As technology continues to reshape industries, carriers are at a tipping point, where the integration of AI can revolutionize claims management.

We see AI moving beyond discrete tasks to workflow management and strategic advisory, helping business leaders make better decisions. These AI applications will likely result in greater fluidity between humans and machines, delivering personalization to consumers at scale. 

In a recent Forrester Best Practice Report, "Identify Top AI Opportunities in Property and Casualty Insurance," analysts provide a high-level operational framework for carriers to think about expanding how they leverage advanced AI. Forrester says leveraging AI to automate decision-making for specific touchpoints in the claims process can be a great place to start. 

We are observing this in our own work with insurers and see how AI can ultimately underpin the claims journey.

The Imperative of Automated Decision-Making

Claims management, while the heart of any insurance operation, still largely relies on manual procedures, resulting in prolonged processing times, human errors and, often, customer frustration.

AI is beginning to address these issues, automating vehicle damage estimates and offering real-time reinspection predictions, cutting cycle time, improving consumer experiences and using scarce labor resources more efficiently. By using AI algorithms to analyze incoming claims data, carriers quickly assess the validity of claims, detect potential fraud and determine suitable payouts. Policyholders receive the assistance they need precisely when they need it. 

See also: A Secret Weapon Against Claims Inflation

Moving Toward Deeper Integration of AI

AI in claims management will go far beyond automating specific decisions and routing them to the appropriate person, place or channel. AI is beginning to unify and transform each experience in the process, the goal of which is to create a streamlined, customer-centric journey that understands how humans and automation can work together. 

AI-powered chatbots and virtual assistants are already capable of guiding policyholders through the claims reporting process. These tools can provide real-time assistance, answer frequently asked questions and collect necessary information in a conversational manner. The tools reduce the friction often associated with the claims reporting process during a stressful time.

AI-driven image analysis can quickly assess damage and accident detail through submitted photos, videos, telematics and descriptions. It also enables seamless handoffs to casualty and subrogation claims managers.

Moreover, AI's predictive capabilities can forecast the likelihood of claims becoming contentious or litigious. By identifying potential points of dispute early on, insurers can initiate resolution processes, ensuring smoother interactions and fostering goodwill with policyholders.

Enhancing Customer Engagement and Satisfaction

AI isn't just about operational efficiency ––  it also lets insurers tailor their communication strategies to individual policyholders, enhancing engagement and satisfaction. 

For instance, AI algorithms can analyze historical customer data to anticipate a claimant's preferred communication channel and language and can detect the level of urgency. The insights allow for timely and relevant interactions that demonstrate empathy and understanding.

AI-powered data analysis can also provide insights into common pain points in the claims process, allowing for continuous improvement.

Advancement Driven by AI

Advancing AI is introducing discussion on new strategies for implementing robust data protection measures, ensuring the explainability of AI decisions and establishing clear channels for policyholders and claimants to voice their questions and concerns.

CCC’s 2023 AI Adoption Report revealed a 60% year-over-year increase in the application of advanced AI for claims processing, with more than 14 million unique claims having been processed through 2022 using a computer vision AI solution. 

The growth in AI use was across the resolution process. The number of claims processed using four or more AI applications has more than doubled, year-over year, proving AI’s capability to drive more end-to-end decisions across the entire claims management experience.

The Industry Is Ready

With increasing complexity in vehicle technology, labor shortages, inflation and more, managing insurance claims is quickly outpacing the capabilities of human cognition alone. And consumer expectations for their experience with insurance providers continue to rise. 

Future AI models will more thoroughly leverage existing and expanded connections across providers, creating more intelligent, straight-through experiences across every aspect of the claims and repair resolution process.

We’re already seeing this. Often, AI can auto-generate a complete line-level repair estimate in seconds. This was unheard of a few short years ago.

It’s incumbent on P&C insurance businesses to consider the potential of this technology.

KEY TAKEAWAYS:

--Insurers often don't fully load their costs, so they miscalculate the "I" (investment) in ROI.

--Companies also need to take a sophisticated look at all their potential returns: on the loss ratio, on retention, on sales and marketing, on the expense ratio, on ratings and on any costs that a new initiative will replace.

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I’m fortunate to be constantly engaging with established insurance carriers that are seeking to incorporate technology into their product offerings. Rightly, most carriers seek to understand the potential return on investment (ROI), or the cost-benefit, of new technologies such as our platform, prior to signing contracts and implementing. This is where conversations can get really exciting. However, as a former investment banker and CFO, I can confidently say that the industry’s traditional assessments of “returns” are not suited to the insurance company of the future.

We need to redefine ROI for insurance companies.

Historically, the entire ROI discussion has revolved around reduction of loss – i.e., frequency or severity. This makes sense because insurance companies are broadly run by actuaries, and this is their foundation. I am not here to poke holes in actuarial analytics, nor am I suggesting these concepts get pushed aside. What I am saying, however, is that this is far too narrow -- and there is much more to it.

When GE considered the ROI of a new jet engine factory, they didn’t try to justify the ROI of the loading dock out back. They understood that a loading dock (with a certain throughput) is needed to accept delivery of all the components of the engines that are to be built inside and sold to airlines for a profit. Similarly, the ROI for front-end data gathering or customer engagement tools that enable an improved customer relationship and increased interactions with insureds are necessary to deliver preventative devices, or provide advice, or drive awareness, etc. So, carriers must ask whether this is a stand-alone capability to be evaluated separately or an enabler of the larger prevention program that is better analyzed holistically.

If I were CFO of an insurance carrier today, I would be looking at the following:

First off: I would fully load my costs. I need to completely understand my denominator for my ROI (“I” = Investment). There is the obvious contracted cost of the solution, device or service. Then there might be technology implementation and integration costs. (Our upfront integration is de minimis, so that one is easy for us.) Next, the new service or solution needs to be deployed -- properly and effectively. This requires marketing and communication with insureds and prospects.

There are challenges:

• carriers often have email addresses for only 15% to 30% of their customers!
• carriers historically stink at communicating with insureds,
• communications often require a level of coordination with their agent network, and
• rigid, legacy or third-party platforms can pose challenges when a carrier tries to implement changes.

Add in any regulatory or filing requirements, or any incentives -- shared or otherwise -- needed to drive adoption, and you will be looking at a fully loaded cost to implement a new program.

Now the fun part! Creating a clear view on reasonable, expected “returns” can (in our case) compel a finance team to consider six key areas:

1. Loss Ratio Impact - Data & Analytics Value
2. Retention Rate Impact - Net Promoter Score Improvement
3. Sales & Marketing Impact - Selling & Ecosystem Monetization
4. Expense Ratio Impact - Efficiency Improvement
5. Overall Rating Impact - Innovation, Improvement in Reinsurance Costs
6. Any Replacement or Offsetting of an Existing Cost

See also: The Promise of Predictive Models

First: Loss ratio

A large part of ROI analysis revolves around the impact on loss ratio – reduction in frequency and severity of claims – over time. I won’t spend too much time here because this is the core competence of insurance carriers.

A corollary to this is: What are new sources of data and analytics worth that help improve the accuracy of rating and pricing of risk? Carriers love data, and new sources of data and analytics are immensely valuable. But how should carriers value new sources of data?

Our analytics, for example, provide insights into homeowner behaviors (e.g., who is most risky, who is safer, who is engaged with the home, etc.) and certain property conditions, features and attributes (who has braided metal hose, who has GFCI outlets installed, who has an emergency plan for their family, etc). This is new and differentiated information. Together, we work toward establishing actuarial evidence and quantifying/correlating to the impact on loss experience.

Second: Customer retention

The retention rate, typically 86% to 92% for homeowner carriers, is a critical metric for insurance companies. To assess retention rate impact, carriers must understand, “How much value does XYZ technology (or service, or solution) provide to our insureds?”

A “retained” customer is one less customer that needs to be “acquired.” However, do carriers really know their customer acquisition cost (CAC)? My suspicion is that most carriers do not, because they are not fully loading their expenses, and often these costs are shared with distribution partners. CAC for insurance companies has been estimated at $750 to $1,000, and this number is likely increasing. Importantly, the impact of this understatement of CAC is that carriers would undervalue new tools that enable customer acquisition.

In the same way, do carriers really know their customer lifetime value (CLV)? In a world where customers are arguably becoming less “sticky,” insurance companies must reassess the value of retaining a certain customer (or type of customer) or the cost or impact of losing one.

How about brand impact from the new initiative? What is the ROI of an NPS point? Of increased brand awareness in a target market? Of brand loyalty? What is the value of a happy or satisfied customer? To begin to assess this, carriers will need to first think more about their brand in the marketplace, potential threats and opportunities. Many carriers are also grappling with their own role in representing and protecting their brand in the eyes and minds of consumers, versus turning again to their agent network to represent their brand publicly and letting the brand speak through service and claims experience.

Third: What is the value of facilitating cross-sell/up-sell opportunities?

This one is particularly tricky for carriers because few have assessed the value of new (direct) digital distribution channels.

Fourth: Expense ratio and efficiency

What is the impact on efficiency? Carriers have many different work streams and processes: quantifying impact and cost savings by improving cycle times, increasing processing accuracy, reducing cycles (such as absolute number/frequency of claims) and more. Improving the claims experience has a dual impact of improving the overall customer experience and likely drives NPS, while also shortening/streamlining the internal processes for the claims handling department. Win-Win.

Fifth: Providing a rating lift

What is the longer-term AM Best ratings impact of a new technology, service or initiative? Will a new technology be expected to improve the underlying business fundamentals, reduce risk profile and loss ratio over time, strengthen customer acquisition growth or drive retention rates?

AM Best began awarding rating points for innovation initiatives three years ago. What is the ROI on innovation? Or of being a learning organization? AM Best’s initiative was invaluable to the industry (my opinion) because it so strongly acknowledged -- and put a microscope on -- the critical importance of innovation and continuing evolution of the traditional insurance business model. The industry seems to have pushed back rather aggressively, unfortunately, at the ratings methodology. However, industry transformation is now clearly underway.

What is the reinsurance impact of improved rating? To enable this, we (and carrier partners) need to also educate the reinsurance industry (and brokers) on the benefits and effectiveness of insurtech solutions. We are doing this gradually, and the appreciation is growing. This will be a longer game.

See also: How to Deliver the ROI From AI

Sixth: Does the new technology or solution replace an existing cost already being incurred?

In our case, we provide top-tier digital content from nationally recognized experts – supplanting the need for our partners to source or create content to share with insureds to drive their own engagement, demonstrate a level of care and professionalism toward their insureds, run email campaigns/social outreach and maintain their brand awareness in the market.

Lastly, what is the ROI of standing still?

Risk analysis is the fundamental, core competence of the insurance industry – above all else. So why are two-thirds of insurance carriers not able to acknowledge the risk of standing still in a world that is increasingly, and rapidly, digitally transforming?

KEY TAKEAWAYS: 

--Insurance, like most industries, often sees a clash between the desire to be more efficient and the desire to provide a great experience for customers and employees. But there doesn't have to be a tradeoff.

--Rethinking how data is updated, for instance, can create great efficiencies for the insurer while providing a much better experience. Why make customers and employees update three policies with a single insurer when one update could flow into all three?

--The challenges to resolving the efficiency/experience paradox used to be technological but now boil down to having the right mindset.

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Broadly speaking, a paradox is a statement that leads to a‌ self-contradictory or illogical conclusion despite‌ valid reasoning from true premises.

For example, experience and efficiency should go hand-in-hand. In theory, greater efficiencies through automation free human capital to focus on creating better experiences. However, in most sectors, experience and efficiency can appear at odds. Improving one typically comes at the expense of the other. 

Take self-service checkouts in retail. While they are aimed at creating efficiencies for the supermarket and the shopper, it’s questionable whether they improved the consumer experience, certainly consistently. Equally, the early use of chatbots may have introduced cost efficiencies and economies of scale, but they often hurt service.

This efficiency/experience paradox often occurs when focusing on the two independently. When you focus only on one, you miss the opportunity to derive value from the other. 

Insurance, however, finds itself in an unusual position where experience and efficiency aren’t mutually exclusive but symbiotic. 

Improving Efficiency and Experience in Insurance

Look at transformation of claims handling. The work is traditionally seen as isolated from the business, and the transformation conceived and run by a team. But the efficiencies that can be gained from a data-driven model that's centered on the customer can get missed when addressing claims efficiencies in isolation. For example, when all customer data is up to date and automatically integrated into the claims experience, it becomes a far more intelligent capability.

The data integration immediately creates a greater focus on how the experience can benefit the customer. Policy details and changes in circumstances appear in real time when the claim is raised. There’s no need for policy changes to be a “change request” for the claims team to act on. Manifesting a product change is much more efficient in every customer interaction or experience throughout the business.

This works both ways. Consider a protection business that ensures changes in its customers’ lives are tracked and acted upon. Those updates can highlight a need to address changes in coverage, while also delivering sought-after efficiencies. For example, a customer moving to a new house creates an opportunity to reassess their coverage, build a deeper relationship and demonstrate a keenness to be of service.

Rather than running data-driven communications as a project or change request, you have a continuous and adapting relationship. This relationship makes sure every change in a customer's life is understood in the product context. 

From using open banking or employee records to identify changes in financial circumstances to reacting to a change of address, these aren't only new opportunities to create vastly better experiences, but they can also drive huge efficiencies. 

Automating data integration is in stark opposition to current customer experiences. A colleague recently told me they had three policies with a provider who couldn’t see them collectively and recognize that relationship. This inability made a simple address change a triplicate exercise.

Putting the insurer by the side of the customer, and completely changing the paradigm for the product and how the business works, can turn large and often costly business processes into continuous and seamless customer experience outcomes.

See also: Claims Leaders Face a Paradox

Organizational Change Is Essential

This type of holistic view is essential for today’s insurers, whose enterprise designs are having to shift in parallel with a need to massively increase their knowledge of the customer. Further, with customer expectations changing, regulatory demands increasing and rapidly evolving macro-environments forcing this transformation at pace, organizational change is needed to drive an insurer's ability to act on this shift in customer insight. 

This shift is about moving from the manufacturing era of efficiency and gaining administrative scale, to the ecosystem era of maximizing the value of a relationship. In this shift, there's a huge correlation between more efficient, automated and intelligent insurance businesses and those providing the best and differentiating experiences. 

It’s about shifting the time taken to see a change in risk through underwriting to the time when this materially changes what’s offered to the customer. Which is when it really counts. 

Take electric vehicles (EVs). Underwriters must adopt real-time changes in data regarding the risk to pricing models for these relatively new vehicles. The cost of repairs is only now being understood. 

An ability to factor in these changes currently might only force a change in price. Instead, acquiring a better understanding of ‌garages and repair networks' capability to fix the vehicle might significantly reduce the cost of a claim and remove the burden of raising prices -- while creating better, more seamless experiences for EV owners.

By bringing together often separate parts of the insurance offering and making sure the customer is never lost in the search for efficiency, and vice versa, this paradox can be turned into dramatically improved use cases for transformation.

Mindset Is Now the Biggest Obstacle to Change

At one time, not too long ago, making the shift was a technology challenge, but, with the right foundations, this is no longer the case. It is now a mindset challenge. 

IT and the insurance business are still not interwoven. The idea that the working model overall is akin to an agile software development approach seems way off. An enterprise design change is needed that makes sure the symmetry between efficiency and experience is clear and sits at the heart of change. 

It’s critical that things like fraud detection, decision making and any actions that need to be taken combine to deliver a seamless customer experience. No matter whether they are purchasing a policy, making a claim or exploring additional services. The result is a stress-free experience for “good actors” and makes sure “bad actors” are identified, exposed and dealt with.

See also: The Evolution of Frictionless Payments

Critical Factors for Success in Balancing Experience and Efficiency

Insurance is complex. However, that complexity isn’t predominantly in the product's core. It’s often in product-centric business architecture. As a result, ‌policy-based business design becomes a constraining factor in building new connected experiences for employees and customers that are easy to change and configure. 

The critical factors for transformation success must be predicated on a true sense of an enterprise design change. This is about transforming the business. 

This new age of insurance needs more efficient insurers building fully customer-centric operations that make the most of every customer experience through data-driven customer knowledge. 

Let’s have our cake and eat it!

The potential of offshore wind as a viable source of clean power for the energy transition is indisputable. Investment in the sector is growing rapidly around the world, the power capacity of installations is ramping up and technological innovations are proliferating – from multi-purpose windfarms and floating installations to next-generation connectivity and drone-based maintenance.

But developers and their insurers need to manage a range of risks to successfully scale offshore wind globally, among them prototypical technology, economic pressures, more extreme weather conditions, cable damage and collision perils, as well as environmental concerns. 

In its new report, A turning point for offshore wind, Allianz Commercial, as a leading insurer of renewable energy and low-carbon technology solutions, highlights growth opportunities, tech innovations, risk trends and loss patterns for the offshore wind industry as the sector prepares for global growth. 

China has overtaken Europe as biggest market

More than 99% of the total global offshore wind installation is in Europe and Asia-Pacific today, but the U.S. is investing heavily in this sector, and China has overtaken Europe as the world’s biggest market, with half of the world’s offshore wind installations in 2023 expected to be in the country. In 2022, 8.8GW of new offshore wind capacity was added to the grid, with global installed capacity reaching 64.3GW. Around 380GW of offshore capacity is expected to be added across 32 markets over the next 10 years, according to the Global Wind Energy Council.

While growth ambitions are huge, all is not clear sailing for developers, according to the report. Spiraling costs have halted major wind projects recently, and the industry is affected by inflation, capital expenses, rising interest rates and geopolitical instability. The cost of materials and vessel hire have risen, while the supply of materials and access to contractors remains challenging. Supply chain bottlenecks, lengthy permitting procedures and delays to grid connections are also exerting pressure. 

The scale and scope of the global offshore wind rollout is epic. It requires the expansion of manufacturing footprint, port facilities and infrastructure. And it needs to be fast-tracked by all stakeholders in a joint effort – financial institutions, corporates and governments. 

See also: September ITL Focus: Resilience and Sustainability

Cables top cause of claims 

Both the energy sector and the insurance industry have considerable expertise when it comes to managing the perils of offshore wind activities. In one of its largest offshore wind insurance markets, Germany and Central Eastern Europe, Allianz Commercial has seen 53% of offshore wind claims by value from 2014 to 2020 relate to cable damage, followed by turbine failure as the second major cause (20%). From the loss of entire cables during transport to the bending of cables during installation, cable losses have incurred multimillion-dollar losses in offshore wind as cable failure can potentially put a whole network of turbines out of commission. 

Cable risk is critical, and therefore the quality of service is vital. Contractors need to provide assurance that they have the required expertise to remedy incidents and that they can source replacement components quickly to contain losses incurred during downtime.  From an underwriting perspective, with subsea cabling work, insurers pay close attention to the type of cabling used, the kind of vessels involved, the communication between client and contractor and how often qualified risk engineers will make site visits to oversee proceedings.

Tech innovations breaking the mold

The sector has to carefully manage the deployment of emerging technologies at scale. Novel approaches include so-called "energy islands," which share power among grids and nations and multi-purpose wind farms that produce green hydrogen or house battery storage facilities. Pilot projects such as the Offshore Logistics Drones from German utility company EnBW explore the deployment of drones for the maintenance and repairs of turbines, reducing the reliance on helicopters and humans. While most offshore wind power is currently "fixed-bottom," the development of leading-edge floating wind technologies in deeper ocean waters is poised for commercialization. 

Managing the increasing size of wind turbines is another key challenge. In the last 20 years, they have nearly quadrupled in height – from around 70m to 260m – almost three times taller than the Statue of Liberty in New York. Rotor diameters have increased fivefold in the past 30 years. Wind turbines with capacities of 8 or 9MW are common, and newer models reach 14 to 18MW, with a wind farm project in Australia recently announcing plans to use 20MW turbines.

Availability of specialist vessels and collision incidents also pose challenges

Another pressing problem identified in the report is the availability of specialist vessels. A bigger fleet globally is needed that goes beyond Europe as a current primary location, including installation, jack-up and support vessels. Meanwhile, vessel collision with turbines and offshore infrastructure can also result in significant losses, with an uptick in incidents seen in recent years. Although, to date, these collisions have typically involved smaller vessels, often as a result of human error, there have also been a number of incidents involving larger vessels, an increasing concern given that 2,500 wind turbines are due to be installed in the North Sea alone before 2030.

See also: Managing New Age of Construction Risks

Navigating harsher environments

Although the offshore sector in Europe has significant expertise in managing operations in hazardous marine environments, as it expands around the world there will be new developments farther from shore in territories prone to different types of weather conditions and natural catastrophes. On the East Coast of the U.S. or Taiwan, for example, wind speeds and wave action will be much more significant. It remains to be seen whether climate change will heighten the risk, as rising sea surface temperatures can intensify the strength of hurricanes. 

Despite its invaluable contribution to the net-zero transition, the offshore wind industry needs to be mindful of responsible development and environmental stewardship, the Allianz report points out. The concerns include managing the impact on biodiversity and marine wildlife or the sourcing of required raw materials, such as rare earth elements or lithium.

Allianz is supporting some of the most exciting offshore developments, whether as an investor or insurer. In its recently launched Net-Zero Transition Plan, Allianz Commercial committed to revenue growth of 150% for renewable energy and low-carbon technology by 2030. In addition, Allianz committed to €20 billion in additional investments for climate and clean-tech solutions.

As an investor, the company is contributing to about 100 wind farm and green energy projects, such as Hollandse Kust Zuid in the Netherlands, He Dreiht (Germany) and NeuConnect (UK/Germany). Allianz Commercial provides insurance coverage solutions across all stages of offshore wind development, construction and operations and is the insurer of many developments, among them Revolution Wind (U.S.), Dogger Bank Wind Farm (U.K.), NeuConnect (U.K./Germany) and Jeonnam 1 (South Korea).

In an era defined by technological advancements, industries worldwide are harnessing the power of artificial intelligence (AI) to transform and enhance their operations. The insurance sector, known for its extensive web of paperwork and meticulous claims processing, is no exception. As insurers aim to expedite claims approvals and payouts while maintaining accuracy, the spotlight has turned toward emerging technologies.

Amid the buzz surrounding AI, an exploration of its practical applications and limitations becomes vital. To make substantial investments in AI technologies during a time of economic uncertainty, leaders need to be sure that any budget expenditure today can be backed up by tangible ROI in the not-so-distant future.

Looking at processes that have historically been manual and are draining resources is the best place to start when exploring the potential benefits of automation. 

Unveiling the Time-Efficiency Conundrum

Claims professionals invest a staggering 12% of their workdays navigating records retrieval. This totals nearly six weeks every year. Such a burden not only complicates the lives of attorneys, insurance brokers and claims experts but also prolongs the resolution of settlements for those directly affected.

It is against this backdrop that the marriage of insurance and AI has gained momentum as a possible way to reduce fraud, accelerate settlements and revolutionize the industry.

Pioneering Efficient Claims Approvals Through Technology Integration

The journey toward seamless and prompt claims approvals requires both technology and human oversight. Insurers are exploring how emerging technologies can not only reduce processing times but also enhance the accuracy of assessments.

The pivotal role of human oversight cannot be overstated, particularly in quality control. Even as AI streamlines processes, human experts remain integral in guaranteeing the precision and fairness of claims evaluations. By combining the speed of AI with the discernment of human intelligence, insurers forge a path toward efficient yet responsible claims processing.

See also: Embedded Artificial Intelligence (AI) in Financial Services

AI's Investigative Prowess: Countering Fraudulent Claims

One of AI's most lauded capabilities lies in its ability to uncover fraudulent activities that may otherwise evade scrutiny. This is where techniques like medical and social canvassing come into play, acting as deterrents against fraudulent claims by scanning geographic locations for medical treatment and retrieving social information to strengthen cases. 

Innovation within the insurance landscape extends beyond immediate efficiency gains. The rise of generative AI introduces a new dimension to claims processing, possibly transforming medical canvassing, claims assessments and more. As this technology evolves, insurers, lawyers, employers and patients are expected to experience a shift in the way claims are handled.

Navigating the Uncertain Terrain Ahead

In a world where every moment matters in the aftermath of an insurable event, the insurance industry finds itself at a crossroads. The convergence of AI and human intelligence offers the potential to streamline claims processing, detect fraud and rewrite the narrative of settlements. However, this journey must be embarked upon with eyes wide open – acknowledging both the promises and the pitfalls that come with integrating emerging technologies into a domain built on trust and responsibility.

KEY TAKEAWAY:

--Continuous Improvement in the production of digital goods and services is coming fast. What’s really going on in that sea of cubicles? What’s really working in work from home? As there is one best way to mount a transmission or pick a pallet, there is one best way to underwrite an insurance policy and adjust a claim. Continuous Improvement is about empowering people with the right tools to find that way.

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I recently visited Walmart’s distribution facility in Brooksville, Florida, which features end-to-end automation. Driverless forklifts are a weird sight.  

The facility was built in ’97, so people have lived through the cultural transformation from manual to automated. Ask hourly workers what they think, and many like monitoring screens and robots from a stationary position, while others loathe the new setup for the lack of physical activity and 20 pounds they’ve gained. Management values reduced process variability and lower error rates. And Walmart executives and shareholders love 2x to 3x the throughput on the same square footage and employee base. 

A fourth constituency absent the day of my visit--customers--are driving all this. Customers unrelentingly demand more selection, faster delivery and lower prices, and 2x to 3x productivity gains contribute to all three. The demand is: “Deliver productivity, or else.” There’s always Amazon.

Walmart’s focus isn’t on automation, per se, but Continuous Improvement, incorporating a blend of best practices from Lean, Six Sigma and Total Quality Management (TQM) that were pioneered in manufacturing. As you can monitor, for example, a car being built along an assembly line, you can monitor boxes and packages moving through a logistics operation without the need to ask a worker what they’re doing or thinking. 

Continuous Improvement in the production of digital goods and services is coming, and coming fast. What’s really going on in that sea of cubicles? What’s really working in work from home? Process intelligence tools, such as ours at Skan, let operations leaders “see” digital products being built. This new visibility enables statistical process control techniques to eliminate waste, improve products and drive defect rates toward zero.

As there is one best way to mount a transmission or pick a pallet, there is one best way to underwrite an insurance policy and adjust a claim. Continuous Improvement is about empowering people with the right tools to find that way. Automation can eventually execute the path without fail—but process optimization and standardization come first.

What’s going on here in insurance, with serious financial, social and medical inflation, feels like more than just another cycle. Insurance leaders find themselves in a new world where linear cost management techniques, such as budget cuts, fail to meet matrixed operational challenges and, worse, sap employee morale.

Budget cuts tend to imply people are part of the problem. A culture of Continuous Improvement believes people, working in concert, are the source of all solutions.  

We’re all drawn to quick fixes, magic pills (and shots) and fad diets. Continuous Improvement represents a lifestyle change with guaranteed positive results—even if they take time. As the saying goes, “A culture of Continuous Improvement is the best long-term solution to all short-term problems.”

If you look at news reports of mass shootings over the past 20 years, it can seem no place is safe from the possibility of an armed assailant. Tragic attacks have taken place in houses of worship, entertainment venues, places of business, movie theaters and other places where people gather.

The result is people are scared, and they feel someone should do something about it. According to Church Mutual’s new “Risk Radar Report — Safety in America,” more than half (54%) of Americans say their top safety concern while attending events is an armed intruder or physical violence. That percentage has increased from 45% in Church Mutual’s first survey in 2019. Meanwhile, only 27% of those surveyed feel their organization is prepared for an armed intruder event.

Insureds are looking for direction to help make their facilities more secure. Here are some ways they can do that:

1. Perform a security self-assessment.

Before taking action, organizations need to know just how secure their facility is. Plenty of tools are available to do just that, including Church Mutual’s security self-assessment, which provides an easy-to-follow checklist of steps facilities should take to prepare for the possibility of an armed intruder.

Some of the most important steps organizations can take include:

• Making sure their grounds are well-lit.
• Conducting background checks on all people who are involved with security functions or money handling.
• Partnering with a local law enforcement agency to identify security concerns.
• Creating a key control policy so those who leave the organization do not retain their keys. Also, anyone who knows the location of the safe and key should undergo a background check.
• Controlling access to entrances during events.

2. Conduct an armed intruder tabletop drill. 

Planning a full-scale armed intruder drill can be time-consuming and expensive. But there is a much easier, quicker way to determine whether an organization truly is prepared for such an incident—a tabletop drill.

During the drill, the organization gathers a group of no more than 15 people in a room. None of the people should have any prior knowledge of the scenario being used. After reading the scenario, the group can discuss how they might handle the situation, and who should take charge.

Church Mutual provides an armed intruder tabletop drill worksheet your customers can use. Of course, they can change individual details as needed, but this worksheet gives them a good start on preparing this exercise.

3. Decide on an approach to security. 

Security teams come in all shapes and sizes and often depend on the size of the organization. When a customer develops a strategy for security, they should take into account the different risk levels associated.

• Low risk – Unarmed volunteer security team: In this option, you organize volunteers or employees and ask them to watch for suspicious behavior, de-escalate non-violent incidents and alert people gathering in your facilities to danger. This involves minimal exposure to risk and liability.
• Medium risk – Hired local law enforcement or private security contractors: These options provide highly trained security experienced in handling a weapon in high-intensity situations, while still following reasonable use of force standards. When hiring private contractors, your contract must ensure the contractor will assume liability for their actions. You must also thoroughly vet the contractor to verify training standards comply with applicable laws.
• High risk – Armed volunteer security team: This option typically results in the greatest risk, as the organization will generally bear responsibility and liability for the actions of the team. A significant amount of planning, training and management is required.

Any organization that selects an armed security option must contact its insurer to discuss its plans and ensure the appropriate insurance coverages are in place.

4. Look for warning signs of possible violence. 

Not every armed intruder incident comes out of the blue. A potential armed intruder may tell others about their plans ahead of time or exhibit some of the classic warning signs of violence, including these categories:

• Behavioral – Acts of insubordination, poor hygiene or appearance and possession of firearms.
• Psychological – Having delusional thoughts, suffering from a mood disorder and having violent fantasies.
• Social – Name calling, making threatening statements on social media and using abusive language.
• Urgent – Displaying a weapon, stalking or cyber-stalking and destroying property. 

An organization can monitor social media sites and enable anonymous reporting on its website. That way, if a person does broadcast their intentions, the organization is more likely to find out about them.

Preparing for an armed intruder is not easy or comfortable, but it is necessary. Every organization should have a plan in place.

KEY TAKEAWAYS:

--Irresponsible competition, often driven by a desire to boost market share, is forcing prices down and softening terms and conditions for cyber policies. A softening market seems like good news for insurance buyers but inevitably leads to volatility in insurance rates and constrictions in coverage. This kind of rubber-band effect, with pricing that stretches and snaps back, destabilizes the market and removes risk transfer options for buyers and their risk advisers.

--What buyers, as well as carriers and brokers, should work toward is stability in rates and certainty on coverage, through a focus on improving cyber hygiene and increasing resilience.

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The impact of supply and demand on product pricing is a well-established economic principle – when supplies are high and demand is reduced, prices tend to fall. When it comes to cyber insurance coverage, this principle also applies, but there are good reasons that it shouldn’t.

Irresponsible competition, often driven by a desire to boost market share, is forcing prices down and softening terms and conditions for cyber policies. This is classic behavior that causes global market cycles in property and casualty insurance, and it has played out repeatedly in the past three decades. But this behavior ignores a bigger problem: Cyber is not a cyclical risk.

Businesses and the insurance industry find themselves at a turning point in the evolution of cyber risk management. What happens next will depend on how clearly underwriters, brokers and insurance buyers around the world see the risk that cyber events pose, and how committed they are to building resilience against this threat, thus ensuring a stable supply of coverage for the long term.

Why this turning point matters now

A softening market, in which prices fall and coverage terms relax, seems like good news for insurance buyers. This kind of market is especially welcomed by organizations that have experienced a market correction, which occurred in cyber insurance in 2020 and 2021 as ransomware attacks surged and loss ratios soared. Rate relief and easy capacity after a few years of steep increases can seem like a gift to buyers.

Unfortunately, the joy of short-term gain is almost always followed by longer-term pain. A soft market ultimately hurts policyholders because it inevitably leads to volatility in insurance rates and constrictions in coverage. This kind of rubber-band effect, with pricing that stretches and snaps back, destabilizes the market and removes risk transfer options for buyers and their risk advisers. It also isn’t limited to only one geography; this cyclical activity occurs in the U.S., Canada, the United Kingdom and across Europe.

Insurance pricing is intended to reflect the risks insurers assume in offering coverage. When risk is accurately priced, buyers gain valuable protection and insurers can achieve profit, which helps to keep the marketplace stable. It’s difficult for risk managers and cybersecurity professionals to explain to their executive teams why insurance costs and availability go up and down, and even more challenging to budget for that volatility.

In a world of cyber risk, stability and certainty are better for everyone. But irresponsible pricing and a lack of underwriting discipline undermine stability. Cyber risk remains intense, as the NetDiligence Cyber Claims Study 2022 and Resilience’s own 2022 Claims Report demonstrate. Since 2018, NetDiligence has found that the average recovery expense following a ransomware or malware attack has steadily increased for both small and medium-size enterprises (SMEs) as well as large companies.

An analysis of claims received by Resilience shows three major trends carrying forward from 2022 into 2023: the resurgence of ransomware; inadequate attention to common critical points of failure that lead to loss, such as phishing; and an increased focus on financial transfer fraud and third-party vendors instead of extortion-based cybercrime. In fact, Resilience saw a 300% increase in ransomware claims from the last two quarters of 2022 to the first quarter of 2023. 

If cyber risk is not declining, why should underwriters weaken their pricing, terms and conditions? The risk landscape in cyber suggests they should be doing the opposite.

See also: Cybersecurity Standards for Insureds Are a Must

What the industry should do next

When the insurance underwriters, brokers and the customers they serve arrive at an inflection point, they face a choice. They can decide to think and act strategically or opt for short-term results that probably won’t last. What the industry should do next, therefore, is take the following steps:

• Reassess cyber risks and exposures. Some organizations have greatly improved their cybersecurity and thus enhanced their risk profile, so they might well merit a reduction in rates or access to greater coverage limits.
• Maintain responsible pricing, terms and conditions that align with the customer’s risk. This approach puts the client’s interest ahead of short-term gains, which can lead to strong, long-term business relationships.
• Focus on building cyber resilience. Effective cyber resilience requires quantifying an organization’s cyber risk and then implementing a combination of good cyber hygiene, protection and insurance that aligns to the risk. Connecting organizational silos in finance and security is foundational to building effective long-term resilience to cyber threats.
• Change the mindset about cyber exposure. The cyber insurance marketplace has the tools, talent and data to shift its mindset from “price and pay” incident claims to “predict and prevent” cyber events. Resilience’s 2022 Claims Report found that despite reports of new threat actors and vulnerabilities, practicing cybersecurity fundamentals with cyber resilience as an investment strategy leads to significantly better outcomes for organizations and their insurers.

The current inflection point in cyber doesn’t have to destabilize the risk transfer market. Instead, it can be a turning point for greater partnerships – especially cooperation and collaboration between government and private-sector entities. It can be an opportunity to improve customer engagement and value and ease capacity restraints that deprive organizations of adequate coverage.

Most of all, this turning point can lead to a deeper commitment to cyber resilience.

The flood insurance crisis in the U.S., which has been described as a "slow-moving hurricane," has made landfall, hitting Louisiana especially hard.

Rising premiums, to reflect soaring claims from natural catastrophes, are now hitting consumers hard enough that Louisiana and nine other states have sued to block increases in national flood insurance rates. Those increases are limited to "only" 18% a year but could eventually total more than 700% for many homeowners and businesses and cause an exodus from southern Louisiana, according to testimony at a hearing last week. 

Politicians can be expected to use regulation to protect consumers -- also known as voters -- as long as possible, but, beyond some short-term issues, insurers can't be forced to lose money. Government officials may also decide to subsidize homeowners' insurance policies, but that isn't a long-term strategy, either. Those taxpayers whose flood insurance premiums stay the same or even decline will resist subsidizing those who choose to live with greater risks.

Something has to give. We may finally see consumers start to change their behaviors, either leaving risky areas or fortifying their homes and businesses.  

The stats show why push has finally come to shove. Swiss Re reports, "From 2017 onwards, average annual insured losses from natural catastrophes have been over USD 110 billion, more than double the average of USD 52 billion over the previous five-year period.... In the coming decade, hazard intensification will likely play a bigger role as well as higher loss frequency and severity due to climate change." The number of $1 billion natural disasters (adjusted for inflation) has increased steadily each decade, from 3.3 a year in the 1980s, to 5.7 in the 1990s, 6.7 in the 2000s, 13.1 in the 2010s and 20 a year thus far in the 2020s. 

As a result, according to the New Orleans Times-Picayune, "The average Louisiana community is projected to see 134% increases for single-family homes, but communities especially prone to flooding will see much steeper hikes. One ZIP code in Plaquemines Parish is projected to see the highest increase in the nation, at 1,098%."

Those kinds of increases will get your attention.

An article in the Atlantic does a nice job of describing the tension that results. The headline is: "What Your Insurer Is Trying to Tell You About Climate Change." The subhead is even more to the point: "Insurers are trying to send a message. The government is trying to suppress it."

The article says the federal government generally discourages using its aid "to fundamentally alter how individuals behave, let alone how local and state governments function. In addition, after the largest disasters, Congress will typically approve multibillion-dollar relief funds, as it recently did after Hurricane Ian in Florida.... Protecting people in harm’s way is, I would argue, an essential part of the government’s job. But public officials are also shirking their responsibility to not leave communities vulnerable again and again."

In the short to medium term, insurers will catch loads of grief for raising premiums and canceling policies, and regulators and legislators may not be a lot of help. In California, for instance, legislators recently tried to tackle two obvious problems that have caused many insurers to stop writing homeowners insurance in the state -- insurers aren't allowed to include the cost of the reinsurance they purchase and can only use historical data for underwriting even as natural catastrophes increase in frequency and intensity -- but couldn't agree on a solution before adjourning until January.

In the long run, I think the real consequences will be borne by consumers and, to a lesser extent, taxpayers (groups that obviously overlap quite a bit). Insurers have to be able to price policies based on the risk involved, so consumers either need to reduce the risk or government needs to subsidize those risks if premiums are to remain affordable.

Consumers, in particular, can do a lot to reduce risk -- but not inexpensively. With new construction, it's fairly easy to avoid high-risk areas or to build on higher ground, to raise the elevation of the living quarters in a house, to build with materials that resist wildfire and high winds, to keep flammable landscaping farther from structures and so on. But the vast majority of homes, apartments and office buildings aren't new. They're decades old, often many decades old. So retrofitting involves a complicated calculation based on the cost and on the benefits from the reduction in risk.

Where insurers can help is by providing information. Insurers know a lot about risk, but, at the moment, they give policyholders pretty blunt feedback. We offer to renew, or we won't renew. We will renew, but with a premium increase of XX%. 

To the extent possible, insurers should tell policyholders, "We aren't renewing because...." Better yet, "Your premium is increasing XX% because... but you can reduce that increase if you do X, Y and Z." 

The lead example in the piece in the Atlantic has expertise in environmental issues and took an extensive series of measures that meant her house near Yosemite National Park passed "defensive space" inspections recommended by the state fire department -- but Allstate still canceled her policy and didn't tell her why. 

Imagine if insurers could coach homeowners, and their communities, about specific things they could to reduce their risk and, in the process, lower premiums.

That wouldn't be a panacea. There will still be loads of short-term issues as consumers and their protectors in government try to minimize increases in premiums and as insurers pull out of markets or decline to renew policies, based on prudent business discipline. Some of the recommendations would cost more than consumers or taxpayers are willing to pay. But at least we could help consumers and governments understand the realities that we're all facing because of climate change and could help define a realistic future. 

Cheers,

Paul

KEY TAKEAWAY:

--An accident management expert can help expedite the collision claims management process to mitigate financial impacts, such as storage fees, secondary tows, rental costs and more.

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Managing the costs associated with an accident claim has never been more important, considering today’s challenging economic climate. Amid inflation, supply-chain disruptions and a labor shortage, auto insurers also face pressure from surging storage costs and an increasingly complex process of matching vehicles needing repair with facilities that have both the capacity and the capability to fix them. These challenges result in higher costs for insurance carriers and lengthier wait times for policyholders. 

The unfortunate truth is that accident frequency and severity have been increasing over the past several years, driving up loss costs. The cost impact from this trend is even greater when policyholders delay reporting the loss to their carrier, and only 9% to 13% of policyholders report first notice of loss (FNOL) from the accident scene, according to Agero.

While some costs are unavoidable, ensuring that carriers have an active and efficient accident management program can help them save hundreds of dollars per claim and potentially cut days off a claim’s cycle time. Leveraging the assistance of specialized accident management experts can provide insight into how to improve efficiency and performance to reduce (or even eliminate) costs coming down the pike.

Let’s take a look at how an accident management expert can help improve claims management in the face of myriad industry challenges.

Navigating pitfalls and macro challenges 

First and foremost, an accident management expert can help expedite the collision claims management process to mitigate financial impacts, such as storage fees, secondary tows, rental costs and more. To lessen these impacts, an accident management expert focuses on the following three areas: 

1. Recovering the vehicle from the accident scene

Recovering the vehicle from the accident scene is critical to minimizing loss costs and expediting claims cycle times. However, reporting an accident to an insurer from the scene can be incredibly difficult for policyholders. The time immediately following an accident is particularly challenging, as drivers may have to manage multiple high-stress situations simultaneously. These include assessing damage to their vehicle and any other vehicles involved, triaging potential injuries and navigating what might be a dangerous situation. Given the potentially chaotic nature of the moments following accidents, it is not surprising that most drivers fail to notify their insurance carriers while still at the accident scene. The delay costs their carriers an extra $800 to $1,025, on average, per claim, according to Agero’s analysis of secondary tow costs from the first half of 2023.  

See also: 5 Ways Generative AI Will Transform Claims

2. Mitigating downstream costs

Unfortunately, capturing vehicles at the accident scene is not always an option, despite best efforts. As a result, insurers and policyholders assume the additional costs of storage and secondary tows that can increase claims by hundreds of dollars above the cost of simply performing one tow from the accident scene to the desired repair shop or salvage yard. Mitigating these downstream costs is where an accident management expert can make a meaningful difference.

An expert can recommend steps to streamline the FNOL process, such as by identifying and recommending a digital FNOL option for immediate accident reporting. Digital solutions can benefit both the insurer and the policyholder. For instance, mobile telematics can automatically detect and report a crash, saving insurers hundreds of dollars in loss costs and helping policyholders report their losses from the accident scene.

An accident management expert will manage their own curated network of towers to deliver quality service at a reasonable cost, especially when compared with inflated retail or police tow rates. As a bonus, an accident management expert can provide real-time updates so the policyholder isn’t left in the dark about when the tow truck will arrive.

3. Combatting body shop refusals

Body shop refusals have been a growing problem since the start of the pandemic, increasing by 187% in 2022 over the prior year, and are on track to increase an additional 34% in 2023 per Agero research. These refusals have resulted in additional tows because, once a vehicle is towed to a shop and refused, it must then be towed back to storage until another shop has availability. Each refusal results in additional tows back to storage and to the new repair destination. This leads to extended storage time and costs and increases the time that a policyholder is without their vehicle. 

An accident management expert can provide critical relief by working with insurers on how they interoperate with their body shops to mitigate these challenges and break the cycle of refusals. For instance, an accident management expert can help insurers analyze body shop refusal rates, identify regional trends and potentially manage direct repair program shops that are refusing vehicles in violation of their carrier agreements.

Findings may show that a few pre-dispatch confirmations by an insurance associate can help avoid a refusal. This information can inform best practices for confirming a shop’s capacity and determining which jobs they’re capable of repairing. As a result, agents can select the best body shop for the job and reduce the chances of a vehicle being refused, resulting in quicker repairs for the policyholder. 

See also: Insurtech Is at an Inflection Point

There’s never been a better time to partner with an accident management expert

An accident management expert can serve as a vital resource by helping to streamline the process, identify unknowns (such as the impact of rising primary tow rates) and foster collaboration among all parties.

The confluence of industry challenges from inflation and rising costs, labor and parts shortages and increased volume of accidents makes it incredibly difficult for insurers to independently address the impact these issues have on collision claims. However, by doing their part to keep costs down and wait times low, an accident management expert can help make these events more seamless for all parties involved.