KEY TAKEAWAYS:

--A leading data provider gave SVB a good overall ESG rating and an upper end score for governance--demonstrating the potential limitations of relying too much on single sources of outsourced, off-the-shelf ESG data.

--Increasingly, using ESG data blindly can be avoided. Insurers can supplement or cross-check rating scores with the expanding range of data available to validate and set ESG strategies.

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During the pandemic, Silicon Valley Bank (SVB) saw a huge increase in customer deposits, which nearly tripled from pre-pandemic levels. Some of these deposits were used to provide loans to other customers, but the bank also invested them in U.S. Treasury bonds and other bonds deemed high-quality by rating agencies.

When the Federal Reserve began raising interest rates, the U.S. yield curve shifted upward, putting downward pressure on the price of these bonds. Ordinarily, this in itself would not be an issue, as the bank doesn’t have to sell these lower-value assets at their new valuation, unless it requires liquidity to meet demand for withdrawals. Yet, that is exactly what happened with SVB: Customer withdrawals rose more than expected, and, to meet the need for liquidity, the bank had to sell these bonds at a significant loss.

SVB, in turn, announced that it would need to raise capital. Investors sold off the stock, and customers made a run on the bank for their deposits, trying to withdraw $42 billion on March 9. The following day, the Federal Deposit Insurance Corporation took over SVB’s assets. Similar concerns were raised with other banks, including Signature Bank in New York.

Green appearances can be deceptive

One less-reported aspect of its failure (including the sale of SVB's U.K. subsidiary to HSBC) is that it was well-rated from an environmental, social and governance (ESG) perspective. A leading data provider gave SVB a good overall ESG rating and an upper end score for governance.

What happened with SVB demonstrates the potential limitations of relying too much on single sources of outsourced, off-the-shelf ESG data. As important a source as third-party ESG ratings and scores are, SVB’s collapse shows that insurers must take greater ownership of the data on which they rely for setting a more sustainable investment strategy.

Beware ‘black boxes’

Currently, a lot of insurers that we speak to are still treating their third party ESG data as "black boxes," where they use the data provided without analyzing the methodology used to create the data. SVB was rated well because of its focus on creating initiatives to advance inclusion and opportunity in the innovation economy and its investments in clean energy solutions. SVB was seemingly a sound ESG diversification bet.

Increasingly, using ESG data blindly can be avoided. Insurers can supplement or cross-check rating scores with the expanding range of data available to validate and set ESG strategies. For insurers, there are clear parallels to the rationale for why and what the Prudential Regulation Authority and the Lloyd’s Market already expect with regard to validating the output of external models (e.g., economic scenario generators and CAT models). Stronger ESG investment controls will likely have capital management benefits in the future.

Ways forward could include using more than one data vendor to get different perspectives. This could also go hand in hand with developing an approach for a company sourcing their own data that more accurately aligns to their specific ESG beliefs, ambitions and targets, such as achieving net zero by a certain date, for example.

The fundamental goal should be to establish a sense check and validate primary data. Other avenues to explore could include periodic deep dives into specific sectors of investment interest to understand what’s driving overall portfolio scores.

See also: The Return of the Regulators

5 key takeaways

The main points for insurers to consider are:

• Insurers should take greater ownership of data they’re using to inform investment decisions and manage ESG-related risks.
• It’s also important for insurers to clearly articulate an ESG strategy for their business and create a clear link to how this will apply to their investment strategy, particularly with regard to the implications and potential trade-offs when using ESG data.
• Insurers must validate and understand the ESG data they’re using, as opposed to relying on a black box approach. 
• It is important for an insurer to perform due diligence on ESG data when they are using it to inform portfolio allocation decisions and for there to be greater oversight of how their asset managers are making stock selection decisions. Such due diligence might have brought to light some of the governance concerns relating to SVB. 
• Insurers are increasingly seeking support on which validation approaches to consider when using third party ESG data and establishing governance processes around data used to inform strategic decisions.

KEY TAKEAWAYS:

--The insurance industry needs to adapt to digital natives who are tech-savvy and connected and prioritize convenience.

--Facial analytics can predict an individual's risk of illness or disease with remarkable accuracy.

--A simple selfie photo helps insurance carriers instantly triage applicants into refined risk pools.

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The insurance industry has long been associated with a traditional approach to doing business; often relying on face-to-face interactions and paper-based processes. However, as digital natives enter the workforce, insurance companies must adapt to their preferences and expectations to remain competitive. 

Underwriting the old way

In conventional underwriting, details such as age and gender are gathered, and survival projections are created by using tables to categorize individuals into risk categories with specific premiums. 

Traditional life insurance companies don't directly evaluate personal health and lifespan but follow established guidelines to sort individuals into risk categories based on demographic features and warning signs like smoking, obesity and pre-existing health issues. 

Candidates must then answer multiple questions about their family background and medical status. Depending on the policy, they might need to go to a clinic to provide blood and urine samples and have their blood pressure, weight and height checked.

Some insurers also look further into personal backgrounds by using independent sources that offer details on prescription medication usage and driving histories. This method is lengthy, often taking 30 to 45 days. It is expensive, due to the numerous individuals involved in collecting and analyzing the information. Additionally, it's invasive, as it requires the gathering of bodily fluids and the use of what appears to the customer to be unrelated data like driving records. 

For clients, particularly the younger generation, the life insurance underwriting process is not enjoyable. So how can we improve it?

See also: Beware the Dark Side of AI

What better way to engage with a tech-savvy generation than with a selfie photo?

A selfie?

When examining a photo featuring two individuals, the human eye can easily recognize which person appears older or younger by observing signs of age like wrinkles, age spots and lines. 

Computers, using the science of facial analytics, can mimic humans' ability to assess a face but with even greater accuracy.

During my Ph.D. work 30 years ago, I began researching the relationship between facial features and health outcomes. As computers became more powerful through the use of graphical processing units (GPUs) and advances in memory density, they propelled AI, more specifically deep learning. These advancements in deep machine learning made it possible to use AI for health intelligence. 

Now AI, powered by deep machine learning, can identify dozens of health-related signals such as body mass index, biological age, senescing rate, physical stress, heart rate, blood pressure, genetic diseases and more. Soon, we will be able to predict an individual's risk of illness or disease with remarkable accuracy.

The future of health intelligence is in preventive healthcare, the ability to leverage facial analytics to provide signals of health from any connected mobile device. By identifying early warning signs of disease or illness, this technology could help insurers and healthcare providers intervene quickly, ultimately improving patient outcomes and reducing healthcare costs. This technology will have major impacts for every region of the world, especially in  low-income and remote communities.

Using facial analytics for underwriting

Facial analysis can now be incorporated into underwriting by a simple face scan, a selfie, of a potential customer. This helps insurance carriers instantly validate self-reported and external data and triage applicants into more refined risk pools -- without needing body fluids or physician assessments. Not only is the technology more efficient and quicker for customers, but with continual improvement and training for the algorithms, it will become a more accurate and efficient method of assessing risk, which could lead to reduced premiums for policyholders, improved financial stability for insurance companies and, ultimately, better health outcomes for all. 

Crucially, facial analytics does not entail facial recognition and cannot be used for identification or tracking; instead, it concentrates on identifying characteristics associated with risk factors and lifespan. 

See also: In Race to AI, Who Guards Our Privacy?

Benefits for the insurance sector

Facial analytics can transform the insurance industry in three key ways:  

1. As an instant verification instrument to guarantee precise reporting of key health intelligence metrics like BMI and health conditions. This will enable immediate, accelerated processing, forever changing the insurance buying experience. 
2. As an indicator of life expectancy, aiding in documenting individuals with longer lives, determining their expected lifespan and assisting with their financial planning solutions. 
3. As a means to offer customized health information and uncover risk aspects for debilitating or fatal illnesses, encouraging client health support – and ultimately saving lives. 

I was fortunate to have the opportunity to talk about this transformation and demonstrate facial analytics at InsureTech Connect Asia in Singapore recently. To lead this change, insurers will need to get on board with facial analytic based-AI technology. If leaders step up and take this opportunity, they will enable better pricing, detect and minimize fraud and, importantly for younger applicants, offer faster, more individualized underwriting decisions for the new digital generation of customers.

KEY TAKEAWAYS:

--As the language models improve, the ability to reduce reliance on call centers may be coming sooner than later.

--The mundane work of auto filling applications, claim forms, coverage certificates, renewal correspondence or really any repetitive and predictable task is something ready built for an AI. AI would also be very capable at comparing coverage and policy language quickly.  As the technology evolves, AI could quickly move into writing briefs and coverage opinions. 

--AI tools will be force multipliers to make all work faster and more efficient.

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Whether artificial intelligence will help the insurance industry work smarter, or whether it will mean massive job losses, or maybe represent something in between is yet to be seen. But what is for certain is that the dawn of artificial intelligence has already come and that nearly every facet of the insurance industry will soon be reckoning with what it means and how it will fit in its future. 

Large language models, such as ChatGPT, and image-generation AI, such as DALL-E, have wowed audiences over the past few months, but in many respects, machine learning and algorithms have been playing a role in many aspects of the insurance industry for years already. 

Simple chatbots on websites and many underwriting tools are already using many of the baseline tools found in the new artificial intelligence tools splashing the headlines, but what is remarkable is the speed with which many of these tools are evolving and the potential many of these seem to have for quickly jumping into innovative aspects of the industry that have not yet seen AI’s influence. 

“I think you are going to start to see CEOs who are hired for their ability to use AI in the very near future,” said Bill Holden, senior vice president of executive perils for Liberty Company Insurance Brokers. “I don’t know if they are asking candidates about it now, but in back of their minds I know that all the boards are thinking about it.” 

Customer-Facing

With the rapid evolution of the large language models, the obvious first line of potential for AI’s application in the insurance industry is with the point of contact with the customer. 

Updated web or app chatbots are certainly on the horizon, as are more intuitive phone chatbots that can move beyond simple call routing operators and move more into the realm of solving customer service problems and answering coverage questions. Front desk receptionist robots could even conceivably replace humans, presuming there is still a role for bricks and mortar offices in that future.

But anyone who has spent time dealing with an automated customer service agent could be forgiven for casting doubt on whether AI will completely replace the human touch in customer-facing roles. Still, as the language models improve, the ability to reduce reliance on call centers may be coming sooner than later. 

See also: Lessons Learned on Insurance Apps

Paperwork Heroes

Moving away from the immediate customer-facing role, AI could very easily slip into an effective role just behind the scenes helping customers, and really anyone who needs to spend any time with paperwork. 

AI doesn’t get fatigued, so the mundane work of auto filling applications, claim forms, coverage certificates, renewal correspondence or really any repetitive and predictable task is something ready built for an AI. 

AI would also be very capable at comparing coverage and policy language quickly. 

Coupling the large language models with image recognition could also allow the technology to auto populate things like claims information based on uploaded photos and help underwriters make initial coverage decisions and claims settlements based on a trove of automatically generated data points. AI can easily and instantaneously interface with sensors and images and data in ways humans just can’t. 

Imagine an AI assistant assessing damages for every policyholder in a community post-disaster based on drone-captured, satellite-downloaded and customer-uploaded photography, all in a fraction of the time it would have taken a team of humans with boots on the ground. 

As the technology evolves, AI could quickly move into writing briefs and coverage opinions. 

And the ultimate use case would be using AI coupled with predictive analytics to prevent claims in the first place, and then taking it a step further and using it in a fraud detection role by analyzing patterns in claims data and applications that might have otherwise slipped past humans. 

Bias and Discrimination

AI and machine learning can move faster than humans, but unfortunately it is impossible to see inside their black box to see what is driving their decisions. Once they are trained on their data sets, they make their decisions independently, which is their strength, but when it comes to questions of bias and discrimination, potentially also a major weakness. 

In insurance, bias and discrimination are obviously illegal, but without knowing what is driving the decisions made by AI, there is the potential to amplify implicit bias that is already in the data that the AI could potentially exacerbate. 

“AI just doubles down on what it thinks it knows,” said Bob Gaydos, CEO of Pendella Technologies. 

With the potential for harmful assumptions to get amplified if AI gets involved in underwriting, regulators will likely take a close look at any automation that has even a whiff of potential for bias and discrimination to be introduced. 

“Bring in AI,[and] it is going to be questioned,” Gaydos said. “If we open that door, we have to be ready for that discussion.” 

Gaydos warns that today’s laws are insufficient to regulate AI underwriting, and a new age of artificial intelligence is likely to usher in an intense wave of political and regulatory scrutiny that the industry may not be ready for or anticipating as it embraces AI. 

See also: 20 Issues to Watch in 2023

The Future

There is no doubt that AI is in the door in the insurance world.

While technically there could be the potential to remove humans from every insurance process, agents, assessors and underwriters are a long way from being replaced by the current generation of AI. More likely AI job losses will be felt most acutely with the front-line workers doing tedious work — work that had previously been outsourced to call centers already. And with the more advanced work, AI tools will be force multipliers to make the work faster and more efficient. 

Now, what will the market look like decades from now? Perhaps an AI analyst will be able to give us an assessment.

KEY TAKEAWAY:

--11% of carriers say it takes more than 60 days to pay their brokers, which can fray relations. More often than not, back-office vendors are needed to provide transparency in the commission process. Vendors' agency management systems receive carriers’ commission feeds, accurately complete the commission accounting and even pay the commission directly. They can support all commission structures and custom compensation types, meaning they can handle complex hierarchy structures to process payouts--and greatly reduce delays.

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Despite the crucial role that brokers play in the life insurance industry, they are underserved and under-supported by carriers. 

Recent research from Equisoft reveals that the issue is exacerbated by a lack of technology. According to the study, three of the top four challenging aspects of the broker-carrier relationship are the lack of tooling, inability to track compensation and performance in real time and lack of digital capabilities.

If brokers are going to continue to provide exceptional customer experience and customer service — something that is more difficult to do with changing customer expectations and the presence of easily accessible, on-demand products and services in other industries — they need to have the technology and resources that can help back them up. This includes the use of online appointment scheduling software, mobile applications, voice agents, SMS/text, digital service portals and many others. 

Issues also arise with the commission accounting process. While base commissions and brokers' First Year Override aren’t particularly complicated, commissions can become complicated when there are differing compensation agreements for different products, when there are split commissions and when people retire — to list a few examples. 

Commissions are complicated by the fact that 11% of carriers say it takes more than 60 days to pay their brokers, according to the study. For most other industries, employees are paid on a regular, weekly, biweekly or monthly basis. This consistency, predictability and, most importantly, timeliness enables workers to budget and create financial plans for themselves. Brokers should be afforded that same respect and be paid promptly.

When it takes too long for them to be paid, they may start talking to other brokers about their situation — potentially influencing which carriers brokers pursue relationships with and for whom they will advocate.

While these issues are caused by technology, they can also be fixed using technology — specifically through digital transformation and by updating outdated legacy systems.

See also: Breathing Life Into Life Insurance

For brokers relying on aging agency management systems (AMS) effective, efficient and accurate management of commissions may be difficult. 

While the study reported that 75% of brokers use an AMS to manage their relationships with carriers, 43% of respondents indicated that they planned to update their AMS in the next 12 months. 

Brokers expect that, as the industry evolves, the way they are compensated will evolve, too. The challenge is the lack of transparency between carriers and their brokers about the commission process. 

More often than not, back-office vendors are needed to provide transparency in the commission process. Vendors' AMS receive carriers’ commission feeds, accurately complete the commission accounting and even pay the commission directly. Additionally, they can support all commission structures and custom compensation types — meaning they can handle complex hierarchy structures to process payouts.

Updating these systems and offering more digital sales and service enablement solutions leads to better broker experiences. Instead of spending time working through manual processes or worrying about when their check is going to arrive, brokers can focus on what matters most: delivering value to policyholders and providing exceptional customer experience.

KEY TAKEAWAY:

--Cultivating a data-driven business culture requires a combination of leadership commitment, investment in the right tools and infrastructure, employee training and development and a formal data-driven decision-making process.

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In today’s rapidly evolving business landscape, data-driven decision-making is no longer a luxury but a necessity. Companies that fail to embrace a data-driven culture risk falling behind their competition and losing market share. In this article, we will explore the key steps companies should take to cultivate a data-driven business culture.

1. Align Leadership and Set Clear Objectives

Cultivating a data-driven culture starts at the top. Company leaders must understand the value of data-driven decision-making and communicate this vision to the entire organization. Leadership should set clear objectives for leveraging data in decision-making processes and establish a road map for achieving these goals. By demonstrating commitment to a data-driven approach, leadership can inspire employees to adopt the same mindset.

2. Invest in the Right Tools and Infrastructure

To support a data-driven culture, companies must invest in the necessary tools and infrastructure. This includes data storage, processing and analytics platforms, as well as software tools for data visualization and reporting. By providing employees with the right tools, companies enable them to make more informed decisions based on data.

It’s also essential to ensure that data is easily accessible and shareable across the organization. A centralized data repository or data lake can help break down silos and allow employees to access the data they need when they need it.

3. Develop Data Literacy and Skills

For a data-driven culture to thrive, employees must possess the skills and knowledge to interpret and analyze data effectively. Companies should invest in training and development programs to improve data literacy across the organization. This includes offering workshops and training sessions or even partnering with educational institutions to provide employees with access to relevant courses.

Additionally, creating a dedicated data analytics team can help foster a data-driven culture. This team should be responsible for developing best practices, providing support and guidance to other employees and driving data-driven initiatives throughout the organization.

See also: Why Every Insurer Needs a Modern CRM

4. Establish a Data-Driven Decision-Making Process

To ensure that data is consistently used to inform decisions, companies should establish a formal process. It should outline the steps employees should take when using data to make decisions, such as identifying the relevant data sources, analyzing the data and presenting findings to stakeholders.

Incorporating data-driven decision-making into performance evaluation criteria can also help reinforce its importance. By tying performance evaluations and rewards to data-driven outcomes, companies can encourage employees to embrace the right mindset.

5. Encourage Collaboration and Cross-Functional Teams

Promoting collaboration and cross-functional teams helps ensure that different perspectives and insights are taken into account when making decisions. Encouraging employees from different departments to work together on data-driven projects can lead to more comprehensive and effective solutions.

6. Celebrate Successes and Learn from Failures

Finally, to sustain a data-driven culture, companies should celebrate successes and learn from failures. Recognizing and rewarding employees for their data-driven contributions can help motivate them to continue using data in their decision-making processes. At the same time, companies should be open to learning from failures and using them as opportunities for growth.

In conclusion, cultivating a data-driven business culture requires a combination of leadership commitment, investment in the right tools and infrastructure, employee training and development and a formal data-driven decision-making process. By taking these steps, companies can empower their employees to make data-driven decisions and ultimately drive better business outcome.

KEY TAKEAWAY:

--Adjusters must ensure open channels of communication, go the extra mile in providing information, commit to continued professional development and use cutting-edge technology to maximize claims efficiency.

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With the weather heating up, severe hailstorms abound. For insurance claims adjusters, this means preparing for an influx of claims. 6.2 million properties in the U.S. experienced one or more damaging hail events in 2020, with Texas, Nebraska and Minnesota the top three states, making these warm months a very busy time in the entire middle U.S. 

To handle the high volume of claims effectively, adjusters need to be well-prepared and have the necessary tools and resources at their disposal. Here are a few tips to support the claims process during one of the busiest insurance seasons of the year.

Ensure Communication Channels Are Open and Efficient 

Hail is more unpredictable than a snowstorm or hurricane, and people in high-risk areas never know when their property or home could fall victim. As the one they turn to during a crisis, insurers must have open and efficient communication channels in place so policyholders feel that an experienced individual is available during the chaos and uncertainty of a hail disaster. 

This includes having a reliable phone and email systems where questions are promptly responded to, as well as using specialized digital communication tools supplied by an insurtech solutions provider. One-third of consumers do not trust insurance companies, in general. By keeping communication channels open and responsive, claims adjusters can ensure that policyholders receive timely, accurate information about the status of their claim as well as build trust and confidence.

Be Transparent in All Customer Touchpoints 

Transparency is crucial because individuals and organizations filing claims are putting their trust in the process and expecting to receive the benefits they are entitled to. Lack of transparency can lead to misunderstandings, disputes and even legal action, which is why it's crucial to provide clear guidelines and expectations from the start, giving clients a sense of calm clarity during the confusion that can follow when experiencing a claim.

Transparency promotes accountability among claims processors, ensuring that they follow established procedures and make decisions based on objective criteria rather than personal bias or favoritism. Ultimately, a transparent claims process promotes trust, efficiency and confidence in the system, which benefits both policyholders and the organizations responsible for administering the process. 

See also: Property Underwriting for Extreme Weather

Be Dedicated to Continued Learning and Development

Hailstorms are unpredictable, but the claims process doesn't have to be. To remain ready to handle the high volume of claims that come in during hail season, adjusters need to be well-trained on all fronts. This includes staying ahead of the curve on the most up-to-date tools and resources available to assess and document hail damage, as well as engaging in training on best practices for assessing damages effectively. 

Consider taking continuing education courses that can help improve your success as an adjuster and obtaining additional certifications. Always strive to increase your knowledge. Maintaining your license is one thing, but, because the insurance industry is ever-evolving, it is vital to stay informed about industry changes.

Use Technology to Streamline Claims 

Advances in technology have made it easier than ever for adjusters to document and process claims quickly and accurately. From digital imaging tools to centralized systems and mobile apps that allow adjusters to assess and document damage on-site, technology can help streamline the claims process. By embracing insurtech advancements, claims adjusters can reduce time spent processing claims while improving the customer experience.

Become a force in the insurance industry by ensuring open channels of communication during uncertain times, going the extra mile in providing information, committing to continued professional development and using the power of cutting-edge technology to maximize claims efficiency. Powerful and strategic partnerships can help your business stay on top of the industry, so even the most unexpected hail scenario won’t dent your confidence in the service you provide clients.

KEY TAKEAWAY:

--Attorney representation in commercial auto claims drove a 21% increase in total loss costs in 2019 compared with 2015, and the legal fights are hard to head off: A study by Sedgwick found that of litigated commercial auto claims, 55% of them have attorney involvement before, or the same day as, the report to carrier date.

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Increased attorney involvement in commercial claims is a direct cause of substantial loss ratios, with costs continuing to rise. These growing costs result from high legal involvement rates, social inflation, third-party litigation funding and bad-faith lawsuits filed by attorneys.

How can you protect your business from excessive litigation? Let’s start with a look at the forces behind this growing phenomenon.

The High Cost of Litigation in Workers’ Comp

It’s no surprise that workers’ compensation claims become much costlier when litigation is involved. But just how much more expensive?

Research has found that for workers’ compensation claims with attorney involvement, the average indemnity costs are 390% higher than for unrepresented claims ($77,807 vs. $15,936). The median cost was 740% higher. It’s no wonder that temporary total disability days were 285% higher and claim duration 295% longer than when comparing attorney-involved claims with unrepresented claims.

This isn’t an anomaly: Edward Bernacki and Grant Tao found similar numbers in Louisiana data, and California’s Workers’ Compensation Research Institute tracked the same trends. It is clear that attorney involvement increases claim costs and lost days for the worker by factors of three or more.

Commercial Auto Losing Billions

While combined ratios have been mild in workers’ compensation in the last five years (86.1 to 92.2), in commercial auto they have ranged from 98.8 to 111.1, making auto one of the least profitable commercial lines.

Commercial auto underwriting profit has been steadily declining since 2005. Over the last five years, total underwriting profit (loss) exceeded $22 billion.

Many factors are driving these negative results, but the costliest is litigation. A study commissioned by the American Property Casualty Insurance Association found that attorney representation in commercial auto claims drove a 21% increase in total loss costs in 2019 compared with 2015.

See also: The 'Law' Every Attorney Must Know

Attorneys Follow the Money

Plaintiff attorneys generally view insurance companies as citadels of power with vaults full of money. They see their job as raiding the citadel, unlocking the vaults and giving the money to injured parties (and to themselves). Modern-day Robin Hoods as it were — except the original Robin Hood didn’t take 40% for himself.

Plaintiff attorneys have played this role quite well. And that’s a one-sided view; at the end of the day, policyholders and society suffer from opportunistic litigation. In fact, plaintiff attorney behavior can be considered more in line with the Sheriff of Nottingham taxing society.

A few shocking facts about attorney involvement in commercial claims:*

• The median award for all litigated claims grew 33% to $100,000 between 2012 and 2019, while the mean award rose by 50% to $1.7 million.
• The number of awards to injured parties greater than $1 million granted by juries and judges increased by 235% in 2012–2019 compared with 2005–2011.
• The median of the 50 largest injured party verdicts was $53 million in 2017, up from $26 million in 2014.
• Today, attorneys become involved in claims before they are reported to a carrier at an alarming rate. A study by Sedgwick found that of litigated commercial auto claims, 55% of them have attorney involvement before, or the same day as, the report to carrier date. This measure was at 43% only four years ago. Meanwhile, 67% of litigated claims have attorneys involved within the first 14 days of being reported.

*Source: American Property Casualty Insurance Association

See also: Why Every Insurer Needs a Modern CRM

Judgments Go Nuclear

As the numbers attest, massive judgments in favor of the plaintiff are becoming more commonplace. They are a significant element of social inflation, a trend of many factors affecting premium and loss increases in the insurance industry.

Drivers of these judgments include:

• Cultural attitudes moving toward support of the “little guy,” especially when confronting large corporations.
• Demanding — and worsening — working conditions, enabling litigators to characterize employers as uncaring, insensitive, derelict and abusive. Plaintiff attorneys leverage this trend to sway jurors and judges in their favor.
• In commercial auto lines, the improper use of cell phones while driving, the lowering average age and experience of drivers, the limited availability of truck drivers, and aggressive driving in general contribute to a higher frequency of accidents, often more “spectacular” in nature.

As first published in Insurance Innovation Reporter.

KEY TAKEAWAYS:

--Polls indicate inflation is the number one topic on most people's minds, ranking above violent crime and climate change. Insurers must find ways, including through ads, to illustrate the connection between social inflation and price inflation in a manner relatable to most consumers.

--Carriers must design and implement decision models that identify as early as possible when an attorney will appear on a claim. Some adjusters “know” whether a claim will be represented and whether it will go to trial, but data-driven decision systems, especially those developed with advanced AI, can predict litigation for additional claims outside the range of the adjuster’s knowledge.

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There are many ways to quantify the impact of attorney involvement and social inflation (of which attorneys are a significant cause) on insurance carriers. One of the most striking examples is featured in a report by Jim Lynch and Dave Moore of the Casualty Actuarial Society, Social Inflation and Loss Development. The report shows what they calculated as the unexpected paid losses each year.

They find "evidence that social inflation in the 2010s caused paid losses to be more than $4 billion higher than predicted with standard loss development techniques,” including more than $1 billion of unexpected paid losses in 2016 alone.

Source: Social Inflation and Loss Development

The social inflation fire is burning hot and bright. Lynch and Moore estimate that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019. There are good reasons to believe it will continue to do so. The “normal” contributors to social inflation — higher litigation rates, higher jury awards and shifting attitudes about corporations — continue to worsen. And now there is more gasoline on the social inflation fire: third-party litigation funding (TPLF).

See also: Time for Summit With Plaintiffs' Lawyers

Third-Party Litigation Funding

Deep-pocketed law firms, hedge funds, wealthy investors and other interested parties are providing funds up front for litigating complex lawsuits. This amount can be, in large cases, tens of millions of dollars. While such arrangements are characterized as a loan, they are not subject to regulation of any kind.

Here’s how it works: The funding entity fronts the money. If the plaintiff wins, the funder receives his “loan” back and a significant share of the remaining settlement as “interest” for taking the risk of losing. The plaintiff must then also pay his attorney and often winds up with less than he most likely would have received through unfunded litigation, including settling out of court.

What’s the attraction to litigation funding from an investor’s perspective? A report issued by Swiss RE stated that rates of return on litigation funds have been as high as 52% in recent years. That’s much better than recent stock market returns. About $2.5 billion was invested in litigation funds in 2020, which grew in 2021. With returns like those, no wonder all sorts of investors are piling in — hedge funds, large law firms and private investors who work with a TPLF broker. Government retirement funds and college endowments indirectly invest in litigation funding through their investments in hedge funds and other “alternative” investments.

Who pays for this? We all do, in the long run. Insurance companies pass most of their costs to policyholders through higher premiums. Companies and enterprises try hard to pass those cost increases on to their customers. It doesn’t happen automatically, but end consumers (all of us) ultimately pay — not just for the plaintiff’s share of the settlement but also the attorneys’ and funders’ fees and the cost of our court system to support frequent and lengthy litigation.

Protect Your Business from Excessive Litigation

What can insurance carriers do to combat this challenge that excessive litigation plays in the industry and society? Here are two ideas.

Minimize the Effects of Social Inflation

When insurance companies talk to consumers, it’s typically through funny TV ads. When “serious issues” are brought forth, consumers don’t engage. Consumers are more receptive to listening to messages about issues affecting them directly and for which they are concerned. Meanwhile, attorneys’ ads discuss “winning big money for you” and “sticking it to the insurance company.” How can insurance companies compete? 

One possibility is to associate “social inflation” in insurance with the price inflation consumers are confronted with today. Popular polls indicate inflation is the number one topic on most people's minds, ranking above violent crime and climate change. It shouldn’t be tough to illustrate the connection between social inflation and price inflation in a manner relatable to most consumers.

The insurance industry must experiment more with how to convey its message. Insurance carriers have catchy ads; Why not leverage Patrick Mahomes or a cute gecko to “get serious for a moment”?

See also: Misunderstood Role of the Attorney

Use Data as Your Defense

Because litigators get an early jump on all available data associated with the claim incident, carriers must implement a rigorous and comprehensive litigation analytics strategy to close the gap and take this advantage away.

You should start by making your data more usable: cleansed, standardized and accessible in real time. Then, design and implement decision models that identify as early as possible when an attorney will appear on a claim. (You can develop this in-house, but more and more carriers are looking to partner with companies that have developed, implemented and maintained decision systems like these.) Whichever way you go, you need to get going. “Going” means starting with your data. Dig into it and make it usable.

Some adjusters will tell you they “know” whether a claim will be represented and whether it will go to trial. In many cases, they do. But data-driven decision systems, especially those developed with advanced artificial intelligence, can predict litigation for additional claims outside the range of the adjuster’s knowledge. Information is the oil that keeps the “litigation engine” operating — and when wielded correctly, it can be used to minimize or avoid attorney involvement altogether.

Be Aggressive About the High Cost of Litigation

Carriers can tackle the rising indemnity costs of workers’ compensation and commercial auto claims by staying informed about the current strategies litigants are using to seek payouts and by using the wealth of data they already have to better predict attorney involvement in claims.

As first published in Insurance Innovation Reporter.

KEY TAKEAWAYS:

--AI is helping organizations reduce claims processing times from days to minutes. Half of all insurance claims processing activities will be replaced by AI-based automation by 2030.

--AI is playing a pivotal role in reducing fraud. For example, the technology can quickly compare an incident with other cases and assess whether the damage lines up with the amount that is being requested in a claim.

--A digital insurance process can drive a 20% increase in customer satisfaction scores and a 25% to 30% reduction in related expenses, and AI can help organizations provide the digital-first solutions that customers prefer nowadays.

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AI is having a transformative effect on the insurance industry, helping organizations with everything from speeding up claims processing to reducing fraud. According to Juniper Research, investments in AI are expected to save auto, property, life and health insurers almost $1.3 billion in 2023, up from $300 million in 2019. 

These savings are helping organizations offer more cost-effective, personalized insurance solutions, resulting in increased customer satisfaction and loyalty. In this article, we will explore some of the key ways AI is making a big difference for financial organizations with insurance offerings. 

1. Automating processes across the insurance lifecycle

Historically, processing a claim has been one of the most time-consuming tasks in the insurance lifecycle, requiring a significant amount of human intervention. Policyholders must call their insurance providers and then wait on hold, or for a call back, before handing over personal information and, eventually, relaying the details of the incident. When too much time passes between the incident and the report, there's a good chance that stress and possible trauma may also distort the recollection of events. 

AI is helping organizations reduce claims processing times from days to minutes. According to McKinsey, half of all insurance claims processing activities will be replaced by AI-based automation by 2030. Claimants can submit damage evidence digitally, and advanced AI algorithms can identify patterns in photos or videos of the damage, check for signs of fraud and predict costs to repair. If the algorithms do not detect any issues with the claim, the result is a faster, more pleasant process for policyholders. Not to mention, a much more cost-effective solution for the insurer. 

According to Accenture, a majority of policyholders view settlement speed as the primary consideration when choosing an insurance product or service. Faster claims processing means faster pay-outs and happier customers.

See also: Key Challenges on AI, Machine Learning

2. Reducing fraud

Fraud is one of the greatest threats to financial companies and insurers. It can also harm policyholders when it occurs too frequently, as organizations need to charge higher premiums to recover their losses and the legal costs of pursuing fraud cases. 

AI is playing a pivotal role in helping reduce fraud in insurance. For example, in the underwriting stage, advanced analytics can help identify signs of fraud. The technology can identify abnormal behavioral patterns or inflated claims by quickly comparing an incident with other cases and assessing whether the damage lines up appropriately with the amount that is being requested. 

Incidents involving vehicle or property damage can be particularly dramatic. The affected parties are not always calm while gathering photo or video evidence. Visual intelligence applications, a specific type of AI, can play an important role here, helping guide the policyholder through the evidence-gathering process. AI-driven applications can help claimants collect credible, accurate evidence, eliminating opportunities to exaggerate or tamper with it before submission. 

Finally, when combined with IoT devices, AI technology can detect any unexplained delays between an incident and the submission of evidence--for example, by examining timestamps and geolocations to determine whether there has been any evidence tampering. 

3. Improving the customer experience

Until recently, trust between an insurance provider and end customers was primarily established through face-to-face interactions.

Consumers nowadays prefer a digital-first process to contract insurance services and resolve incidents in the quickest way possible. The social changes brought on by COVID-19 have also increased the demand for solutions that don’t require an in-person presence. 

According to McKinsey, a digital insurance process can drive a 20% increase in customer satisfaction scores and a 25% to 30% reduction in related expenses. AI can help organizations provide these digital-first solutions. By automating repetitive work, organizations can reduce operational costs and focus more on showing their customers that they’re prioritizing their requests and working toward a solution.

When organizations can personalize their customer support and make the insurance process as simple, transparent and efficient as possible, the result can be a boost in both short-term customer satisfaction and long-term customer loyalty. 

See also: The Importance of Explainable AI

The AI-driven future of insurance 

AI empowers organizations offering insurance-related services with better data and insights to make better decisions. As a result, financial institutions can enhance their insurance offerings, streamline operations, improve customer experiences and maintain competitiveness in this rapidly evolving landscape. As AI advances, we can expect more organizations to onboard the technology to refine their offerings and stay at the forefront of the industry's digital transformation.

KEY TAKEAWAYS:

--Employers should set realistic goals for employees, create incentive programs, celebrate successes, encourage transparent feedback and prioritize health and wellbeing.

--Employers should avoid time-tracking software, which can demotivate employees and lead to burnout.

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There are many harmful misconceptions surrounding remote working, including the concern that employees may become less productive while working outside of the office. In fact, Stanford University found that remote working increased workplace productivity by 13%, and that 27% of all full-time days were worked from home in February 2023.

In this article, Weekly10 explores five ways employers can motivate remote workers--and explain why commonly used time-tracking software isn't the answer.

1. Thinking ahead with realistic goals

Employee engagement can be encouraged by setting professional goals. By thinking ahead and setting clear guidelines that coincide with personal development plans, managers and team leaders can help workers achieve their goals.

That said, these goals should always be realistic. If workers do not have enough resources to meet their targets, they may be discouraged from working hard. They may also burn out.

2. Creating incentive programs

Once employers have established realistic goals, they can create incentive programs for the workplace. It can be stressful to meet deadlines and targets, but financial and social rewards are sure to motivate remote employees.

These incentive programs can offer anything that aligns the company and its values, such as commissions, wage increases, profit sharing and bonus payments.

3. Remembering to recognize and celebrate success

A little recognition can go a long way. So, to continue motivating your remote workers, remember to recognize and celebrate their successes. From passing probation to reaching monthly targets, lots of things can be highlighted in the workplace.

Employers can praise employees on video calls, in monthly catch-ups or during team meetings. It's also a good idea to create an achievements channel for this very purpose.

By creating incentive programs and remembering to celebrate success, employers are supporting intrinsic and extrinsic motivational factors. This is motivation that either comes from within an employee, such as happiness and fulfilment in their role, or from beyond, such as through incentives and rewards. These keep the team driving forward while catering to every employee's needs.

4. Practicing and encouraging transparent feedback

Next, transparent feedback is important in the workplace. No matter the nature of the job, employees should understand the successes and potential pitfalls of their performance, which promotes constant growth for remote workers.

However, communication is a two-way street. Employees should feel comfortable voicing any praise or concerns of their own. By conducting frequent one-to-one meetings, employers make team members more likely to feel comfortable sharing their feelings and help them understand the option is there for them to do so.

With this clear line of communication, employers are better able to spot issues, find solutions and help the team develop.

See also: Bring Certainty to Remote Injury Claims

5. Prioritizing health and wellbeing

The health and wellbeing of employees is paramount. If they are suffering from a physical or mental ailment, for example, it will inevitably affect their performance at work. That is why they should feel comfortable confiding in managers and taking sickness leave.

To promote health and wellbeing in the workplace, employers can organize online mental health catch-ups, virtual guided meditation classes and more. Then, in turn, remote workers are more likely to engage with the business.

Why time tracking software ISN'T the answer!

It's easy to consider businesses in a purely quantitative manner. However, companies are made up of people from all walks of life and with various personalities. This means that one method of encouraging engagement, such as time-tracking software, does not always work.

Time-tracking software is a commonly used tool. It allows managers to oversee the daily activities of remote workers, including the level of work being completed at home.

Despite the visibility it gives employers, the software actually reduces the productivity of remote workers. Not only can it put unnecessary pressure on workers to complete tasks, but it can also foster a mistrusting environment that demotivates workers.

It's also unrealistic to expect employees to stay at their desks all day. Employees cannot work at full speed all day, every day without experiencing burnout. Plus, regular computer breaks can prevent eyestrain, musculoskeletal disorders and circulation problems.

Alternatively, employees can measure outputs and impacts with regular meetings, use goal setting to establish clear expectations and build a culture based on trust, rather than using time tracking software.