One way to think about the application of data science and machine learning is that it’s a tool to aid the conversion of information (data) into action. In this context, machine learning is applied to enable better and more efficient decisions, as well as identifying previously hidden risks and opportunities. Essentially, data science helps an insurer to perform significantly better, whatever their goals.

The application of advanced analytics is already well ingrained in the world of insurance pricing and underwriting. However, it is only more recently that it has begun to exert more influence in claims operations.

In the overall insurance value chain, substantial resources and effort have been applied to better understand a customer’s risk and purchasing behaviors to help charge the most appropriate price. Fresh benefits still to be mined in the pricing and underwriting space are relatively scarce. In contrast, huge untapped value is waiting to be realized by insurers reducing their claims spending or better understanding and optimizing their claims processes.

Low-hanging fruit

Although machine learning is increasingly recognized as a tool to reduce claims costs and deliver significant value to an insurer, this remains an area where many have yet to realize value. This means there is plenty of low-hanging fruit to be picked in the claims space, such as the benefits to be realized from providing a better, more tailored, faster service to the customer. These benefits can, for example, be seen by the speed at which claims are settled and how an insurer’s Net Promoter Score (NPS), the global benchmark for client satisfaction, can be improved. 

Claims processing already uses a lot of external data, including integration into third-party sources such as operators in the automotive sales market for vehicle values, demographics and sociodemographic information, and various other vehicle information to inform repair costs. Machine learning makes it possible to link all these separate threads and help insurance companies more accurately predict future outcomes and identify earlier changing experience.

Internal impact

There is also the positive impact on the internal organization that has the potential to be equally transformational. Machine learning can be thought of as a tool, a superpower to help claims handlers and claims teams make better decisions. Individuals can upskill, and new roles will be created, all helping provide measurable improvements to customers and vastly improved profitability.

At the same time, it is important to understand that machine learning will not give the perfect answer to every question. Each individual algorithm built will have both strengths and weaknesses. That being said, it is still possible to build and improve models based on an understanding of these strengths and weaknesses. More importantly, it is by understanding how best to leverage what an insurer has, as well as how best this can be applied and integrated, that will determine the value gained. 

See also: A Behavioral Science Scandal

Collaborate or fail

This is especially true when it comes to using data science to leverage unstructured data. Using an insurer’s deep domain claims expertise is key to shedding light on unstructured data and translating this into something that actually makes sense. On the application of data science in claims operations, by far the greatest risk in terms of success and failure is the ability of both sides to collaborate effectively. By bringing together an insurer’s in-house claims expertise with their data science and machine learning experts, it becomes far easier to approach problems in a way that leads to a joint successful solution.

Near future

It can be tempting to focus on the short term and doing whatever is needed to make one solution work once. But it is worth keeping in mind the end state, where one insurer’s claims models will be competing against another insurer’s models. In a world where hundreds of models are competing, the ability to move at speed, scale for efficiency and be the most sophisticated will be needed to succeed. 

Data science is not the absolute, all-encompassing, magic solution to every issue an organization will face. Instead, being able to fully leverage machine learning means bringing together a multi-disciplined team that combines an insurer’s existing in-house claims knowledge with cutting-edge analytical and data capabilities to deliver next-generation claims processing that optimizes costs and transforms the customer experience.

In October 2022, the U.S. Department of the Treasury’s Federal Insurance Office (FIO) unveiled a proposal to collect data from certain property and casualty insurance companies to better understand the impacts of climate change on the availability and affordability of homeowners’ insurance in the U.S. The FIO invited the public to respond to this proposal by the end of 2022 with ideas to ensure the data collection surfaces useful information. 

Cervest welcomed the FIO’s effort as a positive step. Better, more consistent information is critical for insurance companies, regulators and consumer groups to understand and prepare for the impacts of climate change on insurance availability and affordability. As a climate tech company committed to putting climate intelligence at the core of business and investment decision-making, the Cervest team took the opportunity to respond to the FIO’s data collection proposal with insights and considerations to strengthen its effectiveness.

As the FIO and other insurance supervisors look to develop strategies to manage and respond to climate risks, regulators should factor in the role of climate intelligence and technologies like Cervest’s as critical inputs in effective climate risk assessment and management. With that in mind, Cervest’s public comment focuses on three insights to support the FIO in its effort.

1. Emerging climate intelligence tools are transforming approaches to climate risk assessment and management

Advances in climate data science, measurement technologies, machine learning and climate risk analytics are making it more feasible than ever to understand future climate impacts at a granular level. The FIO would benefit from an understanding of how Cervest and others have created data-driven analytical tools that help capture the probability and magnitude of a range of climate hazards and risks to organizations, and of how those tools will evolve. 

2. Forward-looking analysis of climate risks is critical in the insurance sector

The FIO proposal comes on the heels of significant climate-related events in the U.S. that have demonstrated the potential for disruption in insurance availability for homeowners in vulnerable areas. Hurricane Ian alone caused damages between $50 billion and $65 billion. 

As disasters like these intensify due to climate change, catastrophe models used in the insurance sector are likely to underestimate their exposure and impact because they are traditionally constructed using historical distributions of climate risk. To form an accurate picture of climate risk, historical data must be analyzed with forward-looking methods, including scenario planning. Given the increasing precision and detail of today’s climate models, they should provide the basis for more accurate pricing of insurance products. This kind of analysis over longer time horizons is also critical to identifying opportunities in the sector to improve resilience in regions and communities particularly vulnerable to climate impacts.

See also: 2023 MAY BE THE HOTTEST ON RECORD

3. Eventually, consistent metrics will be needed to provide useful and comparable information 

As the impacts of climate change accelerate and approaches to assess climate risks become more sophisticated, the sector will need to coalesce around standardized impact metrics that support interpretation and comparability of climate risk. In their comment, the Cervest team discussed the potential of one such metric, Climate-Value-at-Risk (CVaR). While the FIO’s data collection represents a first step toward determining any gaps in its oversight of climate-related risks in the sector, there are opportunities in the months ahead to understand how metrics like CVaR could be used to inform pathways to greater standardization. 

These are the highlights of our response. You can read Cervest’s full public comment here.

Out Front Ideas with Kimberly and Mark kicks off the year with our popular 20 Issues to Watch webinar. While there are certainly more than 20 issues to discuss, we focused on the high-impact matters relating to workers’ compensation, healthcare and risk management that need more attention. These are essential issues for every risk manager and insurance professional to monitor in 2023.

1. 2022 Elections

With a narrow Republican majority in the House, a Democratic majority in the Senate and minimal compromise to be made, there likely will not be significant federal legislation passed in the next two years. Statewide, Democrats gained gubernatorial and legislative branch control in Maryland, Massachusetts, Michigan and Minnesota, making it easier to pursue legislative agendas. Maryland and Massachusetts could face more significant impacts, with both states flipping gubernatorial parties. 

Florida’s recent special legislative session passed a reform bill addressing litigation abuses in their property marketplace that led to carrier insolvencies and significantly limited consumer choice. There will be further litigation over this bill, so the intended savings may or may not be realized. Nonetheless, this was a significant reform bill pursued for many years. 

In California, there is much discussion around workers’ compensation reforms. Their prior reform bill’s cost savings measures have run their course, and costs are rising again. Large employers are requesting cost savings focused on the litigation process, while labor is pushing for higher indemnity benefits.

Finally, legislation allowing PTSD benefits for first responders has been passed in many states over the last few years. For many of these states, this legislation benefits first responders only. With an increasing focus on mental health in the workplace, many more states may take steps to include “mental-mental” injuries as part of their workers’ compensation.

2. Healthcare Industry Challenges

The talent crunch is a primary concern for the healthcare industry, with continuously worsening statistics. The American Medical Association (AMA) reports that 35% of the physician workforce will be within retirement age over the next five years. A recent study from the journal Health Affairs found that the supply of registered nurses (RNs) decreased by more than 100,000 between 2020 and 2021. That is the largest drop observed over the last four decades. 

Technology will be a priority for the industry this year, whether digital patient health management tools, artificial intelligence (AI) or machine learning for treatment protocols. Telehealth continues to expand, providing virtual primary care for managing chronic conditions and growth through mental health services. Startups and venture capitalists aim to further health technology services to tackle the challenge of fragmentation in healthcare. With the vision for more specialist tech-enabled care, AI and machine learning are prime for cancer care, neurology and primary care.

Retail health also continues to expand offerings in local communities to bring healthcare closer to where people live and work. Amazon and Walgreens have announced significant primary care clinic deals while Walmart Health continues to expand locations. CVS is focusing on its retail health hubs within existing sites while continuing to look for a meaningful primary care acquisition.

3. Extreme Weather and Climate Risk

Risk managers and brokers experienced a challenging year for property insurance renewal negotiations, with over 30 $1 billion property insurance events occurring, including droughts, floods, hurricanes, wind storms and severe thunderstorms. Recent winter storms are projected to cost insurers over $5.4 billion, and Hurricane Ian’s losses will be the second costliest insured loss on record, with damages between $50 billion and $65 billion.

Some see climate change as the reason behind these increasingly large natural disasters, but many experts point to the development of more disaster-prone areas as the most significant factor. Cities to the west continue to expand into forested areas, increasing the risk of wildfire damage to the property.

The Federal Emergency Management Agency (FEMA) flood maps are considered to be outdated by many due to risks being based on previous floods and not the impending threats of stronger storms and population shifts. Property insurers and reinsurers are working to develop new models that take these increased risks into account, leading to higher rates for affected individuals and businesses.

4. Inflation and Recession

Inflation hit a 40-year high in 2022, with interest rates surging. Low unemployment rates have supported wage increases, but inflation has drastically increased the prices of food, energy, housing and most goods. The Federal Reserve had seven consecutive rate hikes in 2022, with more expected this year. Expect increases by 25 to 50 basis points through at least June 2023 and for interest rates to hold at 5% to 5.25%. 

Weak growth is anticipated worldwide, at 1.4% to 1.6%, with many economists predicting a mild recession by the end of the year. With expected job losses, households will focus on tightening spending while businesses are evaluating cost control measures. The Federal Reserve’s inflation target is 2%, but with current rates at 5.9%, it will likely take two to three years to meet that goal.

See also: Top 5 Challenges Facing Agents in 2023

5. Social Inflation

With widespread public distrust of large corporations and public entities, jury awards are continuously increasing, heavily affecting businesses and insurers. Insurance pricing models are constantly trying to catch up to these experiences to help forecast the future as social inflation becomes the new normal. 

Litigation financing also contributes to this trend, because this niche industry discourages settlements in an attempt to gain a significant jury award. This increases defense costs, which can exceed hundreds of thousands of dollars in many cases. Unfortunately, this trend shows no signs of changing, with larger jury awards occurring in more jurisdictions each year.

6. Geopolitical Risks

Does your organization understand the potential impact of current geopolitical risks on its operations or brand? With the frequency of national and international threats, risk managers should have a plan to mitigate potential risks and identify how best to approach them. These geopolitical risks should be on your radar for the year:

• Worsening of the European energy crisis
• War in Ukraine
• China’s zero-COVID-19 policy
• China and Taiwan conflict 
• Trade tensions
• Social unrest, worsening with a downturn in the economy
• Climate change, water stress
• Global inflation
• Major cyberattacks

7. Public Entity Challenges

Public entities face various challenges and risks beyond those in the private sector. Between expanded workers’ compensation presumptions for first responders to the impacts of social inflation, public entities are struggling with increasing costs and the difficulty of securing insurance coverage.

Staffing budgets for risk management and industry regulators are not keeping pace with the private sector, making attracting and retaining talent more challenging. Budget constraints also decrease available technology upgrades to prevent cyber-attacks, making it harder to obtain cyber insurance. Additionally, the increase in pension liabilities in many states and large cities is a continuing issue, with billions in unfunded liabilities. 

8. COVID Continues 

Overall, workers’ compensation trends related to COVID-19 have remained consistent. Some of the key findings across 195,000 claims were:

• 95% of claims involve minimal medical treatment and time away from work.
• Fatality claims remain at approximately 0.5%, most of which occurred during the early variants.
• Healthcare remains the industry most affected, accounting for roughly 45% of claims. The following two most affected industries are public entities (22%) and retail (16%).
• Roughly 97% of the claims are closed, with only 3% open.
• The average cost for closed claims is less than $2,000, excluding zero-dollar-paid claims.
• Litigation remains very low, only slightly above 1%.
• Data indicates that long COVID, defined as claims with medical treatment beyond 90 days, represents 1.5% of the claims. These claims are complex and require advanced strategy and support for the claims team via medical directors, pharmacists and behavioral health specialists.

9. Cyber Risk

The frequency and costs associated with cyber risks continue to grow. According to the Cost of a Data Breach 2022 report from IBM, the average price of a data breach in the U.S. is $9.4 million, more than double the global average. The healthcare industry faces the highest costs, averaging $10.1 million per breach, a 42% increase since 2020. The report also indicated the share of breaches caused by ransomware grew by 41% in the last year and took 49 days longer to identify and contain. 

State-sponsored cyberattacks from Russia, North Korea and China are a growing concern. Carriers and reinsurers are attempting to classify these as “acts of war.” Still, courts have not consistently supported these exclusions, leading carriers and reinsurers to try to tighten up the language in their policies. 

10. Technology Transformation

The most innovative companies are discussing automation opportunities, live chat use case scenarios and using customer sentiment to build resilience within the claims team and improve customer service. These companies have also expanded their data science capabilities due to the massive benefits of large data sets and the integration of data science in technology solutions. Organizations must get comfortable with uncomfortable conversations around technology innovation to avoid delays in driving their business forward.

Adjusters and nurses want to focus on helping workers, physicians, employers and claimants and avoid duplicative documentation and repetitive tasks within their claims and case management systems. Digital solutions that expedite policy verification, eligibility, claims intake and reporting, document validation, rules-based decision making and automation of simple, low-dollar claims should all be considered. 

11. Workplace Safety

Workplace safety gaps can result in massive costs, injuries and even loss of life. The continued escalation of workplace violence is heavily affecting businesses, with the Bureau of Labor Statistics reporting that more than 20,000 workers experience physical trauma in the workplace each year. An October report from Zippa indicated that workplace violence causes American businesses to lose $250 billion to $330 billion yearly. 85% of workplace violence deaths are due to robberies, with national crime statistics showing an increase in the frequency of thefts in major cities across the U.S.

According to the National Fraternal Order of Police, in 2022, 331 police officers were shot, and 62 were killed, with deaths representing a 32% increase from 2020. Most workplace violence occurs in the healthcare industry, accounting for roughly 75% of all incidents each year. However, the frequency of workplace violence has been increasing in any industry that interacts with the general public, including teachers, transportation workers, delivery drivers, retail employees and restaurant workers. 

12. Growth Mindset

Mindset matters to innovations — throughout organizations and their business partners. Customers want solutions to drive improved outcomes, and companies must innovate to stay relevant. Companies that are slow to embrace change will not meet customers’ needs, and products will not be aligned with needs within a short period. 

Where might a growth mindset drive innovation? Consider opportunities in these areas:

• Assessing traditional claims administration models
• Advancing case management products and services
• Evaluating the underwriting processes
• Revising adjuster caseloads to work effort and outcomes
• Reviewing and modifying education requirements for select positions
• Eliminating redundant processes
• Exploring and agreeing to new pricing models
• Considering new ways of doing business to deliver a better service to injured workers
• Offering a professional career to claims and clinical professionals
• Improving the outcomes for your customer and company

13. Rising Medical Costs on Catastrophic Claims

Workers’ compensation tends to be shielded from medical inflation due to fee schedules tied to Medicare reimbursement rates, helping to stop surges in fee-for-service items. However, there are rising medical costs in the treatment of catastrophic injuries, due to a few key factors, including:

• Accident survivability – Severely injured individuals are more likely to live due to better care on the scene, air ambulances and the care provided by Level 1 trauma centers. 
• Life expectancy – Catastrophically injured workers are living longer due to the improved medical science used to prevent complications associated with severe burns or quadriplegia.
• Costs not covered by fee schedules – This includes extended intensive care unit (ICU) hospitalizations, extensive durable medical equipment (DME), newer state-of-the-art care and attendant care. The costs of these services are increasing at rates far more significant than average medical inflation. 

Medical care advances vastly improve the quality of life and independence for these injured workers, but these technologies come at a price. Looking at Safety National catastrophic claims data over the last three years, there has been a 30% increase in claims incurred over $10 million and increases in claims incurred of $5 million to 10 million. Although these large claims are infrequent, they cost much more and continue escalating. 

See also: Cybersecurity Trends in 2023

14. Insurance Industry Gig Work

The insurance industry needs to broadly consider gig work opportunities to expand the talent pool and retain experienced workers. Deploying a gig environment allows 24/7 adjusting and case management, expediting claims, clinical decisions and claims processing. While auto or field adjusters work in an environment that allows select assignments, the adjuster and nurse environment would remain a part-time, full-time or agreed hours-per-week scenario. 

Creating a credentialed program for your gig workers can certify their experience and capability through a professional standards framework. Providing opportunities for credentialed gig workers to sign in to a secure assignment app allows them to view and accept work, report availability via a personalized calendar, view quality scores and access links to continued education and training. 

15. Supply Chain Challenges

Continuing supply chain issues are extending beyond operational problems, affeting risk management. Inadequate inventories of supplies are forcing a shift in standard business processes, requiring a review of procedures and safety protocols necessary to accommodate these changes. Vendor changes also require risk managers to track the insurance agreements and contracts associated with these vendors. Excessive inventory is also challenging, with risk managers questioning where to store it and working with operations teams to ensure company assets are appropriately insured against loss.

16. Employee Benefits

Health benefits experts predict medical plan cost increases from 6% to 10% in 2023 due to rising labor costs, healthcare costs, prescription drugs and supply chain issues. Employers are offering holistic leave, flexibility for caregivers, backup childcare services, personalized work schedules and expanded opportunities to meet family obligations. 

Fertility and family planning services are increasingly popular, with employers offering fertility, adoption, foster placement and surrogacy programs to support diversity, equity and inclusion (DEI) goals and meet the needs of their workforce. These programs are increasingly gender-neutral and inclusive of employees’ family planning situations. 

City and statewide-mandated paid leave programs are anticipated to expand. Currently, 12 states mandate paid leave, with the additions of Oregon in 2023, Colorado in 2024, Maryland in 2025 and Delaware in 2026. Additionally, plan administrators must be mindful of surprise billing and comply with the ban on surprise billing for emergency services, air ambulances and specific medical treatments.

17. Employee/Independent Contractor Classification

States and the federal government have debated the definition of employee versus independent contractor for years. The definition within employment and tax laws may be different than it is under workers’ compensation, creating a confusing situation for employers and workers. 

In October 2022, the U.S. Department of Labor announced proposed rules to correctly classify workers, intending to significantly reduce the number of workers classified as independent contractors and reverse a previous Trump administration ruling. The October proposed rules were an extensive, multi-prong test focused on the control of the work, the worker’s skill and whether the work performed was integral to the principal’s business. The final rules are expected to be issued in early 2023.

Regardless of these rules, it will ultimately be the court’s interpretation of them that determines whether someone is classified as an employee or independent contractor. Employers could be subject to litigation that may eventually change their current classifications. Risk managers should continue to pay special attention to the agreements and insurance certificates affiliated with their independent contractors. 

18. Talent 

With more job openings than unemployed workers, the labor market has been a hotbed of opportunities for workers, driving higher pay and better positions. Economists report the job market is likely to slow in 2023, with lower inflation and higher unemployment later in the year. As of the beginning of 2023, four jurisdictions in the U.S. have legislation requiring disclosure of salary in their open job postings, which may pressure organizations to improve pay transparency across their business. 

With job openings surpassing the pool of applicants, now is the time to rethink hiring practices. HR teams should review job descriptions, education and years of required experience to ensure they align with the necessary skillsets. Lived experiences should be considered, as they are critical to understanding empathy and patience, active listening, fact-finding, problem-solving and negotiation. 

Risk and claims managers should be mindful of safety programs and worker training, because some employers are experiencing an uptick in injuries for younger employees and those with less than a year of experience.

19. Forever Chemicals (PFAS/PFOA)

A rapidly emerging risk management challenge revolves around perfluoroalkyl and polyfluoroalkyl substances (PFAS), or forever chemicals. These chemicals have been used in manufacturing hundreds of thousands of products for years and are typically used to make products water-, stain- and heat-resistant. They do not naturally break down, so they are found long-term in the soil, water and body tissues. They are linked to cancer, kidney disease, liver problems, immune disorders, birth defects and other serious health problems.

Litigation over these forever chemicals is only beginning, and recently several states filed lawsuits against 3M for environmental damage caused by these chemicals. In response, 3M has set a 2025 deadline to stop manufacturing the chemicals. Risk managers need to ensure they keep track of older insurance policies because, with the length of this type of litigation, they will likely be referring to them for years. 

20. Workplace Well-Being

Corporate culture, collaborative work environments, communication, inclusivity, reasonable workloads, recognition and employee resource groups all affect workplace well-being. Many organizations include workplace well-being questions in employee surveys to understand their areas of opportunities. Leadership training focused on creating safe and inclusive environments can inspire leaders, helping them to understand the impact an inclusive team has on performance and employee satisfaction.

Listen to the archive of our complete Issues to Watch webinar here. Out Front Ideas with Kimberly and Mark will host two live sessions in 2023, at the Executives in Workers’ Compensation Conference on April 25 in Anaheim, California, and the WCI Conference on August 21 in Orlando, Florida. Follow @outfrontideas on Twitter and Out Front Ideas with Kimberly and Mark on LinkedIn for more information about coming events and webinars.

The American Medical Association has been working with medical schools and awarding grants for the past decade to reinvent medical education. The basic question driving the change: Why make med students spend so many of their brain cycles memorizing minutiae about, say, the exact dosage of a drug to administer to the whole range of possible patients when, in practice, they could simply use their iPhones to search for the precise information based on age, gender, weight and the full range of their health issues and medications? 

For the AMA and med schools, the answer was obvious. As a result, they've deemphasized memorization and increasingly let students consult the sorts of reference material they'd have access to as practicing physicians. 

Insurance agencies and brokerages are heading in the same direction as they onboard new hires. As Aimee Kilpatrick, chief operating officer of Cadence Insurance, explains in this month's interview, the large regional broker is focused on providing online resources for its people so what used to require research is now at their fingertips. She says Cadence is also working with The Institutes to make learning more interactive, including through gamification, and to use technology to check in from time to time to make sure people have mastered key concepts.

But there is still a long way to go. Technology will make it ever easier to break training into bite-size pieces that can be fit into onboarding at the point when they're most relevant and to reinforce them later, rather than having so much of the education be one-and-down in a classroom sort of setting. Technology will also make it increasingly simple to gather information and forms without ever pushing back from the desk, as well as to make sure new hires are meeting compliance requirements. 

Improvements in onboarding are certainly needed. With so many agents and brokers retiring and with new demands by customers in the post-pandemic era, many agencies and brokerages are in heavy-duty hiring mode, and they simply don't have the time to let new people go through the two-year-or-so sort of apprenticeship that used to be the norm. 

With the AMA and medical schools, once they reconceived education as a combination of technology together with those bright, young minds, they created room for other sorts of learning. Many schools have added what they call a third pillar of education. Rather than just teach clinical and basic science, schools also teach the budding doctors how to provide care within a complex medical system -- a crucial skill, but one that they had been largely left to learn on their own while on the job. 

Agencies and brokerages will surely see the same sort of progression. As technology takes some of the load off new hires, they'll not only come up to speed faster but will have room in their minds and their days for learning more specialized information about a market, more about their clients, more about sales techniques and so on. 

Cheers,

Paul 

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P.S. Here are the six articles I'd like to highlight this month for agents and brokers:

TOP 5 CHALLENGES FACING AGENTS IN 2023

One challenge is recognizing this might be the greatest time ever to recruit people, because 70% of employed individuals say they need a second income to make ends meet. 

WHAT PUNDITS MISS ON INDEPENDENT AGENTS

To begin with, we all should rethink the terms independent agency “system,” “channel” and “distribution.”

LIFE INSURERS' LABOR ISSUES

Younger generations want jobs in which technology reduces frustrations, increases productivity and enables quick successes. In insurance, too many obstacles still exist.

IMPROVING THE QUALITY OF YOUR LEADS

Haphazard marketing may result in a decent amount of web traffic. But if those prospects do not convert into customers, you've wasted your time, effort and money. 

IT TAKES AN "INSURANCE VILLAGE"

Drawing on our national franchise, we set up an "insurance village" after Hurricane Ian. Here are three lessons we learned that can help agents make an impact after a natural disaster.

DISSATISFACTION WITH DIGITAL SALES CAPABILITIES

Across the sales value chain, insurer executives generally have low satisfaction with digital capabilities, particularly in early stages of the sales process.

Small commercial insurers are in a unique position. While the personal lines segment often pioneers the latest innovations, small commercial carriers are frequently at the forefront of change in the commercial market before technologies reach mid/large commercial risks. In the past few years, small commercial carriers have progressed significantly in applying straight-through processing (STP), digital self-service capabilities and other capabilities in certain areas of their business, particularly distribution. But the ever-evolving distribution landscape demands technology solutions to support channel partners and optimize business processes. So, where are small commercial insurers focusing their technology investments today? 

A recent survey of executives at small commercial lines insurers reveals some shifts in what is driving distribution investment decisions this year. According to the "Distribution Technologies for Small Commercial Lines: Carrier Plans in 2023 and Beyond" report, nearly all small commercial insurers say improving the customer experience for the agent/broker is one of their top business drivers for tech investments. This is an increase of 20% over 2021 and indicates how the industry is becoming more experienced-focused. 

At the same time, insurers also recognize the importance of balancing partner priorities with their own. It follows that 75% of insurers are driven by efficiencies/enabling more STP. Increasing operational efficiencies allows underwriters to devote more time to servicing customers and reduces friction points for agents and policyholders by allowing them to access quotes, endorsements and billing more seamlessly. However, carriers indicated decreasing satisfaction with their policy inquiry capabilities, suggesting further investments can be made to focus on elevating processes. 

See also: A Frenzy of Activity in Commercial Lines

However, in a shift from 2021, fewer small commercial insurers – slightly over one-third – cite growing their market share as a driver of tech investments in 2023. But that is not to say it is unimportant. The data clearly shows that insurance carriers have different priorities and are in various stages of expanding their distribution landscape but remain committed to customer experience and increasing efficiencies. 

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

How proficient is your independent insurance agency at marketing? 

Marketing is one of the largest discretionary expenses for most businesses today, including insurance organizations. Truthfully, it should be considered mission-critical for driving sales. While the industry has made strides in recent years to improve and enhance its collective marketing and communications acumen, there’s still ample room for growth.

One of the most significant areas where we see room for improvement involves targeting the right audience. Targeting the individuals, businesses and organizations that fit your profile and want to do business with you is not a matter to be handled as an afterthought or casually. The improvements the industry has taken broadly on this front provide a valuable guide for what independent agents and agencies can follow to improve their own outreach. 

Enforcing Training

Historically, few independent agents received adequate marketing training at the start of their insurance careers, and the same too often holds true today. As experienced agents progress in their roles, the likelihood that they will receive refresher marketing guidance or explore new and emerging best practices remains uncommon without some prompting from outside sources. Here at SIAA, we believe training is the ideal starting point for improved marketing efforts, but there are more in-depth measures agencies should consider. 

See also: 2 Overlooked Marketing Keys for Agents

The Five Marketing Musts

1. Maintain an attractive and user-friendly website.

For years, we’ve known every agency needs a website that is properly maintained. The industry has progressed here. In fact, at SIAA we’ve gone from about 30% of members with websites to today boasting around 70 to 80% of members with websites. The issue now is less about having a website and more about having a modern, user-friendly and responsive site that is updated with some frequency in terms of both content and design. 

Dated-looking websites give pause to potential clients on review. Agents need a modern website to show their agency is keeping up with the latest industry trends and is intuitive and, frankly, that they are still in business.

To that end, the content on those sites needs to be both current and high-quality. Too often, we see agency blogs that haven’t been active for years or with content that is clearly out of date. While not often top of mind, agents would do well to take the time to do a full redesign every two to four years and commit to providing regular, informative content. Planning for these types of design and content updates allows for any necessary time and budgetary allotments and helps to avoid surprise expenses in the course of growing a book of business.

2. Use a branded email account.

Email is often the preferred method of contact for agencies and prospects. What agents are missing is having professional email addresses and domains. Your email domain should have your company name in it, as opposed to a generic email address. To a prospective client, a Yahoo, Gmail or Hotmail account might look like fraud or simply unprofessional. Technology makes it simple to set up an email account that looks professional and can speak to your credibility. 

3. Establish your agency’s brand and make it visible.

Consistent branding is key to attracting and retaining clients. Your brand doesn’t have to be fancy or overly sophisticated, but it should reflect your focus and your role in the community. Your brand should speak to or have relevance for the insurance areas you support as well as your business priorities.

For example, your agency may be the local solution for your community’s business insurance needs. In that case, your brand needs to be local and seen. Your efforts to support the community need to be demonstrated and highlighted on a regular basis, whether it’s on the agency’s website or its social media channels. Similarly, if your brand is designed to be the financial solution for a particular industry sector throughout the U.S., you need active, accurate communications to reflect that national and specialized focus. 

4. Include a call to action in communications.

A call to action helps direct potential clients to the right solution to meet their needs. Whether it’s direct mail or social media and blog posts, content needs to be informational and comprehensively explain what exactly you want the recipient or reader to do. The most common answer is a call to action that leads a prospect to contact the agent or agency, but there are other avenues, as well.

For example, during the holidays, if your business is working to support the local community through charity, your article or post should reflect how you support those in need. The call to action may be to ask for help with the local food pantry or join in volunteering with a local organization. These types of calls to action are just as valid and important as linking back to your contact page or website. All content should directly pinpoint clear next steps for readers.

5. Be self-aware.

The wrong content can derail operations. Sometimes, agents may post political opinions on social media that can alienate prospects. Others may post content on LinkedIn that clearly belongs on Facebook. Before generating content, take time to discern what you want your message to be and the best methods for delivering that message in the right way to the right audience. It’s critical to make sure all communications are aligned with an agent’s broader messaging strategy.

See also: AI-Powered Chatbots: A Better Experience

Looking Ahead

Following this guide is critical to building the foundation of a strong marketing plan and book of business. While it is easy to sometimes take social media or websites for granted and not see them as part of a business growth strategy, leveraging these tools via their appearance, tone and content frequency can make a major difference for independent agents working to develop a growth strategy. Agents who can afford to go deeper will want to consider adopting more technology, like in-depth customer relationship management (CRM) systems that can integrate with agency management (AMS) systems to measure and track all activity and priorities. 

The dawn of a new year is always a great opportunity for agents to branch out of their comfort zones and consider how to improve their efforts to identify and capture new business. Establishing or reexamining a content management strategy is almost always a smart way to kick off a new year. This strategy can be a valuable tool that conveys the sought-after expertise potential and existing clients want to see without a burdensome investment of time or expense. 

Consider the start of 2023 as an opportunity to do something different in the year ahead. Explore how communicating your strengths, expertise and insurance knowledge can help you more effectively secure new and maintain existing clients.

A picture is worth a thousand words – and in today’s world can conjure a thousand theories.

On Sept. 26, a series of leaks and explosions in the subsurface Nord Stream pipeline produced foam in a half-mile radius across the Baltic Sea and endless discussion across social media, mostly revolving around one key consideration: Who was responsible?

It seems like a simple question, but in today’s polarized environment that is laden with geopolitical strife, it has proven to be anything but. More than three months later, the definitive cause for the event has not been identified as the probe continues.

While first-order disruptions from Nord Stream were largely confined to the property damage on the pipeline itself, the subsequent controversy and uncertainty stemming from this incident represents some of the problems that increasing geopolitical fragmentation can cause, and could be a harbinger for much bigger headaches to come, specifically in the digital realm.

See also: Cybersecurity Trends in 2023

Physical to Digital: What Attribution Issues May Be on the Horizon?

The next big cyberattack won’t create ripples in a body of water; it could create a tidal wave of supply chain disruptions, lost revenue and considerable disorder for both targeted entities and anyone else in their orbit.

And when it comes to the insurance claims that would inevitably follow, the same question may arise: Who was responsible?

This issue of attribution with respect to cyber risk could have major implications, and it is worth considering, following the release of four draft model clauses from Lloyd’s Market Association’s (LMA) Cyber Business Panel. These clauses, per Bulletin LMA21-042-PD, would "provide Lloyd’s syndicates and their (re)insureds (and brokers) with options in respect of the level of cover provided for cyber operations between states which are not excluded by the definition of war, cyber war or cyber operations which have a major detrimental impact on a state."

While there are differences across the four drafts, one consistency involves attribution in the below paragraph:

“Pending attribution by the government of the state (including its intelligence and security services) in which the computer system affected by the cyber operation is physically located, the insurer may rely upon an inference which is objectively reasonable as to attribution of the cyber operation to another state or those acting on its behalf (emphasis added). It is agreed that during this period no loss shall be paid."

While there are a number of legitimate paths for an insurer to assign responsibility for a cyber-attack, it could get tricky in a coverage dispute, especially if it is left to an insurer to designate the responsible entity – or government (for more on this, this article from DWF does an excellent job presenting more specific questions and considerations involved in attribution).

For one, experts in the cybersecurity space have expressed that providing false flags to steer an investigation into the origins of a cyber-attack is not a tall task. This uncertainty is compounded with the political implications that would inevitably be involved with assigning blame for a cyber-attack at a large scale. What if the opinion of an insurer’s cybersecurity attribution expert differs from the assessment released by a country that was victimized by the attack?

Additionally, the bill for an insurer to assert that there is no coverage in the event of a large-scale cyber-attack could rapidly escalate. Consider how expensive it would be to retain expert witnesses that can convincingly identify the culpable parties to enable a coverage denial for an insurer, and then multiply that by the number of policyholders desperate for indemnity in the aftermath of a systemic cyber-attack.

While the peril was different, COVID-19 business interruption claims could offer a benchmark for what could be on the horizon. Even with exclusions in place in many cases, the number of lawsuits filed by policyholders seeking coverage for claims resulting from COVID-19 is over 2,300, according to the University of Pennsylvania Carey Law School’s COVID Coverage Litigation Tracker. It stands to reason that there would be just as many – if not more – policyholders seeking coverage in the event of a massive cyber-attack.

Ultimately, while these questions and considerations arise with respect to a specific provision as part of an LMA draft clause, the issue of attribution and cyber risks in general is one that all risk management professionals may want to think about.

Like most industries, the insurance sector entered 2023 amid a high degree of uncertainty. With the Federal Reserve implementing successive interest rate hikes to slow inflation and most economists predicting a rocky year ahead, insurers have – perhaps predictably – reacted by downsizing their workforces. 

According to a recent study we conducted – Managing IT in Challenging Economic Times -- carriers’ decision to trim headcount has not affected all areas of the organization equally. When asked to identify the areas that have been most hurt by the economic slowdown, 57% of insurance decision makers pointed to HR, while 45% cited sales and marketing. By contrast, business operations (40%) and accounting/finance (36%) have been less severely affected.

Technology to the Rescue

One area where insurance carriers appear loath to cut back severely is information technology. In fact, 85% of insurers are trying to find ways to enable technology to perform jobs in areas as diverse as IT operations, customer service, sales and marketing, HR and business operations. This effort is well underway, as over half of insurers report a rising ratio of tech to non-tech employees, as well as policies making tech skills mandatory across departments, including non-technical positions.  

Accomplishing more with a leaner workforce has also required insurers to intensify their focus on core IT investments that offer the greatest ROI. Not only is more money being directed toward technology across the sector, but IT decisions are being made at a higher level, with CEOs, board members and top operational executives more involved in driving IT investment decisions than in the past. Cloud technology (80%), security (71%) and digital transformation (58%) have been among the biggest beneficiaries of these new investments. Moreover, a majority of insurance executives polled said their confidence in the return on investment from technology investment has increased. 

See also: BREAKTHROUGH TECHNOLOGIES FOR 2023

Persistent IT Labor Shortage 

While IT is being relied on more and more by insurers, like all companies they are operating against the backdrop of a chronic IT talent shortage. The unemployment rate for tech occupations is a minuscule 2.2%, according to CompTIA. In addition, retaining skilled IT employees has become more challenging than ever. A 2022 report by Gartner found that just 29% of IT workers had a high degree of interest in staying with their current employers.

The employee-oriented job market is putting a strain on insurance IT departments, because over half are having difficulty hiring and retaining tech staffers:

• 54% said they are currently struggling to fill vacancies in technology jobs having to do with cybersecurity (60%), machine learning (72%), data analytics (51%), network engineering (49%), cloud architecture (37%) and data engineering (35%). 
• 58% said they are struggling to retain IT staff in specific areas, such as cybersecurity (65%), cloud computing (59%), data analytics (52%) and systems and networks (43%). 

How are insurers reacting to these labor challenges? More than half are looking to retain IT staff by offering increased training, rewards and salary increases. But they will need to get even more creative if they want to reap the benefits of increased IT investment. Retraining staff for new and different roles, opening up the talent pipeline to new communities and leveraging external expertise from third parties all have important roles to play in ensuring that insurers get the greatest return on investment, even as they navigate choppier economic waters.

In today’s environment, companies need to act quickly with respect to operational and strategic initiatives. Gone are the days when, in many companies, projects could get done whenever someone became available to lead them and get access to necessary resources. Today, critical projects need to be staffed with experienced executives who can hit the ground running. Additionally, in many firms the process of hiring full-time people is fraught with complexity and layers of approval – not just with the hiring manager but getting buy-in from HR and accounting. Many companies have implemented hiring freezes, even in the current labor market, that reflect operating constraints.

In response, the latest hiring trends show that, instead of relying only on full-time employee (FTE) hires, are increasingly adopting contract employment – looking to interim executives and professionals to meet scaling workforce needs.

There are several benefits to an interim approach: People who choose interim or contract work are often highly skilled, mission-oriented and project-based individuals who assimilate quickly into new environments. They can bring unique skill sets and experiences needed for finite projects, during mergers and acquisitions, or to temporarily fill roles either during a leave of absence or while the company searches for a permanent employee.

Another benefit is the ability to quickly bring in outside perspectives for important initiatives. While promoting from within is often a laudable policy, in many cases those promoted have been with the company for many years and have not been exposed to operating realities at other companies. 

Also, a practical benefit of using interim executives and professionals is that in many companies expenditures to fund key projects quickly can be done through the department’s operating budget and without additional approvals beyond the operating executive’s own. This contrasts with requesting additional full-time headcount hires that would likely have to go through several layers of approvals or be subject to hiring freezes or other limits.

Here's a current example: A well-known carrier’s CEO looked at his company’s expenditures on printing and postage and mandated that the company cut the budget by $1 million, about 35% of its outlay in this area. The carrier reached out to a well-known search firm with a robust practice in interim executives and professionals. The firm worked closely with the carrier to define the specific objectives, desired outcomes and timeframes and was able to quickly develop an attractive proposal for the carrier that focused on the broader strategic issue of digital transformation in addition to tactical decisions on printing and postage. Once the carrier approved the proposal, within days the firm was able to identify several well-qualified professionals to lead the initiative and zeroed in on one executive who was perfect for the assignment. The carrier interviewed the professional the next day and was able to start on the project the following week. 

In this example, the carrier expects to realize the following benefits:

• Significant reduction of outlays
• Moving clients and agents to a digital experience in many facets of their interactions with the carrier
• Development of mobile apps to enhance sales and customer service 

See also: A Wake-Up Call for Insurers

In today’s environment, we see vast numbers of “gig workers,” often with 20 to 25 years of experience, who no longer want to work on a permanent basis with a company for a variety of reasons and prefer the challenge and variety of working with multiple companies on a project basis – of parachuting into a firm to address a specific need. These are not people who have difficulty finding permanent employment, but rather industry veterans and practitioners looking for a broad base of experiences at this stage in their careers.

In 2023, we will see an increase in people seeking interim opportunities who are willing to compromise a sense of security typically experienced with a permanent job. In turn, external talent acquisition professionals such as Korn Ferry will put more focus on nurturing relationships with candidates seeking contract employment and work with clients to determine the most effective scenarios for filling positions. In such a dynamic landscape, experts recommend companies maintain a 70/30 FTE-to-interim worker mix.

In the insurance space, there are many opportunities to use interim executives and professionals. These include:

• Filling critical voids in the organization, which buys time to find the right permanent candidates
• Digital transformation initiatives in sales activity, application entry and policy delivery processes
• Digitization projects in the underwriting process, and in producer communications, regulatory requirements and marketing
• Cost-saving mandates such as the one noted above
• Development of client and agent portals for policy changes, billing and payment processes
• Product research and development, particularly when the pipeline is filled due to resource constraints
• Solutions for modernizing legacy systems and integration with newer platforms
• Where M&A activity is involved, integrating systems, policies and underwriting workflow pre- and post-merger
• Many projects where an additional set of experienced hands is needed!

There are many opportunities to consider interim executives and professionals in the insurance space. I hope these ideas provide some food for thought in your strategic and operating discussions. Here’s to a great 2023!

The MIT Technology Review's always-interesting annual list of 10 breakthrough technologies to watch contains two this year that could revolutionize healthcare. 

One is a use of CRISPR to just edit away people's problems with high cholesterol by rewriting a sliver of their DNA. The other is work that could produce what the magazine calls "organs on demand" -- basically, a farm that would grow all the hearts, kidneys, livers and so on that we need, ending chronic shortages and making the lives of millions of people better. 

The CRISPR development is based on what's known as CRISPR 2.0. The first version, developed roughly a decade ago, could already do the nearly miraculous -- cutting out a small section of DNA to shut off a gene that was causing a health danger. The 2.0 version can actually substitute a base in a person's DNA for one that's already there, so 2.0 has far broader potential. 1.0 tends to be used in tests on rare genetic diseases, while 2.0 is being aimed at far more common problems, such as a genetic predisposition to high cholesterol.

While we know the technology works, it will still take many years before CRISPR 2.0 will go into wide deployment on medical issues, mostly because rewriting DNA creates so much potential for unintended consequences. We may think a genetic sequence we're editing has a single function, but who really knows? It'll take a long time and a lot of trials before we'll know conclusively enough for widespread use.

Still, as the Technology Review article explains, the potential is vast. And CRISPR 3.0 is on the way. It will allow us to add chunks of DNA to our genome that are thought to protect against high blood pressure or other diseases.

The possibility of "organs on demand" relates to a story you may have seen from last year: A man whose heart had failed and who wasn't eligible for a transplant was hooked up to a genetically modified pig heart and survived for two months. Some biotech companies, including the one that supplied that heart, are setting up farms where they plan to raise herds of pigs whose DNA has been altered so their organs are compatible with humans' and won't be rejected by our immune systems.

As you can imagine, plenty of obstacles lie ahead here, too. Even if the genetic modifications all work to make pig organs usable in humans, the herds still have to be raised in germ-free environments -- it was a virus from the pig whose heart was used, not a problem with the heart itself, that killed the transplant patient after two months. 

But, again, there is potential here to reinvent healthcare -- and, thus, the companies that provide health and life insurance. 

You'll likely find many of the other breakthroughs intriguing, too. Some are a bit far afield from insurance, such as the descriptions of the possibilities posed by the James Webb telescope, the development of mass market military drones and the decoding that's being done of ancient DNA. But a couple of others will bear heavily on insurance, too. What the Technology Review describes as "the inevitable electric vehicle" will turn the auto industry upside-down over the next decade-plus, and the advancements in battery recycling that the article describes will remove one of the final obstacles that are holding us back from a full-scale switch to EVs.

Cheers,

Paul