The data that carriers and MGAs are missing might be the most valuable, and profitable, data of all. Yet the patchwork of legacy technology within the insurance industry, complicated by the expensive system conversions of the last two decades, has kept much of this data — and resulting bottom-line improvements — out of reach for many carriers and MGAs.

Older systems either fail to capture important data or lock it away due to a lack of compatibility with newer, more robust systems. Moreover, in recent years insurance leaders have faced bet-the-company scenarios as they tried to decide which technology platforms — many of them operating as closed ecosystems — might be the best way forward for their organizations and future growth.

This missing data, both nuanced and critical, has practical, financial applications for both carriers and MGAs. This data can also be immensely helpful in managing the insurers’ relationships with independent agents.

Customer insights, producer management and renewal optimization are just some areas for potential improvement through previously inaccessible or otherwise unavailable data; potentially improving a carrier or MGA’s topline growth by up to 30%.

What’s Missing?

Old systems didn’t readily capture various iterations of work done by agents, brokers and MGAs. Whether through system failure or lack of design foresight, older insurance tech failed to catalog and store some of the back and forth among insurers, agents and insureds that in more recent years has proved invaluable.

One example is detail surrounding insureds contacting their agents to make changes to a policy. Both the frequency and content of these interactions were not captured by legacy agency management systems. In fact, some older agency management systems acted as little more than old-school "contact us" screens found on websites of the 1990s, offering limited behavioral tracking to provide insights on the insured. For instance, detail on homeowner or property owner requests for policy endorsements, providing information on tenant improvement or betterments, adjustments to square footage, tweaking coverages or changing deductibles simply wasn’t captured. Seeing how consumers adjust coverage to get the right rate can be invaluable when it comes to determining the true nature of both the consumer and the risk.

This granular information, to some, is seen as background noise. To an increasingly large portion of the insurance sector, it provides deep insights into how consumers adjust coverage to get the right rate and may even provide early indications of adverse selection by producers.

For older systems that did capture this type of data, access and analysis were slow and expensive. However, with a cloud-based system like Amazon Web Services (AWS), it’s never been easier to deploy artificial intelligence and machine learning across a range of information and still derive significant insights. The accessibility and automated analysis of this data allow it to become sorted, informative and actionable with the push of a single button. Most importantly, these valuable behavioral insights allow carriers and MGAs to derive correlation risk.

Systems that can capture information progressively on how independent agents behave or how insureds are acting can offer insights into the customer lifecycle to indicate the churn of certain types of accounts and, in some cases, even detect potential fraud based on user behavior.

See also: Survey Data Is Your Secret Weapon

What the Data Tells Us

As the saying goes, the devil is in the details. For insurers, it’s usually in the data, and that data is only available if it is captured, made available and analyzed.

Agents can look at the insured’s behavior to determine if the policy will actually renew. Take a customer who calls customer service multiple times during the first year of a policy.  Perhaps they have questions or are requesting changes to reduce costs or otherwise adjust the policy. Depending on how often he or she calls, the agent may need to step in at renewal time to work directly with the insured to avoid non-renewal by the policyholder. 

Granular data can provide valuable insights into the risk for carriers and MGAs at the peril level, not just the policy level. If risk and exposure data is aggregated when commercial policies are bundled, carriers and MGAs may be unaware of what they’ve undertaken. For instance, if these bundled policies are largely focused on property, but some have a small percentage of risk focused on general liability, policy administration programs may not examine risks at the peril level because they were designed, primarily, for policy management rather than risk or exposure management. This can put carriers and MGAs at a disadvantage at renewal if the competition can reconstruct the policy from a peril perspective while those with less sophisticated insights lack the critical data to accurately assess and price the policy at the peril level.

What to Consider

As carriers, MGAs and independent agents continue to move away from legacy systems, the good news is most are turning to more robust, cloud-based systems. These tend to not only provide portability but also seamless system updates, ensuring users will continue to have modern agency or policy management systems for the foreseeable future.

However, there is no shortage of systems available, and each system claims to be ideal and built for the long term. What the insurance industry should aim to avoid is another round of bet-the-company investments that marries their organization to a specific, allegedly all-encompassing technology solution. After all, that’s the quintessential failure of most legacy insurance systems of the past — operating on a digital island with little or no communication with other systems used in and around the industry.

Therefore, the first question to ask any technology provider is whether their system is an open or closed ecosystem. While there can be advantages to both approaches, all indications point to an ever-faster and dizzying pace of technological advancement that will require the flexibility and interoperability that only an open ecosystem can provide. 

A second consideration is specialization. Insurance is built on specialization, and the systems used by insurance professionals should not be any different. Carriers, MGAs and independent agents should look for what fits best, both in terms of how their organizations work and in terms of their capabilities and priorities. Seeking out flexible partners that allow for other systems to easily bolt on to those of others will ensure the necessary customization or specialization needed will be available, and likely needed, for many years to come.

Third, the question of who owns the data once it becomes part of any system is critical. If that data becomes the property of the system provider or is otherwise not easily transferable, carriers, MGAs and independent agents should be skeptical. If you cannot take your data with you, I strongly suggest walking away from such a system provider. 

Why Data Sharing Saves

The question of access to this data has stymied the insurance industry for years. Carriers and MGAs have been cautious about who has access to their data. Neither party wants to give away too much to the other, and independent agents have similar concerns. Unfortunately, by restricting access to certain data, industry lessons aren’t easily shared, and efficiencies can be lost. 

However, this structural aversion to data sharing may not have much of a future in the world of delegated authority. More processes are being automated, and with automation comes measurement. A growing appetite for more nuanced data is dictating how insurers operate and increasingly becoming table stakes. And the granular detail now readily available along with the speed with which it can be accessed and analyzed is driving decision-making and the future of insurance.

In recent conversations, I’ve increasingly seen interest from carriers to provide MGAs a “carrot, rather than a stick” approach to encourage data sharing between the two. There is truly no free lunch, and capacity providers understand that there needs to be more incentive for MGAs to provide their data to overcome these historic aversions to transparency. While the specifics would vary between relationships, incentives like evergreen contracts to no aggregate limits, to mid-term commission hikes in desirable areas are being discussed in exchange for better and more real-time connectivity to MGA data. Steps like this could result in deeper relationships between MGAs and carriers, creating opportunities.   

As I noted at the start, industry data can be astoundingly profitable. We just need to have the will and the secure means to share it.

Electric cars are spreading across the nation. Interest in electric vehicles (EVs) has grown naturally among environmentally conscious drivers over the past two decades. As drivers consider the cost of EVs, some questions remain on their cost to insure, but government incentives could persuade drivers of the long-term benefits of EVs once and for all.

In light of a recent August 2022 California law that will entirely ban the sale of gasoline cars in the state by 2035 -- dubbed the Advanced Clean Cars II rule -- the auto industry is in for a shakeup. Washington, Massachusetts, New York, Oregon and Vermont are expected to follow California’s new law in the coming years.

As California sets high product safety standards and regulations, auto manufacturers have begun following  its laws as an all-inclusive way of abiding by industry standards nationally. Consumers are more likely than ever before to consider purchasing an electric vehicle (EV) but are still wondering about hidden costs. Those lingering financial questions have left uncertainties as to the long-term impact of EVs on the marketplace.

Consumer Demand for EVs

The first mass-produced hybrid hit the market with 1997’s Toyota Prius. Today, consumers can pick from a wide range of auto manufacturer EV options, from popular brands like Mercedes-Benz and Hyundai, to EV specialists like Tesla and Rivian. 

The early adopters of electric vehicles were environmental hobbyists with a strong motivation to ditch gasoline. Among the greatest challenges for those early customers, beyond the price, was how to find a charging station to accommodate the relatively short range of electric vehicles at the time. Development of charging infrastructure took off between 2009 and 2013, creating 8,000 public charging stations across the nation. 

Electric vehicles are now the fastest-growing segment of the auto market in the U.S. In the first nine months of 2021, sales for trucks and conventional gasoline cars fell by 15%, and electric vehicle sales rose 70% from the previous year.

Gasoline savings via electric vehicle use vary state by state, with high savings in areas of elevated gas prices. Consumer Reports estimates EV drivers save between $1,800 and $2,600 in operating and maintenance costs for every 15,000 miles driven.

Other incentives are available this year to encourage purchase of electric vehicles. In 2022, the U.S. began offering a tax credit for the purchase of an electric vehicle, crediting up to $7,500.

Insuring Electric Vehicles

While saving money at the gas pump is clear, insurance costs could be another story. Electric vehicles are more difficult and costly to repair or replace compared with gasoline vehicles – meaning the cost to insure is raised compared with conventional gas vehicles.

On one hand, electric vehicles have simpler mechanisms compared with gas vehicles. There are fewer components that could go wrong and an easier diagnostic process.

On the other hand, qualified facilities to repair electric vehicles are few and far between. It takes time to accumulate mechanics with the skills needed to repair electric vehicles across the nation, and the necessary amount of experts has not yet caught up to the market. For electric vehicle owners and insurers of electric vehicles, the cost to repair comes with a higher service charge, in addition to a higher cost, for replacement parts.

The cost to replace also carries a high burden on insurers. If an electric vehicle is totaled and an insurer is expected to replace the vehicle, the high cost of the vehicle is passed to the insurer.

Over time, these challenges are due to fade away. Between state regulations, federal tax credits and a growing interest in gasoline savings, insurance for electric vehicles is very likely to adjust to a new market in the near future.

See also: Why Are So Many Dying on U.S. Roads?

Reducing Costs to Insure

Insurers today offer a plethora of ways to reduce the cost to insure. 

One of the most popular ways insurers offer savings is through safe driving benefits. To qualify for safe driving benefits, the driver may download an app to record hard brakes, fast acceleration, phone usage, drive distance, drive time of day and drive location. These figures help the insurer compare the driver to a similar pool of drivers and rewards safe driving habits with lower rates. 

Many insurers highlight savings in gas, as well as tax rebates and credits, to help offset the cost of purchasing an electric vehicle.

Bottom Line

The cost to purchase an electric vehicle has dropped in recent years as more auto manufacturers are now producing a variety of different vehicle models. Interest in electric vehicles has risen through increasing motivations to be both environmentally conscious and a desire to cut fuel costs. As more electric vehicles are purchased, the skills to repair electric vehicles become more commonplace. 

The cost to insure an electric vehicle follows the market, offering coverage based on cost to repair or replace the vehicle. In light of California's Advanced Clean Air II rule and federal incentives to purchase an EV, insurance costs are due to adjust as the market for electric cars and trucks grows.

While it is always hard to say for sure what the coming year has in store for the insurance industry, a few trends do stand out, from the impact of the 2022 election to the continuing roles of inflation and COVID-19, and even green energy’s impact. 

Election impact

What happens in the voting booth often finds its way into insurance policies down the road. 

With the Republicans retaking the House of Representatives, the committee structures in the House are about to shuffle as the gavels change hands. The most consequential House committee for the insurance industry is the House Financial Services Committee. 

And even though the Senate stayed in Democratic hands, leadership on the Banking Committee, which has some oversight in the insurance industry, is going to shift because the ranking Republican member is retiring.

The key federal insurance questions likely to come up include the continued federal role in the COVID-19 pandemic response, as well as important questions surrounding flood insurance -- although, with the divided Congress, any new legislation would have to be navigated through a bipartisan majority. 

Although federal politics get the biggest spotlight every year, in the realm of insurance most of the policy is made at the state level, and the most consequential state right now is Florida. It is reeling from two major hurricane strikes on top of an already wobbly homeowners insurance market. The state redrew many of its congressional districts for this election, which means that when it comes time to convene its planned special session to tackle insurance issues, there will be a lot of new faces at the table. 

In South Dakota, the insurance story coming out of the election is the ballot-driven expansion of Medicaid to cover more low-income residents. And with the re-election of Kansas Democrat Gov. Laura Kelly, she pledged to also make Medicaid expansion a priority in her Republican-led sate. 

Arizona also pushed a potentially consequential ballot initiative governing how the state handles medical debt and the interest rates surrounding that. 

And abortion access continues to be a state-driven issue that was on many ballots and one that was generally protected in the states where it was up for a vote. 

See also: What the Mid-Term Elections Mean

Inflation

Inflation is being felt across so many areas of the economy, and insurance is no different. When it comes to insurance, the main inflationary pressures come from rising costs to repair and replace, whether for a home or an automobile. 

Rising mortgage rates have been pushing down home prices in many markets, but shortages in labor and increasing costs of materials mean that after a homeowner’s claim, the costs are still going to be higher, eventually leading to higher homeowners premiums. 

In the automobile realm, the same factors of costly labor and parts are in play, but unlike with homes, automobile prices are continuing their upward march, though there are glimmers that used vehicle prices are slowing. The most optimistic analysts are predicting a near-term end to the semiconductor shortages that have been haunting automakers for years now.  

Medical inflation continues to outpace general inflation, meaning the continued upward pressure on healthcare premiums is likely to continue for the foreseeable future.  

Life insurance 

In a bit of contrarian irony, inflation may be helping life insurance — at least, the tools used to fight inflation have the potential of helping life insurance. 

Life insurance companies invest premium payments when they aren’t needed for death benefits, and those investments tend to prefer safe havens. When the federal funds rate sat at essentially zero for years, that pushed life insurers into riskier asset classes to find return on those investments. 

Now that inflation fighting is pushing rates up on Treasury bills, life insurers are able to rebalance their portfolios, shifting back to government-backed, so-called risk-free investments, lowering their overall risk profile. 

Another trend is policies being targeted at younger consumers. While younger people don’t think as much about end-of-life expenses or retirement planning, many advisers are pushing them to strongly consider life insurance — especially if they are intertwining their financial lives with loved ones. 

One of those entanglements is in student loans. Even though federal student loans, and even Parent Plus loans, discharge if the student dies, the same isn’t always true of private student loans. If a parent takes on a private student loan on behalf of their child, and the child dies, the parent may be left holding the expense on their own. The same goes for co-signers of other loans, such as car loans, personal loans or mortgages. 

While the traditional sales pitch for a life insurance policy is that it provides income to support dependents who rely on their income, these policies for young people may be pitched as the opposite — a term life policy may be an inexpensive way to protect the people who they are relying on for support. 

Life insurance tends to be most affordable for young people because they tend to be healthier, and the policy has a longer time to compound in value, so the monthly premiums can be lower. 

See also: Cyber Trends That Will Change 2023

COVID-19

Even though COVID-19 continues to circulate in our communities, many of the emergency measures put in place to fight it have been coming to end. That means that the government is now shifting the costs for vaccines and testing onto the private insurers, which could mean higher costs and eventually higher premiums down the road. 

For people with insurance policies, this shift is going to be largely in the background because they will continue to get that care at no out-of-pocket cost. 

But the biggest impact of that shift is going to be felt in the uninsured communities. Before this shift, the federal funding meant that even uninsured people had access to many COVID-19 treatments and tests at no cost, but now many of those will be felt as out-of-pocket costs for those uninsured. 

Green Energy

On the heels of the COP27 summit on climate change, a lot of eyes have turned to green energy solutions. From an insurance perspective, those green energy solutions need to be approached with some consideration. 

When it comes to at-home rooftop solar, it is important for prospective buyers to first check with their insurance carrier. Even though rooftop solar is built to withstand much stronger storms and winds than the roofs on which they are built, some insurance companies write specific exclusions saying they won’t be covered by a standard homeowners policy. 

Absent a specific exclusion, rooftop solar would be covered as long as it is permanently attached to the home. The same goes for the inverters and other equipment, and even backup batteries that some of the most modern systems are coming with. 

That said, adding these features tends to raise the value of the home, which may mean that a homeowner is suddenly underinsured. 

On the auto end, while electric vehicles are covered by standard automobile policies, they can be more costly than their internal combustion brethren, and repairs can cost more, as well. That often translates to higher premiums for EVs. 

The higher insurance costs also come from the fact that EVs only represent a few percentage points of the vehicles on the road. Because they are relatively scarce still, there aren’t a lot of aftermarket parts available for their repair, and not every auto shop is certified to work on an electric vehicle, driving up costs at the shops that are certified. 

As more electric vehicles hit the road, market factors will mean that more spare parts will become available and more shops will specialize in EV repair, but in the short run, those higher costs translate to higher insurance premiums on many electric models. 

Given the general consensus that these green energy technologies are a net positive for society, though, there are many industry observers wondering if subsidies to offset these higher insurance costs for these lines should be on the horizon. 

It’s become an overused little joke that most people “fell into” insurance rather than choosing it, but when we consider the talent shortage in underwriting today it’s not so funny any more. The talent gap is only growing, exacerbated by the Great Resignation and the Great Retirement. We can no longer afford to be complacent about the fact that most people in our industry had no intention of being here, and that the new talent we need for future growth – including the best business minds, data scientists, analytics pros and people who understand artificial intelligence and "speak machine" – is choosing other industries over ours. 

Insurance provides an essential foundation in maintaining the stability, health and growth of our businesses, communities and individuals – including those that are the most vulnerable. The impact is more important now than ever. Insurance also is a people business, one that is built on trust and reliant on human interaction and judgment for deal analysis and strategy, pricing and negotiation, distribution partnerships and team building. 

Regardless of line of business or size of business, there still needs to be a human touch, and there is a requirement to think about the overall business strategy, the portfolio and broker/agent relationships. It is not right to assume that AI, machine learning, and other technologies will replace the underwriters we are losing. Instead, we must look to leverage new technologies to empower and enable the human side of underwriting and create a work environment that people want to join.  

None of This Is New

Industry leaders have been talking about the talent drain for nearly a decade, but the pandemic and other economic forces have certainly accelerated it. According to U.S. Bureau of Labor Statistics estimates, 50% of the current insurance workforce will retire in the next 15 years. A study by McKinsey found that 65% of those who resigned from a job in insurance between April 2020 and April 2022 left the industry entirely. That percentage is exceeded only by the 76% in consumer/retail, which has always had a problem retaining people, and the 72% in the government/social sector. If we’re honest, we have always had a problem attracting the best talent, and now we’re running out of people entirely. The time has come to do something about it.  

Given the turnover documented in existing insurance talent, it is even more crucial to attract and retain the next generation of talent. However, if we look to younger generations, we are failing there, as well. According to the Deloitte Global 2022 Gen Z and Millennial Survey, 46% of Gen Zs and 45% of millennials feel burned out due to the intensity/demands of their working environments, while 44% of Gen Zs and 43% of millennials say many people have recently left their organization due to workload pressure.

As an industry and within individual organizations, we need to focus on creating cultures that allow people to do their best work, make an impact, connect with each other and have time and space to live their best life. Said differently: Insurance must do better at keeping up with cultural and social expectations. A good culture can exponentially improve the underwriting experience, but it needs to start with the backbone of a productive and capable work environment. Technology, tooling and workflow all have a huge impact on the underwriter’s day-to-day work environment and how they feel about their job at the end of the day.  

If we assume that insurance will remain a human business (though the roles of those humans will inevitably evolve), our efforts to modernize and digitize underwriting need to be human-centric. We need to ask ourselves how the technologies being implemented today will improve the underwriting experience for current and future underwriters and staff.

Let’s talk about the current underwriting work environment – it isn’t pretty! The technology that has been available in most insurance environments is decades behind what we are accustomed to using in our personal lives – it's slow, static and highly manual, whereas the consumer tech and apps we’ve grown used to in most every other facet of our lives are seamless, beautiful, intuitive and fast – they anticipate and enable our needs. If you think about what is holding back the insurance industry’s ability to attract and retain talent, outdated technology and tooling are a big part of it.

McKinsey has identified providing employees with “a suitable physical and digital environment that gives them the flexibility to achieve a work–life balance” as a key factor in employee satisfaction and talent retention. The right digital tools “free people up to focus on the more creative and engaging aspects of their work.” 

When we consider the significant investments insurers have made in new technologies, data sources, predictive models and digital transformation initiatives, the results are frankly not good. I’ve seen countless companies use band-aids and bubble gum to hold together the systems where underwriters transact business. Fatigue from constant change that doesn’t align with the way underwriters actually work is all too common. So, how have we missed the mark when it comes to improving the underwriting experience? 

Oftentimes, technology capabilities or operational workflows are positioned as business problems, without much consideration for the day-to-day reality of the people in the organization. As a result, the solutions proposed tend to focus on automating away manual tasks. AI and machine learning, for example, are used to replace manual tasks on an ad hoc one-to-one basis. So, rather than having an operations person taking information from an Acord submission form or email and manually rekeying it into a policy admin system, we're going to automate that piece. And that’s great! It speeds things up, right? But piecemeal task automation is only the tip of the iceberg in terms of what these advanced technologies can do, and automation is only one step on the journey toward making a real impact on underwriting and operations.

See also: The Defining Factor in Underwriting Success

Seeing Underwriting Transformation Through a Different Lens

I’d argue that we need to look at the problem through the eyes of the underwriter. It's not enough to have executive leadership spending time and cycles considering the business problems of the day in terms of cost of systems, workflow challenges and expense-ratio issues without understanding the lives of underwriters, how they think, what they feel and why they do what they do. At Federato, we believe that businesses don’t have problems, people do. To improve underwriting productivity and performance, insurers need to take an "underwriter-first" approach to technology adoption. If you take the time to listen to your teams and ask questions, you can solve workflow problems by creating a beautiful underwriting experience that supports and empowers underwriters and staff. When you do that, the business problems disappear.  

The Next Frontier of Underwriting Transformation

The next frontier in underwriting transformation will be about using data and bleeding-edge technologies like AI and machine learning to augment the art of underwriting and operationalize the science of it. 

Up until now, insurers have essentially identified more information, more tools and more places for an underwriter to go to assess and price a risk. Insurers have layered on all of these new “versions of the truth” in a way that has left the underwriting community feeling like they are overwhelmed and drowning in data, instead of being empowered to make good decisions. To create workplaces where people want to stay, we need to make this information more accessible and digestible within the underwriter’s core workflow. Finding risk selection data, guidelines and rules shouldn’t be a scavenger hunt.

If we start from first principles, what are the core functionalities and data that underwriters need to be productive and make the right risk decisions, and how can technologies like AI and ML be applied exponentially to help underwriters in these areas? I see three key areas where intelligent, next-gen underwriting technologies can make a huge impact on underwriting productivity and performance: portfolio management, action-oriented workflow and single-pane-of-glass visibility into all relevant account information.

Portfolio Management

Number one is how your underwriters understand, manage and balance their portfolio. Today, there’s a good chance that they use static analysis and a bunch of fancy, macro-enabled spreadsheets – and there’s an even better chance that your organization’s portfolio targets are routinely missed. Insurers can use AI to let underwriters see into their portfolio at the most granular level, enabling them to see what’s happening in real time so they can dynamically course-correct, balance and shape the portfolio in the direction that they want. Imagine being able to view the state of your portfolio this morning versus looking at stale booked premium data that is 45 days out of date. Underwriters want to know how they’re tracking toward their goals and how their portfolio is doing relative to every other underwriter’s transactions across the entire organization. Having the ability to set goals and rules, dynamically track progress toward them, do what-if modeling and forecast with information in real time is truly transformative. 

Action-Oriented Underwriting Workflow

A lot of "first wave" technology is task-oriented and assumes that underwriting is a linear process. It isn’t. As an underwriter, you have to compile a lot of information at any given time. You have to price a deal, do a referral to give a quote, go back and forth with the broker on pricing and do another referral before you can quote again. If you have a list of 33 items and the technology forces you to get through items one through 30 before you can do 31, that's not very intuitive. We need to shift to an action-oriented approach to workflow, enabling underwriters to really quarterback an account. And we need to support them by digitally enabling risk-selection assistance and prompting, account triage to surface the best deals based on appetite and winnability and task management directly within the workflow. Underwriters are not unskilled labor who are content taking orders and following checklists. They are highly trained, strategic thinkers who really want to do the right thing for their organization. By treating them as such, and providing the right tooling for them to be effective, we can, in fact, attract the very sort of intelligent, creative and entrepreneurial people we want to the profession.  

See also: Why Underwriters Don’t Underwrite Much

Single Pane of Glass

As insurers adapt to new and emerging risks, there are always new data sources that should be considered for every decision, new places to go, new tools to use and new guidance to review. Underwriters shouldn’t have to remember which guidelines to look up, which websites to visit, which tools to use and which Excel Workbook to download. Having all of this information, both proprietary and third-party, all in one place is a tremendous advantage for underwriters looking to out-select the competition. AI and machine learning can do the work of a thousand people to comb the web for every piece of data that might apply to a given account, and do it almost instantly, to run the most complex analytical models to guide underwriters to the right decision. They can go out and gather and distill the right information and then serve it up to the underwriter who is making the decision at just the right point in the process. Rating data, pricing models, exposure information, loss information, third-party data, CAT modeling – having all of these disparate data elements compiled in a “one-stop-shop” is incredibly important, and it’s one of those things that machines can do better and faster. 

Summing Up

These are only a few of the ways that advanced technology can empower underwriters to focus on value-added, human-centric tasks. When you use AI and machine learning to create a digitally enabled workplace and match up risk selection and portfolio insights with operational execution at the account level, there’s no longer any separation between your business strategy and your underwriting execution. 

That's the power of what technology can do when it’s applied in a thoughtful, human-centric way. The endgame here is freeing up humans to focus on the tasks to which they are best suited – things like analyzing market dynamics, negotiation, relationship building, pipeline development and joint selling – rather than consuming their precious time on rote admin tasks and "data foraging." Technology does not eliminate the need for underwriters. It just enables them to use their skills, knowledge and judgment more productively.

Of course, all of this can have a huge impact on underwriting performance, but I see the primary benefit here as creating work environments that are going to help insurers attract new talent, retain the talent they already have and decrease the time it takes for new hires to achieve proficiency in their role. At the CPCU In2Risk 2022 conference, I asked the room how long it takes a new underwriter to go from zero to productive: The majority voted for 24 to 36 months. This is a ludicrous proposition. AI and machine learning can accelerate onboarding by engaging new underwriters with systematic knowledge, contextual prompting and recommendations on the "next best action" based on the insurers’ rules, guidelines and strategic goals. 

People who feel supported, informed, capable and good at what they’re doing tend to stick around – and if we can help them feel that way quicker, we can ward off burnout and churn. Insurers who show a commitment to advanced technologies like AI and ML – the really cool stuff – will be much more likely to attract the right talent. Empowering the next generation of underwriters is the way that we solve the people problems that have plagued insurance for too long and get new generations to seek out and choose our industry first above all others.

ITL:

The IoT has been building momentum for years now. How far have we come?

Sean Ringsted:

The IoT is very exciting. It creates this value proposition where you can go beyond the “repair and replace” model for insurance and get to “predict and prevent” because you have so much information available to you in real time, not just after the fact.

When you think about fire, everybody knows the value of smoke alarms. Now think about water. You can use sensors to detect and manage water leaks in the same way. And they’re a major contributor of loss rate in buildings, both in frequency and in severity. It’s not just the cost, either. It’s all the headaches that go along with water damage that can be prevented. You don’t have to get new carpet, worry about mold, deal with the loss of business income. The value proposition is much less about claim payment and is much more service-driven, to prevent the loss.

You're starting to see applications for worksites. IoT devices can improve safety for workers on degree of bend and lifting heavy objects. Think about sensitive or valuable machinery that you can monitor for temperature and vibration and make sure they’re well-functioning.

Just the ability to monitor temperature fluctuations and humidity can have a significant bearing on the value of something such as marine cargo or fine art.

ITL:

In an interview a couple of years ago, you listed a number of industries where you saw potential for the IoT: financial services, education, real estate, transportation, life science, hospitals, construction and manufacturing. Would you walk us through some of those opportunities?

Ringsted:

Imagine you’re managing a property covering thousands and thousands of square feet. Someone will have to walk the property frequently, because problems happen at random times. Even if you know there’s some sort of problem, you still have to manually inspect to figure out where it originated. And maybe you have to do that in the dark. Now imagine all the work you save by having IoT sensors that not only tell you when you have a problem but tell you where it is.

We had a great example at a large public library with buildings spread through several towns. They installed our water and temperature IoT sensors on top of bookshelves, zip-tied to the boilers, pumps, hot water heaters and so on.

You know where this is going: water. Water and books are not a great combination, right? A defective sprinkler head started leaking, and of course it was in the middle of the night, so the damage would have been significant by the time anyone found the problem. But a sensor picked up the leak, sent a notification to a smartphone and got someone to the building quickly. They knew exactly where the problem was, without having needed to have someone continually inspecting every building.

And go back to what I was saying earlier. The issue isn’t just the financial aspect. Yes, they’d get the monetary value after the damage, but you may not get the books back, especially the valuable ones.

Now go to a horse racetrack. It had installed our sensors in a refrigeration unit at a restaurant that picked up temperature fluctuations that indicated the unit was failing. This time, the problem occurred on a day off, so a lot of food could have spoiled by the time anyone noticed. The sensors prevented that loss -- and headed off what could have been a big mess in the restaurant.

Another example is the roof hatches right above the pediatric unit at a hospital. Sensors detected three leaks, one of them above an electrical panel. Imagine the problems if water had gotten into electrical outlets.

We put the IoT devices in theaters on Broadway to protect high-value equipment. We put them in wine cellars.

So you start to get a real sense of the spread of potential uses – with the common thread being prevention. If you prevent something small from developing into something big, that’s fantastic.

ITL:

I’ve heard people talk for a while about what they call the Internet of Me – based on sensors on our wrists in our FitBits or Apple watches, maybe with slim cuffs that continually measure blood pressure, with perhaps contact lenses that constantly monitor blood sugar and even with sensors the size of a grain of rice that we ingest and that can measure all sorts of blood levels. Do you see much potential there?

Ringsted:

I think the promise is very cool. Look at the need and at the cost of healthcare. Anything you can do in the way of preventative health assessments is a good thing. Maybe your Apple watch picks up an irregularity in your heartbeat and you go see a doctor.

Sensors that monitor us could also encourage us to live healthier lifestyles. Maybe we insurers can provide incentives.  

For example, Chubb’s LifeBalance app is a virtual coach that is available in Korea, Thailand, Hong Kong and Indonesia. It’s up to customers to decide how to set this up and tailor it, but it provides a pretty holistic view of their health. They can track their activities, their sleep and their diet and get feedback in terms of scores and incentives. We've had a couple of examples where the app has picked up health issues, and customers have gone to get medical help.

I think IoT really can lead the way on healthcare.

ITL:

When people think about the IoT, a lot of them think about all the devices, but you have described the IoT as really an architecture. I think that’s the right way to think about it, because the devices don’t do you any good unless you have the right way to communicate from that water sensor in the library to the person in the middle of the night, or to a shutoff valve or whatever. Where are we in terms of building out the architecture, and where does it go from here?

Ringsted:

We're early days in terms of developing IoT architecture. You need interoperability between devices, networks and connection points. You also need to be able to maintain data security, especially for the sort of sensitive data we were just talking about. We spend a lot of time with our clients when we're installing these devices, making sure we're not compromising their perimeter. Any erosion of cybersecurity or privacy would damage reputations, so we have to get this right.

You have to think about how you’re going to capture the data, where you’re going to store it, how you’re going to aggregate it – and you have to be able to aggregate it at scale. So, we have a ways to go, but we’ll start small and be able to build out the IoT architecture, figuring it out along the way.

ITL:

I assume this will all get easier, certainly the ROI will increase, as more of these sensors and shutoff valves and so forth get built into buildings and machinery rather than being retrofitted. If so, how quickly do you see the economics changing?

Ringsted:

I think we’ve proven to ourselves that the ROI is already clear, and more and more of our clients are seeing that as we get more use cases to share. They don’t just prevent losses – and all the disruption that comes with them -- but save on manual inspection processes.

The argument is already compelling, and the prospects for the future are incredibly exciting.

Anyone who has purchased insurance by phone and a series of back-and-forth emails knows how slow and difficult that process can be. Indeed, 48% of insurance consumers think that the insurance industry is lagging behind on technology, and 72% still purchase offline from an agent.

Meanwhile, for the insurance companies that still rely on call centers and salespeople to get customers, the cost of doing business the old way keeps going up, while the customer experience continues to suffer.

But it doesn't have to be this way. 

The Insurance Market Is Already Perfectly Suited for Automation

The home and auto insurance landscape requires compiling a lot of data and performing many repeatable tasks. That part of the insurance buying process is much better suited to robots, but it's not just the hundreds of back-end processes that can benefit from robotic process automation. Automation can also simplify the ways consumers search for and purchase insurance.

So, why are so many insurance providers behind other service industries in digital transformation? It's because it requires carriers to rethink how their products and services are delivered.

Over the last few years, fast, contactless digital experiences have become normal when booking a trip, buying a car, watching a film or ordering clothes. It was only a matter of time before consumers realized that they don't need to deal with traditional insurance agents to get insured. That time is now.

See also: Don’t Get Left Behind

A Smarter, Faster Insurance Experience Is Possible

Online shopping platforms offer customers more options and transparency in transactions than traditional shopping does. While a typical insurance agent might only have five to 10 carriers for a customer to choose from, an online insurance shopping platform can offer customers policies from over 50 top-rated providers in minutes.

Home insurance can be frustrating to purchase over the phone. An offline insurance agent will often ask lots of questions that the customer typically doesn't have an immediate answer for, such as their home's distance to a fire hydrant or the exact shape of their roof.

It's an outdated way of doing business that is completely unnecessary. This data can be accessed from databases and pre-filled to save the customer time. Using a system that leverages the power of technology like Microsoft Azure, a customer needs to only enter their address and an automated system can populate the home data required for a quote--pulled from available information that is already online.

Algorithms can be written to recommend appropriate coverage and compare quotes from multiple carriers. Because these computer scripts are pulling from many more data points than a human can, the customer gets a much more comprehensive and cost-effective experience.

Data Is the New Currency

In a technology arms race, the company that can crunch and manage the most data wins. Advancements in programs like Power Platform enable large data sets to be analyzed quickly, so automated solutions can be delivered at scale. One of the biggest technological achievements of the last couple of years has been the sophistication of how the relationships between different data points can be realized and leveraged to benefit the end user.

Technology has flipped the script on how a modern insurance company should be structured. In the old model, an insurance company depended on an army of workers spending most of their time doing manual data entry. This model is expensive and time-consuming. It also makes operating margins slim, erasing any cost savings that could have been passed on to a customer.

In a digital-first insurance company, the data management is automated, leaving licensed agents available to deliver personalized and superior customer service to the buyer. This also improves the working conditions for the agents, of which there are over 169,000 employed in the U.S.

Driven by greater efficiency across the board, the new digital-first model of delivering insurance means over half of customers shopping for a better deal or expanded coverage will be able to get exactly the right amount of coverage they need, without any of the unnecessary phone calls and forms they don't.

What good is having access to technology if it's not being used to improve experiences for people? It's time the digital pioneers take this $1.2 trillion industry into a new age.

In part 1, we learned about the origins, motivations and decline of insurtech 1.0, which brought us to early 2022. It’s often during recessions that enduring companies are born. Scarce access to capital forces new entrants to identify compelling opportunities and strive for compelling unit economics. Amazon, PayPal, Airbnb, Slack, Square and many others grew on the heels of a recession. They stand in contrast to the previous 10 years of the place-all-bets approach during a bull market and seemingly unlimited venture funding.

Insurtech 2.0 recognizes the innovators who came before but takes a more nuanced and collaborative approach to disruption, recognizing the structural issues inherent in insurance. For example, insurtech 1.0 sought largely to disintermediate agents, whereas a core focus of insurtech 2.0 is to partner with and enable them. Similarly, insurtech 2.0 companies have gotten smarter about identifying lines of business in need of change and are building solutions that incorporate better data and processes to better underwrite them. 

Personal lines of insurance represent a massive premium pool, yet because advertising spending on personal auto alone is upward of $10 billion per year, customer acquisition costs are extremely high. insurtech 2.0 customer acquisition leans heavily on an agent channel and avoids costly GEICO-style Super Bowl advertising. Companies are focused on product and coverage innovation rather than user experience and acquisition. 

In short, insurtech 2.0 has moved along the value chain, picking up where insurtech 1.0 ends, leading us into the heart of insurance. This second wave of insurtechs have more in common than appears, bearing many similar characteristics:

• Above all, responsible underwriting. The lesson from insurtech 1.0 is clear: Poor underwriting discipline has a cost on your financial performance, reinsurance capacity and fundamental viability. Reinsurers, in particular, have wised up from 2015 , when they were happy to participate as stand-alone capacity providers. They now expect some of the upside either through warrants or an investment and for their insurtech partner to share in the downside risk.
   
• Where is the pain? Hint: Look for lines of business with sky-high loss and efficiency ratios indicating something fundamentally upside-down. Insurtech 2.0 has attacked undesirable business lines or products that have lacked investment, innovation and imagination. There is significantly more upside potential here, but it requires insider knowledge and domain expertise to identify.
   
• Be a specialist. Specialty commercial lines are unsexy to many and understood by few. By definition, these tend to be higher-ticket items and are relationship-driven. B2B/enterprise sales requires a different marketing mix, which will follow less of a playbook than B2C. Also, commercial lines are by no means homogenous, making it much easier for insurtechs to find staying power within multibillion-dollar insurance “niches.”
   
• Distribution disruption? Despite the promise of digital distribution, insurance has remained stubborn. Between 2015 and 2020, there was a marginal shift to direct channels, with 90% of P&C products sold through agents, branches or brokers. Making traditional distribution channels more efficient while cultivating novel channels of distribution (e.g., at point of sale or “embedded”) can enable new opportunities.
   
• Manage risk. The best way to mitigate losses is prophylactically, or by avoiding them in the first place. Tech can play a great role in supporting more precise risk selection, pricing and loss control. The Internet of Things (IoT) can play a significant role, but this requires a laser-focused implementation and persistent attention. At long last, the role of rebating is being reviewed by regulators, recognizing how a tech-enabled feedback loop can lead to a virtuous cycle. 
   
• Actuarial-driven R&D. Actuarial staff shouldn’t emerge from the basement fortnightly to make rate filings. With increased connectivity via IoT, we know machine variances are generally less than human behaviors. The days of waiting for five or 10 years of tabular data are unnecessary. Risk profiles are evolving too fast, and the industry is increasingly competitive; a process for modifying pricing and managing coverage forms to keep pace is a necessity. To be clear, actuarial skills need to keep pace with broader trends, but industry can only advance as regulators permit.
   
• Intimately understand the risk you insure. Gone are the days of an arms-length relationship between insured and insurer. Partner with industry to co-develop and collaborate. Underwriters, actuaries and software engineers need to become increasingly expert to help refine models and pricing.

See also: 4 Technology Trends for 2022-2023

The table below illustrates key differences between the first two generations of insurtechs. We are clearly in early innings of insurtech 2.0, but some commercial lines of business are already showing maturity. As the economy teeters on the edge of a recession, investors and business leaders continue to look for a path to profitability with less patience for vanity metrics, so it’s entirely possible we haven’t begun to see heroes emerge from the current wave of startups.

If software is eating the world, its last supper might just be insurance. The amount of insurance premium is gargantuan – about $6 trillion globally in 2021. Anyone looking to take a bite out of it is advised to bring patience–lots of it.

Expense ratios (expenses expressed as a percentage of premium) have remained constant for several generations. This either indicates that the massive investment in technology has not yet touched insurance or that technology initiatives have failed to make the bloated industry more efficient.

Either way, it’s clear why entrepreneurs and investors gravitate toward insurance, coining the term insurtech for a new breed of startup seeking to disrupt with a fresh, tech-forward approach.

Some argue the birth of insurtech was Karen Clark’s pioneering work in catastrophe modeling in the 1980s. Others say it was in the 1990s, with Progressive’s advanced use of data warehousing technologies, applying a Capital One-like approach to insurance through mass customization. Or maybe it wasn’t really born until it had a label, circa 2016. 

What probably matters more to readers is the what. To say an insurtech is any entity that uses tech in the insurance industry seems simplistic; surely legacy insurance players use technology. Maybe we can agree that insurtechs spend a greater percentage of expenses on R&D or IT and that other metrics make them more efficient. A practical consideration is, what does the insurtech do? Does this mean selling to an insurance carrier? What about being a carrier, MGA, independent agent, reinsurer, claims administrator or actuarial consultant? There is no elegant taxonomy of the landscape, nor is one needed.

The past few years have seen a surge of interest in all things insurtech: first, we saw cries of disruption, aggressive fundraising and rapid growth. VCs seeded hundreds of companies to identify opportunities across life and health, property and casualty. Investors seemingly multiplied, corporate investors and innovation groups flourished. While this all came to a screeching halt in early 2022, there is much to be written about this first wave of insurance startups. 

See also: Insurtech Success Stories: Still Waiting for Godot

Source: FT Partners Q3 2022 Quarterly Insurtech Insights, p9
 

We call the initial rise of interest in insurance technology Insurtech 1.0. While the origins may be debated, these would-be disruptors executed several common strategies with varying degrees of success. If we seek to improve on what insurtechs can be, it is critical to understand what Insurtech 1.0 strived to accomplish, where it succeeded and where it fell short. Below is a consolidated list of common misconceptions from the first wave:

• Personal lines are the low-hanging fruit. Everyone is a consumer before anything else, so it made sense that investors would initially be attracted to companies building the products they interact with. However, off-the-shelf homeowners, renters and personal auto are commoditized products that are efficiently priced, sold and backed by heavy marketing budgets and entrenched agents. In addition, these products typically become profitable only when bundled. Because monoline personal lines products are relatively low-ticket items with significant acquisition costs, the juice is only worth the squeeze if you can capture all of the customers’ needs over time. While insurtechs have made great strides in creating a buying experience that feels similar to other (non-insurance) customer experiences, this is not sufficient. They have failed to acquire customers more cheaply than incumbents and upset agents in the process– those same agents they now seek as an ironically affordable acquisition channel.
   
• The strategy should be to capture market share first and turn in profitable results later. In insurance, writing premium without regard for profitability isn’t difficult. While growth at all costs is typically rewarded in venture-backed industries, it is paradoxically a warning sign for insurers playing in efficient markets; binding too many policies at too fast of a clip usually signals an underwriting, rate or coverage issue that the market is taking advantage of. Ignoring or being naive to these signs means you can expect adverse selection and a frightening loss ratio in short order. With a short claims development tail, personal lines can improve, but this likely means churning the very customers that you just spent a pretty penny on to acquire or leaving your fate in the hands of regulators to approve significant rate changes.
   
• Disrupting insurance requires outside talent and thinking. Simply put, entering a highly regulated and nuanced industry without a key unfair advantage is challenging. While early insurtechs thought of themselves as software companies above all, the reality is that domain expertise in insurance is not only advantageous but essential. Contrary to the mantra of move fast and break things, the legacy of insurance is much the opposite. To be sure, there is a vast and largely unexplored middle ground, but ignore the experience of a 400-year-old industry at your own peril.
   
• MGA to full stack, stat! Buying a carrier is a good pitch for requiring additional investor capital and was worn as an early badge of honor that an insurtech had “made it.” But adding capital requirements, regulatory compliance and oversight have proven to be a more of a burden than anything else. While this leap is absolutely worth the cost at the right time, trailblazers seemed in a rush to grow up for the wrong reasons. In this new market environment, insurtechs will struggle to get any credit for vanity metrics.

See also: 3 Paths for Insurtechs in 2023

Some of these startups aren’t as enduring as we had hoped. In somewhat ironic fashion, over the last 18 months, the S&P 500 Insurance index has significantly outperformed the S&P 500, full stack carriers, the HPIX insurtech index and others. This is evidence that insurance can be a stubborn industry, one needing more than an infusion of technology and compelling design. It provides incumbents and a next wave of startups a well-worn playbook to define success and avoid the same mistakes.

In sum, the legacy of Insurtech 1.0 may be more enduring than the actual companies. These startups forced incumbents to recognize their intransigence, ushering in a new area of customer-centered development.

Source: Jefferies  Insurtech Weekly News Update, November 13, 2022 Jefferies LLC

The surge in traffic fatalities in the U.S. in recent years was initially blamed on distracted driving and then on habits that drivers adopted when the pandemic cleared so many cars off the road, tempting people to go recklessly fast -- but other countries face the same issues and haven't seen nearly the same problems as the U.S. has. 

While the U.S. and France, for instance, had roughly the same rate of traffic fatalities per capita in the 1990s, an American is now three times as likely as a Frenchman to die in a traffic crash. 

What's going on?

A recent New York Times article argues that, basically, Americans are thinking about the problem wrong. First, we Americans don't think about the full system. We think about the cars, first and foremost, and about the drivers a considerable  extent but don't focus nearly enough on the third component of the system: the roads. Second, we focus on the safety of the people inside the cars but spare too little thought for the people outside the cars: the pedestrians, cyclists and motorcyclists, who are being killed in far greater numbers than in the past. 

The article says:

“'We are not the only country with alcohol,' said Beth Osborne, director of the advocacy group Transportation for America. 'We’re not the only country with smartphones and distraction. We were not the only country impacted by the worldwide pandemic.' Rather, she said, other countries have designed transportation systems where human emotion and error are less likely to produce deadly results on roadways."

In particular, the article says, "Other developed countries lowered speed limits and built more protected bike lanes. They moved faster in making standard in-vehicle technology like automatic braking systems that detect pedestrians, and vehicle hoods that are less deadly to them. They designed roundabouts that reduce the danger at intersections, where fatalities disproportionately occur." The U.S., by contrast, has "a transportation system primarily designed to move cars quickly, not to move people safely."

The National Highway Traffic Safety Administration, a division of the Department of Transportation, estimates that nearly 43,000 people died in motor vehicle traffic crashes in the U.S. in 2021, up 11% from 2020 and 18% from 2019. That is the biggest two-year increase since 1946 and follows a decades-long, steady decline in fatalities that lasted until the mid-2010s. 

The NHTSA estimates that motor vehicles killed more than 7,300 pedestrians in 2021, up 13% from 2020.

The problem may even get worse. Americans continue to buy cars that are heavier and higher off the ground, which are more likely to kill any pedestrian, cyclist or motorcyclist they hit and to crunch small sedans. The switch to electric vehicles will exacerbate the problem because their massive batteries make the vehicles much heavier than their counterparts using internal combustion engines. EVs also accelerate much faster than ICEs do.

Just think of the Hummer EV, which weighs more than 9,000 pounds and can go from 0 to 60mph in roughly three seconds.

Safety technology in cars is improving rapidly and will continue to do so as sensors and software developed for autonomous cars are more widely deployed. Technology can also make drivers safer, especially as smartphones provide data about driving behavior and as insurers offer incentives for those who avoid sudden acceleration, hard braking and other often-dangerous actions.

But experts say we need to go beyond improving cars and drivers and focus on the roads and on vulnerable users, such as pedestrians, who aren't wrapped in thousands of pounds of protective metal. 

The infrastructure bill that Congress passed last year will help. It provides funds for pedestrian and cycling infrastructure and requires that states where vulnerable road users make up at least 15% of fatalities must spend at least 15% of their federal safety funds on improvements prioritizing those vulnerable users. Today, 32 states, Puerto Rico and the District of Columbia face that mandate.

Experts say cities and states should also rethink road design -- for instance, having roads narrow in areas where there is significant pedestrian or bicycle traffic, to make drivers a bit uncomfortable and signal to them that they need to slow down. 

Consumer Reports says "dozens of cities in the U.S. are completely rethinking road design with safety top of mind."

In 2014, New York adopted the Vision Zero concept, which uses big-data analysis to identify and improve dangerous streets and intersections and calls for city planners to rethink everything about roads, bike lanes and pedestrian routes, in the hopes of eliminating all vehicle-related deaths. In Seattle, officials reduced the number of traffic lanes on Rainier Avenue and subsequently reported no serious injuries or deaths on that dangerous stretch. New York City transformed Queens Boulevard into a more pedestrian-friendly road with protected bike lanes and trees and went from seeing more than seven pedestrians killed or severely injured per mile on the road to no fatalities in the two years after the redesign began in 2015.

The surge in traffic deaths in the U.S. won't be reversed easily. Too many factors are working against us. But the analysis in the Times seems smart to me: We can do a lot of good by redesigning roads and by focusing on those who aren't in cars, as well as those who are. 

Government is taking a lead role, as it should, with efforts such as those in the infrastructure bill, but the insurance industry can play a key role, too. It can marshal its enormous amounts of data on accidents and advance smart arguments at every opportunity about how to increase safety. It can also expand on the work it's already doing to offer incentives that will encourage safer behavior. 

As the industry moves toward a "predict and prevent" model and away from the traditional "repair and replace," auto safety is an area where the insurance industry can, and should, shine.

Cheers,

Paul