help their return to profitability.

Paul Carroll

That is a great setup for what I want to ask about innovation. The insurance industry is not known for innovation, even though it's been a huge adopter of some of the most advanced computer and data technologies for a very long time. How do you get people to embrace innovation in ways that maybe they haven't before so they can tackle some of these problems you're describing?

Shannon Shallcross

In some ways, the profitability problems we're seeing now are both a blessing and a curse—a blessing because carriers will have more of an appetite to find solutions when they're feeling that pain.

In insurance, as you know, the carriers are typically slow to lead but fast to follow. A lot of times, a carrier is not going to want to implement a new solution when they don't know that several others have traveled that path before them and have seen that the solution worked.

Now we're at a point where so many new technologies are exploding, and no one really knows what problems they can solve. The industry is being forced to test and learn in real time. We don't have the ability to wait three years to see what the clear winner is. There's really a race to find the technologies that are going to help us to solve the real problems that we have today.

Paul Carroll

You have an interesting perspective, having worked on the carrier side and then also having founded a data analytics company that you sold prior to joining Pinpoint Predictive. What does the right answer or the right culture look and feel like?

Shannon Shallcross

This really goes for any company, not just for the insurance industry, but creating the right company culture to allow people to truly embrace innovation is the key.

In the insurance industry—and I can say this because the first 12 years of my career I worked on the carrier side—people are largely risk-averse. They don't want to be taking on initiatives if there's a possibility they could fail.

But in anything having to do with technology and innovation, failure is part of the story. The only way you can get to the solution that really works is by finding out what doesn't work. So it's really helpful, particularly for carriers, to adopt a company culture where someone's career is not going to be over if they end up trying something that fails.

The idea of failing fast is a very healthy one. When you have a proof of concept that has really compelling business results, great. Let's try it. But if it doesn't work, we're going to shut it down really quickly. That doesn't mean your career is going to be over.

A lot of times in this industry, there is that fear that if I fail one or two times, things are going to be over. We need to set a culture within our own companies that failure is part of getting to the solution. That is the way we're going to solve problems.

We just want to fail fast and move on and try that next thing. That's what is really going to help this industry embrace innovation.

Paul Carroll

I'm a big believer in engendering corporate myths. Part of the reason is that when I covered IBM for the Wall Street Journal in the ‘80s and ‘90s, I saw how much some stories from their early days shaped how people thought and acted. My favorite is about Tom Watson Jr., who was the ferocious CEO in the ‘50s, ‘60s and into the ‘70s. At one point, he called somebody into his office after the guy had lost $10 million on a project. Watson asked the guy why he thought he’d been called in, and the guy said, “I assume you called me here to fire me.” Watson said, "Fire you? Hell, I just spent $10 million educating you. I just wanted to be sure you learn the right lessons."

I can’t even count the number of IBMers who told me that story. And I wonder if you've seen stories like that used elsewhere, or what you have seen senior management do that can engender this sort of culture that believes in noble failure.

Shannon Shallcross

That's a really great story. And it shows why the messages need to come from the top.

You have to instill the belief that failure is okay. You fail quickly, you pivot on to the next thing and that is okay. Failure has to be part of the innovation story, for long-standing companies and for startups.

Paul Carroll

It's also been my thesis that it's sometimes easier to instill a culture of noble failure with smaller companies than with huge companies. Are you seeing things you can do at Pinpoint Predictive that maybe the carriers weren't doing when you spent your 12 years there?

Shannon Shallcross

Well, I've seen a lot of changes since 2002, when I started in the insurance industry. You probably know this quote from Eric Schmidt from Google, "There were five exabytes of information created between the dawn of civilization through 2003, but that much information is now created every two days." That quote was from 2010. At this point, it might only take one day to create five exabytes of information.

When I started in the insurance industry, it was very much, "Here's how we win this game. We are going to keep an eye on our rates, and we're going to keep an eye on our underwriting roles, and those are the only tools that we have to run our business." Now, there's so much more information, so much more data, so many more innovative tools that are available to help us to run our businesses well.

The rate of change in technology over the past two decades has been mind-boggling.

Paul Carroll

In my experience covering technology, Gen AI has had a more sweeping debut than anything other than perhaps the internet, and probably even more than the internet. So I'll ask, first, how you're seeing that play out, and then I want to ask you a little bit about the regulation of it.

Shannon Shallcross

This is probably one of the first times we have stumbled on a technology where we don't quite know where this is going to go. Even people who have been involved with bringing ChatGPT to the public have said as much. This is why it's great to see that the people who have been so close to bringing these technologies to fruition are the ones who are the biggest proponents for placing reins on this technology. We need to make sure we are doing things that are making the world a better place.

Paul Carroll

Do you have thoughts on how those guidelines ought to develop or maybe how the insurance industry ought to act in the meantime, while we set up the proverbial bumpers as we try to roll the bowling ball down the lane?

Shannon Shallcross

I think education is first and foremost. The worst thing that can happen is that people don't look beyond the headlines. They just say, Okay, New York is starting to regulate artificial intelligence, or Colorado is regulating artificial intelligence, and they interpret that as a bad thing. It's actually a good thing.

It just requires education from our leaders, especially on the vendor side. We at Pinpoint have been at the forefront of this for a long time and have been helping to educate even our clients. Now to see a little bit more definition coming out from a regulatory standpoint is really important.

The second key is developing the appropriate risk management framework in your company. This was outlined in the NAIC bulletin that they released in December 2023 on regulating the use of artificial intelligence and how carriers are working with vendors. That piece talks about the importance of having that risk management framework. It's just doing that due diligence to make sure people understand how to evaluate these solutions and how to put the proper guardrails in place to ensure that they're being managed properly.

Paul Carroll

I've always found it interesting that while people think of innovation in Silicon Valley as this sexy thing and insurance as this sort of dull industry, there's actually no innovation that happens without insurance. You can't have Google driverless cars and all that sort of stuff until somebody figures out a way to deal with the risks. So I think there's some hand-in-glove interaction going on between insurance and Gen AI that can probably benefit all of us.

Any final thoughts?

Shannon Shallcross

I’ll add a final thought on the regulatory piece, only because this is a topic of such interest right now to carriers.

We, Pinpoint Predictive, embarked on a third-party AI audit that we finalized in 2023. We do risk predictions for the insurance industry, and the audit was to ensure that the data we were using was not adding bias to the modeling process. The auditor also made sure that all our processes and modeling conformed to any existing regulation and looked ahead to the next five years. If the insurance industry starts to look to other industries to mirror some of their regulation regarding bias or discrimination, how would that change the context of how carriers can use artificial intelligence?

The auditing company that we partnered with is called Luminos Law. They were amazing. They partner with Fortune 500 companies to advise them on their use of artificial intelligence. They also have weighed in for governmental bodies and helped to release the NIST AI risk management framework. So they definitely know not only artificial intelligence but also understand specifically the insurance industry. The other thing that's cool about them is they employ data scientists. They basically perform this level of due diligence that a carrier would not be able to; they invest the time and resources to go through all the thousands of data points that we use, and also to put us through rigorous statistical tests to check for bias.

We took this audit on because this is something that's always been really important to us. We have provided carriers with all of the guardrails that we have in place, but until the audit, it was just a "trust us" thing. We never had our data and processes verified by a third party.

This level of due diligence was a very large undertaking for us, but we learned a lot in the process. We came through with a clean bill of health, but everything we learned we turned around and used to help educate some of our clients, who had a lot of the same questions on how one evaluates artificial intelligence. What do you even look for?

Insurance is all about fairness. When partnering with any third party that's using an artificial intelligence solution, it is best practice to ensure that they have had a third-party audit of their use of artificial intelligence just to ensure that you're doing the right thing and have the right controls in place.

Paul Carroll

I think that's very smart. I think audits will have to be implemented very, very broadly. A lot of this AI stuff is just a black box. You don't know what's going on in there. And there has to be some way to double check and make sure that the decisions are being made based on real data and not on gender, race, any number of other things that should not be part of the decisions.

This was great. Thank you so much for your time today.

 

Sponsored by ITL Partner: Pinpoint Predictive

The plaintiff bar’s unprecedented investment in AI presents a real and present danger to the insurance litigation defense industry. It is a danger that is only now starting to show on the radar screens of chief claim and litigation officers. This article explores why it is such a threat and why the first response must be, at a minimum, awareness.

The P&C insurance industry runs the largest negotiation network in the world. Annually, 30,000-plus claims professionals assign out over a million litigated claims to 30,000-plus defense attorneys with one goal in mind – negotiating a good outcome. A full 98% of those cases will settle.  

In negotiation, success boils down to two critical factors: (1) having better data than your opponent and (2) being able to use that data to negotiate more effectively. Data is critical to eliminating uncertainty, quantifying risk and predicting value. And those who have data to use in their negotiations do better than those that don’t. 

Let’s start with a real-world example of how the plaintiff bar is leveraging technology to do this. EvenUp Law is a company that has raised $65 million and has a valuation of more than $325 million. They are helping personal injury attorneys leapfrog P&C in two areas:

1. GenAI demand packages. They use AI to craft demand packages for personal injury attorneys, including facts, damages, liability estimates and detailed special damage analyses. They use AI to tell stories to maximize general damages. The plaintiff bar has always “sold” their demands better than we “sell” our offers, and now they are doing that on steroids.  EvenUp asserts that they drive up the value of claims by 30%.
    
2. Tech-enabled data sharing. EvenUp has started a contributory database for the plaintiff bar. The plaintiff bar has always been better at sharing data than the defense.  We have been talking about a contributory litigation database for 20 years but have yet to actually do it.

That’s just the start. AI is being used by the plaintiff bar to pick the best cases and pick the best venues, right down to quantifying the impact of facing off against specific insurance companies. Investors see the opportunity in this, and money follows opportunity. A January 2024 Bloomberg Law article highlighted how AI will enable litigation funders to invest with greater precision and effectiveness, especially in smaller cases – a segment litigation funders have typically avoided. Insurance companies will see more cases funded by third parties, not fewer. 

See also: AI and the Future of Independent Agents

Social inflation, nuclear verdicts and legal system abuse have been three tenets of our industry conversation for years now. If you believe those trends present existential risk to our industry now, just wait until AI takes hold. The plaintiff bar is poised to adopt AI much faster than the defense given their advantages in a few key areas:

1. Data accessibility. Plaintiff firms value their data and store it one accessible spot. On the defense side, it tends to sit in highly disparate data sets. There is a disconnect, a gap, and inconsistency between data at the defense firm and data in the claims department. Critical components of the data remain unstructured and unusable. Names of attorneys and law firms are spelled differently, and key data is not reliably recorded in the claim system, which frequently fails to capture offers and demands and sometimes even settlement amounts.
    
2. Economic incentives. Plaintiff attorney economics strongly encourage AI adoption. Their very compensation is driven by maximizing outcomes while minimizing expenditures through less work. The benefit that AI offers is completely synergistic with their desire for efficiencies. Generative AI is not a threat to them, it is a massive opportunity!
    
3. Minimal IT barriers. If a partner at a personal injury firm wants to use AI, then that means it is going to happen. They don’t face extensive IT and compliance approvals, politics or backlogs. If something improves performance, they can just do it.
    
4. Sharing mentality. The plaintiff bar loves to share. They hold an abundance mentality and don’t let competitive concerns get in the way. Chief claim and litigation officers want to share, but they have to convince layers of legal and IT teams that data sharing is good and necessary, which has proven an insurmountable hurdle for the last 20 years. Personal injury law firms don’t have that hurdle.

At its core, AI is about either creating data where there is none or creating insights into data in ways just not humanly possible. Or both. But the real power of these insights is in how they can be used to negotiate better outcomes. And while the plaintiff bar charges ahead, claim professionals and defense attorneys are left to negotiate as all humans do in the absence of data --  they engage in reactionary bargaining and anecdotal predictions and rely on their maturity, seasoning and experience to guide them.

There is nothing wrong with that – negotiation is half-art, half-science. But we’re not going to win by ignoring the science part, and we operate in an industry where both claim department and defense firms are finding it difficult to find and keep experienced people. The plaintiff bar is rapidly becoming systematic in their approach, and we badly need to catch up.

See also: Balancing AI and the Future of Insurance

How will we respond to this threat? What might that response look like? Let’s explore three use-case scenarios for AI in the defense industry. Each is designed to support better negotiations and to put tools and actionable data in the hands of the claim professionals and defense attorneys who desperately need those things. 

1. Better analyze risk. AI can help us quantify the economic risk of facing a specific plaintiff attorney or being in a specific venue. It can identify which attorneys take cases to trial and which do not. It can identify the verdicts they have obtained. I am a better negotiation decision-maker and strategist when I know this. 
    
2. “Sell” our offers. Second, in the same way EvenUp Law prepares demand packages for personal injury attorneys, AI can assemble facts and negotiation points for claims professionals and defense attorneys. Defense teams benefit from “selling” their offer amounts with evidence and with conviction, just like plaintiff attorneys “sell” their demand packages. I am a better negotiator when I do this.
    
3. Negotiate with strength. The winner of the negotiation is usually the one who has attained a superior position of information. Predicting your opposing party’s walk-away number is the key piece of information to attaining an optimal resolution. Your opposing party will happily take $1 more than their walk-away number, or $250,000 more. Imagine the use of AI in a tool that helps claim professionals and defense attorneys zero in on that walk-away number, establish bargaining zones and predict the impact of anticipated legal activities (costs) against that bargaining zone. Keeping the business economics of every litigated claim squarely top-page and top-of-mind makes me a better negotiator. Additionally, AI will be better than we are at predicting and quantifying nuclear verdict risk. Ultimately, it will help in guiding and advising defense teams on offer cadence, anchoring effects, legal spend efficiency and overall negotiation strategy. 

For most commercial carriers, the negotiated amounts written on the settlement checks represent the largest expense for the company. Contrast that with the fact that less than 10% of defense attorneys who perform the actual settlement negotiations report any formal training in negotiation science.  Then factor in the plaintiff bar blazing past the defense in their use of AI tech – heavily focused on gaining negotiation advantages. 

When it comes to litigated claims, the P&C Industry has focused nearly all technology on managing legal expenses, which only make up about 20% of total loss cost. It is time for P&C to get just as serious about indemnity as the personal injury attorneys who make their living from it, which means it is time to get serious about AI tech and data. 

And it needs to happen fast – we have never been faced with technology that is moving as fast as it is today.

As cyberattacks become more frequent, sophisticated and damaging, fueled by AI-powered tools, a surge in insurance claims related to these incidents is anticipated. This surge is expected to trigger a collective response within the insurance industry, prompting a reassessment of policies. Much like regions grappling with the aftermath of hurricanes, where damage insurance policies became unsustainable, the escalating cost of cyber claims will force insurance companies to reevaluate their offerings.

See also: Risks, Trends, Challenges for Cyber Insurance

Stricter Requirements for Leadership

In response to the rising tide of cyber claims, insurance providers are expected to impose new restrictions. A notable development will be the enforcement of stricter requirements for board members and executives. Leadership will be mandated to possess a comprehensive understanding of cybersecurity, reflecting the growing recognition that effective cyber risk management begins at the top.

Leadership teams will need to demonstrate expertise in areas such as security and ransomware. This shift aims to ensure that organizations are not merely reactive in the face of cyber threats but are actively engaged in preventative cybersecurity measures. Consequently, there will be a push for the establishment of robust processes and technology frameworks that facilitate effective incident response.

2024 will also usher in an era where organizations go beyond merely requesting recovery in the aftermath of a cyber incident. Instead, there will be a paradigm shift toward well-prepared checklists and measures in anticipation of potential cybersecurity attacks, incorporating a "shift left" approach to bolstering defenses and minimizing vulnerabilities from the outset.

As the industry navigates these changes, organizations must stay abreast of evolving cyber threats and assess their cyber insurance needs meticulously. The collaboration among insurers and businesses in implementing effective cybersecurity measures is set to become a cornerstone in mitigating the financial impact of cyber incidents.

Mandating Comprehensive Security Frameworks

This year, insurers will push for stricter policy conditions that mandate comprehensive security frameworks, including:

• Regular security audits and penetration testing: Identifying vulnerabilities before they're exploited is key. Expect mandatory audits and penetration tests to become the norm, ensuring systems are constantly under scrutiny. Moreover, there may be requirements that anyone performing pentests or incident response are those that are trusted in the industry and have a demonstrable track record. This could include references to ensure these frameworks are executed by security practitioners with keen insight and experience.
• Robust incident response plans: The days of scrambling after a breach are over. Insurance companies will demand well-rehearsed incident response plans, with clear roles and responsibilities for each team member. As with pentesting, insurers may require incident response teams with trusted industry expertise and a proven track record, ensuring effective handling of cyber threats.
• Investment in cybersecurity technology: Implementing advanced security tools like intrusion detection systems and endpoint protection will become a non-negotiable requirement for securing coverage. Insurers may also require evidence of continuous monitoring and updating of these technologies to stay ahead of evolving threats.

The shift toward preparedness is not just about cost reduction for insurers; it's about protecting businesses and their customers from the devastating consequences of cyberattacks. By prioritizing prevention and resilience, the insurance industry can play a crucial role in building a more secure digital landscape.

See also: Cyber Trends, Risks and Opportunities in 2024

A New Era of Partnership Among Businesses and Insurers

In the evolving landscape of the cyber insurance industry, success may hinge on insurers taking a proactive approach. With the understanding that frequent large payouts can diminish profits, insurers may opt to deploy their own subject matter experts (SMEs) to guide new clients toward sustainable success.

While we can rely on existing knowledge frameworks like the MITRE ATT&CK, the real danger lies in what we are unaware of. Instances such as nation-state actors infiltrating systems for years underscore the critical need for heightened vigilance. As we move into 2024, collaboration, information sharing, and diligent attention to blind spots will be paramount.

The insurance industry is poised for transformation as cyber threats surge, necessitating stricter policy measures and a deeper integration of cybersecurity expertise. This paradigm shift signifies a move beyond premium adjustments toward a resilient partnership among organizations and insurers, reinforcing our collective ability to combat cyber risks.