My business partner, Reda, and I met while networking in Dallas. We were both highly motivated and building careers in the final expense vertical, so we compared our numbers and discovered that Reda was making more sales than I was, despite the fact that I was making more money than he was. 

As it turned out, Reda had a knack for reaching customers, and I had a knack for knowing which customers were worth the investment. He was generating an impressive amount of business but spending too much money on leads. Conversely, I had far fewer leads but a higher conversion rate. 

High-quality leads boil down to a mathematical formula in which your customers' lifetime value justifies their cost per acquisition. Combining our talents enabled us to achieve the best of both worlds and scale exponentially.

Improve the quality of your leads with pay-per-call and data leads

The lowest-quality leads are those that go unvetted. For example, I see many insurance agents rely on pay-per-click advertising rather than pay-per-call. I'll admit that in e-commerce, pay-per-click provides powerful results, but in many verticals of the insurance space, leads acquired through pay-per-call are much higher-quality. After all, which customers have a higher conversion rate — the ones who find your sales funnel through a click or the ones vetted through human interaction? 

When you acquire leads through telesales, you know a conversation has affirmed interest. This vetting decreases the cost of acquisition by increasing your ratio of high-value prospects. 

When using internet ads, data leads allow you to reach out through online forms. This allows agents to vet contacts based on useful data points and contact clients they know are worth their time. Agents selling home insurance, for example, can include space on the form to ask prospects if they live in single-family homes, apartments or duplexes. Contacting prospects who offer the highest lifetime value means you're getting the most out of your acquisition costs.

Improve the quality of your leads with targeted outreach 

Anyone can generate content and splash it across the internet. And at times, that haphazard marketing can result in a decent amount of web traffic. Still, the bottom line is that if those prospects do not convert into customers, you've wasted your time, effort and money. 

To increase the quality of your leads, target the audiences you know are already interested in your products and services. To accomplish this, craft your messaging and offers specifically to reach leads who are more likely to convert into paying customers. 

The insurance space involves a wide range of verticals, each of which has a different audience. To increase your conversion rate, learn everything you can about your target audience and where you can reach them with your marketing.

See also: "Intelligent Decision-Making" Is the Future

Improve the quality of your leads by considering each customer's lifetime value 

Improving the quality of your leads involves more than just lowering customer acquisition costs. You can also enhance the quality of your leads by increasing their lifetime value. One way to do this is by attracting customers with a low-barrier offer, learning more about their needs, then offering other services or products that will benefit them. 

For example, auto insurance is a low-ticket product, meaning you must sell a high volume to make a profit. The lower your commission, the less you can spend on each lead. Because of this, auto insurance agents often lack the cash flow to acquire their first leads. Many start with referrals from friends and family or attract new customers with an enticing, low-cost offer before cross-selling other products to generate the cash flow they need.

Another way to increase the lifetime value of your customers is to take advantage of back-end monetization through other business opportunities. Your customer base is a valuable resource. Agents in other insurance verticals and people in other industries would benefit from access to your clients, and you would benefit from access to theirs. Networking with a non-competing company can be a win-win. 

For instance, if you sell life insurance, your clients are often in the market for retirement planning, wealth management and tax deferral strategy. You probably already know financial advisers and accountants who offer these services, but perhaps have yet to realize how much you could help each other. If you team up to send each other referrals, or host a joint webinar to cross-pollinate your audiences, you can grow both your companies at once. 

As you generate leads, remember that quality trumps quantity. Your number of leads is far less important than your cost of acquisition and the lifetime value of those leads. Success in the insurance industry is about working smarter — not harder. Learn the math that allows you to take on quality leads by either decreasing your customer acquisition cost or increasing your customers' lifetime value.

It's been a busy year, one of the busiest periods I've ever experienced as a compliance professional. One positive trend is that the C-suite is asking about compliance more than ever before, and they are asking all the right questions.

As an auditor, I have a foot in two different camps: the cybersecurity regulatory camp, where I help in the evolution and promotion of cybersecurity frameworks, and the privacy and protection camp, where I focus on improving the security controls that help to protect data. I am an active member and participant in the IAPP (International Association of Privacy Professionals), which keeps its finger on the pulse of privacy matters and data protection mandates that are emerging. I can't remember a time when new regulations, amendments and updates to data protection across all verticals came out with as high a frequency as they did this year.

I am certain 2023 will bring a tightening of regulations due to all these changes, which will happen at different velocities in various geographies. For international organizations that operate in multiple regions, it gets complicated. For example, when comparing the regulatory environment in the U.S. to the European Union, data responsibilities become confusing because these are two very different regulatory ecosystems. A new E.U. law applies to all member countries with very few or no exceptions, but attempts to federalize data protection mandates in the US. so far have not come to fruition, with a proposed federal data protection act still a way out. The main obstacle to federalization is, of course, that it's up to the individual state to implement and enforce the law. That's why we end up with a regulatory mix of data protection mandates, with a few flagship states with passed data protection legislation, such as California,, Colorado, Connecticut, Virginia and Utah, while some state privacy laws still await final processing or lack full legislation geared at data protection.

Revisions across the cybersecurity industry

The new version of the Payment Card Industry Data Security Standard (PCI DSS) Version 4.0, released earlier this year, is a great example of a vertical regulatory revision that has already taken place and will become the baseline for PCI DSS compliance in 2023. It's very common for new regulations like this to work their way through the system with this sort of trial period first before they fully take effect. PCI's Data Security Standard is found within healthcare, retail and finance, and that's where I believe we will see some of the biggest regulatory events in 2023

The Federal Deposit Insurance Corporation (FDIC) also strengthened its rules, as did the Federal Trade Commission (FTC), and the National Institute of Standards and Technology (NIST) has proposed updates and revisions to its cybersecurity framework (CSF) toward 2.0, every one of them with an increased emphasis on reinforcing the core security controls that enhance policy. We will no doubt see new executive orders in 2023 that may be used to push forward the regulatory changes introduced in 2022. Executive orders are easily dismissed as knee-jerk reactions to big events - like the SolarWinds breach - and they do tend to be reactive. But the positive of an executive order is that it is nationwide and affects many businesses, which will then listen. States may then pay attention and reinforce the mandates. as they realize the need for stronger cybersecurity as a law or regulation. For example, the SolarWinds incident triggered an executive order calling for businesses within the supply chain to do a risk assessment as part of their cybersecurity policy and supply chain management - that was a very positive change.

See also: Cyber Trends That Will Change 2023

The changing role of the CISO in 2023

I've had many conversations with chief information security officers (CISOs) lately, and they have asked me many compliance questions. It is a huge positive that CISOs are now asking: How will these new regulations affect my cybersecurity policy? How can I best comply with these new rules? Earlier, it seemed that I was always the one asking the CISOs if they knew how compliance and legal mandates might be affecting their organization, like how the GDPR (General Data Protection Regulation) affects them and their organization's ability to operate.

CISOs and the rest of the C-suite are recognizing that governance, risk management and compliance (GRC) is going to be more important than ever and that understanding of how to harness the data provided by GRC exercises can empower their businesses. I know that people often think compliance is kind of boring - believe me, I've gotten a lot of eye rolls over the years - but it doesn't happen as often anymore. Corporations are beginning to realize that they have no choice but to work hard to understand their compliance posture if they take data protection seriously. The nucleus of this equation is that strong data protection is why we have all the regulations. It's not because industry compliance is an evil force trying to slow everything down - the view is changing more toward how compliance can be a helping hand when it comes to fortifying systems and protecting data.

Growing concerns around e-commerce and online payment platforms

One of my biggest concerns for 2023, and a constant for me, is the growing and changing e-commerce market. There are new and emerging payment platforms  - like virtual cards - and new data mechanisms that are very attractive and cost-effective for large retailers. However, these emerging technologies present cybersecurity challenges because we are still learning all the different attack vectors that can be employed to compromise and exploit the new systems. Every time it feels like there is a  lull in cyber-attacks, we must remind ourselves that the bad actors are simply changing their tactics and spending time at the start of the exploit cycle, planning and collecting information to orchestrate the next big attack. For modern payment systems, businesses are quick to roll out virtual cards because for many there is a significant cost savings associated with using those systems. Sometimes, cybersecurity and cyber insurance become an afterthought during product launches that focus on implementing the latest and greatest technology, but we need to stay extra vigilant in measuring our potential risk, especially to new systems. It's totally possible that threat actors are already working on a non-typical type of exploit that's targeted straight at our business - we just haven't seen or heard of it yet.

Which are the main factors driving the possibility that a company and its board of directors may be sued by investors or other stakeholder groups in 2023? A poor financial performance or even insolvency amid economic uncertainty and the prospect of a global recession, a lack of robust cyber security and governance processes or an inadequate or non-compliant response to environmental, social and governance (ESG) issues are among the key risk trends in the Directors and Officers (D&O) insurance space, according to Allianz Global Corporate & Specialty (AGCS). Despite a downward trend in new filings, U.S. class action securities litigation remains a key concern, particularly around mergers, while cryptocurrency companies and exchanges are subject to increasing activity, the insurer’s annual D&O report also notes.

The recent decline in the number of filed securities and class actions in the U.S., coupled with an influx of new entrants, has created a more favorable market for corporate buyers of D&O insurance after double-digit percentage premium increases across key markets in 2021. However, there is still a lot of risk facing insurers as macroeconomic issues and a potential slowdown loom, conditions that typically lead to an uptick in D&O claims. Inflation is likely to influence future claims through larger settlements. Cyber risk remains at an elevated level and is now seen as a core duty of D&Os, with increasing scrutiny on how they respond. Meanwhile, ESG-related liabilities – whether it is inadequate action on climate change or diversity and inclusion issues – can potentially become significant exposures for D&O insurance, as well.

For many countries, the economic outlook for 2023 is doom-laden, with recession risk rising. Plunging growth rates, surging inflation, the energy crisis, continuing stock market volatility and continuing supply chain issues are monitored closely by D&O underwriters, as they could cause liquidity and profitability squeezes in many sectors and fuel rising insolvencies.

Half of the countries analyzed by Allianz Research recorded double-digit increases in business insolvencies during the first half of 2022, with the SME sectors in the U.K,. France, Spain, the Netherlands, Belgium and Switzerland accounting for two-thirds of the rise. Overall, insolvencies are expected to increase 19% in 2023 globally, and an economic downturn typically brings a higher risk of D&O claims. A study by broker Marsh found that between 2005 and 2007 the firm received an average of 200 to 300 D&O claims in the U.K. With the onset of the financial crisis, claims notifications rose by 75% to around 500 in 2008, peaking at in excess of 1,600 in 2012. In the U.S., filings and enforcement actions – a proxy for claims frequency – doubled to over 2,000 at their 2011 peak, compared with around 1,000 in 2006, according to Advisen.

Cyber risk management as a board responsibility and ESG exposures

Issues such as data security and information protection are now core areas to watch for directors. Investors increasingly view cyber security risk management as a critical component of a company’s board risk oversight responsibilities. As fiduciaries, board members are expected to develop and maintain accountabilities for IT security before, during and after any cyber incident. Alleged failures can be seen as a breach of duty.

Regulatory action or litigation risks due to ESG-related issues are another major concern for boards, driven by increasing reporting and disclosure requirements, which could trigger claims in case of an inadequate response or non-compliance. In addition, companies and their boards also face the prospect of increasing litigation from environmental or climate groups, activist investors or even their own employees. Climate change litigation is increasing, with over 1,200 cases filed internationally in the last eight years, compared with just over 800 cases between 1986 and 2014. Most of these were filed in the U.S,. but there are increasing filings at international courts or tribunals: 2021 saw the highest annual number of recorded cases outside the US. Another risk is misrepresenting ESG credentials or achievements – so-called greenwashing – which can also lead to regulatory action, litigation and shareholder suits.

ESG-related information is increasingly becoming a key checkpoint for insurers when it comes to the risk assessment of a company. Those companies with strong ESG frameworks and governance will likely find insurers more willing to offer capacity.

See also: Adding ESG to Investment Practices

Litigation in the U.S. 

Litigation exposures are especially high for companies domiciled or doing business in the U.S., and merger objection suits persist. While the frequency of U.S. filings has declined since 2019 and while 2022 is expected to continue this downward trend, the aggregate quantum of damages potentially at issue has skyrocketed. While there has been no general rise in alleged investor loss valuation for all cases, a few very large losses in 2022 have represented a disproportionately higher share of aggregate alleged shareholder losses than the historical averages over the past 20 years. According to Cornerstone Research, lawsuits filed against only three communications industry companies account for as much alleged investor loss as the aggregate of all securities class action lawsuits filed in 2021.

Cryptocurrency sees increasing litigation

Another new trend includes the increasing targeting of cryptocurrency companies and exchanges (10 suits filed in the first half of 2022 as compared with 11 for all of 2021, 13 in 2020 and four in 2019). This may not be surprising, given the recent roiling fluctuations in the valuation of digital currencies, which continued in November 2022 with the collapse of the world’s second-largest cryptocurrency exchange, FTX – authorities around the world are investigating for potential breaches of securities laws – and the fact that regulatory oversight has increased.

To read the full AGCS D&O Risk Trends report, please visit: https://www.agcs.allianz.com/content/dam/onemarketing/agcs/agcs/reports/agcs-directors-and-officers-insurance-insights-2023.pdf 

Hurricane Ian might be the costliest storm in Florida’s history. Preliminary estimates suggest roughly $67 billion in insured losses – nearly double what Ida caused last year.

My husband and I lived through the storm, and we saw the damage first hand. As co-CEOs of a national insurance franchise, we knew we had to do something.

As soon as we could – less than a week after Ian hit – we rallied our Florida franchise owners to form an independent crisis assessment team (CAT).

Our CAT set up shop at a FEMA-sponsored “insurance village” in Port Charlotte, about 40 miles south of Sarasota. Our goal: to distribute emergency supplies to hurricane survivors, help them file insurance claims and answer insurance-related questions.

Here, I’ll share three lessons we learned from our experience that can help agents make an impact after a natural disaster.

See also: We're Flying Blind on Climate Risk

Lesson 1: Empathy Can Jumpstart the Healing Process

Hurricane Ian left many survivors with absolutely nothing. Our insurance village offered people resources that could help them begin to rebuild.

Right off the bat, we started handing out basic necessities, like food, water, propane tanks, gas and even underwear. We quickly learned that being an empathetic listener went a long way. After such a traumatic event, many people just wanted someone to talk to.

Many stories stuck with us. For example, one survivor told us that she’d completely lost power – and even some of her roof. That really hit home with our people. At a moment’s notice, a few folks on our team dropped everything to go tarp her roof and set up a generator at her house.

In a crisis, empathy is an invaluable resource agents can offer. Be a sympathetic ear, and you’ll help survivors feel cared for. Listening to, empathizing with and helping any survivor in need – insured or not – doesn’t just build community goodwill for your agency. It’s the right thing to do.

Lesson 2: Basic Guidance and Education Help People Rebuild

Many hurricane survivors rely on homeowner’s insurance payouts to help them get back on their feet. But in Florida, the insurance industry is on the brink of collapse.

Some insurance carriers have paused writing new policies or plan to issue nonrenewals and cancellations. Others have pulled out of the state. And six have been declared insolvent this year. After Ian, experts fear more insolvencies – leaving even more homeowners in limbo.

The good news is that Florida insurance carriers couldn’t cancel policies until Nov. 28. Ahead of that date, we needed to answer survivors’ policy questions and educate them about the insurance landscape.

Our corporate team and franchise owners were on the scene – and they did just that. When it came to insurance knowledge, many survivors were starting from scratch. We taught them things like how to read their policy, where to find their premium and how to understand their deductible.

We also provided guidance as to what to do next. We walked them through the claims process so they could quickly receive payouts. And we helped them understand how Florida’s industry chaos might affect future coverage. We wanted folks to know which insurance carriers were at risk, where to look for a new policy and what to expect in terms of premium hikes.

The agent takeaway? After a natural disaster, offer insurance guidance and education that meets survivors’ specific needs. And don’t discriminate. Even if they aren’t one of your customers, they’ll need your industry expertise to help them recover faster.

See also: How to Prepare for Catastrophe Claims

Lesson 3: Helping Survivors Can Be Emotional – and Inspire Hope

Working with hurricane survivors who’ve lost everything is a highly emotional experience. You’re listening to story after story about completely upended lives. And you want to empathize with everyone you talk to. It’s important that you prepare for the emotional toll that can take.

In our experience, we’ve found it helpful to have counselors onsite or available virtually. This way, your team members can process their emotions with a mental health professional.

Amid the sadness, though, there’s also room for hope. At our company, we had all hands on deck to deliver immediate assistance.

Our customer service reps fielded calls for agencies that were themselves affected by the storm, in turn helping their customers get the answers and assistance they needed. Our data team identified our worst-hit customers so we could communicate about local resources and the insurance village. Our HR team reached out to every hurricane-affected employee to make sure they were okay. And our corporate team members and franchise owners were on the ground, cooking hot meals and providing fresh clothes out of pocket.

When you drop everything to help your community, that speaks volumes. Your community will take note, and so will your team. They’ll be proud to be part of an agency where leaders and team members alike roll up their sleeves to help the communities where they live and work.

When Disaster Strikes, Show Up for Your Community

When you take part in an insurance village, you can do more than insure your community. You can make a real, on-the-ground impact that helps people get back on their feet faster.

Preparation, however, is key. So don’t wait for a natural disaster to take action. Start now by gathering supplies and building a team so you’re ready for on-the-spot deployment. This way, you can quickly reach affected communities when the next disaster strikes.

In recent years, the mid/large commercial lines segment has worked extensively to evolve the distribution ecosystem through new partnerships and expansion strategies. Additionally, carriers in the segment have been deploying new technologies for distribution to not only enhance internal operations and processes but to further support the success of distributors, whether retail agencies, brokers, wholesalers or MGAs. However, according to new SMA research, not all solutions meet the expectations of carrier executives today. 

SMA's recently published report, "Distribution Technologies for Mid/Large Commercial Lines: Carrier Plans in 2023 and Beyond," covers the current state of digital capabilities that carriers offer distribution partners, an assessment of the barriers to deploying new capabilities, and carriers' plans to provide new solutions. The insights are based on a survey of executives at carriers focused on the mid/large commercial market. 

Across the sales value chain, insurer executives generally have low satisfaction with digital capabilities, particularly in early stages of the sales process. There is significant dissatisfaction regarding digital appetite solutions, which is not entirely surprising given how little automation exists in the area. The reality is that distributors often misunderstand a carrier's appetite – a challenge that has existed for years. Market conditions can result in the ebb and flow of a carrier's appetite, and at times they may pull back in writing certain risks. Other times, they may have increased appetite in a specific class. Although improved communication can help alleviate pain points, tech solutions that support appetite matching between carriers and distributors will be essential for the continued success of carrier/distributor relationships. 

In contrast, insurers' satisfaction levels with their digital offerings for servicing are notably higher than sales, with claims inquiry capabilities rating the highest among executives. Insurers continue to pour investments into claims operations, as it is one of the highest touchpoint areas for policyholders. However, a recent SMA survey of agents reveals a need for carrier partners to enhance claims capabilities, with about half of agents and brokers in mid/large commercial lines desiring carriers to prioritize projects in claims download and filing capabilities. 

See also: Designing a Digital Insurance Ecosystem

These insights from the report highlight the imperative for carriers to continue to evolve how they interact with and serve distribution partners. Insurers that focus on strategies that enable distributors to place coverage efficiently and competitively with minimal friction and excellent customer experience will be the ones to contend with in the future. 

"Distribution Technologies for Mid/Large Commercial Lines: Carrier Plans in 2023 and Beyond" is part of SMA's research series based on surveys and interviews of insurers, agencies, brokers, MGAs and others in the distribution channel, including insights from ReSource Pro's extensive footprint of distribution clients. 

While half the U.S. population gets health insurance through an employer, more than one-third of the labor force works in the gig economy full or part-time. A trend that exploded during the pandemic, gig work is here to stay.

For gig workers and freelancers, independent work offers flexibility and earning power but leaves these workers without the comprehensive employee benefits expected in traditional employment.

Of course, these individuals can arrange their own individual coverage, but many don’t, and this demographic is showing signs of being underinsured across multiple lines of business.

Embedded insurance provides an opportunity for employee benefits insurers to capture this market. With embedded insurance, carriers can bundle products, enable direct mobile sales channel distribution and offer relevant, affordable and flexible coverage to this underserved market.

An Upwork study finds that 60% of people who had recently taken up freelancing or gig work say that a salary increase would not convince them to return to a traditional job.

Embedded insurance is becoming common in P&C lines. For example, in 2020, Nationwide Insurance partnered with Toyota to offer embedded usage-based insurance (UBI) exclusively to Toyota drivers using telematics technology.

The rise of embedded insurance is linked to technological advances from digital ecosystems and application programming interfaces (APIs) that tie them together. Today, carriers can provide seamless connections to digital platforms for any business through cost-effective microservices.

This technology trend is supporting massive gains in insurance customer self-service and greatly simplifies the customer journey (you’re buying two products at once). As a result, insurance distribution strategies are being designed to offer insurance in as many contexts as possible, as simply as possible.

Embedded Insurance Within Online Gig Platforms

Gig workers are often tech-savvy and independent people who schedule their daily lives and jobs through online marketplaces and mobile task-based platforms. In fact, one study finds that over 70% of freelancers find their next gig through online platforms.

Partnering with online markets and task-based platform companies presents a sizeable opportunity for group benefits insurers to provide coverage to large groups of freelance users at scale.

For instance, Stride Health, a web-based insurance recommendation platform for independent workers, launched a partnership with Fiverr, an online marketplace for freelancers. The partnership enabled Stride Health to capture new markets while providing Fiverr's users with personalized recommendations for healthcare plans.

Embedding insurance into digital task-based platforms and online markets can help benefits insurers acquire customers at the point of sale rather than spending money on expensive marketing campaigns for individual freelancers.

In addition, when effectively embedded in digital platforms, insurance products can offer a strategic competitive advantage to insurers and their partners. It can create trust and loyalty among online markets' user base by providing more benefits to users, which keeps them returning to their platform.

Optimizing Coverage to Fit Gig Workers' Needs

To capture new gig worker market segments, carriers must adapt their coverage options and distribution strategies to appeal to the needs of gig workers.

For example, Goose, a Canadian insurtech, is working with AIG Insurance to help offer affordable income protection insurance and hospital cash policies for self-employed and gig workers.

Enabled by open APIs and Goose's self-service distribution app, small business owners, gig workers and freelancers can purchase protection independently on their mobile devices in minutes.

Many gig workers want products that protect them for shorter periods, such as day-to-day, month-to-month, hour-to-hour or contract-to-contract. Therefore, creating more flexibility in coverage options and how gig workers use insurance products could hugely affect how this generation views the benefits of insurance policies.

Employee benefits insurers must make buying insurance coverage as seamless and effortless as it is for them to schedule another gig. As a result, more employee benefits carriers offer portable benefits for gig workers that provide swift and straightforward application and enrollment processes.

Bunker, an online instant business insurance platform for independent contractors and businesses, allows workers to purchase insurance for just the term of their work contracts, enabling more flexible and meaningful coverage for gig workers. The company offers products such as occupational accident insurance, which covers on-the-job accidents that might not be covered by traditional policies.

Cover Genius, another insurtech, has embedded policies within several gig worker platforms and marketplaces, integrating insurance in the sign-up process and providing the ability to turn coverage on and off.

Additionally, small businesses and companies that rely on contractors because they cannot afford full-time employees can use embedded, usage-based insurance to secure a more reliable talent pool and increase contractor retention.

See also: Embedded Insurance Is Everywhere

Embedded Insurance Can Help Capture the Gig Work Economy

Gig workers, side hustlers and freelancers are increasingly fueling the broader economy. Employee benefits insurers have a major role to play in building a safety net for these workers, and we are only just getting started.

Embedded insurance will continue to be an effective form of digital distribution, as the embedded insurance market is projected to reach $3 trillion by 2023. According to Denise Garth, chief strategy officer at Majesco, 40% of insurance will be embedded in the next 10 to 20 years.

Insurance companies can remain highly competitive over the next decade by leveraging APIs, partnerships with insurtechs and online gig platforms and designing seamlessly embedded digital insurance journeys for customers.

We talk a better game about digitizing than we play.

Insurers have been talking about going digital for a good decade now, and seemingly everyone says the pandemic greatly accelerated the trend over the past three years by forcing us all to interact remotely. Yet ACORD says it found in a recent survey of the 200 largest insurers worldwide that "fewer than 25% have truly digitized the value chain, while more than 10% are not appreciably leveraging digital technologies within their current business processes. Further, more than half of the insurers in the study are still exploring how digitization can be applied against their business model."

Bill Pieroni, president and CEO of ACORD, says: "The gap between those who have been prioritizing digitization, and those who have systematically underinvested, is now impossible to ignore."

And the report found "an unambiguous correlation between digital maturity and increased financial performance, as measured by both Total Shareholder Return and Indexed Relative Profit. The study also found that the performance gap between highly digitized insurers and laggards has continued to grow year-over-year, accelerated by the global pandemic."

Why so little action after so much talk?

As ACORD's Insurance Digital Maturity Study notes, some of the explanation is straightforward: Going digital is expensive, and many companies lack the scale to do so quickly. 

Having watched any number of industries go digital since I started covering technology for the Wall Street Journal back in the mid-'80s, I'll add that the process is confusing. Where do you start? What should your priorities be?

Those are hard questions. Many industries tend to start based on where they are, and try to improve, rather than taking out a clean sheet of paper, designing a digital future and then working backward from that ideal to figure out how to get there. I'd say many insurers fell into that trap and had false starts as a result. They focused on issues such as updating core systems, which, while important, didn't do much to change the process of buying insurance or handling claims--the issues that matter most to customers.

The good news is that insurers have gotten the customer experience religion over the past couple of years and are moving past the false starts, to focus on what really matters. Many are even starting to probe the possibilities of a new business model: switching from the traditional "repair and replace" approach to one that uses the industry's vast stores of data and risk-management expertise to offer "predict and prevent" services that reduce or even end the need for indemnification. 

The work will never be done, of course. Technology keeps improving, customer expectations always increase and competitors never stop threatening. 

But I hope the ACORD study serves as a wake-up call. The New Year is coming, and I think some resolutions for 2023 are in order.

Cheers,

Paul 

Inflation remains stubbornly high, causing cost per claim to climb. In turn, premiums are forced to rise. Customers struggle to afford coverage, and insurers struggle to turn a profit. Forecasts for commercial auto suggest underwriting losses for 2022 through 2024 due to inflation. Something has to change, and it’s at times like these that innovation and technology come to the fore. 

One innovation saving money and putting relevant insurance directly in front of customers is embedded insurance. With increased adoption of APIs (application programming interfaces), insurance products can seamlessly integrate into third-party buying processes. 

Traditionally, insurers spent a significant portion of their budget on marketing. Embedded insurance removes that need as insurance is available for purchase at the exact moment a customer needs it. For example, Jetty offers insurance to renters at the time of lease through property management platforms. Customers are reminded to protect themselves and given an immediate opportunity to do so. Transactional proximity is convenient. It ensures the offering is relevant and ultimately increases uptake. 

Nudging customers toward protection

Amid premium inflation and customers going without protection, embedded insurance reminds consumers to insure themselves. They are most aware of the value of an item (and the cost to lose it) at the purchase, so it is the opportune time to offer insurance.

For instance, the majority of travel insurance is purchased when travelers buy their airline ticket. In 2022, 73% of surveyed airlines offered embedded travel insurance. Giving customers an option to reduce risk with minimal effort reduces financial loss in the long term. 

Traditionally, insurance applications contained a multitude of questions. However, insurers have found that minimizing questions and reducing friction increases their submission rates. Partnerships between insurers and consumer brands simplify the quoting process to just a few clicks. Information sharing between the insurer and third-party brands also makes it easier for each to improve customer experience. Insights into products bought, price point and customer behavior help insurers refine the purchasing journey, tailor coverages and ultimately reduce protection gaps. 

When embedded insurance reaches maturity, it’s predicted to become a $3 trillion market. The insurance industry still has a way to go. Many products still lack embedded insurance offerings. There are huge opportunities for innovative insurers to grow market share, raising the question: How do insurers break into the embedded space? 

See also: How to Lift Profitability in Tough Times

Where to start?

Unfortunately, there is no one-size-fits-all formula for new embedded insurance offerings. Bringing point-of-sale car insurance to the market will be vastly different than introducing point-of-sale home insurance. The strength of embedded insurance lies in its flexibility and personalization, making understanding customer needs vital. 

Insurers first need to do their homework around price points, companies selling product or services that need protection and gaps in the market that embedded distribution can fill. With market research and self-examination, insurers can pinpoint market opportunities.

Once a gap in the market has been identified, insurers need to find a partner that services that segment. Suppose they’ve identified a lack of coverage for jewelry. The insurer might reach out to a jeweler like Signet or Tiffany to discuss integrating an insurance offering into the brand’s shopping journey. 

Once the terms of a partnership are settled, the technical work of executing the integration begins. The insurers currently dominating embedded insurance are agile and fast-moving, often due to no-code insurance platforms tailor-made for the latest innovations. 

Many major carriers still use legacy systems lacking agility and API integration points. These systems generally incur technical debt with every update. With a digital insurance platform, bringing embedded insurance products to market is rapid, and flexible data models mean that all data can be captured, analyzed and leveraged. 

Bundling insurance with the product it protects makes sense for both customers and carriers. Insurers can enter new markets with more efficient distribution. Customers are reminded of risk to their purchase at the most important moment so the protection gap is closed. With the right digital architecture, embedded insurance can bring the next big bang to the industry, making it easier to bring insurance exactly where customers need it.

As the world winds down for the holidays and eases into the New Year, I thought I'd give us all a break and look beyond all the challenges that the world faces today and that will continue to dog us in 2023, to focus on the good things that occurred in 2022. And there were many. 

I'll start with a few on the geopolitical front, because they were the most dramatic, then get to some developments in our world of insurance:

No. 1 for me is embodied in the epic line from Ukrainian President Volodymyr Zelenskyy, who was offered a chance to be airlifted out of the country in the early days of the Russian invasion and responded: "I need ammunition, not a ride."

That's the kind of line a scriptwriter might have put in the mouth of Dirty Harry, not what you expect out of the untested leader of a country in Russia's shadow, and the remarkable performance by Ukraine's military gives me hope both that the mythology built around Putin will crumble and that China might even rethink what seem to be its plans to invade Taiwan.

(If you, like me, want to geek out on the technological underpinnings for Ukraine's surprising successes against Russia, I recommend this column by David Ignatius in the Washington Post. His on-the-ground reporting out of Kyiv shows that Ukraine is benefiting from Western technology and can wage "algorithmic warfare." Ukraine is amalgamating information from a vast array of satellites, drones and other sources on a single screen that lets its armed forces pinpoint targets rapidly and direct fire there, while Russia can't gather or process information nearly as quickly. If nothing else, the column by the always-interesting Ignatius dramatizes the power of real-time data analytics.)

No. 2 for me are two developments that push the frontiers of science far, far out into the universe and deep into molecular physics. 

The new tool for understanding the universe is the $10 billion James Webb Telescope, which was launched a year ago and which began sending images back to us in July like the one below. It shows a formation known as the Pillars of Creation in the Eagle Nebula that is more than 6,500 light years from Earth and that gets its name because the clouds are giving birth to stars.

How cool is that?!

The Webb telescope has six times the light-collection area as the Hubble telescope, itself a remarkable achievement when it was launched in 1990. The Webb telescope has been placed in an orbit around the sun nearly 1 million miles from Earth (vs. 340 miles away for the Hubble telescope) and collects light in a different frequency, one that will provide a whole new look at the universe around us.

The development in molecular physics was the recent announcement that the Lawrence Livermore National Laboratory had achieved "ignition" in fusion — releasing more energy than was used in the lasers that blasted a pellet of hydrogen and produced a self-sustaining thermonuclear reaction like what happens in our sun. I've followed developments in fusion for decades and had subscribed to the line that our ability to produce energy from fusion was "30 years away... and always will be." The recent announcement marks the first time I've thought that the "and always will be" can be removed from that projection. 

Making fusion practical will still take a very long time. Setting up a huge apparatus to create a reaction in one pellet is a far cry from being able to handle a steady stream of millions and millions of pellets, especially because thermonuclear reactions are notoriously unstable. But the announcement still marks a milestone on the march to what could be unlimited, clean energy. In the meantime, the development shows that the U.S. has a way to thoroughly test and maintain its arsenal of nuclear weapons even though the U.S. hasn't set one off in 30 years, as part of international efforts to ban "explosive tests." 

No. 3 for me will be a bit controversial, because a lot of people got hurt, but I believe that the bursting of the cryptocurrency bubble has chased a lot of the craziness out of the market and set up the possibility for rational progress from here. I'm still not convinced that Web3, as many are calling the next iteration of the internet, requires cryptocurrency, rather than a radically more efficient way of handling fiat currencies such as the dollar, but at least we can now evaluate the alternative paths without the burden of all the speculative fervor.

No. 4 is the remarkable progress in what's called generative artificial intelligence — AI that can produce new content rather than simply analyze data and other existing content. I've written occasionally about the topic, including a piece back in May on capabilities for generating images based on brief text descriptions. But the progress didn't stop there. In particular, ChatGPT — a so-called large language model — has raised all sorts of possibilities for gathering and synthesizing information. Why get a bunch of Google hits about individual pieces of data when you can pose a question like I did — "Why is 'The Brothers Karamazov' the greatest novel ever written?" — and get this response, which I reproduce verbatim:

"The Brothers Karamazov is a classic novel written by the Russian author Fyodor Dostoevsky in the late 1800s. It is considered by many to be one of the greatest novels ever written and is often studied in literature classes around the world. The novel tells the story of the three Karamazov brothers and their tumultuous relationship with their father, as well as the impact of their relationships on their lives and the lives of those around them. The Brothers Karamazov is noted for its complex characters, philosophical themes, and exploration of deep, universal questions about faith, morality, and the human condition. It is a thought-provoking and moving work that has stood the test of time and continues to be widely read and admired by readers around the world. However, as with all art, opinions on the novel will vary and it is ultimately up to individual readers to decide whether they believe it is the 'best' novel ever written."

If you like, you can try your own questions here. You can then ponder, among other things, why many think college essays will soon go by the boards. I generally did well on college essays, but how do you top that for a summary?

Turning to insurance, my favorite development of the year is how advances in technology and innovative thinking by insurers has moved us more toward a "predict and prevent" model and beyond the traditional "repair and replace" approach. How much better off will we be if insurers can use their data, including that gathered from sensors in real time, and combine it with the industry's immense analytical power to keep many losses from ever occurring? 

Here is an interview I did with Sean Ringsted, chief digital business officer at Chubb, that explores the possibilities. And you'll be hearing much more from me, and others at The Institutes, on the topic in the New Year. 

Second for me is what I see as the more mature use of AI. Some day, AI may well make it possible to underwrite risks nearly perfectly and in real time. In the meantime, an awful lot was done this year by using AI to tackle more mundane issues: speeding the handling of claims, making underwriters far more efficient by gathering all relevant information and flagging issues before they even open a file, helping agents manage their schedules, letting workers' comp carriers triage cases and spot potential complications from the get-go, etc. That feels like real progress to me. 

Finally, I'll applaud the progress on embedded insurance. It has always felt like a natural approach to me. Why make clients come to us to buy a product they often don't understand and maybe even resent having to buy, when we can make insurance a natural part of another purchase — of a car, a house, a piece of jewelry, etc.? We've published quite a bit on the topic, including this column, and you can be sure you'll see much more on the topic in 2023. 

Yes, there are loads of challenges in front of us — still-high inflation, a possible recession, geopolitical uncertainty and on and on. But let's set those worries aside for now and try to appreciate the progress we made in 2022 despite plenty of similar obstacles that appeared in our way.

Enjoy the holidays!

Paul

P.S. Please share thoughts on what I missed in terms of progress in 2022, especially on the insurance front.  

Inefficiency and ineffectiveness in an insurance claims department are a bit like a boat at sea that has a hole in the hull and is taking on water. The skipper is trying to move forward, but the leak keeps slowing it down.

An insurance claim may get off to a great start, but time constraints and complex processes can bog down the most experienced claims adjuster. Timing is of the essence. When adjusters cannot be agile, claims take longer and get more expensive. Before you know it, the costs of a claim are much larger than anticipated, resulting in claims leakage.

Technology can reduce claims leakage, saving insurance companies billions of dollars each year with the help of what we call digital coworkers. 

When a claim comes in, a claims adjuster’s first task is to gather all relevant information. Then, they need to project how much the insurance company will need to pay for the claim. When the final numbers come in, the insurance company compares the initial projection of costs to the amount ultimately paid. 

Claims leakage occurs when the actual cost is higher than the projected cost – hurting, sometimes disastrously, a company’s bottom line. Claims leakage represents roughly 6% of total claim payments across the industry, costing $67 billion a year for U.S.-based insurance companies alone.

Based on data from 2021-2022, claims costs are increasing by $18 billion year-on-year. This figure suggests the hole in the hull of the boat will only be getting larger.

There are two main reasons claims leakage occurs within claims departments – inefficiency and ineffectiveness.

Inefficiencies are often created when a claims adjuster knows they need to take action on a pressing matter but cannot address it quickly enough.

Think of a workers’ compensation claim where an injured worker’s doctor is asking for an independent medical examination. The doctor has requested approval for the procedure from the claims adjuster and said they will proceed with the examination in five days if they don’t hear otherwise. The adjuster was wrapped up in a series of complex litigation events on other claims and missed this request, so the Insurance company is on the hook for paying for a procedure that might be unwarranted.

Ineffectiveness is also all too common in the claims process. In a perfect world, an insurance adjuster would have all the information they need to process a claim on the first call. In reality, data dribbles in during multiple interactions. Not having all the right information up front can cause a claims department to underestimate how much it will cost to resolve a claim.

For example, say a homeowner stated they had water backing up into the basement. Because this is a common loss, the claim was assigned to a junior adjuster, who went through the usual steps. As it turned out, the actual cause of loss was surface water that seeped into the basement following days of rain. This is considered flooding and is not a covered loss under the policy. The time the junior adjuster spent working on the claim was lost.

In both examples, the company suffered claims leakage.

See also: Premium Leakage Due to Legacy Systems

Narrowing Down the Problem of Claims Leakage

The examples show that there are two distinct problems with claims leakage – people and processes.

There is a 10% vacancy rate for hiring in the insurance industry. There are around 430,000 more jobs than workers to fill them. Many of those jobs are in claims departments. When insurers cannot fill positions, claims adjusters have to increase their pending claims counts and potentially slow the resolution of claims.

The lack of time and staff contributes to errors and slow processing. Both issues highlight the need for coaching and training, but there is no time available for that, either.

The second problem with claims leakage has to do with how technology works to manage the flow of a claim.

A claims department that runs like a well-oiled machine has the right people working on claims at the right moments. While technology has come a long way, only a human has the expertise to handle certain tasks.

What insurance companies could do better is restructure their processes so a single claims adjuster is not wholly responsible for a claim. Rather, a team of claims professionals works together to solve problems. As part of the team, each has a part to play, and the group is collectively responsible for the outcome. Digital coworkers can be a part of the team that improves efficiency and effectiveness.

Overall, the problem with people has to do with having enough staffing capacity. The problem with processes is in having better technology to streamline the claims process. Digital coworkers tackle both problems. 

Digital Coworkers: A Better Solution

A digital coworker works behind the scenes to take on all those tasks that do not require the heavy degree of intellect that humans have. They are effective in large part because, when it comes to insurance processes, thinking can be highly predictable in many situations.

Things could have worked out differently if a digital coworker had been deployed in the two claims examples described above.

In the case of the workers’ compensation claim, the digital coworker would have asked a few more automated questions to determine if an independent medical examination was warranted. Depending on the answers, the digital coworker would have flagged the matter to a claims adjuster for immediate attention. Armed with more facts, the adjuster could more quickly approve or deny the request. 

Regarding the water backup claim, a digital coworker might have asked more questions at the time the claim was filed and determined at that point that it was a noncovered flooding issue rather than a covered water backup claim. 

Digital coworkers can also manage basic communications, while learning from the data and making even better decisions going forward. It all works like clockwork. The end result is greater efficiency, improved effectiveness and a reduction in claims leakage for insurance companies.

Digital coworkers are revolutionizing the insurance industry. Just one can do the work of four to eight human employees, improving the capacity of a claims department and enabling an insurer to process claims better and faster.