I'll warn you: I'm grumpy. 

I'm seeing an awful lot of sloppy language that obscures the highly worthwhile innovation happening in insurance, and I need to vent. So I shall. 

Let's start with the biggies — I'm looking at you, "transformation" and "disruption." Those words get tossed around so casually in insurance that they've lost all credibility. 

The internet transformed commerce and just about everything else. The iPhone disrupted communication. A system that is designed to make underwriters 10% more efficient and that might actually deliver 2%? Not so transformational or disruptive....

And our weakness for lofty language can make us soft-headed, so we describe improvements in the most abstract, high-minded way imaginable... and lose all meaning. Just in the past week, I've seen a company describe itself as a provider of "intelligent water solutions." What's a water solution, intelligent or otherwise? Another company called itself a "service provider." As opposed to a product provider?   

The industry's innovation is important, and we're pressing forward on so many fronts that we're continually improving. We can do so much better by our clients, our investors, and ourselves if we can just sharpen our language about what we're doing — and not doing.

I have thoughts.

If I had my way, I'd just dispense with all the forms of "transformation" and "disruption" for the time being. Yes, both are possible. Generative AI looks like it will deliver major, perhaps even transformative, efficiencies all across the board. I'm also bullish on the possibilities for the Predict & Prevent business model, which would turn the traditional approach to insurance on its head by selling what people really want — security — rather than indemnifying them after a loss (as important as that is).

But any disruption will take time, and, in the meantime, we've been hitting the transformation claims so hard and for so long that they've become background noise for clients and investors. I also worry that we may be breathing our own exhaust. I watched IBM fall apart in the late '80s and early '90s as executives fell for their own claims that they were leading the innovation in personal computing and were the low-cost producer. I don't want anyone in insurance to get complacent about how much work lies ahead of us. 

In journalism, stories are generally cut from the bottom, because the more important facts had better be up high, but at ITL I reasonably often find myself cutting articles from the top, sometimes eliminating the first two or three paragraphs. The reason? A fair number of authors begin with broad claims about transformation and disruption on behalf of the industry, and we've all read that kind of thing before. I want to cut to the chase and get at what's actually new.

I also may cut references to studies because they're just designed to make us all feel good (and to get quoted) without shedding any light. For instance, Bloomberg reports that Gen AI could become a $1.3 trillion business in the next decade. But what's a Gen AI business? Sure, Open AI, Gemini, and other large language models are Gen AI businesses, but what else is getting lumped into that number? Apple is about to unveil iPhone models that will incorporate AI into Siri. Does that mean sales of those models will count toward Bloomberg's number? Some percentage of sales? I've begun using an AI to do preliminary editing on articles I publish. Do my time savings count toward Bloomberg's number?

Again, I'd argue for precision — who's doing what to whom, when and how? — rather than toss around big numbers as part of our grand concepts. 

A lesser, but still important, issue is that far too many companies can't seem to be precise about what they do. It's almost as though they've taken their mission statements and turned them into company descriptions without accounting for the fact that the external audience has none of the context that the internal audience has. 

A company that sells technology that detects water leaks may see itself as being in the business of water solutions, but the rest of us don't think about "water solutions." A company may imagine itself "a property and casualty insurance organization that prioritizes simplicity, transparency, and savings," but that sounds like motherhood and apple pie to me. Doesn't everyone value simplicity, transparency, and savings? Why not delete the statement of values and tell me specifically further down how you differ from your competitors (if you, in fact, do)?

And whatever you do, don't get so caught up in the flowery language that you lie to me. An announcement last week said a company was turning claims into a profit center for agencies. In fact, the company sells a system designed to speed claims, saving money for the agency while making customers happier and more loyal. A profit center is a distinct business with its own profit-and-loss statement, so you can save me all the money you want and increase customer loyalty like crazy, but your system still doesn't create a profit center for me. Credibility... gone. 

I understand the need for marketing and for companies to generally talk up what they do. I'm just saying there needs to be credibility about the claims, both because we need to have the trust of external audiences and because we need to be honest with ourselves.

Back in the 1990s, when I was still at the Wall Street Journal, a trend developed among the start-ups I'd meet with. Every single one began its presentation with a slide saying they had the best people. I came close to telling an entrepreneur or four, "No, you don't have the best people. The three start-ups I met with last week have the best people. They told me so, and I have their presentations right here."

I guess this isn't the first time I've been grumpy.

Cheers,

Paul

P.S. Two nits:

• I'd avoid the word "digital," as in the company that recently described itself as "the technology leader that unlocks the potential of digital insurance." Digital is the water we swim in, the air we breathe. The transistor, which made digitalization possible, was invented going on 80 years ago. The microprocessor was invented more than 50 years ago. Apple is about to hit 50. Google has its 26th birthday next week. "Digital" just doesn't have the cachet it once did, and there are much more precise ways of describing what you're doing — in terms of operational efficiency, moving transactions online, or whatever.
• Loads of companies make their descriptions hard to read by just jamming a string of modifiers together in front of whatever the main noun is, often with hyphens connecting them. Here is a mild example from the past week: "the leading financial operations automation platform for insurance businesses." God created pronouns, prepositions, and verbs for a reason. That description would read so much better with just two additional words, as "the platform that automates financial operations for insurance businesses." (Yes, I took out "leading" for a reason. It's a harmless enough word and is certainly used a lot, but if you're really a leader then you don't need to tell anyone. They'll know. Nobody needs to tell you that Steph Curry is a "leading" basketball player.)

I've been waiting for going on 15 years to see real progress in the deployment of grid-scale batteries, ever since I was part of a sort of SWAT team at the Department of Energy in 2010 that invested $37.5 billion of Stimulus Act money to foster innovation. 

Matt Rogers, a senior partner at McKinsey at the time and the leader of the group, made all the sorts of investments you'd expect in solar, wind, etc. but also focused on ensuring that those sources of electricity could be incorporated into the grid. That meant a focus on batteries, to store power for the times when the wind wasn't blowing and the sun wasn't shining. And those batteries had to have enormous capacity, not just enough for a car or even a home but for a town or even a city. 

Battery prices have, in fact, declined at an almost magical rate, down 81% in the past decade as measured in price per kilowatt hour. But the focus of innovation has been on small batteries — for your Fitbit, your iPhone, your car. Grid-scale batteries are a different beast entirely. They have to be radically cheaper than those used in consumer devices and thus are based on different chemistries entirely. 

I've seen evidence of progress for years, but everything was still very experimental — until this past week, when two articles described a series of projects that have moved through the early stages and either have gone live or will soon do so. 

The effects on insurers will take years to play out, but there has been so much industry interest in climate change that I thought I'd share the latest developments.

I, for one, am encouraged. 

The article describing the more concrete progress concerns California — where else? The San Jose Mercury News reports that grid-scale batteries are being used effectively to handle the surges in electricity demand from air conditioners in the state's hot summers. 

The article says:

"Four years ago this week, California’s power grid was so strained by a heat wave that rolling blackouts hit hundreds of thousands of residents over two days. It nearly happened again two years ago, when state officials issued 11 “flex alerts” asking businesses and homeowners to voluntarily reduce electricity use to avoid power disruptions.

"But this year when a record heat wave scorched the state over three weeks from mid-June to July — sending temperatures across the Bay Area and the Central Valley soaring over 110 degrees — there was plenty of power. No warnings. No shortages. No flex alerts."

The reason:

"Battery storage has increased sevenfold in the past five years in California, from 1,474 megawatts in 2020 to 10,383 megawatts now. A megawatt is enough electricity to run 750 homes." 

In other words, California has the capacity to run 7.8 million homes off batteries, at least for short stretches such as those that occur in the evenings, when sunlight is diminishing as people are returning from work and cranking up their AC. 

And the state is just getting going. The article says California has 175 large-scale battery storage projects in operation, up from 36 five years ago, and has "dozens more planned or under construction.... On some days this year, battery power has become the largest source of electricity on California’s power grid. On Wednesday, a record 8,320 megawatts of battery power was on the grid at 7:35 p.m., the equivalent of 16 natural-gas-fired power plants running full power, or four nuclear power plants... running at peak capacity."

The benefits go well beyond reliability for consumers. As I learned during my stint at the DOE, so-called peaker plants have had to be kept on standby to handle the roughest stretches of summer in hot climates. Many only operate for dozens of hours a year, but they had to be there or those ACs would stop functioning in some late afternoons and evenings. Those plants are the most expensive to operate and pollute the most, so anything that keeps them offline cuts costs and emissions disproportionately, and being able to get rid of them would take out a whole layer of expense for the utilities.

The plant featured in the Mercury News article is using what seems to me to be a stopgap solution, based on the chemistries used in consumer batteries. It says the PG&E storage facility that has replaced a natural gas unit at the famous Moss Landing plant — if you ever drive down the Monterey Peninsula, you see its 500-foot concrete towers for miles before you get there — uses 256 Tesla “Megapack” units, "gleaming white steel boxes, each about the size of a shipping container and weighing 56,000 pounds, [that] were built at Tesla’s Gigafactory near Reno." 

But, stopgap or no, the plant is providing practical experience for PG&E about storing and distributing power, about tapping into the existing lines that connect with the grid, and so on. Such lessons will be useful for PG&E and others, no matter what chemistries are eventually used in large-scale batteries.

The more speculative, but perhaps more intriguing, application of grid-scale storage was written up in the New York Times. It concerns a project in Becker, Minn., a town of 5,000 about 50 miles northwest of Minneapolis, where one of the nation's largest coal plants is being retired and a massive solar farm and batteries are being built. The article adds that Becker, where the solar project is to go online next year, "is one of the first of a group of seven Minnesota municipal areas, called the Coalition of Utility Cities, making the change from a fossil-fuel-based economy to clean energy."

I find the Becker example especially intriguing because it uses a more experimental chemistry that, if everything works as planned, could be used broadly. While Tesla uses the lithium-ion technology that appears in most consumer applications — and lithium is expensive these days — the Becker project relies on water, air and iron. When the iron is allowed to rust, the battery discharges electricity; when the battery is recharged, the iron is deoxidized, and energy is stored for later use. 

The initial project is far smaller than what's happening in California but is still designed to be able to power 2,000 homes for as long as five days. And Xcel Energy, the utility that is building the solar project using batteries from Form Energy, is undertaking a similar project in Pueblo, Colo., and a smaller one, based on different battery technology, in Aurora, Colo. 

We're still a long way from home. My brother in St. Paul, Minn., can easily go more than five days in winter without seeing any appreciable sun, so energy storage will have to get much denser and prices will have to drop far lower before there can be a full-on switch to renewables based on grid-scale batteries.

But I'm taking hope anywhere I can find it these days, and I've been waiting a long time for grid-scale batteries to make it into the implementation phase.

Cheers,

Paul

Artificial intelligence is helping to solve data fragmentation within the agriculture industry, removing technological barriers to integrating and standardizing data across the ecosystem. For insurers, AI enhances risk management by improving claims processing and underwriting accuracy as well as reducing the chances of fraud.

That is critically important now that climate change is deeply affecting the agricultural sector. 

More extreme weather events more often, shifting precipitation patterns, and increasing temperatures have upended old models. That’s prompting growers to rethink their operations and leading financial firms to find ways to adapt insurance offerings to reflect this volatility.

The Data Challenge

Data can inform the decisions organizations make and the actions they take, and we’ve seen an explosion of field-level data as drones have begun to collect imagery and in-field sensors gather information. But, until recently, scalability and limited processing power have been a technical challenge, and the agriculture sector (among others) has struggled with diverse and sometimes siloed data sets, various data formats and a lack of standardization.

Regional land survey data, crop production reports, weather data, and market reports may differ slightly between counties or states. Sometimes the same data are presented in different formats or reported over different intervals, such as hourly vs. daily. Even essential information like crop types and weather events can be coded differently across data sources.

Additionally, different data sources might keep reporting bad data when a sensor is broken.

All that has left organizations to compile data sets individually, update data using manually intensive processes, and sometimes base decisions on incomplete or bad data, leading them to the wrong outcomes. If a company or operation doesn’t understand historic weather or yield trends, for example, it might miscalculate regional risk or adopt a less-than-optimal management practice. 

See also: Risk Management Strategies for Agribusinesses

How AI Helps

But AI platforms and the powerful, scalable computing resources that now underpin them, provide advanced tools to integrate, standardize, and analyze data from diverse sources. 

AI can generate uniform, complete data sets that have the same set of data for all fields in an entire portfolio and incorporate new data at regular automated intervals. AI also can identify and remove outliers or interpolate when data is missing for a period or region.

By defragmenting data, the ag ecosystem for the first time can compile, access, and benefit from complete data sets about cropping health and history, management practices such as planting dates, soil health practices like cover cropping and reduced tillage, and more. People can also compare crops with crops from other years or benchmarked across other fields in the region. 

Organizations have access to more data than ever. With AI, companies can evaluate data quality and quickly combine data for real-time decision-making.

This benefits the entire ag value chain – growers, landowners, lenders, and insurers.

Trending insurance use cases

For insurers, enhancing the claims process and improving underwriting accuracy are two use cases where AI shines. Here’s how AI works and adds value in these two scenarios.

Enhancing claims processing

One way that AI drives claims processing improvement is via automated damage assessments. AI leverages remote sensing and machine learning to identify crop anomalies or damage patterns. That makes it easier to measure and model specific parts of the field or plants damaged by a weather event and to precisely quantify those details. As a result, insurers can reduce their reliance on in-field inspections and do faster, more accurate claims assessments.

AI can allow for faster claims determinations, too. That can shave the time it takes for growers to get paid from months to days or weeks, so everyone across the ecosystem benefits.  

Additionally, AI can analyze historic data such as claims data, cropping history, and satellite imagery to identify unusual patterns. It can then flag claims with inconsistencies or identify behaviors that indicate a potential for fraud. An inconsistency might involve discrepancies between reported and observed damage. A behavior might be not planting the reported crop. 

See also: Risk Management for Agriculture

Improving underwriting accuracy

AI also can fuse and analyze historic and in-season data such as crop yields, management practices, soil conditions, and weather patterns, to help with risk assessments. That helps underwriters predict the severity or likelihood of an event, which can provide the intelligence they require to set appropriate premiums.

Insurers can also leverage AI for dynamic or customized policy development. This could involve using historic and current-year data to create a detailed risk management profile for a policyholder or region and establish customized insurance products to allow an insurer to reach new markets, for instance. A dynamic policy might adjust premiums based on real-time data. This could also be used as an incentive to encourage regenerative practices like cover cropping or reduced tillage that have gradual but long-term effects on soil health and land resiliency.

Improved risk management through early alerts is another area in which AI can add value. By using AI to build predictive models, a grower could get an early alert about a pest or disease outbreak and take preventative action, like applying a costly pesticide to the most at-risk fields or parts of fields. In this kind of scenario, both the grower and the insurer could limit their losses.

The bottom line is that AI can improve financial partners’ loss ratio through more efficient and accurate claims processing, establishing more accurate risk assessments and targeted policies, and enhancing and automating fraud detection. In the process, AI benefits growers, who can enjoy better risk management, more targeted interventions, and optimal use of resources.

As the insurance industry navigates the complexities of a rapidly changing market, a significant debate has emerged. Will traditional insurers — with their established practices and deep-rooted presence — continue to lead, or will digital-first insurers seize the future, driven by innovation and customer-centric approaches? This question has become increasingly pertinent as patron expectations evolve and technology reshapes the risk management landscape.

The Evolution of the Insurance Industry

The insurance industry has seen considerable changes over time, primarily influenced by evolving risks, technological advancements, and regulatory frameworks. Initially, insurance was a basic system designed to protect against specific risks, such as fire or maritime losses. Policies were often tailored to each client, and the underwriting process relied heavily on personal relationships and qualitative assessments. As economies expanded and risks became more complex, the sector saw the emergence of standardized policies and actuarial science, which introduced statistical methods to more accurately price risk.

In recent years, digital technology has enabled the industry to innovate and adapt to a rapidly changing world. Integrating big data and analytics has revolutionized underwriting, claims processing, and customer engagement, allowing insurers to assess risks with unprecedented precision.

Moreover, the rise of insurtech — technology-driven companies focused on insurance innovation — has accelerated the adoption of new models such as peer-to-peer insurance, usage-based policies and parametric insurance. These advances are enhancing efficiency and personalization and expanding access to insurance in underserved markets, fundamentally reshaping the risk management and protection landscape.

Key Characteristics of Traditional Insurers

Traditional insurers have built a reputation for reliability and trustworthiness, often supported by strong regulatory frameworks. Below are some of the key characteristics:

• Risk pooling: They operate by pooling the risks of many individuals or entities. This means the premiums collected from policyholders are used to pay for the claims of those who suffer covered losses. By spreading risk across a large number of policyholders, traditional insurers can offer protection at a relatively predictable and stable cost.
• Underwriting: Traditional insurers evaluate factors such as health, occupation, lifestyle, and property details to determine the premium rates and terms of the insurance policy.
• Policy standardization: They often provide insurance policies where the terms, coverage, and exclusions are essentially the same across many customers, with little room for customization. This standardization streamlines the process of selling and managing policies.
• Regulation and compliance: Traditional insurers are heavily regulated to maintain sufficient reserves to pay claims, operate fairly, and protect policyholder interests. They must comply with a range of legal and financial standards set by regulatory bodies.
• Claims processing: They verify the validity of claims, assessing damages and determining appropriate compensation. This is usually a manual process and can be time-consuming.
• Distribution channels: Traditional insurers typically sell their products through a network of agents, brokers, and direct sales teams. These intermediaries educate customers, assess their needs, and find suitable insurance products.
• Investment and financial management: They manage large pools of premium income, which they invest in various assets to generate returns. This helps ensure they have the funds necessary to pay claims and other obligations.

Key Characteristics of Digital-First Insurers

Digital-first insurers — also known as insurtech companies — have distinct characteristics that set them apart from traditional insurers:

• Technology integration: Digital-first insurers leverage advanced technologies such as artificial intelligence (AI), machine learning, and big data analytics to streamline operations. This integration enables more accurate risk assessment, personalized policy offerings, and efficient claims processing.
• Customer-centric approach: They focus heavily on user experience, offering easy-to-use digital platforms for purchasing policies, managing accounts, and filing claims. This often includes mobile apps and online portals that provide 24/7 access to insurance services.
• Customization and flexibility: These insurers often provide highly customizable policies tailored to each client's specific needs. They offer innovative products like pay-per-mile car insurance, on-demand coverage, and microinsurance, which allow customers to adjust their coverage based on real-time needs.
• Cyber insurance: Cyber insurance is a rapidly growing sector providing coverage against digital threats such as data breaches and cyberattacks, resulting in over $4 billion in losses in 2020 alone. It’s particularly relevant in the digital-first space, where protecting sensitive information is crucial.
• Automated processes: Digital-first insurers rely on automation for many aspects of their operations, from underwriting and policy insurance to claims and adjudication. This reduces administrative costs and speeds service delivery.
• Data-driven decision-making: They use extensive data analytics to inform decision-making across all business areas. This includes using customer data to predict risk, optimize pricing, and improve customer engagement strategies.
• Direct-to-consumer sales: Many digital-first insurers bypass traditional intermediaries such as brokers and agents, selling directly to consumers online. This model allows for lower costs and more competitive pricing.
• Focus on innovation: Constant innovation is a hallmark of digital-first insurers. They’re often at the forefront of developing new insurance products and services, using emerging technologies such as blockchain, telematics, and the Internet of Things (IoT) to create more efficient and responsive insurance solutions.

See also: How Everybody Wins in a Digitized Insurance Market

Customer Experience and Expectations Are Priority

Customer experience and expectations have become critical determinants of success. Traditional insurers — long established, with extensive infrastructures — have historically focused on reliability and comprehensive coverage. However, they often fail to deliver the seamless, personalized experiences modern customers expect.

The traditional model’s reliance on face-to-face interactions, paper documentation, and slower response times can seem like a hassle to a digitally savvy clientele accustomed to the instant gratification of the online world. As customers increasingly value convenience, transparency, and quick service, traditional insurers are under pressure to innovate and adapt their offerings to meet these evolving expectations.

On the other hand, digital-first insurers are rapidly gaining ground by prioritizing customer experience at every touch point. These brands use technology to streamline processes, offering intuitive mobile apps, AI-driven customer support and chatbots, and personalized policy options. The ability to customize coverage, receive instant quotes, and file claims efficiently online resonates strongly with today’s customers.

Digital-first insurers also excel in providing transparency and simplicity, making insurance more accessible to those who may have found traditional processes confusing or intimidating. Their focus on user experience — often manifested through mobile apps and responsive customer service — builds strong consumer relationships and loyalty.

As the insurance industry faces a critical juncture, the model that will dominate will likely be the one that most efficiently aligns with customer expectations. Digital-first insurers currently have the advantage, as their approach meets and often anticipates customer needs, positioning them as leaders in this new era.

See also: The Need for 'Digital Fluency' in Insurance

Integrating the Two

The insurance sector's future may not be a clear-cut victory for either model. Integrating traditional and digital-first insurance can be a strategic move. Traditional insurers bring a wealth of experience, extensive customer bases, and robust regulatory frameworks to the table, which are valuable assets in a highly regulated sector. By adopting digital tools and methods, these insurers can enhance their existing infrastructure, improve operational efficiency, and exceed customer expectations.

For instance, integrating digital underwriting processes and automated claims handling can streamline operations and provide a more personalized customer experience. This hybrid approach allows traditional insurers to leverage their strengths while modernizing their offerings.

Conversely, digital-first insurers can benefit from integrating aspects of the traditional model, such as building deeper customer relationships and offering more comprehensive policy options. They can also enhance their credibility and trustworthiness, which is crucial in an industry where customers seek security and reliability.

A combined approach can enable digital-first enterprises to expand their reach and scale more effectively. Thus, the future of the insurance sector may not necessarily be a zero-sum game between traditional and digital-first models. Instead, it could see the emergence of hybrid insurers that blend the best elements of both worlds, offering a comprehensive, technologically advanced and customer-centric experience. This integration could provide the optimal path forward, meeting diverse customer needs and adapting to a rapidly changing market.

A Collaborative Future

As the industry evolves, it becomes clear that the future of insurance may lie in collaboration rather than competition. By embracing a hybrid model, insurers can take advantage of both approaches, ensuring they remain relevant and responsive in a rapidly changing environment. The key will be to focus on what matters most — delivering value, building trust, and meeting changing customer needs.

Ultimately, the model that will dominate the future of insurance isn't about being purely traditional or entirely digital. It's about being adaptable, innovative, and customer-focused. Insurers that integrate these elements successfully will be best positioned to lead the sector forward.

What have we learned in seven years?

One of my favorite quotes comes from Mark Twain, who once said, “When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much he had learned in seven years.” 

I used the quote at my father's funeral in recognition of his patience during my troublesome teenage years. This came back to me when I reviewed the first half of 2024. One of the features of my year to date is how well I’ve been getting on with the insurance industry – better than at any other time this millennium, and I was wondering why.

For context, I should say that for the last 25 years of my career I have been involved in the digitalization of the insurance industry. Originally, I was a platform builder, and more recently a partner of InsTech – a “community for the curious,” which sits in the nexus between insurance and technology innovation. It champions solutions, whether from startups or big tech, that can make insurance better. So, I’ve always been on the outside selling in, relatively free to express my views, and I have done that with a degree of candor that has occasionally involved rocking the establishment boat -- usually by complaining about lack of technology investment, foresight, and leadership.

But I find myself doing that less and less. I don’t seem to be upsetting people so much, either – although there are exceptions! Am I softening at the end of my career? I wouldn’t be the only one to get more conservative and traditional as I aged. Or has the progress that the industry has made in recent years brought it closer to my more reformist agenda? I think it’s a bit of both, and here’s why:

• Disruption is dead. As I and many others have observed, the whole insurtech scene has stopped being about disruption and is now about partnership and collaboration. That’s a big and very helpful shift in aligning interests. 
• There’s less silly stuff going on, too. Gone are the days when the airwaves were full of talk of blockchain, crypto, and peer-to-peer (remember that?). They’re now consigned to the fringe, where they are finding their part to play.
• Gone, too, is the brief era of crazy valuations fueled by cheap money and generalist investors funding ideas that were either misguided or too far ahead of their time. There’s less money, and it’s seeking out well-managed businesses that are profitable (or have a clear path to profitability) and proven propositions. Sanity reins. 
• There’s more realism about the role of IoT in underwriting. Data from devices has a role, but in insurance — whether life or non-life — dynamic pricing based on real-time data on the state of the asset or the life being insured, isn’t going mainstream any time soon. 
• And then there’s generative AI. Counter-intuitively, the hype around GenAI has increased interest and investment in the use of AI for analyzing and modeling data. In days of yore, the industry would have batted GenAI away as yet more Silicon Valley nonsense. Instead, it has provided a second wind for AI adoption (not just GenAI) and stimulated much-needed investment in the underlying data infrastructure required to run enterprise grade AI solutions that are scalable, secure, and fit for regulated industry.

See also: Where Insurtech Went Wrong

A well-served industry

These are the ways in which the innovators have changed. To return to Mark Twain, this is what we “teenagers” have learned and how the dynamics have changed. 

But it’s not the whole story. The other big influence is that there’s currently a real alignment between what the insurance industry wants and what is being provided. The industry is now well-served by some top-notch solutions spawned in the insurtech era, thoroughly tested in the heat of battle and built and supplied by companies that understand the industry and what it needs.

The focus for the insurance industry is to get more efficient, select and price risk better, get more from its talent, and provide a better service to its customers. The exact same dynamic applies to underwriters and claims handlers. To achieve its goals, the industry needs to get smarter with data (both ingesting and analyzing it) and give underwriters/claims handlers the toolsets they need to optimize how they use that data. Then there’s the legacy drag, as most insurers are trying to do that with considerable continuing dependence on an aging legacy stack.

Hence the excitement about the latest data ingestion tools, triaging inbound submissions/claims, underwriter/claims workbenches, algorithmic/augmented risk selection, more dynamic pricing engines, data ecosystems, automation capabilities, and so on. This is where the insurance industry has changed the most. Solutions have been around for a while in various stages of maturity, but insurers now accept that they all have a big role to play. And after a few years of great underwriting results, funds are available to invest, in return for the long-term benefits of adoption.

Some issues persist

Before you think I’ve gone completely soft, I have still got a few beefs. While sentiment toward technology investment has never been more positive, the pace of change is still far too slow – it is no longer glacial, but in some respects the climate is changing faster. Nothing illustrates this better than the continued reliance on spreadsheets and PDFs for moving data around with all the inefficiencies and inaccuracies that they entail. I think I will have retired before these stop being the industry’s default data migration tools. 

And then there’s the worrying proliferation of that old insurance habit of what I call “herding”.  This refers to the reluctance to pursue change unless it’s clear that most of your peers are inclined to do so too. This usually involves a breakaway pack that kicks things off, and then everyone else follows in their wake with a business case based on FOMO. The corollary is that it is all too rare to find an insurer seeking competitive advantage through being different, let alone much better. All too often, boards sign off on strategies designed to keep companies from falling behind, rather than getting ahead.

Observations from the front line

Reverting to the more positive me, let’s finish with some real evidence for these observations. InsTech had a busy June running some big events in which some of the biggest companies in insurance participated. Working with them, we were also able to get a record number of grandees to contribute their insights. And it gets better. Not only are we engaging (for the first time really) with real industry influencers, but even contrary old me is aligned with the insights they provided! Let me take a couple of extracts from my interview with Andy Marcell, the global CEO of Aon Reinsurance Solutions, in early June.

Insurance companies are crippled by their data architecture and by the platforms they have. And if they can’t change their platforms fast enough, they can’t use the insight that technology can give them …so we’re going to invest US $1 billion over the next three years in improving that [the Aon Business Services Platform]

See also: Insurtech Is NOT Dead

 Later on, when asked to comment on the motives for such a vast investment, Andy said:

To differentiate and solve client problems, you need to give them solutions and advice linked together with technology, with software, that enables them to make real-time decisions … linking underwriting decisions and claim outcomes to capital. And if you don’t do that, and you don’t make it real with advice, then ultimately, you’re going to be disintermediated, because all you’re doing is providing a transaction. If that’s all you’re doing, then somebody really smart is going to figure out how to transfer risk more effectively than we are. So, you have to stay ahead of the game. The rule of thumb is to anticipate what your clients need, understand their issues, and bring them solutions so they can continue to operate their business and you’ll be relevant as the market changes around you.

Those are the sort of observations we’re used to seeing from the big consulting houses, tech and data service vendors and the ragged cohort of technology adoption protagonists like me. All have a vested interest in change in one form or another. It’s much less common to see commentary of this nature from the leadership of big brokers which are themselves among the main gatekeepers to better data. That’s a big bold statement to make in public and a real sign of the times. 

An insurer’s Mark Twain

For some observations from the other end of the spectrum (startup world), here’s an extract from last month’s podcast with Charlie Blackburn from Azur Technology and Graham Elliot from the newly launched Crux Underwriting. The latter is setting up a new technology-enabled insurance business nine years after the last one. I asked him if there was any difference this time around.

When we set up the last business, I really felt like we were a bit of a petting zoo. We had a lot of people come in to look at us and stroke the little furry animals and wash their hands and go away and think, well, that’s great, and I can go back to my normal day job now. And what I see now in the market is much more of an acceptance that things have got to change, that you can’t win in the 21st century on legacy technology, and a growing realzsation that it’s an unstoppable trend, and that’s great.

So, there we have it. Mark Twain was nearly right, but the insurance version would be like this ,“When I was a furry insurtech animal of 14, the insurance industry was so ignorant they could barely bear to be around me. But when I got to be 21, I was astonished at how much we had both learned in seven years.”

You might think that Gen Z are a bunch of whining weenies: Their unrealistic expectation around work-life balance, fantasies about speedy career progression, and complaints about stress, workload, and lack of diversity in the workplace all put this generation in the firing line of derision from their elders. 

Who do they think they are? The bootstrapping Boomers and cunning Xers never grappled with such entitlement. Right?

But one way or another, leaders need to come to grips with this precariously perceived generation. Already 22% of the workforce, they will represent one out of every three employees by 2030. They are here to stay, and even though they “grow up,” their core values will stick with them. Just have a look at what has happened before: Boomers (ages 60+) never lost their penchant for hard work, Generation X (ages 44-59) has kept their focus on pragmatism and efficiency, and Millennials (ages 28-43) continue to value purpose-based work.

See also: Gen Z and Millennials Make Bold Moves

The Perfect Workplace, According to Gen Z

Gen Z wants from their employers:

1. Work-Life Balance:
   • They prioritize flexibility and work-life balance, valuing opportunities for remote work and flexible schedules.
2. Career Growth:
   • They seek continuous learning and development opportunities. They appreciate clear career paths and chances for advancement.
3. Purpose and Impact:
   • They desire meaningful work that aligns with their values and contributes to societal and environmental causes.
4. Technology and Innovation:
   • They expect up-to-date technology and innovative tools that enable efficiency and creativity.
5. Diversity and Inclusion:
   • They value a diverse and inclusive workplace where different perspectives are respected and integrated.
6. Feedback and Recognition:
   • They prefer regular, constructive feedback and recognition for their contributions and achievements.

See also: Strategic Guide to Unlocking 'Gen Zalpha'

The Perfect Leader, According to Gen Z

Gen Z wants from leadership:

1. Transparency and Communication:
   • They appreciate leaders who communicate openly and transparently about company decisions, goals, and performance.
2. Authenticity and Empathy:
   • They respect leaders who are authentic, empathetic, and approachable, fostering a supportive and understanding environment.
3. Mentorship and Support:
   • They seek leaders who are willing to mentor, provide guidance, and invest in their professional development.
4. Empowerment and Autonomy:
   • They value leaders who trust them with responsibilities, empowering them to take initiative and make decisions.
5. Adaptability and Innovation:
   • They expect leaders to be adaptable and forward-thinking, embracing change and fostering a culture of innovation.

By understanding and addressing these preferences, organizations can better attract, engage and retain Gen Z talent.

Since the launch of OpenAI’s ChatGPT in November 2022, the concept of generative AI (Gen AI) has sparked a universal interest that spans beyond industries, geographical borders, and even generations.  

Everyone–from CEOs to your grandma—has inquired about the transformative technology, and now companies are learning how to harness it. In the ever-evolving and competitive landscape of the insurance industry, companies need to stay ahead by anticipating, navigating, and addressing growing customer expectations and emerging challenges to mitigate the risk of becoming obsolete. 

One of the challenges the insurance industry is facing is how to leverage emerging technologies to streamline processes and enhance customer experiences. 

Through my role at Clearcover, I have discovered that success with Gen AI comes from identifying the places in the customer journey where AI can supplement or enhance the experience. 

Though we’ve seen substantial operational efficiencies and high percentages of customer adoption, the journey to our recent launches taught us three important lessons that can help other product and innovation teams ensure that customers receive personalized, empathetic service via advanced Gen AI technology. 

See also: AI and a Vision for Safer Roads

1. AI can improve customer experiences: Gen AI products can allow for customers to receive around-the-clock support, addressing their queries well outside standard operating hours. One area we targeted at Clearcover was offering a 24/7 support system, developed in partnership with Ada, which ensures that our policyholders receive prompt assistance while having our human agents remain available for much more complex inquiries. Since the solution launched in April, more than 40% of our customer-facing chats no longer required human intervention. We estimate this could result in at least a 1% servicing cost ratio improvement at scale. 

2. Collaboration is crucial: Streamlining processes requires cross-functional collaborative efforts of all your teams, including in data science, product, compliance, claims, and customer service. Our teams identified a way to streamline our claims process even further by using large language models immediately following the submission of a claim (first notice of loss, or FNOL). Our AI extracts key details of the claimant’s account and asks relevant follow-up questions. This technology creates fewer hassles for the customer, who provides real-time data to the claims representatives up front, enabling fewer back-and-forth conversations and faster payouts. Since launching in March, we’ve collected 140% more information per claim while on average only asking the customer seven additional questions. 

3. It’s about enhancing, not replacing: Gen AI should augment and empower your human workforce. By leveraging these tools to streamline processes, you enable your employees to prioritize delivering personalized, empathetic experiences. In fact, according to a 2023 report by Hubspot, 78% of customer service professionals surveyed said they believe AI helps them spend more time on the more important parts of their roles. An example of this at Clearcover is our AI-powered Claims Assistant, which has revolutionized how our adjusters operate. By rapidly summarizing extensive claim files, providing insights, and drafting initial denial letters, the AI “assistant” empowers our human experts to focus on the nuances of each case. We launched this internal-facing tool in late January, and in a short time, it generated 740+ summaries and answered 540+ questions, saving around 730 hours. 

See also: We Need to Rethink the Future of Cars

The use of Gen AI in insurance is brimming with possibilities – from revolutionizing underwriting and risk assessment to detecting fraud more effectively. However, as our journey has highlighted, the key to unlocking this potential lies in striking the right balance between technological capabilities and preserving the elements customers value.

We're committed to staying agile, fostering cross-team collaboration, and maintaining a customer-centric approach that prioritizes both technological advancement and human empathy. As others in the industry join us in this pursuit, we are collectively working to redefine the insurance experience through the blend of Gen AI and human expertise.

While agencies need data insights to gain visibility into how their business is performing, accessing that data hasn’t always been easy. Staff had to sift through inconsequential data and try to interpret insights that had no meaning to their role. Ultimately, the time and effort spent sorting data often outweighed the advantages gained from the insights.

But there’s good news: Data visualization tools have evolved to allow users to see only what data is relevant to their role. Employees with access to data visualization tools can easily find answers to common questions without running and preparing multiple disparate reports, saving them time and allowing answers to be shared more quickly. Team members in nearly every agency role can benefit from insights ranging from employee productivity to cross-selling opportunities to revenue breakdowns.

Let’s take a deeper look at how data insights can enhance daily work from the perspective of each agency role.

View From the Top

Let’s start at the top with owners and principals. Keeping an agency running smoothly requires a bird's-eye view of the business. Data visualization tools make data regarding growth, profitability, and retention from across the business easily accessible in a single location, helping owners better track the health of their agency. This information can be further broken down to understand how individual branches and departments are performing.

To fully understand the health of the agency, it’s important to have a firm grasp on its sales pipeline and financial performance. Digging into sales and opportunity highlights such as customer revenue breakdowns, won/lost opportunities, and performance across producers, departments, and branches can provide valuable insights that guide future decisions and help course-correct any emerging issues.

Data insights can even help owners understand their agency’s carrier relationships. Owners can quickly answer key questions about their carriers, including who their preferred carriers are based on premium, which carriers are writing new/renewal/rewrites, and what a carrier’s hit rate is for their agency.

Managing With Data Insights

There are many different types of managers within an agency, all of whom can benefit from data insights. Let’s start with department managers, who can gain a line of sight into the workload and business managed by their team across clients, policies, and lines of business. Customer retention and expiring policy information provide valuable insight into the health of the team’s book of business and help ensure the agency’s goals are on track. Department managers can understand the productivity and capacity of their team by looking at work effort and overdue activities. They can even balance workloads across employees by reviewing book and retention rankings of individual employees and correcting any lopsidedness.

Next are sales managers. Much like owners and principals, sales managers can dig into sales pipeline data, such as recent wins and near-term opportunities, to understand how their team is performing. Sales managers may wish to dig deeper than an owner, looking at things like customer mix and retention breakdowns, and growth areas across business lines and policies. Data insights also allow the sales manager to understand revenue growth, profitability, and progress across their team, as well as revenue breakdowns such as average and trending revenue by customer.

An Account of the Accounting Department

Speaking of revenue, let’s move on to the accounting department. Accountants with access to data insights can easily manage cash flow, control data quality that affects accounting workflows, and understand financial performance. It becomes easier for the team to maintain appropriate cash positions when they have visibility into cash flow in and out of the agency with near-real-time transaction information like incoming client payments, outgoing carrier payments, and expenses. They can even ensure the accuracy of accounting entries and avoid posting incorrect financials with insights across general ledger entries, commissions, account balances, and transactions.

With all of this information, the accounting department can easily understand and report to leadership the health and performance of the business, including revenue breakdowns by carriers and producers, profits and losses, expense trends, and more.

Data Insights for Client-Facing Roles

Without clients, there is no agency. It only makes sense that an agency would provide their client-facing team members with data insights that can enhance their performance. Account managers and service reps, for example, can use data insights to easily understand where to focus their time each day. Having an in-depth view of coming and overdue activities in the agency management system can help prioritize each day’s tasks. This is particularly helpful when it comes to renewals. Being able to easily view expiring policies enables the team to focus on the most urgent renewal tasks.

Insights into revenue composition and key activities across an agency’s book of business allow its producers to keep a pulse on customer relationships and stay focused on tasks that drive sales. Visibility into the agency’s largest customers and highest-value industries based on revenue, including how those rankings trend over time, can help producers determine where their best opportunities lie. This information, combined with the ability to monitor coming and new business activities across all opportunities, allows producers to understand the health of their pipeline and get an accurate look at how the team is progressing toward its goals.

Informing the Information Technology Team

Last but definitely not least is the IT team. These team members play an important role in keeping everyone else’s systems up and running, so it is crucial that IT administrators have as many tools at their disposal as possible. Data visualization tools allow the IT team to gain insight into user logins to quickly determine who may be having problems logging into their software, how often users log in, and when logins occur.

With the constant threat of security breaches and cyber events, IT teams are under more pressure than ever to keep their agencies safe. Visualization tools help monitor software logins, security changes, and data integrity more efficiently to meet organizational compliance standards, audit security permissions, and spot trends in data quality throughout the agency.

Data Insights Are for Everyone

Giving all roles at an agency access to data visualization tools will allow them to double-click into what’s happening with their business, teams, and workflows. This enhanced visibility will enable the team to grow revenue, improve efficiency, and improve the customer experience.

It's been more than two and a half years since my article “Emerging Risks With Long Tails” appeared in Insurance Thought Leadership. It was written in December 2021 to heighten the risk management and insurance communities’ attention on and preparedness for the lawsuits and claims that will emerge from climate and forever chemical risks. A second look, specifically at forever chemicals known as PFAS, which includes chemicals such as PFOS and PFOA, is timely.

Already, some very significant cases have gone to settlement. For example, in July, BASF paid about $4 million as part of a settlement, to be followed by another payment on March 1, 2025, of $312.5 million. The settlement will cover claims related to PFAS detected in drinking water. In its own media release, BASF states that it has a significant amount of insurance from a number of insurers, and it will seek recovery of its settlement from them. 

Another example involves 3M. This past April, a federal judge approved a settlement between 3M and public water suppliers valued at more than $10 billion. In fact, the final cost of the settlement could range between $10.5 billion and $12.5 billion, depending on additional identified contamination, with payouts through 2036. 

Also tied to drinking water contamination is the DuPont (and spinoffs Chemours and Corteva) settlement of $1.18 billion to resolve PFAS complaints by roughly 300 drinking water providers.

It is not just companies that produce and sell PFAS ingredients put into drinking water that have seen such activity. A host of other types of suits have arisen, including a 2024 class action in U.S. District Court of New Jersey against Johnson & Johnson (and its spinoff Kenvue) contending that its bandages contain PFAS ingredients, and lawsuits against McDonald's and Burger King in 2022 alleging PFAS is in their food packaging. The outcomes could show both the potential proliferation and determination of future suits.

One suit that did result in the defendant, Recreational Equipment Inc. (REI), defeating the proposed class action rested on a rather weak set of facts brought by the originating plaintiff. The plaintiff had alleged the company deceptively marketed its waterproof clothing as safe and sustainable even though such clothing allegedly contained PFAS. There is much discussion about other makers of waterproof and rain-protective apparel being sued over the presence of PFAS in their clothing.

This is a small sampling of PFAS litigation currently. The number and types of products that could be in scope for future litigation are boundless. It could be in clothing, food or drink containers, cooking pots, pans or utensils, furniture, building materials and so on. Additionally, the litigation might not only involve the makers of the chemicals themselves and the manufacturers that use these chemicals in their products, but also retailers of products with PFAS or owners of venues where the building materials or furnishings have PFAS in them.

For risk managers, this means that PFAS risk needs an in-depth review. Any possible association with PFAS should be identified, tested, quantified and mitigated. Mitigation can be both retrospective and prospective. Retrospective-oriented mitigation might involve removing some produced but unsold items from inventories, beneficial disclosures, comprehensive cataloging of all occurrence-based insurance policies or additions to captive reserves. Prospective-type mitigation might include elimination of PFAS in all parts of the value chain, special testing of materials where PFAS is not supposed to be present but there is a possibility it may be present and staff training about PFAS and company policy concerning it.

The amount of PFAS in and around all of us is significant and may be the cause of the rise in some of the illnesses we are afflicted with. The business community is seeing only the tip of the iceberg when it comes to litigation and consequent claims activity. ERM practitioners need to put serious focus on this issue and invest in sound mitigation strategies and actions.

As agency owners, we have been told that, from the moment we start our agencies, we should be thinking about our exit strategies. But if that's the case, then why do so many of us drag our feet when it comes to succession planning?

Usually, we say we are too busy to plan our retirement. We believe that if we spend too much time focusing on the future, we'll lose sight of what our agencies need today. But if you want to ensure your agency's long-term stability and avoid the painful sting of selling your biggest investment at below market value, then you need to start creating a strategic succession plan right now.

See also: 5 Key Mistakes in Long-Term Planning

Why a succession plan matters

We work in an industry built on a foundation of risk management. So, it's fascinating that many of us sometimes don't see the value of creating our own contingency plans. I know this firsthand. I'm "that guy" who waited to buy a life insurance policy until after the birth of my first child — and I've been in this industry for more than a decade.

In the same way a life insurance policy gives you confidence that your family will be cared for financially, a succession plan gives you peace of mind about your agency's future. It prepares you for the unexpected, such as a life-changing diagnosis or an abrupt change in your personal circumstances. It also provides an off-ramp when the day comes that you're no longer motivated to come into the office each day. Plus, it ensures the continuation of your life's work, allowing you to leave a legacy for future generations.

Adopt a future-focused mindset

The first step in creating a succession plan is to change your perspective. If you are an owner who believes you're irreplaceable, you're not thinking about your role correctly. Instead, you should aim to create an agency that's so efficient it can run without you. When you make this mindset shift, you free time to set the strategy and vision for your agency.

Next, start building your agency's bench strength. Identify a core group of employees capable of taking the reins should you leave tomorrow. Then, create well-documented processes and procedures — and socialize them agency-wide — so all employees can contribute to the agency's success.

Move beyond "dump and run" thinking

Sure, when it comes time to retire, you might find a large broker or a private equity company that will write a big check for your agency up front so you can walk away free and clear of any future responsibility associated with your agency. But while it's possible, it's not probable.

Most succession plans involve selling the agency to a family member, shifting ownership to an internal management team, or selling to another agency. In most cases, these deals will require long-term financing, whether through a Small Business Administration loan or other means, indicating that your successor will likely be using your agency's cash flow to pay you partly upfront, with a deferred amount paid over multiple years depending upon the specific terms of your deal.

You could also choose to sell a percentage of your agency — say, 80% — and roll the remaining 20% equity either into your agency or the larger organization of which you become a part. With this approach, you essentially become a minority investor in your former agency or the larger organization.

To account for these scenarios, consider the value of your investment two to three years after the deal closes. Make sure there's a clear path to how you'll be able to liquidate your equity when that time arrives.

See also: The Long Game of Inflation – Dynamic Portfolio Strategies

Go beyond the valuation

Getting an accurate valuation is a critical step in succession planning, whether planning for internal (e.g., family or management) or external (strategic or private equity) perpetuation. It's also incredibly important to ensure that the company buying your business is a cultural match with your current agency. This is an area that too many owners overlook, often to the detriment of their agency's transition. If your successor and their organization don't match the values, principles, and work ethic of your current agency, conflicts will ensue, hurting business results. And if your exit deal is built on ensuring a certain level of financial success — or if you choose to stay on as an investor or adviser post-deal — you'll feel the effects directly.

Plan for a seamless transition

A strategic succession plan will help you avoid the potential pitfalls of agency transitions. Follow these five best practices when building your plan.

1. Set a timeline. Ask yourself today what an ideal retirement looks like. Then, map a path to get there based on your financial goals.
2. Find worthy successors. Determine whether you will look internally or externally for successors. If you choose to sell externally, start networking. Ask potential suitors about their operations and their culture, and seek professional references from your carrier partners.
3. Gather multiple perspectives. Ask recently retired agency principals and small business owners how they planned their exit strategies. Seek resources from agency alliances and other groups.
4. Partner with experts. Create a team of specialists who can help you execute the deal. Choose an attorney and a CPA who works on mergers and acquisitions regularly and enlist the help of investment bankers or brokers to help guide you through the transaction process.
5. Review your plan regularly. Do so at least once a year to make sure your plan still matches your goals. Also, review your plan any time you make a material change in your agency, such as bringing on a partner, acquiring another organization, or losing a major customer.

Start planning your exit today

Don't let the pressures of day-to-day agency business derail your future financial security. By crafting your agency's succession plan today, you'll give yourself plenty of time to adapt, adjust, and refine that plan and ensure a smooth transition into retirement (or your next career).