The COVID-19 pandemic was a catalyst for technological change across the insurance industry, especially within personal lines. Customers demanded virtual and digital interactions, so insurers responded by accelerating the development and investments in transformational technologies. Although it may not be accurate to classify our current era as post-pandemic, insurers have adjusted their plans to match the needs of society today.

In SMA’s newest report, "Transformational Technologies in P&C Personal Lines: Insurers' Progress in 2022 and Future Predictions," annual research findings are revealed that track insurers' plans and progress in transformational technologies. Thirteen transformational technologies have been identified that are revolutionizing personal lines and are explored in the report, which offers insights into insurers' progression, with each based on impact and activity.

One area that has progressed by leaps and bounds is new user interaction (UI) technologies. These technologies, which include messaging and collaboration platforms, business texting, chatbots, real-time video chats, personalized interactive video and voice, have the most impact and activity in personal lines today. About eight in 10 insurers in the segment have active plans in the category, while a quarter already have new UI tech in production. This is not surprising, as insurers rushed to improve digital interaction capabilities during the pandemic. Furthermore, personal lines executives see the potential for new UI tech to transform core business areas, primarily policy servicing and claims. This is consistent with the continuing emphasis on improving the customer experience and the evolving demands of customers.

See also: Personal Lines Channel Strategies

Machine learning (ML) is also a critical area for insurers to track, especially because the technology is working with other AI and becoming embedded in many vendor solutions. Nearly all personal lines insurers see significant promise for ML in underwriting, and 61% see transformation potential in claims. However, there is a rise in the percentage of insurers interested in ML but need more funding. SMA’s observation is that this is primarily among Tier 3 and 4 insurers, particularly those with less than $500 million in premiums.

As we move through 2023, we will see some effects of the pandemic continue, such as workforce dynamics and evolving risk exposures, in addition to newer challenges, including the uncertain global economy and political volatility. Carriers must carefully consider the strategic use of transformational technologies while weighing the priorities for investment amid a changing business environment.

Today’s insurers use big data from myriad sources to underwrite more accurately, price risk and create incentives for risk reduction. From telematics that tracks driving behavior to social media that creates a digital footprint that could offer unprecedented insights, new sources of data are now capable of producing highly individualized profiles of customer risk.

Insurers are increasingly using artificial intelligence (AI) and machine learning to manage manual, low-complexity workflows, dramatically increasing operational efficiency. Also behind the rise of AI-powered insurance is the ability to predict with greater accuracy losses and the behavior of customers. Some insurers say it also gives them more opportunity to influence behavior and even prevent claims from happening.

Yet, is there a risk that this new way of doing things could actually create unfairness and even undermine the risk-pooling model that is fundamental to the industry, making it impossible for some people to find cover? After all, AI is not an agnostic technology and so can be used in ways that reinforce its creators’ biases. As a result, insurers need to be especially sensitive to ensure they develop and use AI and machine learning ethically and manage their customers’ data with watertight controls.

How ethical is AI?

AI has become an integral part of the day-to-day operations across most industries and can be credited with condensing vast amounts of data into something more usable. But as companies come under greater public scrutiny for how algorithms are influencing corporate behavior, the question of how to ethically apply machine learning and AI is top of mind for insurance leaders.

It’s important to remember that AI doesn’t really reason; Algorithms have no ethics; they are just simply algorithms. So, instead of asking how ethical a firm’s AI is, we should be asking how far ethics is taken into account by the people who design the AI, feed it data and put it to use making decisions.

For privacy issues, organizations are required to adhere to GDPR regulation, the European legal framework for how to handle personal data. At this moment, however, there is nothing similar in place to grapple with the raft of ethical challenges presented by this rapid rate of AI innovation. The EU AI Act, first proposed in 2021 and expected to pass in 2024, is understood to be the world’s first international regulation for AI. So, although various pieces of legislation are being prepared, grey areas still remain with companies having to rely on high-level guidelines that could leave significant room for interpretation. Therefore, for the time being at least, responsibility primarily rests with companies, organizations and society to ensure AI is used ethically. Insurers will need to think through their entire data ecosystem to achieve comprehensive AI governance, including the insurtech vendors with whom they partner.

With machine learning continuing to generate significant additional value across insurance, the value of applying a clear ethical framework should be considered an essential component to successful adoption and value extraction. In addition to transparency, key components in WTW’s own ethical framework, for example, include accountability and fairness -- understanding, measuring and the mitigation of bias – of the models and systems in how they operate in practice, in addition to how they are built, and technical excellence to ensure models and systems are reliable and safe providing privacy and security by design.

See also: 3 Steps to Demystify Artificial Intelligence

Transparency

While insurers were already on a digital journey and innovating products prior to COVID-19, the pandemic has certainly fast-tracked some of these transformations. Besides the more recent factors of rising uncertainty in global markets and high inflation, evolving customer demands have been applying tremendous pressure on the industry to transform at speed. 

To respond to customers’ expectations for speed and convenience, with products and services tailored to them, and experiences equivalent to those elsewhere in life and online, insurers are having to innovate faster with AI technology increasingly becoming a must-have component and function to augment their risk management activities. The increasing use of AI in making decisions that affect our daily lives will also require a level of transparency that is explainable to employees and customers.

Given the immense volumes and diverse sources of data, the real value of AI and machine learning is best achieved when making intelligent decisions at scale without human intervention. Yet, this capability once achieved gives rise to the perception of a "black box," where most of the business personnel do not fully understand why or how a certain action was taken by the predictive model. This is because, as companies leverage data more heavily and the types of analyses and models they build become more complex, a model becomes harder to understand. This, in turn, is driving an increasing demand for the "explainability" of models and an easier way to access and understand models, including from a regulator’s point of view.

Transparent AI can help organizations to explain individual decisions of their AI models to employees and customers. With the GDPR ruling that recently came into force, there is also regulatory pressure to give customers insight into how their data is being used. If a bank uses an AI model to assess whether a customer can get a loan and the loan is denied, the customer will want to know why that decision was made. That means the bank must have a thorough understanding of how their AI model reaches a decision, and to be able to explain this in clear language.

Realizing the potential of AI 

Opportunities for more sophisticated pricing and immediate P&L impact have never been better. Pursuing pricing sophistication can enable transformative shifts toward advanced analytics, automation, new data sources and the ability to rapidly react to changing market environments.

External data can help insurers better understand risks they’re underwriting. With a complete picture of driver and vehicle, motor insurers can better assess risk and detect fraud. By feeding external data into analytical models, they can quote more accurately and attract desirable risk profiles at the right price point. Investment in AI can also enable an insurer to further enhance the customer experience throughout the policy lifecycle -- from streamlining at the time of quote to processing claims more quickly.

The demand for transparent and responsible AI is of course part of a broader debate about company ethics. What are an insurer’s core values, how do these relate to its technological and data capabilities and what governance frameworks and processes do they have in place to keep up with them? Ultimately, for AI to have the most impact, it needs to have public trust

While it's generally accepted that being digital is a good thing—even an essential thing since the onset of the pandemic—for agents and brokers, it's hard to quantify just how great the benefits are. So, it caught our eye when a study reported that highly digital agencies are growing far faster than ones that are laggards in the digital transition and offered specific reasons for the difference. To dig deeper, ITL sat down with Tyler Asher, president, independent agent distribution at Liberty Mutual Insurance, which conducted the research.

ITL:

I'm intrigued by your report that agencies that are highly digitized are growing 70% faster than those that aren't. I thought I'd start there and ask you to tell me a little bit about the report and how you arrived at that number.

Tyler Asher:

Digital isn't a new phenomenon in the independent agency space, but the trend has accelerated, certainly during COVID. We've been keen to understand where customer expectations changed, how agents adapted and whether they have sustained the adjustments. And we have been tracking these sorts of things over time. This research had 700 independent agents respond, and we found that highly digital agencies grew 70% faster than their less digital counterparts.

A set of digital capabilities stood out as being most highly correlated to growth. For instance, how agents think about digitization across the entire value stream from sales, to service, to continuing customer communications, things like online chat, things like digital marketing, things like the ability for customers to get a quote online.

ITL:

If I'm a slow-growing agency at this point, what would be the two or three things you might point me to that would maybe move me toward the better end of the spectrum?

Asher:

An agency needs to start out by making sure it can be found, through a good digital storefront, and being active on social media and thinking about SEO [search engine optimization]. Some more advanced agencies take digital marketing to the next level, doing paid advertising or paid search. But even just the fundamentals of having a good, modern, clean website that's mobile-friendly, one that comes up in the local results so you can be found, is really important. As prospective customers are looking for, "Who am I going to do business with?"—agents need to be putting their best foot forward.

The next step is thinking through online quoting. We believe insurance is fundamentally a relationship business, and agents differentiate themselves from any other channel through the breadth of their offering and the custom-tailored advice they provide. The online quoting experience can be something as simple as having a button or form where you collect information from the client digitally, so you can quickly follow up and make sure you’re meeting their full needs.

After handling the top-of-the-funnel stuff, you need to get into all aspects of the customer lifecycle. Can you handle their transactional needs—paying a bill, getting policy documents or ID cards, making a simple change to a policy, finding contact information, etc.? How do you digitally enable all that so you can take the transactional burden off an agency's staff and let them focus on driving long-term loyalty?

You also have to let the customer choose how they want to interact with you. It's more typical today that transactions are done asynchronously. It's no longer, "come into the office and sign these documents." It's, "are you available via email or via chat?" Many agents are also developing long-term relationships by sending out a regular email newsletter, for example. There are a lot of digital aspects to managing the customer relationship.

ITL:

I think customer service is key. What role should the carriers play?

Asher:

It's incumbent upon carriers to continue to invest in their digital capability so they can enable agents to make sure the easy stuff really is easy, so customers can handle simple transactions anytime, anywhere. From an agency standpoint, they have to make sure they're taking full advantage of what the carriers are offering, whether that's self-service on a website or through the mobile app. The more that agents have leaned into those digital capabilities, the better they do. Independent agents need to provide the same experience that customers are getting from other industries.

ITL:

I'm seeing some companies offer technology that helps agents organize their days, based on AI that suggests phone calls, meetings, sales opportunities and so on. Are you seeing that much, and how effective do you think that sort of technology can be?

Asher:

We're very familiar with that premise, and it’s a growing trend. We're a data-rich industry. So, there are lots of opportunities to deploy data to predict how best to meet customer needs, both in terms of sales and service.

ITL:

While there's been loads of talk over the years about how insurance agents will get disintermediated, agents have not only survived but thrived. In fact, it seems to me that carriers are competing hard these days for the love and affection of agents. Am I right about that?

Asher:

That is absolutely true. We've actually seen an increase in carriers entering the independent agency space. You've had some strategic pivots by national carriers like Nationwide and traditionally captive carriers like Allstate. I think there's more interest in the independent agency system than there's ever been.

ITL:

One last question. I've studied enough statistics over the years to have had the difference between correlation and causation beaten into my head. How much do you think your report shows that becoming increasingly digital causes better results, and how much do you think you found a correlation? In other words, might those agencies that are already prospering be more likely to go digital, rather than having the digitizing drive the prosperity?

Asher:

I think you're spot on. Actually, before my current gig, I used to run data analytics for Safeco, so the correlation-causation question is near and dear to my heart, too.

I think there's an imperfect answer. It's hard for us to say, "Hey, if you take this digital step, here's the exact result you're going to get." But we can say, "Here are the best-performing agents, and here’s what they're doing." And there is evidence of causation, that an actual tactic is having an impact. When we look at customers who engage with us in digital channels for things like self-service, we see a higher Net Promoter Score with those customers. We see higher retention with those customers. So, we know we’re meeting customers’ and driving real business results. That's demonstrable to agents.

ITL:

Terrific. Thanks so much, Tyler.

About Tyler Asher

Tyler Asher is President of Independent Agent Distribution at Liberty Mutual Insurance, heading up the combined $18.8B Liberty Mutual, Safeco and State Auto independent agent distribution organization.

He played a pivotal role in Liberty Mutual’s acquisition of State Auto in 2022 and now leads a unified field team of associates committed to providing the support and resources the organization’s nearly 32,000 appointed agencies need to grow profitably. He is deeply dedicated to building a culture of advocacy that keeps agents at the center, which has earned the company recognition as champion of the independent agent for five consecutive years, according to the annual Channel Harvest agent voices survey. Under Tyler’s leadership, Liberty Mutual has risen to the number two carrier within the IA channel.

A speaker, mentor and industry advocate, Tyler has devoted his 20+ year career to working with independent agents and advancing the IA channel.

The death toll in the earthquake in Turkey is staggering -- more than 37,000 people are known to have died, as I write this, and the UN says the actual total  could be twice that. But the number who died didn't need to be nearly so high, even though the earthquake and its aftershocks were massive. Tens of thousands of people should still be walking this Earth -- shaken up but very much alive. 

The blame falls squarely on contractors who constructed shoddy buildings and on all those who falsely sold companies and individuals on the earthquake-resistant qualities of the spaces they were buying or renting. Blame also belongs to those government officials who failed to spot and publicize the problems that caused entire blocks to collapse even though buildings were supposedly built to modern standards in an area known to be vulnerable to earthquakes. 

But I do think insurers can help prevent future disasters. It won't be easy. It will require finding a way to share the industry's evaluation of risks in ways that go beyond the narrow confines of a policy and that range beyond the one-year time frame of the normal insurance contract. But it's worth a try. 

I've had occasion to think about earthquakes and building standards ever since I was searching for a new office as the bureau chief in Mexico City for the Wall Street Journal in 1994. Memories were still fresh from the 1985 earthquake that had collapsed buildings throughout the city and killed at least 5,000 (the official count) and probably more like 10,000 people. So, I wasn't just trying to find more space as I hoped to consolidate Dow Jones operations in Mexico but was looking for resilience in the face of earthquakes, and I got quite an education on just how much force buildings could be constructed to withstand. 

My problem as a buyer boiled down to two issues: information and incentives. And those two issues not only confront other buyers as they think about where to locate in earthquake zones but create hurdles for the broader, societal desire to keep earthquakes from causing billions of dollars of damage and killing tens of thousands of people.

The information issue was simple: Others had it, and I didn't. Those who constructed the buildings I visited certainly knew what standards they had or hadn't met. Government inspectors did, too. But I was operating at a severe information disadvantage. I could look at the brochures I was presented and maybe dig into government reports, but I still wasn't going to really know just how a building would perform once the shockwaves of a major quake starting rolling through the drained lakebed that Mexico City is built on.

The agents for those builders also didn't have any incentive to be open with me about the resilience of an office. They just wanted to make a sale. I'm not saying there were necessarily dishonest. I'm merely acknowledging the realities of capitalism. They had every reason to gloss over any imperfections, just as the builders had incentives to keep costs as low as possible during construction. 

Government inspectors also didn't have incentives that lined up very well with mine or with those of society writ large. They produce their reports for decision makers in the bureaucracy, not for the public, so they use obscure language and don't even have a very good way of informing the public about the relative safety of buildings. And -- let's be frank -- inspectors aren't always as pure as the driven snow in a political culture like Mexico's in the mid-1990s. Bribes were known to happen. 

Here's where insurers come in. They have both the right information and the right incentives. They can not only help an individual like me circa 1994 but can also educate a whole populace about risks in ways that could greatly limit the devastation from future earthquakes. 

As I said, it won't be easy. Yes, underwriters have all the data they need on the general risk of an area such as Mexico City or on the recently devastated area along the Turkish-Syrian border, where three tectonic plates come together. Insurers also have accurate data on all the buildings whose owners or renters they underwrite. And insurers have reason to want to help clients avoid losses, especially as we move more toward a "predict and prevent" model and away from the traditional "repair and replace" approach to insurance. 

The biggest problem is that the decision to rent or buy tends to happen before insurance enters the equation. In addition, the cost of insurance is typically reflected in one-year increments, as policies come up for renewal. 

But what if insurers in Turkey had warned prospective occupants a decade ago that certain buildings weren't, in fact, built to modern standards for withstanding earthquakes, despite what the owners' agents claimed? What if insurers had also said that risks (and premiums) would increase each year because pressure continually builds where tectonic plates cross, until an earthquake releases that tension? What if the insurers had put a hefty price tag on those increasing risks, showing prospective occupants that they wouldn't save nearly as much as they'd hoped by moving into a building constructed to a sub-par standard? And what if those insurance conversations had happened before the lease or mortgage was signed, rather than afterward?

How many occupants would have been dissuaded (and lived)? How many builders would have retrofitted offices or at least adhered to high standards in future construction?

I saw such broad conversations about cost have an impact in the personal computer industry in the late 1980s and through the 1990s. Many budget brands lost credibility when consultants began rating the total cost of ownership over the lifetime of a PC, and buyers could see what they'd likely spend on maintenance, software that wasn't included in the base model, etc. These days, makers of electric vehicles are changing the conversation along similar lines. Yes, EVs cost more up front than those with internal combustion engines (even with government incentives, in many cases), but they require much less maintenance and, of course, don't require gasoline. 

So, while I realize a lot has to happen between my noodling on earthquakes and broad societal impact, I'm hoping that we can change the timing and nature of conversations about insurance and blunt at least some of the effects of earthquakes in years to come.

Cheers,

Paul 

Looking back at 2022, insurance providers mostly had a quiet year that ended in turmoil. The $132 billion in insured losses from natural catastrophes in 2022 was 57% above the 21st century average. On the other hand, health insurance claims related to COVID-19 tapered off, and there were fewer storms affecting P&C policies. Life insurance payouts occurred less frequently, as well, following the record highs of the pandemic. 

But 2022 was an intense year for insurance providers. Hurricane Ian devastated Florida in September, and, at $65 billion insured losses and counting, it was the costliest natural disaster of the year. The year’s relative quietness also meant demands for most lines of coverage were lower, and consumers, rather than buying policies, cautiously waited for economic conditions to unfold. Inflation and recessionary fears cooled interest in life insurance products, lowered investment income and contributed to increased prices when paying claims. Supply chain issues even hurt the insurance industry; building materials, car parts and everything in between are much more expensive, and insurers are covering that cost directly. Life insurers were able to manage more of these pressures than most; they have flexibility to match premiums to market conditions and take advantage of rising interest rates. 

What does this mean for insurers in the year ahead? Luckily, they started 2022 in a position of strength, and still are in a good spot to drive down costs and increase demand, unless rising claims costs and market volatility continue. 

Leverage technology to adapt for disruptions

Insurance, like all industries, is dealing with a tough labor market. Investing in people to keep them trained and equipped to handle all necessary processes can be a lot, but it’s crucial. Insurance companies also need to find ways to do more with even fewer people. The best way to do so is to augment employees with automation. Automation can eliminate mundane and time-consuming tasks to create a more rewarding workplace. As insurance companies step into the future, this will be key.

As a side effect of insurance work, many insurers have more data than they know what to do with. They need to capitalize on their analytics in more ways than one. Data analytics should drive investment decisions, product development and pricing and help with fraud detection. With deep analysis of data, insurers can manage uncertainty and better model predictions and strategies. Data analytics can allow insurers to be prepared to answer “What if?” to figure out what’s coming. Assumptions, instinct and Excel models aren’t enough. 

Moreover, insurers have to anticipate disruption to their models and to the world economy and prepare for it. Uncertainty is rampant, and so are cybersecurity threats, geopolitical tensions, changes to tax law globally, compliance burdens and rising competition from insurtechs. Insurers have to adapt much more quickly than before, and automation and using the data they’re generating will allow them to be nimble and anticipate market pressures before they become issues. With good data and augmented workforces, insurers can be more resilient and agile to face coming challenges. 

See also: Risk Barometer for 2023

Create a better customer experience

In 2023, insurers will have to balance improving their internal processes and improving their customer experience. Consumers are demanding simpler processes to buy and use insurance, and traditional insurance companies are often left in the dust by digital-first companies that aren’t hindered by legacy systems or traditional ways of doing business. To stay relevant, insurance companies will need to adopt digital capabilities to stay apace with nascent competitors. By doing so, they can help customers much more quickly when disaster strikes and reach their policyholders effectively on their own terms. If the customer journey isn’t fully mapped out, it won’t have technology in place to communicate with policyholders when they need assistance quickly. On top of that, customers are expecting insurers to be socially and environmentally conscious, not just paying lip service to their causes, with true ESG strategies. Insurers that are aggressive about ESG can differentiate themselves in the market for both consumers and for employees.  

These fundamentals of adopting new technologies, using data effectively, augmenting workforces, simplifying customers’ experience and fully integrating ESG strategies need to be instituted if insurers are going to stay competitive in 2023.

After a global pandemic and a war in Europe that no one saw coming, maybe we should get out of the business of making predictions. But there’s still value in trying to pinpoint big trends. After all, it’s not about being spot on. It’s about helping industry players orient themselves, compete more effectively and better serve customers in an increasingly volatile global market. So, here are our seven key trends to look out for in the insurance industry in the year ahead:

1. Insurance products will be reimagined in the cloud 

In 2023, pressure on renewals, premiums, cycle times and customer retention will pose a significant challenge to carriers. Those that use cloud infrastructure to do more than just sign up customers and settle claims will succeed. While many have already made the move to cloud and invested heavily in digital transformation, insurance still lags behind other industries in terms of the imaginative use of advanced digital technologies to deliver the new products that customers want and the market needs.

That will begin to change this year. Some carriers will use cloud to make the typically opaque claims process more transparent and easier to understand for their customers. Others will use application programming interfaces and straight-through processing to reduce cycle times by improving the flow of data between parties. And innovative cloud-based products will push through based on demand. For example, in auto insurance, there will be greater refinement and sharpening of payment options such as per-mile or per-journey, supported by better use of telematics. The most imaginative insurers of 2023 will turn claims processes into shopping experiences to enhance customer experience and reduce cycle times.

2. The graying of the industry will prompt digital transformation 

Grow old or grow up? That’s the choice facing insurers in 2023. Talent in the industry has long been on the older side. As baby boomers retire, carriers are finding that up to a quarter of positions are unfilled in some functions. So, carriers will be looking to bring in third parties at scale. They’ll do this not to replace bodies and outsource day-to-day processes but to help codify institutional knowledge and build rules-based digital systems that deliver a more reliable and sustainable operational model over the long term. 

3. Analytics will offer quick ROI

Now that the basic operational transition to the cloud is complete for many insurers, competitive differentiation will come from accelerating its benefits; namely, speeding the process of insuring and improving customer and broker experience. Data will further increase in strategic importance in 2023. But don’t expect to see lots of multi-year, long-term investments in enterprise resource planning or customer relationship software. Rather, expect to see quick investments in digital and analytics solutions to achieve rapid returns on investment – such as predictive analytics that help insurers anticipate and triage customer need and application program interfaces for no-key, no-touch data ingestion. The coming year will see fewer deep transformation initiatives and more light-touch applications of digital and analytics for specific, immediately attainable goals. 

4. Embedded insurance will bring new opportunities

Value, not price, will be a key area of focus for both carriers and brokers. Instead of ratcheting premiums up, insurers will pair prudent underwriting with innovative product design that leverages more personalized data. They’ll deliver these products through partners and digitally enabled distribution channels. 

Embedded insurance — which allows any third-party, non-insurance brand to seamlessly integrate insurance products into its customer’s purchase journey — will create opportunities for carriers and insurtechs alike. In property and casualty and general insurance alone, the embedded insurance market is forecast to grow to $722 billion in gross written premiums by 2030, more than six times its current size and 25% of the total market size.

“Embedded insurance has opened access to new addressable market segments,” says Davide Palanza, research manager, IDC Financial Insights, “The size of this opportunity means the business model is giving birth to a new, vibrant ecosystem of insurance providers, embedded insurance enablers, and distribution partners. It will allow the industry to reframe its digital purpose individually and collectively, bringing benefits not only to insurers but also other organizations and customers with more relevant and affordable insurance.”

For example, this year will see auto insurance bundled at the point of vehicle sale and offered by original equipment manufacturers (OEMs) under the car brand -- with the risk underwritten by traditional carriers. Because of broader price pressures on OEMs (such as the microchip shortage), carriers will have to do more with less when delivering the services they provide as part of the underlying policy. One example? Claims Manager - a configurable servicing platform that uses computer vision and artificial intelligence to assess damage to vehicles during the claims process. 

See also: Cybersecurity Trends in 2023

5. Insurers and insurtechs will be friends, not foes

Insurance players will spend 2023 treading a path already well-worn by their banking counterparts. Over the last few years, fintechs have been playing nicely in the sandbox with banks as their partners rather than their competitors. A symbiosis of skillsets has been the key to their mutual success. This year, insurers and insurtechs will make the same move. 

Insurers will no longer bear the sunk cost of massive investments in technologies that can quickly become outdated. Instead, they will partner with insurtechs that offer focused and targeted solutions, which solve a specific piece of the puzzle within the insurance value chain. Already, insurtechs are becoming a huge investment opportunity for insurers. For example, in October 2022, insurance holding company Tokio Marine announced that it would invest $50 million in the series B funding of bolttech, a Singapore-based insurtech that seamlessly connects insurance providers, distributors and customers in the world’s largest technology-enabled insurance exchange. We expect to see more such tie-ups in the future.

According to Ryan Mascarenhas, group chief customer and operations officer at bolttech, “Creating tangible, lasting value for a customer often requires an insurer to form multiple partnerships with best-of-breed industry experts and embrace co-opetition. Traditionally, insurance carriers have wanted to manage the entire value chain themselves. So, embracing an ecosystem approach requires a big mindset shift. But it opens up so many additional possibilities, especially where the goal is to make the end customer experience as seamless as possible.” 

As the market slowly moves away from traditional channels, insurers will continually evaluate which insurtechs are the best fit for them and look for the right third parties to help orchestrate those solutions. 

6. Macroeconomic conditions will be a mixed bag for industry players

High inflation and high interest rates are hammering consumers and have tipped many global economies into the early stages of recession. But should insurers fear the dip? Overall, not necessarily. 

Certainly, carriers will feel pressure on profit in some areas. For example, because of continued supply chain disruption, competition for (and the price of) parts and materials remain high. For property and auto insurers, this is increasing servicing costs and cycle times. If these carriers decide to hold down premiums to encourage financially stretched customers to renew their policies, they may end up taking greater losses on those products. 

But those increased losses will be offset by high interest rates. Carriers make most, if not all, of their profit from investments -- especially in the bond market. So, high interest rates mean higher rates of return, which may cushion any drop-off in demand for policies and the increased cost of servicing them.

Shawn Homand, head of product at Liberty Mutual, sums up the tradeoff neatly: “With respect to property, we don’t expect any market softening in 2023 -- we expect continued hardening. There are capital constraints — caused by catastrophe losses, the current interest rate environment and inflation — which impact the supply side. But even with a reduction in the demand side due to a global recession, this will not tip the scale down in any meaningful way.” 

Homand also expects that “increased focus on analytical tools that provide better risk selection and accurate valuation analysis” will help keep internal costs down and premiums stable, too. 

Not everyone in the industry will benefit, though. Now that the initial pandemic terror has abated, life and annuity insurers may see a dip in simple life insurance policies. Insurance brokers, too, will have a tougher time convincing cash-strapped customers to renew discretionary policies. And those smaller carriers looking for a merger or growth acquisition may find themselves waiting for the cost of capital to fall before they act. Conversely, carriers with deeper pockets could decide that now’s the time to gobble up small fry. And, as always with a recession, expect policy fraud to increase. 

7. Insurers will need to get specific about ESG 

How to respond to the climate crisis has become a defining challenge for the insurance industry. Without insurance, most new fossil fuel projects cannot move forward, and existing ones must close. So, while not immediately urgent from a bottom-line perspective, forward-looking insurers will also spend time on climate change and other environmental, social and governance (ESG) priorities in 2023. 

Carriers continue to field questions from their boards and Wall Street on their commitment to a sustainable future. And industry analysts expect big changes by around 2027/8. According to Insure Our Future, an international campaign calling on insurance companies to exit fossil fuels in line with a pathway limiting global warming to 1.5°C, 13 insurers have committed to end or restrict underwriting for new oil or gas projects, 41 have done the same for coal and 22 for tar sands, as of October 2022. 

While this cleaner future may seem far away, in the short term, carriers need to seek more clarity and definition in their ESG strategies for products and markets. The complexity of the industry dictates that a long on-ramp is required to make the necessary changes. Insurers can expect investors to be asking questions and demanding more specific answers. 

Ultimately, 2023 will see a more competitive insurance market. While continued economic disruption makes prices and policy servicing tricky, high interest rates and the industry’s prior investment in cloud bodes well for those willing to be inventive and make quick investments in areas where better data can make a big difference. Bring it on.

2022 saw Hurricane Ian causing an estimated $80 billion in damages, California forest fires, employers wrestling with “back to workplace” policies, company issues stemming from the overturning of Roe v. Wade and numerous cyberattacks. This assortment of events has undoubtedly made insurance more desirable for buyers and insurers more nervous.

What areas are the main exposure points for organizations as we accelerate into the new year, and how can businesses act now to protect themselves? 

Employee Benefit Plan Sponsors Under a Legal Heat Lamp

Under the Employee Retirement Income Security Act of 1974 (ERISA), persons charged with decision-making responsibility are deemed “personally liable.” For the past decade or so, plaintiff lawyers have found that a careful investigation of fee arrangements between employers and outside contractors providing employee benefit plan services reveals little oversight of outsourcing fees. As one might expect, “excessive fee” cases have abounded in the U.S., and this won't slow down. 

Plan sponsors should address this exposure through fiduciary liability insurance to arm sponsors with legal defense and coverage for penalties, expert-led responses and necessary associated notifications.

The Cyber Exposure Saga Continues 

No discussion of exposures would be complete without paying attention to cyber-related exposures, especially ransomware. Clever computer hackers invade a network or computer system, then encrypt it, demanding ransom payment – almost always in cryptocurrency – before releasing it back to the owner/operators. SMBs are especially vulnerable and, worse yet, the consequences of an attack on a small business are catastrophic. It can lead to a tarnished reputation, customer dissatisfaction and, even worse, closures.

See also: 20 Issues to Watch in 2023

Businesses need to strategically rethink their current and often outdated operations and put the proper guardrails in place to help against cyberattacks. Cyber insurance is a security blanket businesses should implement. Insurance is generally available, although annual renewal pricing increases have been in the double digits in 2021 and 2022. Therefore, the quality of the insurance is important. Additionally, commercial insurance buyers must be wary of specific exclusions for cyber exposure on policies under which insurers did not specifically intend to provide the coverage. While this may not appear as a big issue on the surface, there is often insurance coverage found by the courts in the absence of policy exclusions.

Breach of Privacy-Related Allegations

When considering cyber-related incidents, one cannot forget allegations of breach of privacy. Increasing dependence on social media and “culture wars” make potential allegations much more possible and practical. For the knowledgeable insurance buyer, having solid insurance protection to defend against allegations of breach of privacy, as well as pay claim settlements, is increasingly important. Most cyber insurance policies specifically cover breach of privacy, but SMBs are less likely to understand the details of insurance purchased and may even be reluctant to accept the cyber exposure with proper concern. This is a major flaw as SMBs, generally, are targets for data breach efforts. Other traditional insurance products may also address breach of privacy allegations, so a good review of all insurance plans and associated details is a must to determine multiple sources of possible insurance coverage.

Retirement of “Baby Boomers” and Younger Workplace Leadership Can Stir the Pot 

With millennials moving up the ranks in leadership roles and Gen Z entering the workforce, businesses need to take into consideration all the employee protections instituted since the early 1990s around age discrimination and corresponding allegations to ensure they are not perceived to be favoring or overstepping workers' rights on a generational level. This will continue to be bothersome for employers from the standpoint of insurance claims. 

Additionally, with many employers still struggling to implement “return to the workplace” rules and employees trying to hold onto “remote working,” insurance claims are bound to unfold. This makes employment practices liability insurance all the more important as it is a powerful tool to cover businesses against claims by workers suggesting their rights as an employee have been breached – this includes failure to employ or promote and wrongful termination. 

General Increase in Crime Exposure

Last year, mega-retailer Walmart announced that it fell victim to a significant increase in criminal activity. As a likely result, this can lead to corresponding increases in retail costs to customers. A down economy can also cause increases in employee theft, although it may take some time to fully realize this exposure. In 2023, insurance company underwriters will likely want both pricing and deductible increases in many commercial crime insurance policies. NRF’s Retail Security Survey suggests that, on average, retailers saw a 27% increase in organized retail crime incidents in 2021. This number would be expected to rise, based on activity and experience in 2022.

See also: Risk Barometer for 2023

Insurance protection is important, and insurance policy details are critical.

Buffeted by accelerating technological change and feverish competition, mid-tier property-casualty insurers are entering a period of unprecedented challenges and opportunities.

The challenges come from giant insurers with far more resources and from small, feisty insurtechs whose speed and agility mid-tier insurers cannot match.

But opportunities for mid-tier insurers also come from rapidly developing technologies. Cloud, AI, APIs and microservices, among other innovations, are allowing them to develop new products and services with greater efficiency, speed and variety than ever before. And at lower cost.

As a result, new technologies aren't just allowing mid-sized insurers to better compete with bigger and smaller rivals. Technologies are forcing them to do so.

Here are challenges and opportunities in technology that will change the world of mid-tier property-casualty insurers in 2023 and the years to come:

Telematics. A key battleground for mid-sized insurers competing with larger and smaller rivals involves telematics - a technology that allows insurers to personalize their products based on each customer's driving habits. Data transmitted by sensors in an automobile give the insurer a far more refined and accurate sense of how much, where and how safely customers drive. Comparable products are becoming available for homes.

While telematic products permit some drivers to lower their premiums, more importantly for carriers, the technology allows the insurer to begin a two-way conversation with customers, helping them save money and avoid accidents. It is still early days for this technology, with only about 10% of consumers currently participating and over 50% saying that they are open to the idea of sharing their data to receive discounts. Potentially, this conversation could fundamentally alter the relationship of an insurance company with its customers, reducing traditional tensions and increasing customer loyalty.

Ecosystems. Carriers are recognizing that they can't rely on a single provider of technology solutions. The idea of using a single provider is becoming as outdated in the insurance industry as is the idea of consumers buying all of their software from Microsoft.

While the insurance industry has come to this realization slowly (in the banking industry, for instance, this is old news), it has profound implications for the way every insurance company uses technology. In the coming years, insurers will increasingly depend on ecosystems of providers, seamlessly connected by open APIs, that work well with each other. These ecosystems will help free companies from being locked in to one vendor and its products.

See also; Has the Remote-Work Trend Peaked?

Direct-to-consumer offerings. Demand for the direct-to-consumer experience has exploded since the onset of the pandemic. A recent study by the Boston Consulting Group found that 75% of potential insurance customers say they will only contract with a company that offers a simple, digital process for obtaining insurance products.

Spurred by new technologies and the COVID pandemic, many car insurance companies have dedicated websites and applications to reach potential customers. However, insurance agents remain an important part of the distribution channel for most mid-tier insurers because these products are often complicated and consumers like having a trusted expert's advice. Insurers must acknowledge that their products will be sold in a multi-channel environment and must invest in all of them.

Automation. Outdated P&C insurance technology infrastructure is the bane of many players in the industry. Legacy systems obstruct an insurer's growth and ability to regulate operational cost, business demands and customer requirements. And as the prospect of harder economic times grows, insurers will be looking with greater urgency to cut costs and increase efficiency.

With advanced analytics, robotic process automation and other emerging applications, insurers today have opportunities to streamline core operational processes such as sales and underwriting. What stands in the way for mid-tier insurers is that the costs of integrating major new systems appear prohibitive in terms of both time and dollars.

Creating products at a lower cost. As the insurance giants and insurtechs offer an ever-wider variety of technically savvy new products, some mid-sized insurers will turn to new technologies to allow them to compete without expensive and time-consuming system integrations.

One such technology is the Platform as a Service (PaaS), a cloud computing model that allows a third-party provider to deliver hardware and software tools to users over the internet. The PaaS provider hosts the hardware and software on its own infrastructure. This frees developers from having to install in-house hardware and software to develop or run a new application.

Take KOBA, an Australian insurtech MGA pioneering pay-per-kilometer personal auto insurance. It has migrated its insurance program onto Socotra, a third-party provider's policy core platform that allows it to scale and introduce products quickly and inexpensively without major system integrations. The platform provides cloud-native capabilities and the flexibility to plug in multiple raters, claims systems and a single platform to launch any insurance product for any geography or distribution channel.

KOBA's vision is to enable mid-sized carriers around the world to sell white-labeled versions of its innovative and tech-driven products, including boat, motorcycle and ride-sharing products, without having to spend the time, money and effort to create these products themselves.

The moment that matters for mid-tier insurers

For decades, large insurers had advantages over their mid-tier rivals due to the cost and complexity of new technologies. Today, we see a democratization of new technologies that can provide them with a competitive advantage. Combine this with their greater agility to introduce products and serve smaller niche markets, and a new environment emerges that gives these organizations a leg up. No doubt, the next few years will see an increasingly competitive insurance market.

That's the headline on a recent New York Times article: "My Watch Thinks I'm Dead." It seems that the Apple Watch's recent addition of a feature designed to detect low-speed car collisions and to send help if the wearer is incapacitated interprets lots of events as collisions and automatically dials 911. The problem is especially acute among skiers, who not only get bounced around on the slopes and frequently stop suddenly but may be wearing so much clothing that they don't hear the alarm from their watches in time to head off the emergency calls. 

The calls not only create obvious problems for emergency services, many of which report being overwhelmed, but point to a broader problem with false positives that I frequently see distorting thinking about innovation. 

There can be something a bit amusing about technological screwups. All that brain power behind this fancy technology, and they did what?

The Times article does have plenty of "huh?" moments. It also points, though, to even more serious issues with false positives. We often see something described as a breakthrough because it's 90% accurate at something — but that means it's 10% inaccurate. And many "breakthroughs" are more like 65% accurate. 

The issue with false positives is especially serious in healthcare, where they can lead to overdiagnosis and overtreatment that is not only expensive but can endanger patients. Al Lewis, co-founder and CEO of Quizzify, which offers employers programs that educate their employees on healthcare issues, calculates that testing an entire employee population to spot someone at near-term risk for a heart attack would cost at least $1,000 per employee — even if you make the highly optimistic assumption that the test would be 90% accurate. The reason is all the false positives. 

If you have 1,000 employees, your 90%-accurate test will likely find the one person at high risk of heart attack this year who wouldn't otherwise be found, but it will also flag some 99 other people and send them to their doctors for extensive testing and, for many, unnecessary treatment, perhaps including stents. Lewis figures the total cost of what wellness vendors may suggest as an inexpensive test to be at least $1 million for the whole, 1,000-employee population. (He goes into much more detail here about the expense and dangers of overtesting, because of all the false positives that result.) 

You see this error all the time in the enthusiasm that tech companies express for "agents" of all sorts. Remember the "internet refrigerator"? It would track the food you had inside and reorder as needed — but what about the false positives? What happens when your football player son, who drinks a gallon of whole milk a day, goes back to college in the fall? What are you supposed to do with those gallons that show up before you intervene? 

Those agents that were supposed to sort through all the news in the world and prepare a sort of newspaper for me each morning were a great idea — but only if they got everything right. What about all the material I didn't want, yet had to wade through? I remember when phones first started to have GPS; companies waxed poetic about the possibility of spotting me outside a Starbucks and being able to send me a coupon for a latte. What if I wasn't in the mood for one? Then, you're just pestering me.

While the insurance industry doesn't indulge in techno-phoria like the Silicon Valley types do, there can still be blind spots about false positives. I see lots of optimism about the accuracy of AI in spotting claims that are likely to head to expensive litigation or clients who are seriously contemplating leaving for another carrier. Lots of life insurers talk about the high accuracy they can achieve in estimating life expectancy based on just a few questions, Yet I don't see much consideration of what happens when the AI returns a false positive. 

In some cases, there's no particular downside. You do the best you can with the new technology and figure that whatever you don't spot in the way of, say, claims headed to litigation would have been missed anyway. Still, every innovation should be viewed with the idea that there may be unintended consequences — maybe that action you take when you worry that a claim may become litigious will set off someone who never considered hiring a lawyer. 

The need to watch for unintended consequences will increase as the industry continues to move toward what we're calling "predict and prevent" and away from the traditional "repair and replace" model of indemnifying people after a loss. If we're asking people to take actions, we have to be sure we aren't steering them into any danger. A colleague shared a story from his wife about how a telematics-based system was trying to turn her into a bad driver. We can't have that.

As I said, some failures of technology can be darkly amusing. I sometimes think back to a piece a colleague at the Wall Street Journal, the late, great Jeff Zaslow, wrote 20 years ago about the foibles of technology. He included an anecdote about the early versions of TiVo, which tracked what you recorded and then recorded other shows that its algorithms decided you might like. He quoted someone as saying, "My TiVo thinks I'm gay" (which the person mentioned to a TV writer friend, who turned the idea into an episode of "The King of Queens.") 

So, I hope you got a chuckle out of the Times piece and from Jeff's. Still, the problems that they chronicled in droll fashion can create serious issues if we aren't careful. I hope we're careful.

If false positives can trip up the legendary designers at Apple, they can surely ensnare the rest of us. 

Cheers,

Paul

In the heartland of America, far from the coastal regions traditionally associated with innovation and entrepreneurship, business is booming for financial service companies with bright ideas and the ambition to succeed.In Ohio, historically America’s cauldron of industry, only manufacturing contributes more than financial services to the economy in terms of percentage of GDP. The capital Columbus is #14 in the North America 2021 Findexable rankings for best-developed fintech ecosystems and 39th in the world, having made a steep climb of 70 places over 2020.

The growth of the state’s financial sector in the past decade is due in no small part to the efforts of a unique private economic development corporation, called JobsOhio, a state-authorised, not-for-profit that has lately been turning its attention to insurtech as a specific focus of opportunity. JobOhio’s insurance/insurtech initiatives are headed by Ron Rock, who has a strong background in financial services, spanning 20 years. Rock has been heavily involved in business development, giving him the credentials to lead innovation and investment programmes in the insurance sector.

“Banking and insurance are key contributors to our economy,” says Rock, “and Ohio ranks as the fifth largest economy in North America. We’re home to progressive financial brands such as Klarna, and we have nine large insurance companies in the state. Insurers are constantly thinking about business development, how to become more efficient, and how to reach customers in their preferred channels with new offerings. This is the driving force behind the insurtech initiative within JobsOhio.”

Ohio provides many advantages for startups and established businesses alike, says Rock. It has thriving metropolitan and commercial areas such as Cincinnati, Cleveland and Columbus, there is a favourable state regulatory environment, and the cost of living is far lower than in popular business locations such as New York City and San Francisco. There are also excellent inter- and intra-state transport links, venture capital is plentiful, and more than 200 colleges and universities nurture a growing talent pool for tech-driven companies.

Rock explains that JobsOhio has far more depth than the name implies. Although the Jobs prefix suggests an employment development agency, that’s only part of the story; it works to attract capital investment, encourage startups and strengthen established brands, which creates work opportunities. So, when companies choose Ohio, part of Rock’s role is make sure they access the strong local community of business partners, customers and talent that can help to grow a business and put it on the map. JobsOhio brings all the parts together and channels creative energy into successful collaborations.

“We have a diverse ecosystem that can cultivate and support the insurance sector,” says Rock, “and insurtechs are an important part of the mix. We work arm in arm with the state to encourage world-class corporations, entrepreneurs, and talented individuals to build their businesses and careers here.”
There’s certainly no shortage of financial help for them. Incentive programmes include economic development grants, growth funds, and research and development grants. There are the heavily-funded ‘Innovation Districts’ in Cincinnati, Cleveland and Columbus, to help generate ideas and develop the infrastructure to attract more companies.

And there is a JobsOhio Workforce Grant as well as its Talent Acquisition Services that offer customised sourcing, screening, and training solutions. As well as collaborating with regional economic development organisations, and federal authorities, creating structured programmes and investment initiatives to encourage and support insurtechs, JobsOhio has struck partnerships with universities and training organisations to ensure a highly skilled funnel of employees. The state turns out more than 35,000 college grads qualified to work in financial services every year.

“The region’s impressive technology talent ecosystem has proven to be vital for our expansion and was a core reason behind our decision to scale here,” says Alex Frommeyer, co-founder and CEO of Beam Benefits. “We love the people, the culture, the lifestyle.”

From an employee’s perspective, it’s good to know that Ohio’s composite cost of living index is significantly lower than the national and regional average; it ranked #1 for affordability in 2020 in the U.S.News Opportunity Rankings. It’s no wonder that companies stay loyal to it. Ilya Bodner, who founded Bold Penguin to build software for the small business insurance sector, got started in Columbus in 2016 and was anxious to stay close to its roots when it went looking for a buyer to fund its expansion.

When Bold Penguin was acquired by another mid-West firm with similar values – American Family Insurance Mutual Holding Co (AmFam), the country’s 13th largest P/C insurance group – in January 2021, he was delighted that it meant he could keep his local team together.The deal, which attracted a huge amount of attention in the insurtech space, meant he could ‘put a pin on the map’, as he described it, confirming Columbus as what he believes is ‘the mecca of insurance’ in the States.

Despite the economic impact of COVID-19 and the current recession, Ohio, says Rock, remains an attractive place to do business and he is optimistic about future growth. But with every company and new venture, he underlines the importance of getting the fundamentals right and offering something that the market truly needs. He cites the example of Root, a home-grown insurtech initiative.

“Root was a company on the way up,” he says. “Although it has a great telematics product, it’s not ground-breaking technology in the insurtech space. Many insurers have been doing telematics for a while. I could see what Root needed to address to become more viable and successful. It was very upside-down in terms of premiums written and the amount of reserves it had to hold and the amount of claims it paid out. So there is often a learning curve, and sometimes an insurtech needs to come down to earth, take stock, and make adjustments.”

In contrast, another home-grown company called Branch Financial, launched in 2017 and headquartered in Columbus, took a different approach to its business model. Branch uses data and technology to make home and auto insurance easier to buy and more cost-effective.

“I’ve had many conversations with Branch’s CEO, and I was interested in how he approaches the market,” says Rock. “Branch only wants to grow as fast as its loss ratio allows, which is very wise.”
Another success story is Beam Benefits, which, unlike Branch and Root, came from out of state. The digitally-native employee benefits company uses machine learning to give brokers and employers tailor-made quotes in seconds. It has raised more than $160million in funding and is now available in 44 US states. Both Beam and Root have benefited from support from Drive Capital – a Columbus-based VC fund that has amassed a $2billion war chest in assets under management, specifically to invest in technology companies outside of Silicon Valley.

Speaking in summer 2022, Drive’s co-founder Chris Olsen, formerly at Sequoia Capital, said he sought out promising founders in regions overlooked by other investors. He firmly believes that if venture capitalists widened their scope, the American economy would be more competitive internationally. JobsOhio certainly makes a virtue of the state’s entrepreneurial spirit – and how economical it is to do business there. “One of our campaigns is called ‘Ohio is for leaders’,” says Rock. “And If you’re travelling across North America, you might see us get a bit cheeky with our advertisements. For example, we compare the cost of doing business in New York versus Ohio; it’s cheaper to head west and run a business from here.”

According to Crunchbase data, venture capitalists injected more than $3billion into Columbus alone over the past 20 years, particularly into healthcare and insurance startups. While acknowledging that investment in the global insurtech market has taken a knock over the past 12 months, Rock believes you shouldn’t read too much into one year’s figures.

“We’re actually on course to do more venture capital investment in 2022 than we did in 2021,” he says. But there’s a lot of noise in the marketplace and it’s important to separate the wood from the trees when looking for viable ideas and investment potential. “I’m combing the landscape as a member of different investment committees”, he says. “When I look at what the VCs are investing in, they certainly have a lot of choices. If you’re reviewing 100 different companies, you might come across 20 that do the same thing, another 20 that do something in another vertical, and they all look similar.
Ohio’So you have to dig beneath the surface to make sure you pick a winner, something with a great business differentiator.” Many of the larger insurance companies Rock works with are setting up their own innovation departments and labs.

“We do a lot of different programmes with these companies. Although they’re trying to build from within, they also need external partnerships and guidance,” he says. A key area in which it can help is ensuring the right cultural fit between insurer and insurtech. While insurtechs may have the technology and the bright ideas, plus enthusiasm in abundance, they don’t always have an insurance mindset and can sometimes move too quickly for traditional insurers with a more cautious outlook.

“We’ve found that a poor cultural fit is one of the reasons why a company value falls,” says Rock. “If there is a disconnect between partners, it’s going to hit the numbers. You have to work hard to get the right focus and a shared vision.” One way to facilitate that is by promoting old-fashioned networking. “One of my ambitions is to create a large state-sponsored event under the JobsOhio banner,” says Rock. “Think of events like Insurtech Insights or InsurTech Connect. Because Ohio is a growing base for insurtech in America and is drawing interest from across the world, it’s a natural meeting place for the insurance community.”

This article was originally written and published by 'The Insurtech Magazine.'

Sponsored by ITL Partner: JobsOhio