The hurricane season in the Atlantic basin officially started on June 1. The last six hurricane seasons have been characterized by above-average activity, and this trend is expected to continue in the 2022 Atlantic hurricane season. To minimize losses in the event of a hurricane, businesses need to develop and implement a comprehensive crisis plan, including actions to take before, during and after a storm. 

 According to the latest available forecasts, the 2022 hurricane season is expected to be above the 1991-2020 average, with 14 to 21 tropical storms and six to 10 hurricanes, including three to six major hurricanes (for comparison: an above-average season would be seven to nine storms reaching hurricane strength and two to four becoming major hurricanes, which is Category 3 or higher).

Looking back, the 2021 hurricane season was the third most active season on record, as well as the third costliest after 2017 and 2005. In late August, Hurricane Ida caused widespread damage in the Caribbean before devastating the coast of Louisiana, generating record rainfall in various locations, and flash flooding in the north-east U.S., resulting in insured losses of $36 billion.

The 2021 Atlantic hurricane season saw a total of 21 named storms, of which seven were hurricanes (four reached a major hurricane status). The number of named storms well exceeded the average of 14, and the total number of major hurricanes is also slightly above the average of three. 

Recent Atlantic hurricane seasons have seen the first tropical storms form before the official start date of June 1. As a result, the U.S. National Oceanic and Atmospheric Administration (NOAA) Hurricane Center has contemplated moving the start date to May 15.

The extension of hurricane activity could in some respects be attributed to the development of advanced observational technologies, which can identify weaker storms that never come close to any landmass, adding to tropical storm counts. 

Another contributory factor to the extension of seasonal storm activity is likely to be higher sea surface temperatures (SSTs). Tropical storms can only form and sustain themselves for longer periods where ocean temperatures exceed 27°C. Manmade global warming has increased atmospheric temperature by 1.1°C since 1880, with most of the net excess heat stored in the world’s oceans, including the North Atlantic. This has increased the duration of hurricane-supporting SSTs as well as the geographical spread of where they might occur. 

The role of climate change

While there is no clear scientific consensus on whether climate change will result in a net increase in the frequency of tropical storms, there is more certainty that high-intensity storms will become more frequent, indicating the potential for greater wind and storm surge damage. Scientists also believe that climate change will make hurricanes wetter, increasing the risk of flooding. In addition, the strength of a storm becomes harder to predict, as storms intensify in a short time. The wind speeds of Hurricane Ida increased by 55mph in the 24 hours before landfall in Louisiana. 

Businesses need to prepare themselves for the prospect of another above-average hurricane season this year. Obviously, windstorms cannot be prevented from occurring. However, loss can be greatly minimized by adequate preparation before a storm arrives. The development and implementation of a comprehensive windstorm emergency plan should be a No. 1 priority for those companies that don’t already have this in place.

Businesses in exposed areas are advised to regularly update their emergency plan, which should cover areas such as training, assembling emergency supplies, business continuity, buildings inspections, anchoring or relocating equipment and stock and protecting windows. 

Allianz Risk Consulting also publishes a series of risk bulletins and checklists to help you protect your people, property and business, including: Windstorm Checklist, Flood Checklist, Water Damage During Construction and Water Damage Prevention Solutions.

View the full Allianz hurricane season outlook here.

At the Insurance Europe conference in Prague last week, I closed the event with remarks on what will happen when insurance truly goes digital. Yes, I'm sure I'm partly just making certain you know that I spoke in a palace in Prague last week -- in the ballroom of the beautiful Zofin Palace on an island in the middle of the Vltava River, if you must know. But the talk seemed to go over quite well, so I thought I should share. 

I tell people I've been watching the same movie for more than 35 years, ever since I started covering IBM for the Wall Street Journal in 1986. In that movie, industries go digital -- and things blow apart, then reassemble.

As the center of the computer industry and arguably the most dominant country in the world in the mid-1980s, IBM was the focus the first time I witnessed the "what happens when an industry goes digital" movie. It was slow to adapt to the faster metabolism of the industry once personal computers came along and went through a tumultuous decade that saw the ouster of the CEO and massive layoffs. Then the rest of the computer industry followed IBM into digital disruption. When a commercial version of an internet browser became available in the mid-1990s, just about every industry could be affected -- retail sales, books, newspapers, music, you name it. 

In watching the "movie" over and over again, it has seemed to me that going digital looks a lot like the camera in your phone.

I'll explain.

The technology that allows photography developed for centuries, starting well before Leonardo da Vinci's camera obscura, and continuing through George Eastman's experimenting with film and chemicals that he baked in his poor mother's oven in the late 1800s. Once Eastman founded Kodak, the technology made great strides -- rolls of film instead of big sheets, smaller and smaller cameras, color, quicker and quicker exposures and eventually one-hour labs that churned out little yellow boxes of prints. But everything about the process was still analog. Photography still required a dedicated camera, film, lots of chemicals and paper. 

Then Philippe Kahn's wife had a baby.

Philippe is a fascinating guy, whom I've known since he founded and ran an early personal-computer software company, and it occurred to him as he paced the halls at a hospital in Santa Cruz, CA, in 1997 that the process of sharing photos with friends was what computer-types call a kludge. Digital cameras were starting to be available, and he had one, but he was going to have to go back home after the baby was born, take a card out of his camera, plug it into his computer, sort through the photos and, only then, email them to friends. Why couldn't he just connect his camera to his phone and send the photos right from the hospital?

So he did. And, in that moment, photography truly went digital. 

Philippe's phone camera got us soon enough to the point that few felt the need for a dedicated camera. The film, chemicals and paper disappeared, too. Photography had been stripped down to its simplest elements: capturing an image and sharing it.

Those who write about photography going digital tend to focus on Kodak, which actually invented the sensor that enabled digital photography but still bungled the transition to digital. It's an instructive story. I wrote it myself, in a book with Chunka Mui on lessons to be learned from failure that came out going on 15 years ago. But there are other lessons, too.

The stock market value that Kodak had didn't just disappear. It moved to other companies, many of which have achieved valuations that Kodak never dreamed of. Meta (with a market value north of half a trillion dollars even after all of Facebook's recent problems), Pinterest, TikTok and a host of other companies became possible because of the ability to capture and share images, free of the old, clumsy requirements of analog. Software and services have sprung up around the new world of photography, too -- we have to look good in those vacation photos, right, Photoshop?

The lesson I take from photography is this:

Going digital means eventually stripping an industry down to its barest essentials. And, once that happens, those bare essentials can be rearranged in all sorts of new ways -- hello, Facebook; goodbye, little yellow boxes. 

When I think about insurance, I see three bare essentials. There is a customer. There is a yes/no mechanism that decides whether a payment is triggered. There is capital. But that's it.

Sure, there are plenty of other things that have to happen: contracts, underwriting, claims processing, etc. But all those happen in support of one of those three essentials: the customer, the yes/no mechanism or the capital. 

We're still a good ways from being fully digital, and for at least one very good reason -- customers are making clear that they value advice that can't just come from a computer and that they value human contact. But you can start to see the three bare essentials taking new forms: embedded insurance that reaches customers in new ways, parametric insurance that can render a yes/no decision instantaneous, private equity bringing both its capital and its hard-edged expertise to insurance, etc. And I believe we're just beginning the digital disruption that the industry will see. I'm not sure we'll ever have that complete aha! moment that photography had when Philippe Kahn's wife had their baby, but we'll get there.

Cheers,

Paul

P.S. I also shared with the Insurance Europe audience a tool that Chunka and I have developed over the years that can help greatly in organizing your strategy for where digital will take you, but I'm going to set that aside for next week. I've already gone too long, and I'm actually on vacation. I'm catching up on Berlin, traveling with my younger daughter, who is chronicling the trip with her phone camera and, yes, giving me a little digital grooming via Photoshop, lovely child that she is.  

 

 

 

 

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A New Model for Agents and Brokers Not quite a decade ago, a colleague and I did some consulting on innovation for the CEO of one of the biggest personal lines insurers, and he expressed great frustration with his agent force. "Every time I try something new, even when it's going to benefit the agent channel, they turn around and kick me in the [crotch]," he said. In the years since, I've watched the power of agents and brokers only grow -- just look at how much valuations for agencies and brokerages have been climbing and at the much slower increases for carriers. And agents and brokers have mostly guarded the model that has let so many prosper for so long: They get paid commissions on product sales, rather than being paid for advice, and are rewarded for building and then maintaining a book of business rather than primarily for continually adding clients.  Certainly, the industry's push for digital innovation has led to more cooperation. In particular, insurers are trying to make themselves easier to work with, if only to try to become the carrier of choice for independent agents. But is that really the best we can do?  Bill Walrath thinks not.  Bill, now working as an independent adviser, has a long history of growing distribution networks across the U.S. He has also become a frequent author at ITL. (His recent articles can be found here.) So, I sat down with Bill recently to discuss whether there's a better way. His vision includes the need for insurers to become easier for agents to work with, in particular to seamlessly handle the busy work of issuing insurance cards, changing payment dates, etc. so agents can spend more time with clients and prospects. But the vision extends much further.  He notes that insurers spend loads of money buying data about customers even though most of it is of dubious accuracy. Agents have accurate information; why not pay them for it?  He also argues for moving toward a model where agents and brokers charge for advice. Everyone seems to agree that the advice is where the value is provided, so why not be explicit about the value and stop hiding pay inside product sales?  Change will surely be slow. Agents have control, and they're doing well in the current model. But opportunities are there for improvement -- even if they likely won't play out as my old client would wish.  Cheers, Paul P.S. The full interview is here Enjoy.      "There's a ton of information that agents can bring to the table based on what they know about customers. Companies spend loads of money buying data about customers that, in most cases, isn't that great. We're all trying to figure out who this customer is – and the agent likely knows it. So, is there a way that you could pay agents for good data?."  -William Walrath  Read the Full Interview READ MORE Agents and Brokers Commentary: May 2022 If an old-line family business in Mexico could build a game-changing dashboard more than  25 years ago,why not agents and brokers everywhere in today's digital world? Read More Specialization: Agents' Vast Growth Opportunity There is a huge range of opportunities that are still untapped, just waiting for creative, research-driven, passionate agents to capitalize on. Read More Getting Strategic About Distribution Putting the right product in the right place at the right time through embedded insurance has more potential than any other insurance innovation in recent memory. Read More Revolution? Not Yet. Evolution? You Bet. In our fervor to embrace new insurtech companies, we may have missed the opportunity to learn from those incumbents that have seen the ups and downs. Read More Underinsurance: A Call to Action for Agents We need to start a discussion about underinsurance, especially after natural disasters, to determine if changes need to be made to better estimate replacement costs. Read More 5 Flaws of a Commoditized Sales Approach I am convinced that  "we're free" are the two most damaging words in a broker's vocabulary, yet we see and hear them all the time. Read More FEATURED THOUGHT LEADERS Joel Zwicker Jocelyn Getson Bill Walrath John Putnam Kevin Trokey View all ITL FOCUS topics

ITL:

Despite all the talk about disintermediation, agents and brokers are as firmly embedded as ever in the sales process. But customers are also demanding changes in how they do business with insurers and their agents. In that context, what would be the first piece of advice you’d give to agents and brokers?

William Walrath:

There's definitely an aspect of digital self-service that’s required, almost letting go of the process and allowing people to have more freedom in terms of researching and asking questions and wanting to do things on their own. I think that poses a huge issue for agents, who are used to trying to create that perfect in-person relationship. Agents have to restructure and rethink how they go to market, the way that their offices are set up, just their general approach to the business.

I think agents, over time, are also going to have to diversify their businesses. Look at auto and home. Those are very competitive, so they're very price-driven. There's not a lot of differentiation. Agents who sell those lines need to begin learning how to move into products that are a little bit more complicated, where advice is needed – and where there’s more margin, too.

That might mean learning about small businesses. When you're dealing with a small business owner, there are a lot of things that can happen throughout the year. Payroll can go up, it can go down. The number of drivers of vehicles can go up, it can go down. Employees can come and go. All of those changes can affect the insurance policy. This is where an agent really stands out by giving advice and helping the client through all those changes, which are not simple, especially from the standpoint of a business owner who’s incredibly busy.

I’d also watch the insurtechs. As they continue to enter the market, I believe that at some point in their growth cycle they're going to want to look toward agents to help them grow.

ITL:

Some insurtechs are already starting to turn to agents.

Walrath:

Absolutely. The idea, at first, was to simplify the product with technology to the point that an agent wouldn't be needed. But, the deeper they get into insurance, the more insurtechs realize that that's not always the case. There's lots of things that happen in products, even within auto insurance, let alone in commercial insurance. Over time, insurtechs are realizing that relationships do matter and that they need to seriously consider using agents as a form of distribution.

ITL:

Beyond small business, what’s another area for agents to consider, where there might be more advice needed and thus more margin available?

Walrath:

Look at life insurance or umbrella disability. Health insurance is wildly confusing if you're not involved in an employer-based plan.

New products will take hold – parametric insurance, for example. Those new products will need to be explained. Agents can play a big part.

ITL:

If you look at financial advice, you see sort of a hybrid model. Many make money from commissions on selling products, but they also will charge for advice. Do you see us getting to the point with insurance agents where they would increasingly charge for advice?

Walrath:

Over time, we need to strongly consider the way in which we compensate for what an agency brings to the ecosystem.

In insurance, we have built a system based on a new business sale or renewal. That's how we pay, oddly enough. But, because of all the digitization of processes, customers don't always need somebody to fill out an application on their behalf like they did 30 years ago. We should strongly consider what types of activities and interactions with agents bring value to customers – and value might equal money at some point, because advice is something that can be compensated for.

The industry has done a lot of studies about the interactions between agents and customers, and most companies are very aware of what types of interactions create better retention, cross selling, etc. But companies don't necessarily drive those behaviors through a compensation system that would make it even more lucrative for agents to do those things.

The other thing is, there's a ton of information that agents can bring to the table based on what they know about customers. Companies spend loads of money buying data about customers that, in most cases, isn't that great. We're all trying to figure out who this customer is – and the agent likely knows it.  So, is there a way that you could pay agents for good data – is this family interested in having children, purchasing a home and so on? – and build up that client file so you can serve the customer correctly?

ITL:

Do you think the slow rate of change is because of lack of innovation on the part of the insurers or resistance on the part of the agent?

Walrath: 

A little bit of both.

I would say the execution of innovations by companies has been lackluster and has created a trust barrier. A company says, let’s be innovative and offer a new product. Let's offer travel insurance. What ends up happening is there isn’t an integrated process for the agent. Companies don’t ask themselves, how can agents work this new product into the conversations with clients, among all these other products you’re offering? And suddenly the agent is sending three different bills to the customer.

There's no doubt agents have to be open to change, but companies have to do a better job of innovating, as well. And not just with the idea, but the execution part of it.

ITL:

A sticking point seems to be that insurers don’t want to pay so much for renewals. I hear insurers say they want to encourage agents to generate new clients and not just build a book of business and coast on the renewals.

Walrath:

That goes back to my point about why agents should move toward products with more complexity. You don’t hear that drumbeat about commissions on these higher-complexity products like commercial insurance. You just hear the complaints on lower-complexity products like auto insurance, where the competition is only going to increase.

ITL:

Can you think of a company that is doing an especially good job of reorienting its relationship with agents?

Walrath:

I'll use examples from the independent agent side – I believe the independent agent side of the business has a healthier and more robust relationship with their agents. I’d cite Goosehead, Brightway and We Insure.

They have a new model. They pay a fair commission but also recognize that agents spend a significant amount of time servicing policies and built an infrastructure that seriously supports those agents. If a customer needs an insurance card or wants to change a billing date, that request seamlessly goes to a central call center. The agent can stay on the offensive, working with either new clients or existing clients in a meaningful way.

The companies came at this with the agent in mind first. The agents I've talked to who have worked in those groups are incredibly satisfied and are producing a lot of business.

ITL:

That sounds like a great place to end, with a call to action for insurers. Thanks so much.

Are you selling so that you are delivering what your clients WANT to buy, or are you holding them hostage by focusing on what they HAVE to buy?

This idea of “want to buy” and “have to buy” might seem odd. However, it’s a powerful concept once you put it into practice.

We came across an article in Inc. magazine many years ago. As you hear the details of the story, you'll get an appreciation for how old this story is. But it still does a fantastic job of communicating the difference between what people want to buy and what they have to buy. 

They (don't) want to buy a CD 

This article was written by the CEO of a startup entertainment company. Of all things, they were going to do a remake of the movie Grease starring the boy band NSYNC. 

The author explains that they were in Times Square, standing in the lobby of a national record store chain for a promotional event. Because NSYNC was so popular at the time, all of the executives from this record store chain were in attendance.

He goes on to describe this collective group standing in the lobby, watching all these customers come in and out of the store. The author said he turned to the record store executives and asked,  "What do you think all these people want when they come into your store?" 

The CEO spoke up on behalf of the group, seeming to think, "Well, this one's pretty obvious." He said, "Well, they come in because they want to buy a CD." 

The author told him, "I don't think so. I don't think anybody wants to buy a CD." 

He said that the CEO was visibly offended and responded, "Do you have any idea how many millions of CDs we sell every single year?" 

The author said, "Oh, I get that. I'm not trying to take anything away from that, but I don't think anybody wants to buy a CD. I don't think anybody wakes up in the morning and says to themselves, ‘you know what I want to do today? I want to go out today and buy a round piece of plastic with a hole in it’. But I think people wake up thinking about that new song they heard the day before. How much they enjoyed it. How good it made them feel."

The author continued, "No, I think the people coming in your store HAVE to buy the CD, but what they really WANT is to hear that song again. They want that feeling back, and they want it all as fast as they can get it." 

Very dismissively, the CEO says, "What's the difference?" And the author goes on to point out, if those record store executives would've understood the difference between what their customers had to buy and what they really wanted, maybe they would've been motivated enough to go on and invent the iPod, iTunes, and all the technology that has followed since. But we all know how that story played out: A computer company figured it out and made billions of dollars from the technology, and the record store has long since gone bankrupt.

Don’t be the record store

It’s no different for you and what you sell. You have to be sure you are helping your customers obtain what they want to buy. And I'm going to tell you: Insurance ain't it. 

Insurance is a have-to buy. Nobody wants to buy insurance. I'm guessing this also includes everyone who makes their living off insurance.                    

I wish I could see your response to the following question: How many of you grew up with the goal and went to school with the aspiration of getting into insurance? 

Most of us end up here by accident, myself included! However, once you get here, you realize what a special industry this is. The impact you get to make on businesses, the difference you make for people, the quality of life you enjoy and the income you can have are all amazing benefits of a career in this industry.

See also: The House That Floated Away

The REAL reason you stayed

I'm going to guess the one thing that kept you in an industry you never intended to enter is that everybody has to buy the products you're selling. Whether they're legally required to do it, or it's just a prudent cost of doing business, everybody has to buy it.

Most of the time, you don't even have to convince people to buy what you sell. All you have to do is convince them you are the one they should buy it from. We fall into this trap of focusing on the fact that they have to buy what you sell. When you do, you tie your own hands. 

Because you are focused on one need they must satisfy, you now only have one type of solution to offer. You've limited the conversation you can have with buyers. 

While you’re limiting the conversations you can have with clients, they’re over there RESENTING the fact they have to buy what you’re selling. So think about that, guys. If you focus on something they resent having to buy, you build your relationship with buyers on a foundation of resentment. We can change that.

Replacing the foundation

We can change the foundation you build beneath you and your clients in a couple of ways. First, ask yourself why your clients buy the insurance product in the first place.

Sure, some are merely checking a box. These likely aren’t your favorite clients.

I would guess the clients you enjoy the most buy insurance because it’s part of the bigger picture they WANT for themselves. I realize it’s a bit of a cliché, but they understand the insurance is the have-to-buy on the way to their want-to-buy, to be an “employer of choice.”

Second, ask them directly what they want. If you slowly take the time to understand the motivation and goals of your clients, it changes the game. No longer are you building a relationship based on resentment. Now you are building a relationship based on appreciation.

Which sounds and feels better? Not even close, is it?

What were we thinking? It’s a common question in every area of life! We find ourselves in a particular state, and we wonder what decisions we made that brought us to this point. These might be the good decisions that prepared to take advantage of opportunities. They may also include decisions that seemed correct at the time and now have us wishing we had selected an alternate path.

Either way, Majesco has been carefully understanding and weighing insurers’ awareness, planning and execution across key areas that substantially influence growth for seven years now in a way that yields some valuable insights. We know what the industry was thinking and doing seven years ago, and we can compare it with what insurers consider to be important today. You can see the full set of insights in Majesco’s strategic priorities report, A Seven Year Itch – Changes in Insurers’ Strategic Priorities Defined by Three Digital Eras Over Seven Years.

Why a seven-year itch? It was made famous in the Marilyn Monroe movie. But the underlying concept about a seven-year itch is change, which picked up in a disruptive way by the mid-2010s with the emergence of new technologies and insurtech and accelerated in the past two years due to the pandemic.

The pace changed. The market changed. Technology changed. Competition changed. 

And change changed.

A key question to ask yourself: Do you have a seven-year itch for change? Your competition is changing. Your customers demand it.  And leaders are making the change to adapt, innovate and thrive. 

Over the last seven years, we have seen three digital eras of insurance innovation and how insurers are now capitalizing (or not!) on what they have learned to establish themselves as the next generation of leaders. How do you compare?

The 3 Eras of Digital — Do you recognize them?

Hope you like roller coasters and can stomach the rapid highs, lows and curves, because we've been on a seven-year roller-coaster, with the ride not only continuing but not slowing down! New and constantly changing risks, shifting customer behaviors and expectations and numerous insurance innovations have quickly erased the idea of status quo. Sources of data have proliferated. New distribution channels are highly sought. Companies that had never considered partnering are now reaching out. Insurtech capital seemed like it was going to peak, but it hasn’t. The pandemic and numerous mergers and acquisitions added fuel to the changes.

If insurers have learned anything, it has been that it won’t pay to wait for the calm period. It’s okay to embrace the wild ride.

Seven years ago, Majesco also began our strategic priorities research. We wanted to focus on the challenges – both internal and external – facing insurers and how those shaped their current and planned strategic initiatives for growing their businesses. Looking back at the beginning to this year’s results, three distinct eras become clear.

• Digital Disruption Era — In 2015 and the first era, insurtech was new and booming, causing a wait-and-see attitude regarding technology and business investments.
• Digital Transformation Era — A couple of years later, the second era began, with the industry’s outlook becoming optimistic, driving a wave of technology, insurance innovation and business model transformation.
• Digital Acceleration Era — We are now entering the third era due to COVID disruption and adaptation, reflecting strong signs of resurgence and resilience by insurers.

Throughout these seven years, the rising importance and adoption of advances such as platform technologies, application programming interfaces (APIs), microservices, digital capabilities, new/non-traditional data sources and advanced analytics capabilities have become crucial to industry leadership. Market trends like the gig/sharing economy, fading of industry silos with emergence of new competitors, the rise of ecosystems and partnerships and much more are driving insurance innovation with new business models, products, services, customer experiences and distribution channels.

However, the different levels of awareness of these developments and the strategic responses to them have in many cases redefined industry players into three categories: Leaders, Followers and Laggards. Gaps between them remain, and the size of the gaps continue to change as the goalposts continue to be moved ahead by Leaders.  

The view for the future — focus on growth

The pace of change is driving strategic discussions on how insurers will prepare and manage the changes needed in their business models, products, channels and technology. What is leading these conversations today?

According to our survey, growth remains the top focus of insurers’ business activities and performance over the past year, driven by changing or introducing products (58% impact) and expanding channels (24% impact). This focus was highlighted with the reallocation of resources to change how insurers do business. The strong correlation between changing/new business models and growth (r=0.65) indicates deeper structural changes are well underway to the traditional ways of doing business and focused investment on the future of the business.

Figure 1: The state of insurers' strategic activities in the past year

Seven-Year Trends

In the first era, Digital Disruption, we saw a decline in the average assessments of company performance and strategic activities as companies tried to understand the implications of insurtech. This quickly led to the realization that legacy systems were holding insurers back and limiting their ability to compete with new business models, products, channels and technology capabilities. This pushed insurers to refocus on innovating by creating a new foundation of software-as-a-service (SaaS) platform solutions that replaced legacy systems during the Digital Transformation Era. As legacy began to be replaced, channel expansion, new business models and new product development began to rise and converge. The pandemic once again saw a decline as insurers addressed implications of the pandemic. But as we enter the Digital Acceleration Era, it reflects the rapidly growing demand for digital capabilities by customers due to the experiences of the pandemic.

See also: What Happens When Insurance Truly Goes Digital?

As digital transformation continues to accelerate, insurers are once again experiencing rapid growth as the top strategic factor, signaling they are successfully navigating and adapting to the new market conditions created by the pandemic. Insurers are turning their circumstances into insurance innovation and growth opportunities.

Figure 2: Seven-year trends in the state of insurers' strategic activities in the past year

Strategic outlook based on industry positioning

The survey results for this year continue the trend of disparities between insurance Leaders, Followers and Laggards based on their strategic outlooks.  Encouragingly, Laggards made significant progress in closing their gap from 64% to only 20% as compared with Leaders when considering the state of their company last year, influenced by an increased focus on digital transformation acceleration. However, Laggards still are too focused on the traditional business model, with sizable gaps of 25% to 30% in reallocating resources to change how they do business, expand channels or offer new products and new business models – which is reflected in their view of their company three years out.   

In contrast, Followers are treading water with a 13% gap to Leaders compared with 12% last year. Two of their biggest challenges, reallocating resources and expanding channels, are crucial for future growth. They likewise are too focused on today and not recognizing that customers’ rapidly changing needs and expectations will demand them to adapt to new products, business models and channels to meet customers on their terms.

Figure 3: The state of insurers' strategic activities in the past year by Leaders, Followers & Laggards segments

Internal Challenges Shape Insurers’ Focus

The Digital Disruption Era saw a rise in internal challenges with a grand scale paralysis regarding many initiatives due to the unknown influence of insurtech.  

As the industry adapted and embraced tnsurtech in the Digital Transformation Era, budget and legacy systems challenges began to wane due to increased technology investment and replacement. However, data/analytics capabilities, data security, digital capabilities and talent rose, driving the average concern level for internal challenges to its peak level in 2018.

On the cusp of the COVID and the Digital Acceleration Era in late 2019, insurers were increasingly confident about internal challenges, consistent with the positive assessments of their companies’ past year performance and strategic activities.

Surprisingly, after the first year of the pandemic, internal challenges average levels dropped further, weighed down by low concerns for a post-COVID work environment and an aging workforce. Rather, innovation, digital capabilities and legacy systems replacement rose to the top, driven by the pandemic-accelerated need to become digital-first businesses.

However, a new work reality is setting in, with attracting and retaining talent vaulting to the top challenge.  Finding and keeping talent – both business and technical – is critical for insurers to build and grow their new digital-first businesses.

Figure 4: Seven-year trends in concerns about internal challenges

Internal Challenge Awareness and Execution

Consistent with their focus, Leaders demonstrate the highest levels of awareness regarding their internal strengths and weaknesses, reflected in gaps of 15% with Followers and 24% with Laggards. These differences are influenced by gaps between Leaders and both Followers and Laggards for data security (45%, 22%), data and analytics capabilities (35%, 24%) and legacy systems (28%, 27%). The lack of awareness and planning, let alone execution, puts Followers and Laggards dangerously at risk, particularly for game-changing data and analytics capabilities.

In assessing the gaps based on large (over $1B in DWP) versus mid to small insurers, large insurers reflect significantly higher awareness regarding speed to market (+10%), data and analytics capabilities (+9%), legacy systems (+14%) and aging workforce/retirements (+10%). While large insurers typically have access to greater resources – capital and people, mid-small insurers have less complexity, giving them an edge and opportunity to close these gaps if they can move more rapidly from awareness to execution.   

Figure 5: Concerns about internal challenges by Leaders, Followers and Laggards segments

A notable set of internal challenges gaps that drive doing business differently – digital strategy (19%, 15%), insurance innovation (20%, 18%), aligning IT and business strategies (26%, 10%), distribution ease of doing business (22%, 15%) and change management (24%, 14%) –  are of crucial concern. The large double-digit gaps, coupled with the pace of change, will likely expand and put Laggards and Followers at a significant disadvantage … affecting future growth. 

External Challenges Confronting Insurers

External challenges trends for insurers reflect the continuous, rapid pace of change and constantly changing market and business assumptions that insurers faced during each of the three eras. The lack of addressing the internal challenges exacerbates external challenges – putting insurers at a consistent disadvantage to other competitors.  

Insurers’ external concerns have focused on changing market dynamics reflected in the pace of change, emerging technologies, and changing customer expectations. This suggests insurers are more concerned about their own internal capabilities to rise to these challenges than about new competitors doing so (an inside-out view instead of an outside-in view). Similar to the lowest rated concerns, these three remained the top three to four issues over the seven years of the research. 

Figure 6: Seven-year trends in concerns about external challenges

External Challenge Awareness and Execution

Overall gaps between Leaders, Followers and Laggards for external challenges are nearly identical to the internal challenges gaps. However, the differences emphasize the view that Leaders are more forward-thinking and visionary while Followers and Laggards are still stuck in yesterday’s and today’s paradigm.

In particular, Laggards are explicitly behind Leaders across more external challenges including pace of change (35%), rise of direct sales (35%), embedded insurance (24%), exchanges (34%), and new/innovative insurance products (31%). Likewise, Followers are most vulnerable on the rise of direct sales (23%), embedded insurance (19%) and new competition from outside the industry (22%). For both Laggards and Followers, these areas are substantially reshaping insurance and are directly related to insurance innovations that are driving growth for the next generation of leaders. This reflects a major blind spot for Laggards and Followers in the changing customer and market dynamics that will have significant retention and growth implications over the coming years, putting them at a competitive disadvantage.

Figure 7: Concerns about external challenges by Leaders, Followers and Laggards segments

Large insurers are significantly more aware of and focused on the external challenges as compared with the mid-smaller insurers.  Mid-small insurers must keep themselves abreast of these external challenges that influence customer and market dynamics. Taking concerted efforts to engage outside their organizations with others involved in innovation, insurtech and other industries is crucial to thinking outside the box. This outside-in perspective is vital in today’s rapidly shifting marketplace.

See also: Thinking Big for True Transformation

Insurance’s new wake-up call

If the insurance roller coaster has taught us anything through all three digital eras, it might be this: The time it takes to go from recognizing change (social, climate, technology) to reacting to change (insurance innovations such as new products, new distribution, new technologies) must grow shorter to remain competitive. The only shortcut is through partnerships to track, assess, engage and respond to these trends to better position themselves and their partners to succeed in the future.

To consider how your organization measures up to Leaders’ strategic priorities, be sure to download A Seven Year Itch – Changes in Insurers’ Strategic Priorities Defined by Three Digital Eras Over Seven Years.

Quantum computing is coming, and, when it arrives, it’s going to revolutionize how data is processed and stored. However, quantum technology, in the wrong hands, could create a multitude of digital risks, including advanced cyberattacks. For the insurance industry — which is increasingly relying on data as a key asset to digitize transactions, improve underwriting decisions and speed processes — this poses a significant problem and represents a potential exposure area that could jeopardize all levels of the industry, from the average insured to the large legacy carriers. 

What are quantum computing and quantum resilience? 

According to IBM, “quantum computing is a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.” Dr. Michele Mosca at the University of Waterloo predicts that there is a one in seven chance that some fundamental public-key crypto will be broken using a quantum computer by 2026. That chance increases to one in two by 2031. 

With quantum computing comes quantum threats, as a quantum computer is capable of undermining the widely deployed public key algorithms used for asymmetric key exchanges and digital signatures — both vital parts of protecting the confidentiality, integrity, and authenticity of data transfers in the current computing environment. 

Without effective mitigation, the impact of adversarial use of a quantum computer could be devastating to the insurance industry, especially where information needs to be stored and protected for decades. 

Quantum resilience mitigates the effects of these vulnerabilities and ensures that precious data remains safe by breaking the data into smaller, encrypted pieces and anonymously storing them in different places. When an algorithm is quantum-resilient (also known as quantum-resistant or quantum-safe), the cryptographic algorithms are supposedly resistant to cryptanalytics attacks from both traditional and quantum computers. 

While quantum computing does seem a bit menacing, Q2K doesn’t need to be another Y2K. By thinking about quantum now, insurance can concentrate on what can be done to prepare for quantum’s arrival and prevent another widespread panic. 

What is being done to work toward quantum resilience? 

Many organizations, such as the open Quantum Safe project and the National Institute of Standards and Technology (NIST), are aware of the threat quantum computing poses and are working to create quantum resilience. NIST is collaborating with government, academia and industry to develop a new set of encryption standards, positioned to be released in 2024, that work with classical computers while also resisting quantum threat. The standards will include software recommendations as well as hardware updates. Software giants such as Microsoft, Google and Amazon Web Services are also among those developing quantum-safe encryption algorithms.  

Some organizations are even investing in dedicated quantum resilience teams as an extension of their cybersecurity group, while others are monitoring the threat closely and getting ready to act when standards are made available. 

It might be hard for insurance to justify investing in quantum resilience measures; however, the industry needs to be patient and can’t lose sight of the threat of quantum computing by compromising on safety measures, as insurance could be particularly vulnerable to devastating cyber attacks — especially since insurers often carry not only the data of their customers but also their partners. 

What are the risks to insurance with quantum computing? 

Just as with other industries that rely on heavy encryption to deal with sensitive data and information, cybersecurity is of the utmost importance in the insurance industry — especially for organizations looking to gain and maintain clients’ trust. With the rise of insurtech and innovations such artificial intelligence, insurance is in a transition where it’s trying out new connections, new relationships, new vendors and new technologies – experimentation that also increases its cyber risk.  

Not only that, but many large carriers use older legacy systems for their data. This poses both a challenge and risk, because they may not have the capability to implement all the security measures needed to protect against current and quantum threats. This also means that when implementing new algorithms or upgrading existing applications, different approaches are required to elevate the software while maintaining its integrity and the data. 

Insurance carriers need to ask themselves how long they want the legacy systems to continue and whether they believe quantum computers are a threat to their operations. If you’ve adopted a new technology that you want to last, upgrading it to be quantum-resistant is vital as you digitize and modernize.  

What can the industry do now to protect itself and its dependents from quantum attacks? 

One of the ways the insurance industry can secure its data and mitigate against cyber risk is externalizing its data by using data exchange platforms such as ADEPT (ACORD Data Exchange Platform & Translator). While this does open insurers up to some risk, it can be beneficial in the long run if the right partner is chosen, especially because internal systems are prone to attacks.  

For example, insurance carriers can use these data exchange platforms as a backup in case they’re hacked. If an organization is hacked, not only can they lose access to their data, but they can also lose access to certificates of insurance and other vital information and documents that can help them get on the road to recovery. However, by using a data exchange platform, insurers have access to a backup version of the certificate and can quickly work to get back on their feet.  

When selecting a data exchange platform, insurers should look for companies that use RSA encryption – currently the most widespread and effective cryptographic key distribution technique. RSA encryption relies on the fact that it is very difficult for computers to factor large numbers. So the prime factors to a large number can act as a "key": The information is encrypted with a big composite number, and the receiver must know the prime factorization to decrypt the information. But these prime factors are kept a secret between the sender and receiver, and an eavesdropper can only see the composite number. With classical supercomputers available today, they would need to wait trillions of years to crack the code and find the prime factors. It has been proposed that a quantum computer, however, could exponentially speed up this process. Shor's algorithm presents a blueprint for a quantum computer to factor an equally large prime number in only eight hours if the quantum computer were large enough. Today, quantum computers are far too unreliable to demonstrate Shor's algorithm – we are a far cry from operating the millions of qubits in concert that would be necessary to break RSA encryption. But if we wait to become quantum-resilient until after Shor's algorithm is truly realized, we risk widespread vulnerability to cyberattacks.

Another way a carrier can protect its data and insureds is by keeping abreast of when quantum standards are published and taking steps to implement hardware and software upgrades. A way to do this is by partnering with organizations that can provide resources and training on quantum computing and resilience while also notifying them when new standards and regulations are released. That way, insurers can update their technology and implement patches as soon as they are available to keep their data secure.  

As the industry moves to modernize, it’s vital that carriers adopt technologies and work with partners that are proactive in protecting valuable data and take steps to promote awareness and education of quantum resilience while preventing another Y2K from occurring. 

One of the biggest challenges for producers is keeping their pipeline full and healthy. The right new business opportunities, for most, are too difficult to come by. This only adds to my confusion when I see evidence of producers not properly preparing and practicing for those oh-so-valuable prospect meetings.

Those opportunities are valuable, but they also come with the great responsibility to show up prepared. I want to share two of our favorite stories about why practice and preparation are so important.

The game is won on the practice field

My daughter was captain of her high school lacrosse team. At the end-of-the-year banquet, she received the "110% award." Later that evening, I told her how proud I was of her, and she said, "Thanks, Dad, but I'm not sure that it's entirely a good thing." 

I asked her what she meant. She explained that there are only four end-of-the-year awards: the 110% award, Best Defender, Best Offensive Player and MVP. She recognized that the other awards were based on results while hers was based on effort. She understood that giving the best effort doesn't necessarily equate to delivering the best performance.

It's the same in selling; you can go into a sales presentation and give 110% of your ability, but if you haven't given 110% in preparation to improve your abilities, the 110% game effort may not be enough. 

It's easy to get excited and pumped for a finalist presentation. If that doesn't happen automatically, you might consider another career. However, it's much harder to give 110% to building your business acumen, learning new approaches and practicing your presentation skills when anything isn't immediately on the line.

Athletes who wing it on the field will occasionally win on sheer will, effort or the fact that they are competing against a less talented opponent. However, it's the athletes who play just as hard (maybe harder) on the practice field who can complement their effort on the playing field with well-deserved confidence.

In sales or sports, that's a difficult combination to defeat.

See also: Easy Ways to Start Mentoring Program

It's uncomfortable for everyone

The second story was shared by a client of ours who had been reminded of how important it is to be prepared for opportunities.

He explained how it had been his privilege to serve as grand marshal for the commencement ceremony of a local high school. 

The commencement speaker was sitting next to him onstage. As it was his turn to address the audience, he approached the podium, struggled to gather his thoughts and apologized to the school and the graduates – his travel schedule had been crazy, and he just wasn't prepared to give them the speech they deserved.

He stepped down from the podium and returned to his seat next to our client. You can imagine how awkward everyone felt.

Moments later, the speaker stood back up, walked to the podium, announced, "just kidding" and whipped out his speech! The students went crazy, and our client said you could feel the sense of relief from those in attendance.

It was an inspiring moment as the speaker implored the students to remember that uncomfortable feeling of watching someone who was unprepared for an opportunity.

Our client said it reminded him of a Q4i-ism, "Practice out of fierce determination not to waste anybody's time, and practice out of fierce determination not to waste your opportunity."

He appreciated what a great lesson it was for the graduation class, and it was a great reminder for everyone else: Be prepared.

The flywheel of winning

The more you practice and prepare, the more confident you will be going into an opportunity. The more confident you are in those opportunities, the more successful you will be in closing deals. The more successful you are, the more motivated you will be to invest more time and energy in your professional development.

Never take your opportunities for granted; there is too much on the line for you and the buyer.

Cyber insurance, once a luxury, is now becoming a part of an organization's cyber resiliency toolkit, along with incident response readiness. However, in the face of accelerating insider cyber crime, a rise in ransomware attacks and other threats, some insurers are increasing their premiums. Others are simply exiting the market altogether. As a result, cyber insurance is becoming more expensive and harder to obtain. This is a matter of insurability.

Behind all of this, there is the upfront cost of making sure your organization is first equipped to satisfy the increasingly rigorous security controls to meet the coverage qualification criteria. To simply qualify for protection, businesses must be able to demonstrate their cyber resilience and prove they have deployed appropriate protection.

We argue that the best place to start is by securing a well-known defensive weak point: privileged access that has administrator-level powers.

Keep Your Privileged Access in Check

If an attacker manages to crack into a privileged user account, they gain the literal keys to the kingdom, and it could be game over for defenders. This is one reason why businesses should ensure key corporate assets are only accessible to authorized users with the right security controls satisfied.

Privileged Access Management (PAM) is one of the best solutions to protect and manage access. Yet, as well as improving an organization's security posture, a PAM solution also demonstrates that a business has reduced the risks and is better prepared to face the latest threats. We are not alone in making this claim, because underwriters are also now questioning clients as to whether they have deployed secure access solutions before signing off on insurance policies. PAM should therefore be a foundational part of any organization's cybersecurity posture and readiness.

Insurers evaluate cyber risk using a variety of models and metrics. Cowbell Cyber, for instance, uses specific factors that rate an organization's cyber risk along eight criteria: Network Security, Cloud Security, Endpoint Security, Dark Intelligence, Extortion, Funds Transfer, Compliance and Software Supply Chain. They assess an organization's insurable threats and map them to risk exposures, on a continuous basis. The result: a cyber insurance policy tailored to your risk and business needs.

The methods of assessing risk will vary among providers, but they are all looking for the same fundamentals: strong cybersecurity defenses that respond to the latest threats. Secure access is an important part of risk reduction insurers are looking for when making insurance premium decisions.

The authoritative Verizon Data Breach Investigations Report 2021 found that 61% of breaches involved credentials, with stolen credentials used in 25% of breaches. It is so easy to buy or steal passwords that organizations must be realistic about the limited protection they offer. PAM is a more robust way of securing access, protecting privileged accounts from unauthorized access and limiting the potential damage of an incident.

See also: Cyber: Black Hole or Huge Opportunity?

Managing Privileged Access

A PAM solution monitors administrator accounts to ensure only authorized users are accessing its network and promptly catches any suspicious activity. For example, a PAM solution would be on high alert if a privileged account started to access large amounts of sensitive data or if a high number of privileged user accounts were suddenly accessed outside of normal business operations or from suspicious network locations.

Users rely on PAM tools for protection against external and internal threats. PAM solutions effectively reduce risk by their ability to recognize and stop unusual behavior before it becomes damaging to the network. Key features in a PAM solution include orchestration and automation. The orchestration of the PAM solution keeps functions running smoothly, giving other critical solutions the access they need without increasing the risks, such as integration with vulnerability assessment or data loss prevention solutions. PAM ensures a multifaceted defense system that shuts down any potential risks and provides seamless, secure access when needed on demand. The automation feature in PAM manages authentication, authorization and monitoring, with no added work for security teams such as rotating passwords after a task has been completed.

As an extra layer of security for privileged accounts, multi-factor authentication (MFA) assists in protecting privileged accounts from unauthorized access for a greater amount of workflows, systems and users.

As attacks continue to grow in volume and sophistication, cyber insurance policies have had to constantly adapt and raise their requirements for businesses. They expect businesses to have a comprehensive security posture in preparation for a wide variety of attacks. Businesses that have already deployed PAM and MFA solutions in their security systems will certainly be more appealing as insurers look to evaluate their coverage options.

I, like many of you, began to feel the economic tides shifting a few months ago, whether it was the rise of gas prices or the trip to the grocery that rang up to a little more than usual. The general feeling was that we were entering into a new normal. 

Interestingly, what is happening is not new. Rather, this "book" will likely read like another classic from the ’70s and ’80s titled, “how did this happen, and how do we get out of it?” Just ask Jimmy Carter. Although inflation was routinely blamed on oil prices, currency speculation, greedy business and union bosses, the truth came out after the crisis was over. Guess what the primary influence of inflation was: monetary policies that financed massive budget deficits. The U.S. funded an expensive war in Vietnam and attempted to steer monetary policy to achieve employment goals, and investors became nervous about the value of the dollar in relation to our deep deficits. Sound familiar? You could replace those headlines with: The U.S. funded an expensive war against a pandemic and attempted to manipulate monetary policy to float the economy during that time with quantitative easing, and investors became nervous about a changing geopolitical landscape. 

If the current trends mirror the past, we will likely see core inflation and interest rates continue to rise. The era of cheap money will officially be over, and economic growth will stagnate. I used to think cheap money references were attributed to big banks and high-wealth individuals. Interestingly, due to the explosive growth in home values, this trickle-down effect of monetary policy helped home equity to grow a staggering $9.4 trillion, which then triggered a massive refinance effort unlocking $70 billion into the market with cheap interest rates. The quantitative easing efforts grew the Federal Reserve ownership of mortgage-backed securities from $1.4 trillion to $2.7 trillion in a little more than a year. This unlocked cheap money and helped to spur economic growth. The party is coming to an end. 

What happens now? You can see what will happen, like a slow-moving train wreck. This cheap capital will eventually dry up, inflation may mitigate but remain elevated and economic growth will slow. The term "stagflation" is now in vogue. 

Will we recover? Sure. No doubt. Just as the story from the ‘70s and ‘80s taught us, cooler heads will prevail, and we will come out the other end, but it will take some time. 

What does this mean for insurance companies? 

• The economy is opening post-COVID, and this will not slow. People are not going back into isolation. Therefore, the concerns of elevated frequency over prior years will continue. The impact of catastrophes will also continue to be elevated. 
• Supply chain issues will drive prices upward. The best indexes to watch will be the core CPI for general trends but the PPI for a more exact view of construction costs, which have almost doubled since May 2020.
• Employment cost indexes are beginning to tick upward as a trailing indication that inflationary pressures will only continue to see pressure for the long term. 

See also: Insurance Technology Trends for 2022

What can an insurance company do about this? 

• Get out and see the impact first-hand. First and foremost if you are an insurance CEO, you should have already completed a round of field rides with your front-line claims adjusters observing estimates being developed. If you are waiting for your actuary team to pick up on this, you will be waiting too long and will miss out on insights. 
• Customer shopping will pick up. You need to communicate with your customers about their insurance coverages, alternatives and the value you bring.
• Communicating is fine; developing solutions is better. The average American pays 14% of their income on insurance annually. (Please do not ask me to raise my deductible again. There has to be a better way.) Your product team must be as focused on alternatives as they are on developing rates and underwriting guidelines. 

There has never been a better time to challenge our conventional thinking. Will consumers view the insurance industry as a dynamic, solution-driven partner in their life or as a static, same-as-always industry? If we have been prudent with our risk management efforts, then we should take this time to respond to our customers' needs. I continue to recommend that incumbent and insurtech companies work together to spur innovation. 

Ultimately, we have a chance to break through and change the narrative from, I have to buy insurance, to, I am excited to transfer the risk in my life during these uncertain times.  

As Einstein said, “We cannot solve our problems with the same thinking we used when we created them.”