The world of mergers and acquisitions is evolving fast, and the process, speed of execution and complexities of transactions are always increasing. Those changes are putting pressure on the traditional, labor-intensive manual processes used to create representations and warranties (RWI) policies, meaning the need for digitization is now pressing. 

In recent years, there has been a significant increase in the number of investors purchasing RWI insurance when making acquisitions. This was virtually unheard of 10 years ago, yet recent statistics show RWI products are now being used in roughly 30% to 35% of U.S. private M&A deals. This is because RWI bridges gaps in expectation: Sellers wish to reduce their liability in the share purchase agreement (SPA) to a minimum, and buyers seek financial comfort that the business they are purchasing is all it appears to be. 

This huge growth has created a global, multibillion-dollar market, yet it is far from reaching all of its potential customers; the vast majority of transactions completed each year are still done without insurance. One particularly underserved segment is small to medium-sized enterprises (SMEs), which are the lifeblood of American, Asian and European economies and account for more than 90% of all businesses across the world. 

See also: Biggest Business Trends for 2024

Acquirers of M&A targets with deal values less than $25 million in the U.S. rarely buy RWI insurance. Smaller deals do occasionally enter the RWI market, but they are often left unprotected for several reasons:

1. RWI is time-consuming – by offering bespoke cover for each individual deal, underwriters must review a huge amount of information and take time to understand the nuances of a transaction.
2. Cost – while costs have decreased, a prospective policyholder would struggle to get a RWI policy for much less than $170,000 all in, which is prohibitively expensive for a small acquisition.
3. Underwriters’ capacity – RWI underwriters can get incredibly busy, meaning smaller deals are often pushed to the bottom of their pile. At certain peak times of year (pre-Christmas, for example) underwriters can significantly reduce their appetite to quote new deals, leaving a narrower and more selective pool of remaining underwriters. This will often leave smaller deals either unable to obtain quotes at all or left with very high-cost options.
4. Information flow – to get underwriters comfortable with taking on the risk of a transaction, a huge amount of due diligence is required. In fact, due diligence is now driven more by underwriter requirements rather than the end client.

While insurers have tried to resolve these issues and provide cover for smaller transactions, they have often been hamstrung by the traditional and manual nature of the processes involved in providing protection on M&A deals. Reaching SMEs, therefore, requires a fundamental rethink.

This involves a streamlined digital approach, with simplified but valuable products, full coverage, a more affordable price-point and a convenient digital platform brokers and advisers can access with their buyers and sellers. Armed with the necessary due diligence information captured by the platform, an underwriter can offer a policy that can be bound and paid for via the platform. The process can take two days instead of two to four weeks. Advisers say they use the digital questionnaires to guide their due diligence.

See also: Opportunity Now and in 2024

While the M&A insurance market has tended to focus on larger deals, continuing global economic uncertainty means investor appetite for large transactions is subdued. Private equity firms are considering smaller transactions, and some insurers are looking again at SMEs. As conditions improve, and investor confidence returns, the focus is likely to revert to larger transactions. However, a recent study by Harvard Business School found that for companies seeking growth, smaller M&A transactions provide far better success:

“The bet-the-company deal isn’t the route to success. Indeed, infrequent large deals do tend to hurt value creation. Instead, it is a steady stream of transactions — known as programmatic M&A — that delivers the real wins.” 

This approach to growth also applies to institutional investors with private equity houses increasingly launching enterprise funds and using platform bolt-on acquisitions to drive value from their portfolios.

The need for a more streamlined, digital approach to M&A protection becomes, therefore, increasingly pressing and immediately relevant.

When it comes to M&A, SMEs have largely been ignored by insurers, brokers and advisers and, thus, face an M&A protection gap. Digitalization is the key to bridging this gap and solving the inefficiencies that, for too long, have left SMEs exposed and stifled the development of transactional insurance.

KEY TAKEAWAY:

--My vision is that employer-sponsored health insurance will disappear, giving employers a blank slate upon which to reimagine their approach to benefits. Defined contributions will become the default position, leading to lifestyle accounts and intense personalization of insurance at every level. 

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The insurance landscape is on the brink of a transformation that will redefine the industry over the next two decades. At the heart of this seismic shift lies the impending collision between soaring employer-sponsored health insurance premiums and ever-tightening budgetary constraints. The result? Employers may decide – or be forced – to abandon sponsoring health insurance altogether.

Such a scenario would change every employer’s approach to employee benefits. Gone will be the days when health insurance consumed the majority of the benefits budget and organizational attention. In its place, employers will have more freedom to focus on non-health insurance benefits. I predict a profound reimagining of how businesses provide these alternative benefits, which will have huge implications for employers and insurers alike.

The evolution of workplace health coverage

If you talk to any employer today, they’ll tell you that health insurance is the core of their employee benefits, where it absorbs as much as 80% of their budget and attention. Again, I don’t believe that will be the case 20 years from now. If the surge in health premiums over the past decade continues, it simply won’t be possible. Consider the stark fact that the average premium for family coverage has risen from $15,745 in 2012 to $22,463 in 2022. That’s a 43% increase, over twice the inflation rate during that time.

Health costs could even surpass employee salaries, and there’s just no way any business will stand for that.

At a minimum, more employers will switch to individual coverage health reimbursement arrangements (HRAs), enabling employees to buy individual marketplace health insurance, with reimbursement from employers. But if health premiums continue to grow at the current rate, even HRA models will eventually become unworkable as employees are forced to pay ever higher premiums on the individual marketplace.

At the most, employers will abandon health insurance entirely, leading to a potential federal intervention of extending Medicare coverage to all. That scenario isn’t as extreme as it might sound. Medicare already exists as a proven system, and the only reason we haven’t yet expanded it to everyone is politics. This could be the tipping factor that forces legislative action to extend Medicare, which is honestly the only way to bring spiraling health costs under control.

Moreover, an extension of Medicare would benefit everyone. The consumer would gain access to guaranteed coverage and could have their out-of-pocket expenses covered by a private supplement plan that can be purchased on the individual marketplace. The health insurer would benefit from lower risk exposure and simpler regulatory requirements because they would now be in the supplement business rather than the primary insurance business. And employers would be free from having to devote most of their time and budget to health insurance, giving them a fresh start to reimagine employee benefits.

See also: Insurance in 2030: What Does the Future Hold?

Employee benefits in a new era

How would employee benefits look in a world where employers no longer have to concern themselves with health insurance? For a start, employers would be able to switch from a defined benefit model to a defined contribution model. Currently, we live in a defined benefit world in which the employer chooses the benefits and then works out what they need to contribute. It's an inflexible system that has led to spiraling costs and robs employees of the chance to choose their own benefits.

But with a defined contribution model, the employer can give each employee a lump sum that they can spend on whichever benefits they wish. It doesn’t take a lot of convincing to help an employer see the advantages in that. I know that from my own experience of working with companies on their benefits plans. Starting with the contribution means the employer can confidently and concretely decide what the annual benefits budget will be. It also means that employees can choose the benefits that align with their specific needs, whether it’s life, dental, vision or pet insurance or wellness perks.

The burden of health insurance is the only reason more employers aren’t already on a defined contribution model. Businesses haven’t made the change for fear of shifting the burden of future health insurance cost increases onto employees, a move that wouldn’t look good in the marketplace for talent. 

But if we take health insurance out of the picture, leaving us with just the ancillary benefits like life, dental, and vision insurance, the issue disappears. These ancillary insurance products would become the core of an organization's benefits system, and because the premiums on these products tend to increase along with inflation, sometimes less, employees needn’t worry about future costs becoming unsustainable.

As for how companies can adopt a defined contribution model, lifestyle accounts may be the best available option. Each employee gets a lifestyle account that the employer can pay into. A huge benefit here is that any individual insurance products that people choose will stay with them from one employer to another, providing full portability and personalization. This kind of customized setup is already happening in the benefits industry, and given the societal trend toward increased personalization, lifestyle accounts may only be the start of even greater change.

What lies ahead for insurance carriers?

If we assume that all this change comes to pass, there will be at least two ramifications for carriers.

First, hyper-personalization of every facet of an insurance product will become the base expectation for consumers. This means that insurers will need to tailor their offerings to individual preferences, needs and circumstances, as customers will increasingly demand highly customized coverage.  

However, to bring this level of personalization to their offerings, carriers will need to lean more heavily on the use of AI and big data for underwriting. This is unavoidable in a world where everyone is on a lifestyle account. Big data allows carriers to easily segment their customers by risk and market, leading to greater personalization in premium rates and product recommendations.

So far, most carriers are still only using AI and big data on an individual basis when they could be using these tools for all of their underwriting. The only thing that’s holding them up is their small data pool, which remains a hindrance to market analysis and to accurately assessing risk. But as more employers embrace defined contributions through lifestyle accounts, carriers will have more direct contact with end users from whom they could collect data. Eventually, the law of large numbers takes over, making risk predictions more reliable.

Second, widespread use of lifestyle accounts will lead to more customers choosing individual insurance products over group products. Individual products are far superior to group products in almost every way. The only reason more people don’t choose individual products is because the underwriting can require a lot of time, documentation and medical tests. But once more carriers start using AI and big data for underwriting, those difficulties disappear 

The inevitable conclusion here is that traditional group insurance could lose its raison d'etre. If individual policies can now be underwritten with the same ease as a group policy, why, an insurer might ask, should we keep offering group policies? As a result, more carriers may shift to offering individual insurance. 

With that in mind, I foresee a shift in group carriers offering individual products on a group chassis. What I mean by that is, to the employee, they're getting individual products with all the benefits that come with that, such as portability and fixed rates. But because these products are on a group basis, the carrier will be underwriting and administering to these people as a group. The efficient scaling of this process, however, relies on the use of AI and big data, emphasizing the need for carriers to embrace these tools. 

See also: AI: The Future of Group Insurance

Final thoughts

My vision for the next 20 years is that employer-sponsored health insurance will disappear from the market. This will result in employers receiving a blank slate upon which to reimagine their approach to benefits. Defined contributions will become the default position, leading to lifestyle accounts and intense personalization of insurance at every level. 

For carriers of all types, the future of their business hinges on their ability to adapt to these imminent shifts. That means getting on board with AI and big data and using them in a more systematic way. Those that can successfully navigate this transformative landscape stand to thrive in a rapidly changing industry.

KEY TAKEAWAY:

--The technology has the potential to lower claims costs by up to $1,000 per claim and eliminate the historical delay in the traditional accident reporting process, which averages five days from accident to first notice of loss. 

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Too many headlines contain wild hyperbole meant to grab readers’ attention while conveying the enthusiasm of the author. In particular, the word “transformation” has been severely overused and often misplaced, particularly when applied to the auto insurance claims process. This is NOT the case here!

It is our opinion, as experts in auto physical damage claims information technology, that the more sophisticated crash detection as defined here will indeed be transformative to auto claims in multiple ways. 

But first it is critical to understand the relationships among various telematics programs and crash detection technologies.      

Telematics: A Brief History

Telematics, in one iteration or another, has been around since GM introduced its OnStar in-vehicle telematics technology and related safety services. OnStar was initially a dealer-installed device offered in several 1997 Cadillac models. OnStar enabled drivers to connect from their cars with safety advisers in the event of an accident, breakdown or other roadside emergency.

Since then, the convergence of telecommunications and information processing – broadly referred to as telematics – enabled the use of information such as vehicle location, driver behavior, engine performance and vehicle activity. Numerous telematics service providers (TSPs) emerged globally to offer a wide variety of uses across a number of market verticals. In 2002, Octo Telematics was founded in Italy specifically for use cases in the auto insurance industry, originally including fraud, theft and location services.

These early applications required the installation of some type of in-vehicle hardware device (dongles, sensors, windshield tags, etc.). TSP solutions included commercial applications for fleet management, as well as personal lines auto insurance applications including usage-based insurance (UBI) and pay-as-you-drive (PAYD). 

In 2015, a smartphone app-based driver behavior tech company was spun out of Harvard Innovation Labs. Censio was renamed True Motion and was acquired by Cambridge Mobile Telematics (CMT) in 2021. The company’s mission was safer and more affordable driving. CMT has grown to become the world leader in telematics and powers many of the largest insurance telematics programs in the U.S. and globally. 

Consumer adoption within the auto insurance landscape still remains in the low double digits but continues to gain traction as loss costs and premiums continue to rise and consumers seek savings options. Adoption in North America has lagged other global markets for a variety of regulatory and cultural reasons.

More recently, a specific application of telematics – namely crash detection – has emerged as new model smartphones include high-dynamic-range gyroscopes, GPS location, barometers, microphones and advanced motion algorithms that can detect a crash.

See also: How to Reduce Distracted Driving

Accident Detection and False Positives

With the introduction of smartphone accident detection in 2015 by Zendrive, a driver-centric analytics company, variations of crash detection began to emerge, mostly for notifying emergency services, tow trucks and family members. Other applications included the gathering of accident- related data for future use in insurance claims.     

Most recently,  there have been a number of stories about new model smartphones and connected devices with crash detection features alerting early responders to crashes – both real and not.

But beyond these kinds of crash detection, another application is emerging for use specifically in auto insurance accident claims that has the potential to truly transform this process by lowering claims costs by up to $1,000 per claim and eliminating the historical delay in the traditional accident reporting process, which averages five days from accident to first notice of loss.  

Crash Detection and the Auto Insurance Claims Process

Before any insurer would consider deploying a crash detection program, there are two critical technical issues to be overcome: namely, accuracy in detecting real accidents (at speeds below 25 mph) and the elimination of “false positives,” in which sensors misinterpret motion as accidents when it may be something as simple as an accidentally dropped phone, energetic dancing at the Bonnaroo festival or a wild ride on a roller coaster. 

No carrier would want to waste valuable resources and risk annoying their policyholders by contacting them unnecessarily when no accident has occurred. On the other hand, all carriers would find it valuable to be alerted to real crashes in real time. In addition, documented crash details would have great value.      

Right on cue just last month, Sfara, a global telematics technology provider that launched the first mobile phone-based crash detection in 2014, introduced capabilities that solve both of the technical issues.

The distinction between basic crash detection and all-speed, false-positive-free crash detection is critical for effective deployment in an auto insurance claims application.

Low-speed accident detection for claims is more valuable than many may think. Sfara research finds that 70% of crashes occur under 25 mph, as do 48% of crashes involving injuries--and solutions that only capture high-speed accidents miss all of them. 11% of fatalities occur when a vehicle is not moving at all. 

Sfara Crash Detection

Sfara has formed strategic partnerships with Mercedes Benz; Bosch; CCC Intelligent Solutions, the industry’s leading auto insurance physical damage information provider; and Solera eDriving, a global digital driver risk management provider for fleets. These relationships enable insurance companies and fleets that are already integrated with these companies’ solutions to operationalize Sfara’s crash detection results quickly and easily through the simple addition of the Sfara SDK to their flagship smartphone apps. Several top 10 carriers have already begun. Thus, real crash detection becomes available to all policyholders, not just the minority who are enrolled in telematics programs.     

See also: Could Auto Accidents Be Reduced by More Than Half?

Insurer Adoption

Crash detection, and its first cousin accident response, are poised to see real traction with auto insurers.

In September, State Farm joined USAA, which incorporated crash detection capabilities into their respective mobile applications a year earlier. In February, Progressive Insurance announced the planned introduction of their app-based accident response service to offer towing and emergency services and to start a claim after an accident. 

Importantly, however, none of these programs have indicated that they can offer service at all speeds.

The Future

Real crash detection, such as that offered by Sfara, is poised for rapid adoption by auto insurers and will literally transform the auto insurance claims process, including first notice of loss (FNOL), which has historically occurred many days after an accident and been labor-intense. Crash detection will enable digital FNOL in real time and can include accident management, triage of roadside services, automated scheduling of vehicle repairs, photo estimating, parts ordering and other use cases not yet envisioned. And because it is low- to no-touch and technology-powered, its cost to carriers will be nominal.  

Crash detection is perfectly aligned with emerging claims process digitization initiatives and will significantly reduce loss costs, thus materially improving combined ratios. It is also well-aligned with the industry’s strategic shift underway in claims strategy from a "repair and replace" to a "predict and prevent" mindset: Crash detection can be the portal through which future advances in vehicle and driver safety can be delivered.

Real-time crash detection and FNOL will help transform the traditional mindset in claims operations to focus on speed of resolution. Equally valuable is the crash data captured with detection, which is instrumental in the claim investigation process. Think of crash detection as an unbiased “witness” gathering all the critical information on speed, direction of travel, point of impact and more.

Auto insurance financial performance is under extreme pressure as costs continue to rise, as vehicle complexity increases, as the workforce is aging out and taking critical expertise with them and as unsustainable, higher insurance premiums are meeting resistance from regulators. Crash detection can deliver significant relief quickly and at low cost.

Policyholders will embrace crash detection once they understand that it is all upside and no downside. Emergency services and accident response will be especially welcome, as will the elimination of irritating phone calls that require repeating accident details to multiple agents. Claims resolution and cycle times, including the return of repaired vehicles, will be materially improved. 

Auto insurance ecosystem partners will see operational benefits and savings through increased real-time, digitally integrated workflow and the elimination of legacy communications and labor intense processes.

See also: Auto Insurance in an Existential Crisis

Call to Action

With the arrival of true crash detection, auto insurers should learn, test, pilot and implement this technology as one of their highest priorities. Their stakeholders and partners will be most appreciative, and their customers will reward them with greater loyalty.  

Crash detection will transform auto claims and become table stakes, and it will be no accident – which is definitely not hyperbole.

The challenges of inflation have significantly impacted our nation, and the insurance industry is no exception. Despite hopeful projections that inflation will be regulated by the end of 2024, the current situation is becoming increasingly expensive for businesses, particularly insurance organizations. Inflation, coupled with supply chain issues, has resulted in a substantial rise in costs, especially in the form of claims spending. Estimates suggest that underlying inflation contributed around 45 to 50% of the total increase in claims spending by the end of 2021, and this trend has persisted through 2022 and into 2023. 

However, it’s not just costs that have been affected; workloads within the insurance industry have also been swelling, leading to higher rates of burnout among employees. This combination of factors poses a significant risk to both the insurance workforce and the financial bottom line of organizations. In order to navigate these challenges, insurers need to effectively combat the rising workloads and costs they are facing—and that’s where automating premium payments can help. 

Read More Here

 

Sponsored by ITL Partner: InvoiceCloud

When a panel of experts recently voted that a gene-editing technique was safe for clinical use, it rang the opening bell for a new era in healthcare. 

The one technique, alone, could have a profound impact on the more than 100,000 Black Americans and 20 million people worldwide who suffer from sickle-cell anemia and who could now be cured, rather than just managing what can be a painful and debilitating condition. 

And that technique is just the first of many research efforts to get out of the lab. Hopes are high that other, related techniques could cure a host of cancers and blood disorders, some forms of blindness, cystic fibrosis, muscular dystrophy, high blood pressure related to LDL cholesterol and much more. 

We're just at the opening bell. It will take many years to fully understand the effectiveness and potential dangers of the sickle-cell treatment, and a lot could still go wrong. It will take decades for the full array of gene-editing treatments to be vetted and rolled out. As a result, the effects on health insurance will be slow to play out. 

Still, the achievement is stunning, and I think it's both worth celebrating for a moment and worth digging into a bit to understand where science can take humanity.  

The sickle-cell technique stems from the work on CRISPR that won the 2020 Nobel Prize in Chemistry for Jennifer Doudna and Emmanuelle Charpentier. CRISPR is a family of DNA sequences that can be used to target and shut off a specific gene in a person's genome that causes disease, such as the one that causes sickle-cell anemia.

More recent research suggests CRISPR can even be used to fix "typos" in the three-billion-letter sequence of the human genome and treat genetic disease.

Because CRISPR is altering body chemistry at such a basic level, researchers are proceeding cautiously, initially focusing on conditions such as sickle cell where a single gene defect has been identified as the cause and where editing the gene should have no side effects. 

Even with sickle cell, the work has a very long way to go. The panel of experts who have found the treatment safe for clinical use have only seen it tried on 44 patients, and just 30 have been followed for at least 16 months. No side effects have been recorded, but, as this article in the New York Times explains, snippets of genetic material created by CRISPR could conceivably bind to an unintended part of someone's genome and turn off the wrong gene.

The treatment is rough on patients. The Times says: "Patients first have eight weeks of blood transfusions followed by a treatment to release bone marrow stem cells into their bloodstream. The stem cells are then removed and sent to the companies to be treated. Next, patients receive intense chemotherapy to clear their marrows for the treated cells. The treated cells are infused back into the patients, but they have to remain in the hospital for at least a month while the new cells grow and repopulate their marrows."

The treatment is also very expensive -- likely to cost millions of dollars per patient. But the healthcare system in the U.S., alone, spends $3 billion a year treating sickle cell, and gene-editing offers a full-on cure, so Medicare and private insurers have indicated that they'll cover the treatment. 

To me, the milestone here is that we now have the prospect of actually curing chronic diseases like sickle cell, many cancers, hypertension and more, not just managing them. 

And capabilities will only accelerate from here, largely because AI lets researchers sort through exponentially more possibilities than unassisted humans can as they wrestle with the mind-boggling complexities of human biology. Already, AI has let researchers understand how hundreds of thousands of proteins fold themselves, which determines a lot about how they interact with other proteins and with any drugs; previously, just determining the shape of a single protein required a chemical process that took more than a year and cost in the six figures.   

As you keep reading about the great prospects for generative AI -- and they are great -- realize that other strains of AI are at work, too, and some are helping usher in a new, gene-editing era in healthcare that will benefit millions and millions of people.

Cheers,

Paul

As inflation and increasing global risk push up the cost of coverage, a powerful tool has gained traction in recent years: partial or total self-funding of workers' compensation.

While companies assume more risk, they get significantly more control over coverage, claims management and associated costs. The result is often highly cost-effective.

For example, when OneDigital client Wheeler Health, a healthcare and human services provider, was grappling with an increase in its workers’ compensation premiums, the answer came in the form of a partially self-funded plan. This program did two things for Wheeler Health: It helped manage the financial burden (workers' compensation expenses had soared to nearly $1 million for a $25 million payroll) and gave the client a more active role in claims management. 

The plan leveraged an A+ national insurance carrier without the need for unconventional claims-handling methods or a third-party administrator and offered a smooth transition – claims reporting continued as usual to the insurance carrier, with fixed monthly premiums. The fixed-rate premium increased less than 2% annually.

Savings have run into the millions of dollars over the past decade. Had Wheeler remained on their fully insured plan, their annual workers’ compensation costs would hover around $1.8 million to $2 million. 

Partially self-funded workers' compensation programs offer greater financial control and cash management by allowing companies to only pay for actual, incurred claim expenses, reducing the need for fully valued traditional insurance premiums. This approach fosters a stronger safety culture, as companies see precisely where their premium dollars are going and become more invested in preventing workplace accidents and injuries to minimize claims and costs.

By tailoring their self-funded plans, companies can align workers' compensation strategies with industry-specific needs and risk profiles, optimizing coverage and cost-effectiveness. This transformative model can also greatly enhance employee well-being and productivity and overall organizational resilience.

See also: Case Study on Using AI in Workers' Comp

Why Don’t All Groups Take Advantage?

While the financial benefits of well-designed partial or fully self-funded workers' compensation plans are extraordinary, they aren't that common. Some possible reasons are a general lack of understanding and limited product knowledge. Quite frankly, it’s also less profitable for insurance companies when clients move to this type of plan. 

But, as you can see, the benefits can be substantial.

Employers with a substantial payroll, a strong commitment to workplace safety and a desire to reduce workers' compensation expenses should consider this option. 

Data-driven decision-making has long been the goal of P&C commercial lines carriers. There has never been a shortage of data within a carrier’s own walls, and decades ago some sought to create a competitive advantage through the use of predictive models. However, it was a considerable challenge to amass and normalize enough structured data to train a model. The handoffs to run and use a model were manual. And keeping the model current—by retraining it with newer data—ran into the same challenges.

Despite these early hurdles, carriers saw the value of using models to evaluate risks and identify the new business submissions in the queue with a higher probability of winning. Risk analysis models eliminated discretion in comparing exposures with target account guidelines. Predictive reserving models avoided being solely reliant on each claims adjuster’s experience to recognize the losses that looked simple at intake but carried all the hallmarks of a complex and costly claim.

See also: Why AI Is a Game Changer

An Inside Look at AI in Commercial Lines Carriers

Resource Pro Insights’ newly released research, “Artificial Intelligence in P&C Commercial Lines: Carrier Plans, Perceptions and Potential for High-Value Use Cases,” offers a comprehensive look at AI within commercial lines carriers today.

We include robotics process automation (RPA) in our AI research. While not everyone considers this an AI technology, RPA has proven itself to be an effective, adjacent-to-AI solution for carriers to automate repetitive actions. Our research reveals that RPA is well-embedded within commercial lines, with most carriers being in the investment phase of planning, piloting or running in production.

AI solutions are helping commercial lines carriers realize new value across the insurance lifecycle, with even more potential in the future. For example, conversational AI allows insurance carriers to offer self-service and personalized product education, enhancing customer experience. The value of RPA for billing is on the rise, to achieve both precision and speed in producing invoices and booking receivables, functions that can span multiple, disconnected systems. Advances in voice systems that include multilingual natural language processing are removing friction in policy servicing interactions. Image recognition and computer vision are giving carriers the ability to expand the scope and geographic reach of their loss prevention services.  

Machine learning in the insurance industry plays a key role in helping carriers make data-driven decisions. More than 75% of carriers have plans or pilots or will be using it in production this year. The power of machine learning is amplified by the growing market of third-party data available to train and refresh models. Within underwriting and risk management, these third-party sources enable carriers to automatically augment risk profiles and verify submitted data -- for example, SIC/NAICS codes. Machine learning can score each risk, apply more refined straight-through-processing rules and triage underwriting referrals based on a model prediction of those most likely to bind.

The value carriers believe AI can offer in the commercial lines submission process is noticeably higher this year than last. New business applications and policy change requests contain unstructured and structured data in a seemingly infinite array of formats. Machine learning is able to normalize submission data and validate or augment using third-party sources. What could have taken days can now occur in minutes.

Commercial carriers also see value in using AI for predictive claim reserving, an area claims organizations have been modeling for years. The earliest efforts by carriers had their data scientists creating models that were manually run after each new claim was registered. Now there are solutions with models based on both internal and external data. Some not only automate predictive reserving for each new claim but also run throughout the life of a claim, triggered by changes to the loss information.

The expected value of AI for commercial claims fraud monitoring and detection is lower than last year, but still high overall. Carriers appreciate that AI can automate a more thorough approach to continuously monitor open claim files for potential fraud. Many available external data sources play an essential role in offering carriers a nationwide lens on the bad actors and other warning signs.

Learn more about the current state of AI for property and casualty commercial lines carriers by reading our new research report, “Artificial Intelligence in P&C Commercial Lines: Carrier Plans, Perceptions and Potential for High-Value Use Cases.” 

Quick question: What’s the most important thing you can do to ensure a successful 2024 for your agency?

The answer: Finish out 2023 as strongly as possible.

After all, you can’t set a course for a prosperous future without knowing where you’ve been. And chances are, if you weathered the hard market and all its many challenges this year, you will carry plenty of momentum into the next year and beyond.

How can you plot a course for growth? Let’s review a few key considerations of annual agency planning and reveal a few tips that agents can use to drive their efficiency and profitability.

Where (and When) to Begin

If you haven’t yet started your 2024 agency planning, you should do so as soon as possible. The first step is to calculate your anticipated year-end results.. 

If your analysis reveals you might end 2023 short of your financial goals, you can still take steps to close the gap. Look to capture any potential revenue. Consider whether you could hit a quarterly incentive target or accomplish a business goal that could trigger additional guaranteed payments.

Additionally, look at your profit-sharing agreements. Is there a lock-in for achieving a specific sales target or a certain number of policies that you can still attain? Or can you start placing business with a carrier now so you can boost your profit-sharing potential and even lower your loss ratio? Another wise idea: See if you can reduce reserves on some of your larger claims to improve your year-end payout potential. Remember, the stronger you finish out 2023, the bigger head start you’ll have on driving 2024 results.

See also: 5 Must-Haves in Agency Management Systems

Five Must-Haves for Planning Success

Once you have your year-end ’23 plan set, it’s time to dive into 2024 planning. Consider the following five essential elements:

1. Know your carriers’ expectations. Before setting your own agency goals, you need to know what your carrier partners plan to accomplish in the coming year. Some carriers are looking to grow in 2024, but others are taking a different approach in response to the hard market. If your key objective is agency growth but your five most trusted carrier partners aren’t in growth mode, you’ll have to adjust your goals to match what’s feasible for your agency.

2. Decide what you’ll do differently. This can be the most difficult part of annual planning. It’s always tempting to keep doing things the way they’ve always been done, especially if those things have led to agency success in the past. But at its core, today’s market is much different than the one we’ve experienced for the past decade. That means you’ll need to make some changes to remain competitive and profitable.

3. Set clear goals—and put them in writing. Do you plan to grow in personal lines in 2024, or are you targeting a new class of commercial lines business? No matter which goals you choose to pursue, make sure to write them down and share them with your team to get full buy-in. 

When creating goals, be specific. Spell out exactly what success will look like; for example, increasing policies per client or adding a certain number of new clients. Include distinct goals for staff, such as the number of quotes or client retention calls you expect them to achieve. 

4. Build out your marketing strategy. Your goals will shape your 2024 marketing initiatives. Be sure to measure all marketing—including metrics you collect in your CRM and social media management tools—so you can double-down on the best-performing tactics and channels. 

5. Seek outside help as needed. If you’re a member of an independent agent alliance, you can access expert assistance with agency planning. For example, at SIAA, our master agencies provide guidance to their local member agencies about how to write the types of business carriers are seeking the most. We also offer access to local agency growth coaches who have incentives to help our agents grow and succeed.

Five Tips to Achieve More in 2024

While there are no guarantees, these five tips can help you choose the best path forward for your agency:

1. Evaluate your agency’s value proposition. Make sure it still resonates with your clients. Agencies that once differentiated themselves based on price may find it difficult to succeed in the current hard market.

2. Choose technology wisely. When weighing tech investments, choose solutions that will help you improve efficiency, eliminate duplicate work and enhance the customer experience. These can include anything from marketing automation platforms and payment processing solutions to new websites, video proposal tools and agency mobile apps. Consider that clients today seek support beyond typical office hours and explore whether virtual assistants or service centers can help you increase your hours of operation without adding to agency headcount. 

3. Educate whenever possible. On a recent SIAA panel call, experts from several large agencies agreed that education is one of their biggest challenges. Customers need to understand the reasons behind their policy increases. Successful agents will take time to explain the nuances, such as how inflation and rising replacement expenses have affected policy costs. 

4. Consider setting parameters around re-shopping. It’s harder to find lower-cost policies in a hard market. Accordingly, agencies that once re-shopped policies with every renewal may want to consider setting more specific criteria, such as only re-shopping business that has increased by 15% to 20% depending on market conditions.

5. Keep on prospecting. Once you identify a prospect, treat them like a client. Include them in your newsletters and promotions, and invite them to follow your social media channels so you can increase your odds of turning them into a customer.

See also: The Key to Agency Management Systems

Plan Confidently for the Future

To ensure success, involve all agency stakeholders in your planning process. Make your plan a living, breathing document that you can update throughout the year. And build in individual goals for agency staff members so you can hold them accountable. With this approach, you’ll develop a solid strategy that will propel your agency forward.

The business world is in a near-constant state of flux. With technological innovation and shifts in perspective, business and the working world are always changing and are incredibly competitive. As a result, employees who adopt practices of lifelong learning are often best prepared for the myriad changes within their careers. 

Learning should continue throughout a professional career. By creating a culture around continued education and rewarding the lifelong learners in your organization, employers can help their teams remain as cutting-edge and experienced as possible, allowing both the organization and its employees to reap maximum benefits in an ever-evolving landscape.

The necessity of lifelong learning 

Today’s leaders and HR professionals are seeking to hire for attitude and personality and train for skills. They know finding a good culture fit may be far more important and indicative of an employee that will be easier to retain than seeking one with the “perfect” skillset. 

Amid issues with retention and employee satisfaction that fueled the Great Resignation, companies that offer continued education are likely to fare better long term. A recent survey showed that 94% of employees would stay with their current employer if that employer invested in their lifelong learning.

Agents, risk management professionals, adjusters and other employees must always be aware of changes within the insurance industry, law and regulations to stay competitive in their roles. Staying on top of market trends within the insurance industry can vary by type of insurance or by state, making targeting continuous education all the more important. 

Adapting to change 

Each industry will introduce new necessary skills that employees will have to learn if they intend on growing within their careers. With this in mind, organizational leaders must serve as models, providing relevant learning opportunities for their team members and growth-orientated mentorships. In addition, team members must be aware of the benefits of lifelong learning and have a clear picture of what taking advantage of learning opportunities means for their long-term career outlook.

See also: The Key for Agents: Lifelong Learning

Innovation and creativity 

Providing lifelong learning opportunities for employees can also boost inter-organizational creativity and expand perspectives. With more creativity and innovation coming from the various team members, organizations can grow, develop cutting-edge products and services and engage with expanded markets. 

It may seem like there is little to no room for creativity within an industry such as insurance or risk management, but that outlook could be short-sighted. When problems pop up within the insurance industry — such as rising insurance premiums in Florida or California — the educated and creative minds will be the problem-solvers. 

The more teams are engaged with and involved in creative organizational growth, the better the job satisfaction, productivity and overall retention will be. 

Leadership development 

One primary reason to cultivate a lifelong learning culture is to develop future organizational leadership. Today’s leaders won’t be around forever, so it will be up to the next generation to continue the mission and goals of the organization. 

Learning opportunities that are built within the organization will instill confidence in people with natural leadership abilities, allowing them to rise to the occasion. When structuring lifelong learning initiatives, organizations need to give space for promotions and reward individuals who take full advantage. 

See also: Opportunity Now and in 2024

Practical strategies 

Lifelong learning initiatives can become part of a company’s core when practical strategies are applied and made a priority. Companies should home in on the skills that are imperative for team members to learn to grow within the company and keep the company on the cutting edge. 

This strategy must include having a finger on the pulse of the industry changes and innovations, so leadership knows what skills their team members need to have to stay competitive. Organizations should also encourage collaboration within the learning environment, as teams that learn together often grow and innovate more effectively. In addition, companies should create space within the organization to learn on the job, so continuing education opportunities can be accomplished along with day-to-day productivity. 

With lifelong learning woven within the fabric of the company makeup, team members and leadership can work together toward innovative growth. 

Paul Carroll

To start out, how are agents and brokers responding to digital distribution platforms?

Jonathan Hendrickson

Agents and brokers are responding positively to digital distribution platforms -- the platforms are a source of enablement for our brokers who use them. Within Gallagher, two examples of who uses them are the inside sales brokers in small markets and the wholesale brokers working with E&S carriers. Both are benefiting from them. Gallagher uses platforms to make it easier for clients and save our team's time in working with multiple markets.

Paul Carroll

Can you say a little bit about how that works? Early on, everybody was talking about disintermediation. Now people seem to realize that agents and brokers have a real role, How does that hybrid work, between the digital and the person?

Jonathan Hendrickson

There are quite a number of insurtechs that are working to enable brokers, and we partner with those types of companies.

One type of enabling platform is a SEMCI, which is a single-entry, multiple-carrier interface. A SEMCI allows brokers or clients to put information into a system that can yield several quotes and options for clients. It is an enabler of the end-to-end process for a client and makes it smoother.

Paul Carroll

That's helpful. What about customer preferences? What are they showing that they like and don't like? And does it vary by type of client, line of coverage or anything else?

Jonathan Hendrickson

Preferences vary by type and size of client. Clients are more comfortable making digital purchases in personal lines than in commercial lines. That's been true for a while. In commercial lines, clients largely want to talk with an agent or broker before completing a purchase, even for small commercial purchases. The market research we’ve seen estimates that small commercial market purchases are made at single digits in terms of percent of premium (coverage) that is purchased fully digitally.

Most clients begin their search online with education and research, even if they don't make a purchase. Often, they end up working with someone who can help answer questions. Some clients like to correspond with text, so Gallagher is working on developing more of those kinds of capabilities to meet the client where they want to be.

Paul Carroll

Having covered technology for a while, I’ve found that there's sort of a flow. Technology starts one place and then flows in a direction for a long time. So, for example. Defense Department work in the

1960s and 1970s flowed out into consumer channels. Now, technology seems to be flowing in the other direction. My hypothesis on digitization and insurance has been that it would really start in the personal lines, then maybe move into small business as it moves up into large commercial. Does that sound right?

Jonathan Hendrickson

From what we've seen so far, the movement to fully digital purchases beyond personal lines has been pretty slow. And there's some value to moving at a slower pace. Insurance is in the business of de-risking things for other industries. When you have a bedrock that you can build upon, that's very helpful and a great foundation.

Paul Carroll

What about generative AI? How much is that being used? And how much do you think it can be used in the next year or two?

Jonathan Hendrickson

Overall, we believe that use cases in generative AI are still in the early innings. But it shows great promise. Gallagher has been running a number of proof of concepts to understand the capabilities of generative AI, and we expect we're going to be able to leverage it to help enable a number of areas, including our client, sales and service teams. We are encouraged about how these capabilities will help and support them.

Paul Carroll

Can you share a use case or two?

Jonathan Hendrickson

Gallagher started using generative AI for language translation, and so far it has been terrific. Prior to generative AI, we’d work with other organizations who would help with the different languages. For example, if you work in Quebec, you need to translate to French Canadian. In one of the really early wins, we found that generative AI language translation can give us a better starting draft.

We're doing other things, as well, including seeing how it can glean information from documents to better prepare other documents. A lot of work has been done determining how we help provide information faster for those who are going to be providing advice to clients.

Paul Carroll

That’s interesting. While with the Wall Street Journal, I lived in Brussels and then in Mexico City. So I've struggled with both French and Spanish. An AI translator would have been nice.

More broadly, how are agents and brokers leveraging technology to streamline and enhance their own internal processes?

Jonathan Hendrickson

Gallagher is working to leverage technology to streamline and enhance our business processes. We're using single-entry, multiple-carrier interface platforms to save time providing quotes to clients. We're also leveraging technology to provide a renewal process that is more digital, which saves time for both our clients and our service teams. We are also combining data with technology platforms to help provide advice through benchmarking and analytics. Creating more digital self-service options for clients while leveraging technology to help increase efficiencies are just a few of the ways that we're using these new capabilities.

Paul Carroll

To talk about Gallagher more broadly, how are you focusing on technology and innovation? And are there particular Insurtech sectors that are looking interesting to you?

Jonathan Hendrickson

Two of the top categories for Gallagher are digital enablement and data and analytics, including AI. Another area of importance involves evolving risk management solutions. It's an area we like to keep an eye on, if for no other purpose than just to be a good adviser to clients who are looking to leverage these kinds of solutions.

Paul Carroll

At The Institutes, we've begun a real focus on “Predict & Prevent.” Is that the kind of thing you're trying to do with clients? Or could you just tell me a little bit about what some of those risk management opportunities are?

Jonathan Hendrickson

Gallagher prides itself on staying on top of what's happening in the marketplace, even if it's not a service that we're offering to a client. It is important for us to be educated about trends so we can do a better job handling and advising about risk management.

“Predict & Prevent” is one of the services that we have been working on with clients. As an example, there are wearable devices to help employees with ergonomics and are designed to prevent injury. When you have people whose workdays involve a lot of movement, the devices can help them identify high-risk postures. If a device detects a high-risk posture, it gives them a little haptic buzz, and with the right kind of training and reinforcement, movements that can lead to injury can actually be minimized. Additionally, the behavior change can reduce uncomfortableness that diminishes employee production. So you can make the work environment better for people, and they don't have injuries that cost the company money.

Other technologies coupled with safety systems at workplaces that identify high-risk behaviors help employers know who needs additional coaching. All of this is designed to help people, which is ultimately a terrific outcome.

Paul Carroll

I love the themes you're talking about.

Jonathan Hendrickson

Besides the wearables, a lot of groups are trying to get out in front of water damage, which we know is a huge category of loss, with leak detection. And we’re seeing increasing interest from clients who are considering adopting some of those types of solutions.

Paul Carroll

It has always struck me that while rates are going up all over the place, they're coming down consistently in workers’ comp, which suggests that workers’ comp may be leading the way in terms of reducing risks.

This has been great. But is there anything I didn't ask about that I should have asked about?

Jonathan Hendrickson

I really liked the questions and topics we discussed today. These are the kinds of questions being asked, and here at Gallagher we are trying to work through solutions. Today's conversation seemed like a very natural extension of some of what the industry is trying to focus on and move toward.

Paul Carroll

Okay, perfect. I really appreciate your taking the time.

 

About Jonathan Hendrickson

Jonathan Hendrickson is the VP, Head of Insurtech Development for Gallagher. Prior to joining Gallagher in 2018, Jonathan was the Head of Global Strategy for Aon Hewitt and led partnerships for Insurtech and Analytics across Aon. Prior to Aon, Jonathan worked at McKinsey & Company where he served clients in both health and P&C insurance. Jonathan began his career working in technology with Cap Gemini Ernst & Young. Jonathan has his M.B.A. from The University of Chicago Booth School of Business and his B.S. and B.A from the University of Southern California, all degrees with honors.