One of the greatest concerns to surface from our State of Technology survey in 2022 pertained to infrastructure and keeping up with innovation. In response, this eBook illustrates the benefits of cloud adoption and the innovative initiatives it enables. Supported by findings from key industry analysts and internal experts here at OneShield, these insights speak to insurers of all sizes – and stages of maturity.

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If you’re interested in reducing infrastructure costs, enhancing internal efficiencies, gaining economies of scale, obtaining configuration control, and more, this eBook is for you.

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Top articles surrounding our January focus, Claims. Plus: an insightful interview with Snapsheet's Andy Cohen.

FROM THE EDITOR  The thought that keeps rattling around in my head as I think about underwriting these days is: How can you make accurate predictions about risk based on historical experience... when the world has decided to throw so much of that experience out the window? COVID-19 changed all sorts of assumptions about life expectancy, at least in the short run and perhaps in the long run; we just don't know yet. The pandemic also reset our patterns of work, changing the risks associated with buildings and with those who work in offices and factories -- or maybe not, as more companies insist on a return to the office.   Inflation came out of nowhere for the first time in decades and made just about every sort of claim more expensive, especially in auto, where supply chain issues sent car prices through the roof. Now, inflation is subsiding... we think... but how fast?  And don't get me started on the Russian invasion of Ukraine, a stunner that not only created tons of business risks but that greatly stepped up the general geopolitical uncertainty, including on the possibility that China will invade Taiwan. I wish I had an answer for underwriters. Instead, as usual, I have a story. It's one that was told to me in 2000 by Gary Loveman, a Harvard Business School professor who rather unexpectedly found himself being asked to be COO at Harrah's and who reinvented loyalty programs, initially for Harrah's and eventually for the whole gambling industry.  The analogy is far from perfect. Regulations will prevent insurers from implementing many of the ideas. That's why I used the word "dream" in the headline, rather than offering a concrete proposal. But there may be aspects of his ideas that can help with underwriting -- and it's a good story.... Loveman was a popular but untenured professor at HBS, doing some consulting on the side, when he met the CEO of Harrah's at a continuing education program that Harvard put on. Loveman later sent him an unsolicited letter with some ideas about how Harrah's could break out in what had become a commodity market, where every casino's games were basically the same as everyone else's. Next thing he knew, in 1998, the CEO had offered Loveman the job of COO. Loveman, who had never managed more than his admin and some research assistants, was going to be managing 15 casinos with more than 10,000 hotel rooms and more than 35,000 employees.   Among the many smart things he did, he reversed the sequence of the loyalty program. Rather than wait for customers to earn loyalty points, he used technology to guess what kind of customer someone would be based on the first interaction, or at most the first few, and started treating them as part of that tier. If he was wrong, he had only cost himself the occasional steak or free hotel room (that would have been unoccupied anyway). But if he was right -- and he was right a lot -- he had a good chance of winning the loyalty of someone before they wandered down the street to another casino.    I had personally seen the attraction of that sort of loyalty-on-the-come approach. When I left the Wall Street Journal to become a partner at a consulting firm, Diamond, a few years before, I was suddenly going to be traveling a ton and didn't want to have to wait a year for the airlines to start rewarding me. I wrote letters to the major airlines asking for status and promising that I'd spend a bunch of money with them if they agreed. American and United did, on the understanding that they'd check up on me after a few months, and I spent thousands of dollars a month with them for years.    So, that loyalty inversion idea stuck with me, and it would do a lot to improve underwriting -- if regulators would allow it. Imagine if you could shorten the duration of policies or make the premium variable, so that you weren't having to make a one-year prediction on all those fast-changing variables. Instead, you'd be issuing a one- or two-month policy for, say, an auto based on your best understanding on general inflation, on the prices of used cars, on general driving trends and even on the particular behavior of the insured, as measured by a telematics device.    You could handle far more uncertainty and surprises because you'd learn on the fly, as Loveman and Harrah's did, while minimizing the cost of your mistakes.    No, regulators won't allow the sort of flexibility that would be ideal for underwriters. Nor should they. Regulators need to protect consumers, and allowing for such variability in premiums would create the potential for all sorts of mischief by insurers, which could lure people with low initial offers and then quickly jack up rates. Regulators want to provide customers with as much certainty as possible about coverage and rates.   But I do think the notion of underwriting by prediction and experimentation is still a powerful idea and could point underwriting in some useful directions. Let's call it a dream.    Cheers, Paul   P.S. In any case, you might want to look at Loveman's story just for the sophistication of the data analysis. He learned, for instance, that while industry consensus was about courting the high rollers (the "whales"), Harrah's best customers were actually a group of decidedly low rollers who dropped in for an hour or two at a time, often to relax on their way home from work. He also demonstrated the power of what has come to be known as "omni-channel." Staff often recognized regular customers at their casino and provided special treatment but had no way to recognize good customers from a different Harrah's property -- until Loveman set up a program that captured and shared data from all the games, all the restaurants, all the bars, etc. from the group's 15 casinos, plus the dozens more they went on to acquire before Loveman stepped down in 2015.    If you're interested in learning more, you might check out this piece Loveman wrote for Harvard Business Review or this piece about him produced by Stanford Business School.  Ideally, underwriting is based on precise data about risk, gathered over years or even decades, but what happens when the world isn’t ideal? It certainly hasn’t been, as all sorts of anomalies have arisen: COVID, the Russian invasion of Ukraine, supply chain disruptions, inflation and more. To get a better handle on how insurers can underwrite risk in such an uncertain world, ITL talked this month with Henry Kowal, director, outbound product management, insurance solutions, at Arity, an Allstate subsidiary company that tackles underwriting uncertainty with data, data and more data about driving behavior gathered via telematics. Read the Full Interview "In terms of underwriting, we want to go beyond where most are now. Those using telematics have a customer drive for three to six months, then determine how good a driver the person is. We want insurers to have that data at the point of sale, not six months later."  —Henry Kowal Read the Full Interview READ MORE 3 Signs Your Underwriters Are in Trouble Fortunately, technology is maturing just in time to respond to common challenges, allowing underwriters to refocus their time on what they do best. Read More Why Underwriters Don’t Underwrite Much The average underwriter spends 40% of their time on administrative tasks, 30% on negotiation and sales support and only 30% on actual underwriting. Read More Dramatic Shift in Underwriting Ahead With the world changing, commercial underwriting is going to be called on to minimize the impact of complex risk on an ever-riskier world. Read More Empowering the Underwriter of the Future I asked an audience 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 in the age of AI. Read More The Need for Transparency in Underwriting Open the black box and combine analytics with underwriter expertise to evaluate the computer’s conclusions and where the information comes from. Read More Simulator Gamifies Underwriter Training An “underwriter simulator” program of gamified learning and 3D interactive scenarios redefines what's possible for workforce training. Read More FEATURED THOUGHT LEADERS Chris Mullan Tim Crowe Michael Reilly Denise Garth Megan Bock Zarnoch Prakash Vasant Huw Newton-Hill

Ideally, underwriting is based on precise data about risk, gathered over years or even decades, but what happens when the world isn’t ideal? It certainly hasn’t been, as all sorts of anomalies have arisen: COVID, the Russian invasion of Ukraine, supply chain disruptions, inflation and more. To get a better handle on how insurers can underwrite risk in such an uncertain world, ITL talked this month with Henry Kowal, director, outbound product management, insurance solutions, at Arity, an Allstate subsidiary company that tackles underwriting uncertainty with data, data and more data about driving behavior gathered via telematics.

ITL:

Auto seems to be a space where there’s even more uncertainty these days than in others. What are gas prices going to be?  What's driver behavior going to be like?  Will people return to offices and commute like they did before? And so forth? How do you underwrite when things are changing so much?

Henry Kowal:

It's really challenging. A few years ago, I'd never really heard of chip shortages, or supply chain disruptions, at least when it came to auto insurance. Now, the issue is front and center.

But we have lots of data. We just celebrated a milestone this past November, where Arity surpassed 1 trillion miles of driving data. And that driving data is available across the U.S., across states and even down to the ZIP code level. What we see is that total miles driven has returned to where it was before the pandemic, but the risky driving behaviors that we saw during the pandemic -- specifically, driving at high speeds and distracted driving -- have persisted.

In terms of underwriting, we want to go beyond where most are now. Those using telematics have a customer drive for three to six months, then determine how good a driver the person is. We want insurers to have that data at the point of sale, not six months later.

ITL:

How do you gather the data so you know what kind of driver I am when I show up on the doorstep of, say Allstate, to buy insurance?

Kowal:

Only about 16% of Americans are currently in a telematics program, but over 80% of Americans have a smartphone through which they're already sharing their location data. They’re doing it with everyday consumer apps for finding good gasoline prices, checking the weather, etc. So, Arity has forged relationships with these mobile app publishers, who gain permission from users to monitor their driving behaviors. We power some of the features that consumers can benefit from, such as crash detection that could lead to the deployment of emergency services or roadside assistance. In exchange, consumers consent to share driving data with us.

We have over 45 million active connections across the U.S., and insurers can tap into the database. When John Smith is shopping for auto insurance, they’ll ping us to learn about his driving behavior and use the data to price the insurance.

ITL:

A decade ago, assessment of risk via telematics largely focused on speed and hard braking. Are there other behaviors you’re monitoring now, as well?

Kowal:

Those are core behaviors that are still highly predictive, but the technology has expanded. We can also monitor phone distraction as a predictor of risk. As you know, distracted driving is almost an epidemic in the U.S.

We're also looking at driving behaviors that are contextualized. By that, I mean it's not just about speeding – is this person driving over 80 mph? It’s, is this person speeding versus the posted speed limit?

We’re also looking at daily usage patterns. How frequently does somebody drive and for how long? What’s the driving environment? That's taking into account the types of roadways that an individual is driving on, which could even factor in dangerous intersections. Some roads and intersections are more dangerous than others.

ITL:

So, you’re not just looking at me as the driver. You're looking at where I'm driving and when I'm driving and layering those risks on top of my behavior.

What kind of pushback do you get on what you're measuring?

Kowal:

People might say, I was driving, but I wasn't the one using my phone, so I shouldn't be getting dinged for phone distraction. Or, I wasn't the driver. I was the passenger. If that’s the case, the user can easily update that in the app

Another issue is the Big Brother effect. People may say, I just don't want my insurance company tracking me.

But, more and more with smartphones, people see this as an exchange. Am I willing to provide my data in exchange for the potential to save on auto insurance? Because if you think about it, driving behavior is an actual measure of driving risk. It's not a proxy, like a credit score or your age or your education. We did a survey back in 2021, and the majority of folks said, “Yeah, I would rather be priced and assessed based on my driving behavior and my driving record, versus who I am and where I live.” So, I think that Big Brother concern is becoming more and more the minority.

ITL:

Do I have the opportunity to see what your driving data is, and do I get an opportunity to protest or correct it. I'm thinking of the credit bureaus, such as TransUnion, which these days have to let me know what my score is and protest items if I want to.

Kowal:

That’s a really good insight. Arity treats our ArityIQ product, which is pulled at point of underwriting, as a FCRA (Fair Credit Reporting Act) product.

 So, it's a consumer report, similar to  credit data, and Arity abides by FCRA rules, which include consumer disclosure. Individuals have the right to request their consumer disclosure which would include information that was shared with an insurer for quoting or underwriting purposes. They also have the option to dispute information if they believe it is inaccurate.

ITL:

Where do you go from here?

Kowal:

A big thing is to continue to grow our database of connections. We're at over 45 million active connections right now. That represents just under 20% of the U.S. population. We want driving behavior on the majority of the population. So, we need to continue to grow our connections with mobile app publishers, but at the same time also continue to add connected car data from OEMs [original equipment manufacturers].

The other thing is that, right now, our product is based on providing an insurer with a score. That insurer uses that score to determine whether the customer shopping for insurance should get a discount. Our next evolution is providing what we call back attributes, the actual driving behaviors that go into the score. Based on our interactions and market research, that approach really resonates with, I'll say, the top 10 auto insurance carriers. As you know, all of them have their own telematics program, and they all have their own secret sauce, so they want the ingredients, those driving attributes. They’ll take those ingredients and score them themselves.

ITL:

What’s next in terms of the analysis you’re trying to do?

Kowal:

We’re looking at other more predictive attributes. An example is what I'll call contextual braking. What were you doing when you hit the brakes hard? How fast were you traveling? Was it during the daytime or at night? Was it during a rush-hour period? Using more of these contextual attributes helps provide even more predictive lift in terms of risk assessment.

A recent article in Wired provides the best explanation I've ever seen for how the digitization of commerce can start off in the best of directions but gradually get perverted into an unholy mess. While digitization in insurance is still in the "best of directions" phase, it's worth understanding the full lifecycle of failure so we can learn from the mistakes of others and not have to make them all again ourselves.

I'll summarize the Wired piece -- it's quite long -- and then end on a happy note, drawing on a column in the New York Times that suggests how Barnes & Noble could be an exemplar for the digitization of insurance. After a near-death experience, the bookstore chain seems to have found the cherished Goldilocks combination of efficiency and humanity. Not too hot, not too cold, but juuuuust right. 

The Wired article coins a scatological term (one I won't repeat in a family-friendly newsletter) for the three stages that digital platforms -- like those now in their very early stages in insurance -- go through and neatly explains how they shift from great promise to near-uselessness:

"Here is how platforms die: First, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die."

The hope is that, after massive numbers of users have been attracted, the abuse won't feel quite so onerous that they take the time and effort to find an alternative. Likewise, the hope is that businesses, once huge numbers are drawn in by that huge customer base, won't feel quite so put-upon that they'll take the time and effort to invent an alternative way of going to market. 

The result isn't exactly what we were led to expect when Google promised to organize all the world's information, when Amazon promised to build a hyper-efficient "everything store" or when Facebook promised a warm and fuzzy community where we could connect with old friends and relatives. 

And, as the article argues, the progression only works for shareholders for a time. Eventually users and business customers get pushed too far. 

"Think of Amazon," the article says. "For many years, it operated at a loss, using its access to the capital markets to subsidize everything you bought. It sold goods below cost and shipped them below cost. It operated a clean and useful search. If you searched for a product, Amazon tried its damndest to put it at the top of the search results.

"This was a hell of a good deal for Amazon's customers. Lots of us piled in, and lots of brick-and-mortar retailers withered and died, making it hard to go elsewhere.... And Amazon sold us Prime, getting us to pre-pay for a year's worth of shipping. Prime customers start their shopping on Amazon, and 90 percent of the time, they don't search anywhere else....

"Sellers had to sell on Amazon. That's when Amazon started to harvest the surplus from its business customers and send it to Amazon's shareholders. Today, Marketplace sellers are handing more than 45 percent of the sale price to Amazon in junk fees....

"Searching Amazon doesn't produce a list of the products that most closely match your search, it brings up a list of products whose sellers have paid the most to be at the top of that search.... The first five screens of results for 'cat bed' are 50 percent ads."

In other words, an unholy mess.

The same thing happened at Facebook, which built a humongous audience, then sold us to businesses that gunked up our feeds with ads and promoted materials, then systematically ratcheted up the fees on those businesses. I, at least, find so little of value that I rarely check in any more. Google is so thoroughly milking the businesses that are advertising to its massive user base that the Department of Justice has filed an antitrust suit. Meanwhile, we users have to wade through promotions to get to what we want -- if we can even find it.

The Wired article argues that TikTok has now moved into the abuse-your-users phase, and I'd say that Twitter took a major step in that direction under new owner Elon Musk, when he decided to try to charge for blue check marks -- even though those people are the sorts of power users that draw most of us to Twitter.

Now, I'm not saying the "unholy mess" strategy for platforms isn't profitable. Alphabet/Google and Amazon both have market caps of more than $1 trillion, and Meta/Facebook is still valued at nearly $400 billion, even after a 60% plunge over the past year and a half. 

I'm reminded of a conversation I had in the early 1990s with Scott McNealy, at the time the CEO of Sun Microsystems. We were discussing IBM's PC business, which had the dominant market share but which couldn't figure out how to make any money. "Hurt me with that problem," McNealy said. And loads of executives would be delighted to be "hurt" with the problems facing the platform giants as they try to maximize profits while not alienating their user bases -- at least, not alienating them too much.

But, as I suggested up top, I think Barnes & Noble is a better long-term model for the insurance industry. Yes, platforms will be important in insurance as an efficient way of matching buyers and sellers -- and they'll be even better if we learn from the over-commercialization that the Wired article highlights and can avoid it. But this column in the New York Times about Barnes & Noble explains how it provides the sort of human touch that insurers need to provide as they offer advice and assurance to guide people through an often-daunting process, while still responding adequately to the pressure for low cost and efficiency that Amazon forced on it.

The author, Ezra Klein, writes: "That was the lure of Barnes & Noble for me. It wasn’t so much a place to buy books as a place to be among them, for as long as you wanted. Unlike [the cramped local Crown Books], Barnes & Noble had space to sit, and it seemed to want you to sit there. Unlike the library, it was open till 9, sometimes till 10. I hated school. I wasn’t invited to parties. I loved Barnes & Noble."

While "love" is a word not often heard among insurance customers, I think we can emphasize the human connection (while paddling as fast as we can to increase efficiency) and leave the "unholy mess" strategy to others.

Cheers,

Paul 

As gig work gains a stronger foothold in the U.S., it is seeping into several aspects of lifestyle and work culture. Those who have opted to work in the gig economy are experiencing a new relationship to their schedule, income, workplace or absence thereof, mindset and relationship to those who pay them. Many of these changes are determined by each individual’s need or desire for flexibility in how and where they choose to make their living. 

Accelerating the trend toward self-employment, the COVID landscape normalized work from home (WFH), something many gig workers didn’t need to adapt to, as they were already doing it. Now, in a post-COVID economic landscape, traditional employment models appear increasingly outdated and are edging toward a new norm, possibly helping accelerate the already sizeable transition toward gig economy work. 

As a life insurance company doing business in the U.S., we wanted to better understand America’s tectonic shift toward gig work. To that end, we conducted a study that provides a comprehensive assessment of today’s gig economy and what it means to work in it. Our research looks at data on both the pros and cons of this growing trend. By surveying a broad spectrum of gig workers, we developed a finely delineated view of where the gig economy is currently, which can then be used to determine how this model of working could evolve to become its best. Our study aims to understand the model’s flaws, gig workers’ motivations and whether gig work can become a sustainable and financially secure path in the long run.

Recently, we’ve seen that even as employers have been offering fewer and fewer benefits, including lower healthcare allotments and dwindling defined contribution retirement plans, salaried workers were already suffering from an erosion of the safety net that traditional salaried work is supposed to provide. We know from our own survey findings and existing research that gig workers enjoy even fewer standard benefits than those in “regular” jobs. Therefore, one immediate goal for gig workers would be to put in place a financial infrastructure that is at least equivalent to the admittedly depleted safety net that conventional work provides. But perhaps we can do even better, given the tendency of this group of workers to be self-reliant, creative and highly resourceful. 

Survey responses from our 1,000-plus subjects very much confirmed that gig work is here to stay, and in big numbers. Currently, 59 million Americans— 36% of the workforce—are classified as gig workers. This number is forecast to experience considerable growth over the next several years, with one estimate at 85.6 million by 2027. Perhaps due to a cultural value system that strongly encourages self-reliance and independence, gig work appears to be a particularly American phenomenon. By comparison, data shows that only 4.2 million people, or 6.2% of the U.K.’s population, are self-employed.  

See also: Embedded Insurance and the Gig Economy

The gig economy’s most vocal critics believe that the model is exploitative of workers—at best, a fallback for those unable to find more steady employment. However, our study found that Americans were not pushed into gig work out of necessity: the majority of participants made a conscious decision to become self-employed. For most of our respondents, gig work wasn’t a stop-gap measure while they searched for more traditional employment—69% of those surveyed saw themselves participating in the gig economy for the foreseeable future. Job satisfaction was also remarkably high, as only 9% of respondents voiced an immediate desire to take up, or return to, the traditional job market. 

While gig work has existed since the inception of work itself, it’s no coincidence that the pandemic has been a rocket launcher for the gig economy—economic downturns often spark creative and non-conventional ways of earning income, and this, combined with physical COVID lockdowns, created the perfect conditions for this model to flourish. Tina Brown, who coined the phrase “gig economy,” points to the Great Recession of 2008-2009 as a watershed moment. She notes that many white-collar workers resorted to “a bunch of free-floating projects, consultancies and part-time bits and pieces while they transacted in a digital marketplace.” Ironically, many of these uprooted workers look back on this period of volatility with nostalgia—they were, for the first time, able to take control of their schedules and their payment structures, in the process making more money than they would or could in a traditional employment setting. 

The modern incarnation of the gig economy has had its fair share of growing pains. However, our research findings show a model positioned for long-term success, a result of a necessary weeding out of unsustainable business models. Between 2014 and 2022, there were 432 venture capital-backed startups that went belly up. Just a sampling of notorious failed start-ups includes Homejoy, Tutorspree, Helloparking, Rivet & Sway and Dinnr, all of which fizzled out due to poor market research, customers using only an introductory promotional offer or better-funded competitors. These blunders served as fodder for skeptics of the gig economy, who claimed the use of buzzwords such as “flexibility” and “independence” were a deceitful attempt to rebrand exploitation. 

Our study dived deeper into the mindset of the respondents, aiming to pinpoint why gig workers chose this alternative mode of employment. The term “gig worker” is a broad term that encompasses Americans from every generation, location, ethnicity and income bracket. Not surprisingly, respondents’ motivations were diverse. While 19% of those surveyed chose gig work out of disdain for work in a corporate setting, 35% realized they could make more money this way—a figure that jumps to 54% when accounting only for those earning $100,000 or more annually. However, all seemed to find common ground in the notion of flexibility. A majority of modern American gig workers take pride in molding their work life to match their personal aspirations. Whether freelancers grind for every possible dollar or maximize time spent with their families, they do so by choice. 

Job satisfaction isn’t everything, of course, and our research sheds light on many of the issues plaguing today’s gig workers. Financial security ranks at the top of their list of concerns. While independent contractors might enjoy not having an employer to rigidly dictate their schedule, they also feel insecure not having an employer who provides them with benefits. We heard that 62% of respondents claimed not having health insurance provided for them was a key drawback, while 67% noted that a lack of health insurance was an area in which their freelancing experience could be improved.

While the lack of adequate healthcare coverage is a broadly systemic problem, the emergence of the gig economy as such a fundamental proportion of the working environment may itself indicate that change is coming. Legislators and gig workers themselves are already adapting to remedy the issue. The American Rescue Plan passed in 2021 resulted in the vast majority of gig workers (93%) now having subsidized health care plans. In one case, 37% of independent drivers on Stride, a benefits platform, were paying as little as $1 per month for medical coverage in March 2021, double the amount of workers thus covered a year earlier. Government is beginning to understand the nuances of the gig economy, and as a result, some gig workers are being treated with the same dignity and access to benefits as traditional employees. 

See also: Implications of Ruling on Gig Workers

Gig working platforms are also evolving to provide more comprehensive benefits to their workers, quelling the backlash while creating a more loyal workforce. Business ethics and profitability are increasingly entwined, and the more successful gig work organizations recognize the correlation. By giving freelancers increased benefits, workers have a higher opinion of their employers, leading to less turnover. 

The debate over gig work has become a sensationalized shouting match, drowning out the voices of real gig workers—hard-working Americans who want to be defined by results, rather than by hours clocked in. By examining the gig economy in a holistic way, we hope to solidify gig work as a cornerstone of the American economy—providing modern American workers with the independence, compensation and security they deserve.

Not long ago, ESG (environmental, social, governance) risks would have been missing on most chief risk officers' (CROs) radar screens. It's true that CROs in certain industries have been managing environmental risks for many years due the nature of their companies’ products or processes. However, the concept of ESG, including DEI (diversity, equity, inclusion), as a conjoined corporate imperative is relatively new. 

As ESG gained support and momentum, CROs and others saw the one risk that seemed to be evident: not implementing some ESG protocol. The passing of time has revealed a whole new set of risks that CROs need to help their companies realize and manage.

Not Meeting Established Goals

More and more companies are disclosing their specific goals relative to ESG just as they do their growth and earnings estimates. One of the big differences behind these two sorts of goals is that companies have a lot of historical and trend data to draw on when setting financial goals but do not have an equal amount of data when setting ESG goals. Another difference is that some ESG goals are being set because outside organizations are forcing specific numeric and timetable goals to be adopted by companies rather than companies setting their own realistic goals.  

Thus, the risk of not meeting publicly stated goals is significant. That risk translates into other categories of risk not the least of which is reputational risk. Failure to meet ESG goals can lead to investor dissatisfaction, regulatory scrutiny, shaken consumer loyalty and reduced sales, among other outcomes. 

Greenwashing 

Further, if the effort to meet the goals is deemed deliberately insufficient or nonexistent, it could lead to charges of greenwashing with penalties attached. The FTC (Federal Trade Commission) has levied fines on companies that misled consumers with false advertising/marketing regarding how environmentally friendly its products are. The SEC has fined or investigated banks that misled customers regarding “green” investment funds that turned out not to be so “green.” 

Given the public interest and the oversight of regulatory agencies being so keen on the topic of ESG, greenwashing risk is very real and significant for companies that only wish to give the appearance of fulfilling ESG principles. 

Unintended Consequences   

Almost any major action a company takes can have unintended consequences, and the more innovative or previously untried actions can easily incur negative unintended consequences. Consider a company that steps up its corporate giving to community minded nonprofits only to have nonprofits that have not been chosen to get contributions complain or sue on the basis of discrimination or conflicts of interest. The company could also have its customers turn against it because they recognize that corporate giving usually means higher prices for them. The company in this example expected to be lauded for its giving but got negative reactions instead. 

Next, consider a company that wants to strengthen its governance by broadening the group of individuals involved in vetting a product launch and winds up increasing the time to market by one year. The company in this example may have overdone the vetting process and allowed its competition to have first mover advantage by launching a competing product ahead of it.

Negative unintended consequences tend to be surprises for which management is unprepared and which greatly upset investors. It is hard to overstate the risks posed by unintended consequences because they can be very costly in so many different ways.  

See also: ESG Means 'Extremely Strong Gains'

Expense

Companies know that transformative steps to be more environmentally, socially and governance responsible will likely increase expenses, at least, in the short term. However, the risk that these expenses can ramp up exponentially and become runaway costs always exists. Once down the path of transformative change, it's often impossible to readjust or halt forward movement, even if expenses balloon beyond projection. The risk of unplanned levels of expense can affect profits and all other business practices that depend on profits, e.g., management compensation.

Some ESG-related undertakings that can effectuate increased cost include: 1) moving from a gas-fueled fleet to an electric one, 2) adding staff to handle new ESG initiatives in human resources, operations, internal audit, IT and other functions, 3) making improvements to HVAC systems to reduce dependence on fossil fuels. These may all be worthwhile investments, especially in the long term, but add to budget in the short term. Companies need to understand and plan for the risk of having higher expenses turn into a marketplace disadvantage.

Management Focus

It's no secret that in our increasingly complex world, the attention bandwidth of company management is stretched. Adding a host of goals and protocols at the same time as dealing with new technology, new levels of data detail, new threats and risks, new regulations and reporting requirements can be daunting for managers at all levels. An aggressive adoption of ESG by an already overloaded management team, can diffuse their focus on the business fundamentals that keep the company afloat. Caution and reasonableness need to be applied. 

Conclusion

As they work with senior management, functional leaders, the risk committee and risk owners, CROs need to make sure that ESG risks are not ignored but rather are identified and mitigated. These are not risks that can be ignored because they can have wide-ranging repercussions.

In today’s highly competitive insurance marketplace and the era of heightened customer expectations, insurers must find ways to optimize the customer experience (CX). PwC noted that as the pandemic reshaped customer expectations, “insurers must become more customer-centric and focus on relationships that can spell the difference between loyalty and lost business.”

Branded communication technology, such as branded calling, is emerging as a strategic enabler of best-in-class CX that can help insurers improve customer satisfaction, loyalty and profitability.

Because nearly 87% of Americans don’t answer calls from unidentified numbers, branded communication gives insurers a leg up. It allows insurance providers to identify themselves on mobile devices as a legitimate caller by displaying logos, images and a reason for the call on the recipient’s device at the time of the call and in the native call log afterward. Branded calling helps insurers deliver a positive CX by injecting transparency into the phone call, which gives consumers the confidence to answer their phones.

That’s critical today as robocalls flood the phone channel, making consumers wary of answering calls from unknown numbers. Recent scam data estimates U.S. mobile subscribers received over 100 billion scam calls during the first six months of 2022. This projects to over 80 million successful scam attempts, resulting in cumulative financial losses as high as $40 billion. 

However, the phone channel remains a preferred method of communication. In a 2022 Insurance Survey Report that explored the insurance calling experiences of 5,000 U.S. mobile subscribers, 42% of policyholders prefer communicating with insurance providers over the phone. 

See also: 8 Key Changes for Customer Experience

The survey also found that more than three in four respondents (76%) reported missing a call from their insurance provider because they didn’t recognize the number calling or it was not properly identified as a call from their insurance provider. These missed calls directly affect the customer experience, particularly when missed connections with insurers involve time-sensitive policy and payment decisions. The survey results revealed that missing these calls had a “moderate to big impact” on nearly 60% of respondents, and almost 20% reported that missing the call cost them valuable time or had a direct financial impact. Even when survey respondents requested a call back instead of waiting on hold, a significant number of these people (59%) still missed the call back because they did not recognize who was calling.

Missed calls add up to lost time and money for insurers and a bad experience for clients who either start the call process all over again, hoping to make a connection with the insurance provider or take their business elsewhere. Bad CX can put brand loyalty and revenue gains at risk. A survey by CX platform Emplifi revealed that 63% of U.S. consumers said a poor customer experience is enough of a reason to leave a brand they were previously loyal to.

Increasing loyalty and reducing customer churn has a bottom-line impact on any business but is especially high stakes in the insurance industry which has the highest customer acquisition costs of any industry. In fact, it’s been reported that it costs seven to nine times more for an insurance agency to attract a new customer than to retain one. 

Branded communication can help insurers reach the right customer at the right time, which is critical to increasing customer loyalty. Customer retention is increased as a result of the transparency provided by the technology, which elevates consumer trust and allows insurers to deliver the relevant and timely communication consumers want. 

The phone call remains an important touchpoint in an industry that is based on personal relationships and protects the things that consumers value most. This touchpoint elevates the customer experience by providing useful information that gives clients and potential clients a better understanding of insurance products and recommendations.

See also: Improving Customer Experience In 2022

Branded calling increases answer rates and improves customer perception of the insurer’s brand. This helps shape the customer experience and helps insurers build stronger relationships with policyholders and deliver human interactions that are particularly important to policyholders when it comes to policy questions, purchasing and the claims process. 

Optimizing communication with this technology powers exceptional customer interactions that boost productivity and revenue by increasing call duration, conversion rates and engagement rates.

A key differentiator and competitive advantage for insurers, branded communication is a strategic CX enabler that allows these companies to better serve policyholders and potential customers, which translates to improved customer satisfaction, increased loyalty and higher profitability.

With the number of cybersecurity attacks growing every year, it’s not a matter of if, but when, a threat comes knocking on your organization’s door. The U.S. was the target of 46% of cyberattacks in 2020, more than double any other country.

With the threat of more attacks growing every year, companies in industries that are considered high risk should be prepared in every way. What makes an industry more vulnerable than another? It’s not that one is less or more prepared than another, it’s what they are trying to protect. The insurance industry is one such vertical – with attackers penetrating this sector to access the personally identifiable information (PII) of millions of Americans. Insurance companies store large amounts of information about their policyholders, and attacks against the insurance industry are expected to grow in frequency and severity in the coming years.

Approximately 68% of business leaders feel their cybersecurity risks are increasing. If you are a leader of an insurance firm, the time is now to minimize all possible risks and maximize efficiency and response to an impending threat. Here are a few ways to ensure preparedness against cyber criminals. 

1. Properly Train Employees to Mitigate Risk

All potential weaknesses are important to take into consideration when weighing security risks. According to a study, 95% of all cybersecurity breaches occur due to human error, and such error can occur at any access point in online activity, which is why educating and training employees in safe online practices is the first step in avoiding catastrophe. 

There are a few best practices: 

• Encourage Taking Care of Devices — A study conducted by Forrester found 15% of company breaches are caused by lost or missing devices. With remote work becoming more common, awareness and prevention is absolutely essential because every gadget–personal or professional–becomes a possible gateway to your company’s network. A device management and monitoring solution might be considered, so the IT team can manage employee devices from anywhere and mitigate risk. However, keep in mind this should only serve as a backup solution.
• Teach Employees to Spot Suspicious Activity — Training may be required to improve employees’ ability to spot suspicious activity, such as: the sudden appearance of new apps or programs on their devices; the device slowing down for no apparent reason; new extensions or tabs in the browser; or loss of mouse and keyboard control. Every employee should be fully aware of these signs while operating a company device. 
• Reinforce Confidentiality — Fully explain the rationale of virtual private networks (VPNs), multi-factor authentication, frequent password changes and other secure processes to employees. It’s best to provide examples and scenarios of data breach consequences to help them understand risks can occur anytime, anywhere, and can affect them and their personal information just as much as it can affect the company as a whole. This highlights the essential need for meticulous management practices. 
• Take Advantage of Training and Online Courses — All of the above and more can be properly addressed through the use of online training courses and frequent “security check-ins” throughout the year. The Federal Trade Commission, Department of Homeland Security and others provide courses and programs for organizations to help ensure your company will be safe from harm.

2. Employ Artificial Intelligence (AI) and Machine Learning (ML)

The more insurance companies join the digital landscape, the more incorporating AI and ML into systems will help mitigate risk. Intelligent data gathering will significantly help insurance companies protect against malware, ransomware and advanced persistent threats (APT). The newest artificial intelligence and machine learning technologies can analyze a vast amount of data quickly and can detect any deviation from an expected pattern in data behavior. These programs can be used to monitor data workflows and respond to attacks immediately.

Technical cybersecurity solutions for the insurance industry must focus on access control management, data behavior, the encryption of large data volumes and the prevention of data leaks. Remember these elements when searching for a cybersecurity solution for your firm.

See also: A New Era of Cyber Risk

3. Have a Plan of Action in Place

Perhaps most importantly, having a written plan and protocol in place provides peace of mind for insurance leaders, investors and customers. This plan should outline every possible measure of safety and action. Here are some examples of best practices:

• Data Privacy Policy: Provides an in-depth guide around the handling of corporate data to ensure maximum security
• Retention Policy: Describes how various types of corporate data are expected to be stored or archived, where and for how long
• Data Protection Policy: How the organization handles the personal data of its employees, customers, suppliers and other third parties
• Incident Response Plan: Responsibilities and procedures that must be followed to ensure a quick, effective and orderly response to security incidents like ransomware attacks and breaches

The considerations outlined above are intended to maximize preparedness and security against a potential cyber attack on an insurance firm. Even in circumstances where a threat seems unlikely, countless businesses of all sizes have fallen prey to cyberattacks in the past few years, and that number is rising. If employees and digital systems rely on the online ecosystem, there’s a good chance of an attempted or successful attack. 

Can your organization afford to risk such an event? If the answer is no, it’s time to put an action plan in place. Protect what matters – your resources, your people and, above all, your customers.

Insurance telematics has been explored by insurers for the past couple of decades, and insurers have approached it with varying degrees of curiosity, commitment and disillusionment. The same has recently occurred with insurtech.

There have been more telematics failures than successes, but these successes clearly show what is achievable if the technology is used well. When a market is in its “disillusionment phase,” all the failures are used as excuses for a lack of innovation.

But the best practices have already demonstrated what can be achieved. As Dr Jan Myszkowski, the author of  50 Shades of Leadership, said during the last peer discussion of the IoT Insurance Observatory, “The world is full of customers and money; if you don’t grow… the problem is you!”

One of the lessons I have learned over the years is that telematics should be seen as a business capability, not as a product or IT project. This strategic capability (basically the application of the IoT paradigm – sense, infer and act – to the auto insurance business) can provide value and returns on many different levels in any insurance company in any market around the world.

There are six questions any business leader can use to assess if this capability is currently necessary for their organization:

1. Are any crashes due to the risky behavior of your policyholders? More than a dozen insurers around the world are using telematics data within a structured behavioral change program. Best practices such as those of Discovery Insure have generated up to three percentage points of improvement in the loss ratio by providing frequent and tangible rewards. This opportunity is so relevant that three insurers – among the largest in their own markets – have introduced telematics functionalities in their core app to offer the behavioral change program to their current portfolio of policyholders (without any element of usage-based pricing) in the past 18 months.
2. Does your company care about corporate social responsibility? An insurer able to improve the driving behaviors of its policyholders not only makes their lives better and improves its technical profitability but also saves lives. Telematics (if used to promote safer behavior) creates safer roads.
3. Is your claim department adjudicating and paying any claim? Italian and U.K. insurers have developed advanced capabilities in using telematics-based insights in their claim processes over the years. I’ve seen best practices detecting inflated claims and reducing by up to 18% the incidence of bodily injuries on their portfolio, with others increasing settlement speed while also improving customer satisfaction.
4. Is your company interested in selecting the lowest risks at each pricing level? At telematics conferences, you often hear that self-selection is the “best friend” of any telematics program. “For sure, there is a world of difference between people who are on [usage-based insurance] and people who are not on UBI […] The fact that you say ‘yes’ to UBI is a data point” is one of my favorite quotes to explain this peculiarity of current telematics offerings. Based on my experience, the magnitude of the effect is different based on the technology used and the product storytelling. For example, a player such as Discovery with an app&tag approach has quantified nine percentage points of this self-selection effect.
5. Do you need to increase retention? Almost all the insurers I have worked with over the past 10 years have experienced higher retention in the telematics portfolio compared with the traditional one. “Customers who connect and sign up for a telematics program tend to have anywhere between 5-15ppt higher retention rates relative to those who have chosen to not enroll into a program,” reported Allstate – one of the international best practitioners in mobile-based telematics – a few months ago.
6. Is your company interested in generating more revenue? Paying a fee to have telematics services wrapped around their insurance coverage has been normal in Japanese, Italian and South African markets for a few years. Moreover, customers are ready to pay for services even in other markets. SwissRe and my IoT Insurance Observatory – a think tank that has aggregated more than 150 organizations over its six annual editions – have interviewed 10,000 policyholders in the U.S., Canada, the U.K., Germany, France, Spain, Portugal and South Africa this summer. And 57% of them said they would pay at least €5 a month to receive telematics services together with their insurance coverage.

See also: Telematics Consumers Are Ready to Roll

Any executive who has answered yes to one or more of these questions should choose to develop telematics capabilities. The time to start is now because we are talking about capabilities. A competitor’s product can be replicated in a few months, but capabilities need time – innovation lap after innovation lap – to be built and internalized in an organization.

You can find this article originally published here.

With inflation remaining stubbornly high and climate risks increasing, insurers in niche sectors face an impossible choice: put their underwriting profits at risk or drive customers away with high premiums. Insurers in specialty lines need new ways to reduce cost and drive efficiency to overcome a challenging market.

Due to high demand and volume of standard personal and commercial insurance, such as car or small business owners insurance, there is limited room for price and coverage variation. The converse is true for specialty markets, from high-value property assets to large-scale commercial cyber coverage and everything in between. Niche sectors face the risk of becoming prohibitively expensive in today’s market. Policyholders needing specialized coverage, such as complex commercial sectors, often act as a canary in the coalmine for the industry at large; they are the first to notice insurers raising premiums unsustainably or exiting niche markets. Currently, 78% of risk managers report rising insurance premiums as the biggest concern for their high-net-worth clients. 

Every year, climate change brings even more unpredictable and damaging weather events. As of October 2022, there were 15 disasters with losses exceeding $1 billion. These include drought, flooding, storms, cyclones and wildfires. This is far above the average from 1980-2021 of 7.7 events. Supply chain issues associated with COVID-19 and the war in Ukraine make the task of rebuilding costlier and more difficult. According to Fitch, the cost of building materials increased 23% year-on-year in Q1 of 2022. 

With massive catastrophes like Hurricane Ian laying waste to swaths of property, this year will be the second year that insured losses from disasters exceed $100 billion. As cost per claim soars, insurers find themselves stuck between a rock and a hard place. If insurers raise premiums, they risk pushing customers past what is affordable and widening the protection gap. If insurers lower underwriting capacity in unpredictable markets, they miss opportunities to capitalize on raised demand caused by extreme weather conditions. 

If insurers want to successfully walk the tightrope between charging prohibitively and losing money on pay-outs, they need to be agile. Niche sectors with razor-thin profit margins require insurers to react immediately to the fast-changing market landscape. To generate a profit, tech-enabled businesses must operate at the highest efficiency. Stripping out legacy IT systems helps insurers eliminate technical debt and become nimble. These savings in turn enable insurers to keep premiums as affordable as possible while managing financial risks the economic and geopolitical climate bring. 

See also: What to Do About Rising Inflation?

Many carriers are still stuck using antiquated IT infrastructures. Yet, modern digital core insurance platforms enable ease of integration and cloud-native operating systems offering continuous updates. No-code platforms provide flexibility and agility for insurers to provide greater personalization, usage-based plans, on-demand policies, and expanded portfolios. This flexibility unleashes the creativity of insurance professionals. Insurers can make and implement pricing and distribution decisions, tailoring their offering without relying on developers. The time saved translating business needs to technical users alone enables rapid launch of new products tailored to the fast-moving niche markets of the day. 

Using API-enabled systems with the right data integrations, businesses can also support more accurate risk modeling in specialty lines and offer a more seamless quoting experience. Platforms built with integration in mind use available data sets to the full, enabling data pre-fill and straight-through processing. This can save agents and underwriters days or weeks of time, offer real-time service for agents and policyholders and increase underwriting capacity without increasing head count.  

As just one practical example for keeping step with rapidly changing weather patterns, an aerial imagery property intelligence API can be quickly and seamlessly plugged into a SaaS platform. This way, insurers have up-to-date information on the state of a property and the risk characteristics associated with the surrounding area. With climate change making weather unpredictable and rendering historical risk trends obsolete, it becomes necessary to lean into the latest innovative technologies to collect accurate risk intelligence, underwrite profitably and speed up claims processing times. 

Despite relentless challenges facing the P&C insurance sector, with API-enabled, digital-first, no-code platforms, insurers can not only overcome the current challenges, but set themselves up to overcome future headwinds. With the right technologies, insurers can outflank competitors, rapidly bring innovative products to market and insure otherwise underinsured customers.