In today's insurance industry, the abundance of paperwork can be overwhelming. However, the adoption of digital solutions has brought about advancements in paperless options. While traditional paper-based processes have been replaced by digital alternatives, the emergence of intelligent document processing (IDP) presents new opportunities and challenges. IDP has the potential to revolutionize the insurance industry, saving time and costs while ensuring accuracy and efficiency.

Take the Work Out of Paperwork
The manual processing of documents, such as rekeying information or extracting data from third-party systems, consumes valuable time and financial resources for insurance carriers.
Consider these findings*:

Underwriters spend up to 5-8 hours a week on non-underwriting tasks, such as building manual reports, rekeying and extracting data from third-party systems

26% of quote information produced while rekeying is inaccurate

26-50% of pricing processes still rely on spreadsheet calculations

Intelligent document processing  emerges as a game-changing technology that can address these challenges. Unlike traditional automation tools, IDP leverages Artificial Intelligence (AI) and Machine Learning (ML) to scan unstructured information and read documents in various formats, simulating human-like interaction without requiring extensive human intervention. The benefits of IDP include the ability to process documents up to 25 times faster, work 24/7, and achieve remarkable accuracy.

Unlike traditional Robotic Process Automation (RPA), IDP takes a different approach. It doesn't depend on predefined rules or templates for document processing. Instead, it uses AI and ML to scan and interpret unstructured information from documents in multiple formats, mimicking human-like understanding and comprehension. This advanced technology has made significant progress in automating tasks that were previously deemed impossible to automate. As a result, these once-challenging processes are now becoming increasingly commonplace in the insurance industry.

Versatility of Intelligent Document Processing

IDP offers a wide range of capabilities that cater to the diverse needs of the insurance industry:

• Data extraction: IDP employs a combination of Optical Character Recognition (OCR) and Natural Language Processing (NLP) to process various forms, including KYC forms, tax documents, and SEC filings. By scanning documents for specific terms or words, it extracts relevant data accurately.
• Data classification: Documents can be categorized based on their format, content, and attributes, allowing for efficient organization and retrieval.
• Verification: IDP validates and verifies data, ensuring accuracy and completeness, minimizing errors that could lead to potential risks.
• Error reduction: Through automated error detection and correction, IDP enhances data integrity and reduces the likelihood of inaccuracies.
• Digitization: Paper documents can be digitized and securely stored and retrieved electronically, eliminating the need for physical storage space, and facilitating easy access.
• Integration: IDP seamlessly integrates with existing systems and workflows, streamlining document processing and enhancing overall operational efficiency.
• Compliance and risk management: By protecting sensitive data and ensuring confidentiality, IDP assists in maintaining compliance with regulatory requirements and mitigating risks.

Top 5 Ways Intelligent Document Processing Can Help You 

1. Document Processing

IDP enables automated matching, uploading, categorization, and verification of policy applications, claim submissions, contracts, invoices, reports, receipts, and emails. By "reading" each document, extracting key data values, and entering them into underwriting systems, it accelerates the insurance submission triage process and enables handling more requests with existing resources.

2. Policy Administration

Throughout the life cycle of an insurance policy, IDP plays a crucial role. It supports initial policy processing, manages endorsements or riders, performs audits to ensure accurate pricing based on potential exposure, and resolves customer queries effectively. Additionally, IDP automates premium reminders, data validation, and policy uploads, optimizing the policy issuance process.

3. Claims Management

The claims process involves multiple stages, including First Notice of Loss, document review, data extraction, assignation of adjustors, claim uploading, and fund disbursement. IDP streamlines these steps by automating document handling from various stakeholders, reducing manual intervention, and increasing efficiency.

4. Underwriting 

Underwriting is another document-heavy process where underwriters extract and review thousands of documents before entering them into a downstream processing system. An intelligent system "reads" these documents like an underwriter, finds relevant data, and enters the appropriate data into the system, freeing up underwriters' time for higher-value work—resulting in improved productivity and underwriting accuracy. 

5. Invoice Processing

Automating invoice processing can save significant time and resources. IDP can extract, separate, and integrate data from invoices into accounting systems, eliminating manual data entry and reducing errors, leading to substantial time savings.
Intelligent Document Processing presents a transformative opportunity for the insurance industry to enhance efficiency, reduce errors, and deliver superior customer experiences. By leveraging AI and ML technologies, IDP streamlines document processing, optimizing various areas such as claims management, policy administration, underwriting, and invoice processing. As the insurance industry continues to embrace digitization, IDP will play a crucial role in shaping a paperless future, maximizing operational effectiveness, and enabling insurers to stay competitive in an evolving landscape.
 

If you'd like to learn more about how you can automate document processing and stay competitive, contact us.  

Murray Izenwasser, Senior Vice President, Digital Strategy

At OZ, Murray plays a pivotal role in understanding our clients’ businesses and then determining the best strategies and customer experiences to drive their business forward using real-world digital, marketing, and technology tools. Prior to OZ, Murray held senior positions at some of the world’s largest digital agencies, including Razorfish and Sapient, and co-founded and ran a successful digital engagement and technology agency for 7 years.

Sponsored by ITL Partner: OZ Digital Consulting

KEY TAKEAWAYS:

--One-off or standalone solutions acquired for specific tasks, incomplete conversions from one system to another and failures of large-scale modernization initiatives have resulted in insurers being invested in a myriad of systems and applications. Some work, some sort of work, some don’t work at all, but in a Lego sort of scenario, taking out the systems that don’t work is nigh on impossible because the “blocks” are now foundational to the insurer’s infrastructure.

--The solution lies in investing in specific areas that touch the customer and focusing on incremental change -- not attempting to do everything at once. It also requires a no-code/low-code environment, a more agile data platform and the right service provider.

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The future of insurance (and maybe the world) is personalized, streamlined and effortlessly automated. It rests in the capable hands of application programming interfaces (APIs), integrated systems, automation and insightful, democratized data. It is driven by digital transformation and the need to invest in systems and applications that will grow with the business and ensure increased data accessibility and visibility.

Over the years, insurance companies have amassed considerable, and complex, technology infrastructure, which is slowly failing. One-off or standalone solutions acquired for specific tasks, incomplete conversions from one system to another and failures of large-scale modernization initiatives have resulted in insurers being invested in a myriad of systems and applications. Some work, some sort of work, some don’t work at all, but in a Lego sort of scenario, taking out the systems that don’t work is nigh on impossible because the “blocks” are now foundational to the insurer’s infrastructure. Many insurers do want to find a way to consolidate data and integrate systems, but building connected systems through integration is hardly ever a simple task.  

‍To ensure system integration and automation deliver on so many promises, there are five key steps insurers should take.   

01: Meet Customer Demand With Intelligent Investment

Customers are more demanding today than ever, and customers will only become more demanding, more insistent on seamless, customized solutions. There will be an inevitable “lift and shift” to companies meeting increasing and evolving customer demands more efficiently.  ‍

Investments into digital transformation are the natural first step toward successful integration. In recent research, McKinsey finds that companies focusing on marketing and sales, underwriting and pricing, policy servicing and claims -- four areas that affect the customer journey, the customer experience and customer value -- are most likely to see measurable return on investment (ROI). 

See also: Insurers Turn to Automation

02: Focus on Incremental Change

The insurance industry juggles data challenges unique to its offerings and business structures. Most insurance solutions run for many years, introducing legacy data problems that affect efficiency and access. And, unfortunately, it is difficult to increase data mastery if significant percentages of solutions are legacy-driven and inherently complex.‍

The answer lies in incremental change to systems, data integration and the implementation of a platform capable of blending legacy with innovation. This hybrid approach minimizes disruption while ensuring the organization continues to move forward. With the right technology and service provider, incremental change can help the business adapt and evolve to ensure longevity. 

03: Create Flexibility With a Low-Code/No-Code Environment

Custom code, while great upon initial release, can grow stagnant with time or as requirements change. Unexpected delays, struggles with development processes or even data changes and growth, can affect written code and cripple a business’s ability to adapt to solutions and systems on demand. With a low-code/no-code environment, businesses can ensure data and operations remain agile and adaptable to new system requirements or as sales and marketing efforts call for segmentation. 

0‍4: Use a Platform That Empowers Data

Investment into a modern data platform is about more than just checking boxes, disrupting competitors or driving the business toward trends. It is about enabling and empowering every silo and solution within the business. This is the key to unlocking the door to a scalable, extensible and enterprise-ready solution that sits at the very center of your dataverse. What is needed is a solution that is powerful and future-proof. This does not equate to disruptive, destructive or expensive. It equates to elegant, intuitive and intelligent.

Investing in a solution that enables the efficient use of data allows for the hyper-personalization of policies, the creation of customized customer journeys and the ability to refine insurance policies into bespoke products. Such investments provide the freedom to innovate and the ability to truly explore intelligent decision-making. This requires more than just a giant box of tech; it needs to be backed by strategy that will help achieve the right value, improve speed of delivery and ensure investments can move dynamically with evolving business requirements. 

See also: What’s Beyond Robotic Process Automation

‍05: Choose a Solution Provider That Simplifies

Successful system integration and modernization requires more than just a digital overlay. It asks that the organization stop seeing technology as a magic cure-all for legacy data complexities. It isn’t. The real cure lies in finding solutions that simplify complicated situations and take every part of the customer’s organization into account to ensure the seamless flow of information across silo, system and solution.  

Often, this means finding a capable, compatible solution provider that can be trusted to help the organization increase data transparency and implement rules and policies that align with integration and data usage and ensure the workplace and workflows are managed intelligently.‍

Insurance enterprises today must meet the challenge of modernizing legacy data, automating business processes and building connected systems. In one scenario, the solution is a hybrid data automation platform implemented in a low-code/no-code environment. Insurers that are going to make it to the next level of this game need powerful technology and insurance-savvy expertise to grow and to make the most of data resources, today and in the future.

KEY TAKEAWAY:

--By communicating with policyholders in advance of premium increases, insurers give policyholders sufficient time to engage, ask questions and experience good customer service, all of which reinforce the relationship and can discourage churn.

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Over the past few years, inflationary pressures have made a notable impact on the economy – and on home insurance premiums. According to CoreLogic’s U.S. National Building Cost Trends report for Q2’23, building material costs for carpet, insulation, brick and concrete have continued to rise, increasing overall residential reconstruction costs by an average of 1.9% from February to May 2023 nationwide. In catastrophe-exposed states like Louisiana and Texas, reconstruction costs are even higher than the national average, at 3.1% and 2.5%, respectively. However, only approximately 30% of homeowners have sufficient coverage to account for the higher costs to rebuild their homes after a major loss.

This data underscores why carriers must price premiums to accurately reflect the true cost of reconstruction and repairs. Without accounting for the increased cost of building materials and labor, insurers run the risk of leaving policyholders underinsured, a phenomenon that’s not uncommon: The U.S. protection gap – or the losses insurance didn’t cover over the last 10 years – remains at 43%. 

By communicating effectively with customers, insurers can adjust premiums to keep pace with inflation and ensure appropriate coverage while building better customer relationships.   

Communicate Premium Changes Early On

Maintaining transparency about rate increases when the market shows signs of inflation can foster customer trust and help reduce sticker shock when new rates are implemented. 

According to MarketWatch.com, 90% of homeowners saw their insurance premiums rise in 2022. By communicating with policyholders in advance of premium increases, insurers give policyholders sufficient time to engage, ask questions and experience good customer service, all of which reinforce the relationship and can discourage churn. 

See also: What to Do About Rising Inflation?

Leverage Customers’ Preferred Channels

Better customer service begins with engaging customers in the way they prefer to be reached. Insurers that leverage both customer engagement analytics and multiple communication channels can refine outreach efforts and interaction cadences to meet customer expectations. 

Accessible, reliable communication and customer service is imperative in any industry, including insurance. In fact, based on a study by J.D. Power, customer service — not price — is ultimately the driver behind long-term customer value in home insurance. 

Educate Policyholders on Premiums and Protection Gaps

When customers understand the factors that influence their premiums – and the discounts available to them – they are better positioned to control the factors they can. For example, if homeowners understand how the age and condition of their roof affects premiums, they may be more inclined to fortify their roof to take advantage of available discounts. 

In the same vein, when customers understand why insuring their home to value is important to making them whole after a loss, the benefit may outweigh their price-sensitivity.

Proactive conversations with customers about rate adjustments for inflation can result in stronger customer relationships and higher retention. Moreover, it’s the chance for insurers to demonstrate to policyholders that their protection is top of mind.

Recently, Lemonade entertained us with their last pyrotechnic: "the synthetic agent." That follows a long list of shining and exotic concepts, which have been as essential in their DNA as their bloody combined ratio (for each dollar written, they have consistently spent more than $1.40).

Let's talk about some of these magnificent pearls:

1. Charity giveback. The storytelling, "Lemonade takes a flat fee and treats the rest of the money as yours, not ours," and their iconic slice of pizza have fascinated insurance professionals.

The hard reality: Last year, half a cent for each dollar of written premium in 2021 went to charity. The charity giveback has merely been crumbs of the pizza! I'm sure many insurance incumbents are donating a higher percentage of their premiums.

See also: Insurtech Startups Are Doing It Again!

2. Claim settlement world records. It was a Christmas gift in 2016, and in June 2023 their PR team did it again 👇

3. Alumni. At the 2022 investor day -- in answer to the question about the 30% to 40% churn rate -- Lemonade disclosed that it doesn't lose policyholders, they create alumni! Standing ovation for the guts to claim this!

4. Seasoned policyholders. The investor day was full of pearls! CEO Daniel Schreiber described portfolio pruning as "seasoning."

5. The synthetic agent. This is the most recent creation. A lender receiving a 16% interest rate is presented as a (synthetic) agent. The same day, Daniel gave one of the most honest comments I have ever seen from him:

His second explanation has been definitely more polished: "It may be tempting to dismiss synthetic agents as "good old-fashioned debt that's been given a glossy makeover. [...] Here are four key differences that make all the difference: 1. Cash Flow Synchronization vs. Fixed Schedule [...] 2. Adaptive vs. Static [...] 3. Operational Freedom vs. Restrictions [...] 4. Their Risk vs. Our Risk [...] ."

For my fellow actuaries reading this edition of the newsletter, you may enjoy the video below from some Lemonade fans.

Let's look at Lemonade customer growth and their marketing expenses (the Metromile acquisition at the end of July '22 should be pro rata reflected in the Q3 '22 data and entirely in the Q4 '22).

Customer growth from the end of Q1 '21 to the end of Q1 '23

At the end of Q1 '23, their customer base reached 1.85 million (compared with 1 million at the end of Q1 '21), but the growth has significantly slowed (excluding the quarter when Metromile was added). Total marketing costs stayed around $36 million until Q3 '22 and have been reduced below $30 million in the last two quarters. This sales and marketing spending has to deal with replacing the ALUMNI, and not much is left to grow the customer base.

The synthetic agents are supposed to provide that growth, but the interest paid will be on top of the already bloody combined ratio.

See also: How to Know If You Need Telematics

Talking about agents -- the real ones, humans selling policies, serving policyholders along the policy lifetime and being remunerated for doing so -- I desire to remind you of their important role. In Kyle Nakatsuji's beautiful words: "Agents deliver what we've come to call 'curated value.' They work on the customer's behalf to gather information, source options curate a selection process and validate choices. This gives the customer confidence they are seeing their real options (transparency), getting a good price (affordability) and getting the right coverage (value), all while doing less work themselves (convenience)." Amen!

My beloved insurance incumbents, the poor performances shown by the new kids on the block (who pretended to be the good guys disrupting the bad insurers) and their exotic blah blah blah shouldn't justify any reduction in your innovation efforts. There are clear demonstrations in any insurance business lines that the higher the level of innovation, the higher the financial performance (growth and technical results).

I'm talking about usage of data and technology to transform the way your organizations work. These insurtech-based business transformations require multi-year journeys and C-level sponsorship, unfortunately without any shortcut. However, the prize for this insurtech effort is clear: superior financial results!

I discussed this transformative power of technology and data in driving growth, improving customer experiences, and enhancing risk management a few weeks ago with my friends at Infosys. To see the fireside chat between Karam and me, click here.

Last, a Tesla surprise:

You know I've always challenged the common enthusiasm about using OEM data for an auto insurance telematics program. (Here are my thoughts about it!) My main point has always been the impossibility of building a sustainable business case on a constant flow of data from a connected car due to the OEMs' greed.

So, my suggestion to insurers has always been to go with an aftermarket solution (app, hardware or even a camera in some situations) and not wait for an affordable OEM data stream. I still believe this is the best way to address the telematics opportunity on your portfolio!

However, on a small fraction of your insured portfolio, you can now start using OEM data at ZERO cost! Tesla has exposed APIs with open data, totally free. You have it here: Tesla Open Telematics Data.

You need only to design a compelling value proposition able to win the customer inertia!

Looking forward to seeing your new value propositions based on this free telematics data!

KEY TAKEAWAYS:

--The cloud, open APIs and a microservices approach to IT architecture allow for experimentation and the mixing and matching of apps and services into new and improved business solutions.

--Improvements in AI and predictive analytics allow for much more sophisticated insights and smoother interactions with clients.

--No-code or low-code platforms empower insurers to build custom applications and solutions without the need for extensive programming expertise.

--Self-sufficiency enables traditional insurers to position themselves as agile, customer-centric organizations capable of delivering value and staying ahead in a dynamic insurance landscape. It begins with reducing reliance on third-party vendors.

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The rise of innovative technologies such as no-code tools, artificial intelligence-powered automation and predictive analytics has helped transform the ways insurers operate and interact with customers. 

The solutions leveraged by the industry based on these technologies have helped streamline insurance processes, reduce insurers’ overhead and increase profitability. However, traditional insurers have become dependent on those that offer this kind of technology – a dependence that can induce communication lags, lower productivity and decrease efficiency in the event of a back-end issue. 

Thanks to the digital revolution, insurance-related tech is now more accessible, more intuitive and easier to implement than ever. These improvements are being driven by user-friendly interfaces, cloud computing, software-as-a-service (SaaS) models and open application programming interfaces (APIs), among other innovative technologies.

By strategically implementing the following tools and solutions, traditional insurers can achieve a level of self-sufficiency that may have until now eluded them in this digital age. 

The Cloud + APIs + Microservices

Cloud platforms give insurers access to software applications, storage and computing power without the need for significant upfront investments in infrastructure, which allows them to leverage advanced technologies seamlessly and remain competitive. By way of these cloud platforms, SaaS providers – which offer software applications in the cloud – enable insurers to access and use sophisticated solutions that are resilient and scalable in a convenient commercial model that enables a best-of-breed approach and can drive innovation by experimentation.

The “microservices” architectural approach creates software applications as a collection of small, independent and loosely coupled services and is used by both SaaS providers and modern IT teams. This approach furthers the “composable business” approach by introducing new, discrete services, allowing for independent service lifecycles and upgrades and enabling the mixing and matching of apps and services into new and improved business solutions.

Finally, open APIs – used to expose the functionalities of individual microservices or SaaS solutions in a standardized way – allow insurers to connect and integrate a wide variety of useful systems and tools. This interoperability lets insurers effortlessly integrate new solutions with existing technology and opens a full ecosystem of tools and best practices to orchestrate, manage, monitor and control the composed solutions.

See also: Breakthrough Technologies for 2023

Artificial Intelligence

AI tools provide insurers with automated decision-making capabilities and intelligent data processing, which in turn lets them maximize their data to streamline underwriting processes, assess risks and enhance fraud detection. It’s for good reason that 49% of insurance executives say AI has helped them operate more efficiently.

Natural language processing (NLP) chatbots and other AI-powered virtual assistants, for instance, improve customer service, streamline inquiries and help resolve issues promptly. Computer vision, another AI-powered solution, automates data extraction from documents, streamlines claims processing through damage assessment, identifies fraud patterns, enhances underwriting accuracy using visual data and facilitates virtual inspections for customer support. By leveraging computer vision and keen AI-powered customer service tools, insurers can streamline operations, reduce costs, improve efficiency and enhance customer experiences.

Considering the vast amounts of data that AI tools can analyze simultaneously, insurers can use them to gain valuable insights into accurate pricing, personalized offerings and efficient claims management – these automations across the value chain allow insurers to focus on more complex and strategic activities and enhance users’ satisfaction and experience, both internally and externally. 

Predictive Analytics

Additionally, AI plays a significant role in predictive analytics, which use historical data and statistical algorithms to make predictions about future events or outcomes. AI enables these analytic solutions to parse large volumes of data, identify patterns and make accurate predictions.

Predictive analytics help insurers make data-driven decisions, identify risks and optimize their operations – advantages that have driven higher sales for 60% of insurers thus far and reduced gnawing expenses for 67% of them. 

These insights give insurers the necessary information to anticipate customer needs, identify fraudulent activities and accurately assess risks – all in real time. With them, insurers can minimize financial loss, enhance customer satisfaction and improve overall profitability. 

No-Code Development

While the use of no-code platforms still require reliance on IT and developer teams, and don’t necessarily exemplify the flexibility and agility of the end solution, no-code or low-code platforms are still uniquely able to empower insurers to build custom applications and solutions without the need for extensive programming expertise. In fact, these tools are estimated to account for 65% of application development activity by 2024.

Insurers can use these tools to create intuitive interfaces, automate workflows and develop digital solutions tailored to specific processes across various departments – claims management, policy administration, customer relationships and more. Importantly, no-code tools enable insurers to design and adapt these systems quickly to meet changing industry expectations on their own accord. 

See also: Is Going Digital Really THAT Important?

Endgame: Self-Sufficiency

When it comes to pursuing self-sufficiency, there is a case to be made for “building” solutions in-house, rather than buying. Indeed, reliance on external vendors isn’t necessarily in line with a self-sufficient ethos. But the work required to front an in-house solution can be costly, time-consuming and difficult – it’s easier said than done to build a finished product that fits seamlessly into preexisting workflows and product road maps.   

Rather, to gain real self-sufficiency without breaking the bank or stretching developers thin, insurers would do well to explore specialized solutions (or point solutions) – those that are highly configurable by non-techs, are open for extensions and use standard modern technologies. This approach ensures minimal vendor lock-in, as well as useful content already out of the box and continuing upgrades.

While each of the digital tools listed above can help improve the various checkpoints in the insurance value chain, their adoption should ultimately fortify their capacity to be more self-sufficient – a key to modern insurers’ success. 

Self-sufficiency enables traditional insurers to position themselves as agile, customer-centric organizations capable of delivering value and staying ahead in a dynamic insurance landscape. It can be achieved by first reducing reliance on third-party vendors. This will help insurers reduce external expenses for critical functions, granting them full control when responding to emerging trends, regulatory changes and customer demand. 

This flexibility provides insurers with the freedom to develop and implement unique strategies, products and services. Fortunately, there are more than enough AI-powered, low-code and predictive analytics tools insurers can experiment with and ultimately adopt to bolster their internal processes and, subsequently, their bottom lines.

Largest Life Insurance Market in the World

The United States life insurance marketplace is the largest in the world by premium (see Figure 1 below).  While there are many major US domiciled insurers, most international insurance behemoths have set up shop in the US either through acquisition or organically to grab a piece of the proverbial pie.  Giants such as Allianz, Aviva, AXA, Dai-ichi, Generali and Manulife attribute a large proportion of global life insurance sales to the US market. 

Figure 1

2021 Life Insurance Market Share and Penetration Rate by Country

Source: Swiss Re Sigma No. 4/2022

However, life insurance sales in the US have remained relative flat during the past decade.  According to the American Council of Life Insurers Fact Book 2022, the average annual growth rate for US life insurance face amount from 2011 to 2021 was only 1.7%[1].  This includes a large pandemic bump of 6.5% from 2020 to 2021.  The growth rate from 2011 to 2020 averaged a meager 1.2% annually.  Even with the incredibly low inflation rates during the same time period, life insurance sales have not nearly kept up with inflation nor population growth.  And more recently, the Life Insurance Marketing and Research Association (LIMRA) announced that premium sales were lower by 4% in the second quarter of 2023[2].  The same study showed that there was an increase in the number of policies sold, but number of policies does not drive growth.

Looking at life insurance penetration rates (premiums divided by Gross Domestic Product or GDP) by country tells a completely different story.  Using this criterion, the US lags behind Asian countries such as Hong Kong (measured separately from China), Singapore and Taiwan.  It also lags behind many European countries such as Denmark, Ireland, Finland, the UK and Switzerland[3].

So, what makes the US life insurance market so robust in terms of sales and how can the US improve its penetration rates?  One cause of a need for life insurance is to cover the cost of a mortgage in case of premature death of a breadwinner.  Depending upon the size and type of mortgage used, life insurance may actually be a prerequisite to obtaining a mortgage.  Approximately 66% of families in the US own homes whereas all other countries listed in Figure 1 have lower rates of home ownership, except for Italy[4].  Purchasing a home in the US generates much activity for life insurance sales teams.

Desire for children to be college educated is also a major expense that causes families to purchase life insurance.  Premature death of a breadwinner in the US will severely impact the ability for the children to attend college.  The US has about the same rate of college attendance as the UK and South Korea at 46%, and lags slightly behind Japan at 50%[5].  However, the US has the highest average tuition cost causing the need for greater amounts of life insurance[6].

Estate tax is also a major driver of life insurance sales.  For many Americans, the family home will be the major asset passed down to heirs.  If the heirs desire to keep the home, it may be difficult if 40% of the home valuation is due in taxes.  Many families purchase insurance to cover estate taxes, another large source of US life insurance sales.  Until recently, the US was tied with Japan for having the largest estate tax rate in the world at 55%.  It has now dropped down to fourth place with only Japan, South Korea and France ahead of it[7].

Mortgage protection, college tuition assurance and estate tax coverage are only a few reasons why the US life insurance market leads the world.  There are many other reasons.  The real question is how can the US market grow in size and penetration rate?  Perhaps looking at some of its European neighbors, the US could learn.

Family Income Rider

Even if individuals do not own a personal life insurance policy, they may be covered by their employers under a group life insurance policy in the US.  Many mid-to-large employers will offer group life cover as part of their employee benefits packages.  Typically, an employer-sponsored group life insurance program will cover individuals as a multiple of annual salary or a flat amount.  One, two- or three-times annual salary is very typical for larger insurers.  This, of course, favors the more highly compensated employees. 

According to the US Bureau of Labor statistics, the median salary in the US for the first quarter of 2023 was USD 1,100 per week or about USD 57,200 annually (without seasonal adjustment)[8].  Even with a generous corporate group life insurance policy of three-times salary, a family of the average worker would receive about a USD 170,000 benefit upon death of the worker.  With the average mortgage in the US reaching a record USD 453,000, a generous group life insurance policy would not even pay half of the mortgage[9]. 

The typical flat group life insurance plan is USD 50,000.  Those who have recently sent a child to a US university know that this would not even cover all costs for a state school.  If the death occurs while the child(ren) are young, the family will have time to invest the lump sum and hopefully achieve its goal, but this requires a financial acumen that many do not possess.

What is different in other countries and especially prevalent in Europe is a mandatory risk component for all employer-based savings plans.  These retirement vehicles are called 401k plans in the US, named after the applicable section in the Federal Tax Code, and Pillar II savings in most other countries.  This risk component would pay a percentage of the deceased worker’s salary to the family until the spouse reaches retirement age, with a reduction when the children are emancipated.  In other words, the annual salary continues minus expenses assumed to have been incurred by the worker.

Many old-timers in the US life insurance market will equate this risk element to a traditional Family Income Policy.  While still available as a rider, the Family Income Policy had a long history as a stand-alone policy in the US.  It is difficult to examine how robust sales are for this type of rider, since many companies lump riders together when generating statistics, however it is safe to say that it is not a major seller.  Otherwise, the policy would not have turned into a rider.  This does not mean, however, that it is not important.  Many European markets feel that the benefit is important enough to mandate in all occupational pension programs.

What this means for the average worker is that he or she is assured that upon premature death, a proportion of the worker’s salary will continue to the family as if the worker were still earning an income.  Younger workers would generate a greater benefit for their families in present value (their families would receive the benefits for a longer period of time) and older workers would generate a lesser benefit – exactly what is needed.  The traditional group life insurance policy seems to be counterintuitive – paying more to older and wealthier families.  This does mean that individual sales of life insurance in European countries are not as robust as in the US, but insurers receive premiums from employers to cover the risk component of Pillar II pensions, albeit “behind the scenes”.

With an estimated USD 6.3 trillion of assets in 401k plans at the end of the third quarter 2022, and an approximate average premium of 1% of assets for the risk component of European Pillar II plans (which also covers disability), that equates to an additional USD 600 billion of life insurance premium for the US life insurance market – or about double the current size[10].  The insurance penetration rate would also double yet would still be half of what it is in the leading market – Taiwan.  These, of course, are very round numbers and such a mandate may cause a decrease in current sales, but the effects would still be extremely significant. 

Even more important than premium and penetration rate growth in the US market, is the needed coverage to families.  Instead of being faced with a lump sum after the death of a breadwinner, the family would receive income in the manner that it is accustomed.  The family can continue to make mortgage payments, college tuition payments (or contributions into a college fund) and retirement savings contributions.  There are no immediate decisions that need to be made with a pile of money that the surviving spouse may not know what to do with. And, this covers gig workers in Europe as many countries require gig workers to set up a Pillar II account.

It sounds like a true win-win.  In fact, it could be a win-win-win with the final win applicable to US State Governments.  A recent Pew study found that State Governments will miss out on an estimated USD 334.3 billion in lost tax revenue and increased support programs for citizens not saving enough for retirement[11].  Requiring all 401k plans to have a risk component would certainly go a long way to filling that USD 300 billion+ gap in state budgets over the next 20 years.

Conclusion

The US Congress has made great strides for Americans with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act and SECURE Act 2.0.  Perhaps industry associations could lobby for a required risk component for all 401k plans as part of SECURE 3.0.  This, in conjunction with requiring gig workers to set up a 401k, could go a long way to providing much-needed protection for all workers.  It could also give a much-needed boost to the US life insurance market.

Covering insurance “behind the scenes” through employer-based risk plans is not going to get big headlines.  However, this is a life insurance industry that remained relatively silent while performing brilliantly during the worst terrorist attack that the nation has ever seen, surviving the great financial crisis and paying record benefits during a once-in-one-hundred-year pandemic.  And this is just in the past 25 years!

Our industry is great.  It protects families from the financial consequences of premature death or disability of a breadwinner and outliving its retirement savings.  The US market is the largest in the world but can still learn from other markets to grow even larger.  The Family Income Policy was a great mainstay of the American market.   Maybe it is time to pull it off the shelf and throw it into all retirement savings plans.  No, it is not a new product.  No, it doesn't make use of artificial intelligence.  No, there aren’t any fancy bells and whistles.  But sometimes the simplest ideas can be the best ideas.

The phrase “existential crisis” has been admittedly overused in recent years, and sometimes for good reasons, but is still apt when applied to today’s P&C insurance industry.

Macro Influences 

After many long years of stability, the 125-year-old, $300 billion U.S. auto insurance industry is caught between runaway inflationary cost pressures on one side and consumer wallets, many of which are no longer able to afford the spiraling auto insurance premium increases, on the other.​

In the middle is the $42 billion U.S. collision repair industry (of which $39 billion is paid by insurance), which has been experiencing severe technician shortages, rising labor costs and pricing pressure from carriers as average repair costs have jumped 50% over the past few years. These increases can be primarily attributed to the cost of replacement parts, scanning and calibration for newer model vehicles, which are now bristling with electronic Advanced Driver Assistance System (ADAS) features and related sensors. The even higher costs of repairing the rising number of electronic vehicles (EVs) exacerbates the problem. In fact, some carriers are now writing off EVs with just moderate damage as total losses because of their much higher repair costs than like vehicles with internal combustion engines. Total losses, which are costly for insurers, now represent almost 25% of all insured auto claims.

Much of the underlying repair cost discussion has centered on the more visible and tangible issues: parts prices, supply chain inflation and delays. Longer rental car terms during the repair process, up from the pre-COVID figure of roughly 11.5 days to over 20 and now resting closer to 19 days, have been cited, as well.

A closer look reveals a double-digit-percentage jump in body shop labor rate increases, a significant change in the marketplace that is unlikely to recede. As independent body shops continue to decline in number, venture capital-backed MSO (multi-shop operator) models continue to expand, many of which are essential to insurance carrier DRP (direct repair program) networks, which were introduced to deliver long-term repair cost and other business benefits.

The advent of MSOs promised to advance repair consistency and provide volume cost benefits, so insurers openly embraced this new advantage in hopes of wrangling the fragmented repair space. Ironically, MSOs are now more able to flex their scale, raising rates as well as even limiting their participation in insurer DRPs, demonstrating greater influence in the marketplace.

Carriers with lower density of customers in select markets are becoming powerless and more challenged in containing repair costs because volume and relationships have a louder voice. Many on the insurer side have feared that the auto repair industry would someday become akin to the healthcare insurance model, in which services are rendered and then simply reimbursed by insurers, which have lost the ability to contain costs.

Although this article emphasizes auto repair cost increases that are likely permanent, there are additional long-lasting culprits afoot. Social inflation is proving to be a real factor as juror and public sentiment regarding justice is changing. Add in litigation funding and the growing capital behind this budding “cottage” industry.

Driver behavior and decreased law enforcement on drivers, as other crimes are prioritized, have been well studied and are offsetting gains from ADAS systems. Finally, medical costs show no signs of slowing, including the less obvious cost-shifting as the Medicare Secondary Payer rules established in 2018 push costs to P&C insurers. 

Telematics

Many of the influences that had been keeping these cost increases at bay are no longer able to contain them.

Telematics-supported usage based insurance (UBI) programs enabled a large group of safer drivers to take advantage of insurance discounts, but adoption has leveled out at under 20% of policies, as the market awaits the next generation of telematics programs that go beyond discounts to “always on” emergency response and accident management for all policyholders. As a reflection of this market’s maturation, global market leader Cambridge Mobile Telematics acquired rival True Motion, the second-largest mobile telematics provider, in 2021.

UBI programs continue to evolve, with emphasis on driver safety, saving lives and coaching components more common in personal lines rather than fleet (commercial vehicles) coverage. Westfield Insurance launched Mission Safe in May, which rewards drivers and provides feedback and incentives, thus differentiating it from others. Drive Safe from State Farm, Allstate’s DriveWise, SmartRide from Nationwide and Farmers’ Signal program work similarly as switch-to-save models by enticing drivers with 30% to 40% initial discounts, with the motivation to maintain discounts through good driving behaviors.  

Telematics pioneer Progressive Insurance recently announced their Accident Response initiative, focused on accident management and crash detection for all drivers, independent of a UBI program.

However, tangible changes in driver behavior and safety remain elusive, and distracted driving is on the rise.

See also: The End of Auto Insurance

Technology

Technology delivered real cost savings to both the auto insurance and collision repair industry for many years, peaking in 2022 as pandemic-related changes normalized.

Auto insurers discovered that policyholders were willing, indeed anxious, to take pictures of accident damage with their smartphones to avoid contact with adjusters. And taking the appetite for a “touchless” claim experience a step further, carriers began adopting digital claim payments to policyholders and collision repairers. 

Not missing the opportunity to reduce overhead, carriers pared their adjusting staffs and sold off less-occupied physical facilities. The gains from these major adjustments ended in 2022 as the pandemic eased, and the remaining staff resources are challenged to meet the higher claim volume as motorists returned to the roads, continuing the more dangerous driving habits they acquired on relatively empty streets and highways.  

Collision repairers, especially the better-funded MSOs, also embraced a host of cost-saving technologies spanning the intake and operational function of car repair, including repair planning, higher throughput painting and drying booths, scanning and calibration, automated parts procurement and customer communication technologies. Again, most of the economic gains from these advances are now baked in, while the tide is changing toward higher cost of repairs.

The Great Rebalancing

There is a Great Rebalancing underway as each of the major stakeholders scrambles to adjust to the new normal. The critical question is whether they can adapt quickly enough to forestall what could be a major consumer- and investor-led disruption.

A consumer groundswell of resistance to further auto insurance price increases could lead to broader market interference by state or federal regulators, who have the power to influence rates (much as is playing out now for auto in California and recently for property insurance in Florida).

It is not unreasonable to expect accelerated consolidation within the auto insurance market as investors, boards and financial activists push the worst-performing carriers to explore all strategic options.

And as the collision repair industry continues to consolidate as a result of additional investor involvement, the largest MSOs have gained and will likely exceed negotiating parity with auto insurers and extract better commercial terms to cover their rising costs, thus adding pressure on auto insurers’ results.    

Overlay on all of this the slow but sure conversion of the carparc from ICE to EV vehicles as the self-imposed 2035 switch-over deadline approaches, along with the higher price tags, operating and repair costs for these battery-operated “computers on wheels.” Consumers are going to have to absorb further material increases in their cost of transportation. 

You should not conclude that we are pessimistic about the outcome here. We are confident that American ingenuity, bolstered by new and exciting technologies, and our faith in the American appetite for affordable mobility, will prevail. What we can’t see quite as clearly is exactly how and where the various players will come out.

KEY TAKEAWAYS:

--The insurers of tomorrow won't be built on the technology of today. The uncomfortable truth is that the industry hasn't fundamentally changed the way it operates. Nor is the implemented technology flexible enough to support the transformation now needed.

--First, we must move beyond the legacy mindset of "how to do insurance the way it's done today, but better."

--Driving risk mitigation by providing new or additional services should be at the heart of every insurance business.

--Insurtech capability should be used to dramatically improve digitization and customer choice while expediting the most vital services an insurer provides. That means ending the emphasis on economies of scale in IT and focusing on speed, based on new, data-fluid and flexible foundations.

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Despite the eye-watering amounts of money insurance companies have spent on digital transformation, they continue to struggle under the weight of the pressures they face. If I were the CEO of a global insurer, I'd want to know why, after the millions I've spent on new tech, the business is incapable of adapting to the demands being placed on it.

While in many ways insurance is an adaptive industry, it has found itself out of step with customer expectations and possibilities. To make matters worse, it is now caught behind the huge changes occurring in our world.

In a cloud-driven, continuously changing and increasingly automated world, adaptability will be the defining characteristic by which insurers survive or thrive. The challenge is, right now, adaptability feels out of reach.

How did this happen?

The uncomfortable truth is while many insurance companies have put great effort into digitizing their businesses at great expense, the industry hasn't fundamentally changed the way it operates. Nor is the implemented technology flexible enough to support the transformation now needed.

Yes, modern legacy platforms can run a book of insurance business. Yes, they can automate some tasks using other technologies. And, yes, platforms can provide a front-end digital experience of a sort. But they can't respond to consumer demands for end-to-end digital experiences that put customers in control. Nor can they make insurance easy to choose and consume.

Worse, these patchwork platforms struggle to leverage the data held to provide meaningful, actionable insight or ingest new data sources to improve decision-making. Nor can they easily onboard the partners that are necessary to provide a comprehensive engine that speeds up customer resolutions, combats fraud and decreases the cost of doing business.

See also: Transformation Is Now an Imperative

The issues are two-fold. System architects have built new technologies on top of weak foundations, and business cases have only looked to save money through scale, not based on the idea of real change. The result is grinding gears, not well-oiled machines.

Conversely, the big market growth opportunities of risk mitigation, embedded 2.0, adaptive underwriting, response to catastrophic risk, the rapid adoption of emergent insurtech capability etc., are all about speed and relative cost reduction.

From the rise of electric vehicles (EVs) to climate change and extreme weather, it is becoming harder for insurers to keep pace with risk. The threat of Tesla's insurance takeover in the automotive space is undoubtedly overstated. But even as insurance companies talk more often about engaging the original equipment manufacturers (OEMs) and finding the partnership opportunity, the change is relatively slow compared with other industries.

Worst of all, we all know a lot of challenging transformation complexity is yet to surface.

How to Drive Real Change

Driving real change starts with the right mindset, from which the right foundations for transformation can flourish.

First, we must move beyond the legacy mindset of "how to do insurance the way it's done today, but better" and replace it with a new way of working that tackles the problems we face head-on and focuses on value creation.

Flood Re's capability on a home or property insurance offering is an excellent example. It ensures that, following a claim, you build back better or replace to mitigate some or all flood risks. By doing so, you create resiliency and reduce the likelihood of experiencing the same claim again.

Another example is using connected vehicles and building intelligent services around the vehicle ecosystem. So when the brakes are low, and the risk is high, the insurer intervenes, alerts the driver and directs them to get the best-value replacement. Or even the simple adoption of new mobile services that can help triage or even self-report the claim.

Driving risk mitigation by providing new or additional services should be at the heart of every insurance business. As should adopting insurtech capability that can dramatically improve digitization and customer choice while expediting the most vital services an insurer provides.

However, to embrace this new dawn, we must see insurers adopt new data-fluid and flexible foundations that enable them to build new value continuously while ensuring we are a more resilient and capable society.

Walking away from markets or any risk scenario because adaptation is too hard is walking away from the true purpose of insurance. This has always been a social experiment. A collection of people and organizations pooling together to share risk and allow us all to make progress.

To ensure we continue to drive progress, we must put aside the obsession with economies of scale in IT and move toward the economy of speed. Speed in adaptability gives us speed in response, speed to deliver insurance in new places and to support new endeavors.

The four key imperatives that will drive this change are:

1. Maximizing the value of a customer
2. Reducing total cost of ownership (TCO)/cost per policy (CPP)
3. Vastly improving decision-making and automation
4. Driving new value potential and selling beyond just insurance -- embedded, risk-mitigating, adaptive and vastly more meaningful.

The truth is where insurers can derive the greatest value for insureds and they, in turn, can derive the greatest value for themselves.

To do so, data acquisition-only strategies must move to data ecosystem-led approaches, where insurers can get much closer to the data in real time and start to build the picture of change and act on it far faster.

See also: How to Value AI, Analytics Initiatives

In many cases, this strategy presents the potential to make insurance more meaningful and a force for immense good.

New MACH-based technologies that create the right foundations are essential. Technology until now has largely let insurers down, but they must put that past behind them. The focus has to be on new ways of working, new business models and value creation-based business cases.

In a world currently caught up in tech fear or tech optimism and a general misunderstanding of new technologies such as generative AI, now more than ever, our best compass is morals, ethics and value creation.

In my experience, this is born of a deep understanding of the human condition we seek to transform. Otherwise, what's the point?

Successful insurance agents understand that in such a dynamic industry, knowledge is key. Embracing a mindset of lifelong learning helps agents remain at the forefront, empowered to adapt swiftly, identify opportunities and provide innovative solutions for their clients.

Despite the benefits, many in our industry resist the concept of lifelong learning because they find it irrelevant to their actual challenges. It's time we rethink this mindset.

Regulators mandate a certain amount of continuing education for agents to maintain licensing and stay in compliance with industry and state standards. Lifelong learning, by contrast, is self-directed and involves continually acquiring knowledge beyond formal education. 

The insurance industry has traditionally approached lifelong learning poorly, often mandating repetitive and unengaging training that fails to address actual business needs. There's also the negative impact of AI—no, not artificial intelligence but arrogance and ignorance. Arrogance comes from a false sense of knowing everything, and ignorance is not knowing what we don't know.

See also: From Agents First to Agents Last?

Rather than basing actions on assumptions, agents who pursue lifelong learning continually reevaluate their methods and approaches, promoting creativity within the agency.

Education can also serve as a confirmation tool, reassuring team members that they're operating correctly. This reinforcement boosts confidence. It also plays a pivotal role in team dynamics, fostering a sense of unity and direction and ensuring everyone is working toward the same goals.

Many people struggle with education because they attempt to tackle it alone. However, learning is often more effective and less frustrating when done collaboratively. Participating in courses, coaching sessions and discussions with peers can greatly enrich the learning experience. Lifelong learning isn't just about taking a class—it's about continual coaching and participating in conversations that enhance your knowledge and skills.

Lifelong learning doesn't necessarily mean spending large amounts of time on education each day. Instead, even dedicating 15 minutes a day can help. Use this time to focus on key concerns and pain points such as time management or business acumen. This small daily commitment can lead to significant improvements over time.

To maximize your learning and development, it's essential to adopt a strategic approach. Here are seven principles to keep in mind:

Commit to Daily Learning: Dedicate a 15-minute block every day to learning something. This routine can improve your skills and knowledge incrementally without taking much of your time. Avoid Mondays if they are generally busy for you.

Set a Theme for Your Learning: Each month, focus on a different aspect of your work. For instance, you could focus on communication skills in July, retention strategies in August, etc. This approach can ensure a well-rounded development over time.

Don't Journey Alone: Seek help from mentors, coaches or an alliance to gain insights and address your pain points effectively. Learning isn't a solo journey and can be more enriching with others' input and expertise.

Acknowledge the Need for Business Training: Many agents start their own agency without any formal business training. If this applies to you, acknowledge it and strive to improve your business acumen and operational skills as part of your learning.

Keep Track of Pain Points: Maintain a list of topics or situations where you lacked confidence or struggled to find answers. These pain points can guide your learning. Discuss these with a coach or seek advice from a training center to find effective solutions.

Understand Onboarding vs Orientation: Orientation is about acquainting yourself with the environment (like the location of the restroom), while onboarding is integrating new hires or learning procedures. This process can last anywhere from a few days to an entire year.

Distinguish Technical Skills From Soft Skills: Technical skills pertain to how you perform specific tasks like submitting a report or filling out a form. In contrast, soft skills such as time management, communication, questioning, sales skills and pipeline building are vital for overall success. Soft skills are often the hardest to master and must be continuously worked on.

While lifelong learning may seem overwhelming when looking at the big picture, breaking it down into smaller, manageable chunks makes it more approachable. 

See also: 4 Predictions for Independent Agents

Remember, acquiring knowledge is not an obligation—it's an opportunity. So, why wait? Turn lifelong learning into the cornerstone of your agency’s success story.

KEY TAKEAWAYS:

--The companies that most effectively cope with disruption will be ones that reinvent themselves by focusing intently on the customer.  

--Almost all carriers are pursuing "incremental change" and "pragmatic evolution" scenarios. But the aggressive "customer first" and "radical reinvention" scenarios are entirely possible based on already extant (albeit still maturing) technology. AI even offers the promise of moving insurance beyond restitution and risk mitigation to risk prevention. 

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The stability that insurers have long relied on for predictable risk pricing and consistent growth is disappearing. In the past three years alone, the world has experienced a pandemic, sometimes violent political unrest, severe supply chain disruptions, global conflict, high inflation and multiple historically extreme weather events. 

STEEP factors’ enduring impacts 

These short-term crises are part of longer-term trends that profoundly affect the insurance industry: social, technological, economic, environmental and political (STEEP). Their impact is only increasing. Social instability, technological disruption, demographic shifts and climate change are leading to a fractured world in which insurers have to cover a greater array and frequency of intensifying risks.  

Carriers are responding to these challenges in various ways, with different business and operating models. As we briefly describe below and in more detail in our new Insurance 2030 report, while determining the best ways to grow, attract customers and operate more economically and efficiently, most insurers will exhibit various traits across a spectrum of possibilities. However, the companies that most effectively cope with disruption will be ones that reinvent themselves by focusing intently on the customer.   

1. Incremental change. This is the current and historic baseline scenario for most carriers. They’re adapting, usually in pockets and reactively, even though STEEP developments challenge many of their attempts to keep up. This approach risks more than commoditizing the business. Companies operating in this scenario don’t stand out to potential customers and partners.
2. Pragmatic evolution. Most forward-looking companies are moving in this direction. Their progress varies depending on their priorities and investments, but they're earnestly trying to create a customer-centric business that orchestrates coverages, services and support for customers as their needs change over time. 
3. The customer first. A common — and still largely aspirational — goal of pragmatic evolution is restructuring business and operating models to put the customer at the forefront, facilitating genuinely personalized solutions. The ideal end game is to center product design on the customer, creating personalized, holistic insurance packages at the point of sale and removing friction by integrating service and support across offerings. In this case, the enterprise is tech-driven, and a direct result is a proliferation of effective touchpoints.
4. Radical reinvention. Building directly on the customer first, the boldest carriers are determining how to create unique business and operating models that redefine the very nature of insurance, helping stakeholders avoid risk in the process. This is a long-term goal for most of the industry, stretching through the end of the decade and likely beyond.

See also: Insurance 2030: Scenario Planning

Riding the wave of change instead of drowning in it

As we’ve seen so far this century, no one can clearly predict what may happen even in the short term, but our spectrum of business and operating models in a turbulent world isn’t theoretical or far-fetched. Our incremental change and pragmatic evolution scenarios describe current reality at almost all carriers. The customer-first and radical reinvention scenarios, which depend on already extant (albeit still maturing) technology, are entirely possible. Key factors for carriers trying to wind up on that end of the spectrum include: 

• True customer-centricity, which means moving beyond selling products created in-house for single transactions to orchestrating multiple coverages, services and support for customers as their needs change.  
• Partnerships, ecosystems and embedded options that immediately put carriers at the point of sale and broaden their market reach. 
• AI and other advanced data, which can significantly enhance risk assessment, product design, sales and marketing and improve the customer experience via answer engines, data collection, product customization and service. AI also offers the promise of moving insurance beyond restitution and risk mitigation to risk prevention. 
• Creating compelling career paths that fit your current and future skills needs and appeal to ambitious workers. 
• A flexible technological base and strategic IT function that will enable you to effectively implement all of the above. Cloud and related transformation aren’t an end to themselves. Instead, they facilitate internal and external integration, speed to market and IT that's a strategic driver, not just a maintenance function.  
• Last but certainly not least, fully investing in and supporting your strategy.