Until Hurricanes Fiona and Ian, the 2022 hurricane season had seen the lowest activity in the Atlantic in 25 years.  There was a complete absence of named storms in August, in contrast to the 10 that occurred that month in 2021. September saw Hurricane Danielle on Sept. 2 and Hurricane Earl on Sept. 6, ending one of the longest streaks without a hurricane in the North Atlantic in recent history. The deadly destruction caused by Hurricane Fiona in Puerto Rico and the Dominican Republic, and the devastation to Southwest Florida by Hurricane Ian in late September quickly changed an otherwise quiet season. Initial estimates indicate that Hurricane Ian may be the costliest Florida storm since 1992’s Hurricane Andrew and could cost insurers up to $47 billion.

Earlier forecasts had called for an above-average hurricane season in the Atlantic. The drivers for the high-activity forecasts were the three-year La Niña weather pattern, which minimizes wind shear, as well as above-average sea surface temperatures (SSTs). Wind shear actually decreases hurricane activity. These forecasts were correct, but more nuanced and volatile (and therefore more difficult to predict) factors have dominated activity in the North Atlantic so far. High SSTs usually lead to evaporation, and the resulting moisture fuels tropical cyclone development. However, with hot and dry Sahara dust billowing into the main development region (MDR) over much of the summer; the air has simply been too dry.

The North Atlantic has also seen a high level of wind shear, especially over the Caribbean, which is unusual for a La Niña year. Despite SSTs in the MDR and Caribbean currently being above average, SSTs across the North Atlantic are showing some complex patterns. In particular, extremely warm waters along the coastline from New York to Newfoundland have affected the jet stream, indirectly sustaining the flow of dry air into the MDR.

We should not be surprised that activity is finally picking up. Historically, there have been more major hurricanes in September than any other month. We have seen examples in the past of intense hurricanes occurring after sluggish starts to the season, as well as some particularly intense hurricanes striking after the official peak of Sept. 10. Superstorm Sandy hit the Northeast at the end of October 2012. and Hurricane Michael made landfall in the Florida Panhandle in mid-October 2018 as a category 5 major hurricane.

See also: Is Hurricane Ian a Turning Point?

Although Superstorm Sandy in 2012 was downgraded to a post-tropical storm just before landfall in New Jersey, its record size contributed to the considerable damage it caused. Sandy managed to sustain its size and strength due to the high SSTs along the U.S. East Coast at the time, not unlike the current situation. More recently, in 2020, major hurricanes Eta and Iota made landfall in Central America during November, not long before the official end of the season (Nov. 30).

As the North Atlantic hurricane season typically experiences a secondary peak around mid-October, businesses need to remain vigilant about protecting their premises and people, even in a relatively mild hurricane season.

A single storm can cause catastrophic damage locally, and the National Hurricane Center in the U.S. advises that emergency preparedness plans should not be based on seasonal forecasts. When a hurricane watch is issued for your area, you need to "Know Your Zone" (vulnerable areas will be given an evacuation warning or order) and be aware that authority-ordered evacuation is based on the possibility of storm surge and flooding, rather than pending landfall of a storm.

To minimize losses in the event of an extreme weather event, businesses should implement a written emergency plan, including actions to take before, during and after a storm. The plan should cover areas such as training, emergency supplies, business continuity, building inspections, anchoring or relocating equipment and stock, protecting windows, flood protection, salvage and recovery and damage assessment.

Allianz has created specific checklists to assist businesses before, during and after extreme weather events that can be found here: Allianz Windstorm Checklist and Allianz Flood Checklist.

According to Forrester, “Data-driven companies are 58% more likely to beat revenue goals than those who are not focused on data.” One would assume insurance companies would fit naturally into this data-driven category due to the troves of customer data and information made accessible to them over the years. But herein lies the rub – many are still unsure of which data is most relevant and how best to leverage it.  

If insurance organizations did take advantage of decades of customer data, it could equip the entire insurance marketing life cycle with insightful management routes, connecting customer acquisition costs to expected yield from the same customer. The solution, therefore, lies in finding out how to best store, share and use that data throughout the organization.

The Source of Silos 

The confusion surrounding data is born out of and reinforced by the fact that insurance organizations were not originally structured with data-sharing in mind. In fact, departments typically compartmentalize their datasets to measure their own success; e.g., marketing and claims departments use different sets of key performance indicators (KPIs). Indeed, 40% of all executives cite the lack of alignment within their organizations as a barrier to using big data – and insurance is no exception. 

Because organizations lack efficient and centralized data management, it’s often unclear where data gets stored and what unique insight it holds. Even if separate departments are using the same data, they may be contextualizing it differently, yielding differing analyses of the same data points. 

Let My Information Flow

Many companies need to understand that data is not flowing through their organization in an efficient manner. 

The goal should be creating a collective awareness of the discrepancies that exist within communication channels so all departments can integrate their future-facing data strategies.

That said, having one unified measure for an entire organization also requires standardizing the data in question – meaning all departments must have a similar context for the data they generate. For instance, if the product team and the marketing team each receive the same KPI, but only the product team views it as a positive indicator while the marketing team sees it negatively, there is a wider organizational issue of how data points are perceived and defined.

By applying standardized datasets and KPIs across departments, insurers can have their cake and eat it, too, as they can more accurately measure performance and avoid any inconsistencies, while significantly growing the data pool from which the organization can fish valuable insights into customer behavior and preferences and much, much more. 

See also: Data-Driven Transformation

Data-Based Decision Making 

Previously departments may have been working in different directions, but, by removing data silos and creating a unified, contextual understanding of insurance data, each will gain a more complete picture of how best to improve their overall performance while achieving compatible goals.

This fuller picture also means that marketing and claims departments could work together more closely, sharing more customer information to obtain the right customer at the right cost and, of course, ensure profitability. All the first-party data that marketing has been collecting could now inform policy and claims decision-making, increasing product accuracy – in other words, the data sum will be much greater than its parts.

One Clear Direction

We at Kissterra believe that insurers that begin to share data throughout their departments can potentially achieve better economics and higher profitability results even within a year’s time.  

It will take a huge cultural shift, not just a technical one, for organizations to improve their data operations. Getting all parties on the same page about which data to use and how to use it will afford insurers the ability to set more aligned goals company-wide, moving the organization in a far clearer direction.

When the pandemic began, insurance providers were caught by surprise, like many of us. Operationalizing digital transformation efforts within contact centers was necessary to support remote staff as well as to respond to a rise in digital-first customer behavior.

Across each iteration of the contact center, customer service agents have worked diligently to provide stakeholders with efficient and accurate information, depending on legacy systems in support of their efforts. While many have begun or are well on their way to enhanced service capabilities, an elevated level of activity has forced customer service departments to make a series of critical decisions.

Moreover, in times of financial uncertainty, departments must prioritize technologies and the challenges they resolve in order of urgency. Sourcing solutions that are not only immediately beneficial but also support the long-term growth of an organization is key. A service approach that prioritizes leveraging technology, and placing conversational artificial intelligence as a first line in customer interaction, saves time, frees human agents to focus on more involved tasks and creates a path for scalable growth.

The Methodology

Many insurance institutions may be skeptical of the capabilities of a virtual agent. Insurance is a naturally complex space to operate in, with not only high amounts of regulation but also customer needs varying on an individual level. Yet some of the leading insurers offer the most customization, and, with advancements in natural language understanding and AI, today’s virtual agents are much more capable than their predecessors.

A virtual agent serving as the first line is able to supplement, not take over, the efforts of human employees. If a query needs to be handled by a human, virtual agents are able to route customers to the appropriate place, maintaining the continuity of the initial chat to bring contact center staff up to speed quickly. Striking this balance between virtual and human agents allows conversational AI (CAI) to handle more frequent queries. In the insurance contact center, as responsibilities are offloaded onto the virtual agent, employees are free to address other aspects of their roles and can play a valuable part in expansion of a VA’s capabilities. Built-in intents enable a chatbot to get up to speed when implemented in insurance use cases, and AI trainers can ensure virtual agents are delivering consistent, high-quality experiences that maintain the personal touch for each customer.

See also: How to Simplify Customer Experience

Accelerating Claims Cycles

Claims are the backbone of any insurance agency. Accelerating claims cycles through conversational AI simplifies the process, improving resolution speed by allowing enhanced self-service. Modern virtual agents can be integrated into existing systems to aid customers in updating their account information, purchasing new plans and even filing a claim. While these may seem like mundane tasks for a technologically  advanced system powered by AI to be handling, they can often be some of the most administratively heavy for a live service rep to handle. With less of a burden from repetitive processes, live agents can dedicate their time to improving resolution speed of the claims that have already been processed as well as other top issues in terms of complexity.

This powerful integration with existing legacy platforms ensures that all customer information is accurately maintained across the organization, addressing data silos that add unnecessary complexity to the claims process. Equally important, 24/7 virtual agent availability makes it possible for firms to be available in a time of need and extend critical service capabilities to meet the needs of  the round-the-clock customer.

The Automation Opportunity

The benefits of automation go beyond enabling efficiency, accuracy and reducing workloads within customer service centers. Conversational AI opens the doors for nurturing employee skills and expands the opportunities for training. Virtual agents require a level of oversight, with AI trainers optimizing conversation flows, and leveraging the data compiled by CAI to improve internal processes. Adopting virtual agents can create new paths for call center staff.

Insurance customer service centers have also been able to implement internal virtual agents with resolution rates as high as 97%, as seen in boost.ai’s engagement with leading Nordic insurance provider Tryg. An internal virtual agent serves as a live resource for call-center employees to quickly glean accurate organizational information without disrupting customer calls. Conversational AI platforms provide some of the most scalable functionality of any solution, incorporating paths for expansion for service, support and sales at any size. 

Incorporating conversational AI as a frontline response to customer service extends the service capabilities of an institution and lays the groundwork for continued expansion. Typically, the assumption is that virtual agents are in some way reducing the need for human employees, but the most effective use of conversational AI is one that strikes a balance between the two. Accelerating claims cycles presents yet another opportunity to improve operations.

Today’s virtual agents are capable of being trained in many verticals, with some solutions coming with out-of-the-box intents and libraries focused on insurance. Ultimately the path ahead for insurance customer service is one that expands on the investments in technology already made. Working in disparate systems, or addressing one problem at a time is not an approach that will establish sustainable growth.

Innovation calls upon us to challenge existing paradigms.

Women in technology understand this all too well. Many of us have stepped into roles that were traditionally dominated by men. We've had to swim upstream to establish our bona fides.

Personally, I'm proud to have achieved a host of "firsts" in my career, and today I'm surrounded by creative thinkers who are applying new technology to approach old problems differently. In my world, challenging existing paradigms is par for the course.

So many of our paradigms are built around all-or-nothing propositions that simply don't work well in the real world. Consider the old 9-to-5 work day. That operating model was already in decline well before COVID-19 ever appeared on the scene, but the pandemic shifted that transition into high gear. It completely broke the existing way of thinking. Almost overnight, remote work became the norm.

Along with that shift in location came a shift in timing. Today's work day looks very different from the old 9-to-5 gig. Now it's 8-to-2, pick up the kids, more work between 4 and 6, then a late evening call with a customer in Australia, and a few emails before bedtime.

I call that "work-flex." In the old world, there was a kind of all-or-nothing approach to the business day. You were either in the office or you weren't. Most organizations demanded a 9-to-5, Monday-to-Friday commitment. That made it a lot harder to respond to those inevitable little emergencies in life. But the world has changed, and technology has opened a lot of new doors. Mobile devices, remote connectivity and collaboration tools have created a host of possibilities. It's up to creative thinkers to exploit these new tools in ways that can break apart existing paradigms and expand flexibility throughout our lives - and in our business practices.

As a CEO who's also a mom, I know that work-flex is critical. My twin boys love to play sports, for example. Injuries happen sometimes. On several occasions, I've been sitting in an important sales meeting when that dreaded call comes in from the school. When those kinds of emergencies come up, my team is able to pick up the ball and run with it. We've prepared for that. In fact, our customers and prospects appreciate knowing that we're resilient - that we have a human side, that we have each other's backs. On one occasion, I even got a text from the prospect, checking to make sure my son was OK.

Work-flex manifests itself in work-life balance, in the roles we play in life, and in our approach to customers, employees and relationships. For me, that extends to my role as a mom and a CEO. I call that my "mom-CEO-flex." This is all driven by relationships and trust. It's give and take; it's about having compassion for each other as a team. We plan for agility.

See also: How Workplace Has Changed for Women

In virtually any domain, an all-or-nothing thought process inevitably creates artificial constraints. The strict 9-to-5 paradigm shuts a lot of people out of the workforce. Flexibility offers a way out of that box. It opens the door to agility and resiliency. As a CEO, I see this trend expanding into so many different areas. When you build in the flex component, you can reap tremendous benefits.

This plays out in the context of business initiatives, as well. At my company, CLARA Analytics, we encounter a lot of business leaders who start out believing that they need to choose between building their own AI system from scratch and implementing a turnkey product that can't be tailored to fit their needs. That's a false dichotomy. The either/or, all-or-nothing approach simply doesn't work well when it comes to AI.

In fact, businesses can have the best of both worlds. They can leverage algorithms and datasets from an external vendor but blend that with their own data and mold it to fit their unique strategies. That's AI-flex. It opens up new possibilities by dispensing with the false dichotomy of the traditional build-versus-buy debate.

When we step outside the confines of either/or thinking and embrace a "both/and" mindset, we can achieve greater things. We can bring a human touch to the workplace. We can create value in ways that previously weren't thought possible. Whether it's work-flex, mom-CEO-flex or AI-flex, it all starts with a willingness to look beyond existing paradigms, dispense with the either/or mentality and embrace an approach that looks toward solutions instead.

Flex-oriented thinking is fundamentally angled toward an abundance mindset. It opens the door to innovative win-win scenarios that add value and choice. In a world that increasingly demands agility and resiliency, flex-thinking is a strategic asset.

The insurance industry has often been criticized for its archaic format and delays in adopting new technology. This needs to change due to consumers' newfound love for and reliance on smart technology, which the pandemic accelerated.

With typical policies only lasting 12 months, there is an annual struggle to retain clients and prevent them from being tempted by cheaper policies and the lure of free goodies. And the generation that is coming along is even harder to please. Institutions rooted in old traditions will need to adapt quickly to remain competitive.

Implementing automation technology into your business is more vital than ever, yet accepting change can be daunting.

Let's look at three ways you know it's time to welcome automation into your agency.

1. Is Manual Data Entry a Nightmare?

The insurance industry is full of paperwork, with most forms filled in through PDFs, via an arduous back-and-forth process. 40% of workers spend a quarter of their week doing manual data entry and collection. 

Human error is inevitable when filling out forms by hand. And, with every error, the amount of time for an underwriter to approve a policy gets extended.

Repetitive form filling is a perfect example of a tedious administrative task that can be replaced entirely with the help of automation, while speeding up the process of generating quotes.

2. Want to Improve Customer Satisfaction?

Many people see insurance as an unavoidable necessity and want to get the process over and done with as soon as possible. Buying insurance is also time-sensitive, as people need to arrange their cover quickly to ensure they're protected or renew their policy before their previous one expires. Long, drawn-out renewals can damage customer relationships and encourage clients to start shopping around.

A McKinsey report found that improving customer experience can increase company revenue by 10% to 15%. People commonly resent paying for insurance, as they perceive it as an intangible purchase they will never have to use, so companies need to make purchasing and renewing insurance as pain-free as possible.

A recent study found that 70% of customers' ideal user journey would be 100% digital. Two of the top reasons why customers give repeat business are ease-of-use and service satisfaction. You can secure a loyal client base by providing both of these factors through automation.

See also: Insurers Turn to Automation

3. Is Smart Software Already Available?

Yes, yes, it is.

In fact, insurance agencies are spoiled for choice as a variety of software is available, depending on the areas you want to automate.

One area where automation could make a considerable difference is in administration. Smart form software, such as we produce at Broker Buddha, converts static PDFs into interactive online forms. We use conditional logic to show questions that need to be answered and can auto-fill repeat information -- no more typing in the client's address five times. The software can automate reminder emails and even provide a dashboard where agents can see all their applicants and where the applications are in process.

The software is fully customizable for your business, and agents can even include Net Promoter Score surveys. A huge bonus is the signature capture technology, meaning no more printing, signing and scanning. By leveraging smart form technology, you can create a simple and easy client experience, improving client satisfaction and increasing the chance of repeat business.

One of the lessons learned from the past couple of years is that people are becoming more technologically savvy. With the 21st-century shopping experience becoming a "buy now with one click" affair, consumers are beginning to expect this across the board, no matter the industry.

Research has found that 65% of carriers will have adopted automation by 2024. Don't get left behind; stay ahead of the game and let your clients and employees enjoy the benefits of automation.

Industry Overview: New Challenges

The P&C insurance industry is facing several major challenges, including a $6.3 billion net operating loss during the first half of 2022. According to A.M. Best, U.S. P&C net income was $31.4 billion, down 18% compared with the first six months of 2021. Climate-related risks, loss trends, staffing shortages, inflationary medical costs, fraud containment and social inflation trends are top claims challenges in 2022, making for a complex and turbulent time. Medical cost inflation is over 5% on average in 2022, on top of decades-long cost increases, especially for emergency services, medications, diagnostics and surgical procedures. 

Insurers are experiencing pressures from all sides, including labor shortages, in which claims are one of the most highly affected areas. Meanwhile, efforts to automate claims for efficiency and cost reduction are growing across the industry as insurtech innovations fueled by venture and private capital shift attention toward claims. Claims organizations are facing high turnover rates while losing seasoned and experienced talent as the workforce ages. This talent drain has a disproportionate impact on more complex claims, such as injury cases involving attorneys. Insurers are focusing on meaningful loss-cost containment to offset these major headwinds.

Claims and Meaningful Loss-Cost Containment 

With much of the insurtech attention on virtual inspection of physical damage and automation of process, injury-related claims are often overshadowed.

Claims investigation and evaluation phases for injury losses are critical steps when it comes to final resolution. The stakes are high in terms of attorney involvement, lawsuits and unpredictable trials, which contribute to higher payouts. Mitigation is crucial for insurance carriers, and this is where having the right information is pivotal for sizing up applicable coverage. Medical records and expert examinations help unravel diagnosis and prognosis. Add in claimant behavior observed on social media, and the combination begins to paint a picture around recovery progress and outlook, instrumental in developing both special and general damages. Out-of-pocket costs such as medical and wage loss, as well as a projection for pain and suffering or aligning to workers compensation models, hinges on information that adjusters develop during investigation and evaluation phases. Claim adjusters rely on their own experience, venue knowledge and a network of vendors to help gather such information and insights in a way that may be explained as gathering puzzle pieces to ultimately visualize the whole picture.  

See also: Outsourcing to the Sixth Century

Vendor Partner Selection

Selecting and managing vendors has always been an important decision for any carrier. Today, vendors are often viewed as partners, especially when it comes to security and privacy management or developing road maps. It’s no longer a buy-and-supply relationship for many providers and carriers alike. Forging partnerships has become a critically important strategy in business in general and specifically in effective cost containment, making partner selection more critical than ever. Injury claims services, including medical, record and clinical management and investigations, are leading areas of opportunities for outsourcing.  

During our research for this article, we spoke to a number of top-tier carriers that outsource one or more of these services, and the one vendor partner name that was most frequently mentioned with high satisfaction rates was Insight Services Group (ISG). Most importantly, ISG thinks and operates as an integrated business partner, not a vendor, as it removes inefficiencies in processes. Another key differentiator: mitigation of risk and program costs by leveraging integration with multiple claims platform and solutions integrators, including Guidewire, Duck Creek, CCC and Shift, which provides time savings and efficiency gains. Mobile texting with injured parties also helps compress cycle time of claims. ISG lets clients choose from multiple services while remaining in their own claim environment.

New Approaches to Claims Management

Today’s claim management is changing quickly. Technology, integrations, partnerships and vendor marketplaces are popping up everywhere. Incumbent vendors are becoming more sophisticated and capable while new entrants are applying analytics, artificial intelligence, new data and other technologies to help modernize the claim process. Many of the larger carriers have gone through or are going through core policy and claims administration platform transformations to replace long outdated legacy systems while positioning themselves to automate, integrate and accelerate claims modernization agendas. Meanwhile, carriers are outsourcing and leaning on vendor partners to an even higher degree today.

See also: Despite COVID, Tech Investment Continues

Changing Vendor Partner Marketplace

The vendor space is changing, as well. Venture capital-backed consolidation, advances in technology investments and growth due to carrier outsourcing are most pronounced. Within the injury claim investigation and evaluation space, there is consolidation among records management, investigation firms and medical management companies while many remain regional and state specific. Meanwhile, carriers are increasing their appetite to outsource, automate and provide more tools to adjusters. This coincides with the aforementioned claim adjuster talent war and acceleration of retirements during the Great Resignation. However, insurers demand efficiency without sacrifice to claims management quality, namely the ability to manage loss costs effectively. Offering national or multi-regional coverage is a must when competing for carrier’s attendant geographic claim footprint. Procurement experts are focused on partnering with firms that match these priorities.

With advances in technology comes the need for tighter controls, security and privacy. Vendors manage an array of private, personally identifiable information and sensitive data when it comes to legal, medical and claim investigation materials. The vendor of today, must meet stringent statement of coverage (SOC) compliance, cyber risk protection and business recovery requirements to compete. When working with new vendors, this stage of compliance can take months to review and satisfy.

Claims investigation and evaluation are no longer overlooked areas for technology and outsourcing as the industry modernizes. Partnerships with fully integrated national providers with deep expertise in medical, record and investigation management bolstered by powerful new technologies will be the hallmark of the insurance market leaders of the future.

A longer version of this article is available here. 

Although it will take weeks and months to sort through the wreckage of Hurricane Ian, as the insurance industry helps the victims recover as best we can, one thing already seems clear, and it should finally mark a turning point in how we prepare for such mammoth storms. 

Ian makes it increasingly hard to deny that climate change is dangerous in the here and now. People will still argue about just how severe the effects will be in 2035 or 2050 or 2100 and will debate how much we should spend now to avoid those problems. But the climate-related acceleration of Ian into such a massive hurricane will force more people, even now, to confront hard choices about where they live, because more such behemoths are surely coming. And insurers will need to adapt.

The National Hurricane Center defines any storm whose winds increase by 35mph in 24 hours as a rapidly intensifying storm, and Hurricane Ian's winds accelerated 67% in 22 hours. (This article doesn't specify just how much that percentage meant in miles per hour, but, given that Hurricane Ian's winds hit 150mph right before landfall, the increase was somewhere around 60mph in less than a day.) 

The conditions that led up to that increase -- which were so noticeable forecasters called attention to them days ahead of time -- all relate to climate. In particular, the temperature of the water that Ian was crossing right before landfall was 1.8 degrees Fahrenheit hotter than normal, and that extra heat fed the intensity of the storm.

More generally, higher temperatures now reach deeper into the water, so hurricanes may no longer lose power as they suck up water from below the surface, where it used to be markedly cooler. Hotter air can hold more moisture, so hurricanes now can carry and then dump far more rain -- and water, not wind, causes most of the destruction in a hurricane. For good measure, larger hurricanes such as Ian are generally moving more slowly than in the past, so storms can hover and dump unimaginable amounts of rain -- as Hurricane Harvey did in 2017, unloading more than 60 inches of rain in some areas around Houston. 

What comes next will surely be chaos, even more than in the aftermath of most hurricanes -- and, despite all the attention to Florida, let's spare a thought for those in South Carolina who were hit as Hurricane Ian made landfall a second time, and for those in Puerto Rico, which was devastated by Hurricane Fiona, having never fully recovered from Hurricane Maria five years ago. 

The reason for the chaos is that Florida's homeowners market is dysfunctional. It accounted for 76% of all homeowners insurance lawsuits in the U.S. in 2021. Partly as a result, rates are about twice as high as the national average. Hundreds of thousands of people have lost insurance, either because the carriers won't write policies for them or because they can't afford the rates. 

But I'm hoping that we've passed a tipping point on climate denial and that some order will emerge from the chaos. 

Maybe some people will decide to take their insurance settlements and not rebuild in an area that is vulnerable to increasingly violent storms. Maybe many others will focus on increasing resilience to storms as they rebuild. 

Maybe many people, both in Florida and around the world, will have a "there but for the grace of God go I" moment and think about how they can fortify their homes before they face a disaster related to climate change. 

Maybe carriers and agents and brokers can offer guidance that steers clients away from risks and toward resilience.

Maybe the federal government, state governments and insurers can have a much-needed dialogue about who should bear the risk of catastrophes related to climate change -- based on the notion that we all obviously want to help the victims but that we also want to steer people toward safety and relieve some of the burdens of recovery, when some people, insurers or governments have to shell out an awful lot of money.

Or maybe not, of course.

Often, it seems, we have to undergo many "tipping points" before we finally get to the one that truly changes behaviors. But I, for one, hope Hurricane Ian can change a lot of minds.

Cheers,

Paul  

Historically, automation and flexibility have been at opposite ends of a spectrum: The more you automate something, the less flexibility you have. But it doesn't have to be that way. As Megan Roche Pilcher, SVP and insurance go-to-market leader at IntellectAI, explains, AI has progressed to the point that it can automate significant chunks of underwriting. It can eliminate the keying and rekeying that traditionally happened as a submission went through a series of steps that might eventually result in a proposal and bound policy. At the same time, AI can pull together third-party data to enhance what's in the submission and can steer underwriters toward key issues, while enhancing collaboration with others in the enterprise who've dealt with those issues before. That automation enhances flexibility by freeing underwriters to do the important work that only they can do.  The flexibility is especially important in the insurance line that is our focus this month: cyber. It is changing so rapidly and unpredictably that we all have to stay our toes.

ITL:

IntellectAI is working with a lot of innovative MGAs and specialty carriers in the cyber insurance space. How are you—and they—seeing the market develop?

Megan Roche Pilcher:

There's a ton of opportunity for growth, and the cyber market is changing rapidly. Carriers and MGAs have to be able to respond quickly and appropriately with terms and conditions and pricing, to make sure they're providing the right coverage at the right premium for the accurate exposure.

Historically, the more flexible and responsive to the market carriers needed to be, the more they relied on manual processes to make this happen. People don't automatically think of insurance automation and flexibility together because of past experiences with old monolithic systems. But that's changed.

Underwriting discipline is critical—and automation can help. Technology using artificial intelligence and natural language processing is now available, removing much of the keying and rekeying of data, enabling carriers to home in on the risks they want to write and can win. With automation, underwriters can devote their attention to understanding how an organization uses and stores data, and properly assessing an organization's security posture. An underwriter needs time to really understand a risk's cyber exposure in order to adequately underwrite it. Technology can create this capacity.

ITL:

Can you paint a picture for us of how automation helps?

Roche Pilcher:

Often, current state looks like this: A risk comes in the door, and someone has to enter the account name, effective date, who the agent or broker is, the lines of business and so on into a tool for account clearance. Then, someone else will key in all of the same information, plus all of the exposure info, limits and deductibles, to rate the risk. A proposal has to be created...which usually means rekeying the same info into a Word document...updating it again if the account is bound. Finally, when the policy is issued, it often gets keyed into another system. Besides being heinously inefficient, all the rekeying impacts service to the agent, and is ripe for data inaccuracy.

Now let me tell you about the Utopia that we have enabled with technology. When a submission comes in the door it is automatically ingested and all of the relevant account, rating, and exposure information is extracted. AI is used, and knockout rules are applied to immediately decline submissions that are outside the insurer's appetite. This way no underwriter time is wasted on risks you have zero appetite for.

Then, we can run business rules against the extracted data to identify the remaining submissions that best meet the insurer’s target market.

ITL:

You're on a roll. Please keep going.

Roche Pilcher:

Now the underwriter enters the picture. They open their underwriting workbench and new submissions having the greatest chance of winning appear at the top. The underwriter clicks on the account and not only can they see all of the information in the applications, loss runs, and attachments but there is also risk score to indicate the network security and hardened control present in the organization. AI and third-party data enrich the submission information, highlighting exposures they might want to pay special attention to or ask the agent about.

Automation promotes collaboration, too. In manual processes, a lot of information just sits on an individual's desktop in Excel or a Word document. In our underwriting workbench, we have a tool that lets you look at "accounts like mine." It pulls up risks similar to the one you're looking at that have already been quoted, so you can gain from the experience of other underwriters in the organization. You can see how they’ve crafted insurance programs and what kind of pricing they've used.

With the click of a button, the risk is rated, and the underwriter can price the account and document as they go. The underwriting workbench identifies any places where the underwriter's authority has been exceeded and an automated referral process kicks in.

You can have all these very fluid business rules to make sure there's collaboration on the risks that require it. With one more click, a proposal is generated and emailed to the agent or broker.

ITL:

I imagine the reduction in drudgery could make underwriting jobs a lot more appealing to younger folks and help address the sorts of staffing issues that many companies are facing.

Roche Pilcher:

Definitely. Data entry isn't typically a coveted career path. That said, automation doesn't mean getting rid of people. What it does mean, is focusing people on meaningful and rewarding work, as well as revenue generating activities. Automation allows companies to focus on building a true underwriting career path that develops skills and a culture that allows them to retain talent.

There's a culture shift, too, as Gen Z enters the workforce. Their productivity is directly related to technology. They expect the latest tools and technology to do their jobs. Not manual workflows and Excel spreadsheets. They want to be developed and they want to grow.

ITL:

Final question: While you're focused on improving the underwriting process, how would you summarize the outlook for the market for cyber insurance?

Roche Pilcher:

Although Cyber insurance has been in the market for 20 years, there is now a heightened awareness of cyber risk especially with the looming threat of ransomware attacks. Cyber exposure has gone up. Frequency has gone up. Severity has gone up. So, you've got more opportunities in the marketplace. And companies are shopping to find the right balance of the coverage they need at a premium they are willing to pay.

Insurers really need to understand and think about where they want to play in the space of this opportunity.

In times of rapid growth, underwriting discipline is key. But underwriting discipline doesn't mean you have to go slower. Underwriting discipline means really focusing underwriters on the right risks and the right activities. Leveraging technology like artificial intelligence is becoming table stakes.

ITL:

Thanks, Megan.

Despite strong investment in recent years, many direct-to-consumer (D2C) insurtechs aren't seeing the adoption they expected. One underlying cause: lack of customer trust.

When it comes to insurance, customers trust people more than tech. Buying insurance is a major decision, and customers want a credible human partner throughout the process.

To earn customers’ trust and scale distribution, it’s time to look for long-term solutions. Here, I’ll share my three-step road map to help insurtechs build trust and reach more customers.

Step 1: Partner With Independent Agents

I talk a lot about the power of independent agent partnerships. That’s because insurtechs have a genuine trust problem – and agents could be the key to overcoming it. 

Agents provide a human touch and industry know-how that tech can’t replace. 

When agents have face time and interact directly with customers, there’s a back-and-forth dynamic that builds rapport. That rapport builds a relationship. These relationships usher in trust, and customers trust their agent to deliver guidance that actually meets their needs.

In each conversation, agents can use their inside knowledge to deliver insights. They can even enlighten customers about things they don’t even realize they don’t know. For example, an agent could assess a customer’s wildfire risk before a consultation. Then, they could reassure customers about their insurance concerns – and ask follow-up questions about things the customer might not have mentioned.

With agents as partners, insurtechs can put a face to their brand name. The benefit: Through agents, insurtechs can build a foundation of trust with each customer, making it easier to win adoption across markets and retain business. 

Step 2: Get the Right Back-End Tech

Insurtech-agent partnerships are a two-way street. Agents can build and maintain customer trust – but only if they have the right tools.

Insurtechs can leverage their prowess to provide specialized back-end tech. The key here is to understand agents’ pain points. This way, each tool can actually meet their needs. 

The right back-end tech helps agents get better at the things they’re already good at. Tech-powered agents can pull from extensive historical and demographic data to deliver better guidance -- faster. With the time they save, agents can focus on customer conversations and provide personalized guidance at scale.

My suggestions on back-end tools insurtechs should invest in:

• Quoting and binding tools. In minutes, agents can help their customers find personalized coverage based on location and demographic data.
• Policy-writing software. Faster policy-writing helps agents reduce their customers’ coverage gaps.
• Customer support tech. When agents aren’t available, a tech-enabled support team can answer policy questions fast.

Something to remember: Insurtechs don’t have to reinvent the wheel. Proprietary tech can play well alongside third-party software. With a few smart investments, insurtechs can tap into a ready-made knowledge base and quickly give agents the tech they need.

Step 3: Educate Customers About the Industry

Customers rarely understand everything about their insurance policy, much less the industry. But insurtechs can change that. By educating customers about insurance matters, insurtechs can empower them to make confident policy decisions.

There’s a clear business benefit, too: Education builds trust. An educational dynamic is collaborative – it helps customers feel like valuable partners. Educated customers are more apt to trust insurtechs to provide the right coverage. The reward: better customer loyalty.

See also: Insurtechs' Role in Transformation

Agents play an important role in the education process. When helpful resources come from a trusted agent (rather than an anonymous brand), customers are more likely to recognize the value and engage with the material.

Insurtechs and agents can educate customers about things such as:

• Financial literacy. When customers know the financial basics, they can make smarter coverage choices.
• Lines of business. Customers need to understand the coverage they have – and the coverage they might need.
• Industry jargon. Once customers grasp complex terms, they’ll know how to ask the right policy questions. 
• Local insurance news. Customers should understand how market dynamics affect their coverage.

Insurtechs can use digital tools to boost their educational efforts.

The Future of Insurtech Depends on Trust

Like many tech spaces right now, insurtechs are going through a shakeup because of plummeting valuations. To steady the waters, insurtechs have to prove they can deliver on their promises.

A new-and-improved distribution model can help. With the right approach, insurtechs can partner with agents to restore customers’ trust. The result: a model that keeps insurtechs competitive for the long haul.

While demand for commercial insurance is rising, profitability remains elusive for many insurers. A confluence of factors, including inflation, increased liability losses, climate change and gaps in market segmentation, are shrinking profit margins.

However, some market leaders in the industry outperform the competition by using an insurer’s greatest asset — data, both their own internal data and data from outside sources, to learn more about the exposures (e.g., people, physical assets, businesses) they are insuring. Embracing the most advanced data capabilities and deploying a surgical approach to assess and price risks improve performance.

The Trajectory

Industry experts see some reasons for optimism in the commercial insurance market — credit rating agency AM Best upgraded its 2022 commercial-lines market segment outlook to stable from negative for key segments, including commercial property insurance. However, in the near term, the industry faces several challenges related to profitability, including asset and social inflation, rising catastrophe losses and climate change.

Physical Damage Inflation. A spike in demand for goods over the past several years coupled with supply chain issues persisting throughout the pandemic has contributed to inflation rates not experienced for over 40 years. Replacement costs for vehicles and property are increasing as building materials and auto parts become more expensive. Additionally, a lack of available skilled labor to make the repairs contributes to the rising claims costs.

For example, auto repair costs rose 8% in July compared with a year earlier, and the price of auto parts and equipment rose 14%, according to the U.S. Bureau of Labor Statistics.

Labor Shortages. The American Trucking Association estimates the industry is short 80,000 drivers, a number that will double to 160,000 by 2030. An aging workforce and declining interest in truck driving are responsible. Many organizations have lowered driver application standards, which means that drivers with shorter (and riskier) driving records are entering the industry. Additionally, newer employees are more likely to have accidents on the road.

Liability Losses. While there was a slight reprieve for auto insurers during the height of the pandemic (when we experienced an abrupt drop in miles driven), lawsuits are back to increasing — as are the jury awards — as the nation begins to return to normal.

The average verdict size for truck accidents increased 1,000% over the last 10 years. As a result, emboldened plaintiffs’ attorneys are more likely to take the case to trial, extending case durations and raising costs for the insurer to defend a claim. Juries tend to favor the plaintiff on negligence claims.

Climate Change. The growing severity and frequency of natural disasters pose serious risks across the commercial property insurance market. After all, these catastrophes often leave behind severe property damage and associated losses.

Catastrophic losses from wildfires, hurricanes and other natural disasters attributable to climate change exacerbate inflation. In 2021, the National Oceanic and Atmospheric Administration (NOAA) recorded 20 weather and climate disasters in the U.S., each exceeding $1 billion, for a total price tag of $145 billion. Climate experts predict the frequency and severity of natural disasters will increase, affecting commercial insurance premiums.

See also: 4 Stages of Dominance in Performance

Lack of Data. The pricing of risks depends on the ability to collect accurate exposure details.

Early adopters in the market are gaining a segmentation advantage by using data to cherry-pick the premium risks and pricing those risks at a discount. They leave what they don’t want to the broader market.

With the broader market getting “adverse selected” and “out-segmented,” the quality of their portfolios is degrading. As a result, these carriers continue to write risks at an increasingly unprofitable rate in the face of other macroeconomic conditions already challenging their business — creating a profitability conundrum for commercial insurers.

Broad-Based and Surgical

Identifying specific segments in your commercial insurance lines with different risk characteristics is critical to improve profitability. Unfortunately, most carriers do not have sufficient data to identify granular segmentation.

Instead, insurers are left with little choice but to raise base rates, using a one-size-fits-all approach to pricing segmentation. They fail to make more segmented changes — treating the symptom, not the problem.

Imagine two apartment buildings with about the same number of residents and in roughly the same location. While they are nearly identical, one building is riskier to insure for nonweather-related damage. What’s the difference?

Typically, insurers treated every building similarly, using occupancy rates or geographic data to assess commercial property risk. The difference in the buildings comes down to having insight into the building occupants’ contribution to loss costs. Property and geographic conditions may vary over time, but the occupants of an apartment building fluctuate from year to year. Although the occupants of insured property are related to claims performance directly, premiums do not reflect the exposure, leading to a misalignment of the actual losses incurred and the expected losses.

As the example demonstrates, a broad-based approach toward raising the overall rate will not solve the underlying problems — the risk the occupants of each building present. To offer more competitive rates to the premium-priced risks, insurers must use a balanced approach of raising rates while also focusing on improving pricing granularity. Otherwise, your competition will still offer a lower price because they have the segmentation capability to assess the risks more completely.

Anecdotal Versus Algorithmic Data

To gain greater insight into risks and prices at a more granular level, insurers must use data to automate their processes. The benefits include:

• Increased efficiency,
• Accurate pricing,
• Improved customer experience and
• Reduction of overhead costs.

For example, a construction contractor looks at two insurers for a commercial policy. One uses an algorithm to obtain data systemically, while the other needs to involve an underwriter reliant on anecdotal data.

The algorithm produces a quote in less than 10 minutes, while the quote from the other carrier takes much longer. Even if the price from the algorithm is higher than the other carrier’s rates, customers still may choose the algorithmic quote over the other carrier because it takes less time — so it’s easier for them. Ultimately, ease of doing business often trumps rate.

In commercial auto insurance, increasingly available credit-based driver information, vehicle history data and court violation data enables insurers to create highly sophisticated rating processes that produce more accurate pricing and decision-making in a fraction of the time required of desk underwriters. The algorithm reduces expenses and improves rating granularity and accuracy, leading to increased profitability.

Road to Profitability

As the market leaders are demonstrating, the potential benefits of data — increased premiums, reduced expense ratios, shortened quote times leading to greater ease of doing business and improved risk assessment, among others — can give carriers a substantial edge in a challenging industry.