The first time I really thought about wiring the world with sensors came in 2007, when I was speaking at a boutique conference right after -- to drop a name -- Mike Mullen. Mullen was at that point the chief naval officer and a few months later was named chairman of the Joint Chiefs of Staff.

He stayed for the full three days of the conference, and I kept bumping into him at the coffee bar, where I found him charming in a geeky, four-star-admiral kind of way. I've always appreciated it when famous/important people can laugh at themselves, and he told me he'd been surprised to learn that one of the perks of becoming chief naval officer was that then-President George W. Bush invited him to the National Prayer Breakfast, where Bono would speak. 

"Bono?" Mullen said he asked himself. "The singer who was married to Cher? Didn't he die in a skiing accident 10 years ago?"

Fortunately, Mullen wasn't there to talk music or pop culture. He wanted to lay out an idea he called the "1,000-ship navy." The U.S. has some 250 ships in active service at any given time, so he wasn't just describing a U.S. initiative. He was talking about finding a way for many of the world's navies to coordinate on issues of common interest and patrol the oceans in ways that no single navy could manage. He especially had his eye on the Somali pirates who were such a scourge at the time -- and a coalition of more than a dozen nations did, in fact, cooperate and greatly reduce piracy by 2010.

With those conversations as a starting point, I've followed a variety of attempts since then to wire the world with eyes and ears and all sorts of other sensors, some on the ground, some in the air, many in space. And we're making great progress.

Advances in data collection and in the supercomputers that make sense of all that data are helping us predict the paths and intensity of hurricanes and other types of extreme weather, which means governments and insurers can help protect people and their possessions. Advances will also help governments and insurers reduce fraud.

Way back in 1987, when I was young and invincible and spent 27 days sailing across the Atlantic in a 42-foot boat as a crew member in a race, we could only get a satellite fix on our position six times a day. We got so little weather information that we stumbled into 12 days of nearly constant storms and a stretch of 70-foot waves that caused such mayhem on the QEII that there were national news stories.

(Did I mention that I'd never sailed before? Or that I was at the helm in the middle of the darkest night imaginable for some of the worst of the storms, with the rain blowing so hard in my face that I couldn't have seen anything anyway? Digression.... I know....)

Today, my particular form of recklessness would barely be possible. There are so many satellites up there that they're in danger of running into each other. They will tell you precisely where you are at any moment, even in the middle of an ocean. They will also give you such good information on the weather that you won't, just to pick a situation at random, head straight toward the middle of a massive low-pressure system and spend 12 days getting beaten silly by storms in a little boat, 1,500 miles from the nearest land.

The processing of the data from all those satellites has maybe moved even faster than all the launches. The MIT Technology Review reports that, because of advancements in supercomputers, "Average errors in hurricane path predictions dropped from about 100 miles in 2005 to about 65 miles in 2020. The difference might seem small when storms can be hundreds of miles wide, but when it comes to predicting where the worst effects from a hurricane will hit, 'every little wiggle matters,'" according to the head of the Hurricane Specialist Unit at the National Hurricane Center. And two new supercomputers delivered to the National Weather Service at the end of 2021 should continue the progress. 

The article adds: "Understanding and predicting hurricanes’ intensity has been more challenging than predicting their paths, since the strength of a hurricane is driven by more local factors, like wind speed and temperature at the center of a storm. Still, intensity predictions have also started to improve in the past decade. Errors in the intensity forecast within 48 hours decreased by 20% to 30% between 2005 and 2020."

A more recent MIT Technology Review article says AI is even getting better at predicting the intensity of storms because it is being trained on the basics of the physics that determines intensity, not just on historical storm data. That sort of improvement might have, for instance, mitigated the disaster in Ft. Lauderdale, Florida, in April, when what was expected to be a routine thunderstorm lasted hours and dumped some 25 inches of rain. 

Getting better at predicting paths and intensity will at least allow for enough warning that residents can evacuate ahead of a major storm and will save lives. The improvements may eventually also allow for people to do a much better job of securing their homes before they leave.

The profusion of satellites is also making it far easier to track shipping, helping governments and insurers spot fraud. Some shippers have figured out how to turn off transponders that broadcast where their vessels are and use sophisticated technology to "spoof" their locations so they can appear to be in international waters while actually picking up Russian oil or delivering cargo to a pariah nation such as North Korea. But those ships can no longer hide from satellites. So governments can know when rogue shippers and their national sponsors are violating sanctions, and insurers can know when shippers are violating the terms of their policies.

The world is becoming so wired that military analysts are using earthquake sensors (underground, not in space, in this case) to track where Russian missiles and bombs are striking in Ukraine. As a result, the analysts not only have pictures that document the damage from the attacks but can show exactly when they occurred, based on the readings from dozens of earthquake sensors nearby -- information that could be useful in any war crimes trials.

We have a long way to go before the world is truly wired, but we've come a long way, with great benefits for governments, citizens and insurers -- and any 20-something kid reckless enough to decide it'd be cool to sail across an ocean.

Cheers,

Paul

 

 

 

 

 

KEY TAKEAWAY:

--Generative AI will automate processes, free up time for personalized care, help detect fraud, improve employee morale and make underwriting more accurate.

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The launch of generative artificial intelligence (AI) will be a seismic change in how the insurance sector operates, fast-tracking the industry toward intelligent, automated and customer-friendly claims management.  

What’s New About Generative AI and Why It Is So Important 

The first step to harnessing the power of generative AI in insurance is to understand this new capability and how it differs from current AI applications. The insurance sector is most familiar with discriminative AI and its ability to identify and classify patterns in existing data. Generative AI goes beyond organization and pattern recognition. Using deep learning techniques like neural networks, it creates content and conclusions; it not only learns patterns from large datasets but also generates new data that follow those patterns.

See also: 3 Key Uses for Generative AI

The Future With Generative AI

Here are five ways generative AI will transform claims and case management. 

1. Automating processes and providing answers to questions. Adjusters and nurses spend countless hours reading information, spotting action steps, communicating findings and documenting. With generative AI, this tedious process can be automated. Instead of humans reading, analyzing and updating, the technology can complete the research and analysis and can draft conclusions. Medical documents are summarized, keywords are extracted and issues that need attention are brought to the adjuster’s attention. Generative AI also allows users to query the system via keyboard or voice to get answers to particular questions. 
2. Transforming customer service and enabling person-centered care. Generative AI will transform the insurer/customer relationship in three ways:
   • Because adjusters and case managers will spend much less time analyzing and processing information, they will have more time with their customers, listening to and responding to their needs.
   • As adjusters and case managers focus more on patients and customers, this personal attention adds the “human touch” to an impersonal and confusing process.  People now expect higher personal regard and customer service in all transactions; this new type of experience meets those rising expectations for the insurance sector 
   • Generative AI provides intelligent, automated, up-to-date information to customers or injured workers at their convenience and from multiple devices. Intelligent chatbots can “think” through a conversation and respond appropriately as questions evolve. This capability provides the instant, accurate information that customers today have come to expect. 
3. Detecting fraud. Just as generative AI can identify potential problems in a developing claim or case, it can also spot anomalies that might indicate fraud. These danger signs can include excessive use of medical resources, inconsistent injury complaints or lengthy recovery periods with slight improvement. Generative AI can also find information about previous events or claims, incidents and pre-existing conditions that might lead to questions about a claim’s legitimacy. Adjusters, fraud investigators, healthcare providers and other stakeholders can then look further to determine what is going on. 
4. Increasing employee satisfaction. When insurance employees can spend less time handling objective, repeatable administrative tasks and more time on the people aspects of their jobs, job satisfaction will increase.  Re-engineering these jobs will lead to higher satisfaction, more attractive career paths for recruits and retention of valued employees.  
5. Lowering risk. Third-party administrators and their customers will achieve a significantly greater understanding of risk factors with generative AI algorithms. As a result, they can develop more accurate underwriting models and strategies for claims mitigation. They can then more accurately price insurance policies and reduce the risk of losses due to inadequate premiums. Conversely, they can avoid overcompensating for risk factors. 

The improvements powered by generative AI will transform claims management and the insurance world, revolutionizing how carriers, third-party administrators and medical management firms operate and the results they can deliver. 

In this new world, time-consuming, manual tasks are eliminated, information is automatically analyzed and presented with action steps and all stakeholders can interact with a humanized intelligence that makes the process easier and more personalized. All participants will benefit from higher efficiency and accuracy, reduced costs, improved employee retention and better customer service.

Implementing a multichannel approach to customer experience is a continuous project for the modernizing insurance firm. With offline interactions yet to rebound since the pandemic drove consumers online, "low-code" digital tools are simplifying CX management and providing consumers more self-service capabilities. 

Customer journeys are increasingly digitized, and low-code and AI-powered platforms can be deployed to spin up virtual agents and build websites and digital applications, among other uses. While the insurance industry has been slow to adopt self-service capabilities, potential improvements to digital experience beyond the more traditional live agent chat or phone call can place more power in the hands of customers.

Low-code tools require little technical expertise to use, allowing those without a development background to play a role in the rollout and improvement of digital experiences. Take, for example, a platform managing a customer-facing virtual agent. With a low-code platform on the back end, employees from different specialties and points across the customer journey can more directly provide input on the agent’s capabilities, subject matter expertise and position in overall CX. With technical barriers reduced, an enterprise can devote more resources to ideation and improvement.

Low-code customer service tools unlock more for firms than just saving time and resources. Maintaining customer satisfaction is a continual process, and seeking out channels that can quickly respond to and source feedback is most effective. With fewer barriers between ideation and deployment, firms can devote resources to improving customer journeys, which includes fine-tuning self-service capabilities.

See also: Unlocking the Power of 'No-Code'

Seeking Continuous Improvement to Empower Customers

Still, when it comes to adopting self-service, there is more that can be done. Improving a multichannel strategy requires a deeper examination of service flows, compiling details related to how frequently customers encounter barriers and pain points. And, despite the opportunities in self-service, research from Gartner underscores the need to allow for a smooth transition to a live support agent.

Taking a more responsive and agile approach to customer experience improvements, especially across channels, can feel like an immense undertaking. When using low-code platforms, where possible, teams can access additional resources without increasing their overhead, and develop more value for customers. If agents are saved time, their satisfaction with their roles can increase, just as a set of customers may be pleased to find an account-specific function that can now be done in less time and with more ways to do it.

Depending on the type of end-implementation, a low-code platform can also aid data collection, generating easy-to-digest suggestions to improve query resolution and real-time feedback on customer sentiment.

In the end, unique factors to both the contact center and the insurance industry require critical considerations to improve efficiency and customer satisfaction. A technical approach can be varied in its objectives, but placing emphasis on improving staff and customer experiences can enable more positive outcomes.

Low-code tools represent an opportunity to increase self-service functionality while encouraging firms to be more responsive in how CX is managed.

In the U.S. alone, a vehicle is stolen every 30 seconds, costing individual owners and businesses over $8 billion. With thieves also targeting individual parts such as catalytic converters, valuables stored in vehicles or on jobsites and expensive heavy equipment, fleet and field service organizations have been prime targets. 

These security concerns are plaguing mixed fleet organizations’ bottom lines at a time when they are already dealing with increasing fuel prices, a volatile supply chain and long-term inflation struggles, However, recent developments in tracking technology capabilities and artificial intelligence (AI)-powered software solutions have emerged as a formidable solution. 

Telematics-Driven Asset Management

Mixed fleet industries, those with assets including vehicles and equipment, can practice best-in-class asset management by using telematics to secure their assets, identify larger work trends and implement necessary solutions more quickly. 

Organizations in industries such as construction or landscaping often conduct field service work that requires taking lengthy transportation routes to large job sites. GPS tracking enables operators to pinpoint their assets' locations at all times, whether en route or left overnight on a jobsite. Further, GPS technologies can be used to install geofencing boundaries around work sites so organizations can be notified if an asset is removed. 

These tracking technologies significantly increase the likelihood of recovering stolen assets while sending a warning to potential thieves about the increasingly innovative and effective security capabilities their targets possess. 

Ensure Greater Accountability and Operational Efficiency

Tracking is only one-half of the telematics approach to asset management. Its broader capabilities are only realized when organizations also use robust, AI-driven software solutions.

For example, GPS tracking technologies can be paired with AI-powered cameras to automate review and evaluation, so managers only receive alerts when specific security and behavioral thresholds are exceeded. This process fast-tracks the traditionally time-consuming process of manually reviewing security footage. Most AI-powered security cameras are also capable of live streaming, enabling real-time monitoring of transportation routes and job sites. 

This risk identification system employs machine learning, computer vision and edge computing to automatically detect specified incidents. For drivers, these might include unsafe and inefficient processes such as idling or speeding violations. For equipment operators, these might include improperly storing equipment or obstructing cameras. As a result of greater accountability, mixed fleet organizations can improve their fuel efficiency, asset lifespan, operational efficiency and worker safety. 

See also: Quantum Technologies, Cybersecurity and the Change Ahead

Turning GPS-Tracked Data and Analytics Into Solutions

AI-powered telematics solutions are not limited to operation and field teams, as office employees can also be cued into the real-time processes and results stemming from transportation routes and job sites. Office workers can identify larger trends and implement necessary solutions, such as for inventory management and maintenance. 

Storing data and relevant insights in the cloud ensures easy and simple accessibility. While cloud-based accessibility isn’t anything new, when combined with available automated asset tracking it can help employees simplify the auditing process and streamline maintenance logging. As a result, mixed fleet organizations can safeguard sensitive information and ensure regulatory compliance. 

Integrating complex, automated GPS tracking software shows insurance providers that an organization is deeply committed to reducing potential risks concerning both physical and digital assets and can reduce premiums.  

Protecting Indispensable Assets Elevates All Aspects of the Business 

GPS tracking is simultaneously a simple, self-explanatory practice and a complex, tech-centered best practice for mixed fleet organizations of all sizes.

Fleet and field inefficiencies waste valuable time and money. Telematics technology enables organizations to harness AI-powered analytics to make data-driven decisions that secure inventory, extend asset lifespan and increase operational efficiency.

KEY TAKEAWAY:

--Surety bonds can broaden an agency's offerings, provide a steady revenue stream by deepening relationships with customers and keep rivals from gaining a foothold with the agency's clients.

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Surety bonds play a crucial role within the insurance industry, providing protection for taxpayers and governmental entities, opportunities for clients to engage in contracted or permitted work and profitable business for both carriers and agencies. Despite the significance and profitability of surety, however, there remains a misconception among some insurance professionals that providing surety services is neither a competitive advantage nor necessary for their business. This line of thought can be very costly.

With the global surety market projected to reach more than $25 billion by 2027, insurance professionals must consider integrating surety bonds into their client services to not only stay relevant in a rapidly changing industry but also expand their range of services to create additional revenue streams and appeal to a broader audience in need of surety bonds.

Surety services offer dual advantages that can enhance insurance business operations and create opportunities for growth for both an agency and its clients. Mostly required by separate entities within the government, construction or real estate sectors, surety bonds guarantee that a party will fulfill contractual or licensing obligations. Understanding the benefits of surety bonds will enable insurance professionals to understand their value and leverage surety to the benefit of all parties. 

Let us first look at how surety bonds can provide a profitable stream of business to carriers and agents:

Surety bonds can significantly enhance an agency's product offerings. By integrating surety services into their product offerings, agencies can differentiate themselves from competitors and attract new clientele. The nature of surety bonds is to provide protection for third parties who want to enter into a business relationship with companies. The bond protects those parties by providing a safeguard against potential default and financial risks they might suffer. This extension of services can help agencies attract new business by providing services with which other agencies may stumble.

Agencies can boost their revenue streams with surety. Surety bond premiums offer agencies a consistent and reliable income to improve their bottom line. By forging long-term relationships with clients with significant surety needs, such as construction businesses, real estate firms and mortgage brokers, not to mention the surety companies themselves, agencies will receive repeat business and referrals from loyal customers.

Agencies can become the go-to surety provider for business owners within their market, which often leads to more opportunities. When you help a client with something as potentially complex as a bond, they will come back for other lines! 

See also: Blockchain’s Future in Surety Industry

Surety bonds can mitigate competitive risks to the agency itself. Surety is an excellent way for agencies to provide value-added services to their existing clients, especially because it is an area that can be overlooked. Think that little $100 premium isn’t an opening to a client’s overall insurance program? If you neglect it, that may be all a competitor needs to get in the door and put your client’s business at risk. With the addition of surety services, insurance professionals have the opportunity to strengthen their reputation as a trusted and reliable insurance provider while further entrenching their relationship with clients. 

Additionally, surety bonds can be valuable to a client, offering benefits such as:

• Establishing trust and credibility among important stakeholders. By obtaining a surety bond, business owners demonstrate financial stability and reliability, assuring business partners and investors that they have the capacity to fulfill their contractual obligations. This trust-building element is invaluable in establishing long-term relationships and attracting additional business opportunities for the client.
• Increasing business opportunities with contractors and other parties that may require surety bonds for specific projects. Clients who possess surety bonds are better-positioned to seize such opportunities. This coverage allows clients to meet the necessary requirements, giving them a competitive edge in their respective markets. As a result, clients can bid on larger projects and attract more significant business ventures. 
• Removing compliance liability with entities that require licensing or permits for business activities. With a quality agency and surety on board to allow for fast procurement of bonds, clients can be sure that they are in compliance with governmental entities that statutorily require a bond for the activity in question. Moreover, the client will always be ready for the next opportunity, knowing that the bond is just a request away!

Surety bonds offer plentiful advantages for both insurance agencies and their clients. By incorporating surety services into their product rosters, insurance agencies can expand their business, increase revenue streams and safeguard their clients’ insurance programs. On the other hand, surety bonds help clients establish their credibility as business owners, create opportunities for expansion and protect their business from possible compliance risks.  

KEY TAKEAWAY:

--Here is a checklist for building resilience into operations to keep goods and staff safe.

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Supply chains in North America faced a spike of 13% in the volume of cargo theft between 2021 and 2022, with an increase in value of 16%, a trend that has continued in 2023. While electronic goods remain highly vulnerable, thieves are increasingly targeting household items and food and beverage, indicating that inflationary pressures are driving changes in criminal activity.

With a stolen commodity value of $107 million in 2022 – a significant increase on the $68 million reported in 2020 – cargo theft is clearly a risk that calls for heightened vigilance. As a global marine insurer, Allianz Commercial has seen an uptick in cargo theft incidents in recent years and particularly in transportation and logistics. In North America, the number of theft claims has increased for the past six years in a row in this area, with a 20% increase year-on-year in 2022 (169 claims). The total for 2023 is likely to surpass 2022.

Risk Management and Mitigation

It is essential for any company at risk of cargo theft to identify, manage and mitigate security threats using internal processes and external advice such as partnering with their insurer to implement risk mitigation practices. Here is a checklist for building resilience into operations to keep goods and staff safe.

Run a tight warehouse

A well-run warehouse and transportation operation is the first step toward tackling security hazards. This should include stringent security processes and procedures, security and loss prevention training and awareness programs and robust hiring practices for employees as well as third-party partners. Reduce the chance of a fraudulent pick-up by controlling access to key information and keeping drop-off locations as confidential as possible. Carry out internal and external security audits to determine where the strengths and vulnerabilities lie in your security practices.

See also: Emerging Risks for Shipping Industry

Secure facilities

Cargo warehouses and storage facilities should be equipped with the appropriate security measures, such as access control systems, surveillance cameras and monitor surveillance systems, including perimeter security, alarms and sensors. Ensure the exterior and surrounding areas are well-lit. Work together with other companies, industry experts, trade associations, law enforcement agencies and security professionals to stay abreast of best practices and emerging trends in cargo theft deterrence.

Technology

Surveillance technology can be effective in preventing cargo theft or identifying criminals if a cargo gets stolen. Some devices include front-side and rear-facing cameras on trucks, tracking devices (GPS or radio frequency identification (RFID), and high-security seals and locks, including landing gear locks, kingpin locks, air-cuff locks and truck immobilizers.

Transit security measures

Educate your drivers in how to recognize potential threats or suspicious activities and empower them to take preventive action. Maintain frequent communication between the driver and the dispatcher and encourage drivers to report security concerns immediately. Route plans should consider hot spots and hot times and minimize wait time. Aim to keep cargos moving, avoid leaving loaded trailers unattended, park them in secured locations wherever possible and use geofencing tracker apps, which create a virtual perimeter of a location, alerting you when the device enters or leaves the area.

KEY TAKEAWAY:

--SMEs are vitally important to the U.S. economy but are, for now, low-hanging fruit for hackers for a host of reasons.

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Small and medium-sized enterprises (SMEs) are extremely attractive targets for cybercriminals. Heavy reliance on external vendors exposes SMEs to risks, as many lack the necessary expertise and resources to thoroughly assess the security posture of their vendors. If a vendor has weak security practices or fails to adequately protect their systems, cybercriminals can exploit weaknesses in the vendor's software, networks or supply chain to gain unauthorized access to the small business's data or systems. 

Additionally, smaller organizations often have fewer resources and weaker cybersecurity measures than their larger counterparts, making them low-hanging fruit for bad actors. Against this backdrop, Cowbell recently commissioned an independent research firm to survey SME leaders across North America to gauge their level of preparedness for a cyberattack. 

The survey explored measures SMEs are taking to avoid cyberattacks, and their recovery plans should they fall victim to an attack. The Cowbell Cyber Round-Up: Q2 2023 survey revealed that only around half (55%) of SME leaders feel highly confident they are prepared for a cyberattack. Fifty percent of SMEs have already experienced a significant cyber incident in the past 12 months. 

How can SMEs better prepare for the increasing threat of cyberattacks? They must shore up their cyber defenses to avoid incidents that could cause irreversible financial and reputational damage. Here is a sampling of key survey findings and actionable tips to help SMEs enhance security and mitigate potential risks effectively.

Cyberattack Preparedness and Aftermath

Survey respondents revealed a staggering lack of understanding about the cost of a cyberattack. 

• 90 percent of SME leaders who experienced a serious incident said the cyberattack cost them more than anticipated. 
• 81 percent of cyberattack victims suffered a drop in revenue due to the incident. 

Cyberattack methods like malware, phishing and ransomware are becoming more common, making a comprehensive cybersecurity strategy mission-critical. SMEs with a cybersecurity strategy were nearly two times more likely to recover quickly from a cyberattack than those without a cybersecurity strategy. 

See also: How to Fight Rise in Cyber Criminals

Protect Your Business With Cyber Insurance 

Thirty-three million U.S. organizations are defined as “small businesses” based on data from the U.S. Chamber of Commerce. The segment is critically important to the health of the U.S. economy, and equipping them with the right resources and tools to prevent and fight threats is key. Survey respondents cited having a cyber insurance policy as critical to a sound cybersecurity strategy. 

• 72 percent of SMEs without cyber insurance said a major cyberattack could destroy their business. 
• 91 percent of respondents with cyber insurance policies said their insurance provider helped them avoid potential incidents.
• Comprehensive, flexible cyber insurance coverage protects SMEs when it comes to business interruption, data recovery and legal liabilities stemming from a cyberattack. Cyber insurance isn’t a nice-to-have – it’s a must-have to fight against today’s threats and bad actors.  

Lower Your Risk of Cyberattacks

Cyber incidents against SMEs threaten socio-economic stability, as SMEs create jobs and account for a large percentage of U.S. economic activity. SMEs don’t have to be vulnerable targets for cyberattacks. Basic cybersecurity hygiene is extremely effective against the threats affecting SMEs.

By defining a cyber risk management strategy, purchasing cyber insurance and adopting cybersecurity best practices, SMEs can shore up their cyber defenses to prevent and mitigate threats. Cyber insurance, in particular, can help SMEs lessen the severity of and even prevent cyber incidents. Cyber insurance providers help narrow the protection gap with clearly defined risk and augmented underwriting.

KEY TAKEAWAY:

--Insurtech funding has slumped. But market players are still finding opportunity for operational and financial leverage in insurtechs that work to enable the experience of buying and selling insurance, rather than disrupt it.

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Insurtech investment has fallen from its highs in 2021. CB Insights says global insurtech funding in 2022 actually dropped below $1 billion for the first time since 2018. Boston Consulting Group reported that funding in the fourth quarter of 2022 was the lowest in 20 quarters.

With the drop in investment, insurtech is at an inflection point. Will it rebound, continue on a flat path or decline further?

To answer that question, think about the purposes that insurtech is serving. To me, insurtech is most relevant when it focuses on creating efficiencies and enabling better customer and distributor experiences. After all, hasn’t insurtech always been about creating efficiencies and enabling improvements?

I broadly categorize insurtech in two swaths: the disruptor model and the enabler model.

Disrupter insurtechs typically must cover the length of the insurance value chain, and they aim to replace it. They usually aspire to hold a balance sheet, underwrite insurance policies and manage capital. 

Enabler insurtechs try to make the experience of buying and selling insurance better. They focus on improving discrete steps in the value chain for greater efficiency. 

One way to tell an enabler from a disrupter opportunity is whether it will bring in new capital or create new insurance capacity. 

There are hundreds of examples of enabler model approaches, and many have met with success. One early enabler focus was third-party data services. These took an application, verified information on the form, consolidated it and reported it. As another example, in auto insurance, third-party data services sought to read and verify information, check the driver’s data and give the carrier an underwriting score.

Financial reporting has been a rich area for the enabler model — for example, Power BI (business intelligence) as a reporting tool. Robotic process automation, data science capabilities and machine learning tools are other good examples. 

Disruptors also have delivered products and services, sometimes with novel approaches. Many have yet to demonstrate profitability or haven’t achieved their goal of disrupting. 

Some disrupters have discovered that the insurance business is a really hard business. As Boston Consulting Group says: “Their loss ratios are significantly higher than the industry average.” That’s not to say disrupters won’t reach positive cash flow and earnings and offer a strong alternative to the status quo. Time will tell.

Some venture capital (VC) investors expect a low success rate but a very high payoff, so they’ve funded disrupter models across several industries. Once an investment within that multi-industry strategy pays off, the investor may back away from investments that haven’t yet “hit it” (such as in insurance). That explains some of the cycle we’re seeing in insurtech funding.

See also: The Key to Transformation? It’s Not Technology

Yet investors are still enamored of disrupting the insurance business because of the sheer number of markets and their business volumes. Even with the current down cycle in funding, I expect VC investors to continue to be drawn to attractive insurance targets.

Right now, for example, the pet insurance market is a popular destination for investors. Globally, the consumer market is set to balloon from $9.5 billion in 2023 to $40 billion in 2033, a 17% compound annual growth rate, according to Future Market Insights. Segments within the property insurance market also are significant in size and scope, as are personal auto and commercial auto, among others.

Segments like these represent multibillion-dollar market opportunities. The companies that figure out effective approaches to these segments could reap significant payoffs. 

However, I expect that over time enablers have delivered more value than disruptors. Because of enablers' relatively strong performance, users and investors have pivoted to them. Carrier-backed VC funds once active on the disruptor side have sought enabler opportunities. The rationale: Carriers can realize returns by investing in capabilities that benefit their own operations. 

Enabler insurtechs play an increasing role in the managing general agent/program administrator segment, including here at National Programs. One example, called “Submission Grader,” uses artificial intelligence to screen data and schedules on a property insurance application. The insurtech tool looks at that data vis a vis underwriting guidelines and gives an initial indication about whether the risk is acceptable. 

If the application passes muster, the AI tool assigns a grade for the application using risk, carrier, producer and other variables that indicate underwriting success. The tool then sends an email back to the producer thanking them for the submission, noting the indication and inviting any follow-up that might be needed.

This type of enabler tool gives the producer fast feedback and wins back time for underwriters. The carrier or managing general agency sees their staff freed up.

In the past, an underwriter would’ve needed to receive the submission, open up and check the documents and read the property schedule. They might have reached the last row of the schedule only to realize that a property listed there doesn’t qualify. Instead of the underwriter having to slog through that process, insurtech screens the application using artificial intelligence.

With enabler approaches like this, market players can gain leverage by attacking a need —creating a solution and testing, improving and implementing it. 

Enabler insurtech might seem less appealing because the needs it can solve do not span the insurance value chain. The potential payoff doesn’t seem as large. But pursuing the enabler model can provide operational and financial leverage. If a firm can pile enabler improvements on top of one another, it’s like interest accruing on top of interest. Ten 1% improvements are as good as one 10% improvement.

Top articles surrounding our September FOCUS on Resilience and Sustainability. Plus: an insightful interview with Oliver Wyman's Alex Wittenberg

FROM THE EDITOR  "No insurance, no finance. No finance, no project. No project, no transition." Alex Wittenberg, a partner at Oliver Wyman, says that phrase governs the transition from fossil fuels to a clean energy economy. By now, everyone acknowledges that the transition is under way, but it has to begin with insurance. And the insurance piece of the puzzle can be so very complicated. Think about an offshore wind farm. The turbines have to be erected under difficult conditions. The mast may stick 260 meters out of the water. Each blade can be 100 meters long, so the rotor can be 220 meters long. Wind turbines are huge, powerful, complex machines, and it's hard for insurers to find the technical expertise to fully understand them -- there are few enough experts, and the field is new enough that the experts want to be on the front lines, innovating. Adding to the complications: Installations are tailored to their environment, so even if you can figure out all the technical issues on one project, you can't just apply that learning across the board. There is, of course, limited historical data, given how innovative these projects are... and the technical issues are just the start. You also have to figure out what the supply chain looks like -- and might look like when a repair is needed. Will, say, a replacement blade be available when you need it? How quickly will you be able to ship this 110-meter-long, high-performance blade to where it's needed? Will a ship and repair crew be ready to make the repairs, and how long will it take them to get to the site? Understanding those issues may be even more important than having a good estimate on the likelihood of damage and costs of the repair, because the utility operating the wind farm will still have to deliver the electricity it's contracted to provide, and a lengthy delay could lead to enormous expenses. The good news, Alex says, is that insurers are starting to figure out new structures that can accommodate the needs of utilities. They'll look very different from traditional insurance structures -- involving a mix of captives, traditional insurance but with significant sub-limits for natural catastrophe perils, more risk retention by the utilities and perhaps CAT bonds. These structures will take some getting used to. Public utility commissions, for instance, are accustomed to seeing a hefty amount of insurance attached to a power project, and they'll have to work their way through these new approaches. But, Alex says, "Over time, both individual carriers and the overall market are going to better understand the underlying drivers of profitability and provide a much more stable, albeit potentially smaller, source of capacity. I think they are already getting there." Cheers, Paul For this month's  FOCUS on resilience and sustainability, we turned once again to Alex Wittenberg, a partner at Oliver Wyman, with whom we spoke a year ago. He says insurers are making real progress on understanding how to underwrite the transition away from fossil fuels and to renewable energy, but there's an awful lot of complexity that goes into that assessment. Read the Full Interview "Over time, both individual carriers and the overall market are going to better understand the underlying drivers of profitability and provide a much more stable, albeit potentially smaller, source of capacity. I think they are already getting there." — Alex Wittenberg Read the Full Interview READ MORE How to Prepare for Extreme Weather Developing a well-defined preparedness plan is crucial to mitigate damage from hurricanes and other extreme weather events. Read More The End of Globalization? The Journey to Sustainable Aviation Airlines are experimenting with a host of sustainable fuels, electric aircraft, hybrid electric/fuel planes and new operating techniques. Read More How Digital Twins Help on Climate Digital twins help insurers leverage high-quality data to counter unpredictable weather conditions caused by climate change. Read More Bringing Innovation From Australia to U.S. Severe environmental threats, together with Australia’s regulatory landscape, have catalyzed insurers to adopt new technology quickly. Read More AI, Aerial Imagery Can Help Spot Flood Risks Any company that still relies solely on governmental property records instead of using AI-derived property databases is significantly increasing its risks. Read More The Race Against Natural Disasters Because of technological advancements, we’ve never been better prepared to understand what could happen tomorrow. Read More FEATURED THOUGHT LEADERS Yuval Mey Rez Paul Carroll Mabé Villar Vega Tom Fadden Greg Oslan Amrit Santhirasenan   View all ITL FOCUS topics

For this month's ITL FOCUS on resilience and sustainability, we turned once again to Alex Wittenberg, a partner at Oliver Wyman, with whom we spoke a year ago. He says insurers are making real progress on understanding how to underwrite the transition away from fossil fuels and to renewable energy, but there's an awful lot of complexity that goes into that assessment. While insurers have generally maintained their commitment to facilitating a clean-energy future, they have reoriented their approach. They recognize that even the most aggressive scenarios for a net-zero future envision heavy use of oil and gas in 2050, so insurers are taking more of a long-term view. They are also taking more of a portfolio view, looking at the whole mix of clients and their energy sources and at the mix of geographies where clients operate, rather than just viewing them as a series of individual companies.  And that's just the start of the adaptations insurers are making. Alex goes into detail below.

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ITL:

We had an illuminating conversation a year ago about, among other things, the opportunities for insurers that will arise as the world shifts toward renewable energy sources but also about the difficulties of underwriting extraordinarily complex projects such as offshore wind. What are some of the big changes that have occurred since then?

Alex Wittenberg:

It’s a fairly significant development that major property/casualty insurers have departed from the NZIA [Net-Zero Insurance Alliance, whose members commit to decarbonizing their underwriting portfolios]. Last year, at this time, we were talking about how the NZIA was basically adding members every other week. Then, earlier this year, they started losing individual members, including the largest property/casualty insurers and reinsurers, such as Munich Re, Swiss Re, SCOR, Zurich and Allianz. Eventually, they lost all the founders, including the chair of the group, AXA XL.

There's a lot of speculation that the departures were driven by aggressive political tactics in the U.S. on behalf of approximately 23 state attorneys general, based on anti-competition allegations. That is not an insignificant reason, but the reality was that, as members got closer to following through on implementation, many also began to realize that perhaps they were on a pathway that wasn't aligned with their – or their insureds' – long-term view of an orderly energy transition. And for a lot of the insurers, there were practical considerations: “Are we ready to do this? Do we have the resources? Can we get the right information?”

If anything, NZIA implementation may have inadvertently created an energy transition with less financial underpinning.

If you consider the IEA [International Energy Agency] and its three different core scenarios for the energy future to 2050, whichever one you happen to believe, they all acknowledge that we are on a long journey.

To be clear, I don't think any insurers are stepping back from their individual corporate commitments. I think they're being more thoughtful about putting their commitments on a timeline that reflects the commercial reality of both the transition and of their insurance or reinsurance company.

ITL:

What does that look like? What should somebody be doing in 2024/2025 to support the longer-term energy transition?

Alex Wittenberg:

Well, there are a few things that we advocate. Increasingly, insurers are getting better at looking at their whole portfolio, as a collection of assets and not just as individual client names. If the insurer writes some oil and gas companies, utilities, pipelines, renewables – those are actually a collection of underlying assets with specific carbon attributes. Taking a portfolio view allows the insurer to consider how insuring specific organizations impacts their asset mix and to create the optimal mix of traditional and renewable sources that meets their transition pathway.

Also, insurers need to take a long-term view of their portfolio. It is more important for carriers to be going in the right direction with the right clients than it is to attempt a short-term overhaul of their book of business by applying rigid restrictions. There will be stops and starts driven by a variety of external factors that will make this a bumpy road, and each carrier will need to chart its own path to having the portfolio of clients and assets it wants in the long term.

ITL:

There’s been a backlash against ESG [environmental, social and governance efforts], especially in the U.S., not as much in Europe. I wonder whether insurance companies can go out and say they're trying to promote the energy transition and so forth, or whether they're having to back off on some of their pronouncements on the topic.

Alex Wittenberg:

I would separate supporting the energy transition from anything that's politically charged, on either the right or the left. I don't think there's a lot that's politically charged about saying you're supporting the long-term energy transition. I think many are recognizing that we're going to have a mix of fuels. Even in the most aggressive of the IEA scenarios, there will still be carbon-based fuels in the mix in 2050. So, I don't think anyone's denying that the transition is occurring, and that the transition needs to be supported. More importantly, insurers have a huge role to play in the transition.

Leaving politics aside, there's a lot of discussion about how we are going to finance the transition, but what’s often ignored is that not much gets financed that isn't insured. And the scale of this transition is significant.

It used to be that a power plant would get built in your state, and it would be insured, and the regulators didn't really think about the insurance. Now, due to the scale, exposure and complexity – such as found in offshore wind – insurance capacity is becoming increasingly scarce. It is increasingly clear that facilities of this nature are not going to be insured in the same way it would have been 10 years ago or even when the project was conceived. The insurance industry has a critical role to play in mobilizing the capital to underpin these projects so that they actually get done.

I know it sounds kind of trite, but the expression we use is, “No insurance, no finance. No finance, no project. No project, no transition.” In my 30 years of doing this, insurance isn't usually considered the linchpin of anything, but in this case it will be a key element for the energy transition to move forward at the scale required.

ITL:

I know we talked about some of this last year, but can you walk me through offshore wind? How would that work? I assume onshore wind is sort of quantifiable. We've done it. But walk me through the complexity of an offshore project.

Alex Wittenberg:

None of this has gotten particularly better since we talked last year. Large losses are occurring across a variety of renewable and traditional energy sources, and the projects are getting significantly larger and are being situated in more challenging locations.

Utility-scale renewables projects in solar, wind and storage are unique projects and are leveraging constantly evolving technology. Underwriters do not have the benefit of decades of historical exposure and loss data to evaluate future performance and price risk with precision, and understanding the engineering complexity has been a constant challenge.

The scale of these projects is also difficult to understand. You're talking about something that is huge. In offshore wind, if you consider the GE Haliade-X wind turbine, the mast height can be up to 260 meters (the Eiffel Tower is 300 meters), and an individual blade is 100 meters long, making a 220-meter rotor. A single turbine can generate up to 14MW of power. And a single wind farm may have upwards of 200 of these turbines. (Note that the largest approved U.S. offshore wind project is Ocean 1, with 98 turbines planned; Dogger Bank in the U.K. has 270).

Complicating the obvious potential are offshore losses, which can be costly and difficult to resolve. While there is a clear physical damage component to losses, business interruption costs can be more significant and less predictable, often exacerbated by a lack of available vessels to make repairs. The supply chain implications for replacement parts, such as turbines, transformers or cables, and potential obsolescence issues, also impact loss quantums and are dependent on backlog at the manufacturers of critical equipment. And the longer the interruption, the more cost the insurers incur, as the operator continues to have an obligation to provide power.

ITL:

If I'm trying to find financing for offshore wind, to stick with that example, and I have to get the insurance, how do I work through this with an insurance company?

Alex Wittenberg:

The public utilities commission (PUC) in a jurisdiction usually has authority over new projects, and they're used to seeing insurance included, usually a fairly significant amount. Due to the reasons we've discussed, the companies deploying these projects are going to have to resort to different risk finance structures. They're going to involve larger retentions, likely through increased participation from corporate captives; they’re likely to involve a smaller commercial insurance market participation excess of a much larger retention and with significant sub-limits for natural catastrophe perils. And they may involve catastrophe bonds (CAT) bonds or parametric products if the projects are CAT-exposed.

The problem is that your typical PUC is not populated with insurance experts who are going to fully understand these types of complex structures. They are going to want to see traditional insurance with reasonable retentions, because from their standpoint that is how you best insulate the rate base.

But that's not realistic.

There's a huge educational component, because the ways that a project may have to resort to transferring risk aren't necessarily bad, they're just different. A project will effectively transfer the risk or diffuse the risk into different pools of capital via an insurance company or a series of insurance companies. That educational piece is something that isn't easy to do but needs to be done.

ITL:

It sounds like a massive project for the insurers, too, to get smart about these complex projects.

Alex Wittenberg:

Many insurers we work with on the energy transition will readily admit that they need more technical advice and technical support. But there is a definite scarcity of quality resources, so they can’t all acquire the resources that they need. A lot of the strong technical people, especially in renewables and alternative fuels, are not going to be working for an insurance company; rather, they will be on the front lines of renewables and fuel development.

There is a larger pool of engineers who join insurance carriers after a long career elsewhere. In the nuclear space, perhaps they come out of the U.S. Navy, and they join an insurer as an engineer in one of the nuclear pools. But in renewables, it's not quite the same. There's not a backlog of folks who have been doing this for decades and are looking for a transition.

The second issue is converting technical knowledge into underwriting advice. It's one thing to say, "Well, we understand failure rates, and we understand the failure rates under different meteorological circumstances.” But now you need to turn that knowledge into a price. So insurers need to get a lot better about understanding and pricing the risks, and they need to do it without running egregious loss ratios as they learn. And those that have experienced losses or underpriced the risks often curtail their appetite or retreat altogether. It's a challenge.

Are there ways out of these challenges? Absolutely. Over time, the markets are likely to settle out, and probably in a different place than they are today. I think some of the carriers are going to say, "OK, we're going to write this, but we're not going to write it the way that we used to write everything else in our energy portfolio. We’re going to want to define our appetite for certain technologies, we're going to want to increase deductibles and we're going to sublimit specific perils and be more precise about geographic concentration."

Over time, both individual carriers and the overall market are going to better understand the underlying drivers of profitability and provide a much more stable, albeit potentially smaller, source of capacity. I think they are already getting there.

Another complicating factor, beyond underwriting and technical concerns, is that the carrier management teams are still wrestling with reconciling the commercial reality of the long-term transition in their energy books and their public climate commitments. These internal contradictions are difficult to resolve in the short term and lead to insurer underwriting decisions that can seem inconsistent to both brokers and insureds.

ITL:

We had a conversation last year about many of these topics, and we are having one again this year. Let’s say we have one next year. Are we making progress?

Alex Wittenberg:

Most insurers, when they left the NZIA, recognized that they were going to have to take a lot more responsibility to support the energy transition and couldn’t just rely on third-party scoring of the names in their portfolio. They were going to really need to understand the underlying data and underlying assets in their portfolios and how they wanted to manage their portfolio and its transition over the long term.

Many companies are certainly undertaking the necessary work, and that’s progress. However, this isn't going to be something that can be easily fixed in a couple years. This isn’t just about setting guidelines for an internal referral network that will say "yes" or "no" to offering coverage; there needs to be a sincere effort to understand what is in the portfolio, the planned changes in the insured’s asset mixes and the targeting of new clients. Insurers are starting to understand the implications of their commitments and how to align those with the transition of the energy book. That's all positive.

The other real positive is the long-term approach. There are a lot of ways to look at the energy transition. Some insurers are more conservative and will stick with a portfolio that has more traditional energy within it and migrate over time. Some will want to move faster to new sources. The marketplace needs an assortment of carrier approaches to ensure an orderly transition, and while it will not be smooth it seems to be moving in the right direction.

Insurers are trying to solve problems, too. The industry is moving forward; the market is not sitting still. A lot of large insurers are making themselves available to support the energy transition by supporting traditional energy assets in portfolios, while insureds work to address real world challenges such as providing affordable, reliable baseload power.

ITL:

The New York Times had a piece recently saying that new, renewable energy sources are coming online faster than people thought, but I worry a lot about the grid. It just can’t do what we need it to do. It seems to me that we almost need to start over and declare that we're going to build an interstate highway system of the grid.

Alex Wittenberg:

A big challenge is that many new renewable generation facilities aren’t near an interconnection point with the existing grid. Also, the public doesn’t necessarily want utility scale generation nearby. New transmission and distribution and other grid infrastructure must be considered a priority if the energy transition is to occur at scale.

Unfortunately, insurers don’t usually want to insure operating, above-ground transmission and distribution lines. Construction of the grid would be fine from an insurer's perspective. It’s when you turn it on and make it susceptible to a variety of perils that it becomes less attractive.

ITL:

That makes sense. I found this fascinating. Anything I didn't touch on that you want to talk about from a personal or an Oliver Wyman perspective?

Alex Wittenberg:

There's one thing that I think insureds could do better and could think about more strategically. Energy is a global industry, right? Everyone generates power, needs power, transportation fuels, etc. But in the U.S., an individual utility tends to be organized by state, or maybe in their region of the country. The same occurs in Canada.

The insurance industry is different, it is a very globally fluid capital market. And although insurers are based in certain places and get regulated by individual states or countries, the capital tends to flow to where it can generate the best returns. That means the insureds need to think about the implications of their strategies on their ability to attract insurance capital in a globally competitive marketplace.

It's also important that the insurer looks at their energy portfolio across all of their geographies, so they can make equitable decisions on where to accelerate the move to renewables as an offset to a slower pace in another part of the world.

I’ll add that I'm still very positive directionally, actually more positive than I was last year. Last year felt a little dire, as though the insurance industry was basically going to abandon the ship, and there were not going to be sufficient options to address the projects that are required to accelerate the transition. While working with a number of the large commercial insurers and energy specialist markets, we have found that they are committed to thinking strategically about solving for the energy transition challenges, even if it means charting a new path.

ITL:

This was great. Thank you for your time, Alex.