From destructive wildfires and hurricanes to epic snowstorms and floods, 2023 was the worst year on record for billion-dollar disasters. Natural disasters are not only happening more often, but they are also more severe, devastating homeowners and driving up insurance rates. People who live in Lake Arrowhead, California, for instance, pay high premiums because the city is considered at high risk from wildfires and earthquakes. This is the same area where homeowners and tourists were trapped by a severe snowstorm last winter.

The increase in natural disasters is a major contributor to the challenges facing the insurance industry. There is also a widening gap in health insurance coverage, retirement savings and life insurance -- adding up to a $1.4 trillion shortfall in coverage in the U.S. 

With today's digitally savvy consumers, many insurance companies have started their digital journey with AI and data analytics through intelligent automation (IA), business process management (BPM), chatbots and customer experience (CX) portals to meet customer and market demands for speed and convenience at low costs. Many insurance companies are also using new underwriting models and distribution channels to appeal to new customers.

While the increase in adoption of AI-driven policy calculators and application processes demonstrates a shift in mindset for the industry, some firms struggle with implementing a comprehensive approach to using advanced technologies. According to a recent Deloitte survey, of 100 U.S. life insurance and annuity chief information officers whose firms have begun their core system modernization, fewer than a third have completed some (20%) or all (12%) of their initiatives. Just over two-thirds have projects currently underway or in the planning stage.

Intelligent automation provides an enterprise road map to more efficient business processes while enabling insurers to offer personalization of services to attract and retain customers by enhancing the customer experience. AI and BPM are key ingredients of intelligent automation, along with robotic process automation (RPA) and other complementary technologies that can enact change for your organization.

Intelligent automation creates efficiencies using your existing structure and systems, while lifting the burden from your workforce and allowing employees to focus on work with more impact.

Technologies designed to work together are key to achieving the productivity gains promised by digital transformation. There are three steps you can take to help you navigate and understand these technologies, see how they fit into your operation and deploy a model of best practices for implementation.

See also: Automation 2.0: What's After RPA

Step 1

Establish an ideal outcome and return on investment (ROI) target for your intelligent automation, whether that be revenue, cost savings, error reduction, employee satisfaction, customer experience or compliance. Once you have your objective clearly laid out, it will be easier to deploy your automation where it will be most effective.

It is important to have a robust strategy that empowers employees from business and IT to work together to deliver a clear plan. The Gartner Avoiding the 10 Most Common Mistakes in Financial Services Automation report provides insights into how financial services companies can achieve long-term value from their investments. A digital operations center of excellence is essential for a structured approach to automation because it focuses on governance, technology selection and choosing the right automation to deliver business outcomes.

Step 2

Identify bottlenecks or inefficiencies in your operations. One way is through process mining, which analyzes your current processes to determine where improvements can be made. From there, you will be able to set goals, from the quick wins of routine task automation to the orchestration of long-running processes and augmenting intelligent decision-making capabilities to evolve those processes.

Step 3

Deploy an automation operating model, ROM2, that meets your business change management needs to scale automation and orchestration. Using proven methodologies and orchestration management empowers you to establish a solid foundation that enables you to customize, sustain and expand your intelligent automation program. With BPM and RPA, you can coordinate processes and avoid human errors during manual data input, which is especially important in financial services. Errors can cost you and your customers money and lost investment opportunities.

BPM excels at orchestration, but it cannot directly interact with legacy systems. RPA, on the other hand, is great at automating any user interface but struggles with long-term case management. Combining the two creates a complete solution that can tackle end-to-end processes. Robotic process automations are managed with BPM software, using automation wherever possible.

Humans are still accountable to ensure they sign off with the BPM system's delegation and coordination of tasks and processes across human and digital workers. The operational transformation will reverberate across the organization because of the scalability of BPM and RPA used in tandem within an intelligent automation platform.

This setup positions you to manage roles and rules while gathering insights on operational analytics. With both, your business model will mature and help guide you in everything from efficiency to enrichment to total reinvention.

See also: Digital Self-Service Is Transforming Insurance

Manage and mitigate financial risk

There are many reasons why insurers are looking to harness the power of automation and digitization to become more agile and achieve economies of scale. As natural disasters such as hurricanes increase in intensity, it becomes more difficult to predict how severely places will be affected, and officials and residents have little time to prepare. In addition, with diminishing investment returns, vast workflows and growing data volumes, competitive encroachment from non-traditional players, changing customer expectations and rapid advancement of new technologies, it is clear the insurance marketplace is transforming and is looking for digital advancements.

Service diversification is also required as a preventative measure to help reduce customer risk and build customer loyalty, while safeguarding reputations. Intelligent automation platforms and tools enable organizations to improve employee effectiveness and deliver a differentiated customer experience. They help you target strategic priorities, close the digital gap, unlock the full potential of orchestration and digital workers to deliver the necessary transformational business value needed today.

Throughout most of 2023, there was a notable decline in overall marketing spending across personal lines insurance. While there are a number of reasons, including strategic moves by insurers to mitigate the impact of elevated loss ratios brought on by inflation and other economic factors, what has emerged is a deeper investment in digital marketing. 

In fact, through the first nine months of 2023, paid social spending increased by nearly 30%, and online video increased by 3.9% year over year, according to Comperemedia. Though online video advertising was only slightly up in the first nine months, in the third quarter spending was up more than 50%, signifying momentum that should continue through 2024. Perhaps the most notable digital metric comes from TikTok, where P&C insurers increased paid spending almost 200% in Q3 2023, year over year. All of this has occurred despite budget reductions, which have included not only marketing cuts but operating cuts.

What Does This Mean?

First and foremost, let me decry the death-to-direct-mail song that many have sung in recent years. Direct mail is still a pivotal channel in insurance marketing and will remain so for the foreseeable future. In addition, some of the investments toward digital channels can be attributed to the budget cuts many firms have made, because their use can be easily tied to customer conversion and they are seen as more efficient and agile. 

However, the growth in insurance digital marketing in 2023 is not transitory and reflects the larger consumption of digital media overall. In many ways, today’s insurance media mix serves as a precursor to more sophisticated omnichannel strategies. And while direct mail will remain a formidable acquisition tool, over time it will likely be leveraged more as a way to pivot consumers to other channels and less as a bottom-funnel marketing tactic. 

See also: Underwriting in the Digital Age

How Can Insurers Boost Their Digital Strategies?

Several key tips will help insurers as they build out their digital strategies in 2024. They include:

Establish Authenticity

Authenticity is crucial for digital marketing, especially across social media platforms. Insurers looking to maintain authenticity on social channels can do so by first staying true to who they are as a brand while also staying true to the cadence and decorum of the specific platform they are advertising on. This means using TikTok, for instance, in a way that does not disrupt the usual experience for the customer. There is also opportunity to leverage mascots or visual logos to make the brand more personable and “real” on social channels. For brands that don’t use mascots, broadcasting real customer testimonials to play up a network effect would help increase credibility. This route also highlights the quality of a brand’s products, acting as a differentiator in a market that is grappling with high shopping rates and waning consumer satisfaction.  

Develop a Short-Form Video Strategy

Short-form video has become a highly leveraged marketing tool in recent years, as platforms such as Instagram and TikTok have grown in popularity. The momentum behind short-video consumption growth led YouTube to develop its own short-form ad features in 2022 and 2023. Mintel data also shows that video ads are the most recalled ad type on digital channels. Therefore, short videos that are more product-focused are attractive for consumers in the consideration stage of the customer journey and have a downstream effect on conversion. 

Use Digital for Brand Awareness

While many insurers still lean on performance marketing to grow their books, the opportunity for brand awareness marketing will remain strong in 2024, especially as insurers continue to try to boost profitability. Companies should use digital channels to differentiate their brands and show the value they offer customers. Social media remains an effective tool for brand awareness, as 98% of internet users visit social media sites regularly, according to Mintel. However, efforts to boost brand awareness can be incorporated across channels, and firms should remember that using their native social media account is a great, low-cost approach.

Create a "Phygital" Experience

Direct mail still maintains a notable share of overall insurer marketing spending and can be leveraged to direct customers to digital channels. Therefore, by leveraging both physical mail alongside digital channels (phygital), insurers can get the most bang for their marketing buck. Insurers have the opportunity to move customers to digital channels via QR codes or social media handles placed within direct mail pieces that help answer or simplify consumer questions or concerns when purchasing a product. Insurers that rely heavily on direct mail can slowly introduce more digital engagement to test and learn. Adding an entertainment element could also be an effective strategy that casts the insurer in a new light. 

See also: Top 10 Challenges for Insurers

What Will Digital Marketing Look Like in 2024 and Beyond?

Digital marketing has helped carriers as they wrestle with growing their book of business profitably, and this will continue into 2024 as they look to maintain consistent brand awareness and engagement. 

Mintel projects advertisers across all industries spent $257.7 billion on digital advertising through the end of 2023 (up 13% from 2022), and insurers will continue to play their part. Additional factors, such as the growth of television streaming, podcast listenership and gaming across generations, create even more opportunities for insurance marketers. Finally, the rise of AI in marketing will allow for deeper and more sophisticated targeting and personalization, further boosting the digital marketing boom.

In an era dominated by digital transformation, the demand for cyber insurance has surged as organizations grapple with the evolving threat landscape. As underwriters strive to stay ahead, they face a myriad of risks, emerging trends and formidable challenges in crafting robust policies. This article explores the intricacies of underwriting cyber insurance policies, shedding light on the evolving landscape.

Rising Risks in Cyber Insurance Underwriting:

1. Cybersecurity threats evolution:

Exhibit 1: Source McKinsey & Co.

The ever-evolving nature of cyber threats poses a considerable challenge for underwriters. 

According to a report put out by the U.S. government, over 4,000 ransomware attacks happen every day. This makes it the most prominent method of malware to date.

As cybercriminals become more sophisticated, underwriting must adapt to anticipate and mitigate risks associated with advanced persistent threats, ransomware attacks and other malicious activities.                                     

2. Data Privacy Regulations: 

The tightening grip of data protection regulations worldwide adds a layer of complexity to underwriting. Insurers must navigate the intricacies of compliance with laws like GDPR and CCPA, considering the potential financial impact of non-compliance for both the insured and the insurer.

3. Supply Chain Vulnerabilities: 

With the increasing connectedness of businesses, the risks associated with third-party vendors and supply chain partners are on the rise. Underwriters must scrutinize the cyber hygiene of connected entities, as a security lapse in one can have cascading effects on others.

See also: Cyber Insurance Market Hardens

Trends Shaping Cyber Insurance Underwriting:

1. AI and Predictive Analytics: 

Leveraging artificial intelligence and predictive analytics is becoming pivotal in underwriting. By analyzing vast datasets and identifying patterns, underwriters can better assess risk profiles and price policies more accurately, staying one step ahead of potential cyber threats.

2. Parametric Insurance Models: 

Parametric insurance, which pays out based on predefined parameters rather than actual losses, is gaining traction. This innovative approach can streamline the claims process, providing faster payouts and better aligning with the fast-paced nature of cyber incidents.

3. Cybersecurity Assessments and Audits: 

Insurers are increasingly incorporating cybersecurity assessments and audits into their underwriting processes. This approach helps in understanding an organization's cybersecurity posture, enabling underwriters to tailor policies to specific risk profiles.

Challenges in Cyber Insurance Underwriting:

1. Lack of Standardization: 

The absence of standardized frameworks for assessing cyber risks makes underwriting challenging. Differing methodologies and criteria among insurers can lead to inconsistencies in risk evaluation, hindering the establishment of a cohesive and transparent market.

2. Limited Historical Data: 

Unlike traditional insurance, cyber insurance lacks a robust history of claims data. The scarcity of historical data makes it difficult for underwriters to accurately predict and price cyber risks. Developing models that can effectively navigate this uncertainty remains a significant challenge.

3. Dynamic Regulatory Environment: 

The rapid evolution of data protection and privacy regulations globally poses a continuing challenge. Underwriters must stay agile to adapt policies to comply with ever-changing legal landscapes, adding a layer of complexity to an already intricate process.

See also: Cyber Insurance at Inflection Point

Mitigating Risks and Meeting Challenges:

1. Collaboration and Information Sharing: 

Collaborative efforts among insurers, businesses and cybersecurity experts can enhance collective resilience. Sharing threat intelligence and best practices can help create a more informed underwriting process, fostering a united front against cyber threats.

2. Continuous Learning and Adaptation: 

To stay ahead in the cyber insurance landscape, underwriters must embrace a culture of continuous learning. Regular training and updates on emerging threats and technologies can equip underwriters to make informed decisions in an ever-changing environment.

3. Technology Integration: 

The integration of cutting-edge technologies like blockchain and machine learning can enhance the efficiency of underwriting processes. Blockchain, for instance, can provide a secure and transparent platform for managing policy data, while machine learning can improve risk assessment accuracy.

Conclusion:

Navigating the complex world of cyber insurance underwriting demands balancing understanding evolving risks, embracing emerging trends and overcoming formidable challenges. As the digital landscape continues to transform, underwriters must evolve their methodologies, leveraging technology, collaboration and continuous learning to craft policies that provide effective protection against the ever-growing specter of cyber threats. Only through an adaptive approach can the insurance industry effectively manage and mitigate the risks associated with the digital age.

It’s a tale as old as time. 

An insured is in need of a surety bond, and when they go to fill out an application, they are prompted to input their Social Security number. Confused, they reach out to their insurance agent for clarification on why this information is required. 

“Why do I need to provide my Social Security number on an insurance application?”, they ask their agent. Now, unless the agent is attuned to the intricacies of surety bond underwriting, their answer will probably be, “Because the insurance company requires it.” Unsatisfied with this answer, the insured still provides this information (because they need the bond), but the question lingers in both the minds of the agent and their customer.

Alternatively, the insured may enter a state of blind fury, immune to rationality and reason, and abandon the application process altogether. A few days later, the insured admits defeat and begrudgingly provides the information, although dissatisfied with the entire process. 

We see variations of these conversations every day, and to help your agency better explain this unique requirement to your customers, we’ve put together this article answering the age-old question of why surety companies sometimes ask for Social Security numbers. 

A Process Unlike Any Other 

To be fair, wondering why the surety company needs a Social Security number is entirely reasonable. Traditional insurance products don’t require applicants to provide this information, so what makes surety bonds so special? 

A lot, actually. 

Unlike other types of insurance, surety bonds (excluding fidelity bonds) do not protect the person who purchases the bond but rather the person or entity requiring it. For example, auto dealers need to obtain a bond as a prerequisite to receiving a business license. However, the license bond does not protect the dealer but rather the state Department of Motor Vehicles and the dealer’s customers. Additionally, and this point is key, if a claim is made against the dealer’s bond they are required to repay the surety company for all claims and claims handling expenses (a provision known as indemnification). 

All surety bonds are indemnified, meaning all principals (persons who purchase a bond) must repay the surety company for valid claims. Claims made against surety bonds are completely avoidable and only occur if the principal commits fraud or engages in unethical conduct.

In essence, think of surety bonds as a line of credit that the principal must pay when and if it is used. 

See also: Commercial Underwriting: Risk Factors That Matter

It’s All About the Risk 

The unique nature of surety bonds compared with other types of insurance requires a similarly unique underwriting process. When underwriters determine whether to issue a bond, they are considering two factors: 

1. The likelihood the principal will repay the surety company for valid claims

2. The likelihood that a valid claim will occur 

Aside from a review of a person’s financial statements (which surety companies do for high-risk bonds), what better way is there to determine the likelihood of getting repaid than to examine the applicant’s credit history? Unless you know the person dearly, the answer is there isn’t one. 

Surety companies run soft credit checks (that don’t affect the applicant’s credit) on applicants to assess the risk that the applicant won’t repay them in the event a valid claim occurs. 

The Moment You’ve Been Waiting For 

To run a credit check, surety companies need the applicant’s Social Security number. This is because credit bureaus use individuals’ Social Security numbers when generating the report as a means to identify the individual and their loan/payment history. 

And there you have it, the long-awaited answer to the question that’s been eating at the curiosity of insurance agents and their customers since time immemorial. Surety companies don’t require Social Security numbers simply because they feel like it, but rather because they need to run credit checks on applicants to determine if they qualify for the requested bond.

See also: The Future of Insurance Fraud 

What About the Second Point? 

To determine the likelihood that a claim will occur, surety companies will: 

1. Consider the claims history of the bond as a whole 

2. Examine whether the applicant has had any valid claims made against a previous bond 

3. Determine the applicant’s years in business 

Those factors help surety companies make informed decisions on whether issuing an applicant’s bond will result in claims. This is why your customers oftentimes must input their years in business on bond applications (so the surety company has proof they are reputable), and it also explains why the same applicant may pay more for the same bond type in different jurisdictions. (If one jurisdiction has a history of high bond claims, the surety company will consider the bond riskier.) 

Surety companies consider the factors outlined in this article when determining an applicant’s premium rate and eligibility. Applicants with good credit and multiple years of business experience often get the best rates, while those who don’t typically pay higher rates or get declined altogether. 

Why Do Some Bonds Not Require Credit Checks? 

Certain surety bonds are considered so low-risk that surety companies are able to issue them to all applicants at the same price without conducting any underwriting. These bonds are categorized as “instant issue,” and the process for providing them is: 

1. Your customer submits an application 

2. The carrier/broker copies this information onto the bond form 

Whenever you or your customers are not required to provide a Social Security number, then the bond being applied for is an instant-issue bond that has no underwriting criteria. 

The Truth of It All 

What often happens within the surety industry is companies advertise their ability to write these instant-issue bonds as a sign of their technological prowess and innovative solutions. 

What these companies don’t tell you is that whenever you or your customers need a higher-risk bond subject to credit and financial underwriting, they will have to manually review the submission, review the credit report and financial statements, wash their hair, clean their car read "War and Peace" and finally, after what feels like an eternity, provide you and your customer with a quote. 

With this in mind, make sure your agency is partnering with companies that are capable of automated credit and financial underwriting.

Labor shortages are growing in the insurance sector, making it increasingly hard to recruit anyone, let alone knowledgeable, experienced and compassionate professionals. However, despite labor economy fluctuations, a few innovative companies have identified the secret weapon to scaling their workforce strategically ahead of the Medicare annual enrollment period, a critical stretch for medical beneficiaries and insurance organizations alike. 

Managing this staffing initiative is no simple task. Each year, organizations not only need to hire exceptional insurance talent en masse but also add these professionals to their payroll well before enrollment starts, to ensure they're prepared to help Medicare beneficiaries find the best coverage possible. So what strategy is helping teams scale so seamlessly? The secret lies in creative marketing. 

See also: Overcoming the Talent Crisis in Underwriting

Starting Early Is Key

Amid labor shortages, starting the search early is more important than ever. This will allow you enough time to thoughtfully recruit and thoroughly onboard someone without making it stressful. In fact, if you implement a pipelining element to your recruiting efforts, you can add people to your applicant tracking system year-round to tap into whenever you need. 

This is one way SelectQuote, a pioneer in direct-to-consumer insurance shopping, found much success in recent years. The SelectQuote recruitment team starts prepping for the next enrollment season shortly after the previous enrollment season ends to ensure they can recruit, pipeline and onboard compassionate insurance professionals in time. A full year has proven to be the perfect timeframe for this team to scale for the anticipated need for the next season. 

However, it wasn't always like this. Before deploying creative recruitment marketing tactics, the company rarely made recruitment quotas. Now, the team receives so many candidates that they have to strategically narrow them down to the compassionate insurance pros with the problem-solving skills needed to guide Medicare beneficiaries through the complexity of open enrollment. 

Creative Recruitment Marketing for Insurance

Innovative companies that want to attract top talent in the industry should think like a chief marketing officer to reach a wider breadth of potential candidates. For example, companies should be using a combination of branding channels and direct response marketing. Branding channels often consist of owned social media channels and the company's career site and can be used to show the benefits of working for the company, including company culture. This is where having trusted external partners, like a creative recruitment advertising agency, can help. 

See also: The Next Generation of Talent

Direct-Response Marketing

Direct response marketing focuses on eliciting an immediate reaction out of the target persona. The most common use for this type of marketing can be seen in consumer advertisements urging viewers to "call now" or "click here," but it is often used in recruitment marketing on sites such as job boards. For instance, if a company is primarily focused on driving applicant volume, direct response channels such as Indeed and ZipRecruiter would be a great place to allocate budget. 

With local insurance companies, it's especially common to ensure job posting content and locations are optimized when using direct response advertising. This helps capture the highest volume of quality and realistic applicants. For example, it wouldn't benefit a company in Utah to be advertising to potential candidates in Florida. However, we have seen success when leveraging "statewide" targeting for some insurance roles where candidates don't have to be based in a specific location -- such as field agents. 

Incorporating advertising into recruitment strategies can assist companies in reaching a more extensive talent pool. But the platforms on which companies should advertise remain elusive.  

Let's Talk Platforms

Some sourcing channels that have shown the most success in the insurance industry include LinkedIn, Indeed Resume, SeekOut and Handshake -- especially for early career job seekers. Those direct, personalized touchpoints can help source passive candidates for hard-to-fill insurance roles.

Recruitment advertising partners might also recommend consumer advertising channels as a complement to direct response advertising to help promote a client's employer brand in addition to specific job openings. That means that on top of placing ads on career-related sites such as Glassdoor and LinkedIn, it might also behoove companies to experiment on sites like Forbes, Weather.com, ESPN, Reddit, Facebook and even TikTok. In fact, streaming audio sites are also common among insurance clients, such as Spotify, Pandora and iHeartRadio. 

Your company can expand the available talent pool amid talent shortages by going beyond the job boards to target passive candidates with direct-response marketing on a mix of career and consumer sites. Additionally, implementing a recruitment strategy with a pipelining element can also ensure you have talent whenever you need it, especially if you have cyclically busier times of the year. 

It may have started with changing the plastic straws at restaurants to paper ones, but sustainability is expected to continue trending in a much bigger way in the new year driven by consumer demand. Not only are consumers shifting behavior to embrace sustainability in the retail sector, but we’re also starting to see the popularization of B2B companies prioritizing sustainability. In fact, a global survey by Solera recently found that 75% of drivers are willing to switch insurance providers for a greener policy. While some companies might look at this finding as a challenge to overcome, it’s more aligned with a golden opportunity for insurance companies to prioritize sustainability goals and, contrary to popular belief, improve their bottom line.

See also: We Need to Rethink the Future of Cars

Challenge vs. Opportunity

While 99% of insurers recognize the importance of prioritizing sustainability, they are up against some seemingly large hurdles. For example, there is a misconception that it will require a larger budget to invest in sustainable solutions. However, by understanding the cost-reduction benefits associated with adopting sustainable practices, especially in auto claims and repair, this myth can be easily dispelled. Even small things like switching office lights to be more energy-efficient or implementing a recycling initiative can start to accrue cost reduction over time.

On a larger scale, sustainability is becoming a much heavier regulatory requirement with the E.U. Corporate Sustainability Reporting Directive (CSRD) set to take effect in 2024, among other sustainability initiatives across the globe. Stateside, we’re also seeing regulations like Senate Bill 261 in California apply pressure to companies to report climate-related financial risk. In fact, as these changes begin to mount, a sizeable 61% of insurers don't consider themselves "very well prepared." Staying proactive can help avoid large fines and any potential blows to your company’s reputation, which can result in decreased revenue. 

However, staying proactive is made harder with the lack of available data to leverage in the insurance industry, auto insurance specifically. For example, Scope 3 emissions measures indirect emissions occurring in the organization's value chain, such as those produced in the vehicle repair process. Despite it being a critical metric, only 53% of auto insurers surveyed across Europe currently monitor Scope 3 emissions. This could indicate a glaring gap in knowledge of a company’s carbon footprint.

Better tracking and management of emissions data can provide the information needed to make informed sustainability decisions, which can in turn reduce cost if done effectively. For example, using green parts can reduce cost in repairs for vehicle owners and their insurers while also cutting down on CO2 emissions in the manufacturing process. 

Good Intentions Only Go So Far

While demand for eco-friendly practices in auto claims and repair is certainly surging, good intentions alone won't suffice. The future is sustainable, so it’s imperative companies make moves toward sustainability, especially if they want to stay ahead of impending regulations. Fortunately, there are things that can be done to get a head start. 

See also: The Journey to Sustainable Aviation

Start by implementing a recycling process or, even better, a paperless process altogether. This can help reduce waste while saving money and improving the user experience. Companies should also seek out a partner to help reduce carbon emissions in their auto claims and repair process. There are also tools available to improve measurement of metrics like Scope 3 emissions, which can make a huge difference in implementing effective carbon footprint reduction initiatives. 

It is obvious there has been a significant shift in consumer preferences and a pressing need for insurance companies to align with sustainability goals. Embracing sustainable practices is no longer just a responsible choice but also a necessary one. The future is green, so the sooner companies hop on board, the better. 

U.S. insurers appear to be optimistic about investment conditions for 2024 (see Figure 1) and expect to take on more investment risk, according to a recent survey of 300 investment decision makers in the U.S. insurance industry commissioned by Conning.

And while insurers expect their investment risk tolerance may rise, higher yields in traditional public market fixed-income sec- tors have made those one of the larger areas of expected portfolio increases. Other sectors that insurers expect to allocate more to include private equity, private credit and private placements, and real assets including infrastructure and real estate.

Insurers also said that, despite their concerns about use of artificial intelligence (AI) and machine learning (ML) tools in the investment process, they believe the benefits of the technology outweigh the risks (see Figure 2) and have already begun to incorporate the tools into their investment processes.

The responses suggest U.S. insurers remain resilient and ready to embrace new challenges following a year of significant inflation, falling bond portfolio values as interest rates rose and the rapid growth of AI technologies. (The survey was conducted prior to the U.S. Federal Reserve’s December outlook suggesting multiple interest rate cuts in 2024.)

The growing complexity of managing insurance portfolios may also lead more insurers to consider outsourcing some or all investment duties, and the survey probed insurers’ considerations in these decisions.

See also: Building an Effective Risk Culture

Optimism Is High – But Inflation Remains Top Concern

Survey respondents showed significant optimism about the 2024 investment environment.

Across all company sizes and sectors, “optimistic” was the leading sentiment versus “pessimistic” – in most cases by significant margins. Insurers managing assets internally (about half of our respondents) were more optimistic than those that outsourced some or all of their assets (86% to 73%) while those outsourcing were more pessimistic (18% to 7%). Very few respondents were “unsure what to expect”; the largest “unsure” group (20%) was insurers with less than $500 million of assets.

Inflation remained the top portfolio concern in the next two to three years, consistent with our two previous surveys (see Figure 3), but its relative level of concern has been declining. Market volatility remained a leading concern. The impact of monetary policy reappeared as a top concern in 2023, not surprising given how interest rates rose significantly during the year. It is also a prescient response given the recent news that rates may soon head in the opposite direction. Fiscal policy remains another high-ranking area of concern among insurers, given the significant level of federal and local government spending, as well as the potential for policy changes in a presidential election year.

Meanwhile, investment yields, regulatory changes and geopolitical concerns have been consistently among the lowest of insurers’ worries during the past three annual surveys. These issues may signal troubles ahead for insurers but appear less of a concern than events with more immediate portfolio impact.

Domestic politics and AI were added to Conning’s latest survey as potential concern responses. Domestic politics was the second-most important concern to insurers, while impact of AI was sixth.

See also: From Risk Transfer to Risk Prevention

Adding to Risk

Insurers also strongly believe their investment risk will rise during 2024 (see Figure 4). Their risk expectations generally rose with the insurer’s asset base, although firms with $5 billion to $10 billion in assets were most in agreement with the sentiment.

Firms outsourcing asset management had lower expectations for rising risk in their portfolios versus firms that manage assets internally (57% versus 68%) but as noted previously expressed less optimism about the investment environment (73% versus 86%).

Focusing on the customer has resulted in increased sales and cross-sales, improved brand reputation and improved customer satisfaction and retention for insurance carriers. The use of generative artificial intelligence (AI), as well as large language models, low-code and no-code (LCNC) software and machine learning are increasingly a part of this new customer paradigm. These technologies have allowed carriers to refine, refocus and prioritize the customer experience (CX) more quickly and effectively. They have also had an impact on adviser/agent relationships where carriers have been able to improve working efficiencies across distribution channels. 

The use of AI in CX initiatives will also affect the broader business objectives of carriers, such as revenue growth, market differentiation and long-term sustainability. AI speeds and simplifies time-consuming efforts like underwriting processes and claims processing. And it doesn’t end there. Other areas AI may be able to affect include: 

• Web applications
• Order entry platform upgrades
• Digitized licensing and appointments 
• Mobile personalization
• Business process reengineering
• Sales enablement programs
• Robotic process automation projects 
• Business enablement optimization (paperless)

A steady move to digital, AI and the cloud, while gathering and analyzing existing data sets and running periodic testing of ideas and asking for feedback, is a prudent strategy for carriers looking to accelerate their digital transformation. This will help to identify risks, product misconceptions and process bottlenecks along the way, thus driving higher loyalty and customer satisfaction and advocacy. Understanding how data can give carriers information they need to make informed decisions is key, but AI won’t draw accurate conclusions on its own.

See also: 5 AI Trends You Can't Ignore in 2024

From a distribution viewpoint, advisers and agents have fully embraced the digital world. Many have actually become dependent on digital tools and see this trend continuing to improve customer engagement. They have a desire to do more for their clients and seek improvements in online applications, online illustrations and calculators, new business submission, tracking, performance reporting, policy delivery, transaction reporting and administration. The emphasis should be to collaborate with financial professionals to provide a simple but effective partner experience and build capabilities that help them to better engage with their clients, increase their productivity and enable new business opportunities.

Of course, distribution is still people-focused. For example, referrals are critical for new business, and many financial professionals depend on seminars and webinars. They use social media, email, television and radio to recruit for these events. Advisers and agents prefer these face-to-face meetings, either in their offices or in clients’ homes or online, to develop relationships. Can AI help here, too?

Digital tools proliferate, and most customers are tech-savvy. Smartphones, smart pads and tablets, smartwatches and other mobile devices are part of the modern landscape. AI may be able to help carriers fully benefit from them and keep up with advisers, agents and their customers. AI can be a market research resource for monitoring the sales cycle and determining what products are selling and why, and for mining customer data for insights on what their journey with a carrier’s brand is like. This research could be coupled with automated, AI-driven marketing programs that seek to engage customers, and their advisers/agents, and deliver more personalized solutions. Leveraging data, analytics and AI together could provide near-real-time contextualized insights to financial professionals that augment the personalized client experiences and improve cross-sell/up-sell.

Carriers have largely been compelled to explore this new technology. There wasn’t really an option. Celent, a research and advisory firm focused on technology for financial institutions globally, recently said the competitive gap established by early adopters could be persistent (due to a generative AI model’s inherent ability to learn and improve). So doing nothing comes with its own risk—and that risk exists across the board, from operational efficiency to customer engagement.

See also: 3 Key Uses for Generative AI

With all these potential improvements, risks have to be considered to balance enhancements with customer protections. AI has multiple challenges that need to be addressed to defend against reputational and brand risks. Among the concerns:

• data security
• data accuracy and misinformation (called hallucinations)
• privacy (such as in cyberattacks or misuse)
• functional limitations with creativity, ethics and common sense
• inherent bias or stereotypes
• copyright and consent issues

Don’t forget the human element! 

AI is a tool to assist in, not define, outcomes. It offers numerous capabilities that can assist insurance carriers in gathering both distributor and customer insights and feedback, interpreting findings and even implementing engagement efforts. But insurance is still a people-first business, and carriers need to keep a balance between AI and the customer/adviser/agent that are at the center of their strategic initiatives. This balance allows for a refined and refocused customer experience.

The only thing better than having smart friends is having smart friends who've been around a little while, gaining perspective.

In my case, the smart friend often turns out to be Chunka Mui, whom I've had the pleasure of working with for more than 25 years and with whom I've written four books. He recently published some sharp insights on how the lessons from the dot-com bust of the early 2000s should shape our thinking about today's boom in generative AI, and I'll summarize for you here.

Chunka knows whereof he speaks. He was one of the pioneers of digital strategy back in the mid-1990s--I first heard the term from his lips when we were partners at Diamond Management and Technology Consultants. He was also co-author of "Unleashing the Killer App: Digital Strategies for Market Dominance," a best-seller that has been described as the bible of the internet boom. 

Diamond became known as "the killer app firm," and he advised on loads of projects. After he and I published "Billion Dollar Lessons" in 2008, on what to learn from major corporate failures, we consulted with major companies on how to tell whether they had a killer app or a killer flop, before they risked tens of millions of dollars.

So Chunka has seen the good, the bad and the ugly in major innovation efforts, like those companies are considering for generative AI.

A couple of his six pointers are tricky. He tells you to be aggressive but not too aggressive. Good luck with that, right? But even there, he explains how to sense if you're straying from a winning path.

Let's have a look.

Chunka begins his column on LinkedIn with a tight summary of the major successes and failures of the dot-com era, showing that both are possible, with results that measure in the trillions of dollars -- yes, trillions, with a "t."

"On one hand," he writes, "this Cambrian-like explosion of the commercial internet led to enduring successes such as Salesforce, Google, Netflix, Amazon, Apple and Meta," which have a combined market cap of more than $7 trillion. "On the other hand, this exuberant period also produced notable failures like Webvan, Pets.com and the AOL/Time Warner merger. The total investor losses from the peak of the boom to the bust are estimated to exceed $8 trillion (adjusted for inflation)."

How do you make sure you're on the plus side of one of those big numbers? Here are Chunka's pointers:

• Don't Mistake Investor Enthusiasm for Market Dynamics
• Resist the FOMO Trap
• Don't Mistake Complacency and Denial for Thoughtful Deliberation
• Sustainable Business Models Do Matter (Really)
• Integrate Digital With Traditional Business Strategies
• Think Big, Start Small, Learn Fast

1. Don't Mistake Investor Enthusiasm for Market Dynamics

This pointer especially resonates with me. I couldn't tell you how many times during the initial internet boom that someone acted as though a stock market valuation was conclusive proof that some startup was the wave of the future. But stock prices are merely bets about the future. Many turn out to be wrong. That's the nature of bets. And when a company that, say, has a shot at being more or less the operating system of the generative AI wave -- a la Microsoft for PCs, Apple for smartphones and Google for search -- turns out to have no shot, the stock price can plunge from a stratospheric number to zero overnight.

Chunka cites the failure of the AOL-Time Warner merger as an example of what can go wrong when you base strategic decisions on stock market euphoria, AOL acquired Time Warner in a deal valued at $350 billion when it was announced in 2000, right before the internet bubble burst. Shareholders in the upstart AOL got 55% of the stock in the combined entity, while shareholders in Time Warner, a media behemoth at the time, received only 45%. The value of the combined entity soon fell to $20 billion, and AOL, after steadily shrinking, was sold to Verizon in 2015 for just $4.4 billion. In a final indignity, Verizon sold what was left of AOL plus what was left of Yahoo -- another dot-com high flyer, valued at more than $110 billion in April 2000 -- to a private equity firm in 2021 for $5 billion. 

Chunka's words of warning:

"Remember this each time you see venture capital data or short-term market value blips used as prompts for strategic action."

2. Resist the FOMO Trap

This is the don't-go-too-fast part of Chunka's advice. In the research for "Billion Dollar Lessons," we found plenty of companies -- impressive companies -- that fell into the FOMO trap. For instance, FedEx got suckered by fax machines in the 1980s. It decided that "absolutely, positively overnight" would be even better as "absolutely, positively that afternoon," so it spent hundreds of millions of dollars to roll out a fax-based service at a time when few businesses had their own machines. A driver would come to your office, pick up a document and take it to a FedEx store, where it was faxed to the FedEx office nearest the recipient, so a driver could then deliver the fax. The problem, of course, was that every business soon had slews of fax machines, and FedEx wrote off the whole value of the business it rushed into existence. 

Chunka's advice:

"Prioritize strategic patience and thorough market analysis over the impulsive pursuit of the herd. Resist the urge to jump on the AI bandwagon without a clear understanding of how it aligns with specific business problems and real value propositions in your industry and market."

3. Don't Mistake Complacency and Denial for Thoughtful Deliberation

On the other hand, you can't be too slow -- and many companies moved far too slowly in the dot-com days, kidding themselves that they were simply being prudent. I so remember interviewing the CEO of Sears in the late '90s in his office in what was then still known as Sears Tower and having him tell me that the company was carefully studying the internet but saw no need to do anything just yet. Now look at the company. You don't see much evidence of it anywhere, certainly not in what's now Willis Tower. 

Chunka cites the examples of Borders, Kodak and Blockbuster from the dot-com days. Borders actually outsourced its online sales to Amazon, handing the future over to an omnivorous rival. Kodak invented the sensor for digital cameras but never really committed to turning that into a business. Blockbuster so misread the future that, among other missteps, it passed on a chance to buy Netflix early on.

Chunka's recommendation:

"Embracing new technology requires careful consideration, but this should not be confused with inaction or denial of evolving technology and market realities. As Voltaire observed, perfect is the enemy of good. Strategic deliberation involves actively evaluating new technologies, understanding their potential impact and integrating them into the business model where appropriate."

4. Sustainable Business Models Do Matter (Really)

This reality seems to have set in in the world of insurance over the last year or so. When money was basically free, with interest rates near zero, startups could afford to invest in growth at all costs and worry about profitability later. With interest rates far higher now, companies have to show that they can generate profits and cash for the long term. 

As Warren Buffett has said, "Only when the tide goes out do you discover who's been swimming naked" -- and the tide eventually goes out for every business. 

Chunka cites the dot-com era failures of Pets.com and Webvan. Pets.com had high-profile marketing (an old friend of mine was the chief marketing officer responsible for the much-mocked sock puppet Super Bowl ad; true story) but never had a real business model. Webvan burned through $800 million before it even paused to test the viability of its business model -- there's that FOMO again -- and the model didn't work.

Chunka's summary:

"As AI technology evolves, it's tempting to focus on the technology's novelty and potential for (eventual) disruption. However, success lies in building businesses that are not just technologically innovative but also strategically viable. This requires ample focus on revenue generation, cost management and market demand, ensuring that the business model is robust enough to withstand investor pressures, market shifts and continued technological advance.

5. Integrate Digital with Traditional Business Strategies

This recommendation reminds me of something Matteo Carbone said recently in a webinar we did on the prospects for the Internet of Things (IoT). He said he had made the mistake of initially thinking of the IoT as a product for insurance companies, when it's really a capability that should be incorporated up and down the product line.

The internet has certainly turned out to be an enabler, rather than a separate business, and Chunka cites Walmart as a prime example of a company that blended the new capabilities into the established business. He says the blending "included developing a robust e-commerce platform, employing data analytics for inventory management and enhancing customer experiences through technology. This strategic integration helped Walmart compete effectively, even as Amazon grew at a prodigious pace and demolished many other retailers."

For those innovating with today's AI, he recommends "ensuring the technology complements rather than overrides established operational processes."

6. Think Big, Start Small and Learn Fast

This has been our mantra since our days at Diamond, one we cover at length in our 2013 book, "The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups." In our experience, companies miss out if they don't imagine all the possibilities of a breakthrough technology like generative AI. But then you have to test inexpensively -- the big pilots and the rollouts need to wait until you actually know what you're up to. You also have to learn as quickly as possible, which means killing the little tests that aren't proving fertile.

My brothers, both former professional poker players, tell me that amateurs lose much of their money because they look at the two down cards in Texas Hold 'Em and think, "Well, these might turn into something," even though the odds are long. That approach may be okay in a neighborhood game, but businesses need to be far more disciplined about how they spend their time and money.  

Chunka cites Microsoft and Nokia as examples of companies that didn't think big enough on smartphones and acted too incrementally, leaving the field open for Apple.

He mentions Kodak and Borders as companies that waited so long to try to innovate that they gave themselves no time to start small. They had to swing for the fences when they finally realized they were in trouble, and they missed. I'd add Blockbuster, which was positively floundering toward the end. With Netflix banging on Blockbuster about its late fees, Blockbuster announced that it would end the hated fees -- without even taking the time to realize that it wouldn't turn a profit without them.

Chunka's final advice?

"The key lies in striking a balance: leveraging the potential of AI for innovation and progress while remaining grounded in provable business strategies and market realities. By applying lessons from the past, businesses can not only surf this technological wave but also create enduring, successful ventures."

I can't say it any better.

Cheers,

Paul

KEY TAKEAWAY:

--Insurance software solutions add meaning and value to the new, less linear customer journey in five ways: workflow optimization, improved policyholder experience, self-service capabilities, personalized risk mitigation services and omnichannel communication.

----------

Although customer journeys are perpetually evolving, the rate at which they have changed in the insurance sector is nothing short of phenomenal. With the digital maturing of the industry paired with the shift toward customer-centricity, modern-day insurance customers or policyholders enjoy richer and more engaging experiences. In such a dynamic environment, cloud-based insurance software has been a blessing in keeping operations afloat. Such software for insurance companies lends agility to the business and keeps them resilient even in changing times.

Here’s a deep dive into how insurance industry software solutions enhance customer journeys.

See also: Tips for Improving Customer Experience

How Has the Insurance Customer Journey Transformed?

When it comes to the insurance industry, the traditional marketing funnel took prospects from initial product awareness to the point of purchase, drawing inspiration from nearly identical customer decision journeys. Traditionally, the usual customer journey adhered to a linear course and involved stages of awareness, familiarity, consideration, intent, decision and loyalty. Customers typically purchase insurance policies by researching potential brands and then narrowing down the options until they find the one that best meets their needs. 

However, modern customers now have a number of ways to discover, research and purchase policies. As a result, the customer journey has become less linear. The new purchase experience of empowered customers renders the traditional "sales funnel" obsolete. The modern customer journey consists of 5 broad stages: 

• Awareness: Prospective customers realize the need to get insurance as insurance companies use tools and channels such as websites, email and social media. 
• Initial Consideration: Potential customers consider various options based on brand position and recent interactions.
• Active Evaluation: Customers research different insurance options and compare policies, coverage details and premiums across various websites and comparison platforms. 
• Purchase: Modern customers use quote comparison websites and other tools to get instant quotes from different insurance companies. They select a suitable policy and complete the purchase, often without the involvement of any agent.
• Post-Purchase Experience: Customers experience the insurance product or service and form an opinion or expectation. Post-purchase customer engagement is a crucial component of the modern customer journey.

5 Ways Insurance Software Improves the Customer Journey

We have different categories of insurance software considered by carriers and brokers depending on their usage. Some of them are: document management software, customer relationship management software (CRM), insurance workflow automation software, policy management software, claims management software, mobile apps for different stakeholders, etc. The following are five ways in which insurance software solutions add meaning and value to the customer journey.

1. Workflow Optimization

Insurance software streamlines the entire policy lifecycle, from creation and issuance to cancellation and renewals. Customers can use the portal to check the policy details and modify them as needed. A comprehensive software for insurance company management also automates a number of tasks such as quoting and policy approvals. This results in faster service for customers and improves customer journeys. Automation also streamlines customer onboarding.  

2. Improved Policyholder Experience

Self-service portals improve transparency and empower insurance policyholders. Policyholders can use the portals to find relevant information, resolve queries and get suitable suggestions. As such, the best insurance software solutions offer self-service portals to improve convenience and customer satisfaction.

Further, the data stored in insurance software can be used for personalizing each interaction with customers, right from marketing communication to customer support interactions. It improves customer engagement and boosts loyalty. 

3. Self-Service Capabilities

Insurance software can provide customers with intuitive self-inspection or self-service tools integrated into user interfaces or mobile apps. These tools guide homeowners through the process of conducting self-inspections by providing step-by-step instructions, checklists and visual aids. Such features facilitated by modern software for insurance companies help customers assess their property's condition, safety measures and potential risks, ensuring they provide comprehensive and accurate information to insurers.

4. Personalized Risk Mitigation Services

By harnessing insights obtained from telematics and connected devices, insurance industry software can offer tailored suggestions to reduce risks. For example, telematics can offer alerts to improve the safety of drivers and homeowners. Insurers can recommend specific safe driving practices to alleviate risk, potentially leading to perks such as discounted premiums. 

5. Omnichannel Communication

Insurance software enables insurers to manage interactions with current and prospective customers across multiple channels such as email, social media, chat and chatbots. This enhances communication flexibility. Insurance industry software also integrates with other tools to unify customer interactions across different platforms. Having a consolidated view of all customers enables insurers to offer consistent and personalized experiences at each stage of the customer journey. 

See also: Computer Vision Means Satisfied Customers

Conclusion

Customer journeys are changing rapidly in the insurance sector. Whether it is the diversification of communication channels or the need for personalization, such demands have been a driving force behind challenging the status quo. Most importantly, this transformation will not stop right when such needs are met; new ones will mushroom in due time.

Such a state of flux calls for capable and feature-rich insurance software tools that can handle such requests and implement appropriate solutions to elevate organizational capabilities and product or service offerings.