Legacy strategies for risk management, such as spreadsheets, have retained a stronghold among risk managers in lieu of newer, technology-based solutions like RMIS software. According to a 2018 poll, 60% of risk managers still use spreadsheets, while a mere 10% rely on a fully integrated data management system. This is a testament to the demanding workload risk managers face.

In today’s highly complex risk landscape, spreadsheets can no longer carry their weight in the way they might once have. Instead, risk professionals are left slogging through the administrative burden of maintaining numerous spreadsheets and jeopardizing accuracy in the process.

Instead, industry professionals should look forward to newer solutions that can improve efficiencies with less manual process and provide data analytics and insights.

The Role of Spreadsheets 

Spreadsheets were originally designed to centralize data and serve as a quick look-up tool. While this once aligned with risk management practices, risk management as a business function has since expanded its role under the scrutiny of both internal and external parties. This is compounded by the fact that the risk landscape has changed significantly in the last decade alone.

Today, spreadsheets are holding businesses and their risk management teams back.

Cost of Using Spreadsheets in 2023

Relying on spreadsheets can be risky for the following reasons:

• Reliance on manual processes: Manual processes are time-consuming and prone to human error.
• Workflows divided between departments: Departmental barriers and data silos impede progress and collaboration and can result in more file errors and redundancies.
• Limited analytics: New outputs and changes often require custom programming and can be undermined by even one human error in a formula or calculation. AI-based RMIS software helps anticipate risk through predictive modeling, instead of reacting after the fact.
• Limited room to grow: Legacy systems were not built to support the risk management and claims administration process. As a result, these systems will always have limitations that prevent users from getting ahead of the curve.

See also: It's Time to Rethink the Spreadsheet

The Benefits of Using a Risk Management Platform

Using technology-based tools, companies can improve the efficiency of their insurance and risk management programs.

One major automotive brand, which I'll refer to as “Company A,” has seen these benefits first-hand. Within the past year, Company A began digitizing its insurance process. Prior to doing so, the company’s insurance and risk department relied heavily on spreadsheets with different sources of information, as well as the nuanced knowledge of individual employees to share where to find specific data, its traceability, what processes exist and the history of current information. Realizing the inefficiencies and room for error this created, Company A determined that it needed to capture all the relevant information from different files and platforms and get it together in one system – an RMIS software.

As a result of its new software’s organization and streamlining capabilities, the company’s insurance and risk department was able to better manage and apply its existing information. Previously, Company A’s  claims management was conducted mostly in-house and with portions conducted by third-party vendors, leading to a decentralized system. This process was the same for policy management and was often conducted across multiple spreadsheets. Now, the spreadsheets have been consolidated into the new risk management software, allowing Company A to automate specific evaluation processes.

With an RMIS system and application programming interface (API) technology, this company can collect information more effectively and quickly present that information to insurers and other stakeholders in new ways. With a trustworthy, efficient and fast system, the Company A team can spend more time on risk handling instead of administrative tasks. 

Another example of successful spreadsheet to AI-based insurance and risk management technology implementation is NIP Group. With an extensive amount of data across more than 25 niche industries, the company's complex claims requirements necessitated a solution that addressed unique needs and provided a level of efficiency that spreadsheets were not allowing.

By bringing in AI-based software to help manage data and claims management, the company was able to create a streamlined implementation process with secure data loading and an extract/load/transfer (ELT) tool for automation. This included the ability to customize the data hierarchy based on business needs instead of in a more linear fashion, as is traditional with spreadsheets.

Now, rather than varying spreadsheets, NIP Group can manage different lines of coverage across various industries and entities across one, singular system. Prior to using an AI-based insurance and risk management system, NIP Group was only able to develop and use a small portion of the information it needed. Now the company can see the bigger picture and save significant amounts of time. 

In addition to helping the company streamline internal reporting and file management, it now has more capacity for managing reporting for carriers and tower insurance company groups and can easily maintain compliance with state banking and insurance annual reports.

Benefits of Using Risk and Claims Software

With newer, AI-powered RMIS tools on the market today, relying solely on spreadsheets for data input, tracking and analysis is a legacy management method that comes with its risks – human error and poor use of risk managers’ expertise.

By taking advantage of the right software, companies can better secure their data, automate processes and remove the likelihood of errors – resulting in cost and time savings.

Insurers must keep pace with the constantly evolving risk environment. That means keeping pace with climate change and growing catastrophic event losses; the explosive growth of intangible assets and the challenge of valuing those assets; and the increasing exposure of their portfolio to cyber risks.

Despite changing and challenging conditions, some carriers thrive and prosper – while others stagnate. Almost any seasoned insurance executive can tell you a story or two about how a once-strong carrier devolved into obsolescence. The sum of the story is typically that those that wish to prosper must find new opportunities in an evolving environment – and new ways to innovate.  

The idea that innovators thrive is based on more than just anecdotal evidence. There are detailed analyses that show how and why innovators thrive in the insurance industry.

According to one of these, a recent study by the consulting firm McKinsey, “insurance market shapers,” those that boldly innovate, create significantly more economic value than their peers. According to the report, on average, insurance “market shapers,” innovators in the top 20% of the market, create profits up to 20 times the industry average.

How are these innovators making their mark today? There are certain characteristics, but one area is abundantly clear:  Companies winning the competitive race use advanced data and analytics to select, underwrite and price risks.

Historically, carriers have achieved profitability by ensuring their fundamentals were solid, by running an efficient operation, by tightly managing their portfolios and by mitigating portfolio risks. However, a whole new frontier for competitive differentiation is opening up as a result of the evolution of analytics, data and risk models. In fact, data and analytics likely will be the key to an insurer’s success in the future. 

Today, however, the vast majority of insurers invest their resources and time managing the technical issues related to data and analytics: (1) how to tap into the needed data, (2) how to build risk models and (3) how to integrate analytics and models into workflows. Too often, they sacrifice a focus on the more strategic aspects: determining where to apply analytics in their business – and how to differentiate their data mix and models from their competitors to create strategic advantage.

Best-in-class insurers tend to master three key aspects of data and analytics: 

1. Data Strategy 

First is a focus on data strategy, specifically data acquisition strategy. Insurers are having trouble keeping up with the rate at which data is growing. It is therefore essential that your organization determines how it will acquire, process and integrate data at the speed of business. Without knowing (a) what data you are focused on leveraging, (b) where you are getting that data and (c) how you will incorporate that information into your workflow or model, you are really playing catch-up.  

Make sure you are prepared to integrate all types of new data and information: IoT data for residential properties from devices like Ring, Alexa and Google Home; telematics data from personal automobiles and commercial trucking; and IoT and systems data from commercial businesses.

Data availability will continue to evolve. New data will be brought to market when all kinds of legal, privacy and access issues are resolved. You will be better positioned for success if your organization and systems are prepared to handle this data and pivot.

Cloud-based APIs provide the capability to readily use data as it becomes available – to integrate that data as soon as it is available into core workflows.

See also: How to Unlock Data--and Profitability

2. Next-Generation Analytics and Risk Models

Most insurers are now commonly using analytics models in risk selection and pricing. There are varying degrees of proficiency and sophistication, but the insurance market has widely adopted these technologies.

Where insurers most often struggle with creating models is in finding and refreshing the right data for their model(s); regularly monitoring and adjusting existing models; innovating and testing new models for new business applications; and efficiently managing the entire process to free data scientists to focus on core/strategic priorities.

Most insurers are well aware of the problems in getting the right data into the models in a timely manner. But they are not aware that there are solutions and consultants available to solve this technical problem for them in an efficient and cost-effective manner. Nor are they highly focused on the other challenges of managing and improving their risk models on a regular basis – nor on creating new models in an agile and rapid way. 

Being prolific in experimenting, testing and innovating with risk models across risk selection, underwriting, pricing and claims will eliminate significant pain points and present unimagined opportunities. In this day and age, your organization should have this as one of their primary business priorities.

3. Embedding Analytics into Workflows

The biggest point of failure for firms is in actually operationalizing risk models – in integrating analytics and risk models into workflows and processes across their insurance lifecycle. 

If data, analytics and risk models are not innovated, adopted and put into the hands of those who need them when and where they need them – of what use are they?

Insurers are often proud of their risk models. The models may often be unique and a differentiator for their firm. However, most insurers today simply stall or do not integrate these models into workflows where they can be seen and used by underwriters and adjusters. Yet again, there are solutions and consultants that are adept at handling these technical details at a cost that is well worth the resulting innovation.  

See also: How to Benefit From the Power of Data

Driving From Systems of Record to Systems of Insight

Insurers that want to own the future must understand the strategic importance of these critical steps. A smart approach is to focus on the strategic direction of your data and analytics program – and the strategic projects and models critical to that program – and outsource the technical challenges of acquiring and integrating data and analytics into workflows.

Modern analytics can help insurers more accurately price risk, capture and grow premium, optimize claims outcomes and enhance customer loyalty. Providing unique and embedded insights when and where they are needed empowers your organization to adapt to an ever-changing world.

Each new year brings new challenges to every industry. In 2023, not only are insurance agencies still dealing with the fallout of the pandemic, but they're also competing with personal investment struggles and a pending recession. Here are five challenges insurance agents will be facing in 2023:

First, agents will need to adapt to a post-pandemic sales environment. The majority of people who were selling life insurance prior to COVID met clients face-to-face and will now have to revisit this sales tactic in a post-quarantine climate.

Many insurance agents have switched or attempted to switch to selling over the phone and over Zoom because of the post-pandemic climate. With a new sales cycle developing, agents will need to consider what this adjustment means for them. To me, it often means one of these three things has to happen:

1. Agents will have to understand that they're going to need to work harder and be willing to travel more. If agents choose to continue to sell in person, which many do, they will have to understand there may not be many leads available in their backyard and should prepare to travel a number of hours to any given client. With the increasing ratio of people requesting services online, there is less dependency on direct mail leads.
2. Agents will have to spend more time and effort on leads and lead strategies.
3. Agents will have to train and get good at selling over the phone or virtually.

The second challenge agents will face in 2023 is the changing economy. Politics aside, we're in a recession. Agents have to understand that when people buy life insurance, they buy it for one of two reasons.

1. They buy it because things are going really well, and they have extra money.
2. Or, they buy it because things are tight.

When personal and financial situations are tight, clients tend to fall into a scarcity mindset. Clients start to think about their families and prioritize how much they have put away in case something happens to them. People in this state of mind are filling out forms for a reason: They are asking agents for help because they're thinking about how little they have. Agents in 2023 are going to have to switch to that mindset.

See also: Cybersecurity Trends in 2023

The third challenge is adjusting to the new technology that's available. It's essential to an agent to get in line with everything being instant, adapting with technology and understanding its value. If agents don't do this, they'll get left behind.

The fourth challenge for a sales agent is truly monitoring their businesses. Agents need to understand that in the insurance industry, business advanced payments can create issues later on if not managed properly. When an agent writes policies for clients, it's under the assumption the client will keep the policy for the full term. However, if the client cancels the policy in the first 12 months or so, there are chargebacks to the agent. Monitoring your insurance business, and doing a good job of selling, will help agents through these moments.

Tip: Agents should focus on selling the value of life insurance, not necessarily just the price. If agents sell only on price in a really good market, the consequences are not as severe. However, if agents sell only on price in a tough market, they'll lose more business and have more chargebacks.

For insurance agents, the final challenge for 2023 is staying focused on building their businesses. Most insurance agents don't want to only be insurance agents, they also want to build a team. The biggest challenge is understanding this might be the greatest time ever to recruit people. Recent polls are showing that nearly 70% of employed individuals state they need a second income to make ends meet. That means there's a need for new opportunities, and almost everyone is a candidate for an agency team. The challenge for agents is simply identifying that this is the case, then going out in the field and recruiting as hard as possible.

The demise, or at least the irrelevance of, independent insurance agents has long been predicted, probably going back to the 1960s. Captive and direct response agency companies will rule the consumer, the pundits declared. Even independent agency carriers like The Hartford hedged their bets, doing deals to sell direct via affinity groups like AARP. In the late 1990s, pundits predicted that everyone would get their insurance coverage via a dot.com. And, more recently, the anti-agent noise has accelerated within the insurtech sector. 

Everyone needs to calm down.

Independent insurance agents and brokers are alive and well — and expanding their numbers. Even the “just OK” firms are doing quite well, thank you.

Independent agents have been around since the 1800s. The so-called Yonkers Case, in New York, in 1904 affirmed the right of these agents to ownership of their renewals and to place a customer’s business with any carrier they saw fit.

For a long time, local independent insurance agencies pretty much looked the same. They were mom and pop offices on Main Street all across the country. Today the entire system has evolved into a wide variety of models. COVID-19 sped up some of the changes that were happening anyway. 

But make no mistake: Independent agents are as relevant as ever, and they have opportunities everywhere. Even the mom and pops.

What has enabled agents to thrive? What drives those strong valuations and volumes of agency merger and acquisition (M&A) transactions? And why are the terms “agency distribution channel” or “system” no longer valid or all-encompassing? 

I chatted recently with insurance industry pundit, author, speaker and historian Brian Sullivan, who’s been covering personal lines marketplace issues for a long time. Coincidentally, he and I were working on talks we were soon to deliver at different agent conventions.

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

See also: When Captive Agents Go Independent

Variety of models

The agency distribution system actually is a diverse collection of channels. Imagine a huge “insurance farm” generating hundreds of billions in premium revenue, with multiple silos. The agents are all on the farm; they’re all providing some form of risk management and insurance advice. But each occupies only one area of the larger farm. 

That diversity is a strength. It is why agents have maintained and even grown market share in multiple lines of insurance business. 

The models include:

• Large, multiline agents
• Small, niche, expertise-driven agents
• Commercial or personal lines-only agents
• Franchise agents (e.g., Brightway)
• New, marketing-focused agents trained at large captives
• Specialized niche and program agents
• Commercial specialists that have evolved into wholesalers, managing general agents and managing general underwriters
• Online-only or virtual agencies (no physical offices)
• Semi-captive agents (Erie, Mercury)
• “And, yes,” Sullivan told me, “old-school agencies with family member principals and Main Street storefronts that sponsor Little League teams!”

Growth of aggregators

Another trend, which started in the 1980s, has been the growth of agency aggregators. These networks, alliances, clusters, etc., provide back-office tech and service support, marketing and increased commission dollars for affiliated agencies. These organizations have grown rapidly in the last 10 to 15 years.

Overall, the number of independent agencies has increased. In 2022, the estimated total number of independent property-casualty agents and brokers in the U.S. stands at 40,000, an increase from 36,000 in 2020. It’s pretty amazing that we saw a growth of 4,000 agencies during the pandemic.

M&A activity continues to affect the agency channel. But the increase in the number of agencies is driven by small agencies, as agents continue to establish their own agencies or move from the captive to independent space. In fact, State Farm is the only major captive agent company left. The other biggies, Nationwide and Allstate, have gone independent.

Back to the farm analogy: Just as farmers have embraced technology to increase their harvest yields, smart independent agents are investing in digital marketing, efficient CRM systems, consumer apps, etc., to increase their harvest.    

See also: A Heyday for Independent Agents

Employment branding is key

These various distribution models have a bright future as employers. Emerging professionals in their 20s (Gen Z) like a stable work environment, giving back to the community, flexible schedules and measurable results. As consumers, they like shopping local. They are drawn to bespoke things like craft beer; thus, they appreciate tailored financial advice — maybe more so than boomers, Sullivan reasons.

But can this future talent find their local agencies? Especially some of the more invisible models noted above that lack a storefront presence? Finding qualified staff and marketing continue to be key agency challenges, according to the 2022 “Agency Universe Study,” published by the Independent Insurance Agents & Brokers of America. More than four in 10 of agents find it challenging to find and screen job candidates with strong potential. Overall, this was the No. 1 challenge identified by agents.

That is why agents need to market their internal brands, and the culture they can provide, at least as much as they market products and services. It will behoove agency owners to restock their talent with younger, diverse workers to match what’s happening to their customer base. Most have been challenged to do that for decades, but the population shift makes this more urgent today.

The average agency principal is 54 years old, and 17% are age 66 or older, according to the Agency Universe Study. But inclusion has gained some ground. In 2022, 47% of agency principals are women, a gain from 42% in 2020, and 83% are white, down from 88% in 2020. Medium-sized and larger agencies are especially likely to have male principals or senior managers.

While it appears to be under the radar, the retail independent agency is a fantastic business. Even average firms crank out a nice profit. The highly profitable ones already have been bought, or they’re buying others. Private equity, aggregators and larger agencies have been buying independent agents at a feverish pace, although their pace will slow with higher interest rates and reduced available capital.

In my 40 years of working in this business, I’ve never met a destitute independent insurance agent.

Some agents are just smarter than others, Mr. Sullivan and I have agreed.

With the New Year dawning, ITL Editor-in-Chief Paul Carroll sat down with Aimee Kilpatrick, chief operating officer at Cadence Insurance, a division of Cadence Bank, to ask about the large regional broker's plans for 2023. As you'll see, she describes an innovative way that Cadence is tackling the industry-wide talent shortage, which the emerging, hybrid world of work has made even more complicated. She also describes how clients' needs have changed since the start of the pandemic.

ITL:

At the end of a year and beginning of a new one, people tend to set agendas. So, I wonder: What is the biggest thing you'll be thinking about doing with your agent workforce in 2023?

Aimee Kilpatrick:

The first item is probably one that you hear, really, from anybody in our space, and that's around talent. We just can't find talent, train them and help them develop fast enough. We very much have a talent shortage in our industry. So, as a firm, we have a lot of efforts under way.

Some are things we've been doing for a while, while others are new. We announced a partnership earlier this year with the University of Mississippi that focuses on providing opportunities for students at HBCUs [historically Black colleges and universities] in Mississippi. We're very much committed to figuring out how we can get people in the pipeline, attract them and then support them through training and development.

On the other side, in these last couple of years that have been so crazy for the whole world, our business has evolved. What our clients need today may not be what they needed a few years ago. We have to figure out: How can we best meet their needs? What can we do to empower our producers and client-facing teams to deliver everything a client's asking them for?

ITL:

I'd love to explore both of those points. Let's start with the talent piece. How does our new world of hybrid work or even remote work fit into your talent plans?

Kilpatrick:

That new world of work complicates things. Historically, people coming into the business learned partly by immersion. You learn a lot by sitting in an office and hearing what the person next to you is dealing with. They can pull you in and explain a scenario.

So, we do a lot of what I would call classroom training, where an instructor goes through technical elements and coverages, but the immersion piece isn't there like it was pre-COVID.

We understand that people want flexibility. We also want them to learn and to be exposed to our business. So, there might be a period when we really want you in the office because that's how we can best train you and introduce you to our culture. Then, once you get a little bit of experience under your belt, we can introduce a hybrid schedule that allows you to do some things on your own from home, or wherever, and then come back into the office periodically throughout the week as well. It's not perfect, but because of the talent shortage, employers have to figure out how to meet people where they are.

ITL:

You mentioned the HBCUs, which certainly sound like a great source. Are there other places you're looking for talent?

Kilpatrick:

Traditional college/university insurance programs have been a long-standing pipeline into our industry, as are finance, marketing and other traditional business majors. The HBCUs are a unique opportunity because none in Mississippi has an insurance minor certification or any sort of path to insurance. The program with Ole Miss provides that path without taking the students out of the HBCUs they’re attending.

Aon has done an amazing job of being trailblazer on apprenticeships, so we have learned a lot from them and are trying to explore the opportunity. We’ve gotten really good at teaching people or leaning on The Institutes and other resources to help us teach them. We just need the talent to come to the table, and that's where apprenticeships create a lot of interest.

ITL:

My time at the Wall Street Journal was largely spent covering information technology, and I wonder what role it can play in getting people up to speed quickly.

Kilpatrick:

I think there are two elements. One is tools like Google—as well as other online resources. People can use these tools to get a quick answer. Before, you had to go look it up or even research it (in a book!). Those resources mean we can get people up to speed faster than we ever could before. There's also a technology-driven path to learning, like we're doing with The Institutes. We have a way to touch base and make sure people have mastered the concepts. Learning can be more interactive. Gamification is certainly a thing, too. We're trying to figure out how to leverage all our resources to help people learn and retain things.

ITL:

To turn to the client side of the equation: You mentioned that you're seeing their needs change. What are one or two big things you're going to address in 2023?

Kilpatrick:

In the employee benefits space, our clients are asking for a lot more help on communication with their teams, their workforces. They're especially interested in health resources, whether that be mental health or physical health. They want help educating employees on how to stay healthy by using all the resources the employer is offering them. That’s one area that's become more important and that needs to be handled differently than pre-pandemic, before the hybrid workforce. You used to be able to get everybody in a room once a month and talk to them, but you don't always get the luxury to do that these days.

Clients also look to us to help them make their purchasing decisions. And while every client is different, we need to provide them with strong tools that help them with the data behind some of the decisions they’re making. That could be something as simple as: Okay, I'm a general contractor in southern Louisiana, what are my peers doing? What limits are they purchasing? That's a simple example, but it shows the kind of thing people want to know to make sure they're in line both with the market and with the company’s culture and risk appetite.

ITL:

Perfect. Thanks for taking the time. I hope 2023 works out great for you and Cadence.

About Aimee Kilpatrick

Aimee Kilpatrick, CIC, CRM, is executive vice president and chief operating officer of Cadence Insurance. Cadence Insurance is one of the nation's largest independent insurance agencies, consistently ranking among Business Insurance's Top 100, including achieving a ranking of 43rd in 2022 and employing close to 750 insurance professionals.

As part of Cadence Bank, Cadence Insurance is the second-largest bank-owned insurance agency in the nation. As a member of Cadence Insurance’s executive team, she is responsible for helping to set and guide the strategic direction of Cadence Insurance as well as implement key initiatives and strategies.

Passionate about organizational development, Aimee launched BXSI-University, an in-house training program that educates new employees and supports their growth and success. Since its inception in 2012, more than 400 employees have participated in the program. She remains active in the insurance industry, serving as immediate past chair of the National Alliance for Insurance Education & Research’s CIC Board of Governors, chair of The Institutes’ Insurance Broker Advisory Board, a member of The Council of Insurance Agents & Brokers Future Advisory Committee, and member and past chair of CIAB's HR Working Group. Additionally, she is a member of Troy University's Risk Management and Insurance Advisory Board and Gamma Iota Sigma’s Advisory Council.

Aimee holds an MBA from Louisiana State University and a BBA and BA in international business from Mississippi State University. She is a graduate of the Baton Rouge Business Report’s Leadership Academy and the Ole Miss School of Banking. Aimee holds the Certified Insurance Counselor (CIC) and Certified Risk Manager (CRM) designations. Additionally, Aimee is a sustaining member of the Junior League of Baton Rouge.

As hot as the world has been in the past couple of years, we may actually have had it easy because La Niña has kept the equatorial waters in the Pacific cooler than normal and helped lower temperatures around the world -- but that is expected to change this year as the warmer, El Niño weather pattern takes over in the Pacific. 

Buckle your seatbelts. 

As an article in Wired explains, La Niña is expected to end sometime this spring, having lasted a near-record three years, and give way to El Nino. "When it does," the article says, "the extreme weather that has rampaged across our planet in 2021 and 2022 will pale into insignificance."

A global temperature increase of 1.5°C above the 1850-1900 average is generally treated as a break point in climate change, above which major danger lurks. Wired says that in 2021 the figure was 1.2°C, "while in 2019—before the development of the latest La Niña—it was a worryingly high 1.36°C. As the heat builds again in 2023, it is perfectly possible that we will touch or even exceed 1.5°C for the first time."

The article adds: "I wouldn't be at all surprised to see the record for the highest recorded temperature—currently 54.4°C (129.9°F) in California's Death Valley—shattered. This could well happen somewhere in the Middle East or South Asia, where temperatures could climb above 55°C [131°F]. The heat could exceed the blistering 40°C [104°F] mark again in the UK, and for the first time, top 50°C [122°F] in parts of Europe."   

The result would be severe droughts in many areas, slashing harvests and exacerbating food shortages at a time when the Russian invasion of Ukraine has already created concerns about grain supplies. Civil unrest could follow.

In the U.S., the article says, the most affected region would be the Southwest, where a 22-year drought already threatens "lakes and dams [that] provide water and power for millions of people in seven states, including California. The breakdown of this supply would be catastrophic for agriculture, industry and populations right across the region."

Because La Niña tends to limit hurricane development in the Atlantic, its disappearance could facilitate more tropical storms after a year that saw surprisingly few. The storms could also be more powerful than hurricanes in previous years because they will pull their energy from ever-warmer surface waters. The storms could also be wetter, because warmer air can hold more moisture. We saw what happened this year with Hurricane Ian, which gathered an enormous amount of energy and water just before making landfall in Florida.

Not all effects with be negative, of course. For instance, in my neck of the woods in northern California, La Niña tends to limit precipitation during our winter rainy season and has contributed to a withering drought that has enabled massive wildfires, so a move to El Niño could give this part of the world a break. (Even with La Niña, we've already had a major storm and expect a series of them over the next week-plus.)

In general, though, I'm afraid that my Happy New Year greeting comes with a caveat: We may well have some rough weather ahead.

Cheers,

Paul

Insurance used to be a people business, but the legacy of insurance technology tells a different story. Despite a decade-long focus on digital transformation, those projects don't seem to have had a profound impact on the insurance ownership gap, which is widening across insurance segments and projected to reach $1.86 trillion by 2025, according to PwC. Meanwhile, insurance productivity has been mostly flat, according to McKinsey.

And while everyone talks about moving away from legacy and modern legacy systems, more than half of insurers responding to the "2022 Gartner CIO and Technology Executive Survey" said they are increasing funding for legacy application modernization.

Gartner forecast that global IT spending within insurance will grow to $271 billion in 2025, while retail spending will grow to an estimated $257.1 billion, but few people would argue insurance has kept pace with the advancements we've seen in retail, despite spending more.

So, what's missing from those legacy and modern legacy systems that makes them so inherently limiting?

To create seamless experiences offered by digital ecosystems leaders such as Netflix and Amazon -- in which people receive well-informed product recommendations, personalized bundles of products from a range of partners and the well-timed delivery of buying opportunities -- insurers' software applications, partners and data sources need to be connected via application programming interfaces (APIs).

APIs: Building blocks for customer-centric insurance

An API serves as a communications intermediary between technology systems, such as your policy admin system and a policyholder's IoT-connected usage-based insurance (telematics) dongle, fitness tracker or app, for example.

Because every API handles a specific communications task, complex interactions among technology applications typically require multiple APIs or a means of adapting them to different types of users. More technologically advanced insurance systems offer "persona-based APIs," which are simply specific APIs for different types of users and the tasks they perform. A billing agent, for example, needs different access to different data than a claims agent, or even a customer looking to review their billing information. These persona-based APIs accelerate insurers' ability to create customer-self service experiences and offer customized workflows that help customers, brokers, customer service representatives (CSRs), agents, partners and others do more with greater accuracy and speed.

This makes investing in an open (non-proprietary), API-rich technology platform the first step for ambitious insurers. Whether you use it to replace your monolithic legacy systems or deploy it as an integration layer to give you the real-time flexibility, agility and upgradability you need, an API-first digital insurance platform is crucial to delivering the personalized customer experiences that people now expect.

APIs, customer experience and retention

In most industries, brand loyalty is something to aspire to. But until insurers are able to consistently provide the right products and customer experiences -- those that create faster and simpler sales and services, produce better outcomes and promote well being -- they will remain in a price-driven market, where customers are motivated to change carriers based on discounts or disappointing customer experiences.

Through brokers and agents, insurers used to be good at knowing customers and servicing them as they marry, accumulate wealth and property, plan futures, start businesses and manage their health. But insurers' reliance on outdated technologies now stand in the way of the personalized products, services and real-time communications that create customers for life.

While it's a business imperative to decrease the total cost of ownership and increase operational efficiencies, they're just not market differentiators any more. To succeed, across business segments, insurers need to improve the user experience. We need to learn from the successes of other industries and create the ability to add, remove and change partners, systems, data sources and ecosystems as the market continues to change.

Open APIs -- designed for data accessibility and supporting insurance ecosystems -- unlock insurance data and can transform traditional administrative capabilities, such as underwriting, enrollment, billing, product setup and claims processing. Data accessibility truly is foundational to value delivery, improving the agent, broker, CSR, partner and insured's user experience and delivering better outcomes.

See also: A Wake-Up Call for Insurers

Insurers shouldn't use APIs as legacy lipstick

So, can you keep your legacy system and jump into the modern era by using tools to integrate with APIs? Sure, there are many options available that can enable you to link your legacy tech to the modern world via APIs. Just remember, while this might appear to be a quick fix, underneath the covers you still have a legacy system with all of the inherent legacy problems that come with it. You are simply putting off larger issues such as security risks, unmanageable IT costs, technical debt with maintaining multiple systems, the ability to attract and retain IT talent that can manage your legacy code, issues with unsupported code and hardware, compliance and certification barriers, to name just a few.

A better approach is to look at replacing your legacy sub-systems one at a time and migrating to a technology platform that follows the MACH foundation (microservices-based, API-first, cloud-native and headless). Truly ambitious insurers understand that to have a digital ecosystem such as Netflix or Amazon requires having a microservices based, API-first, cloud native and headless solution at the foundation.

My business partner, Reda, and I met while networking in Dallas. We were both highly motivated and building careers in the final expense vertical, so we compared our numbers and discovered that Reda was making more sales than I was, despite the fact that I was making more money than he was. 

As it turned out, Reda had a knack for reaching customers, and I had a knack for knowing which customers were worth the investment. He was generating an impressive amount of business but spending too much money on leads. Conversely, I had far fewer leads but a higher conversion rate. 

High-quality leads boil down to a mathematical formula in which your customers' lifetime value justifies their cost per acquisition. Combining our talents enabled us to achieve the best of both worlds and scale exponentially.

Improve the quality of your leads with pay-per-call and data leads

The lowest-quality leads are those that go unvetted. For example, I see many insurance agents rely on pay-per-click advertising rather than pay-per-call. I'll admit that in e-commerce, pay-per-click provides powerful results, but in many verticals of the insurance space, leads acquired through pay-per-call are much higher-quality. After all, which customers have a higher conversion rate — the ones who find your sales funnel through a click or the ones vetted through human interaction? 

When you acquire leads through telesales, you know a conversation has affirmed interest. This vetting decreases the cost of acquisition by increasing your ratio of high-value prospects. 

When using internet ads, data leads allow you to reach out through online forms. This allows agents to vet contacts based on useful data points and contact clients they know are worth their time. Agents selling home insurance, for example, can include space on the form to ask prospects if they live in single-family homes, apartments or duplexes. Contacting prospects who offer the highest lifetime value means you're getting the most out of your acquisition costs.

Improve the quality of your leads with targeted outreach 

Anyone can generate content and splash it across the internet. And at times, that haphazard marketing can result in a decent amount of web traffic. Still, the bottom line is that if those prospects do not convert into customers, you've wasted your time, effort and money. 

To increase the quality of your leads, target the audiences you know are already interested in your products and services. To accomplish this, craft your messaging and offers specifically to reach leads who are more likely to convert into paying customers. 

The insurance space involves a wide range of verticals, each of which has a different audience. To increase your conversion rate, learn everything you can about your target audience and where you can reach them with your marketing.

See also: "Intelligent Decision-Making" Is the Future

Improve the quality of your leads by considering each customer's lifetime value 

Improving the quality of your leads involves more than just lowering customer acquisition costs. You can also enhance the quality of your leads by increasing their lifetime value. One way to do this is by attracting customers with a low-barrier offer, learning more about their needs, then offering other services or products that will benefit them. 

For example, auto insurance is a low-ticket product, meaning you must sell a high volume to make a profit. The lower your commission, the less you can spend on each lead. Because of this, auto insurance agents often lack the cash flow to acquire their first leads. Many start with referrals from friends and family or attract new customers with an enticing, low-cost offer before cross-selling other products to generate the cash flow they need.

Another way to increase the lifetime value of your customers is to take advantage of back-end monetization through other business opportunities. Your customer base is a valuable resource. Agents in other insurance verticals and people in other industries would benefit from access to your clients, and you would benefit from access to theirs. Networking with a non-competing company can be a win-win. 

For instance, if you sell life insurance, your clients are often in the market for retirement planning, wealth management and tax deferral strategy. You probably already know financial advisers and accountants who offer these services, but perhaps have yet to realize how much you could help each other. If you team up to send each other referrals, or host a joint webinar to cross-pollinate your audiences, you can grow both your companies at once. 

As you generate leads, remember that quality trumps quantity. Your number of leads is far less important than your cost of acquisition and the lifetime value of those leads. Success in the insurance industry is about working smarter — not harder. Learn the math that allows you to take on quality leads by either decreasing your customer acquisition cost or increasing your customers' lifetime value.

It's been a busy year, one of the busiest periods I've ever experienced as a compliance professional. One positive trend is that the C-suite is asking about compliance more than ever before, and they are asking all the right questions.

As an auditor, I have a foot in two different camps: the cybersecurity regulatory camp, where I help in the evolution and promotion of cybersecurity frameworks, and the privacy and protection camp, where I focus on improving the security controls that help to protect data. I am an active member and participant in the IAPP (International Association of Privacy Professionals), which keeps its finger on the pulse of privacy matters and data protection mandates that are emerging. I can't remember a time when new regulations, amendments and updates to data protection across all verticals came out with as high a frequency as they did this year.

I am certain 2023 will bring a tightening of regulations due to all these changes, which will happen at different velocities in various geographies. For international organizations that operate in multiple regions, it gets complicated. For example, when comparing the regulatory environment in the U.S. to the European Union, data responsibilities become confusing because these are two very different regulatory ecosystems. A new E.U. law applies to all member countries with very few or no exceptions, but attempts to federalize data protection mandates in the US. so far have not come to fruition, with a proposed federal data protection act still a way out. The main obstacle to federalization is, of course, that it's up to the individual state to implement and enforce the law. That's why we end up with a regulatory mix of data protection mandates, with a few flagship states with passed data protection legislation, such as California,, Colorado, Connecticut, Virginia and Utah, while some state privacy laws still await final processing or lack full legislation geared at data protection.

Revisions across the cybersecurity industry

The new version of the Payment Card Industry Data Security Standard (PCI DSS) Version 4.0, released earlier this year, is a great example of a vertical regulatory revision that has already taken place and will become the baseline for PCI DSS compliance in 2023. It's very common for new regulations like this to work their way through the system with this sort of trial period first before they fully take effect. PCI's Data Security Standard is found within healthcare, retail and finance, and that's where I believe we will see some of the biggest regulatory events in 2023

The Federal Deposit Insurance Corporation (FDIC) also strengthened its rules, as did the Federal Trade Commission (FTC), and the National Institute of Standards and Technology (NIST) has proposed updates and revisions to its cybersecurity framework (CSF) toward 2.0, every one of them with an increased emphasis on reinforcing the core security controls that enhance policy. We will no doubt see new executive orders in 2023 that may be used to push forward the regulatory changes introduced in 2022. Executive orders are easily dismissed as knee-jerk reactions to big events - like the SolarWinds breach - and they do tend to be reactive. But the positive of an executive order is that it is nationwide and affects many businesses, which will then listen. States may then pay attention and reinforce the mandates. as they realize the need for stronger cybersecurity as a law or regulation. For example, the SolarWinds incident triggered an executive order calling for businesses within the supply chain to do a risk assessment as part of their cybersecurity policy and supply chain management - that was a very positive change.

See also: Cyber Trends That Will Change 2023

The changing role of the CISO in 2023

I've had many conversations with chief information security officers (CISOs) lately, and they have asked me many compliance questions. It is a huge positive that CISOs are now asking: How will these new regulations affect my cybersecurity policy? How can I best comply with these new rules? Earlier, it seemed that I was always the one asking the CISOs if they knew how compliance and legal mandates might be affecting their organization, like how the GDPR (General Data Protection Regulation) affects them and their organization's ability to operate.

CISOs and the rest of the C-suite are recognizing that governance, risk management and compliance (GRC) is going to be more important than ever and that understanding of how to harness the data provided by GRC exercises can empower their businesses. I know that people often think compliance is kind of boring - believe me, I've gotten a lot of eye rolls over the years - but it doesn't happen as often anymore. Corporations are beginning to realize that they have no choice but to work hard to understand their compliance posture if they take data protection seriously. The nucleus of this equation is that strong data protection is why we have all the regulations. It's not because industry compliance is an evil force trying to slow everything down - the view is changing more toward how compliance can be a helping hand when it comes to fortifying systems and protecting data.

Growing concerns around e-commerce and online payment platforms

One of my biggest concerns for 2023, and a constant for me, is the growing and changing e-commerce market. There are new and emerging payment platforms  - like virtual cards - and new data mechanisms that are very attractive and cost-effective for large retailers. However, these emerging technologies present cybersecurity challenges because we are still learning all the different attack vectors that can be employed to compromise and exploit the new systems. Every time it feels like there is a  lull in cyber-attacks, we must remind ourselves that the bad actors are simply changing their tactics and spending time at the start of the exploit cycle, planning and collecting information to orchestrate the next big attack. For modern payment systems, businesses are quick to roll out virtual cards because for many there is a significant cost savings associated with using those systems. Sometimes, cybersecurity and cyber insurance become an afterthought during product launches that focus on implementing the latest and greatest technology, but we need to stay extra vigilant in measuring our potential risk, especially to new systems. It's totally possible that threat actors are already working on a non-typical type of exploit that's targeted straight at our business - we just haven't seen or heard of it yet.