The insurance industry is exploring ways to adopt technologies to minimize risks, provide personalized solutions, reduce costs and ensure compliance. Leveraging hyperautomation solutions is a game-changer.

With heightened customer expectations, hyperautomation technologies such as low code play a crucial role in delivering the speed and flexibility to resolve diverse customer requirements and provide personalized solutions. Because the technologies can seamlessly integrate legacy systems, they offer solutions at a nominal investment compared with traditional infrastructural upgrades that deliver similar results. 

Furthermore, hyperautomation technologies allow various departments to work together to improve processing speed and efficiency. Process improvements and changes can be implemented faster than ever, leading to higher flexibility and enhancing customer experience. 

High Levels of Accuracy

Automation in insurance and risk management allows multiple processes to be carried out simultaneously without risking errors while making processes, including onboarding, claims and verifications, error-free and fast-paced. Delivering solutions at speed while being accurate is crucial to elevating the customer experience and reducing operational costs. 

Introducing software robots to take over mundane and repetitive tasks enables the department to remain functional around the clock without increasing the workforce. Workflows for intelligent case routing can assign claims to the proper personnel easier. At the same time, carriers can bring efficiency into critical areas, such as document checking and compliance. The system can pull scattered and disparate datasets and store claims into one central repository. Thus, the system enhances reporting and expands access to critical information at the right time for verification.

Further, upgrading the digital workforce could seamlessly implement changes in processes. By harnessing the power of core automation, carriers can reduce fraud losses and cut operating costs while improving underwriting accuracy.

To deliver a connected experience throughout the insurance life cycle, it’s critical to enable teams to work together efficiently and make informed, data-driven decisions while remaining connected with clients. Because of disparate technology and lack of automated workflows, insurers face several preventable issues like gaps in transparency, manual process and poor customer experience. 

Hyperautomation brings together multiple technologies and their capabilities, including Robotic Process Automation (RPA), Artificial Intelligence (AI), API Integration, Machine Learning (ML), intelligent business management software (iBPMS) and Process Mining to augment and automate processes in ways more important than traditional automation.

Without hyperautomation, core policy and underwriting systems often require manual, repetitive tasks and result in a lengthy quote-to-bind process. This can hinder growth and result in customer dissatisfaction. With legacy systems, the underwriting process is time-consuming and at risk of human error due to its manual nature, resulting in inefficiencies and more liability. 

By bringing data together, integrating systems and automating workflows, you improve connectivity with unified claims, underwriting and agent-customer experience. Your staff has the technology they need to do their jobs more effectively and efficiently, empowering them to deliver the digital, connected and mobile insurance experience that today’s customers expect.

See Also: Insurers Turn to Automation

Seamless Adaptability

Fully optimized claims triage, straight-through processing and fraud management are the hallmarks of process automation. As the insurance industry launches business products and services rapidly, low-code platforms allow businesses to capitalize on the opportunity by empowering people with no previous software experience to build enterprise-grade applications effortlessly. Integrating a new feature, for example, to provide dynamic quoting and pricing usually takes months. Low-code provides feature-rich, pre-built templates and drag-and-drop elements so users can build robust applications and solutions faster.

Enhancing Customer Experience

The fast-growing insurance industry gives rise to ever-increasing amounts of data, and insurers face a considerable challenge in collecting and handling customer data. With automation and advanced data analysis technologies, businesses don't have to spend months on data preparation and model selection. Automation extracts, cleans and processes volumes of data—policy, claims, records—and provides meaningful information. 

Whereas legacy processing is fragmented, automation unifies data processing and provides 360-degree customer insights for effective decision-making. Automation empowers carriers to offer more targeted and personalized products. Automated insurance processing provides companies with better contextualization that allows for meeting individual customer needs, which is not possible with an outdated, one-size-fits-all model.

Customers can enjoy dynamic pricing and omnichannel customer experience. Ultimately, it all comes down to customer experience, and automation delivers the promise.

In the highly competitive insurance market, where the importance of convenience and efficiency is increasing, automation facilitates holistic, seamless claims processing. From noticing the loss to final claims settlement, automation platforms make the process easier for everyone. It can deploy rich solutions for claims and renewals triage, risk management, fraud identification and auto-retrieval of policy information. When automation is embedded in the process, instant claims reporting is possible through responsive solutions.

By automating the insurance landscape, carriers can remove high costs across the value chain, striking a balance between retaining customers and maintaining profitability. Embedding automation capabilities can reduce margins and help insurers reinvent their entire business with significant cost savings.

The clouds shifted rapidly as I drove back home after helping my colleagues set up for the Future of Insurance conference in Chicago recently. The sky looked ominous, but I kept on jamming out to XM radio. I thought we'd just have a normal thunderstorm, until I saw an electronic billboard on I-90/94 reading, “Tornado warning in effect, tune into local radio immediately for more information.”

It was hard not to panic. Has the tornado landed near me? Is my family okay? Is there damage to my home? Who else might be injured?

Luckily, I made it home, and everyone I knew and loved was safe. Ultimately, the tornado never appeared, but there was some wind and storm damage sprinkled throughout the city.

The next day, I thought about the lack of clear and accurate communication regarding the storm. And, given that nothing happened, I would probably believe the next warning a little less if I wasn’t in the industry. I also found it odd that I was in a vulnerable state and my insurance carrier had not communicated with me at all. 

According to a 2019 paper by Khaled & Mcheick, more than 3,800 natural disasters have affected more than 2 billion people in the past decade, resulting in 780,000-plus deaths and at least $960 billion in damages. The frequency and severity of these natural disasters will continue to increase because of climate change, and insurers have been enlisted as one of the first responders on that chilling front to deal with the aftermath of these devastating events. We must do more, not only for our financial viability as an industry, but also to deliver on our promise to policyholders to protect what they value most. 

Warning People Before an Event

We have seen numerous cases, such as the tsunami in Sri Lanka, Hurricane Maria in Puerto Rico and wildfires in the Western U.S., where warning in the days, hours or even minutes beforehand could have saved lives and protected assets. Carriers have invested in advanced weather monitoring services, improved coordination with national agencies to understand the potential trajectory of storms, more efficient identification of affected policyholders and more flexible readiness plans to deploy CAT-related claims employees and third party administrators. But they still rely on antiquated communications channels with numerous friction points, such as sending emails that have low open rates or routing policyholders to glitchy websites to obtain needed information.

Instead, carriers could leverage texting to connect with policyholders faster. Texting is accessible, personal and ubiquitous. Reports show that 97% of adults text daily, and 99% of texts are opened. We also found this to be true for policyholder interactions with insurance carriers. In our study about insureds and texting, we found that 84% of policyholders would save a carrier’s texting number to their contacts and text them about a service or a claim, if offered that option. 

Carriers could also offer dedicated short codes (e.g., text “STORM” to 999-999 to receive hurricane-related updates) for policyholders to opt into and save to their contacts during the bind process. Policyholders could automatically receive timely information about catastrophic events if carriers integrate the service into their CRMs and weather monitoring services. The texts could also direct the policyholder to local weather sites for safety information or the carrier’s website for preparedness instructions for loss mitigation and prevention. 

Helping People During an Event

Texting is also a highly effective communication tool during an event. According to Khaled & Mcheick, there are many benefits of SMS. It: 

• Is available on any global system for mobile, or GSM, network.
• Is one of the first services to be restored if outages occur.
• Use minimal network resources.
• Lets message be stored on mobile phones and sent later when a network becomes available.

Texting also offers a critical way to get information from disaster response agencies at the state and federal levels (e.g., FEMA) to policyholders during an event. Carriers can amplify communication and relay these agencies’ messages to policyholders and provide GPS pins for shelters to get people to safe locations. And carriers can enable these one-way notifications to be two-way communication channels so that they can collect preliminary information on the extent of damages and capacity plan for the post-event claims. 

See Also: The Best Tools for Disaster Preparation

Assisting with Post-Event Claims

After an event, speed is critical for dealing with a high volume of claims and reducing fraud. Carriers can deploy texting solutions to capture first notice of loss (FNOLs). The texts can route policyholders to eFNOL channels and also take short-form FNOLs for high-frequency, low-severity claims that are likely to be paid out quickly. Also, texts can prompt policyholders to collect critical data, such as images or videos that can feed the claims model for triaging and payment.

If a policyholder needs to mitigate any damages, carriers can coordinate third parties and the policyholder via group texting. Or, if carriers need to get policyholders to hotels, pay-by-text can provide the first payment. Additionally, when an adjuster is assigned to adjudicate that claim, they can schedule an initial phone call via text instead of leaving endless voicemails and playing phone tag, which is critical for productivity given the large load. 

The current catastrophe communication process is not good enough, given what we will likely face in the coming decade. Carriers need to offer a more empathic, simple and convenient communication channel. By transforming and modernizing this process, not only will we protect our financial strength but also what our policyholders love.

High-resolution data is rapidly changing the cargo insurance paradigm—and it’s about time.

While brokers thoughtfully deliver individualized care to each client, the limitations of traditional insurance mean they’re still selling them the same set of insurance products.

With high-res data, however, they are empowered to dynamically create tailor-made products that address the unique needs of each client—all while minimizing pricing fluctuations and delivering stable costs to balance sheets.

In short, the way they do business is changing for the better.

Traditional underwriters are flying blind

Think traditional insurance leverages historical data to underwrite risks? Think again.

For hundreds of years, our industry has operated on the data it can acquire from a few sheets of paper and historical claims data. That’s about as low-resolution as it gets—an unsettling thought when you consider underwriters often quote out coverage with million-dollar price tags. Intuition and personal experience have long influenced pricing, as well.

This approach is ripe for error.

Past performance is not a good indicator of future performance, and human intuition is fallible — experience varies wildly from underwriter to underwriter, after all. Let’s also not forget that underwriters are human; they can and will make mistakes. Perhaps the data they’ve gathered is incorrect or incomplete. Maybe the events of the previous year, such as catastrophic storms or pandemic-driven supply chain disruptions, don’t reflect today’s environment.

With so many unknowns, it’s understandable that underwriters must price insurance conservatively—they have to ensure the sustainability of their business.

In the end, this approach has contributed to the wild peaks and troughs we often see in conventional insurance pricing—extreme swings that leave clients frustrated and price some out of coverage altogether.

See Also: Shipping Industry Safety Keeps Improving

High-resolution data paints a more accurate picture of freight industry risks

While the insurance industry has been slow to digitalize, the freight industry has long embraced big data approaches to optimizing routes, reducing losses and improving driver safety. As a result, the industry is awash in data.

Leveraging embedded insurance to gain visibility into this data, an AI learning engine like Loadsure’s is generating more accurate, sustainable pricing with a more holistic view of the risks. Where traditional insurance priced policies against the quantities and types of shipments and losses in the previous year, it’s so much more useful when premiums are also informed by the shipment-level details of those loads, like routes, reefer temperatures and G-loads on cargo—all while simultaneously synthesizing the claims history to understand the correlations where losses occurred.

This is only the beginning.

Soon, location, weather and national crime database integrations will feed data into our AI learning engine, as well. This data may be meaningless when pricing traditional, annualized policies, but with transactional coverage it becomes both valuable and actionable. Automation and AI allow dynamic pricing models to be refreshed with new shipment and environmental data as often as need be. We can then bring together historical and real-time data and adjust on the fly. By catering to specific instances, brokers are empowered to deliver every customer a bespoke product.

Where traditional insurance could only see a shipment of glass, for example, high-res data can enable one tailored rate for a summer shipment of Gorilla Glass when roads are clear—and another for crystal chandeliers traveling a pockmarked highway during a winter storm. 

Pricing granular risk? That’s just the tip of the iceberg.

What’s particularly exciting is that high-res data will also enable active risk management. Delivering actionable reports and real-time alerts, freight SMBs that lack the benefit of in-house risk management teams will get the crucial insights they need to suppress losses. If a police report indicates a high incidence of cargo theft at a truck stop, for example, an automated alert can instruct the driver to bypass that location in favor of a stop that’s less likely to pose a threat.

In time, this actionable information will become even more important than the paper itself—and clients will increasingly come to see brokers as active partners in their risk mitigation. 

High-res data is the key to opening up new levels of service to brokers’ customers and delivering products as bespoke as the relationships they have already developed.

We've all heard about the Great Resignation that has accompanied the pandemic, as people have reevaluated their priorities and, in millions of cases, decided that their current job doesn't make the cut. Many have quit and moved to a different company or even to a different industry, and many have stepped out of the work force altogether. 

It seems that insurance has it worse than just about any other industry. A study by McKinsey finds that 65% of those who resigned from a job in insurance or finance between April 2020 and April 2022 left the industry entirely. That percentage is exceeded only by the 76% in consumer/retail, which has always had a problem retaining people, and the 72% in government/social sector. And the departures from insurance come as the industry is starting to experience a long-anticipated sort of Great Retirement, as an awful lot of talent is aging out of the work force.

What to do?

The McKinsey report warns that "there simply aren’t enough traditional employees to fill all the openings. Even when employers successfully woo these workers from rivals, they are just reshuffling talent and contributing to wage escalation while failing to solve the underlying structural imbalance. To close the gap, employers should try to win back nontraditional workers." 

To do so, the report argues, employers need to understand different personas and craft appeals to each.

For instance, the persona that McKinsey labels the "do-it-yourselfer" values autonomy above all else and could be attracted by modularized work that can be done independently and measured by output rather than based on time spent. 

The "caregivers" -- which strike me as a particularly rich opportunity -- are what I've seen described as the "sandwich" age group. They're caught in between caring for kids and caring for their parents. They respond to offers of compensation much as traditional employees do but have a whole, complicated set of needs for flexibility. If they can be accommodated, they bring a rich set of skills.

The "idealists," who are students and younger part-timers, have often avoided insurance because they don't find it exciting but, it seems to me, could be attracted much more readily if insurance does a better job of describing its "noble purpose."

The "relaxers" also seem to me to be a rich vein for the insurance industry to tap. A lot of the calculations about the talent drain facing the insurance industry are based on the traditional notion that people retire at age 65. But 65 is no longer such a cut-and-dried number, especially with work-from-home becoming widespread. Sure, people may no longer want to saddle up and head to the office for 40 or more hours a week, but maybe they'd work 20 or 25 on some sort of flexible basis at home, to contribute on projects they find meaningful, to keep their brains engaged and to stay in touch with their friends, while still allowing time for more travel, golf or something else. Some sort of continuation of health benefits could be a powerful sweetener -- and there's an awful lot of institutional knowledge that could be kept from walking out the door.

"Vitally, companies can no longer assume that they can fill empty slots with workers similar to the ones who just left," the report says. Insurers wanting to address the talent problem will need to not only look in nontraditional areas but must be willing to craft more personalized value propositions for employees.

Employers can also help themselves a lot by stopping some behaviors that cause that talent gap to develop in the first place. In particular, McKinsey says, "It cannot be overstated just how influential a bad boss can be in causing people to leave,... along with a lack of career development." 

The report provides a full description in the figure below that shows which factors, according to the firm's research, are most likely to drive people away, as well as which factors attract people.

Albert Einstein famously said, "We can't solve problems by using the same kind of thinking we used when we created them." If we're to get out of the talent crisis that is unfolding around us, it's time for some bold, new thinking.

Cheers,

Paul

Mark Walls, vice president, client engagement, at Safety National and long my go-to person on workers' comp, says the industry faces a major issue with staffing -- actually, two major issues.  First, clients are having trouble filling positions, so they're having to ask more of current employees and hire and onboard new employees faster, even if the pre-employment physical would ordinarily raise questions. As a result, carriers are likely to see an uptick in claims. Second, carriers and third-party administrators are having their own staffing issues. Amid the Great Resignation, it's hard for them to find enough adjusters, nurse care managers, etc. Even if the companies can find enough, they're having to pay so much more that the economics of many long-term, fixed-price contracts no longer work for TPAs. There's no simple answer, but Mark, as always, has some smart guidance.

---

ITL:

What would you say the biggest issue is that people are wrestling with in the workers’ comp world these days?

Mark Walls:

The biggest issue is staffing.

So many businesses are challenged with staffing. They're trying to do more with less. So, people are working longer hours and having to do more while they're working. Employers trying to fill shifts are often compromising on the physical requirements of the job – waiving pre-employment physicals or taking candidates who are borderline on those physicals. You're rushing to get people on the job, so training isn’t always what it should be.

Add all of that together, and there's a significant concern that there's going to be an uptick in claim frequency. Some statistics are already starting to show that uptick.

Staffing is also affecting the workers’ comp industry. There's a shortage of adjusters and nurse case managers, as well as physicians, nurses and others who treat people. There's a shortage of risk-control professionals.

So you've got potentially an increase in claims and not as many people handling claims. That is a big problem.

People have positions they haven't been able to fill for months and months. That is a particular challenge for third-party administrators, which are on multi-year contracts that guarantee a certain level of staffing for a certain price. Even if they can find people to staff the work, they’re costing so much that meeting those contractual obligations is darn near impossible.

ITL:

There have been all sorts of fits and starts as businesses have brought some workers back to the office. How is that playing out in the world of workers’ comp?

Walls:

Most TPAs and carriers are not bringing people back to the office full-time. They’re finding they can't attract and keep talented people if they're not willing to allow some degree of work from home. You're even seeing that among state regulators. Ultimately, that's going to mean a lesser footprint in offices.

Work at home is also presenting some challenges. There are three or four states that have definitive cases on what constitutes a compensable claim for someone injured at home, but most don't.

Some states are positional risk: If you're at work and you get hurt, it's workers’ comp. In other states, the risk has to be inherent to the job. In a positional risk state, if I'm in the office, bend over and pick up a piece of paper and hurt my back, that's a claim. In a state that requires the risk to be inherent to the employment, I have to be lifting a box or something like that.

Throw this into a home-based environment, and you run into several issues. What constitutes being at work when you're at home? If you trip over your dog, is that a work comp injury? The answer is: It depends.

It’s important to define what the workspace is. You can't just say you can work wherever you want, because that basically opens you up to having people be considered at work when they do anything anywhere. The best practice is to have your employees have a designated workstation and send you a picture. Your risk-control people can review that workspace from an ergonomic standpoint. Having the picture also puts parameters around what is the workspace. You're not considered at work if you’re at the table in your backyard.

One of the interesting twists is that people are now working from different states than they did before. This is especially a problem for people who are self-insured, because self-insurance certificates are state-specific. If you're in California, and all your employees were in California before but now you're allowing them to work from home, some of your employees are now in Nevada or Montana or wherever. Well, your self-insurance certificate doesn't cover those people. That's something that a lot of people just didn't think about.

The one positive is that what’s being affected here are office jobs, which are lower-risk. Work in construction, restaurants, retail and so on, the higher-risk jobs, those really haven't changed.

ITL:

A point I’ve made repeatedly since getting involved with the insurance industry nine years ago is that the industry can and should move toward preventing losses, rather than just indemnifying clients after something has happened. How far along is workers’ comp in that transition?

Walls:

The workers’ comp industry has had a huge focus on loss prevention for many, many years. I mean, that's why the trend in workers’ comp has been a steady decline of frequency of claims going back 20 or 30 years. I expect that to continue in the long term.

A lot of work is being done on wearables, which can reduce workplace injury. And one of the solutions to the staffing shortage is more automation. You're starting to see that, from things as simple as ordering kiosks in restaurants to more complex work in a warehouse or manufacturing environment.

But, as I said earlier, in the short term there could be some uptick in claims.

ITL:

How about triaging, to make sure bigger problems are identified up front and to get injured workers to the right treatment right away?

Walls:

Having some type of telephonic nurse triage has already been a best practice, to evaluate whether maybe they should just go home and take some ibuprofen and rest for a day, or whether they need to get to a clinic tomorrow or whether they need to go to the emergency room tonight? Those programs have been very successful.

ITL:

How about social inflation? That’s been a huge issue in many lines of insurance; how about in workers’ comp?

Walls:

Because workers’ comp is a no-fault system, it’s somewhat insulated from social inflation. The impact is in the continued blurring of the lines between what is workers’ comp and what is not occupational.

The pandemic is the perfect example. Here is a disease that affected billions of people all over the world, yet certain states said, if you work in these occupations, it is presumed that you got this disease in the workplace. That, to me, is an example of just trying to push things into workers’ comp that weren't there before.

You see states increasing compensability around gradual onset injuries, which are part of the normal aging process. There is also the continued expansion of presumptions for first responders, especially for cancers. Again, an ordinary disease of life is being pushed into the workers’ compensation space, where the science is fuzzy on whether the workplace creates a greater risk.

ITL:

Is there anything else that's top of mind that I didn't ask about?

Walls:

Workers’ comp has been fairly stable for a number of years. But you can see that costs are ticking up. If we're not already at the end of the soft market cycle, it's right around the corner. Combined ratios had gotten down to 85%, but now they're back up around 100% and are projected to go higher. Something has to give, right?

 

A family-owned printing and mailing house is suffering through some daunting challenges. Paper is in short supply. Supply chains have been inconsistent since the start of the pandemic. When the paper is available, the company doesn't have enough people to work at capacity on their folding, binding and packing equipment. They can’t afford to give new employees the common period of supervised training. Most of the equipment is dangerous. They are now at a higher risk for expensive production errors and costly injuries.

Safety is a growing casualty of the current economy and labor shortages. In the next 10 years, 22% of skilled manufacturing personnel will retire. Healthcare workers are already in short supply. There are too few truck drivers, airline pilots, teachers and food service and hospitality workers. The more unstable the talent pool, the less employers can count on adequate staffing and training.

Insurance technology companies like Majesco are currently helping insurers assess, underwrite and manage the growing array of new risks. How can insurers make themselves more valuable to SMBs that need them more than ever in a rapidly changing risk environment?

Understanding the realm of insurance opportunity in the SMB market

In Majesco’s recently released 2022 SMB report, A Rapidly Changing SMB Landscape: Growth Opportunities Grounded in Grit and Resilience, we see a number of areas where SMB insurance buyers are rethinking the role of insurance. Many business owners are just now waking up to the importance and value of insurance. SMBs have been affected by COVID and the economy, supply issues and talent shortages, as well as increasing environmental, societal and technology risks. Many have been pushed into changing their own business models to adapt to a changing market, and, as such, their risk has likely changed.

Business operation is only one area of SMB change. Change isn’t just about running a business; it’s about the experiences businesses encounter as buyers. Majesco found that SMB buyer sentiment is in the midst of rapid change. Business owners and decision makers are shifting from a generation with “traditional” purchase sensibilities to a generation where convenience, ease and digital process are just as important … very similar to what we found in our consumer research.

Product and business needs and channel preferences and value-added services share a blended focus, so it is crucial that insurers consider all of them as they attempt to innovate.

See also: What SMBs Want in Group Insurance

Motivated to move

Insurers that think SMBs are a one-size-fits-all commodity market will struggle to grow, let alone retain their customers. While risks are often classified into various categories, businesses are unique based on their business model, growth plans, products and services, technology, climate, society and other forces of change.

The pandemic raised the importance of insurance in the minds of business owners, as reflected in Figure 1. This offers a unique opportunity to tap into this mindset and offer insurance solutions that will meet their changing needs and expectations. Simply offering the same is not enough.

Figure 1: COVID's impact on the importance of insurance

Insurers must vary commercial insurance channels for purchase and engagement

Majesco research assessed the channel, products and value-added services desired and expected by SMBs. Insurers can use this information to test and develop products and services that will best support SMBs with their existing business.

Commercial P&C represents about half of all P&C premium in the U.S. market. BOP, commercial auto, general liability, property, cyber and workers' compensation are key products for SMBs depending on their specific business model. SMBs need new or different combinations of coverages based on changes in their business models due to the pandemic. Insurers now have the opportunity to re-engage with them through expanding distribution channels or by developing new solutions to meet their new risk needs. From offering new products and services to using new distribution channels, to moving to a digitally enabled business, SMBs’ risk profiles have likely dramatically changed during the last two years, requiring a new look at their business risk and insurance needs. Just renewing current coverages is not sufficient to meet their needs.

Today’s insurance purchase process is still difficult. It lacks transparency. It can be complex and often time-consuming. In contrast, many insurance technology companies and 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.  

Commercial Auto Purchase Channels

Traditional channels, including an insurer website/app and agents, continue as the overwhelmingly preferred channels for purchasing Commercial Auto for both generational segments. (See Figure 2) However, there are differences by generation for other traditional purchase channels, including car dealership, car rental agency or other partnership organizations. The younger generations prefer a broader array of channels by 25%.     

This trend continues for the “new” channels and significantly widens for the “high tech” channels. With the exception of including insurance with a purchase/lease and through an auto repair shop, the generational differences are 26% - 43% across all other options, including banks, retailers, legal services, tax services and vehicle manufacturer or shopping sites. For “high tech” purchase channels, the gap is massive, at up to 51%.  

Consistently, the Gen Z and Millennial segment is broadly open to an expanding array of channels. These trends point to key generational differences. The younger generational groups:

• Seek ease of purchasing insurance within other relationships that make it convenient.
• Trust different types of companies, which drives interest in non-traditional purchase options, such as high-tech companies.

Insurers need to grow their channel and partnership options with other entities to meet customers where and when they want to purchase insurance. Using only traditional agent/insurer website channels no longer works. It will look like an increasingly outdated strategy as Millennial and Gen Z buyers rapidly become the dominant owners and decision-makers. Even more importantly, the lack of establishing partnerships now will keep insurers out of the game and limit their market reach as partnerships become established by other competitors.  

Figure 2: Interest in commercial auto purchase channels

Commercial Auto Engagement Channels

Both generational segments have similar interest in a wide range of commercial auto pricing and claims options, but gaps in the interest for some categories climb to 27% (see Figure 3). 

Variable pricing continues to gain strong interest across a number of different options. The strongest interest was adjusting price and coverage based on whether the car is being driven or parked. The great majority (94%) of the younger generation is interested in this approach. The older generation also has a great deal of interest (67%). Both generations express interest in adjusting their pricing based on personal versus business use. Both generations show a remarkable increase in interest in rates based on miles driven, and in rates based on driving behavior, compared to Majesco research from 2018.

For claims, both generational groups reflect very strong interest across all the digital app-assisted claims processes, from 70% - 91%. The nuanced difference for Gen X / Boomers reflects a desire for a process where they are in control. In contrast, the younger generation is very interested in parametric or automated claims processes which once again tie to their desire for digital, real-time convenience. 

Figure 3: Interest in ways to use/activate and determine the cost of commercial auto insurance

Once again, this shows how insurance technology companies play a role in insurance marketing. Insurers who are not rapidly advancing in new pricing, management and engagement capabilities will fall well behind others who are leading the industry and capturing the growing demand and market share.

See also: How to Engage Better on Auto Insurance

Commercial Auto Value-Added Services

Value-added services represent “low hanging fruit” that can strengthen the value proposition and loyalty of customers. They are increasingly valuable to enhancing SMB stability and ease within business. (See Figure 4.)

Both generational segments are keenly interested in services that provide real-time information on driving/safety, maintenance, and paperwork related to their vehicles (59%-97%). This is an effective method for managing the safety of an employee pool with high turnover. Interestingly, the market value notification service showed strong increases over 2018 for both generational segments (19% for the younger and 17% for the older). Given the increased costs for both new and used vehicles and the limited inventory, these vehicles are increasingly viewed as critical assets on SMB balance sheets.   

Figure 4: Interest in value-added services for commercial auto insurance

These results reflect a significant opportunity for insurers to shift the value discussion from just pricing to include a range of value-added services that could drive loyalty and retention for relatively little cost.  Furthermore, it reinforces a relationship that helps customers reduce or eliminate their risk, helping to drive lower rates in the future.    

Commercial Property/BOP Purchase Channels

Both generational segments strongly agree that traditional channels including agents and insurance company website are of top interest. Purchasing through an organization is also of high interest for the younger generation, but less so for the older generation. (See Figure 5.)

The new generation of SMB customers, however, are increasingly interested in other channels to purchase insurance, based on trust and loyalty as well as ease of purchase. They are willing to purchase through a real estate company, legal service, tax service, retailer’s website, Amazon, or Google. This move away from the traditional siloed channels to those that offer or embed it at the time of purchase highlights the need for insurers to re-evaluate their channel strategy and expand their reach through new partnerships and relationships to meet customers on their terms.

There is a hurdle, however. Commercial property insurers understand that the traditional channels are far more effective for information gathering and that the initial collection of property data is the most crucial component to protecting against risk. Even if buyers wish to use new channels (such as at the point of a loan) insurers may not find themselves capable to create a new process that will more easily underwrite the risk.

Figure 5: Interest in commercial property/BOP insurance purchase channels

Commercial Property Value-Added Services

Value-added services that help manage prevention of and recovery from perils show strong interest to both generational segments, with Gen Z/Millennials consistently outpacing Gen X/Boomers by 15%. (See Figure 6.)

Both generations are strongly interested (62%-83%) in sensors and alerts for preventing or mitigating losses from fires, carbon monoxide, water leaks, machinery/equipment damage or severe weather, as well as video monitoring and a self-administered risk assessment tool. Concierge services, while slightly lower, still have significant interest of 50% to 66% for both generations. Gen Z and Millennials’ interest reflects a generational shift, where they seek services to help them manage and make their personal and business lives easier.  

Figure 6: Interest in value-added services for commercial property/BOP insurance

The insights and impact of Majesco’s research highlight a renewed understanding of what it means to be a P&C insurer in a new age of risk. Insurers that think beyond the core risk product and personalize the underwriting and customer experience will have more success in capturing the business of Gen Z/Millennials as they increasingly become business owners and leaders, while at the same time keeping the business of their older, established customers. Value-added services that help customers manage and run their businesses as well as reduce or eliminate risk are a valuable tool for maintaining loyalty. And meeting SMB customers where and when they want to buy insurance through an increasing array of channels is crucial to retain and grow the business. If insurers use this knowledge to grow and cultivate business, they will find likely find that they have improved their ability to manage and reduce risk along the way.

After more than two years, the global pandemic has brought both challenges and opportunities for health insurers. It has accelerated trends that are now reshaping the way insurance is underwritten, distributed and managed. At the same time, some of the problems that have challenged the industry for years still exist.

To peel back the onion on the insurance industry, we are going to examine previous, current and future assumptions and how they actually played out in the real world. We will also look at using artificial intelligence (AI) to challenge future assumptions as the industry and our world continue to evolve.

Making Assumptions

Actuaries and underwriters make tons of assumptions every day, so much so that we forget that we’re even making them. Three key assumptions make up the backbone of our work in health insurance: 

• Law of Large Numbers – large data sets tend to behave in a predictable way
• Claims Trend – healthcare costs are always rising 
• Past Is Predictive – the underlying stochastic processes that influence health outcomes move slowly from period to period

When calculating the renewal of an insurance group or forecasting claims into the next 12 months, we almost always rely on the most recent couple of years’ experience as the basis of our calculations—typically applying more weight to the most recent year. Under normal circumstances, this is the prudent and best practice. But we are not living in normal circumstances (don’t worry, I’m not going to call it a new normal), and the COVID-19 pandemic threw our ability to make assumptions for a loop.

COVID Realities - Medical Care

During the COVID pandemic, especially in the first half of 2020, the pattern of healthcare use across the country changed dramatically. For one, providers rushed to adapt to an influx of COVID cases. In doing so, they diverted people and resources from normal operations and tried to figure out how to charge for the new services and care protocols that didn’t exist just a few weeks prior.

Simultaneously, people abruptly stopped going to the doctor for routine and preventive care, either because their doctors were discouraging it or they wanted to avoid exposing themselves to the virus unless absolutely necessary. Additionally, patients with acute issues thought twice about going to the ER. 

In just the first seven weeks following COVID shutdowns, surgical volume dropped 48%, although by July 2020 that volume was only 10% less than we saw in 2019. Overall, millions of non-acute procedures were postponed indefinitely or canceled. And because different regions addressed the pandemic in different ways, insurance agencies lost the ability to make blanket statements about the way their clients would be affected.

To continue providing necessary care to their patients during this time, providers turned to online and virtual tools to help diagnose and treat patients. And while telehealth existed before the pandemic, it wasn’t widely used in the same way it is now, meaning many healthcare facilities had to learn how to bill appropriately for it.

See also: Optimizing Insurance's Role in the Pandemic

COVID Realities - Insurance Industry

Post-pandemic, the insurance industry held its collective breath, waiting to learn about the financial impact. As the claims started rolling in (or not rolling in, as was actually the case), it became clear that something unprecedented was indeed happening.

Claims submitted for March and April 2020 were far below historic or forecasted levels. Payers and insurance company risk managers were happy the pandemic didn’t spell doom for the insurance industry. 

As the pandemic continued deeper into 2020, those of us in the industry continued to watch the claims feed, expecting there to be some sort of a correction. We wondered when the claims would just return to “normal” levels or even run high as the market over-corrected for the low claims period. By the time it came to calculate plan renewals and year-end reserves, the overcorrection never came. The assumptions weren’t working as they had in the past.

How to Address

The common practice for actuaries and underwriters was to go ahead and use the prior year’s claims in renewal forecasts but apply a simple adjustment (usually 4%) to account for the dip in utilization based on guidance given by the Society of Actuaries. 

On the surface, the experience from March 2020 through the present day has been such a large departure from the past that it appears to be unusable in traditional actuarial models. But is that really the case? And is applying a simple load to the experience really the best we can do to make the data usable? 

While the historical data doesn’t quite fit the industry’s current needs, AI can improve actuarial models to help insurance providers make more accurate estimates. Artificial intelligence gives underwriters a more complete picture of risk, separating good risks from bad risks and helping them price policies accordingly. Additionally, AI can make these predictions faster and draw deeper insights from the data, further improving business decisions.

AI Works Where Assumptions Can’t

Traditionally, underwriters have used decades of historical information to develop rules and guidelines to assess risks. However, if the relevance of historical data diminishes over time, it may not accurately predict future trends and exposures, resulting in poor risk assessment and inaccurate pricing. For example, relying on historical loss experience to write natural catastrophe risks used to be considered adequate. But it may be insufficient in the future; changing climate, urbanization and increased asset concentration in climate-exposed areas could significantly alter risk patterns.

The insurance industry relies on accurate underwriting to remain profitable, and underwriters have always relied on data to make decisions. When the normal layers of data aren’t there, underwriters have to be able to turn to artificial intelligence to fill in the gaps. Artificial intelligence can identify trends and outside factors faster than humans, allowing it to provide more accurate predictions when historical data doesn’t fit current patterns.

2022 is off to an exciting start: COVID-19 is waning. But the pandemic's hangover looks to be long and fraught with surprises. Inflation has hit levels not seen since the 1980s. Individuals and businesses saved much of the money given to them during the pandemic, and pent-up demand for goods and services is driving prices for almost everything higher. Actual and perceived shortages of commodities, exacerbated by the war in Ukraine, have contributed, too. Investors reevaluate sky-high equity valuations as interest rates rise, and some markets have corrected more than 25%. Corrections of this magnitude can become self-sustaining as highly leveraged investors sell more to meet margin calls. Time alone will tell how extensive the damage becomes.

Recent inflation, tight labor markets and economic volatility create a perfect storm for chief claims officers. Inflation is detrimental to insurance carrier profits as policy rate increases lag the costs of doing business, especially for settling claims. While some unprofitable commercial lines made progress with rate increases before COVID, combined ratios for commercial auto and general liability are still above 100. Workers' compensation has experienced several years of good profitability, but that has led state regulators to authorize base rate decreases over the last few years. Inflation and a challenging regulatory mindset could be a lethal combination for carriers in this line.

The "Great Resignation" that disrupted the supply of experienced workers across most industries has become the "Great Engagement," adding fuel to the economy's fire. Unemployment rates that pushed above 10% in some demographic groups are now under 3% in others. Employers in all industries are competing for workers by increasing incentives. Many workers have switched industries and perform jobs with little experience. If your server in a restaurant has not done the job before, the result might be poor service. But a truck driver who has never driven an 18-wheeler poses a significant hazard to himself and others. As a result, we will likely see accident frequencies in workers' comp and commercial auto increase beyond expectations over the next few years.

Claims leaders are always looked to for help when anything challenges the combined ratio of an insurance carrier. Pricing and underwriting functions may have contributed to these challenges, but once a policy is written, it's up to claims departments to rein in loss costs and adjustment expenses. Concerning the future performance of claims after the accident year, the NCCI expects that 2021's accident year combined ratio of 102 will fall by 10 points once these claims are settled and closed over the coming years. Experience implies this is feasible, but inflation and economic volatility decrease this outcome's probability.

Where should you turn to pull a fresh rabbit out of the hat when the CFO asks for "your share" of profitability improvement? Claims organizations operate leaner than ever today. Increasing the workload of adjusters who are already stretched thin isn't very feasible. Automation can be an answer, but building and implementing the systems needed to make it work can take years to install and test before they become useful.

See also: How COVID Alters Claims Patterns

A solution to this problem is advanced analytics. Forty to 50 percent of commercial carriers use advanced analytics today, and half of those not using them say they will within two years. Personal lines carriers have shown the way, significantly improving financial performance by leveraging advanced analytics in pricing, underwriting and claims. In claims, assessing severity, triage, finding fraud and determining litigation potential are the leading applications.

Unfortunately, many companies that experimented in these areas failed initially. But cloud computing and improvements in artificial intelligence accuracy significantly improve the odds of success today. Some vendors of claims intelligence can implement their products with very little involvement from the carrier's IT department. Increased cost-effectiveness of massive computing resources has made very advanced artificial intelligence methods feasible and cost-efficient. Some vendors put a great deal of effort into looking at their products and services through the eyes of the claim adjuster, the front-line worker whose engagement with advanced analytics is critical to its successful deployment

Advanced analytics are improving the performance of claims departments in many insurance carriers today. Advancements in cloud technologies and artificial intelligence enhance their performance and make analytics easier and quicker to implement. The future looks challenging for chief claims officers. Now is the time to harness the advanced analytics advantage to survive the perfect storm.

As first published in WorkCompWire.

Warren Buffett recently paraphrased the thoughts of an unnamed insurtech: “'We are not an insurance company. We’re a tech company.'" He added: "Well, they’re an insurance company…A dozen people or so have raised a lot of money. They just don’t pay any attention to the fact that [they] sell insurance…. In the end, they wrote insurance and overwhelmingly lost a lot of money.”

Let's see if he's right. Let's look at the Q1 financials of these insurtechs to see how they're doing.

Lemonade

• Loss ratio: 90% gross loss ratio in Q1 '22 (in line with the 90% loss ratio that led to a 167% COR for 2021)
• Burned cash: $59 million in Q1 '22
• Short interest: 34% of float (MarketBeat data at May 15)
• Market cap: $1.42 billion at May 27 (-46% YTD)

See also: Lemonade: No Sign of Disruption Yet

Hippo

• Loss ratio: 76% gross loss ratio in Q1 '22 (significantly improved from 138% loss ratio, which led to 178% COR for 2021)
• Burned cash: about $59 million in Q1 '22
• Short interest: 1.6% of float (MarketBeat data at May 15)
• Market cap: $800 million at May 27 (-50% YTD)

Root

• Loss ratio: 93% gross loss ratio in Q1 '22 (slightly improved from the 97% loss ratio, which led to a 157% COR for 2021)
• Burned cash: about $57 million in Q1 '22
• Short interest: 4,8% of shares (MarketBeat data at May 15)
• Market cap: $360 million at May 27 (-57% YTD)

Despite the facts and figures, fascinating stories show impressive resilience. After the publication of these financials, I did a LinkedIn poll to assess my network's current mood about these stocks.

The poster child of the insurtech passionate stays on top of the ranking!

I'm a firm believer that insurtech solutions will make the insurance sector stronger, therefore more capable of achieving its strategic goal of protecting people's lives. I hope the next wave of insurtech players will have more robust insurance fundamentals than the first wave and will not pretend that insurance ignorance is a competitive advantage.

I've been lucky over the past four years to work with Andrea Battista on Archimede SPAC and -- after the acquisition of Net Insurance -- as a board member of the listed combined entity, which has overperformed the plan we designed initially. This is a concrete experience where insurtech solutions have been integrated into the insurance value chain to perform the insurance job better (to assess, manage and transfer risks). Lessons learned: tech & underwriting discipline!

We have seen hundreds of insurtech articles with click-baiting headlines claiming a coming disruption in the insurance sector for the last seven years. Now they are shifting to the underwriting discipline.

Talking about past disruption expectations and current mood, Bill Harris, chief revenue officer at Insuretech Connect, adds some color.

Matteo: ITC is at its seventh edition; you have observed the entire first insurtech wave. What is your critical review of these seven years? How has the thinking of industry leaders changed?

Bill: When we launched ITC back in 2016, it was all about disruption, and we asked, “Will insurtechs replace traditional carriers?” It’s evolved into a more symbiotic relationship. Now, carriers understand insurtechs can help enhance their offering, and especially how to be more customer-centric. When we began seven years ago, investment was everywhere, the first million was easy to get. We are now seeing a trend where it may be harder to get the early seed/Series A investments, but the investment amounts in later rounds are much bigger. To us, it indicates that the VCs and CVCs know exactly what they are looking for and are not scared to invest massive rounds in companies that can really scale. 

It's been interesting to observe insurtechs that have become carriers and gone public. A few on our team might say that it’s been more interesting to see the likes of Trov, Bold Penguin and SingLife be acquired by carriers. Also, we are delighted to see how insurtechs such as Flock or Zego are evolving and expanding their lines of business. ITC is a platform where you come to see new and emerging insurtechs, plus new product launches from innovators that we’ve seen evolve over the past 7 years. 

See also: Strategies to Combat Barriers to Insurtech

Matteo: What should people expect from ITC 2022?    

Bill: We’ve developed a meaningful formula for ITC, so we will continue with a focus on making connections and showcasing the top thought leaders. We recently announced that McKinsey is joining us as the presenting sponsor at ITCVegas, which is a great honor for us.  

One innovation to our content is that we will host 14 distinct tracks across seven stages to make it easier to plan your time. We look forward to seeing you again, Matteo!

U.S. life insurance carriers have faced significant challenges in recent years, particularly low interest rates and the burden of legacy systems. These issues are compounded for carriers with less scale and more modest budgets, perhaps having less than $50 million of annual new sales or under $2 billion of assets.

Larger carriers have achieved certain economies of scale in operations, information technology and new business processing, which brings pressure on operating expense ratios for smaller carriers. 

In addition, capital requirements are higher for certain lines, such as term and no-lapse guarantee (NLG) – a carrier with a very large in-force block relative to new sales has much larger profits from that book to better absorb the capital strain from new sales. Higher-selling carriers also have more leverage with reinsurers and bankers in developing structures for reserve engineering. Yet because of stringent profitability and capital usage constraints, carriers are exiting these lines (which should improve profit measures for remaining carriers), even though they are the products most in demand from distributors, as measured by policy count. One need only look at the sales of the insurtech startups to see the demand for term and similar products.

Investment management has become more sophisticated with private equity (PE) approaches to asset management generating increasing yields. The question, of course, is what increased risk are carriers taking on with certain asset classes that offer an illiquidity premium but may present specific challenges in a market downturn. This may be an opportunity for carriers’ in-house investment managers to re-assess specific strategies, while noting that regulatory considerations are also surfacing with respect to these approaches. But clearly the annuity carriers are doing well in gathering assets to generate higher investment income.

Distribution channels are demanding more from carriers. Witness the continued aggregation of independent marketing organizations (IMOs), such as the market power of the merger several years ago between LifeMark and BRAMCO, and the rapid-fire purchases of agencies, including very large ones, by entities back by private equity. Such consolidation in life distribution will, in my view, increase pressures on carriers for competitive pricing and compensation, but it is hard for a carrier to be a price leader if it is not a cost leader, or supported by one.       

So, what is a smaller carrier to do to survive and thrive in this environment?

It is difficult for smaller carriers to be a price leader, so they need to focus on other differentiating factors, and look to where they can have a competitive advantage.

See also: A New Boom for Life Insurance?

One option is to look at niche markets – opportunities in specific sectors where relationships and specific expertise matter more than price. This contrasts, for example, with fixed and fixed-indexed annuities that are very competitive, unless you have a unique product or service approach. Getting really good at a specific niche can be a big plus!

A second option is newer takes on traditional products – perhaps upending long-held views on product structures or underwriting approaches. There may be opportunities to have such an approach supported by reinsurance from a capital management perspective. Tied in with this, a carrier might examine product development - being able to listen carefully to distributors and customers, vs. larger companies doing canned surveys that provide little insight. Too often such market research is done by staff lacking the expertise/experience to "connect the dots" and see truly feasible opportunities. This may also involve a much more personal approach with distribution at all levels of the carrier.
    
A smaller carrier may want to focus on being nimble - too many large carriers still must wade through layers of organizational complexity to get anything done, even if they've invested in newer technology platforms promising speed to market for product development. This may involve rethinking your product development approach, particularly internal approval processes and IT considerations. In some cases, smaller carriers with rigorous cost control and fewer layers may be able to justify very competitive pricing. In conjunction with this, you may want to consider proprietary products developed in close conjunction with significant distribution organizations.

Another option is a different approach to customer service, which historically has been focused on transactional efforts on in-force policies, with little focus on emphasizing cross-selling and up-selling opportunities. Some companies have done this well, having implemented the structures and incentives and partnerships with their distribution entities to make this a successful revenue center, but for many large carriers this aspect has been essentially ignored by the policy owner service team. I observed this personally while recently trying to help a friend wade through the process of porting some group life coverage. In essence, carriers may want to look at a lifetime value (LTV) approach to customers and distributors. 

Smaller carriers should also look to unique approaches to analytics and technology. Developing unique expertise in specific aspects of underwriting might be worth considering. Along the same lines, it may make sense to outsource those aspects of the value chain where a smaller carrier may not have the necessary expertise in-house, possibly in asset management and some aspects of operations. You may look to shared approaches for certain functions – at least one smaller carrier with which I’m familiar has become in essence a "virtual insurer," laser-focused on particular markets, products and distributors.

I hope these ideas provide some food for thought in your strategic deliberations and am happy to discuss these in much more detail.