For wineries, getting ready for winter takes far more than buying a few snow shovels and loading up on rock salt.

Wineries are among the most complex businesses imaginable. They’re one part farm, one part manufacturer, one part entertainment complex and one part hospitality provider/retailer. That means they face multiple risks year-round, and those risk exposures compound each winter.

While agents and brokers should talk with their winery clients about proper winterization every year, the conversation heading into the winter of 2022-23 takes on added importance. Supply chain shortages, inflationary pressures and fluctuating business results mean some winery owners are looking to cut costs wherever possible. 

Skimping on winterizing is a terrible idea. The few dollars winery owners will save by not properly winterizing often pales in comparison to the huge losses they could face if they experience major property damage or slip-and-fall claims due to improper winterization.

Let’s review the top six risks wineries face each winter.

1. Winemaking equipment

Wineries in milder climates often store harvesting equipment such as destemmers, presses and bottling lines outside. Come wintertime, it’s not enough just to leave this equipment outside. Instead, wineries should make sure their machinery is carefully wrapped or stored under a tarp to avoid damage from debris and safely stored out of the way of foot traffic.

Also, wineries that use outdoor glycol chillers must winterize them properly. Glycol lowers the freezing point of water. The colder it gets outside, the more glycol you should add to your chiller to protect your system. You can use this chart to educate winery owners on the proper glycol/water mix based on the expected winter temperatures in their region.

2. Roofs and rooftop HVAC units

Proper winterizing means scheduling and completing proper annual maintenance on shingles and flat roofs to ensure they’re ready to withstand a potential winter pounding. It’s equally important to get any above-ground HVAC units inspected so you can detect problems before they’re covered in snow. As a best practice, recommend that winery owners establish maintenance agreements with third-party roofing and HVAC contractors.

See also: 4 Technology Trends for 2022-2023

3. Solar panels

For wineries that have rooftop solar panels, pre-winter inspections can happen simultaneously with roof shingle and HVAC maintenance checks. However, if a winery has a ground-mounted solar panel grid, it’s important to get it expected and make sure it hasn’t suffered any wind damage in the prior 12 months. This is especially true for wineries on the Pacific Coast, where wintertime comes right after the peak of wildfire season (September to November).

4. Outdoor spaces

This wintertime risk falls into two specific categories. First, wineries must be concerned about temporary outdoor entertainment spaces. Each year, insurers see costly claims related to the collapse of pop-up and seasonal tents. Many of these structures carry a high price tag ($25,000 to $30,000). Some include intricate lighting or misting systems. To protect their investment, wineries should take down these temporary structures well before the first frost.

Wineries also must winterize their permanent outdoor spaces, including seating areas, walkways and parking lots. In these areas, winery owners should pay particular attention to outdoor lighting. Just one burnt-out lightbulb on a sidewalk that leads to a taproom can create a costly trip-and-fall accident.

5. Water damage

Water damage can bring multiple wintertime risks for wineries, too. One of the best ways to mitigate this risk is to clean out your gutters annually. This is especially true in areas of the East Coast where leaves from deciduous trees collect in gutters every autumn. If they’re not cleaned out, it raises the risk for ice dams, which can bring your gutters crashing down and cause major property damage.

Another related problem occurs in cold regions when moisture builds up on the sidewalk at the entrance to a taproom. This happens as patrons wipe the snow and ice off their boots prior to stepping inside. The water they shake off can freeze and refreeze to the cement or asphalt, elevating the risk for slips, trips and falls. A good risk management tip: Ask your winery clients to place a mat or rug at their taproom entrance.

6. Snow removal liability

Wineries located in areas prone to snowstorms should have documented snow- and ice-clearing practices on file. If your winery client hires a third-party contractor for ice and snow removal, recommend that the contractor sign a risk-transfer agreement that will indemnify the winery owner should one of the contractor’s employees inadvertently strike a vehicle, person or structure on the winery property. For an additional safeguard, winery owners should ask to be added as an additional insured on their contractor’s policy.

The location of the wineries you represent will play a role in which winterization steps they should take. Craft your risk management strategies to meet the specific winter weather patterns your clients face and encourage winery owners to make them an annual part of their maintenance routine.

On Oct. 22, 2012, a tropical wave off the Caribbean coast of Nicaragua strengthened into a depression. Two days later, it had intensified to a Category 1 hurricane and made landfall in Kingston, Jamaica, before moving on to strike Cuba as a Category 3, with wind speeds of 105mph. The tempest then blew through the Bahamas and weakened a little before regrouping to take its infamous "left turn" and slamming into New Jersey on Oct. 29. 

On its deadly path, it left 70% of Jamaican residents without power, caused catastrophic rain and mudslides in Haiti, inundated the streets of the Dominican Republic capital Santo Domingo and damaged the historic city of Santiago in Cuba. Most of the Eastern Seaboard of the U.S. was affected, with a storm surge in New York City that flooded the subway system and parts of Manhattan, Brooklyn and Staten Island. The New York Stock Exchange closed for two days during prolonged power outages that lasted for weeks in some areas of the region, and the eerily dark skyline of Manhattan became an enduring image of the catastrophe.

With a monumental diameter of around 900 miles, or 1,450km, at its greatest extent, Superstorm Sandy was the deadliest windstorm to occur in the north-eastern U.S. for 40 years and is the third-costliest hurricane in U.S. history (after Katrina in 2005 and Ida in 2021). It incurred around $30 billion of insured losses and over $60 billion in economic damages. But the human cost was even more devastating – more than 280 people died, including at least 54 direct deaths in Haiti and over 70 in the U.S. Many thousands were left without shelter.

What made Superstorm Sandy so extraordinary?

A number of factors converged to make Hurricane Sandy a "superstorm" – a term used for particularly intense storms that defy conventional classification – with some commentators going so far as to label it a "Franken-storm."

Superstorm Sandy had been widely expected by weather modelers to travel north-east out into the Atlantic, which is generally typical of hurricanes in the region, rather than hitting the U.S. Instead, an unusual weather pattern forced it to pivot left toward the coast, which maximized the winds and storm surge directed at the shores of Long Island, Connecticut and New Jersey.

Superstorm Sandy then hit the New York Metro area during high tide, which dramatically increased the height of the storm surge. On top of that, it was a full moon, which raises high tides along the Eastern Seaboard by about 20%. Finally, the storm was massive in geographical area, as well as slow-moving, meaning it could deliver more sustained damage over a large area.

Claims support and challenges

In the aftermath of the storm, Allianz handled around 900 customer claims, ranging from damaged cargo to flooded premises, and estimated the total impact at the time to be $590 million (€455 million). Economic losses in the city of New York alone were estimated to be $19 billion (€14 billion).

“Gaining access to loss sites to evaluate damages was a major challenge,” remembers Thomas Tesoriero, executive general adjuster at AGCS. “Traffic was limited by local authority restrictions along the coast, subway lines weren’t running because a lot of underground lines were damaged, and many buses had been flooded where they were stored during the storm. Power outages meant gas stations had problems pumping gas, which led to long lines and delayed truck deliveries, and with so many offices closed, communication with our customers and colleagues was difficult. Many companies suffered infrastructure and technology damage. Some found their backup sites were too close to the damage location.”

How things have changed. Today, drones could provide aerial shots of property damage from a safe distance, news media and ‘citizen journalists’ could quickly upload video footage from phones or security devices, and video conferencing or social media could gather key personnel in a group call or chat.

See also: How to Prepare for Catastrophe Claims

Hurricanes and climate change – what we know now

Analysis of more than 530,000 corporate insurance industry claims valued at €88.7 billion over the past five years by AGCS shows that natural catastrophes are the second top cause of losses globally for businesses overall, according to value of claims (15%), ranking behind only fire and explosion (21%). (Download the AGCS Global Claims Review.)

A deeper look at the major causes of natural catastrophe losses, based on analysis of more than 20,000 such claims around the world with an approximate value of €13.7 billion, shows that hurricanes/tornados rank at the top, accounting for 29% of the value of all claims. A major driver is the fact that two Atlantic hurricane seasons out of the previous five (2017 and 2021) are now among the top three most active and costliest seasons on record. Windstorm ranks second (19%), meaning storm activity accounts for close to 50% of the value of nat cat claims globally over the past five years. Flooding ranks third (14%).

Losses continue to rise with climate change, higher property and asset values, more complex supply chains and changes to exposures (such as increasing economic activity in natural catastrophe zones). Soaring inflation will only challenge claims costs further. Property and construction insurance claims, in particular, are exposed to higher inflation, as rebuilds and repairs are linked to the cost of materials and labor, while shortages and longer delivery times inflate business interruption values.

Hurricanes and climate change – what we know now

The meteorological conditions that boosted the power of Superstorm Sandy turbocharged the debate about climate change back in 2012. While it is still hard to prove the effect of climate change on the frequency of hurricanes, there is now broader consensus that global warming is increasing their intensity and therefore the damage they can cause. A modeling study from 2021 attributed some of the economic damages wrought by Superstorm Sandy to rising sea levels caused by human-induced climate change and even put a figure on it – $8.1 billion.

Karen Clark & Co. (KCC) has also linked climate change to increasing insurance damages from hurricanes. The risk modeler says its analysis shows losses are 11% higher today than they would have been if global temperatures had not increased. It notes that a 1°C increase in temperature likely results in a 2.5% increase in hurricane wind speeds, so the 1.1°C increase in global temperature since 1900 might have caused a 2.8% increase in wind speeds, leading to exponentially higher losses. Karen Clark wrote recently that “climate change and increasing property values in coastal areas will continue to accelerate the annual increases in hurricane risk and insured loss potential. Social inflation is also putting upward pressure on hurricane losses. The percentage of litigated claims is rising with each storm, and the cost of a litigated claim is multiples of a non-litigated claim.”

Thomas Varney, regional manager for Allianz Risk Consulting, North America, at AGCS, adds: “We are all vulnerable to climate-related risks, and climate change is starting to play a critical role in terms of risk management. The latest Allianz Risk Barometer survey shows how the lines are blurring between natural catastrophe, which was ranked third overall in the list of corporate risks, and climate change, which rose to its highest-ever position at sixth. The extreme impact of nat-cat events and their occurrence in locations or at times of year previously deemed safe is creating challenges for businesses and insurance carriers.

“As a result of climate change," Varney says, "we are seeing increases in three main areas – physical loss impact, supply chain impact and operational impact. These can play out as increased property damages from extreme weather events, business interruption caused by delays in supply chains or higher costs for heating, cooling or possibly relocating operations.

“Something is changing across the globe in terms of the types and severity of losses we are seeing. Until Hurricanes Fiona and Ian in September, the 2022 hurricane season had got off to a very quiet start, but we still expect to see another above-average season, with forecasters predicting up to 10 hurricanes in the Atlantic. Businesses have a responsibility to their customers, shareholders and stakeholders to mitigate this risk.”

Are businesses adequately prepared?

The north-east portion of the U.S. is susceptible to tropical storms and hurricanes, even if they occur infrequently. We know that sea level rise is increasing the severity of storm surge along the Atlantic and Gulf coasts of the U.S. With hurricanes, the primary sources of damage are from high winds and wind-driven water – storm surge – and between those two, it’s storm surge that generally causes more damage.

Enhancements can be made to buildings to withstand high winds relatively easily, but improvements made to increase a building’s resilience to storm surge can be more costly, time-consuming and complicated to implement. Looking ahead is key.

“Some of our clients have made changes that enable them to react quickly if their region is hit by a hurricane and flooding,” Varney says. “For example, one customer provides temporary on-site housing for essential staff members whose homes might be affected by flooding. Another large client has placed trailer-mounted generators in various locations which can be dispatched to provide power backup in the case of an electricity outage. We also have a client that entrenches training by having its 200 employees back their vehicles into parking spaces daily so that if evacuation is needed, it can be done in an orderly fashion and without delays.

“One of our manufacturing clients is using storm tracking capability to prepare for the aftermath of a hurricane. It overlays the storm path as it relates to their internal critical facilities and key suppliers. These approaches have minimized or eliminated impacts to production after the storm.”

Despite such measures being taken by some companies, most are still not fully prepared for the effects of these storms. If businesses have never been affected by one of these infrequent events, it can be easy for them to lose focus on maintaining a quality emergency preparedness plan. The question is not whether an extreme weather event will affect a business but when.

See also: 2022 Hurricane Season Update

Five steps to boost storm resilience

Give your business the best chance of withstanding and recovering from an extreme weather event by putting the following procedures in place:

1) Update and test your emergency preparedness plans: Preparation before the storm minimizes property damage and reduces business interruption. Ensure your business has a comprehensive written emergency response plan for extreme weather events, including high winds and flood. A good plan has the support of senior management, site-specific recommendations and clear delineation of responsibilities.

2) Test and update business continuity plans annually: The crucial role of business contingency plans has become more apparent as a result of recent natural catastrophes. Superstorm Sandy hit the Northeast on a Monday, which made it difficult for employees to develop and implement business contingency plans while preparing their homes and families for the storm. A well-developed contingency plan provides businesses with the tools to get back up and running as quickly as possible.

3) Understand your insurance policy: Business owners should take the time to read their current policy and discuss with their brokers what is covered and where there may be gaps. Determine if the limits of liability are in line with the current dollar value of the cost to repair or replace the damage. Consider adding an extended period of indemnity clause to the business interruption coverage to support the business until it returns to its pre-loss financial condition.

4) Know what to prepare for: Planning for a wind event involves different preparation than planning for flooding. In the case of Superstorm Sandy, the majority of preparation was based on a high-wind event, leaving many businesses unprepared for the flooding caused by the storm surge. As more sophisticated tracking models are introduced, more accurate information will be available.

5) Consider making improvements to the building and site: The following enhancements could help your business withstand the high winds and flooding that can accompany a windstorm.

a. Emergency generators for loss of power

b. Floodgates and flood doors

c. Raising critical equipment above highest anticipated flood levels

d. Protecting the building envelope from high winds (this refers to the physical boundaries between the interior and exterior of a building, such as the roof, windows and doors). This could include measures such as using impact-resistant doors and glass or better securing the roof covering system to the roof deck.

I'll be quick today, as I'm just back from a long weekend of catching up with my large family (eight of us siblings and my 92-year-old mother, plus spouses and kids and now even a few grandkids) at a niece's wedding three time zones away. But I did want to steer your attention to a McKinsey article that's worth some study on how leaders can steer their organizations through today's craziness (high inflation, war in Ukraine, political uncertainty and on and on) while preparing for what may well be a global recession in the next year. Although I often find leadership articles too airy-fairy, I think the article's suggestions are spot-on for organizations ranging from a small agency up to a massive corporation.

The short version is:

--Don't follow the old rules (such as setting up a crisis task force, which takes too long).

--Prepare for the recession but at the same time prepare to exit it.

--Use scenarios rather than forecasting (which is too broad-brush to identify big problems and opportunities).

--Address burning short-term issues such as financial flows, as well as the longer-term issues.

--Play offense, as well as defense, by looking for growth opportunities as all your competitors struggle, too.

The (slightly) longer version follows.

The McKinsey article goes into more detail on the five suggestions:

--"Don’t follow the old rules. Setting up a crisis task force, for example, the go-to move in past years, is a waste of time; it will be outmoded before it is up and running. Leaders need to find a more flexible and consequently durable stance, engaging the whole organization by embedding a crisis-resistant DNA over time.

--:Prepare for the recession, but at the same time, prepare to exit it. Recessions may be shallow and brief; companies can accelerate through the downturn. This is essential: resilient organizations open an early lead, however small, in comparison with peers. This lead can be significantly widened during the following recovery and growth period. The early advantage can help companies succeed in the long run.

--"Use scenarios rather than forecasting. Forecasting has failed to adequately capture many key events of recent decades, including slowing globalization, the COVID-19 pandemic, the supply chain disruption, and the return of inflation. Learn to plan with scenarios and triggers, regularly revisiting and adjusting them.

--"Develop a resilience agenda that addresses burning short-term issues (for example, financial flows, supply chain disruptions) as well as longer-term challenges (for example, geopolitical shifts or the speed of organizational adaptations). Ensure that resilience is measured, so progress can be tracked and return on resilience investments can be maximized.

--"Focus on resilient growth by reviewing your competitive position and finding strategic opportunities in the current environment (such as acquisitions or new business-building ideas)."

While I'll count on you to read the article if you're interested in learning more about what McKinsey experience and research have gleaned from prior times of chaos, I'll point out a few more things. 

The article talks about how companies can benefit from restructuring their balance sheets heading into a recession, and that strikes me as something that could help insurance companies position themselves both for a recession and for the opportunities that would emerge as the world then rebounds from it. 

Many other examples related to manufacturing companies and issues such as their supply chains, which are not only threatened by a possible recession but by the war in Ukraine and by the political emphasis in a growing number of nations to reduce reliance on foreign suppliers. While those considerations don't directly affect an industry like insurance, which moves bits around, not physical products, insurers still must be prepared for all the upheaval that manufacturers and other clients will go through in our fraught environment. 

Finally, McKinsey offers summary observations about what separates winners from losers in troubled times, including that winners:

--"make faster and harder moves in productivity, preserving growth capacity...

--"act swiftly on divestments in the downturn phase of disruption and on acquisitions at the inflection point of recovery."

I hope those observations help. 

More next week, when my life will be back to normal....

Cheers,

Paul

The 2022 Global Insurance Forum brought together more than 40 insurance executives from around the world to address the industry's role in rethinking old ways of doing business and plan a better path forward.

Join Paul Carroll, editor-in-chief of Insurance Thought Leadership, as he sits down with speakers from the event to take a closer look at critical topics. Over this six-part series, hear from industry leaders about how the insurance industry can leverage technology, mitigate risks, safeguard resources, and help lead the Great Reset of the global agenda.

Webinar 1: A Conversation with Mick Moloney

Webinar 2: A Conversation with Olav Cuiper

In this interview with Paul Carroll, editor-in-chief at Insurance Thought Leadership, Olav Cuiper, Executive Vice President, Chief Client Officer at RGA, explains: How to embark on a digital customer journey -- and why that has to happen now. How the pandemic has opened the way to new forms of engagement with customers, based on advice and service that go well beyond traditional products.  Why wholesale banking can be a good model for engagement in the insurance industry.  Register Now

Olav Cuiper Executive Vice President, Chief Client Officer RGA

Webinar 3: A Conversation with Ken Mungan

In this interview, Ken Mungan, chairman of Milliman, lays out an innovative idea for how insurance companies and pension funds can deploy their trillions of dollars of capital to finance initiatives to mitigate climate change and the risks it creates. He also: explains the dimensions of the gap explores the role of platforms in innovating ways to tackle the protection gap. concludes with optimism about humanity's ability to innovate in the face of climate change the insurance industry's capacity to protect people from many of the related risks. Register Now

Ken Mungan, FSA, MAAA Chairman Milliman

Webinar 4: A Conversation with Thierry Léger

In this interview Thierry Léger, group chief underwriting officers at Swiss Re, explains: that effects from climate change now account for half of reinsurers' net cat losses that the data for half the exposures just isn't good enough at the moment. that demand is surging for cat coverage just as capacity is leaving the market, creating a "monumental" gap of perhaps $40 billion or $50 billion between the demand and the offer. Register Now

Thierry Léger Group Chief Underwriting Officer Swiss Re

Webinar 5: A Conversation with Joshua Landau

In this interview, Josh Landau, president of the International Insurance Society, hits the high points from the recent Global Insurance Forum. He lays out: how insurers are leaning in on climate change to increase coverage and mitigate its effects. how companies are using embedded insurance to extend their reach and simplify the purchasing process for customer. how insurers have a great story to tell about being there when they're needed -- as evidenced by the billions of dollars of claims they paid during the pandemic and following the spate of natural disasters.  Register Now

Joshua Landau President International Insurance Society

ITC was an action-packed week with over 8,000 attendees and participants across all aspects of the industry! The energy was amazing and contagious! Majesco once again was active and hosted a panel discussion with executives from MMG, Foresight and Combined, with over 250 attendees (standing room only) and lots of questions after the session for all of us. Why such interest? 

Because the industry is rapidly moving forward. Even with challenging macro-economic conditions, there was excitement about the future. What also became clear is companies not actively engaged in optimizing their current business and innovating for the future are at risk. Future industry leaders are doing both aggressively.  

Our panel discussion provided a view into what is reshaping the insurance marketplace and a new generation of leaders. We talked about five key trends that are foundational for insurance leaders.

Customers

Welcome to the customer of the future. New expectations. Different lifestyles and behaviors. Robust digital proficiency. New risk needs. Demand for great experiences at the core. An expectation of value.

Today’s customers are increasingly disillusioned with the traditional insurance approach, creating a loyalty fault line between customers’ expectations and insurers’ ability to deliver what they want and need. While risk and trust tend to be constants, customers increasingly have no guaranteed loyalty to old models, even for trusted brands.

Customers are seeking simple, holistic experiences across their lifecycle and demonstrated empathy. Customers are no longer simply looking for a claim payout. They are seeking help with life and whole-life management. They are expanding their view of financial wellness. Rather than looking at life, health, retirement, auto or property risk separately, customers are increasingly seeking companies that help them manage insurance needs more holistically and broadly through the products, customer experiences and services they provide. 

Digital transformation is required to create a business for a very different future — the one customers expect..

See also: What Future Will We Choose?

Delivering Value

Insurance can be difficult, complex and time-consuming, with products and services that don’t appear to deliver value. Today’s customers expect more. They want a risk product, valuable services and an experience that provides them what they need to manage their lives. This means that insurance products and services are shifting to prevention and mitigation of risk. And in the process, they are humanizing the entire customer lifecycle.

Part of the humanizing aspect is offering niche, personalized products, services and experiences that align to their specific risk need and use their personal data. From an increased interest in life, critical illness and disability insurance to telematics and cyber insurance and more, customers want insurance products that assess their personal risk, lifestyle and behaviors.    

Traditional product-oriented strategies, however, handicap insurers. Instead, insurers must consider a product to be inclusive of the risk product, valuable services and the customer experience to meet customer expectations of delivering value. Part of that value is providing risk-prevention and mitigation capabilities and services that help customers avoid or mitigate losses, dramatically redefining the customer experience.

Our panelists talked about the innovative approaches they are taking to deliver value by offering more than just the risk product, such as a new critical illness product that provides DNA testing to support personalized cancer treatments, a new dental product that includes a smart toothbrush to monitor brushing for improved health and a workers' comp product that supports safety and risk monitoring. 

The bottom line… The potential is limitless to deliver greater value to customers' we just need to think outside the box and keep the customer lifecycle and needs in focus.

Market Reach and Channels

Complexity and out-of-date insurance processes affect almost every line of products. Many insurer innovations are refocusing to a “buying” over “selling” approach, through a multi-channel strategy that meets customers where and when they want to buy. If distribution channels are easy to use, with products that are easy to understand, then insurance has an opportunity to grow through friction-free, multi-channel distribution.

While agents and brokers remain a dominant channel, new channels, such as marketplaces and embedded insurance, are gaining a lot of attention and traction. In fact, embedded insurance was the hottest topic of discussion at ITC and one we have done a lot of research on.

Insurers looking to compete will find it challenging to do it alone. Creating an ecosystem of connected channels, using a range of digital capabilities and connecting with customers when and how they want to, requires collaboration.

In today’s connected world, insurance must play across a wide distribution spectrum of channel options, expanding channels and partners to reach customers when, where and with whom they want to buy insurance. These options form a distribution ecosystem that expands reach but requires a partnership approach, particularly for embedded channels. Embedded insurance completely changes this paradigm. With it, insurance is no longer sold, because it is bought as a part of something else.

The new and growing spectrum of channel options now available, especially the exciting opportunities for embedded insurance, will give innovative insurers and their partners tremendous opportunities for growth, with new markets, new offerings, satisfied and loyal customers…and growing books of business.

See also: Boldly Insure Where No One Has Gone

Technology

Technology provides a foundation to adapt, innovate and deliver at speed to execute on strategy and market shifts. The rising importance and adoption of platform technologies, APIs, microservices, digital capabilities, new/non-traditional data sources and advanced analytics capabilities are now crucial to industry leadership.

From the front office to the back office, SaaS platforms are reshaping the business focus from policy to customer, from process to experience, from static to dynamic pricing, from point-in-time underwriting to continuous underwriting, from historical view of data to predictive and prescriptive data, from traditional products to innovative products and so much more. Insurers’ ability to create and grow an ecosystem of partners to deliver increased value to the customer relationship will deepen and differentiate customer loyalty.

What distinguishes insurance leaders? In our discussion and in many of the sessions at ITC, it was evident that leaders see the market and technological trends as a many-fold opportunity for insurance. Leaders focus on initiatives instrumental to creating new business models, expanding distribution channels, entering new markets, adding services and developing new products by leveraging technology as a foundation and catalyst for innovation. Leaders establish a strong operational and technology foundation that brings together SaaS next-gen core insurance systems, digital experience platforms, partnerships, ecosystems and data and analytics. These are built on a modern architecture using integrated microservices or APIs running in the cloud with a focus on speed and scale.  

Leaders also use technology to fundamentally change the business operating model and to innovate – two key aspects tracked by AM Best in their innovation ratings, reflected in our Strategic Priorities research and AM Best assessments.

There is increasing evidence that those who focus on next-gen core, incorporate new sources of data and analytics, expand channels to reach new market segments and customers and offer innovative products and services are leaping forward from the competition in operational effectiveness and growth. Along the way, these insurers create a new, sustainable business model. They grow their expertise at providing compelling customer experiences to capture new business and foster a greater sense of partnership, trust and loyalty.  

It is clear, even with the macro-economic headwinds and other market challenges, every aspect of insurance is being redefined in the context of the future, and next-generation technology is foundational for that future.

Talent

Talent constraints are forcing companies to get creative. The Great Resignation, including increased early retirements is affecting the knowledge base. A move to virtual or hybrid work models is changing how companies transform themselves. The expanding gig economy and contract workers are giving us workplace in constant motion. Competition for talent and low unemployment rates have created their own source of inflation. These historic trends are fundamentally changing the essence of the workforce, affecting both the insurance culture and the balance sheet.

According to the U.S. Bureau of Labor Statistics, the insurance industry is about halfway through a massive 15-year shift, with 50% of the workforce retiring by 2028. For some insurers, it is even more dramatic, with some projecting 40% of their workforce will be eligible for retirement within the next three to five years. The loss of these employees will create a brain drain and loss of institutional and industry knowledge that insurers will be challenged to replace. Adding to this is the lack of interest in insurance … because it is not necessarily seen as cool or sexy when compared with other industries. 

To respond to the key trends shifting the insurance industry, retention and access to talent is crucial. The panel discussed a range of areas they are focused on, including: partnerships with local colleges to prepare and attract talent, retraining existing employees, embracing workforce flexibility with remote working, accelerating digital transformation operationally with next-gen core, data and analytics and digital. All of this will help insurers both capture the institutional and industry knowledge and decrease the dependence on those leaving, redefining jobs and roles that are more aligned to valued work and leveraging next-gen technology that will make roles broader and more effective. The result will be a reduction in siloed and transactional roles, and a greater degree of satisfaction and experience as employees engage with customers and channels. 

Leaders are finding ways to find and keep talent that is crucial and foundational to building and growing their new digital-first customer-focused businesses.

The Secret Sauce

What separates leaders from others?  What is the secret sauce that increases the chance for success? Fundamentally, what separates successful leaders from others is their focus on strategy – both operational and strategic. Leaders execute on their strategy. They embrace curiosity given the continued pace of change and the need to see the world from the customer’s viewpoint. Curiosity fosters innovation. It requires courage, because innovation is difficult and sometimes results in failure. Learning from failure, however, can create success.

Leaders keep the “pedal to the metal” by staying focused on priorities and initiatives that enable the strategy, including resources and funding. Even leaders might be tempted, in an uncertain economy, to overreact by cutting back budgets, reducing technology investments and pulling back on innovation. Recent history has proven that would be a big mistake. The dot-com crash in 200-2001 and the financial crisis of 2007-2008 proved this strategy to be short-sighted.

Those that continued forward and even increased investments in the face of those major market challenges leapfrogged the competition and were better prepared to respond to the emergence of insurtech competitors and the COVID pandemic that accelerated digital expectations! 

While we don’t know what major disruption is next, we do know that we must be prepared, and putting the pedal to the metal focused on operational and strategic transformation and innovation will make the difference!

Blockchain has been the hottest buzzword for the past few years. The hype is so intense that many private and institutional investors are pouring millions into this technology as the next big thing. But are blockchain virtues stronger than blockchain challenges?

It is an important question, especially for those considering investing in blockchain development. Believing that blockchain is the future, investors might place money into a blockchain product without a complete understanding of the potential benefits and limitations of this technology.

Likewise, a software company might push forward with a blockchain project even if the end product will add little value to an already competitive market. Becoming more knowledgeable about the technology, assessing the blockchain viability in advance and involving blockchain consultants is a sound way to avoid such failures.

In many cases, other technologies perform just as well or even better than blockchain. When developing a solution, it is important to ask whether blockchain offers a competitive advantage in the given situation.

Decentralization is not a must

Cryptocurrencies have their benefits. A cryptocurrency such as Bitcoin is inherently decentralized. When there is no central authority, such as a government, nobody can influence the network. Could Bitcoin be decentralized if it ran through central servers? There would be a risk that the parties controlling the servers would somehow manipulate the cryptocurrency and community.

Consider YouTube’s video streaming services. It might be possible to set up a blockchain to stream videos, but if we could turn to a central authority like Alphabet’s YouTube to administer the network, is a blockchain-driven solution needed?

See also: 4 Technology Trends for 2022-2023

Distributed processing may offer declining benefits

Is distributed processing important when computing power is cheap? In the past, setting up server farms and mainframes was cost-inhibitive, even for large organizations. Over time, however, the costs for high-end PCs, servers and mainframes have declined dramatically. These devices offer compelling and affordable blockchain alternatives.

One way to consider processing power expenses is to look at the cost to process gigaflops, or one billion floating-point operations per second. In other words, how much does it cost to process 1 billion operations? In 1984, it would have cost roughly $18.5 billion. As of 2022, it may cost a couple of cents. As processors become cheaper and more powerful, it is fair to wonder if distributed processing will add value to your particular project.

Companies that use massive amounts of computing power, like Amazon, set up large processing farms. Yet these organizations also have access to vast resources, and computing power is rarely a problem. Meanwhile, high-end PCs and more affordable server solutions are often enough to meet the needs of enterprises and those who would have needed to pay considerable amounts to access or set up powerful servers in the past.

Further, some companies design ways to store personal and corporate data on other parties’ hard drives.

Yet it is risky. What if the other party’s storage drives are damaged? What if the data-storing parties figure out a way to hack the encryption? Any party considering blockchain-based data storage will face a mistrust dilemma—can they fully trust the other party with their data?

Meanwhile, storage costs per gigabyte have plummeted. In 1990, a gigabyte of storage space cost $11,500. As of 2022, a gigabyte costs a mere 2 cents. Given the dramatic decline in storage costs, a blockchain-based cloud storage system may make little economic sense, even for parties who have to store massive amounts of data.

Blockchain is less useful when identities are known

One of the key advantages of blockchain is coordinating transactions between anonymous parties. For example, in a Bitcoin transaction, neither party knows the actual identity of the other party. If scammed, the wronged party would have little recourse because they would not know the scammer’s identity.

Blockchain reduces these risks by verifying the transaction on both ends. If someone wants to sell Bitcoin, the blockchain will first verify that the seller has the necessary funds and that they have not been traded. The seller will not confirm the transaction, by providing their 64-digit long private key, until they get the stipulated amount.

Thus, this system allows two mutually mistrusting parties to carry out a complex transaction without knowing their identities. 

In instances where both parties know each other’s identities, the benefits are less obvious. If a business sends payment to another business but does not get the products or services in return, the wronged party will have legal recourse.

Conclusion: blockchain does not fit every project

From nonprofits and governments to banking and healthcare organizations, blockchain technology expanded adoption to almost every industry sector. 

Though blockchain has vast technological potential due to security and trust, some of its benefits, such as decentralization or distributed processing, can turn into limitations.

Companies should ensure that blockchain’s specific applications align with its competitive advantages. Haphazardly applying blockchain to areas where it offers little-to-no benefit may result in wasted money, time and resources.

Last month, we had the ITC event in Vegas, and I feel obliged to dedicate this edition of the newsletter to my takeaways from this conference. It took a while to digest the two days of discussions: the first day, nine straight hours of meetings with two dinners after, eight hours of meetings the second day and another two dinners.

My summary, with some anecdotal evidence:

1. Some incumbents are getting more and more serious about innovation.
2. Innovators understand that agents and brokers are here to stay.
3. Shiny new things replaced the old ones.
4. Everyone is trying embedding insurance somewhere.

1. Some incumbents are getting more and more serious about innovation

A few months ago, in one of the previous editions of this newsletter, I stressed my belief in the importance of innovation. Well, some incumbents came to ITC well-prepared to meet tech providers, discover new things and exchange thoughts with their peers. This kind of incumbent had a large delegation, a shared agenda among their executives and spaces to efficiently have the meetings.

Other incumbents did not show up, or dramatically reduced the number of their people at the event. Since insurtech stocks got hit and issues such as inflation hit P&Ls, insurance incumbents that were not serious about innovation have happily and quickly canceled insurtech from their agenda.

Since the hype has vanished, we have seen those who were committed to a multiyear innovation journey and those who were only pretending to innovate. To quote Warren Buffett -- he tends to be right -- "when the tide goes out, you discover who’s been swimming naked."

2. Innovators understand that agents and brokers are here to stay

Many (really a ton) of the tech players in the expo area were providing tools to support agents and brokers, and to help carriers to work with agents and brokers better. It looks like the people who work in innovation (finally) get that agents and brokers are here to stay.

The past ITC editions were all about digital sales, DTC (direct-to-consumer) and disintermediation. I have always struggled to make people digest that insurtech was more than D2C (and more than startups). We had tons of articles and interviews for all the pandemic period talking about the "digital shift" in the insurance sector. Even when facts and figures about the premium split were available, people still pretended that the reality was different.

Last year, we had the famous trio (Lemonade, Hippo and Root) doing a U-turn from dissing agents to using them for selling more policies (or selling them with a lower acquisition cost). I commented that "it seems agents and brokers are not useful when you have to raise money from VCs, but they are extremely useful when you want to build an insurance portfolio!" Well, looking at the ITC floor, you can raise money even acknowledging that agents and brokers are here to stay nowadays.

Lemonade has just done another big U-turn. Many of you probably remember when they were screaming daily about how insurance incumbents were bad. Here is a snapshot of Lemonade's CEO blog post from six or seven years ago:

Last week, Lemonade announced proudly that they enter the U.K. market with a partnership with Aviva. Here are the words of Lemonade's CEO now: “Pairing Lemonade’s strengths with Aviva’s promises to deliver insurance that is digitally native, yet rooted in the birth of modern statistics in the 1700s. It’s the best of both worlds, giving people a refreshing experience backed by a company they’ve known and trusted for years”.

Yes, this is the same CEO (even if the stock lost about 86% of its value from the maximum in February 2021). A "disruptor" has moved:

• from believing that insurers were chronically affected by "distrust"
• to acknowledging the policyholders' trust in an incumbent insurance carrier.

3. Shiny new things replaced the old ones

Blockchain was missed at ITC 2022. Nobody mentioned it, even though in previous years just about any ew venture would claim to have some blockchain embedded in their approach.

One of the shiniest new toys seems to be the app marketplace. I heard about so many marketplaces in just two days in Vegas....

4. Everyone is trying to embed insurance somewhere

Everyone -- really, everyone! -- is trying to embed insurance somewhere. Most of the initiatives are still early enough to share only enthusiasm and big/vague expectations. Clearly, the embedded topic is cool among investors, and every funder is adding it to the pitch deck.

However -- to set expectations -- an embedded approach will not be enough to guarantee favorable evaluations. I described in detail Hippo's business model and results in a past edition of the Facts & Figures Newsletter, and even more about their success in distributing homeowner insurance through builders was shared on their investor day last September.

But, despite good performance on the currently hot topic, their stock doesn't show any sign of recovery. 

See also: Insurtech: Still No Sign of Disruption

HR managers haven’t had it easy since the onset of the Great Resignation. Employee turnover has become an increasingly dire problem for businesses. In the last year, more than half of all professionals have expressed a desire to change jobs, even to apply to completely new industries. So, HR managers have good reason to seek better ways to motivate employees to stay. Unfortunately, that’s easier said than done. 

One area of employee benefits that has been largely overlooked is life insurance, even though half of employees see life insurance benefits as more important now than before the pandemic. In fact, 80% of workers are highly interested in workplace life insurance benefits, which means companies that offer such benefits have a higher chance of retaining employees. 

That said, the current methods employers use to provide life insurance are less than ideal. The coverage amounts for group life insurance are usually inadequate to protect employees’ families in the event of a worker’s death. Group life insurance, as it’s currently designed, isn’t enough to allow companies to hang on to valuable employees.   

Fortunately, there are ways to make life insurance more effective for—and attractive to—your employees. 

Why Group Life Insurance Is Inadequate

As significant as life insurance is when a family really needs it, few employees give it much thought when they’re considering their benefits packages. They don’t realize the coverage is usually insufficient to provide financial stability for their families in the event of a tragedy. 

Some two-thirds of employees in the U.S. rely on life insurance in the form of employer-provided group policies. Although group insurance plans look good on paper, they tend to offer much less coverage than expected, sometimes as little as $25,000. Considering how many workers may have unpaid student debts, mortgages and dependents to care for, such low amounts are clearly not enough. Knowing this, many employers allow workers to purchase supplemental policies to increase coverage, but these aren’t guaranteed issue and may only reach up to $300,000 or less, which is still insufficient for many families. 

Additionally, group insurance plans through an employer generally aren’t portable, because the employer owns the policy, even though an employee may be paying a portion of the cost. Employees may not even realize that they’re paying into a policy that will essentially be null and void if they change jobs. 

Finally, because most companies rely on a single carrier to provide group life insurance to employees, workers may have limited options for coverage. Employees often find they have little to no control over life insurance benefits as offered through the workplace, even if such policies are easy to get and inexpensive. 

HR managers would do well to look closely at employee satisfaction regarding benefits packages. About 43% of people who resign from their positions claim that they did so at least in part because of inadequate workplace benefits. What most HR teams don’t realize is that they can easily offer employees much better options. 

See also: Adopting a New Mindset on Benefits

Ensuring Proper Coverage

HR managers can start to improve coverage by educating employees regarding life insurance benefits. For example, at least a third of employees don’t realize just how inadequate coverage offered through a group policy can be. A quarter of families will start to experience financial hardship just a month after the death of a primary wage earner, and nearly half will experience financial hardship within six months. And that’s primarily due to the low coverage amounts in group policies. 

Individual life insurance plans can be surprisingly inexpensive, contrary to popular belief. Around half of Americans overestimate the cost of an individual life insurance policy, often by at least three times. In fact, individual life insurance is typically available at almost the same cost as group plans and will likely provide much better coverage. For the same money, employees can receive coverage amounting to around $500,000. Knowing all this will encourage employees to seek supplementary life insurance or individual life insurance plans. 

Another area that many employees lack knowledge about is how easily and quickly they can obtain an individual life insurance policy. Many such policies in the past required medical exams, extensive paperwork and a long processing time, up to four weeks. But with accelerated underwriting and instant decision policies, workers can now get life insurance policies completely online within a matter of minutes, with no medical exam required. 

Besides educating employees, HR managers should work closely with company decision makers and insurers to create more life insurance options for employees. Ideally, companies should form relationships with multiple carriers, so employees can shop around for more personalized life insurance benefits. 

Final Thoughts

The way that you provide life insurance benefits matters. If nothing else, it’s a great way of showing employees that you genuinely care about them. Workers who feel like their employers care about them are nearly 70% less likely to pursue other employment opportunities. 

If you’re just checking a box by providing basic group coverage without helping your employees acquire adequate life insurance, your group plans can actually backfire and produce dissatisfaction. By contrast, if you can help employees find individual life insurance plans that offer adequate coverage, then employees will know you care about their well-being. You’ll likely experience less employee turnover and higher productivity as a result.

Even as the U.S. economy teeters on the brink of a recession, employers face a historically tight labor market and must compete for talent in new and creative ways. While competitive salaries are critical to attract and retain workers, company benefits often make the difference for companies trying to demonstrate that they value their employees and care about their physical, mental and financial health. 

For insurance companies, the increased focus on wellness represents a compelling growth opportunity. It’s also a win-win-win: Insurers that can help employers boost employee satisfaction and loyalty and promote healthier lifestyles for individuals will also benefit their own bottom lines. The substantial benefits to society should not be overlooked, either; the already massive and rapidly expanding retirement savings gap and the combination of longer lifespans and medical inflation place huge strains on government-sponsored programs. Stronger physical and financial wellness programs, when combined with traditional life and health policies, can certainly reduce that strain. 

Consumers are more interested in wellness than ever before. Capgemini research has found that large majorities of consumers want to improve their physical (69%) and financial (67%) wellness. And nearly as many are taking action to achieve that goal; 66% say they act on physical wellness (e.g., exercising, monitoring their diet, tracking health metrics), and 63% on financial wellness (e.g., budgeting, tracking expenses, saving for a long-term goal).

And the stakes around financial health will only increase during the coming economic stress. Employers certainly recognize the urgency, given the impact of financial stress on absenteeism and worker productivity. According to the Society for Human Resource Management, nearly 80% of companies believe financial stress hurts their employees’ productivity. Other studies have shown how financial stress increases absenteeism. Given the relatively low levels of financial literacy among U.S. workers, education is also key. 

Moving the needle on wellness

So how can insurers best respond to these powerful market forces? The key is to develop innovative solutions, such as wellness-as-a-service programs that address shifting consumer needs. Extensive education and useful tools are also critical to support and empower individuals to meet their unique goals. For insurers, wellness-as-a-service models provide deeper understanding of customer behaviors, the opportunity to engage more frequently and the ability to deliver personalized services. The long-term goals – higher levels of physical health and financial security – will pay off in the form of reduced claims volumes, more accurate assessment and more profitable pricing. It’s a powerful formula for near-term growth and long-term success. 

To be clear, many insurers have developed robust programs that promote healthier behaviors, with an emphasis on physical fitness, healthy eating and preventive care. These programs typically feature tailored prompts and reminders to exercise with motivational content and incentives for consumers that meet their goals. Relatively few insurers have applied these same behavioral techniques into their offerings for financial wellness. Consider how information and guidance for protection products, savings plans or investment options could be personalized based on key life events (e.g., getting married, having a child) or career stages (e.g., workers nearing retirement age). Wellness-as-a-service models are designed to produce great outcomes by closely integrating physical and financial wellness programs. 

See also: What Healthcare Insurers Need to Consider

Embracing an innovative and holistic approach

Wellness-as-a-service is a flexible model that focuses on three core priorities for physical and financial wellness:

• Achieving physical wellness by helping consumers access emergency and regular medical care and establishing financial wellness by meeting current financial needs
• Preventing future medical issues (e.g., by promoting adherence to prescriptions and fitness routines) and financial emergencies and preparing for unexpected expenses (e.g., through savings prompts and information on income protection)
• Improving long-term physical and financial wellness through continuing advice about nutrition, exercise,\ and financial planning options, among other topics.

It’s a compelling opportunity for insurers that are looking for ways to increase their relevance to consumers’ lives and seeking to make inroads in the employee benefits market. But, according to the inaugural life and health insurance report from Capgemini, only 8% of insurers have established effective wellness-centric value propositions and built the necessary capabilities to execute on wellness-as-a-service strategies.

Realizing the benefits requires insurers to gain a deeper understanding of customer needs and expectations and to build the capabilities to act on such insights. Firms that get it right will be able to evolve from today’s focus on infrequent and standalone transactions toward engagement models based on stronger relationships and hyper-personalized experiences. 

Tailored communication and more frequent engagement will feed a virtuous circle of relationship-building, wherein insurers can enhance even basic transactions with personalized messaging and offers. Engagement will include specific touchpoints:

• Relevant data monitoring and status updates, including health tracking and expense management
• Delivery of personalized, goal-based nudges such as actionable health tips and recommendations, savings tips and retirement planning suggestions
• Customized planning through regular touchpoints such as medical check-ups and portfolio rebalancing advice meetings
• Hyper-personalized motivational tactics, with tangible and individualized incentives and rewards to customers following tips and advice and meeting goals

Insurers must also design and deploy the modular, data-driven and platform-focused technology architectures that enable sharper behavioral insights, stronger analytics capabilities and more pervasive use of artificial intelligence, machine learning and the cloud to deliver these customized experiences. Establishing sophisticated wellness-as-a-service models will not be easy, but we believe the potential upside more than justifies the necessary effort and investment. 

The global pandemic certainly heightened awareness of mortality and the need for greater financial security. It also clarified the intricate links between physical and financial health. Insurers are well-positioned to improve both dimensions of wellness because, as our research indicates, customers consider insurers as trusted advisers and providers for both physical and financial health. 

There’s a record amount of interest in life insurance. Google Search traffic for “life insurance” increased by 50% between March and May 2020, likely brought on by the unprecedented COVID-19 pandemic. 43.1 million new life insurance policies were sold in 2020, and there has been a record amount of disbursement to beneficiaries.

Even with all this success, on average 4.2% of all life insurance policies lapse annually, while 6.4% of all term life policies lapse. Further, more than 40% of all life insurance policies have no active agent servicing the policyholder. 

Why is this happening? Well, the answer is it all comes down to communication. Life insurers are forgetting about the customers and coming up short delivering on customer experience. 

According to a recent study commissioned by Equisoft and conducted by Forrester, which compiled responses from over 200 North American life insurance executives, many of the barriers people face that prevent them from purchasing life insurance include not having someone to talk to when they have questions and not receiving follow-up information about the next steps. In essence, communication issues that can be resolved with improved customer experience. 

Life insurers recognize that the industry is plagued with communication issues. Our study found that 34% of respondents cited personalizing communication, experiences and interactions as a challenge for marketing execution. This statistic is especially troubling considering that customer expectations are rising due to the first-rate experiences people are accustomed to in every other industry.

So how can life insurers address their communication issues?

The good news is insurers have already tackled their first challenge: placing customer experience improvements at the top of the agenda. 66% of survey respondents said they want to improve their IT capabilities to enhance customer experience, and 72% of respondents also said improving the experience of customers is a top five priority in the next 12 months. 

The bad news is that insurers are placing too much emphasis on technology to improve customer experience and not enough on the human aspect of it. With all these new technologies that can streamline the needs for analysis, underwriting or claims processes, insurers are forgetting that adding the human touch to interactions can go a long way. 

Purchasing life insurance is an extremely intimate process‒asking consumers to confront anxiety-laden subjects like personal health, finances and their own mortality. It requires a personal touch that technology can’t always emulate. When a customer is looking for a life insurance policy, they’re looking for a company that can help them pick what’s best for them and their loved ones.

Insurers need to improve their communication by prioritizing customer experience as opposed to heavily relying on automation to do the job for them. This doesn’t mean getting rid of technology completely, but strategically incorporating it in areas where it can add value. 

See also: Digital Is the Assistant We Always Wanted

One example of how to do this is with data. New data analytics and collection technologies can be useful in streamlining the quoting process, as well as determining which prospective clients agents should reach out to first or what information to include in follow-up emails. The technologies can also be used to personalize communications and automate meeting scheduling, making it easier for agents who may be inundated with clients.

A part of improving communication is also making sure policyholders and prospective clients have someone to communicate with. Statistics show that 90% of new agents throw in the towel after a year. Over five years, resignation rates increase to 95%. Further, between 20% and 40% of agents will be aging out of the industry over the coming decade. That’s a lot of agents that policyholders rely on.

Many might think the solution here is to implement technology that can take on the job of the agent, but, in reality, it’s finding technology that can support agents and help them do their jobs more efficiently. It’s using technology to automate tedious and repetitive tasks, which then gives agents more time to meet and chat with policyholders. Adopting this path not only takes some of the weight off agents’ shoulders but also dissolves a key barrier that prevents people from purchasing life insurance. 

Life insurance is a people business. As insurers turn toward automation to solve their problems, it’s important to remember who they are truly helping and what their needs are.