Embedded insurance is one of the most frequently explored topics in insurance today, yet its potential remains largely untapped. We are limited so long as we consider the concept purely with an insurance industry lens. Unlocking the potential of embedded insurance involves a mindset shift from "point-of-sale" to "point-of-design."

The embedded insurance model is not at all new. We define "embedded insurance" as any instance in which an insurance product is sold in conjunction with a non-insurance product. Examples include bancassurance, point-of-sale warranty products, life insurance sold prior to an airline trip and, increasingly, insurance products bundled with vehicles or higher-risk pastimes (such as insurance bundled with ski passes). The emergence of application programming interface (API) platforms has made it possible to bring insurance products closer to their non-insurance vehicles. In these cases, insurance is typically positioned as a "bolt-on" at a point-of-sale (either as an "opt in" or "opt out" choice).

When we approach embedded insurance design as adding a point-of-sale complement, we miss the opportunity to create even more meaningful customer experiences. The opportunity lies in exploring the affinity between the insurance solution and the non-insurance product and how we can build unity in a singular value proposition. Doing so requires introducing insurance at the point-of-design, rather than as a bolt-on at the point-of-sale.

See also: Embedded Insurance: The New Hot Topic

We can think about point-of-design-focused embedded insurance as similar to the example of the original screwdriver set that was included with Google Nest thermostats.

The utility set was designed both to add value to the thermostat (providing an easy-to-use kit to install and remove the device) and to reinforce the overall value proposition of a simple, elegant and functional connected home product. It would have been entirely possible to add an off-the-shelf screwdriver along with the thermostat device that would have served a similar purpose -- yet the development of a point-of-design complement reinforces and extends the core value proposition. Embedded insurance has potential to achieve the same outcome if approached as a design opportunity, rather than a bolt-on feature.

The founder of frog Design, Hartmut Esslinger, articulated customer buying behavior in a way that highlights the need for point-of-design thinking: "Customers don't buy a product; they buy value in the form of experience and emotion." We create a singular experience when we design bundles of products that share an intentional and clear affinity. Weaving the value of protection services into the design of non-insurance products has the potential to render insurance products more tangible. Examples may include, for instance:

• Connected home solutions with advanced safety and maintenance features built into the property that detect and automatically manage risk (turning off appliances or mains supplies and automatically contacting emergency services)
• Personal vehicles designed to support wellness-focused internal recreational spaces as an extension of a bundled life, health and vehicle insurance package
• Sports equipment (shoes and clothing) with sensors woven into them that monitor performance and health as an extension of a goal-directed training and wellness package that includes personalized life and health insurance risk mitigation and protection, and that connects to a branded community of similar users.

See also: Embedded Insurance and the Gig Economy

The challenges in creating point-of-design embedded insurance solutions are significant. The first question is where to start. Which industry and which products should we focus on? Secondly, who would be the right partners to engage? Overcoming the obstacle of different industry-focused mental models and practices and ensuring true co-design will not be easy. And thirdly, how can embedded insurance solutions help agents to effectively manage their book of business?

Underwriters spend up to 40% of their time on non-core and administrative activities like re-keying and manual data entry. 

As a result, many underwriters fail to service all the requests for coverage they receive. Time and energy that could be allocated toward more meaningful activities — like improving broker interactions, effectively pricing risks and winning new business — is wasted due to redundant, manual processes and inflexible systems. 

Brokers grow frustrated when they don't hear back from underwriters in a timely manner. Likewise, low-value activities often take time away from more thoughtful risk analysis — ultimately leading to poor risk selection and portfolio management. 

In a business environment where time is one of your organization’s most valuable assets, process efficiency is a top priority. But technology is maturing just in time to respond to common challenges in the underwriting world, allowing underwriters to refocus their time on what they do best. 

A day in the life of an underwriter 

As an underwriter, your first task of the day is to wade through your inbox and identify the risks worth opening — you’re looking for a profitable needle in a haystack of emails. An hour later, you’re 80 pages deep in the first risk you’re analyzing when you realize the broker failed to flag that coverage is needed for something your reinsurance doesn’t handle. 

So, you pass on that risk, meaning a wasted hour on your end. Although you’re frustrated, it’s still early in the day so you shake off the error. Things are looking better as you start reviewing the next risk in the queue, until you discover this broker also made a key oversight — they failed to include the engineering report on the request's most important asset. 

While waiting for a response on that information (which takes another hour), you pull up the rest of the applicant’s information and documents, which includes miscellaneous web forms and Excel spreadsheets. When you enter the applicant’s information into your workbench, you receive a clearance error because you mistyped the name of the cover and misplaced a decimal point when inputting the rebuild value. You contact another broker to resolve these issues and get an out-of-office email in response. 

Before you know it, your day is over — and you’ve failed to move forward even a single risk. Not only is your own work incomplete, but you haven’t had a chance to respond to brokers on other potential business opportunities. 

While this example is a worst-case scenario, it’s not far off from an average day for underwriters. Frankly, underwriters have struggled to service the volume of requests they’ve received over the past few years in a soft market. So how will underwriters cope in today’s hardening market — with submission volumes multiplying — where brokers are searching high and low to find capacity?

Scaling to meet these insurance challenges isn’t achievable via traditional methods like increased headcount and expense bases. You need technology intervention to close the gap. 

See also: 2022 ITL Yearly Wrap Up

Outdated technologies and inflexible systems undermine your underwriters’ success

Inefficiencies are all too common in underwriting. With loads of important information buried in disparate documents and forms — and processes that make it difficult to navigate business needs — underwriters are simply not set up for success. 

If your technologies and processes are weighing you down, consider whether the statements below apply to the underwriters at your organization. If so, it’s time for a tech upgrade. 

1. Disjointed data limits automation and efficiency. Your underwriters manage and extract data from siloed and often complex sources like medical reports, policy documents, applications and survey reports. The lack of standardization makes it difficult to automate data extraction, so you rely on time-consuming and costly manual data processing efforts. 

As a result, underwriters spend too much time sorting through, keying and compiling data. They lack time to respond to brokers in a timely manner, which damages the customer experience and causes underwriters to miss out on new business opportunities. The ability to respond swiftly to brokers is often the key to winning more of the business you actually want to write — and digitizing this process relies on clean and accurate data lifted straight from broker submissions. Support your underwriters with technology that facilitates accurate automation, regardless of inconsistent data formats. 

2. Underwriters can’t access the right data at the right time. Do your underwriters waste time waiting for answers and documents? How much time do they spend analyzing a risk before they identify a red flag or a treaty gap that prevents them from writing the risk? Without the right data at their fingertips, the insurance application drags on, wasting time and resources. 

At the same time, underwriters grow frustrated because they would rather spend time on initiatives that add value to the business instead of waiting for information and answers that may never come. Underwriters require technology that provides access to accurate data so they can maintain efficient processes and reallocate the time they would spend waiting around to more strategic initiatives. 

3. You lack confidence in your risk assessment and pricing. Human error is inevitable if your organization relies on manual processes. An underwriter or actuary can easily miss a key data point hiding in an Excel spreadsheet cell or enter duplicate data — especially when trying to quickly replicate loss runs that are baked into a PDF. With human error likely, it’s important to build additional steps into your process that help check (and then double check) inputs. 

See also: Why Underwriters Don’t Underwrite Much

To more accurately price risks and reduce losses, your underwriters require tools that provide easy access to each piece of relevant information — and that data must be captured accurately. Without a digital repository of information to draw insights from, underwriters are left to rely on experience and gut feelings, with no way to systemize insights, eliminate cognitive biases and pinpoint poorly priced risks in the market. And there's no point in investing in data augmentation if it’s being appended to an inaccurate or incomplete record.

If you aren’t sure where you stand with your current technologies, the most important step is to listen. Survey your underwriters, gather and analyze the results and determine how to proceed from there. To keep conversations aligned on your overarching business needs, center discussions on strategies to achieve scale and automation in an industry that’s filled with deep expertise and built on human relationships. 

You’ll find that the right technology won’t replace or automate the role of the underwriter — it should empower them to focus on bringing more value and revenue to your business.

As carriers, agencies and brokers begin the new year, economic uncertainty is on everyone’s mind, and insurers are looking for ways to increase and maintain wallet share. One thing is certain: Loyalty is earned and not bought. A new year is a great time for a fresh start, and decision-makers are evaluating their organizations’ approach to core functions and workflows, including the role insurance technology plays in creating loyalty and generating revenue.  

They’re taking stock of the customer experience across the board, from quoting to claims and payments to referrals, in the context of the entire insurance ecosystem and its multiple stakeholders. Many are finding they’ve drifted away from the cadence they were striving for, and they’re struggling to support their distribution and partner ecosystem and stay top of mind with customers. 

In 2023, doubling down on loyalty will be key. For insurers, this starts with reflecting on why you’re in the industry in the first place. Insurance company slogans are all about rock-solid steadiness, reliability and protection and caring, and that’s why you’re in the business -- to provide guardrails so individuals, families and businesses can move seamlessly and safely through their lives with the appropriate coverage.   

That mission is shared throughout the digital insurance ecosystem, so now is a great time to get back to this promise by doubling down on loyalty. By building trust in a social environment where we are at a low point and showing up to support your ecosystem, you can defend wallet share. Here’s a look at how you can harness trends to create more loyalty and trust across the board in 2023: 

• Sharing quality data: It’s easy to lose sight of this critical objective because there are so many stakeholders involved, but carriers, agencies, brokers and distribution networks need to share fresh, relevant data across channels and as needed to better serve customers. Sharing data empowers the digital ecosystem with the right information at the right time to leverage the investments you and your partners have made in the cloud. But while collecting data securely and enabling data application at scale is important, it’s time to challenge yourself to make the most of it by using data to create value across the entire customer journey. Start creating loyalty at the first interaction.  
• Refining your ideal customer profile: The current economic situation isn’t the only factor that contributes to a pervasive societal feeling of unease. Weather patterns are changing. Concerns about cybersecurity are on the rise. It’s time to ensure you are growing and adjusting your business to match your ideal customer, while at the same time acknowledging that your ideal customer may not be who you started with. Sometimes your ideal customer will change, and at other times your product will need to change so you can continue to support your ideal customer. It’s integral to the promise you make to customers to be there for them, so help customers by providing the right policies for them.  
• Bringing policyholders and end consumers into the conversation: This isn’t a new trend, but communicating with customers is even more critical in a time of uncertainty and when consumer spending is down. Obtain the appropriate consent from the customer and get the data you need to be part of their life on whatever channels they choose. Help customers understand what’s covered and what’s not. Communicate about policy changes. Remember that policyholders typically don’t shop for insurance until they buy something new that needs to be insured or after filing a claim. That’s when churn happens, but you can prevent it by working to build a long-term relationship with customers at the start and respecting their communication preferences.  
• Delivering convenience by moving seamlessly between channels: The demand for convenience is a persistent trend, and it will continue. So it’s essential to create convenience at every point of contact, from the first quote to claims resolution. Optimize your workflows and offer multiple channels so customers can complete a task from the first time they reach out to you. Allow them to move seamlessly through channels, i.e., from a call to a text to a secure web interface. The old customer service standard used to be “first-call resolution,” but in a multichannel world it’s now first-touch resolution.  
• Providing reassurance on privacy and safety: With trust at a low point, it’s important to assure all stakeholders that you’ll be honest and straightforward and follow through on this promise. That goes for end customers and the partners in your ecosystem. If something goes wrong, get out in front of it and be forthright. Admitting mistakes and working to correct them builds trust and nurtures valuable relationships.  

See also: What's in Store for Us in 2023

Here’s another prediction to keep in mind: Times like these are when bold leaders who believe in trust and value can really shine, so challenge yourself to be that intrapreneur or entrepreneur. If you're honest and upfront with people, offering convenience, sharing data and being a good partner, you’ll be in the best position to fulfill the industry’s promise of stability and safety. And trust, loyalty and success will flow from that, even in an uncertain world.

When the pandemic hit nearly three years ago, the world didn't have a choice: Everyone who could work from home worked from home. And after we all sorted through the many kinks -- figuring out when to mute ourselves so colleagues didn't hear toilets flushing on Zoom calls, how to keep the cat from jumping onto the keyboard and in front of the camera, how to firmly signal to the kiddos that Mommy and Daddy are working, etc. -- work from home seemed to go well. Companies reported increased productivity, and employees appreciated the flexibility, as well as the time and money they saved by not having to commute.

The question was whether the trend would last. Certainly, some major companies indicated it would, by moving out of big chunks of office space. And employees who want to work remotely seem to still have considerable leverage, given the low unemployment rate and number of job openings. But some companies, especially in the tech world and in finance, have initiated returns to the office, and they are often bellwethers. 

So, where do we stand? Well, LinkedIn has weighed in with data based on a study of paid employment ads on their site, and the answer is: Yes, remote work seems to have peaked last summer.

Actually, the study isn't just from LinkedIn and based on 60 million paid job postings. It's from a longtime friend and colleague from my days at the Wall Street Journal, George Anders, who is now senior editor at large there. I trust LinkedIn's data plenty. I trust George implicitly.

Here is the basic finding:

Now, the data don't even show that the percentage of job postings for remote workers has headed back down to where it was at the beginning of 2021, after vaccines had started to become available, let alone to where remote work was during the first, unrelenting wave. But it does show what looks to me like a significant trend. 

George quotes Marc Benioff, the CEO of Salesforce, who was an early enthusiast about remote work, as worrying in December about whether remote work "could undermine the cohesive, get-it-done culture of the physical workplace. 'Are we not building tribal knowledge with new employees without an office culture?' Benioff asked in an internal Slack message at Salesforce. He played coy in his note, saying he was 'asking for a friend.' But Benioff’s message quickly leaked to the media, generating wide debate about whether remote work might not be such a win for employers after all."

That's not to say that a wholesale return to the office is a done deal. George reports that "LinkedIn’s Economic Graph team tracked the intensity of application rates for what’s now a shrinking pool of remote-focused jobs. Candidates’ appetite for such positions is so keen that remote jobs in recent months have been getting as much as 50% of all job applications tracked by LinkedIn — even though such positions are barely 15% of the total jobs pool."

In other words, while employers may want everyone back in the office, that doesn't mean potential employees are ready to head there.

I, for one, am a big fan of remote work. That's pretty much been my work life since I became a reporter at the WSJ in 1986 -- you're expected to be out and about, and you're judged entirely by what you get into the paper, not by whether you're in the office. When I left the WSJ to become a partner at a consulting firm a decade later, I ran an organization of remote workers that was successful enough that our little publication was a finalist for the National Magazine Award for General Excellence. And I've been working remotely ever since. 

I also think that a large percentage of jobs in insurance are amenable to remote work, and that any serious effort to deal with the industry's talent crisis needs to lean into workers' desire for flexible work schedules. 

I just think it's worth noting that the peak for work-from-home appears to have past, at least according to the hopes of employers.

Cheers,

Paul

The New Year is the perfect time to take a moment to show gratitude and thank the people who contribute so much to our businesses -- employees and clients alike. After all, they are two of the most important parts in making a business successful.

I. Employees

Our remarkable team works tirelessly, day in and out; whether it be delivering solutions to customers or creating ground-breaking innovative solutions. With their dedication, entrepreneurial energy and commitment, we are able to capitalize on opportunities that drive success all year round - making them an integral part of realizing any dream.

As leaders, we owe a debt of thanks to our employees for their hard work and dedication in making our businesses successful.

II. Partners

Business success relies on developing positive partnerships with our clients. By listening to their needs and considering their perspectives, we show them that they are valued partners in the process -- not just customers but collaborating partners.

This helps build strong relationships based on mutual trust and respect, where all parties benefit from working together toward shared goals; something that often leads to friendship among employees and clients alike! While there may be challenges along the way, when you treat your clients like true partners it sets everyone up for greater opportunities down the road.

III. Perseverance

Succeeding in any goal requires a combination of both perseverance and luck. It's not enough to just rely on chance; having the inner strength, motivation and courage to bravely tackle whatever challenges stand between you and your goal is equally essential.

I've been fortunate enough to have the right people come into my life at the right time, and their support has been instrumental in helping me reach my goals. I'm grateful for all the help and guidance I've received along the way, and I know that, without it, I wouldn't have achieved as much as I have.

There really is no "i" in team.

IV. Leadership

Leadership is the ability to guide and direct others toward a common goal or vision. It involves inspiring and motivating team members, setting clear expectations, providing support and guidance and making tough decisions when necessary.

It's important for leaders to show appreciation and gratitude to their team members for their hard work and contributions. When team members feel valued and appreciated, they are more likely to be motivated and engaged in their work. This helps foster a positive and collaborative work environment and can lead to better outcomes for the team and organization.

Leadership will have a significant impact on the success of a team or organization. Showing gratitude and being open to feedback are key components of effective leadership that can help to inspire and motivate team members.

See also: 7 Things Sailing Taught Me on Leadership

So what does the sailing photo have to do with gratitude?

That's me on the bow of an Oyster yacht racing at Antigua race week. Sailing is one of my passions. Without success, I'd likely not be able to to sail as much. For that and for all those who have put their trust in me and helped along the way, I am truly grateful.

I hope this year brings all the growth and success you wish for.

Fair Winds and a Happy New Year!

Traditionally, preferred provider networks take a one-size-fits-all approach, building broad networks of providers to serve a wide range of needs. However, that approach isn’t ideal for every organization. As the industry shifts to a more holistic approach to managing claims, a tailored approach to provider networks, from medical care to ancillary services, is a smarter solution for many payers. 

It’s time to examine what injured workers need from their providers, which providers deliver the best outcomes and how a customized network supports the organization’s goals. Leveraging technology to analyze claims data gives the insight to curate a network of providers that matches the requirements of each unique organization.

The Shift to Custom Network Solutions

As the workers’ compensation sector adopts a more patient-centered care model for injured workers, the approach to developing provider networks is changing. Instead of asking, “how many providers can fit in the network?” the question is now, “how many providers in this network can deliver the outcomes our clients require?” It is important to select providers near where injured employees live and work, but an optimized provider network takes a deeper dive into the types of medical care needed for the most common work-related injuries. It is also crucial to identify the providers that produce the best medical outcomes by evaluating the appropriateness of their medical decisions, their ability to engage patients in recovery and their focus on treating the whole patient. 

These tailored preferred provider organizations (PPOs) may include specialized physicians for common injuries, diverse office locations, access to remote care, educational or translation services, mental health options and ancillary services. With ancillary services making up an average of 30% of total medical expense, a complete range of ancillary service providers should go through the same vetting process as physicians and physician specialists. These services include physical therapy, durable medical equipment, diagnostic imaging, home health, transportation and translation assistance.

See also: Highlights on New Workers’ Comp Rules 

Listening to the Data for Network Development  

Today, data analytics is being leveraged to create tailored provider networks. The geographic location of businesses and employees, and details of the nature and severity of injuries, provide insight into the needs of a patient population and the types of services that should be included in the network. Comparing data on diagnosis code, time to initial treatment, total duration of care, total cost of the claim and return-to-work days with industry guidelines allows organizations to assess individual providers and adjust the network to reach performance goals.  

Technology also connects providers to patients through telehealth, improving access and outcomes by delivering care quickly and conveniently. Patients who have difficulty getting to appointments due to distance, transportation or scheduling issues experience delays in treatment and longer claims. Virtual care can close this gap with connectivity from the initial report of injury, to physical therapy and cognitive behavioral therapy, to the delivery of prescriptions and durable medical equipment. Integrated portals link providers for greater visibility and real-time access to information, while frequent touchpoints ensure efficient care and appropriate utilization. 

Developments in machine learning and AI-driven technology constantly improve methods for gathering, storing and analyzing data on claims processing and compliance reporting. This data continually informs decisions about network development and management. With assistance from technology and codified data, tailored network solutions are monitored and refreshed to ensure that care options remain current and that the claims process flows seamlessly from beginning to end.

Improved results are a testament to the value of customized, technology-driven networks. Research has shown that networks leveraging these technologies have 30% greater data accuracy, an average of 80% network utilization and a 43% decrease in medical costs.

Customized Networks Deliver Tangible Results 

Using advanced technology to create tailored PPOs improves outcomes while delivering significant savings. Companies with custom provider networks experience 50% shorter treatment duration, nearly 60% lower average medical expense and 35% shorter claim duration. For ancillary services, CorVel’s tailored approach results in 21% lower average physical therapy (PT) claims, 32% lower average visits per PT claim and 21% lower total PT costs compared with other providers. Expenses for durable medical equipment are even 40% lower per claim than competitors'. 

With the right provider network, patients receive the care they need and return to health more quickly. A holistic network model offers the best value for employers, insurers and everyone else involved.

I don’t want to be known as a grumpy old man, so I limit my public railings against the state of the business world to one a year. This time last year, I let loose on the overuse of hyperbolic language in marketing content. This year, it is procurement departments that have incurred my wrath.

By way of context, I’ve never been very good on rules for rules' sake. I went to an all-male private school in the 1970s that was still working on the assumption that Britain had a huge empire and needed competent, compliant and uninquiring young men as officers for the armed forces and to send to distant corners of the empire to keep the locals in check. School rules included not putting your hands in your pockets and, more irksome, being banned from the fish and chip shop. I repeatedly broke both rules and instead of accepting my punishment exacerbated the situation by asking the teachers to justify the rules, as I thought they were pointless. Have you any idea how much trouble you get into in a minor public school for asking a teacher to justify a school rule?

Which brings us neatly to procurement and my issues with it. I understand the need for it, just like I understand the need for school rules. Every business needs to manage supply chain risk, comply with the law, maintain certain ethical and environmental standards and ensure that the suppliers they engage with do, too. Nor is there anything wrong with seeking to negotiate the best price and contractual terms. What is wrong, and it was the same at my school, is to enforce a wide-ranging set of rules initially derived for perfectly justifiable ends in a way that has become completely devoid of context, common sense, proportionality and pragmatism.

Let me illustrate with some insights into how procurement affects small companies like ours. For context, we have 18 employees, and our average invoice is £10,000 for a year of membership. I’ll divide my observations into categories – the five P’s.

Process – there seems to be only one kind of process – a very long, rigorous and cumbersome one. It is drawn up for use on multiyear contracts involving many millions of pounds. There seem to be no shortcuts and no alternative process for smaller engagements. It takes on average two to three months to fulfill the procurement requirements and a lot of hard work - the cost of which eats up much of the fee. On one £10,000 contract in 2021, we took five months to get through procurement and another month to be paid.

Policies – one of the more time-consuming parts of the process is the production of policies. Company policies run to hundreds of pages and cover many aspects of the way we run the business - Health and Safety, Data Protection, Sustainability, Equality, Sub-Contracting and many more. All these things were at one stage dealt with by way of contractual provisions in the master contract.

See also: State of Mental Health in the Workplace

My particular bugbear is to have to produce an anti-slavery policy. We work our staff pretty hard, but we don’t keep them in chains, and they do get paid! Why can’t we have a line in a contract in which we commit not to use slaves? Not difficult to sign up to! When you’re a company of 18 employees, all based in the U.K., what does producing a policy about use of slaves achieve? But produce it we must, and it means that many of us owe a massive debt of gratitude to the person who first produced an anti-slavery policy years ago -- the one that thousands of companies like ours have been cutting and pasting ever since.

And I haven’t finished yet. Say I did use slaves; would I really admit it in the procurement process? No, you’d just produce a policy that you didn’t adhere to and carry on. And how about if I was self-employed? Would I still need to produce a policy on how I don’t intend to treat myself as a slave?

The PO Number – now, you might think that, having been put through procurement hell at the start of the contract, you might be spared further pain when it came to renewal at the end of year one. But no, that is not how it works in some cases. To get the invoice for year two fees paid, you need a PO number, which comes from – you guessed it – the procurement department. Incredibly, the production of this number takes on average one to two months and in one case this year five months. Really?

Payments - there are some kind and sympathetic senior executives in big companies with muscular procurement departments who know what it is like to comply with procurement and are in truth embarrassed by what it puts suppliers through. So, they, unlike the procurement teams, exercise some initiative and find a way around it. The most common workaround is to pay the small invoices like ours on their corporate credit cards. I can’t tell you how much we appreciate the folk who put themselves out to do this, but it does have a side effect. They can rarely pay the full amount all at once, so we agree to two or three installments over the year, and lo and behold we’ve ended up financing the invoice of companies that all earn more income in two minutes than we earn in a year!

People – it is very rare that you ever meet anyone who works in procurement or will admit that they do. But given the amount of resource it involves, there must be many hundreds of thousands of people engaged in procurement roles. That being the case, why can’t I get hold of anyone? Why will no one speak to me when I plead for mercy? If the process wasn’t so charmless and faceless, it might be bearable – but it’s usually both.

To be clear, this rant is not aimed at a handful of companies that have offended me in the last couple of years. This issue and the experience described is widespread and not limited to insurance. As a rule of thumb, the bigger the company, the more insensitive it is.

So, what’s the point of writing this? I can’t deny that it’s a cathartic to get it off my chest, but the real reason is to raise awareness of it as a phenomenon and encourage a second look at the purpose of procurement, a re-evaluation of the extent to which it really is achieving its desired objectives given the collateral damage it causes both reputationally and to third parties.

It's also worth asking whether the procurement process is really saving money? Every procurement department can point to the millions of pounds saved each year as result of their intervention, but is it materially more than the cost of running the procurement department plus the expense the supplier is out plus the financial effect of the delays it causes? Bear in mind that counter-parties with real leverage will load the costs of meeting procurement requirements into the contract price. When all the consequences to all the parties to the contract are considered, procurement doesn’t reduce the total cost – it just shifts the economic benefit in favor of big companies over small companies. And it fortifies the status quo because it favors bigger, better-resourced companies over younger, smaller more innovative companies that either can’t jump the required hurdles or spare the resources to meet them.

Nor do I understand why smart companies that put so much effort into customer satisfaction care so little about their supplier relationships. When most big companies are so desperate to burnish their corporate credentials as green, caring and socially responsible, why act so inconsistently with those values and regularly dump on suppliers? Many senior executives in big companies are embarrassed by what their procurement department puts suppliers through, and that can’t be right.

You may not think so if you’ve got this far, but I’m not a grumpy old git – I’m an optimist, an innovation evangelist and a great believer in the next generation. They have already shown that they have the attributes required to do a better job of running the world than my generation have. I reckon that with climate change, housing prices, national debt and pensions funding, to name but a few, we are going to leave enough messes for them to sort out. It’s not difficult for big companies to make the small adjustments required, so let’s not leave the next generation to sort this issue out, too.

So, here’s my 2023 New Year’s resolution for the insurance industry and all those that deal with it – let’s start getting better at procurement. Behave less like the secret police in a totalitarian state and procure in a more empathetic, flexible, open, friendly and fair way. Be a company that suppliers find good to work with and not painful.

As for my own New Year’s resolutions, I have a few, but I’m still that unteachable schoolboy at heart, so I suspect it won’t be long before they’re breached. In the meantime, I’m off to the fish and chip shop with my hands in my pockets while I still can! Happy New Year.

2022 was a confusing year in claims. Inflation wreaked havoc in many ways – but technology matured and helped many claims operations streamline their work significantly. To see what 2023 holds in store, ITL Editor-in-Chief Paul Carroll talked with Andy Cohen, president and chief operating officer at Snapsheet, an innovator in claims management. Cohen says claims operations are poised to go on the offensive in 2023 and make great progress – though not necessarily in the ways you often read about.

ITL:

To get us started, how would you summarize the year in claims in 2022?

Andy Cohen:

2022 was a really challenging year for the industry, writ large, both from a macro and a micro perspective. Inflation obviously affected the cost of repairs and all the inputs in the insurance value chain. And you had this bounce back of both frequency and severity of losses. The year was pretty benign for Cat, but then Hurricane Ian was one of the biggest storms ever. From a claims perspective, people were resetting and on the defensive in 2022.

That really sets up for 2023 for the carriers. I think most carriers are going to go on the offensive now that they have an established base on frequency, have their staff fully back and can execute a playbook to attack both expense and loss costs.

ITL:

In terms of the technology that you and others are developing to process claims faster and more efficiently, how would you describe the progress in 2022? And then what do you see maybe being possible in 2023?

Cohen:

2022 was very much a continued acceleration of technology that can drive the right work to the right people at the right time. Technology increasingly helps reduce human interactions on claims, managing expense while sifting through the files and identifying those that need a human touch. There was a huge amount of progress among companies that are bringing claims in-house for the first time, insurtechs that are building claim operations and MGAs [managing general agencies].

I think 2023 is when the major carriers really start to focus on automation. It’s not for the sake of reducing people. It’s moving claims from a reactive process – think of an old school, diary-driven, analog process – to a digital, proactive process. That’s where we're seeing carriers really focus the capex investment and R&D dollars. You’ll have this whole new cohort of claims resources that replace the people who left the workforce, and the technology will point them in the right direction and guide them through the claims management process in a way that hasn't been possible with legacy technology.

ITL:

I'll run something by you that I wrote recently. I think people are maturing in their understanding of technology. Rather than seeing AI or some other technology as the answer to everything, they’re focusing more on how it can solve actual problems in a real business setting, even though some of those problems may not be that sexy.  For instance, there’s a ton of focus on how AI can inspect photos of auto damage and render a quick estimate – but that doesn’t actually take that much time out of a claims process that can last weeks, and AI can speed that process in lots of other ways, too, perhaps more important ways. Does that thesis make sense?

Cohen:

Your thesis is spot-on. The tag line I like to use is, Let's move from alchemy to reality.

There's a huge opportunity to take these discrete steps, whether it's models, whether it's AI, whether it's workflow, whether it's predictive analytics, and string them together to get to a much more powerful outcome. You get a much clearer ROI, whether that’s in a better customer experience or in reduced loss cost or expense.

It's really about simplifying the process. When anyone in the world gets in an auto accident, only three things can happen. They're going to have the vehicle repaired, they're going to cash out or it's going to be a total loss. Carriers are using technology and workflow to figure out as fast as possible, is it going to be a cash out, is it going to be a repaired claim or is it going to be a total loss. Then they get the right resources, including the right people when a person is needed, based on the desired outcome. Carriers of all types – auto, home, commercial lines, personal lines – are tackling these really challenging issues with design-based thinking that starts with, What is the best outcome for the customer?, and uses technology to free up scarce, knowledgeable human capital to work on the parts of the process in the middle that aren't super easy or aren't super clean.

ITL:

Triage based on AI seems to be something that loads of companies are working on.

At the risk of digressing for a moment, how good has AI estimating based on photos gotten?

Cohen:

The AI is exceptionally strong at identifying whether the car is going to be a total loss, though that was more challenging this year because rapid inflation meant the cars were worth more. Total loss rates actually went down a couple of points this year as a result. The AI is also getting really good on certain use cases – light hits, low damage, older model years – but it's not where it needs to be. If an estimate takes 25 minutes, maybe the AI can shave a couple minutes off a medium-severity estimate, but the AI costs more today than the two minutes is probably worth.

The real benefit is operationalizing technology in the end-to-end and doing it so that as the AI continues to advance and goes from saving two minutes to 15 minutes, we can take advantage of it.

ITL:

When you take a look at the whole process, how much expense can you take out of the claims process?

Cohen:

It depends on the line of business, but with our claims platform we've been able to remove the adjuster from significant chunks of work. If you think about the adjuster in the legacy world as a switchboard operator, they had to do things like confirm coverage, understand the limits deductible, set the reserve, send an email, acknowledge it, perhaps pass it over to a vendor to go assess the damage or fix the car. Think about all the steps the adjuster had to take to keep everything moving. But we’ve seen dozens of carriers go from automated coverage verification or fraud detection through setting the reserve and communicating automatically and passing the assignment out. 65% of all communications coming out of our platform are automated.

That’s where you’re not talking just about taking out minutes of work but can get three or four times the level of efficacy out of your adjusters by removing administrative tasks from the equation. On a claim of $4,000, adjustment expenses might be $400 to $500, and you can take a big chunk out of that. Meanwhile, adjusters can spend more time on complex cases, walking the insured through their options and the process and the next steps and generally keeping them informed.

You also get huge benefits from a compliance and regulatory standpoint. If it's a property claim in Florida and you need to attach the Florida Homeowners Bill of Rights to your communications, the system can automatically do that. The customer submits documentation or invoices or receipts, and the system says, Yes, I received them. Think about how much that reduces inbound calls asking about status. We're seeing just massive savings right now.

ITL:

How much time can you take out of the process?

Andy Cohen:

We passed 700,000 appraisals and supplements last year, and we’ve been able to scale while maintaining best-in-class cycle times. We can complete an estimate in just a couple of days, and that's hugely valuable because that reduces the need for rental and storage. Before COVID, the average number of rental days for a claim was roughly 13 days, and in 2022 we approached 21 days. When you shrink that time, you not only cut expenses, you improve the customer experience.

ITL:

To zoom out a bit, I assume that, as chaotic as the auto repair world is at the moment, electric vehicles are going to toss all the cards up in the air.

Cohen:

The penetration of electric cars is far outstripping the ability to repair them. They’re just different. There are way more sensors on the cars, way more parts. Even the bay you use to fix them needs more space.

ITL:

Sounds like there will be plenty for us to talk about this year and well beyond. Thanks for taking the time.

Once upon a time, insurtechs talked trash about incumbent insurers. Nowadays, they definitely have sweeter words for incumbents.

Lemonade moved from affirming customers' distrust to celebrating a partnership with a "known and trusted for years” incumbent. Similarly, at its last investor day, Hippo dropped the names of previous employers (all well-known Insurance incumbents) of their leadership team members to affirm the credibility of their plans:

As we did recently for Lemonade, (you can read it here), let's dive into Hippo's investor day (here is the entire recording) and quarterly figures.

In a previous edition of this newsletter, I highlighted Hippo's "connected home approach and the embedded component [I like both these elements] and the bloody technical results of their book of business [I don't like them]."

Top Line

The positive signs shown by Hippo in the second quarter have been confirmed in the third.

Loss Ratio

On the claim side, the signs are less positive. Last quarter had a 110% loss ratio, despite seven percentage points of favorable development from claim reserves. The performance was far worse than at the top 10 homeowner insurers even though they had a horrible 98% loss ratio in Q3 '22, according to S&P Global data).

Even acknowledging that the trend is improving from last year, the loss ratio of 89% in the first nine months of 2022 is far from sustainable.

See also: Embedded Insurance Is Everywhere

Combined Ratio

And the combined ratio doesn't look good at all... mounting to 138%.

Net Losses

The quarterly losses are still a major concern: $129 million in the third quarter (even if $53.5 million is for goodwill impairment), which brings:

• the cumulative losses for the first nine months of 2022 to $270 million
• the cumulative losses since inception to almost $900 million.

Considering the mounting losses, can a turnaround be quick enough to stop the bleeding before all the cash is gone? In each earnings call, management has reassured investors that they will "reach bottom-line profitability without the need to raise additional capital." However, this is the elephant in the room.

Some of the digital assets presented by Hippo management at the investor day were pretty interesting. Let's look at them:

1) Embedded Distribution. Embedded insurance is the most hyped topic in the sector nowadays, Recently, I commented that "everybody is trying embedding insurance somewhere." However, more people talk about it than are actually selling policies. Well, Hippo performs pretty well with embedded insurance. They created a tech architecture to effectively manage it and an industrialized approach to scale partnerships. About 50% of their homeowner insurance sales in August (maybe they shared this figure just because it was the best month) were from embedded insurance partners. Among these partners, mortgage originators and builders are the best-performing. (It makes sense if you understand the typical behavior of a homeowner insurance policyholder in the U.S.: A survey by the IoT Insurance Observatory a few years ago showed how about 60% of the families interviewed have had the same insurance coverage since they moved to a new home.)

2) Smart Home. This has been an element of Hippo's story since inception. Challenged about the benefits of this technology in some earning calls by analysts, Hippo has talked about acquiring less risky homeowners (more self-selection than a real risk reduction).

I've seen many incumbent insurers doing much more better with he usage of smart home devices. Being a promoter of smart home insurance approaches for a while, I believe their use of this technology is pretty primitive. It is disappointing to hear that the best they can actually do is only to know that a device is still active and to confirm a discount based on that. The IoT paradigm should be used for something better.

3) Home Care and Maintenance Checklist. This tool to engage with the policyholder and influence behavior is definitely more interesting! Initial traction had already been impressive, with half of the policyholders (who downloaded the app) activating Home Care and one-third of those implementing the recommendations. They also implemented a feature to provide a virtual service call. This will probably not affect the loss ratio in the short term but definitely has potential for a return in a few years. (I've already seen positive impacts generated by the usage of QR code-based IoT approaches to promote compliance with safety and maintenance tasks.) Some of the Home Care features seem to be the foundation for monetization. Hippo shared the ambition (even if still has to figure out how) to sell additional services to its customers.

4) Book a pro. Here is the monetization through a platform strategy for home protection services!

One of my 2022 posts that was read the most was about "why should an incumbent buy one of the listed full-stack insurtech carriers?" That was almost a year ago. I was pretty skeptical that there was any rationale for an incumbent.

Since then, valuations have dropped significantly. Maybe it is time to consider the opportunity. Hippo's digital assets would generate hundreds of millions of dollars in synergies on the homeowner insurance business of a large incumbent. Moreover, as I write this in late December, Hippo is trading at something below 0.5 their tangible book value. Their market cap is around $270 million (down about 85% in the last 12 months).

I would not be so surprised to see an established U.S. insurance incumbent acquiring them at the current valuation as an answer to the bold innovation moves already done by some of their competitors on homeowner insurance.