When I edited a magazine on digital innovation during the first internet boom, in the late 1990s and early 2000s, we had a motto: "Sometimes right, sometimes wrong, never in doubt."

In that spirit, I'm going to offer a judgment that goes against a lot of what I've seen in the press lately: I think the insurance industry will largely escape the crisis facing commercial real estate. 

I realize that life insurers have $900 billion invested in loans for commercial real estate, or 17% of their investable assets, so they're not going to escape unscathed from the tumult that will play out for years, perhaps even a decade. But there are growing signs -- at least to my eye -- that they'll be able to avoid big losses to their portfolios.

I'll explain. 

My argument is twofold.

First, there are signs that the market for commercial real estate is shifting from frozen-in-panic to rationality, and rational markets will work their way out of crises. Owners of office buildings seem to finally be facing up to how much the hybrid model will affect demand for their space and to whether they might, or might not, be able to convert their space to apartments or condos. Lenders are more comfortable making those calculations, too. 

This recent Wall Street Journal article begins: 

"Banks and other lenders are seizing control of distressed commercial properties at the highest rate in nearly a decade, a sign that the sector’s punishing downturn is entering its next phase and approaching a bottom."

The article continues:

"In previous downturns, comparable surges in foreclosure activity have signaled the approach of a market bottom. Once lenders seize a property, they are typically quick to sell it, a process that helps determine values of properties after long periods of sluggishness in the sales market."

Some of the results can be brutal. A Manhattan office building just sold at auction for 2.5% of the price it commanded in 2006. But at least people know where the market is.

Second, interest rates finally seem to be abating. Mortgage rates for homeowners hit a 15-month low last week, and the Fed is widely expected to finally start lowering interest rates next month. A key pressure point on commercial real estate is that $1 trillion of loans are coming due over the next two years. The current loans were negotiated during an era of roughly zero interest, so lots will be uneconomic in the current environment for interest rates. A long-awaited decline in interest rates will, however, diminish the pain.

Yes, a $900 billion position will be hard to unwind. Insurers will have to live in the uncertainty as rents for many buildings crater, as offices are revamped for today's workers' needs, as many are converted to living space, as interest rates decline, whether slowly or rapidly.

And, as I said up top, many think the reckoning for commercial real estate will be more acute than I do. Here are Harvard Business Review, Bloomberg and the Hill. 

But if the commercial real estate crisis turns out to be far less acute for insurers than many expected, you heard it here first. (If I'm wrong, feel free to forget that you ever read this.)

Cheers,

Paul 

For business owners, securing affordable property insurance has become increasingly challenging over the past five-plus years due to the rising valuations of their properties. Historically undervalued by as much as 30%, these properties have been reassessed by underwriters, who have encountered claims that exceed the properties’ declared value.

Most industries have also experienced a surge in both attritional losses and natural disasters that have surpassed the total declared or reported value for specific locations or exposures. Inflation and supply chain issues have also contributed to the strained insurance market, driving loss amounts far beyond what was anticipated or underwritten. 

So premiums have soared and coverage conditions have become stricter — even for properties with little to no CAT exposure and excellent loss histories. 

The good news is that valuations are stabilizing, primarily because most business owners have raised their property valuations in response to underwriters’ mandates, and inflation has slowed. Now, instead of 10% to 20% annual inflation in values, the starting point is a much less drastic 2% to 5%, with adjustments based on the specific exposure.

See also: 7 Key Strategies to Safeguard Property

Staying on top of high property valuations

By managing property valuations, business owners can avoid unexpected premium increases while adequately safeguarding their essential assets. Here are five ways to do just that. Business owners should:

• Establish a clear valuation methodology to share with insurers.
• Conduct appraisals on a replacement cost basis, as this aligns with how insurance policies are typically valued.
• Include a detailed write-up of the valuation methodology in market submissions. This provides underwriters with an added layer of security and verification.
• Regularly review any insurance policies before they expire to ensure adequate coverage. Additionally, consider seeking deductible options to determine the impact on quoted  premium rates.
• Use a reputable insurance broker to assist with appraisals, purchasing insurance and filing claims if necessary.

Pivoting when coverage becomes cost-prohibitive

In cases where a reappraisal results in prohibitively expensive or unavailable coverage, a stair-step approach can be effective if insurer partners are agreeable. This involves gradually increasing property values by 5% to 10% annually over two to three years, rather than making a single large adjustment, such as a 30% increase in one year.

For property owners facing capacity or cost challenges, alternative risk options are available that come in various structures, tailored to different types of risks. These include captives, parametric insurance, structured solutions, integrated risk programs, and even self-insurance.

Captive insurance involves creating a self-funded insurance company, enabling entities to assume some or all of their own risks, sometimes in collaboration with similar risk-related entities. It may initially be more expensive than a traditional program, so it’s not a quick fix for high rates.

However, a well-managed captive can become profitable within a few years, reducing market uncertainties and offering long-term financial benefits. Premium savings can then be reinvested into the business to manage risk effectively.

These alternatives are worth considering when traditional insurance becomes too expensive, inefficient, or unavailable and should be considered when conducting your renewal strategy. Establishing an alternative insurance program is a complex process that requires careful planning.

It’s crucial for a business to assess its financial strength and ability to fund potential losses without traditional insurance. This involves understanding your risk tolerance and thoroughly evaluating all insurance alternatives well in advance of coverage expiration. Generally, all insurance plans should be reviewed at least 90 to 120 days before renewal, with even longer prep times for complex risks that may require inspections by insurers.

See also: Potential Solutions to Home Insurance Crisis

A plan for property management

Navigating higher property valuations and mitigating insurance premium increases requires a strategic approach from business owners. By staying on top of property valuations, establishing clear valuation methodologies, considering alternative risk options, and working closely with reputable insurance brokers, businesses can effectively manage their insurance needs.

COVID-19, the energy crisis, Russia’s war - to say that the aviation industry, and its insurers, have had to face significant challenges in recent years is an understatement. However, aviation has rebounded well, with several 2023 parameters showing “best ever" safety results. This year, the volume of global air passengers is expected to hit an all-time high (up 10% year-on-year), driven by Asia-Pacific and North America. 

While the general outlook for the industry is positive, there are still lots of challenges to tackle.

Global insurer Allianz Commercial just released a new risk report, Aviation Risk, Claims and Insurance Outlook. The report reveals that the aviation sector produces some of the highest-value and high-profile claims across the corporate insurance sector around the world. Analysis of more than 32,000 industry claims from 2019 - 2024 with a total value of $15 billion (€14 billion) shows that collision or crash incidents (63%) and faulty workmanship or defective products (22%) are accountable for 85% of the value. Other incidents, such as natural catastrophes (4%), machinery breakdown (3%) and fire (1%), account for a much smaller proportion of claims by value.

See also: 5 Ways Drones Are Changing Insurance Claims

Soaring repair costs and lack of mechanics are an increasing issue

There has been a significant increase in aircraft repair costs in recent years, driven by higher labor rates and the cost of aircraft parts, among other factors, such as inflation. The shift to next-generation aircraft continues to affect claims, especially when it comes to engine disassembly and repair costs.

Furthermore, a growing shortage of aircraft mechanics may affect future claims activity. It may take longer to complete repairs if vendors lack manpower or efficiency. More less-experienced mechanics on the line could mean they do not have the ability to repair a part, meaning it will need to be replaced with a new one, which typically is more costly.  An obvious concern is the shortfall ultimately could lead to an accident, despite the systems of checks and balances in place in the industry.

SAF and eVTOL aircraft take off, but compliance is the main lever to reach net-zero targets

Aviation contributes around 2% of global emissions and is focused on sustainability, pledging to reach net-zero by 2050. The lack of a silver bullet solution for decarbonization should not take away from the exciting developments underway. 

Sustainable aviation fuel (SAF) continues to attract a lot of attention, with mandatory targets starting to be implemented. Improvements on existing technology continue to advance apace, as do innovations. The market for eco-friendly electric vertical takeoff and landing (eVTOL) aircraft, which can transport passengers or cargo, is set to grow significantly – the first insurance coverages for operational uses are likely to be placed this year. 

One unheralded development that could force as much additional accountability as any technological advancement is the development and subsequent implications of the European Union’s Corporate Sustainability Reporting Directive (CSRD) and similar regulations worldwide. They require companies to disclose comprehensive information on their environmental, social and governance (ESG) performance and impact. 

To read the full report, please visit https://commercial.allianz.com/news-and-insights/reports/aviation-trends.html 

Back in 2019, I joined a podcast with Accenture where I said that to truly get people to do great work and best service your clients, you must support them in every way. This still rings true today.

It’s worth reflecting, however, on whether things such as artificial intelligence, insurtech, blockchain, and big data are delivering the assistance we expect. Have industry cost or efficiency ratios really improved as a result of the application of technology over the last 10 to 15 years? The short answer is no. But we can get on a better path.

First, we need to remind ourselves that people are the central ingredient to making the insurance industry run. The people help bring the deep and valuable complexity of the industry to life. When you put the people front and center, you allow for the technology to properly do its job in supporting the work and not be the main driver. 

See also: Adding Humanity to Life Insurance

Once the people are in place, you can go back to the foundational work of insurance in providing advice, managing processes, and delivering service in a timely manner to clients. At CAC group, we focus on the placement process, which can be messy but, when broken down to its components, runs well despite the complexity -- and customers report being very happy.

The transition to digital in the insurance industry does not mirror others. Using banking or an iPhone as a comparison is a false premise and distracts all of us from what’s required. It is always smart to look outside our industry for exemplars, but taking a checking account and shifting it from the checkbook to the digital world is far simpler than having 100 insurer participants share and layer property placement. Similarly, an iPhone provides a wonderful experience in the art of simplicity but as an example of how simple things should be in insurance it would work only if all clients were more or less identical and wanted to be treated the same way despite highly varied preferences, risk profiles, exposures, locations and legal jurisdictions.  

Ignoring these differences results in poor thinking and execution around what’s required to progress.

See also: Balancing Technology and Empathy in Claims

What to do?

Put people at the center of everything. We must view the use of technology through the lens of the customer and who is serving that customer. Everything in our business is filtered through people, which is a very good thing! Questions to ask include, Are the data we are consuming and the architecture that we are building truly helping serve the customer better, faster, and smarter? Do they have access to these elements in a customer-friendly way? Pursuing such questions will build trust in technology and tighten up all the data ingestion points where we can only rely on people, because their advice and knowledge are central.  

We also need to realize that the transition to a more digital world will be slower than we might imagine. The best example of a digital transition in insurance is auto insurance. It is mainly a digital experience today, but the actual transition started 15 years ago.

We need to get our heads around that time and distance. As the transition occurs, we will need to run insurance businesses in two ways – for today and as a digital alternative. Clients can self-select into the digital experience, but it will not be comprehensive initially, or ever. It will begin to support simpler activities such as sharing dashboards and information and evolve into proactive analytic offerings. 

If we are patient, we can alleviate many of the data challenges that limit progress today. When technology supports the people who drive the core business, we will be surprised at how ideas for improvement become organic. And all the data you need to support and advise a client is virtually identical to data you need to digitize the marketplace or enhance service offerings. We have just been attacking the opportunity from the wrong end. 

All of this builds to hundreds of iterative changes that in total will be transformative. It shouldn’t surprise us that there is no silver bullet, Easy button, or magic pixie dust available to replace hard work, attention to detail and an approach centered on broker/client relations. 

It requires industry leadership to believe in what’s valuable: our colleagues. 

Insurers are at a crossroads, where innovation isn’t just a strategic advantage but is essential to their very survival. 

The global insurtech market, valued at $3.85 billion in 2021, is expected to reach $166.7 billion by 2030, representing a jaw-dropping compound annual growth rate (CAGR) of 52%. Driving this explosive growth are once-traditional insurers that are adapting to today’s more customer-centric business models while also implementing technologies to optimize and protect their operations. 

Following are five of the technological trends that are reshaping the insurance sector:

1. Data Analytics and Artificial Intelligence

Increasingly, insurers are leveraging artificial intelligence (AI) and machine learning (ML) to analyze vast amounts of data in real time, enabling more accurate risk assessment and underwriting processes, personalized pricing, improved decision-making and fraud detection. Predictive analytics, which uses historical data and statistical algorithms to forecast future outcomes, is also helping insurers to anticipate consumer needs to improve their services and develop new offerings, leading to greater customer retention and profitability. 

See also: 10 Ways Tech Can Reshape Insurers' Operations

2. Internet of Things (IoT)

IoT is revolutionizing risk management, with insurers leveraging devices such as telematics, wearables and smart sensors to collect real-time data on insured assets and policyholder behaviors. Such data enables insurers to assess risks more accurately and encourage policyholders to adopt safer behaviors. IoT-enabled solutions also facilitate risk mitigation and claims prevention, ultimately reducing losses and improving profitability. As one example, usage-based insurance (UBI) takes into account vehicle type, distance driven, driver behavior and other criteria based on data collected by technology. UBI also supports positive driver behavior modification.

3. Cybersecurity and Data Privacy

Greatly enhanced cybersecurity and data privacy and protection measures are crucial as insurers face growing risks from sophisticated cyberattacks such as ransomware, phishing, data breaches and more. Protecting sensitive customer data, including personally identifiable information (PII), HIPAA-regulated data and financial records, is paramount to maintaining customer trust and safeguarding against financial losses and often irreparable damage to brand reputation. 

To read about some of the most recent cyberattacks that have affected organizations within the insurance industry, go here. 

4. Blockchain 

Blockchain technology can augment security, transparency and efficiency, with industry usage in applications for smart contracts, claims processing and fraud detection. Smart contracts, for instance, enable automated policy issuance, premium payments and claims settlements, reducing administrative costs and eliminating the need for intermediaries. Additionally, blockchain provides an immutable ledger that enhances data integrity and facilitates secure data sharing among insurers and other stakeholders.

5. Customer-Centric Digital Platforms

In the insurance industry, customer-centric digital platforms are in demand for enhancing engagement and loyalty. Mobile apps and personalized, self-service portals empower customers to access their information, file claims and communicate with agents effortlessly, meeting the growing expectations for anywhere, anytime services. Features such as AI-driven chatbots and virtual assistants, tailored policy recommendations and instant notifications and alerts ensure a seamless and highly relevant customer experience. As a result, insurers can not only acquire new customers more effectively but also retain existing ones by delivering value and convenience.

See also: The Sad Truth About Insurance Technology

Future-Proofing the Insurance Business

In a piece on the impact of AI, McKinsey stated that “Most important, carriers that adopt a mindset focused on creating opportunities from disruptive technologies—instead of viewing them as a threat to their current business—will thrive in the insurance industry in 2030.”

The time for adoption is now, and insurers must take action. In our increasingly digital and data-driven landscape, insurance companies should begin exploring and forming partnerships with insurtech providers, technology vendors and expert consultants that can help them seamlessly integrate these emerging technologies into their business models and operations. Such technology transformation will continue to reshape every aspect of the insurance value chain, from product development and risk assessment to claims processing and customer service. 

Embracing this wave of digital transformation is one of the best insurance policies that insurers can give themselves for their future success. 

Heads up or heads in the sand? The choice is yours. 

Marie, a dedicated workers' compensation adjuster, faces an endless stream of complex claims. Understaffed colleagues leave injured workers feeling ignored and undervalued. Efficiency demands overshadow her efforts to provide personalized support, leading to dissatisfaction and burnout. Despite her best efforts, Marie knows the system's flaws and recognizes the urgent need for a more balanced approach. 

The workers' compensation industry is facing challenges as overworked adjusters struggle with complex claims while injured workers feel unheard and undervalued. The industry's focus on efficiency often prioritizes cost reduction over personalized support. This creates a high-pressure work environment for adjusters, leading to dissatisfaction, turnover, and understaffing. Ultimately, this compromises the quality of service for injured workers and, in turn, leads to an increase in costs.

By automating routine tasks, AI can free adjusters to focus on the human aspects of their work that require empathy, nuanced judgment and creative problem-solving. AI can also provide data-driven insights to support decision-making, equipping adjusters with crucial information to perform their jobs effectively and empathetically. 

AI’s potential to transform the role of an adjuster envisions a future where technology and human expertise are combined. The result is a more efficient, supportive and equitable claims process that benefits both adjusters and injured workers alike.

See also: New Workers' Comp Laws for 2024

Evolving Role of the Claims Adjuster

Experienced adjusters are increasingly leaving their roles due to burnout and overwhelming workloads. The growing complexity of cases and the burden of administrative duties pushes these seasoned professionals to seek more sustainable career paths.

At the same time, there are significant challenges in attracting qualified new talent, as well, particularly among Generation Z – the latest cohort to enter the workforce. This generation, more than any before, prioritizes careers that offer autonomy, leverage their problem-solving abilities and provide a sense of purpose and job satisfaction. Having grown up in a digital world, Gen Z views technology as an integral part of both their personal and professional lives. 

Injured Worker Perspective

Beyond the workforce, the expectations of those served by the industry are also evolving. In today's digital age. Consumers expect 24/7 access to services and information. Injured workers are no different; They expect immediate attention to their claim details and continuous updates.

Injured workers, like all consumers, value the convenience of digital services, but their unique circumstances heighten the importance of human interaction. Injured workers are vulnerable, dealing with physical pain, emotional stress and financial uncertainty. AI may expedite claims, but it cannot replace the compassion and individualized support that injured workers need to navigate their recovery journey.

When genuine human connection is absent, injured workers are more likely to experience frustration, resentment and a sense of isolation. This emotional toll can lead to dissatisfaction, distrust and hindered recovery, prolonging treatment and escalating costs. In some cases, this may even escalate into seeking legal recourse, complicating the claims process and increasing costs for all parties involved.

See also: How to Enhance Workers' Comp Outcomes

Streamlining the Claims Process

AI's 24/7 availability, combined with its ability to rapidly process vast amounts of data, streamline assessments and consistently apply complex rules across a wide range of scenarios, presents an opportunity to transform the industry. When a first notice of loss (FNOL) is filed, the accompanying documents often require in-depth individual reviews. AI can extract and consolidate crucial information from medical reports, bills and other relevant sources into a clear, concise format. By analyzing this data and cross-referencing it with historical claim patterns, AI can make an immediate judgment on the validity of the claim. 

Furthermore, AI can function as an intelligent assistant, responding to inquiries from injured workers, resolving procedural questions and leveraging a broad range of data sources to provide prompt and accurate answers to common questions about coming appointments, payment timelines and the overall claims process. This includes streamlining tasks such as scheduling appointments with healthcare providers based on real-time availability. This not only saves adjusters valuable time but also enhances the injured worker’s experience.

Enhancing adjusters effectiveness

Adjusters use their empathy and emotional intelligence to build rapport with injured workers. Many adjusters excel at navigating complex, nuanced cases that require consideration of multiple, often conflicting factors. This human touch results in a smoother claims resolution. AI, as a collaborative partner, can enhance these strengths by providing adjusters with data-driven insights, enabling them to make more informed decisions and provide even better support to injured workers.

A workers' compensation claim can be an emotional process, and some injured workers are more adept at handling it than others. AI-powered tools analyze the emotional wellbeing of the injured workers’ communications. These insights can be leveraged for the adjuster to formulate responses accordingly. This capability allows adjusters to provide more personalized and empathetic support.

This ability to personalize information opens up possibilities for adjuster training. Imagine a virtual coach that analyzes your injured worker interactions during a call, offering immediate feedback on communication style, empathy and active listening skills. Similar to how AI-powered language learning tools are already helping individuals refine their conversational abilities, this technology could empower adjusters to continuously improve their communication and interpersonal effectiveness.

By leveraging insights learned from countless interactions, AI can tailor its advice to address specific areas where an adjuster might need improvement. This personalized approach ensures that training is always relevant, helping adjusters refine their skills and ultimately deliver better service to the injured worker.

Responsible AI implementation

The development and integration of AI systems will require significant time and investment, along with careful consideration of ethical, security and data privacy concerns. Resistance to change is a natural part of any technological shift and should be expected with the implementation of AI.

Increased efficiency should not come at the cost of dehumanizing the claims process. If AI is implemented solely to drive productivity, it could inadvertently exacerbate existing issues. The anticipated efficiency gains might lead to an increase in the number of claims assigned to each adjuster, further burdening an already overworked workforce. While AI-powered training tools hold potential, they could also be misused to monitor conversation times and result in a new level of control. This misuse for excessive monitoring could lead to a demoralizing and micromanaged environment.

Balancing efficiency and empathy

Workers' compensation claim adjusters grapple with overwhelming caseloads, complex claims and pressure to prioritize efficiency over personalized care. This challenging environment often leads to high job turnover and makes it difficult to attract and retain qualified talent

AI presents an opportunity to enhance the claims process, creating a more efficient and empathetic approach to serving injured workers while simultaneously making adjusters' work more rewarding and important. By automating routine tasks and analyzing complex data, AI empowers adjusters to focus on empathy and communication and enhance these unique skills through AI-powered insights and feedback. 

Successful implementation requires a thoughtful approach that balances efficiency with empathy, ensuring AI complements rather than replaces human expertise. By embracing this technology responsibly, the industry can create a future where both adjusters and injured workers benefit.

The insurtech movement is not dead. In fact, it is finally showing concrete impacts.

However, what has worked aren't the shiny toys loved by futurologists and black swan hunters. Instead, what has worked are awesome innovations done in the kitchen of the large carriers (borrowing the metaphor used by my friend Robert Pick at the WISA event last April). These usages of technologies and new data stay obscure and are even misunderstood by those who observe the sector without walking daily in these kitchens and understanding the language of their cuisine brigades.

Is there anyone significantly outperforming the competition due to their use of insurtech? Yes! 

My favorite example is Progressive's journey with pricing sophistication and telematics. Auto insurance is an extremely competitive and regulated market, making it a cost-plus business. However, Progressive has consistently achieved a significantly better loss ratio than the rest of the market for the past 10 years. The higher the weight of telematics in their business (and the surcharge level for the risky profiles), the higher their overperformance.

Why did I choose to dedicate the headline to death?

Because, over the past quarter, we saw mounting storytelling about the death of the insurtech movement:

• “Global insurtech funding falls to its lowest quarterly level since 2018” in Q1 2024.
• Carpe Data's message at their event: "InsurTech Is Dead." They argue that "the Golden Age of InsurTech is now a long way off, and it's not going to return."
• Swiss Re withdrew from their embedded insurance arm, IPTQ.
• The European insurtech poster child Wefox's fall. (I expressed doubts a year ago.)

But these stories are only Darwinian selection. It is natural, and it is good!

Choose your idols carefully to avoid being disappointed. As I ranted last year, among the newcomers, you could pick Kinsale instead of Lemonade. (It is hilarious how Lemonade is deflecting from all the elements -- one after the other -- of its original and fascinating storytelling. Now, far from the old claim of their bot substituting for brokers, they are paying fat commissions to brokers to sell their policies.)

Let me go back to the Progressive overperformance.

Last year, Progressive dedicated an entire earnings call to its telematics journey, talking about the increased relevance of usage-based insurance (UBI) in its personal auto portfolio and the sophistication of its pricing. Progressive has improved the sophistication of its UBI tariff and increased the maximum surcharge for riskier drivers step by step over the past years. It is impressive to look at Progressive's technical results over the same period, as reflected in the chart below.

Progressive private passenger liability portfolio has consistently achieved a significantly better loss ratio (including loss adjustment expenses and IBNR) than the rest of the market:

• At the beginning of this series -- in 2014, when they had just started surcharging risky drivers -- their loss ratio was four percentage points better than the competitors (about a 7% difference);
• Between 2015 and 2021, their loss ratio was about 10 percentage points better (about a 16% difference);
• Finally, in the past two years -- characterized by, on one side, the increased level of relevance of telematics on the portfolio and a boost in the risky driver surcharge up to 60%, and, on the other side, a complex context due to inflation and many unfriendly state regulations about rate change -- their loss ratio was about 15 percentage points better (above a 20% difference).

Do you remember what Berkshire Hathaway's head of insurance operations said at the annual meeting in 2021? "Geico clearly missed the bus and were late in terms of appreciating the value of telematics. They have woken up to the fact that telematics plays a big role in matching rate to risk."

He was clearly talking about the evidence from Progressive.

See also: Where Insurtech Went Wrong

Telematics is an extraordinary insurtech lever that has demonstrated a concrete impact in creating a sustainable competitive advantage.

• Have you ignored it in the past? You should start your telematics journey!
• Have you tried it and failed? Instead of denying the value of telematics, you should start again, studying the journey of the best practices and doing a critical review of the lessons learned in your past.

Even a recent AM Best study on the U.S. auto insurance market showed how "Highly Innovative Personal Auto Carriers Have a Significant Competitive Edge." The cluster of insurers rated by AM Best as more innovative has grown more since 2018 and has achieved better combined ratios.

You know I love insurance incumbents, having advised a few hundred of them -- including 14 of the top 25 P&C international carriers and seven of the top 25 life international insurers -- over the past two decades. I've seen so many other terrific, successful insurtech stories in their kitchens!

Let's start with risk prevention. Here is the old, gold study I did with the Geneva Association on this great opportunity in 2021. Nothing happens overnight in the insurance industry, but it is awesome to see the concrete impacts some of the pioneers in risk prevention are currently achieving:

1. Hanover's 2024 earning calls and investor presentations are constantly offering testimonials of the effectiveness of their risk prevention program for commercial properties

2. Many other U.S. P&C carriers have obtained similar results (more than three dollars saved on the expected losses for each dollar invested) with IoT-based risk prevention in commercial property portfolios, as shared last year: Insurance IoT is a social good!

3. Hosting a C-suite roundtable at the last North American IoT Insurance Observatory was a breakthrough. Top executives from Great American, HSB, The Hartford, Tokio Marine and Travelers discussed a common vision about the P&C insurer of the future and what is currently happening in their kitchens:

• They talked about a vision where the P&C carriers not only assume risks and pay claims, but their portfolios will also be connected and protected through a layer of IoT-based prevention services.
• They shared double-digit penetrations already achieved on some niches of their portfolios where they decided to scale a specific IoT approach based on the evidence of a robust ROI.
• They highlighted how these IoT programs are becoming an integral part of the way a business line deals with a class of business.

I discussed these U.S. market trends at Underwriting Network London, and surprisingly none of the many European carriers was aware of these success stories.

Let's focus on a third concrete insurance success story using data and digital technologies: a beyond-insurance journey.

Unipol Gruppo has been one of the first movers and bolder actors in this trend around the globe. They have even created a dedicated division. Their chief beyond insurance officer is Giacomo Lovati, an insurance executive I have had the privilege to advise multiple times -- with different hats -- over my career. Unipol's beyond insurance journey has already reached the milestone of €1.6B in additional annual revenues, making a significant contribution to the group bottom line, as Giacomo shared in his speech at ITC Europe last year.

I love these kinds of initiatives, where insurers take the front seat, with the ambitious vision of orchestrating an ecosystem of services and the customer experience of their policyholders. I love to see insurers succeeding in doing it, demonstrating that staying relevant in the life of the policyholders is an achievable (and profitable) target. Some say all insurance will eventually be embedded, so insurers should hide themselves behind cooler brands. But I disagree. I love insurers and the smell in their kitchens and think they need to stay relevant. (Here is one of my old articles about staying relevant.) 

See also: Why Insurtech Funding Dried Up

The last insurtech success close to my heart that I want to describe is Vitality.

I have always learned a lot in my exchanges with discovery teams around the world over the past 11 years. My first viral insurance innovation article was about them, and I'm honored to have them among the members of the IoT Insurance Observatory since 2018. Vitality's behavioral change approach has:

• demonstrated a robust return on investment: “Over the five-year period, Vitality saved an average of $462 in annual medical claims costs per engaged member. […] This represents 4% reduction in claims costs over the analysis period due to Vitality engagement. This results in a ROI for Vitality clients of 180%, taking into consideration all program and incentive costs.” 
• shown consistent results in life and health insurance portfolios in different geographies around the world 

I hope these facts and figures about concrete impacts generated by incumbents' insurtech initiatives will further support your appetite to innovate using new data and technologies. 

Repeating my recommendation from last year: Don't let the Darwinian selection stop your commitment to the innovation journey. Please, my fellow insurers, don't stop investing in innovation!

Even Chubb’s CEO said "insurers are data companies” at the recent S&P Global Ratings Annual Insurance Conference in New York. 

Or, as I have ranted for the past decade, all the players in the insurance arena will be insurtech, meaning players using technology and data to achieve their strategic goals!

Paul Carroll

What advice would you give to insurance executives on how to think a little differently about operational efficiency?

Paul Leinwand

The environment we're in right now, with so much uncertainty, is leaving a lot of executives anxious about placing big investments for growth. The concern is that the environment could shift, and those investments might not pay off. The cost lever is always available and it's very easy to see why executives turn to cost in managing performance.

Costs are often seen as a negative topic, right? Well, cost is actually the precious investment we make in the most important things we can do to drive growth.

So the advice we provide is that executives need to think about costs in a strategic way. We really believe that taking costs out as an independent cost exercise often leaves companies weaker. You're just managing costs down rather than fundamentally rethinking where does the investment need to go in the business?

That’s quite different than how most companies take out cost “Let's do across the board 10% or 15% cuts. Everybody will figure it out.” That approach will often cut the good cost and the bad cost all at the same time. An article we wrote for Harvard Business Review delves into how to think about cost strategically, using a framework we've described as Fit for Growth. It describes a segmentation of costs and explains what to do with the various elements. Should you keep them? Should you take them out? Should you actually invest more in some of the costs because there is significant upside?

Paul Carroll

What are the elements of that framework?

Paul Leinwand

We think of costs in four main categories, which span every business unit, every function, every geography, and they can be used to rethink the nature of where we put investment.

The first is what we describe as “lights on.” A cost that's “lights on” is required to operate, to be legally compliant, but we certainly don't think of those costs as providing any mechanism to drive differentiation from competitors. So, we want to be as lean as possible in those categories.

The next category is what we've described as table stakes. These are defined by what your customer expects and what your competitors are providing. Here again, while these might be more than required legally or operationally to run the business, they aren't the source of growth. They aren't the source of why a customer is going to choose us versus another organization.

That is the third category: differentiation. Those capabilities help determine whether customers choose us today or might choose us tomorrow. They are a pretty limited set. There are probably three to six areas where you’re really going to be better than anyone else and should be because you believe it supports your value proposition and has a meaningful return.

The fourth category is “not required.” These could be areas that maybe supported projects five years ago that were going to drive growth but didn't. They might have supported parts of the portfolio we no longer own. They might support things that some team believes are important but may not be important.

The exercise around these four segments of costs is to in some ways take everything out of the building. Then each area has to be meaningfully debated based on tremendous objectivity. We often take a lot of costs for granted, but we want to look at everything through a fresh lens: Is this cost generating the type of return we need? Or is there a better use for that money?

One of the really interesting things about this exercise is that executives often have a clear list of areas where they’d like to invest more to drive growth. But there's always a shortfall of cost available to do that. The perspective changes when executives realize they’re protecting a cost at the expense of something that could differentiate them. There might be a better use for that cash.

Paul Carroll

But if you wait until you see the big opportunity for differentiation, you don’t have enough time to cut costs and free up the funds, at least in a measured way, right? What example or two would you offer of a company approaching cost-cutting correctly?

Paul Leinwand

There are various companies approaching cost-cutting efficiently across industries. As mentioned in our book published under PwC’s Strategy& division, Strategy That Works, companies like IKEA are approaching cost-cutting strategies in an effective manner every step of the way. The key is to incorporate such cost exercises throughout the business and not view it as a last-minute mundane task. In other words, you don't wait until you need to take out cost. You think of cost reallocation as strategic. You prevent the growth of costs beyond what they should be, and you have the opportunity to constantly reallocate the investments that you have.

One of the things we see a lot with all our client work is that annual budgets typically represent plus or minus from the year before. I have a marketing budget; maybe it's plus 2% this year. I have a finance budget; it's plus three. I've got an HR budget….

If every year we're just doing plus or minus, our budgets are largely representations of the world of maybe 10 years ago and cannot possibly be the right allocation of cost, given today's priorities.

The opportunity that I think some companies seize is being able to reset their budgets based on what is needed and what's most important and not getting locked into the idea that the budget is the budget. In our view, there is no such thing as a strategy until it's been translated into the budget itself. If the strategy effort is over here, and the budget is running over there, and they're not talking to each other, there is no such thing as execution of the strategy.

Paul Carroll

That’s great. Is there anything I didn’t ask you about that I should have asked about?

Paul Leinwand 

I'd be remiss not to mention another article we wrote in HBR recently, on growth, with Paul Blase. The article points to companies that are building a growth engine, rather than just searching for growth.

Searching for growth is thinking about paths to pursue: Do I go into a new business, do I acquire something, should I consider adjacencies? Should I pursue new customer segments, new product segments? The companies that have really done well have first built the capabilities to grow. Then, when they thought about the places to grow, it was much easier to succeed because they were differentiated. They had the underlying wherewithal to innovate, to drive customer success, to drive insights that are going to yield the type of growth that we need.

So there’s a very different way of looking at growth, one being very much about the growth itself, and the other being about the underlying system that an organization needs. The article highlighted a really helpful analysis that showed that growing consistently has significant excess returns. For companies with the same CAGR across time, those that grow consistently saw greater returns to shareholders. Shareholders return companies that don’t just randomly find growth, but have built the unique capabilities to do so repeatedly.

There's no way to build the system of growth without spending money in the right places. So tphere has to be a connection back to the cost agenda and to the reallocation of that precious investment that we have. When you run through the cost exercise and take everything into the parking lot, the argument for taking something back into the building has to be that it links to your differentiation, to that underlying system of growth.

Some of this works against human nature. We want to be amazing at everything. But we can’t be. We need a lens that lets us decide: It’s okay to be just good enough on this capability, so we can spend money on something else.

That's a pretty hard concept to put in place, but it's a really important one to get right.

Paul Carroll

Thanks, Paul. It’s been great to catch up a bit.

Independent agents are a critical part of the insurance value chain and significantly influence business placement in the insurance industry. Ensuring that agents have the tools to offer policyholders a superior customer experience and improve their own operational efficiencies should be top of mind for carriers. 

Beyond selling additional policies to existing insureds and attracting new business, agents play a crucial role in policyholder retention. The relationship an agent cultivates with customers is a significant factor in the policyholder experience, across all age groups. New Invoice Cloud research shows that even Millennials still purchase policies through agents, which perfectly demonstrates the far-reaching importance and continuation of the insurance agent role.

To empower agents and yield the most profitable opportunities, insurers must make it easy for agents to do business with them. Since payments-related activities – including taking deposits, answering calls, researching collections issues, etc. – consumes much of an agent’s time, it’s imperative that carriers implement a simple, digital billing and payments platform. Not only can an easy-to-use payment solution positively impact the agent experience with your organization, but this type of platform can also benefit carriers seeking to improve customer retention and attract new, profitable business. 

Since selecting the right online payment platform can have this significant impact, here are a few key factors to look for when selecting a payment solution that will thrill insurance agents. 

1. An easy-to-use agent interface 

Insurance agents are creating your company’s best, most reliable stream of revenue – so why wouldn’t you provide these key players with the best, most reliable tools? 

Companies are all vying for profitable business in this competitive insurance market. While pricing and policy options play a role in where agents place business, it is well-known that the experience an insurer provides (for both the agent and their policyholders) is often the deciding factor.  

When it comes to online payments, agents want an intuitive platform that is easy to use and promotes excellent customer service to policyholders. Solutions that enable transparency also allow agents to quickly access payment information and better service customers. 

Bottom line: offering a streamlined solution that is simple, transparent, personalized, and easily accessible will compel agents to place more profitable business with your company. 

2. Optimized, omni-channel payment options 

To keep pace with changing policyholder demands, carriers must offer insureds multiple ways to receive bills and pay premiums, also known as omni-channel payment options. The more payment options an insurance organization can offer, the higher that carrier’s online adoption rates will be. 

When online adoption rises, billing-related calls, delinquent payments, and policy cancellations tend to decrease significantly, allowing agents to focus on more value-adding activities.  

It’s important to note, however, that each channel must be equally optimized to be truly effective. This means an insured should have the ability to start making a payment on, say, their mobile device and continue online or over the phone later, with the same context and ease. Without this cross-channel consistency, your organization cannot provide a top tier policyholder experience. 

3. Intelligent payment reminders  

Agents want to avoid delinquent payments and cancellations more than anyone. Collection calls are not only uncomfortable but deter from an agent’s valuable time. In our research report, Customer Experience in the Insurance Industry, we found that 50% of insureds who missed a monthly premium installment simply forgot to make their payment. Stemming this forgetfulness would benefit any insurance organization, particularly from an agent perspective. 

The best way to keep payments top of mind for policyholders is with targeted, dynamic payment reminders through multiple channels (i.e., text, email, voicemail). 

Your payment solution should be able to notify customers of upcoming payments with personalized notifications, detailing their policy type, amount due, due date, and more. Even better, your online payment solution should offer communications that go beyond payment reminders. For instance, Invoice Cloud offers Outbound Campaigns, allowing billing organizations to quickly send targeted messages to your customers about COVID updates, changes to their policies, and more. 

These reminders keep payments consistent for agents and improve their customer’s experience, which, ultimately, reflects positively on the agents themselves. 

4. Designed to drive self-service 

We’ve touched on the importance of finding an online payment solution that’s simply designed for policyholder and agent ease of use. More importantly, though, the solution’s design must actively work to drive self-service enrollment. 

Self-service options, such as automatic payments (AutoPay) or paperless billing, provide significant value for both policyholders and agents. These services save your policyholders time and provide peace of mind regarding their monthly payments, not to mention the major positive impact self-service routes have on policyholder and agent satisfaction. 

But here’s the catch – insureds will only enroll in these options if they’re aware they exist and they are easy to use. To ensure full utilization of your self-service options, look for a digital payment platform designed with customer engagement in mind. 

The more you engage policyholders throughout the payment process – guiding them toward your self-service routes at every opportunity – the more insureds will enroll. 

This boost in self-service is one of the best things your organization can do for its agents. Policyholders want the option to make payments when, where, and how they prefer. So, offering these self-service capabilities should enhance customer satisfaction, reduce delinquent payments and cancellations, and increase operational efficiencies for both the agent and the carrier. 

Improving the insurance agent experience 

To stand out from the sea of carriers vying for insurance agent’s business, you must provide agents with tools that will make their job simple. When it comes to payments, that means offering an online payment solution that can: 

Save agents time by reducing call volumes and manual processes. 

Keep premiums consistent with payment reminders and high rates of self-service enrollment. 

Assure the policyholder payment experience is quick and simple. 

Invoice Cloud has a proven success rate of 2 to 3 times higher than the industry average when it comes to online payment adoption. Our insurance solution has helped countless insurance organizations like yours increase policyholder satisfaction, save costs, reduce workloads, and much more. 

Watch the video below to see how California Mutual Insurance Company partnered with Invoice Cloud to save 780 hours annually on the reconciliation process and more:

  

 Read Original Article Here

Sponsored by ITL Partner: InvoiceCloud