KEY TAKEAWAYS:

--Taking depositions remotely via hologram can allow for body language to be inspected as closely as it can be in person, allowing credibility to be assessed more accurately.

--Insuring metaverse property will require new, tailored insurance policies and legal frameworks.

--Synthetic IDs -- which combine real information such as Social Security numbers and addresses with fake information to create identities for nonexistent people -- are a whole new level of threat.

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In a rapidly evolving era defined by technological advancements and digital innovation, the landscape of insurance fraud is undergoing unprecedented transformation. Insurers and investigators find themselves at the forefront of a battle against fraudsters armed with new tactics. To maintain a competitive edge, we as industry experts must foresee the trajectory of insurance fraud and comprehend the indicators that can help us distinguish authentic claims from fraudulent ones.

In particular, there are three critical innovations that will shape the future of insurance fraud detection and prevention: holograms, the metaverse and synthetic identities. 

While these three might sound like far-off technologies that we might expect to have a real impact on our industry in a few years – maybe even a few decades – many are actually in use today or will be very soon. To stay one step ahead of fraudsters, insurance professionals need to be informed about how these innovations can change the way fraud is conducted and about how we can use them to our own advantage in catching malicious activity.

See also: Using AI to Prevent Insurance Fraud

Remote Depositions: Analyzing Body Language With Holograms

Elevating the Digital Courtroom Experience

Picture a deposition conducted in a digital courtroom where holographic technology is used to view body language with the same precision as an in-person session. This technology holds tremendous potential in the context of insurance fraud detection. By scrutinizing subtle and non-verbal cues, insurers can gain profound insights into the credibility of claims. Remote depositions via hologram offer a streamlined and cost-effective approach for legal proceedings, making them especially valuable in insurance fraud investigations. They provide geographic flexibility, reduce costs, save time, enhance safety and health compliance, employ advanced technology for better observation, simplify recording and archiving and increase accessibility, making the legal process more efficient and inclusive. We can examine how remote depositions, driven by holographic technology, are positioned to revolutionize our approach to evaluate claimants' authenticity.

Insuring the Metaverse: Safeguarding Virtual Property Transactions

Protecting Digital Property Ownership

As the metaverse continues to gain momentum and individuals participate in the purchase and sale of virtual properties, a new frontier of insurance emerges. Insurers must adapt to this shifting landscape by forming innovative strategies to safeguard policyholders engaged in metaverse transactions. We must investigate the challenges and opportunities associated with insuring metaverse properties and how insurers can offer comprehensive coverage in this digital world. Insurance plans for metaverse property are still emerging, and they represent a unique and evolving area of coverage. Existing property insurance laws and policies are primarily designed for physical assets and may not directly apply to metaverse property. As a result, it's likely that new, tailored insurance policies and legal frameworks will be necessary to address the distinct challenges of insuring digital assets and transactions within the metaverse.

See also: Coping With Insider and Outsider Fraud

Synthetic Identities: Identifying the Fraudsters of Tomorrow

Addressing the Emergence of Synthetic IDs

In an era where identity theft knows no boundaries, synthetic IDs have surfaced as powerful tools for fraudsters. Synthetic IDs are fabricated identities created by combining real and fake information, often using real Social Security numbers, names and addresses. These false identities appear legitimate but don't correspond to any real individuals. They are frequently used in fraudulent activities, including insurance scams. These fabricated identities pose a substantial threat to insurers. We can shed light on how criminals employ synthetic IDs to perpetrate insurance fraud and explore tactics to recognize and combat this issue. With a synthetic ID, individuals can commit various fraudulent activities, including insurance fraud, identity theft, credit card fraud and tax evasion. To combat this issue, we need improved identity verification methods, stricter data protection and more effective fraud detection technologies. By remaining one step ahead, insurers can protect their customers and the industry from the growing presence of synthetic identity fraud.

The future of insurance fraud presents both promise and peril. As we navigate the intricate intersection of technology and deception, insurers must equip themselves with foresight and knowledge to confront emerging challenges. Remote depositions using holographic technology, insuring metaverse properties and countering synthetic identities provide a glimpse into the forthcoming landscape. By addressing these issues, the insurance industry can maintain the trust and confidence of policyholders in an ever-evolving world.

Insurers must seize the opportunity to reassess their fraud detection strategies, embrace innovation and remain vigilant against those who seek to exploit the insurance system. The future may be uncertain, but with foresight and preparation we can ensure a safer and more secure insurance landscape for all.

About 30 years ago, Adrian Gore and Barry Swartzberg harbored an intuition that introduced a different perspective on people's well-being. This approach, known as Vitality, has since matured into a methodology primed to serve as a fundamental competency for any insurer in the future.

The insurance sector has wholeheartedly embraced the notion of incorporating preventive measures, as aptly expounded in the Geneva Association's publication titled "From Risk Transfer to Risk Prevention." Cultivating less risky behaviors among policyholders in personal lines and among frontline employees in commercial domains is the indispensable path toward realizing this aspiration.

The conventional medical approach centers on employing medical interventions once a disease has manifested. This approach entails prolonging life by extending the period spent in somewhat suboptimal health, albeit with variations contingent on the nature of the disease. Conversely, Vitality's behavioral paradigm concentrates on promoting healthier lifestyle choices capable of elongating the duration of the policyholder's time spent in a state of optimal well-being, thus further extending their lifespan.

Source: Discovery

See also: Are Health Engagement Programs Worth It?

The frequency and severity of claims will diminish for the insurer. This savings are then partially channeled toward funding the expenses of the behavioral change program: At its core, the Vitality program involves promising rewards to individuals exhibiting enhancements in their conduct. 

Over the past decade, this approach has been replicated in different markets, with different nuances program by program. One international partner has even used Vitality as a stand-alone, fee-based offer open to customers without a policy with any insurer. Vitality has already attracted more than 30 million individuals globally.

This journey has showcased an astonishing capacity to engage policyholders. Across numerous Vitality portfolios, more than two-thirds of the members have engaged in both physical and non-physical activities that provide verified information. Nowadays, more than 100,000 new devices a month are connected by members to the Vitality program.

Discovery has accomplished an enrollment rate ranging from 50% to 80% in their Vitality program among their South African policyholders. This remarkable achievement has been realized even with a monthly fee exceeding $17 charged to the insured for enrollment.

The international partnerships are yielding consistent evidence, as well, demonstrating penetration rates of up to 70% for Vitality in partners' new business programs deployed in mature nations – even with a fee for joining the program -- and up to 80% in emerging economies. Analogous outcomes have been replicated in corporate wellness initiatives, where as many as two-thirds of eligible employees have participated, in contrast to the industry's average of 30% participation.

Policyholders crave to share their healthy behaviors with their insurers and enjoy substantial advantages, with benefits that can be higher than the premium paid. Simultaneously, this shared-value model allows the carrier to achieve superior results, while generating benefits for society at large.

The foundation of the Vitality approach resides in promoting behaviors directly contributing to delaying diseases. Discovery's three-decade journey provides robust evidence that a significant increase in the level of physical activity reduces by 49% the mortality for individuals aged 45 to 65, and a remarkable 61% reduction for those older.  Positive impacts have further manifested within annual medical expenditures, where the most engaged participants have 15% lower claim costs than the less engaged, risk-adjusted by age and medical conditions. A longitudinal study on the people who showed a low level of physical activity during the initial six-month period showed a subsequent 14% reduction in hospital medical costs for the subgroup that notably elevated their engagement levels over the ensuing four and a half years.

Source: Discovery

See also: Data-Driven Transformation

As you would expect, a program as successful as Vitality attracts and retains customers. Discovery's latest data pertaining to their South African health portfolio showed that 31% of the economic value the insurer garners through the Vitality approach comes from the attraction and retention of younger members and that 20% stems from the attraction of individuals more likely to exercise. 

The benefits are a direct outcome of Discovery's continuous innovation effort, which has honed their mastery in behavioral modification, seamlessly applying it across various geographical regions and lines of business. As illustrated by the figure below, the dynamic use of active rewards and loss aversion mechanisms (such as the mechanism to reimburse the Apple watch —methodologies systematically tested and incrementally implemented across all programs over recent years—has showcased extraordinary efficacy in engaging members. This, in turn, directly leads to the embrace of the desired healthy behaviors among Vitality's members.

Active Rewards and Apple Watch benefit impacts on the UK portfolios   

Source: Discovery

Members who participated in active rewards saw more than a 20% increase in physical activity days regardless of their health status. This increase is observable across the entire spectrum of well-being, encompassing individuals categorized as "healthy," "with stable chronic condition," "with significant chronic condition" and "with complex chronic condition."

Following exposure to active rewards, the average activity level exhibited a commendable upswing of 18%. Moreover, with the added incorporation of Apple Watch benefits, this average activity escalation escalated to an impressive 35%. This enhancement is consistently observed across diverse generational segments, with all age brackets showcasing increments surpassing 20%. Individuals aged 50 and above displayed a particularly substantial uptick of 51%. Similar outcomes have been measured in South African, U.K., U.S. and Australian portfolios.

The greater the proportion of engaged members, the higher the impact created on the insurer's technical results. A Swiss Re "Health and Wellness Engagement Impacts" study examining a life insurance behavior change program estimated a threshold of 25% engagement as requisite to ensure a positive ROI for the insurer. More than 90% of Vitality's markets with more than one year of maturity have already achieved engagement levels surpassing this specified threshold among members. One of the most effective international programs – a mature market – has reached a remarkable 64% engagement rate among its members. 

The evidence underscores the effectiveness of this approach—founded on technology and data shared by policyholders—in enhancing the profitability of the insurance portfolio. The approach also provides benefits satisfying the other three requirements in my 4P framework for evaluating insurtech initiatives. Vitality increases persistency (boosting retention), proximity (producing more frequent interactions with customers) and productivity (improving the top line).

All Vitality portfolios have consistently demonstrated superior retention rates when contrasted with the broader market. Furthermore, the churn levels observed within the most engaged members typically range between one-third and half of those observed in clusters exhibiting less healthy behaviors. This phenomenon exerts an exceptional influence on the lifetime value of a policyholder cohort—what actuaries quantify as new business value—resulting in a shift in the quality of the insurance book.

Several of the Vitality life portfolios have encountered an average above 20 touchpoints per month (app usage, push notifications, emails, …) with policyholders, a marked departure from the traditionally minimal touchpoints associated with life portfolios. In one Vitality portfolio, the usage of the insurer's digital channels among members has surged more than fourfold after the introduction of active rewards. 

See also: Lemonade's 'Synthetic Agent' Nonsense

One of Discovery's international partners has disclosed the effect on cross-selling: The count of policies per customer is fivefold greater among Vitality members compared with the conventional portfolio. Among those members with over five years of engagement, the most engaged maintain an average of 50% more policies in contrast to their less engaged counterparts.

Sales are influenced by a multitude of factors, encompassing the insurer's strategy and initiatives, contingent market conditions and competitive dynamics, so achieving an exact quantification of the impact of the Vitality approach is difficult. Nevertheless, there is a plethora of anecdotal evidence:

• A life portfolio growth four times the market, with market share rank rising from 11th to 7th in four years (mature country);
• Health carriers with 33% top-line growth over six years compared with a shrinking market (mature country);
• Life bancassurance player that increased market share from 2% to 7% in four years (emerging economy).

This detailed overview demonstrates the effectiveness of the Vitality model – achieving adoption and engagement among the entire spectrum of well-being and being replicated in all the geographies. 

This approach effectively rewards policyholders to disclose verified behavioral information. This shared-value mechanism optimizes policyholder engagement while yielding superior outcomes for the insurance enterprise, a portion of which is shared back to the policyholders. 

Discovery has meticulously cultivated a suite of specialized competencies, encompassing the adept guidance of behavioral change, adroit engagement with policyholders, the skillful orchestration of an ecosystem of retail partners to sustainably deliver appealing rewards and a comprehensive array of supplementary aptitudes required to ensure the seamless integration and alignment of the Vitality approach across actuarial, marketing and distribution functions. This prowess has been perpetually honed through collaboration with international partners and an unwavering commitment to continuous innovation.

This methodology applied to health and life transcends the scope of a conventional wellness program. It signifies an emergent insurance paradigm that holds the potential for extension across diverse insurance business lines. (In South Africa, Discovery has successfully applied it to auto insurance.) This extension aims to foster less risky behaviors among policyholders and, when deployed within commercial lines, extends its influence to encompass front-line employees.

Recently, the Centers for Medicare and Medicaid Services (CMS) released an update to its rules that has significant implications for insurance agents and Medicare agencies that market Medicare plans. These changes aim to enhance transparency, protect participants and ensure that any information provided is accurate. They take effect Sept. 30, 2023.

Let’s look at some of the changes: 

Direct Submission of Marketing Material by TPMOs 

One of the most significant changes is the requirement for third-party marketing organizations (TPMOs) to submit their marketing materials directly to CMS for approval. In previous guidelines, TPMOs were responsible for submitting material to the respective Medicare Advantage (MA) organizations or Part D sponsors. The new rule mandates that TPMOs obtain prior approval from each organization or sponsor and submit the material directly to CMS for review. This ensures that marketing collateral meets CMS guidelines and receives the necessary approvals before participants see it. 

This change means TPMOs must streamline their internal processes to accommodate the direct submission to CMS and ensure compliance with the approval requirements of individual organizations and sponsors. Partners, such as Total Expert, can help TPMOs streamline marketing collateral development and approval workflows while remaining compliant at every step with automated workflows and pre-built content templates.

Disclaimer Changes for TPMOs

TPMOs must also include standardized disclaimers in their marketing material. These disclaimers will inform participants about the TPMO’s representation of MA organizations or Part D sponsors and the range of plans available. The disclaimers differ based on whether TPMOs represent all MA organizations or Part D sponsors in a service area or only a select number. Insurance agents and Medicare agencies must incorporate the required disclaimers accurately in their marketing collateral and provide participants with clear information about available plan options. 

See also: Navigating Confusing Insurance Regulations

Guidance on Misleading Use of Medicare or CMS Name and Logo 

To protect participants from misleading information, the new CMS rule strictly prohibits the use of the Medicare name, CMS logo and products or information issued by the federal government in a misleading way. However, a slight modification to the rule now permits the use of the Medicare card image with authorization from CMS. This change aims to strike a balance between accurate representation and preventing deceptive practices.

For insurance agents and Medicare agencies involved in marketing Medicare plans, this rule demands that you adhere to the guidelines and obtain proper authorization from CMS when incorporating Medicare-related branding elements like the Medicare card image in marketing collateral. Ensuring accurate and transparent representation builds trust of participants and avoids potential compliance issues that could lead to significant fines for each violation. 

Clear Identification of MA Organizations and Part D Sponsors 

To provide participants with clear and accurate information about the entities behind the marketing material, the new CMS rules require marketing materials to clearly identify the MA organization or Part D sponsor offering the products or plans. If the MA organization or Part D sponsors involved are clearly identified, participants can make informed decisions about their Medicare plan choices. 

For insurance agents and Medicare agencies, transparency is not optional. Participants must have clear and easy access to further information about the plans and services being advertised.

Restrictions on Unsubstantiated Superlatives 

The new CMS rule introduces limitations on the use of superlatives such as “lowest premium” or “largest network” in marketing collateral. Such superlatives must be supported by documentation, which should reflect the current or prior year and be easily accessible to participants. 

For insurance agents and Medicare agencies, many of today’s common marketing communication approaches will no longer be allowed. Any claims about service quality, price, etc. must be backed by reliable data and documentation. Incorporating such supporting information not only complies with CMS guidelines but also earns trust with participants who seek reliable information to make informed decisions about their Medicare plans.

Penalties for Violating CMS Rules

CMS exists to protect Medicare and Medicaid participants, a group that has often been targeted by misleading and predatory marketing practices. As a result, CMS will not hesitate to levy fines of up to $5,000 for each violation of their policies.

See also: Balancing Innovation, Compassion in Life Insurance

Compliance with the new CMS rules is critical for ensuring transparency and protecting participants but also for avoiding potentially costly financial penalties. 

Outdated technology and internal processes will make it difficult to comply with the new CMS rules. By embracing a modern technology platform like Total Expert, agents can feel empowered to deliver compliant communications and marketing collateral.

KEY TAKEAWAYS:

--Companies can measure productivity on key metrics and compare work-from-home employees against those in the office, whether now or in the pre-COVID days. Those comparisons will allow a deep look into relative costs.

--Companies also need to explore cultural issues, which can be key to attracting and retaining talent. While values can be shared in written format, discussed in Zoom meetings and reinforced with remotely observed behavior, companies will still find it a challenge to develop a strong culture if team members don’t see each other in person frequently.  

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Like many others, I’ve written extensively about work-from-home issues in the last few years. At this point, most articles seem redundant. Rather than write another of those, I’d like to look at how work from home is evolving – both developing opportunities and creating pitfalls.  

The advantages of remote work for both employers and employees are now well known. They include geographic and time zone flexibility and work flexibility for part-time employees, as well as the ability to reduce costs of physical locations for both parties. 

At the same time, we also have come to see that disadvantages for work-from-home include increased difficulty in employee development due to less frequent supervisory contact, challenges with team building and other social benefits of in-person work and a decreased commitment of employer and employee to each other. The problems have shown up in “quiet quitting” and increased employee resignation rates.

While employers currently bear the brunt of the problem, I think that is likely to change with an economic downturn, not to mention technology improvements. I suspect employers will find they have more distant relationships with remote workers and will find it easier to let them go when times get tough.

How do you know if work-from-home is right for your business? It’s all about productivity, cost and culture.

Taking a Look at Productivity

As we think about pitfalls in the work-from-home evolution, we have to acknowledge that the utopian descriptions of its potential for a permanently new way to work may not be bearing the abundant harvest predicted by its earliest advocates. This, I think, is why many larger organizations like X, formerly Twitter, and the U.S. government are calling for or requiring a return to the office.  

The principal reason large employers (and many smaller ones) are calling for a return to office work is a measured decrease in productivity. Despite workforce challenges, those employers that can carefully measure productivity, and have adequate talent recruiting capabilities, are compelling workers to put their pants back on and come to the office. Does this imply that all employers will do the same eventually? I do not know, but the question does point to the importance of measuring productivity. In a professional services businesses like insurance, employee cost measured against business revenue and profit is the key driver of success.   

Whether you are a remote work advocate or not, work from home raises the useful issue of productivity.  

See also: Has the Remote-Work Trend Peaked?

Diving Deeper Into Costs

A key challenge for every business in a relentlessly competitive industry is lowering costs. While technological innovations like artificial intelligence hold exciting promise, they aren’t fully realizable yet. Even when they are, how many activities each employee performs per hour or week still holds the most promise for affecting cost control. If a business doesn’t have a robust set of key performance indicators or isn’t comparing results over time (particularly between in-the-office and remote workers) an opportunity for improvement is being missed.  

As a starting place for developing key performance indicators (KPIs), I suggest you look backward from the end of your process. For many in the insurance industry, this would be a sale. Then, ask what the milestones are. For example, in an insurance agency, an issued quote is a milestone, as is a completed submission. Indicators to measure, in addition to those two items, might include the number of closing attempts or number of lines of coverage sold. Then, with the KPIs established, look back into your business records for a year or two before the business moved to remote work to establish a baseline benchmark. You can then measure your results against a period of remote work and see how productivity was affected and what improvements might need to be made.

Obviously, businesses that started after the COVID era began have no pre-pandemic in-office benchmark. As a result, they have had to focus on creating processes that work regardless of where an employee is located. This is an excellent exercise for hybridized existing businesses to complete, as well. As you examine each process in the business, ask if changes need to be made to maintain or improve from your baseline benchmark. You may find that teamwork involving different time zones may allow you to improve some time-critical tasks like submission to quote to bind, for example.  

Fostering Workplace Culture

Even with improved processes and reduced costs developed from the learning created by increased experience, companies still have to solve culture issues.

“Culture eats strategy for lunch” is often attributed to management guru Peter Drucker. But whether he first said it or not, culture is critical to business. Culture founded on a set of shared and constantly reinforced values is not just a key contributor to business success but is also a key contributor to attracting and retaining the best talent. While values can be shared in written format, discussed in Zoom meetings and reinforced with remotely observed behavior, companies will still find it a challenge to develop a strong company culture if team members don’t see each other in person frequently.  

See also: Opportunity Now and in 2024

Looking Toward the Future

As the trauma created by the business disruption of COVID fades, businesses must increasingly ask the questions of whether remote work improves or impedes productivity and business results. As we enter, inevitably, into an economic slowdown and perhaps begin to see the productivity improvements of a generation of iterative artificial intelligence, business owners might no longer be held hostage to work-from-home demands. They could be in more of a position to call for a return to office. But ultimately whether remote work makes sense for both the business and the employee depends on progress and results related to productivity, cost and culture. The jury is out on those.

KEY TAKEAWAY:

--Usage-based insurance for drivers shows the potential of continuous underwriting. Based on telematics and automated analysis, drivers' risks are continually being evaluated based on their driving behavior and miles driven.

--That capability is now spreading to numerous other types of insurance, providing ways for insurers to keep tabs on their portfolios in real time. 

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Much is said about the need to modernize insurance, an industry rife with legacy carriers tethered to outmoded systems. In spite of the apparent opportunities, insurtech has had a hard time displacing large incumbent organizations and their traditional approach to underwriting. The plodding carriers, driven by their risk-averse cultures and bureaucratic inertia, survive without being on the forefront of tech advancements. Meanwhile, some insurtechs are here today and gone tomorrow, due in part to approaches that produce unsustainable loss ratios. A focus on growth over everything else has rarely been a winning strategy.

The other part of the challenge is that insurtech has been slow to effectively harness the data needed to build better rating models. Setting aside regulatory obstacles, new data acquisition strategies were heralded as the path to more accurately and efficiently pricing risk and modernizing the industry. Several prominent insurtechs, with pressure to grow rapidly in a short time, have since back-pedaled on their data-centric prophecies when it became clear they had not achieved the levels of underwriting profitability they had forecasted. The incumbents consistently outperformed the newcomers by remaining diligent in prioritizing underwriting basics and enjoying the luxury of years of proprietary, historical experience data.

So can growth and the pursuit of a healthy loss ratio co-exist?

It may seem the insurtech innovators have waved the white flag in their battle to conquer the traditional insurance mechanism, but we are in fact seeing a new commitment to enhanced technologies being deployed in insurance. Insurtech VC funding exceeded $2.3 billion in the first half of 2023, a robust sum even if significantly down from peaks experienced during the pandemic. While early insurtechs attempted to disrupt an industry that is built on a resilience to disruption, the next wave of insurtechs has conceded that certain fundamentals are non-negotiable if they are to foster a reliable insurance ecosystem promoting financial stability.

In this vein, an insurtech concept that is innovating the industry is continuous underwriting.  

Continuous underwriting is the process of leveraging data and technology to apply underwriting strategies throughout the policy life cycle. Those of us who have spent time in the traditional small commercial underwriting space have experienced first-hand how a risk gets bound and then essentially forgotten. How many times have you seen a risk and thought “that carrier doesn’t even know what they’re on!”? 

Underwriters have also been taught that the most profitable business is that which is already on the books. While this can be true, a failure to remain sensitive to the portfolio’s evolving risk can lead to detrimental results. Companies have long made this trade for the savings on expenses associated with detailed underwriting processes (but, let’s be honest, the situation usually ends with the book being re-underwritten anyway).

Instead of limiting the use of data to the initial submission, we can now monitor risk throughout the policy life cycle. The tools and systems are available for carriers to continuously underwrite more efficiently than ever, providing opportunities to proactively control the loss ratio while reducing disruptive and costly re-underwriting processes.

One form of continuous underwriting, in which technology promotes safe behaviors, is usage-based insurance (UBI). UBI strategies have been successfully implemented in large sets of homogenous risks, such as telematics devices/apps that measure driving behaviors. Now, a consumer’s auto insurance rates can be reduced based on safe driving and fewer miles driven. Beyond auto, UBI is manifested in areas such as cargo and handyman insurance, where the purchaser can only pay for the amount of coverage they actually need, and only when they need it.

See also: The Next Era of Underwriting

As consumer expectations evolve, more dynamic strategies and tactics will continue to progress into larger, more complex risk evaluation processes. Vertical software solutions (software built for specific industries and use cases) — such as bookkeeping software and point-of-sale (POS) systems — are increasingly critical for small businesses. The software contains vast stores of rich exposure information in real time, allowing the automation of continuing eligibility and pricing decisions by using another UBI concept called pay-as-you-go (PAYG). PAYG allows the accurate tracking of risks after the policy is bound, reduces premium leakage, provides cash flow benefits to the insured and can even help up-sell new cover when additional exposures are identified.

The use of always-current payroll data in workers' compensation started to take off decades ago and has evolved to become a default standard. Other small commercial coverages have evaded the adoption of this common sense approach to underwriting — until now. With the explosion of digital systems centrally managing the business data that underpins many classes of small business, we believe the same benefits can be passed on to small business insurance, such as a business owner’s policy (BOP) or liquor liability, that have exposure bases measured by sales.

Sustainability deserves consideration here. For a concept such as continuous underwriting to achieve commercial scale, carriers must be able to deploy the solution without correspondingly more onerous overhead and manual process. An automated continuous underwriting process will help insurers avoid unanticipated claims by identifying new hazards before the loss occurs — but where does the automation come from? 

The simple answer is that automation from thoughtfully developed software has been built specifically to monitor risk factors and data. It doesn’t happen overnight, and legacy carriers will struggle to shoehorn another piece of software into their antiquated IT infrastructure. This industry dilemma requires a clean start approach to practical innovations.

Facilitating the adoption of continuous underwriting is a shift in insurance buying habits and general comfort in digital privacy controls. Younger generations are more amenable to sharing their data in exchange for products and services that fit their lifestyles. The expectation for immediate digital experiences is on the rise, and consumers are showing increased preferences toward mobile apps and AI-based virtual assistants. Further, underwriting investigations are now streamlined through integrations with external data providers that instantly address advanced considerations -- geospatial imagery can show deteriorated roof conditions in hail-prone areas, and AI-powered machine learning models can identify policies most expected to generate losses.

Automation that continuously brings current data into the underwriting process will allow insurers to more efficiently expand their operations. The human bias inherent in the traditional underwriting process will be reduced, generating greater confidence in the result and forging a path to sustainability. 

The insurance industry readily admits that it must continue to innovate to remain effective. Insurance consumers have demonstrated willingness to adopt technological advancements, as they already have with UBI and PAYG. Underwriters unwilling to commit to continuous underwriting risk being left behind.

Up next: In Part 2, we explore practical examples for unlocking the potential of continuous underwriting for small business and address the impacts and benefits to key stakeholders.

When Chunka Mui and I researched 2,500 corporate disasters to look for the patterns that led to failure, we found that one of the seven strategies most commonly associated with major write-offs or bankruptcy was the roll-up. 

While we conducted our research more than 15 years ago, for our 2008 book "Billion Dollar Lessons," the work springs to mind because insurance agencies have been rolled up for years now by Acrisure, Hub and others. The make-or-break point likely isn't far off. 

The basic problem with roll-ups is that acquirers are tempted to overstate the potential cost savings while underestimating the costs, including those that come from managing the complexity of a sprawling empire that began as a host of idiosyncratic little businesses. 

The main example we explored in "Billion Dollar Lessons" was the Loewen Group, which went from a single funeral home in Canada to more than 1,100 throughout North America in a little more than a decade and employed more than 15,000 people -- then collapsed and filed for bankruptcy. 

Loewen projected major savings from having funeral homes in a metropolitan area share undertakers and hearses, as well as from the efficiencies that were supposed to come from standardizing back-office systems, but few of those savings materialized. Sharing undertakers, hearses and drivers was complicated, and those in charge of business operations resisted change or even quit. Funeral homes were typically operated by families (not unlike many small insurance agencies), and there was no incentive for an older generation to stick around after they cashed out through a sale, especially given that the giant corporate acquirer would have no loyalty to the next generation of the family. Loewen often found itself scrambling just to keep an acquired funeral home operating.

Meanwhile, the funeral homes lost much of the hometown appeal that had made many of them mainstays in a community for decades. The small businesses earned goodwill by sponsoring kids' sports teams and participating in local events. Often, the owners had kids who went to school with the children of clients. But nobody thrilled to the sight of a Loewen corporate logo on a funeral home's front lawn, so business sometimes drifted away.

For good measure, roll-ups typically happen so quickly that the growing pains can be frightful. Scale is the whole rationale for a roll-up, and a growth-at-all-costs mentality can lead to ignoring little problems with acquisitions and integration that become major problems after they've accumulated and festered. Management can become overwhelming, and some management may not be up to the task -- Raymond Loewen did great with one funeral home in one town in Canada, but operating 1,100 in a whole variety of towns and cities throughout North America was far more than he could handle. 

Now, there is reason to think that the insurance agency roll-ups can dodge many of the problems that we documented for Loewen and others in "Billion Dollar Lessons." In particular, the source of the funding for the insurance roll-ups makes a lot more sense. 

Loewen and the others in our research typically were publicly traded. As they grew, investors got excited about the growth prospects, and the stock price soared. That gave the acquirer a currency it could use to buy lots more companies -- but only as long as exponential growth continued. As soon as growth slowed even a bit, the stock crashed. Investors began focusing on the bottom line, not the top line, and management suddenly had to seamlessly integrate all the purchases. Disaster almost always awaited. 

By contrast, the insurance agency roll-ups are largely happening via private equity, which is much more patient money than stock market money is. The pressure to expand too rapidly is more muted. Private equity money is also smarter money, so it insists on more professional management than, say, Bernie Ebbers, who started his career operating a motel, could provide after he bought 60 telecommunications companies, eventually including MCI, and presided over a scandal and then the collapse of WorldCom. 

The insurance agency roll-ups will still face many of the integration problems that other roll-ups must confront, including how to introduce a corporate brand without losing the appeal of a boutique, local one. And the roll-ups are big enough now that I'd say we're getting to a point where we'll going to see, one way or the other, just how successful they can be. 

That question serves as the starting point for this month's interview, with an old friend, Mark Breading, a partner with Strategy Meets Action, who has been tracking the world of agents and brokers for decades. I hope you'll dig in.

Cheers,
Paul

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Value creation through tighter integration.

When I ventured into the garden section at my local Wal-mart last week, I saw they hadn't just been preparing for Halloween by setting up alluring candy displays throughout the store. They were already getting ready for Christmas, setting up displays for decorations, lights and even fake trees. 

Those displays reminded me that we are, in fact, in the fourth quarter of 2023 and that, while I'll still probably start my Christmas shopping on roughly Dec. 23, it's not too early to begin planning initiatives for 2024. And it happens that a smart analyst I follow on LinkedIn posted a list last week of what he sees as the 10 trends that will dominate next year. 

They are: generative AI, the human touch, the solution to the skills shortage, sustainability, personalization at scale, the data economy, the customer service revolution, remote and distributed work, diversity and inclusion and resilience.

I think some of those are more important than others and have a suggestion or two of my own, but that list is a good place to start. Let's dig in.

The article by Bernard Marr opens with generative AI, which I agree should be a major focus but which I won't go into here, because I wrote about it last week and have gotten into it extensively in other pieces, including in this interview with a longtime friend and colleague, John Sviokla, who said generative AI will be bigger than the internet.

#2 on Marr's list is "Soft Skills and the Human Touch." He writes: 

"As it becomes increasingly feasible to automate technical aspects of work - coding, research or data management, for example - the ability to leverage soft skills for tasks that still require a human touch becomes critical. For this reason, in 2024, we will see organizations increasing their investment in developing and nurturing skills and attributes such as emotional intelligence, communication, interpersonal problem solving, high-level strategy and thought leadership."

I agree and, in fact, have for many years been pushing the idea of "bionic" processes and employees, who take advantage of the efficiencies of digitization, including AI, while maintaining that human touch. Here is a recent piece on how to combine digital efficiency with human empathy.

#3 is the "Skills Solution." Marr writes: 

"We’ve been hearing about the skills shortage for several years now. Changes in hiring practices that emphasize selecting candidates with the specific experiences and skills needed for a role, rather than qualities such as educational attainment or age, are a part of the industry's response and will continue to be a strong trend."

Again, I agree. While universities increasingly offer risk management and insurance programs, we can't expect them to produce such a steady stream of graduates that they will fill all the industry's needs. Instead, the insurance industry will need to get creative in finding talent, as explained in this piece on winning the war for talent.

#4 is "Sustainable Business." I'd say insurance is still finding its way on how to support sustainability. If you're interested in a more detailed analysis of where we stand and how we can progress, I'd suggest you listen to this webinar I recently conducted with Sean Kevelighan, president and CEO of the Insurance Information Institute, and Francis Bouchard, managing director, climate, at Marsh McLellan. I found the discussion exceptionally informative and think you will, too. I'd also recommend the interview I did recently with Alex Wittenberg, a partner at Oliver Wyman, on resilience. 

#5 is "Personalization-at-Scale." I've long identified with this approach. Part of what attracted me to Diamond Management & Technology Consultants after a long career at the Wall Street Journal was the startup's alliance with Joe Pine, who pioneered the idea of mass customization. That was in 1996. The possibilities have only expanded since then. But insurance starts at the opposite end of the spectrum, focusing on pooling of risks, so I suspect the personalization emphasis will lag in the insurance world.

#6 is "The Data Economy," which is a massive opportunity for insurers. Marr writes:

"Data is an increasingly valuable business asset. By 2024, more companies will have streamlined their operations and improved their customer offerings by taking a strategic approach to their data. As a result, they will be ready to take the next step - monetizing data itself to drive new business opportunities. Leading the way are companies like John Deere, which has pioneered the model of selling data from its sensor-laden farm equipment back to farmers as insights to improve productivity. As access to large-scale data collection and AI-driven analytics becomes increasingly democratized, we'll see this trend adopted by smaller companies in niche and diversified sectors."

Insurance is the ultimate data business, and companies have a huge opportunity to turn data into revenue. Some of that opportunity will arise because insurers will go beyond "insure and pay" and shift to a "predict and prevent" business model, as described in this recent piece. Some will come because companies find creative ways to gather and process data, then sell it to others -- a la Allstate's Arity.

#7 is "The Customer Experience Revolution," which is desperately needed in insurance and which we've published about extensively. 

#8 is "Remote and Distributed Work," which seems to be here to stay and which insurance seemingly could benefit from as much as almost any industry. 

#9 is "Diversity and Inclusivity." This is another topic that feels like it's especially important in insurance. We serve a diverse population. Shouldn't we have a diverse work force, including leaders, who empathize with the needs of those diverse customers? 

#10 is "Resilience." Marr writes:

"[That means] ensuring an organization is protected from whatever threat is around the corner. That could mean cyber attacks, economic downturns, environmental events, war, global pandemics or the emergence of a disruptive new competitor."

We've certainly had plenty of recent lessons about the need to plan for resilience, including the attack by Hamas on Israel over the weekend and, just a year and a half ago, the Russian invasion of Ukraine. Both are having massive, unpredictable effects not only on geopolitics but on business. Just imagine what will happen if China follows through on threats to invade Taiwan.

To Marr's list, I'd add two sorts of skills that I think many businesses will want to develop. 

First are partnership skills. We talk a lot about ecosystems and about using technological capabilities such as application programming interfaces (APIs) to plug into what partners are doing, but being a good partner takes practice. Companies shouldn't assume they'll be great at partnerships, or even adequate, in the first go-'round. Companies should engage in a number of low-level partnerships, to understand what they do well and what they do poorly, before attempting any partnership that could be game-changing. Develop those partnership muscles before trying to use them.

Second are M&A skills. These aren't necessary for many in the insurance industry but are required by many others, especially agents and brokers, lots of whom are aggressively expanding. Historically, the rule of thumb was that only about one in three acquisitions succeeded. More recent research suggests a higher success rate, but only because acquirers are making a steady stream of smaller purchases and developing M&A skills rather than swinging for the fences with a massive takeover by a first-time buyer. 

So I'd suggest you start planning for 2024, even as you accept that geopolitical events such as the Hamas attack on Israel could derail some of those plans.

Cheers,

Paul

KEY TAKEAWAYS:

--Premiums are soaring, and there is no relief in sight, as people keep moving into areas where homes are at higher risk to natural catastrophes, as electric vehicles and other new technologies raise repair costs, etc. 

--But improved construction and greater building resilience standards can help, as can major preventive measures such as building a sea wall for Manhattan. There are also numerous insurtech solutions emerging that use sensors, AI and other technologies and that can switch the traditional insurance model from "insurance and pay" to "predict and prevent."

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In 1735, Benjamin Franklin wrote that “an ounce of prevention is worth a pound of cure.” He was referring not to medicine but to fire safety, because central Philadelphia, where he lived, consisted of connected wooden row houses. In fact, he was a founding member of the Philadelphia Contributorship, the first fire insurance company in America. Today, prevention may very well be the cure for the ailing insurance industry.

Throughout the history of risk and insurance, there have been periods of crisis and reform. In 1971, no-fault auto insurance was adopted in Massachusetts and spread to 19 states by 1974 with promises of lowering high auto premiums. In the mid-1980s, liability insurance rates soared, leading to tort reform. Most recently, Florida, California and Louisiana are enacting reforms in the face of threats from weather, inflation and legal system abuses. 

As the property & casualty insurance industry struggles with the severe impact of extreme weather events, rapidly shifting market conditions, growing social and economic inflation and a rapidly transforming automotive and alternative transportation landscape, it has become obvious that fundamental, structural change is necessary and inevitable. Each of these single pressure points is striking. Collectively, they may represent the “new normal.” In any case, cost of insurance is on the rise while availability has become problematic, with both consumers and businesses absorbing the impact.

How Did We Get Here?

Catastrophic weather trends receive the most attention for good reasons but are not exactly new. According to a study by the Insurance Information Institute, average insured CAT losses were up 700% from the 1980s through 2020, spiking throughout each decade with noteworthy hurricanes: Andrew, Katrina, Wilma, Rita, Harvey, Irma and Maria. There’s little argument that events are more frequent and causing more costly damage, but these trends have been moving upward for some time.

Since the adoption of special, all-risk homeowner policies from previously limited or named peril policies in the 1980s, courts have further broadened insurance coverage. There is a residual tension between coverage for fortuitous loss and what some say are - or should be - uncovered maintenance costs, with much debate over exclusionary language. Meanwhile, U.S. homes have grown in size, averaging 2,522 square feet, doubling from 1975 to 2022, according to Statista. Likewise, home building materials, amenities and construction design have added to rebuilding costs, with increased construction in more disaster-prone regions as population shifts to the Southeast and Southwest, in particular. Between 2018 and 2021, the average annual homeowner rate change was 3%, and through the first three quarters of 2023 averaged 8.8%, according to S&P.

Just prior to the pandemic, auto insurers were engaged in a race to the bottom. Switch and save marketing flooded the market. Fast-forward, and inflation on auto parts, building materials and labor rates are perpetual “sticker shock” realities, despite some leveling-off. Auto repair technician shortages, social inflation and distracted driving behavior are newer and growing influences with no signs of alleviating in sight. Meanwhile, though less obvious, global reinsurance premiums are also driving up rates.

On the commercial lines side, business auto has struggled, with combined ratios for 11 of the last 12 years over 100, amounting to underwriting losses, per Fitch Ratings. Miles driven, demand for commercial trucking and driver shortages are among the causes, again with no clear change in sight.

See also: The Promise of Predictive Models

Just the Beginning

P&C insurers are pulling all the levers. Rate increases are across the board in auto, home and commercial lines. Tighter underwriting rules, restrictions on new writings, pullbacks in select states or product lines are reverberating throughout the industry. Some insurers are scheduling roof limits based on roof age or only offering ACV protection. Higher deductibles or percentage of limit deductibles are emerging or instantly become the only option in coastal areas when homeowners have little to no choice and are pushed into state wind pools or non-admitted E&S insurers. The result is more cost and less coverage, serving as a shift to greater self-insurance.

Allstate told its captive agents in August that it will effectively be reducing their commissions, and other insurers are trying to reduce their administrative costs, but the costs of insuring risks are projected to increase and remain high for the next few years – double-digit rate increases are just the beginning.

High Premiums Here to Stay

There’s lots of evidence to forecast that high premiums are here to stay. Thus far, loss costs have outpaced rate increases, and once they do catch up there is no reason to believe premiums will decline. Insurance to value (ITV) is emerging as an issue as property values and rebuilding costs have soared. The population shift to disaster-prone areas is not slowing. Auto technology, EV repair and parts costs on top of more expensive original equipment car manufacturer repair procedures are all on the rise. Social inflation fueled by juror attitudes, nuclear verdicts of $10 million or higher and litigation funding are gaining more attention (even though the term was coined by Warren Buffett as long ago as 1977 in a shareholder letter, according to the NAIC/CIPR Research Library). In many cases, consumers choose to reduce coverage or drive uninsured. Bankrate says there are an estimated 32 million uninsured drivers in the U.S., a number that is likely to grow.

The implications can be distilled to a greater proportion of self-funded risks for consumers and businesses.

Predict and Prevent

A new paradigm of predict and prevent is gaining traction. The Insurance Institute for Building and Home Safety (IBHS) has encouraged the insurance industry to influence improved construction and greater building resilience standards. Sensor technology combined with preventative measures, such as moving assets from harm’s way, show promise but have a long way to go, balancing efficacy with pragmatic actions. Distracted driving avoidance and driver coaching is making a difference in larger fleets, with much room to improve smaller fleets and personal auto. However, predicting and prevention is also being applied more broadly, such as shoring up storm walls in places like Manhattan and Miami. Meanwhile the devastating Maui fires illuminate major gaps in prevention and how controversial measures to clear vegetation get in the way of progress.

The Role of Insurtech in Risk Transformation

Enabled by new and emerging technologies and funded by professional investors with the highest amount of available capital in history, numerous insurtechs have introduced first-generation solutions to insurance risk management. These solutions have primarily focused on a small number of high-visibility applications, including quoting, underwriting and distribution and claims. But few if any of these products have materially affected combined ratios and thus profitability, leaving insurers with no good response to current conditions other than talking rate.

See also: Convergence and the Insurance Ecosystem

Enabling Insurtech Solutions

• Sensors are a relatively low-cost, easy-to-deploy technology with large numbers of applications across homes and businesses and “wearables.” The sensors can alert users and carriers of impending risks, providing time to respond and avoid a loss, or at least limit the damage. 
• Telematics widen the uses of sensors to include the integration of large volumes of contextual data to more accurately predict and prevent accident frequency, severity and injury. Crash detection, automated first notice of loss (FNOL), accident response and emergency services are powerful applications emerging from smartphone enables telematics.  
• Artificial Intelligence (AI), while it has been used for many years in information and data management, has grown to include other more powerful iterations, including natural language processing (NLP), robotic process automation (RPA), machine learning (ML), computer vison CV) and the latest and most fascinating, generative AI. While not all of these AI solutions support risk prevention, many enable material cost savings. Computer vision has already been adopted for almost 40% of auto physical damage claims, enabling early total loss identification, automated repair estimate generation and parts procurement with limited human interaction.
• Geospatial data and analytics have high potential to identify, limit and avoid property risks from extreme weather and catastrophes. On the front end of the insurance process, pricing and underwriting, this data can ensure higher accuracy as well as risk avoidance. Insurtech geospatial platforms are expanding through partnerships and integrations, making it faster, easier and less expensive for insurers to consume and use multiple applications.
• Parametrics is a form of risk prevention in that it limits a carrier's exposure to a specific, narrowly defined “micro-event,” which vastly simplifies the pricing and underwriting of each covered event, eliminates most traditional claim costs and provides greater predictability of total exposure.

Many of these young companies, and their existing and emerging solutions, have the potential to enable the insurance industry to shift its paradigm from “insure and pay" to "predict and prevent.”

Of course, none of these solutions can have real impact until insurers decide to aggressively embrace and comprehensively implement them. Otherwise, the industry will continue to react ineffectively to elements of the current crisis, which will then be followed by reform that could well lead to greater customer self-funded risk management -- defying the founding insurance principle of risk transfer. 

We trust that the industry will recognize that Benjamin Franklin was right about prevention and cure and will embrace innovative solutions, sooner than later.

KEY TAKEAWAY:

--the life insurance industry must innovate to appeal to the next generation of consumers' appetite for fast, personalized and digital-first experiences.

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The COVID-19 pandemic threat led to a surge in life insurance sales: In 2021, the life insurance industry saw its greatest nine-month sales growth in 25 years. However, a LIMRA study shows this trend is reversing, especially for younger markets. In 2023, only 40% of Gen Z adults and 48% of millennials say they own life insurance, and nearly half say they don't have sufficient life insurance coverage. That figure represents 53 million adults.

Still, the same report finds interest in life insurance products is at an all-time high for younger adults, as 44% of Gen Zs and 50% of millennials intend to purchase life insurance this year.

Therefore, life insurers have an opportunity to grow their life insurance sales in untapped younger markets by leveraging technology and digital sales techniques.

Here's how carriers can close the gap with these younger markets:

AI Digital Assistants and Education

Lack of knowledge about life insurance is the greatest obstacle preventing younger adults from purchasing coverage. 40% of Gen Z and 29% of millennial parents say they haven't purchased coverage because they don't know how much coverage they need or what type to buy.

How life insurers educate and engage with younger adults will be critical. While Gen Z and millennials value personalized advice and education from human financial advisers, it's impossible to provide human assistance to each policyholder with different needs and levels of knowledge.

As a result, insurers are using chatbots powered by artificial intelligence (AI) to drastically speed up and simplify the purchasing process and provide an always-on, contextual, educational experience.

For example, digital assistants and generative AI-powered chatbots can answer questions about coverage, simplify complex insurance jargon, coach users through the insurance purchasing process, articulate why each step is necessary or connect prospects and policyholders with human advisers.

Omnichannel Customer Experiences

Today's younger generations of customers aren't just expecting online experiences; they want Amazon-like levels of efficiency and convenience. Despite the demand, a McKinsey study finds that only 11% of life insurers facilitate multichannel online product sales.

An omnichannel customer experience occurs when multiple marketing and service channels work independently but provide an integrated and seamless customer experience across all online and offline channels. This means designing customer journeys that allow for seamless channel-switching and ensuring the customer receives the same experience whether they are interacting through email, text, telephone, website, social media or customer portal.

While the life insurance sector has yet to reach a standard for omnichannel outreach, insurers have an opportunity to differentiate their offering by providing a cross-channel experience that meets the next generation of consumers on their preferred platform.

See also: Balancing Innovation, Compassion in Life Insurance

Personalized Pricing, Products and Customer Experiences

LIMRA says high premium costs and inflation are critical reasons why younger people do not purchase life insurance. The problem is lowering premium prices is easier said than done. Instead, insurers can capitalize on personalizing pricing, products and customer experiences.

Personalization enables prospects and clients to get the exact information and policy they want, allowing them to understand their policies and pricing better. Of course, life insurers will have to obtain large sums of customer data to provide personalized experiences and products. The good news is that many Gen Zs and millennials are comfortable exchanging personal health data (i.e., step counts, sleep data, etc.) from their Fitbits or Apple watches for discounts and personalized policies.

This opens up a massive opportunity for insurers to maximize customer engagement and attract more millennial and Gen Z customers with personalized experiences, discounts and rewards for healthy behavior.

Relevant Marketing and Creative Policies

Life insurers must find unique ways to make their products relevant to younger generations. Life insurance marketing often focuses on financial protection for a traditional family structure. Because a childless 25-year-old would likely have different priorities than a 45-year-old with a family, younger individuals usually skip life insurance. However, if life insurers allowed customers to customize their policies to support a particular cause, customers may be more open to purchasing coverage.

For example, some innovative life carriers position life insurance as a way to buy a tattoo for a friend, activate a charitable donation, care for a beloved pet or send a friend or family member on a trip to Europe. Life insurance is positioned as an act of love. The customer feels in control.

Through relevant marketing and creative policies, personalized life insurance can appeal to younger demographics by making it easier to understand and helping them protect and pay for things they care about. Personalization is critical to filling generational gaps in coverage.

Social Media as a Channel for Education and Digital Distribution

Younger people are likelier to use social media platforms like YouTube, TikTok, Twitter and Instagram rather than financial company websites to get financial advice and information and buy coverage.

According to a LIMRA study, 81% of Gen Z and 75% of millennials turn to social media for discussion, advice and information regarding financial topics. Over three-fourths of millennials use their smartphones for financial transactions.

Almost every insurance organization uses social media primarily to promote its brand and market products. While this will remain important, leveraging social media channels to engage, educate and provide self-service policy options to younger customers will play a significant role in the distribution and marketing strategies of life insurers wanting to capture the next generation.

Accelerated Underwriting

The traditional process of getting insured, which includes paperwork, in-person medical testing (i.e., blood work and urine tests), and a reputation for complexity, are key reasons younger generations don't bother purchasing coverage.

Younger customers want to buy life insurance the same way they buy anything else online: quickly and easily. As a result, many leading life insurers are embracing accelerated underwriting. According to a LIMRA study, three out of four life insurance companies in the U.S. and Canada have automated or accelerated underwriting programs.

Accelerated underwriting enables life insurers to make quick decisions on an application. Accelerated underwriting processes use predictive analytics, machine learning algorithms and various data sources, such as medical records, claims history and credit history, to evaluate the applicant's risk.

This lets customers skip tedious underwriting processes. Accelerated underwriting programs can reduce policy wait times for life insurance from 27 days to just 24 hours.

It is essential to position the speed and ease of accelerated underwriting in campaigns targeted to Gen Z consumers.

See also: Life Insurance Digitalized

Attracting the Next Generation of Life Insurance Customers

Owning life insurance can be life-changing for younger generations and their families. While 71% of insured younger parents would feel financially secure if a primary wage earner were to pass away, only 48% of uninsured parents would feel the same.

With so many uninsured and underinsured young adults, the life insurance industry must continue to innovate to appeal to the next generation of consumers' appetite for fast, personalized and digital-first customer experiences.

Let's get creative and think of new ways to reach these younger markets and close generational coverage gaps.

KEY TAKEAWAYS:

--Due to quantum computers' ability to solve problems like prime number factoring, which is used to protect internet communications, this technology poses a significant threat to the security of traditional cryptographic systems.

--Insurers must not only switch as quickly as possible to encryption algorithms that are impervious to quantum computing but must develop cryptographic agility, which allows them to switch encryption methods and algorithms as needed.

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As the world becomes increasingly reliant on connected technology, the threat of cyberattacks and data breaches continues to grow. These breaches can have significant financial and reputational impacts on businesses and organizations, and insurance companies have stepped in to offer protection against these risks.

The impact of security breaches can be severe, not only for the affected company and its customers but also for their insurers, investors and shareholders. The Firewall Times report on data breaches shows several high-profile data breaches at Discord, T-Mobile, Yum Brands and Uber, among others, just in recent months. The T-Mobile breach exposed personal information of 37 million customers. Past historic breaches where hackers gained access to sensitive information such as Social Security numbers, birth dates and addresses of over 100 million Americans had a significant impact on the insurance industry, with insurers facing payouts in the range of half a billion dollars.

These examples highlight the critical role insurance companies play in covering the costs of cyberattacks. The examples also underscore the need for insurance companies to keep up with the ever-changing nature of cyber threats and invest in new technologies to protect their customers. And a new form of computing is causing concern.

Quantum computers are a new breed with the capability to break the current public key encryption we all use. Insurance companies must evaluate this technology and its risks to continue providing effective cybersecurity protection coverage for themselves and their customers.

Quantum computing is a revolutionary technology that promises to solve certain complex problems that are impossible for classical computers. However, due to the ability to solve problems like prime number factoring, which is used to protect internet communications, this technology poses a significant threat to the security of traditional cryptographic systems. As quantum computing continues to advance, businesses and governments must protect against potential security threats.

The National Institute of Standards and Technology (NIST) is leading the charge in protecting against quantum computing threats. NIST is responsible for setting standards and guidelines for cryptographic systems used by the federal government and businesses. In 2016, NIST launched a competition to develop quantum-resistant cryptographic algorithms, known as post-quantum cryptography (PQC). In 2019, NIST announced the finalists for its PQC competition, which included 17 algorithms. These algorithms underwent further testing and analysis to determine their effectiveness and suitability for widespread adoption. In 2022, NIST announced four finalists, with four more being researched. As of December 2022, U.S. federal agencies are now required to shift to post-quantum security, with their private-sector vendors likely following suit.

PQC algorithms are designed to resist attacks by quantum computers. These algorithms use mathematical problems that are believed to be computationally difficult for both classical and quantum computers to solve, providing an extra layer of protection for sensitive data.

A critical component for post-quantum cybersecurity solutions is cryptographic agility, which involves the ability to switch encryption methods and PQC algorithms as needed. By adopting a framework for post-quantum cryptography and cryptographic agility for themselves and their customers, insurance companies can stay ahead of the curve and quickly adopt new encryption methods as they are developed. This approach can help to mitigate the risks of quantum computing and ensure that customer data remains secure.

See also: Quantum Technologies, Cybersecurity and the Change Ahead

Insurance companies have not developed products that provide risk protection against cyber security attacks specifically from quantum computing. With "steal now, decrypt later" (where cyber thieves hack into systems and steal data that they can't decrypt now but will decrypt later once they have a powerful enough classical or quantum computer) businesses might already be vulnerable, and the loss might not be adequately factored into the lifetime revenue of cyber products. However, some insurance companies are taking the lead by getting involved in quantum computing through quantum accelerators and innovative startups. This method has let many industry leaders dip their toe into quantum computing technology and understand the future opportunities and risks of this new technology.

Startups that have graduated from these accelerators have already developed post-quantum crypto-agile products that can be easily integrated into existing systems. One example is QuSecure. Their Post-Quantum agile products are already being evaluated in government agencies. These products provide secure communications and data protection resistant to attacks by quantum computers. By following the direction NIST and U.S. government agencies are taking and bringing these necessary risk management products and technology solutions to their customers, insurance companies can improve their own future bottom line and their customers' reputations by reducing quantum cyberattacks that happen down the road.

Insurance companies have a critical role to play in protecting businesses and organizations against the financial and reputational damage caused by cyberattacks and data breaches. However, as the threat landscape evolves, insurance companies must stay ahead of the curve by adopting new technologies and solutions. They can go a step further by connecting with existing companies providing post-quantum cryptography and cryptographic agility. By embracing these technologies, insurance companies can improve their bottom line by setting security policies and standards for their customers and ensure the security of their customers' data even if it gets in the hands of a nation state-sponsored quantum hacker today.