If you’re a regular consumer of television, you’ve no doubt seen at least one, or perhaps multiple, commercials from accident lawyers promising big-dollar settlements against rich insurance companies. The number of such commercials has only increased over the past several years, as a phenomenon called “social inflation” has taken root in our legal system.

Since the term social inflation first emerged in the 1970s, it has grown and expanded into a catch‑all of sorts to describe a host of deleterious cost drivers that involve litigation and that chip away at insurers’ books of business, increase their operating costs and eventually metastasize in the form of higher premiums for policyholders. Unusually large or so‑called nuclear verdicts catch our attention, but the underlying causes are broader and deeper. Many of these cost drivers have existed in some capacity for decades, yet the past several years have demonstrated that the insurance industry really needs to understand the social inflation landscape so we can begin to address it.

Some insurers may be wondering why they should be concerned about social inflation when so many more pressing matters are threatening the profitability of their businesses. Social inflation hasn’t had an impact on businesses and insurers the way COVID‑19 did in 2020. Instead, the progression of social inflation has been slow and almost imperceptible, making it harder to identify and address. While some insurers have not observed an upward severity trend in their books of business, chances are that social inflation is quietly making inroads right now.

Actuarial, claims and legal professionals are often the first to spot a shift in loss severity through the emergence of nuclear verdicts, rising compensatory demands or an upward movement in losses. How early and deep the impact is depends, in part, on the insurer’s classes of business and territories, so some carriers may not yet have seen the signs. To learn more about how social inflation is affecting the property/casualty insurance industry, Gen Re has partnered with NAMIC to find out what those on the front lines of social inflation - actuaries, claims, legal and emerging issues - are witnessing, to share with readers a multipart analysis of social inflation, starting with this overview.

Ticking Upward in Commercial Auto

When a jury awards $50 million in a non‑fatal, single-victim auto accident, insurers take note and label it an anomaly but don’t necessarily see it as cause for alarm. Yet, when awards and settlements for such accidents routinely top $10 million, often coupled with an insurer bad faith component, it’s time for insurers to take notice.

Gen Re and NAMIC, along with other insurance companies, first observed an uptick in loss values in the commercial auto line starting in 2015. Prior to that, the industry had been reserving commercial auto in a loss ratio range that was consistent with historical performance. By 2015, it became clear that the line was performing worse than expected, and the actual results climbed to more than 10 points above industry reserving picks for the preceding five years. It took nearly five years of development before the divergence between the actual and projected loss ratio became apparent, and that is a relatively short-tail line. The industry continued to underestimate loss experience on the line despite significant rate adjustments that chased but never caught up with trend. In short, commercial lines insurers missed the loss inflection point - something hard to spot and costly to miss.

More recently, the American Transport Research Council shared its research on the verdicts that underlie the insurance industry’s numbers. It highlighted an increase in verdicts over $1 million starting in 2010 and an average verdict size sharply rising in 2017.

Insurers are no doubt wondering if social inflation has migrated to other lines of business, most notably general liability, umbrella (non‑auto) and personal auto. There is early evidence of some unusual loss activity in premises liability, but nowhere as pronounced as in commercial auto. To evaluate the threat to other lines of insurance, this project seeks to analyze the drivers of social inflation seen in commercial auto and other areas and gauge how they may affect premises, products and general liability business.

See also: How Social Inflation Affects Liability Costs

Severity Drivers

Although a few economic and demographic trends are unique to auto, most trends cross over to other liability lines. Bodily Injury is certainly the defining element in large auto losses, but serious injuries also occur in premises and products liability. Some of Gen Re’s clients, particularly in the claims departments, have observed early notices of losses, attorney tactics and unexpected trial outcomes first‑hand.

Specifically, below is a list of likely causes of social inflation, identified by Gen Re and its clients, which have resulted in an undermining of profitability in the commercial auto and liability lines in recent years:

• More Miles Driven/Personnel Shortages - With the economic recovery following the Great Recession (2007‑2009), more trucks have been on the road, yet there are fewer experienced drivers to pilot them (subject to a COVID pause in activity).
• Distracted Driving - Smartphones and other distractions contribute to higher accident severity.
• Litigation Funding - The stronger cases are well-funded and under pressure to produce higher settlements and verdicts.
• Widening Wealth Gap - Jury backlash against “rich corporations” reflects a wealth disparity gap that has expanded by disproportionately higher COVID-related job losses in low-wage occupations.
• More/Earlier Attorney Involvement - This is indicated by an increasing number of first notices of loss where an attorney is already involved.
• Increasing Plaintiff Bar Sophistication - This trend has crystallized through trial bar networking, training, technology and techniques to improve success rates on a nationwide scale.
• Defense Bar Complacency - Insufficient preparation and financial incentives weaken the ability to counter aggressive trial bar efforts.

Previous research on the relationship between wealth disparity and loss ratios has found that, all else being equal, jury awards are higher in geographic areas with greater levels of income inequality. However, studies connecting causes and social inflation, or quantifying its impact on insurers, are few and limited in scope. That absence means insurers must draw lessons from their own loss experience and from their reinsurers, who have a broader, national view of the market. Even with insurers and reinsurers sharing perspectives, pricing for social inflation is incredibly challenging. The industry’s experience with commercial auto tells that story.

Addressing Social Inflation

Over the last few years, commercial lines results have experienced an upward inflection point driven by social inflation. It is nearly impossible to detect this kind of inflection point in real time, but carriers should be vigilant, identifying trends and reacting quickly when the industry around them starts to shift. Staying alert to underwriting and claim developments - and listening to colleagues both internally and externally - can provide valuable insights. Social inflation is a complex issue for even the largest carriers with rich data and vast resources.

Throughout this series on social inflation, specialists from various disciplines - actuarial, claims, legal and emerging issues - will share the latest data and perspectives. While COVID claims may be dominating the focus of management now, social inflation remains a critical issue that deserves a much higher degree of attention going forward.

Global insurer AIG has become the latest large insurance organization to spin off part of its company, announcing in late March a rebranding of its life and retirement business as Corebridge Financial. With a valuation of more than $20 billion and $410 billion in assets under management, Corebridge is the largest company to publicly file for an IPO this year in the U.S. This split echoes past divestitures, particularly MetLife’s spinoff and rebranding of Brighthouse Financial several years ago, and signals a trend in the insurance industry of larger organizations breaking into smaller companies, in part to simplify compliance and capital requirements and in part to keep pace with insurtechs. 

From a technology perspective, these spinoffs will likely be perceived as positive by life and annuities teams, as they simplify governance structure and technology investment decisions by segments facing vastly different compliance issues and competitive forces. While process improvements and innovations that result from these spinoffs are certain to provide opportunities for the life and retirement business that would be impossible in the larger organization, they do not come without a host of technology challenges and considerations. 

Scope Management

Large company spinoffs undoubtedly trigger a series of major enterprise architecture projects, if only to understand the nature of the entanglement of systems. Managing all the architecture projects and software procurement initiatives that will likely ensue becomes a key challenge. Some of these projects will result in simply segmenting systems, but some legacy systems and technologies will need to be replaced for the new entity. Careful scope management of these projects and software procurement initiatives will be required, as stakeholders will view it as a catch-all opportunity to fix all accumulated frustrations with incumbent systems. Focus and prioritization will be critical.

Untangling Segmentation

Segmentation of previously aggregated reporting lines and determining where technical “debt” will reside in the segmented entities becomes a key challenge in spinoffs from large, established companies. Disentangling and segmenting the reporting across all the internal systems from a large, well-established carrier will likely take years. The upside is that each entity can better focus on and optimize the technology for their respective lines of business.

Operational Specialization

With a key goal of a spinoff being to keep pace with insurtechs, the importance of operational specialization and industry-specific technology excellence is paramount. AIG’s partnership with investment management company BlackRock to manage a portion of the life and retirement assets as well as to provide the world-class Aladdin investment platform is a prime example. As companies look to divest portions of their business, choosing partners that are equipped with both the technology solutions and the industry expertise becomes a key differentiator. 

See also: Despite COVID, Tech Investment Continues

Combining the Best of Old and New

While the ability to be nimble and employ cutting-edge, industry-specific technology is certainly a major benefit of a spinoff such as Corebridge Financial, the importance of the stability and established distribution systems of its traditional parent carrier cannot be overlooked. Although customers have grown accustomed to conducting more transactions online during the pandemic, U.S. consumers continue to favor purchasing life insurance in person through an agent. 

Conclusion

Perhaps the most important take-away is that traditional players are far from being pushed aside by big tech or insurtechs and will continue to see strong growth, particularly through key divestitures and strategic technology partnerships. These spinoffs demonstrate a continued focus on life insurance assets in the U.S. and the viability of life insurance assets as attractive, long-term investments. Mindful consideration of technology challenges and implications associated with insurance line divestitures will go a long way toward reaping the benefits of process improvements, innovations and growth opportunities.

With almost 25 years of experience in the insurance industry, I have seen and experienced a lot of challenges, successes and changes, including when it comes to diversity and inclusion (D&I). However, some of the most important lessons I’ve learned about D&I came from my time in the military. 

My nine years in the U.S. Navy and Navy Reserve showed me that there is truly something special about a community that brings people from so many different walks of life together toward a common goal. When I chose to enter the insurance industry, I felt that the industry could benefit from a similar experience. I also felt there were military veterans who could benefit from having allies within the industry. While I made the transition from the military to the corporate world successfully, that transition would have been facilitated by connections to a community of people who had walked a similar path.

Today, I hope, our industry has made it easier for military veterans and others from all backgrounds to make those workplace connections with members of their own communities. After many years of talking about D&I, insurance organizations have taken concrete steps over the past decade to begin to create a culture of inclusion that provides a safe and welcoming space for all.

While every organization is at a different level of maturity in their D&I journey, I see plenty of encouraging signs. I’ve noticed the D&I panels I sit on are more diverse these days. So, too, are many corporate boardrooms. Yet there is still plenty of work to do. Taking these five steps can help organizations further their D&I efforts to push our industry forward.

1. Make a concerted effort and dedicate resources.

The organizations within our industry that have enjoyed the greatest level of D&I success all share one thing: They put a concerted effort behind creating a more inclusive culture. A key is having strong support from senior leadership. Another is naming a single leader to be responsible for the success of all your D&I efforts. This will help develop a high level of accountability. In fact, according to LinkedIn data, over the past five years, the number of people with the head of diversity title more than doubled, and there has been a 71% increase in all D&I roles. 

At Markel, our leaders have been busy working with our team members to build, maintain and enhance initiatives to develop a more diverse and inclusive workplace and to support our community. For example, we are working to encourage and attract more diverse talent through scholarships to colleges and universities with diverse populations. Those scholarships have been augmented by internships and an underwriting training program that has brought more diverse leaders to Markel.

2. Create opportunities for communities to connect.

The military exposed me to a diverse community where I experienced the power of people coming together. I couldn’t wait to translate that experience into the corporate world. Early in my career, I helped form the Markel Veterans Network, which was one of our first employee resource groups (ERGs).

The Markel Veterans Network started humbly—our first meeting had four participants. But I knew immediately that it would be beneficial. It gave me a way to meet other veterans who were working in the organization. Because we shared the experience of serving in the military, we could speak the same language and develop a strong network of support for one another both inside and outside the workplace. 

Over the past several years, ERGs have become a powerful way for employers to show their support for employees and for D&I initiatives. Support for ERGs has become widespread throughout the insurance industry and beyond. In fact, 90% of Fortune 500 companies today have at least one ERG.

I’m proud to say the Markel Veterans Network remains strong today and stands alongside six other ERGs, including networks for Black associates, Asian associates, female associates, newer associates, LGBTQ+ associates and Hispanic-Latin associates and an inclusion network supporting associates in our international operations. Each one has an executive sponsor and commits to meeting at least once a month. Markel leadership supports anyone within the organization who sees the need to start an ERG. 

See also: Where a Customer-Focused Culture Starts

3. Provide mentorship.

Companies should provide an environment that encourages a mentoring atmosphere, whether it is formal or informal. There are many benefits to providing mentorship. It is a two-way street that supports the growth of both the mentor and the mentee. Mentorship programs are also beneficial for businesses. They increase employee engagement, retention and inclusion, as well as training for employees to rise up and fulfil internal roles.

The best thing about mentorship is that everyone can participate. To me, mentorship offers an opportunity to give back to our industry and advance our D&I efforts. During my career, I have picked diverse mentors and would encourage others to do the same. In addition, my mentees frequently come from different backgrounds and cultures than I do, which allows me to learn as much from them as they do from me—sometimes even more. I challenge all leaders in our industry to make time to become a mentor today. Doing so will help introduce your colleagues and your company to new perspectives.

4. Measure your progress.

D&I isn’t always easy to measure. Sometimes, you can find quantitative data. For example, at Markel we know that female leadership within our senior management team increased by 50% from 2019 to 2021. But many other measurements are qualitative. Employee engagement surveys offer one potential way to learn how much buy-in your D&I efforts have achieved.

According to Harvard Business Review, while employee sentiment is important to tracking progress, measurements are only effective if the organization has a clear definition of what they are measuring. It is important to ask questions such as, “What does diversity mean within my organization,” or “How do we define inclusion?” Only once there is a universal understanding of these ideas can progress truly be tracked.

Another idea: Start a conversation. I love grabbing a cup of coffee or lunch with different people and teams and asking them, “How do you feel we’re doing with D&I?” By asking this question, you’re showing your colleagues that your organization is a safe space where all opinions are welcome. Once you set that foundation, you’ll get the purest level of feedback possible. 

5. Share ideas and programs with others.

Taking a top-down approach to D&I is a good start. But the real change happens when we take individual and personal responsibility for including others and creating the diverse future we want. This is where allyship becomes key. It doesn’t take much to be an ally: Lending an ear or raising your voice for someone can make a difference in creating an environment where everyone feels safe and happy to come to work. When this happens, ideas flow, and innovation is fostered.

One potential way for you to step up: Join one of the Inclusion in Insurance Regional Forums that the Insurance Industry Charitable Foundation (IICF) is hosting this summer in New York, Los Angeles, Chicago and Dallas, and in London in September. When we as an industry get together and engage with organizations that create and foster inclusivity, we help create better work communities.

So, what does the future of D&I look like in insurance? My personal hope is that, in 10 to 15 years, D&I won’t need to be a driven topic of conversation but will be found at the foundation of every company culture. I genuinely believe we’re on the path to getting there if we continue to put the effort, time and budget into creating a more diverse industry.

The pandemic has altered life in so many ways over the past two years. One change that will likely stick around for years is the new workforce dynamic. The competition to attract top talent is as fierce as ever, as industries contend against the Great Resignation, the remote workforce, urban migration and a labor shortage. While talent challenges are nothing new to the insurance industry, new research shows that insurers are prioritizing talent strategies now more than ever before.

SMA’s new research report, “P&C Insurance Talent and the Workforce: An Imperative for Success in the Post-Pandemic World,” examines how the insurance workforce has evolved in recent years and how insurers are developing their talent plans for the future. The survey of industry executives reveals interesting differences in 2022 talent objectives between insurers with under 500 employees and over 500 employees. Large insurers are framing strategies to both attract new talent and retrain and retain existing employees, with four in five executives indicating these as primary talent objectives. However, small insurers are more interested in attracting new employees, highlighting the need for smaller carriers to be strategic with their hiring plans to stand out among better-known employers.

The evolving nature of insurance careers driven by digital transformation is also influencing insurers’ approaches to talent. There is very little doubt that transformational technologies like artificial intelligence will change industry roles over the next five years, with 72% of professionals expecting new jobs to emerge in business areas like underwriting and claims. In fact, signs of this are already being seen in the market as insurers seek talent with more technological skill sets.  

See also: Post-Pandemic: 4 Tips for Independent Agents

As the competitive talent market continues, talent and the workforce will become more significant focal points for insurance companies across industry segments. But, for insurers to thrive and become employers of choice, they must show commitment to meeting the changing needs of current and potential employees.

With the spring season known to bring the most dangerous storms and damaging tornados, the next few months are likely to see continual and damaging weather events across the U.S. 

Earthquakes, storms, floods and droughts — the number of recorded loss events resulting from natural disasters has been increasing for some years now. However, some insurers that are using more traditional risk assessment methods are finding the emerging risk landscape too unpredictable. 

Climate change is one of the most pressing issues in the insurance industry today, but forward-thinking insurers have found the way to combat it: AI.  

AI revolution 

In the last decade, artificial intelligence (AI) has emerged as the game-changing technology in the insurance sector. AI models are becoming more effective in the analyzing and processing of insurance claims, especially in the case of natural catastrophes. Visual data can accelerate inspection, underwriting and claims at the same time it helps with risk prediction and preparedness.

With AI taking the industry by storm, new aerial imaging capabilities are constantly being developed in the P&C space, meaning preventative measures are more accessible than ever. By using 3D property intelligence derived from aerial imagery, insurers can obtain more data points for more commercial and residential properties nationwide, from number of stories and roof geometry to secondary structures and liability risks. 

In the future, AI will become the norm for risk assessment. From insurers looking to streamline their operations, to those ensuring the safety of assessment teams, AI is the way forward.

Insights rather than data

Even when insurers can get hold of reliable data, the data alone is not enough. Insurers need more than just numbers to accurately estimate the total risk of a property – they need insights from that data. 

Insights are driving the data transformation, and the most significant impact lies in risk management. More detail on the condition of a property’s structure can completely eliminate manual intervention and help insurers access important property attributes. For instance, insurers can have access to the all-critical rooftop attributes, making risk selection and pricing faster and more efficient. Is the roof old and deteriorating, or is it new? Is it likely to be affected by inclement weather? Would the structure – the roof or the building as a whole – be expensive to rebuild? These, and many more, are the questions that insurers would be able to answer.

Given the technological capabilities available to insurers today, it is easier than ever to obtain critical insight. Because of this, there is now also an opportunity for insurers to predict and tailor their services to meet the needs of each consumer as an individual and secure long-term customer loyalty.

See also: How AI Is Moving Distribution Forward

The era of CX

Traditionally, insurers barely ever had hands-on interaction with clients, and relationship-building was non-existent. With the advent of AI innovation, all that could change. But how can insurers make sure they excel in customer experience when a natural disaster comes?

A Voxco study found that less than one-third (29%) of insurance customers are satisfied with their current providers, and 21% believe that insurers do not tailor their experiences at all. Insurers can enhance their customer experience every step of the way by having the AI tools to identify the right properties for their portfolio, and customize the interaction with each customer according to their relevant data.

To leapfrog competitors in this evolving market, it is essential to maintain high-quality customer experience during the surges brought on by a disaster, the time when the largest number of people rely most heavily on their insurance carrier.

A look ahead

In crises, insurance companies have an opportunity to become protectors, helping everyone to be better prepared for climate change and natural disasters. AI has the power to significantly reduce risk for customers who are victims of climate change-related disasters, by tracking and warning customers before an incident occurs. Dangerous weather events and pervasive climate change issues mean that preparedness is more important than ever. 

Insurers must make sure their customers not only expect to be covered if a natural disaster damages their house but are also protected from potential risk

Based on primary research, this report underscores the market changes and industry dynamics that have shaped the direction and strategies of companies and insurers who have faced an incredible amount of change in the last seven years. There have been more risks, new customer behaviors and expectations, emerging technology-driven capabilities and data sources, more channels and partners and an influx of capital to the InsurTech market. These changes have created a new generation of dominant buyers who are looking at everything differently. The strategic respones to these industry changes and buyer expectations have redefined where industry players stand in a competitive market.

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Mark Twain is credited with saying, “Everybody talks about the weather, but nobody does anything about it.” That’s no longer true.

Well before the climate change debate focused the world on meteorological threats, insurance companies were well aware of the risks associated with extreme weather events. What is less understood is how technology and weather science have evolved to help predict and warn of approaching events, giving advanced notice to alter course and relocate to safety. And now, when sophisticated, highly specific weather data is integrated with high-resolution geospatial imagery, artificial intelligence and telematics, the results are exciting and unprecedented. Consider the merging of high-quality weather information with property imagery at the ground level or the blending of surface conditions, atmospheric conditions and driving patterns. These advancements in weather technology and innovation show that, today, somebody is doing something about the weather. 

Weather and Insurance

Weather has a wide-ranging impact on the P&C industry and its policyholders, namely catastrophic and other property damage events as a result of a hurricane or isolated storms producing hail or tornadoes. Events that affect large populations such as wildfire and flooding have been dominating headlines over the last decade, with record-setting payouts in the billions of dollars. These frightening scenarios are just some of the obvious ways in which insurers and their customers are affected by weather.  

Insurance is all about gauging the likelihood and degree of risk and transferring the exposure by charging appropriate premiums in exchange for protection. Therefore, insurers and their expert risk modeling partners need to be rigorous when it comes to assisting with rate-making, pricing, accepting/rejecting risks and deciding how much exposure to take in a given geography or how much premium to cede to reinsurers. Each of these critical decisions is made and projected into the future and has tremendous impact on profitability when disastrous events do happen. 

Beyond Just Weather: Climate Change

According to Swiss Re, the effects of climate change threaten to cut the world’s economy by $23 trillion by 2050. In the U.S., wildfires, hurricanes, tornadoes, winter storms and extreme temperatures were among 20 weather and climate disasters in 2021 that each cost $1 billion or more, totaling $145 billion and killing 688 people, according to the National Oceanic and Atmospheric Administration (NOAA).

These events highlight the need for businesses, communities and individuals to prepare and react. In addition to the frequency and severity of weather events, there is also an increase in secondary perils associated with weather -- including flooding, wind and hail. 

According to a Deloitte study, most U.S. state insurance regulators believe all insurers will face heightened risks -- physical, liability and transitional -- over the medium and long term. Half of those surveyed believe climate change will have a high or extremely high impact on coverage availability and underwriting assumptions. For those that get it right (the product, the pricing and the reinsurance), there's a market ready to buy. For those that get it wrong, there could be significant losses. 

Despite these difficulties, insurers also must balance selling and underwriting new business to remain competitive and maintain and gain market share.

See also: Extreme Weather, COVID, Home Claims

Modeling Risk

Insurance carriers tend to model future risk on past occurrences, where mounds of historical weather data are relied on to make those decisions. This, coupled with risk modeling sciences, aids in planning and calculating forward. Yet, climate change, along with the increase of property located in harm’s way and the higher costs of materials to repair and replace structures, converge to suggest the need for even more predictive efforts. The emergence of increased capabilities for insurers to ingest data, greater precision in geospatial mapping and real-time data are allies in the battle for managing risk.  

Given all the importance and rigor within the industry however, little is known about just how weather data is developed – at least among insurance executives and other key decision makers. After all, weather information is essentially “free” and supplied through governmental agencies like NOAA (National Oceanic and Atmospheric Administration) and the National Weather Service, which gather information from satellites, radars and other meteorological sensors. Think of this as the raw material that is repackaged, sold and distributed in places like your favorite weather app. Weather providers use this very information to, in turn, be incorporated in real-time weather analysis algorithms, predictive models, forecasts and ultimately an insurer’s decision-making process.

Weather Data and Use Cases

But is all weather data created equal? The short answer is no. There is a matter of refinement, meteorological science, algorithms and knowledge that make all the difference when it comes to accuracy for both historical and predictive uses. Advanced technologies take multiple data sets and generate indices from them that communicate the impact of a weather peril. These analyzed insights combine historical, climatological and predictive technologies to produce actionable decision support before, during and after a major weather hazard. High resolution in the weather data along with street level or geocoded detail is key to accuracy. 

In each stage of analyzing risk for the insurance company, sophisticated weather technologies combined with details on staffing, policyholder assets and past property impacts can inform numerous constituents in the process. While inaccuracies in weather reporting may translate to a minor inconvenience for the general public when a rainstorm unexpectedly occurs, the stakes for insurer accuracy are dramatically different. High-value weather data can bring clarity and insights to your decision-making to help you avoid costly impacts to your business. 

Use Cases

Much is also changing in the ways insurers use weather data, including new products, like parametric insurance models, which automatically pay out immediately following a qualifying event. Combining contextual data with telematics-monitored driving behavior is yet another recent use case expanding the ability to better determine automotive risk. 

Other newer uses include actionable alerts to relocate or protect property in advance of a dangerous storm. The key here is pinpoint accuracy to ensure responsiveness.  

Some of the more traditional uses include

• Financial loss impact projections – post event for reserving and assessing probable exposure
• Resource deployment, pre- and post-weather event
• Underwriting: risk selection, risk scoring, geomapping for purposes of pricing, management of risk exposure
• Loss and claim investigation
• CAT modeling, e.g., hurricane, wildfire
• Enterprise risk management, portfolio perspectives 

See also: Auto Claims and Collision Repair: The Great Reset

Winds of Change

Numerous recent developments have emerged to focus society in general, and the insurance industry specifically, on various aspects and applications of sophisticated weather technologies. 

The ESG (environmental, social, and governance) movement is suddenly causing corporations to embrace long-term value creation, with its emphasis on stakeholders, society and sustainability, and has become a strategic imperative for insurance companies. Incorporating climate change and other potential disruptions into business models can help insurers drive long-term value for all constituents. 

A wide variety of new and emerging technologies are enabling transformative improvement across the insurance enterprise, including product pricing, underwriting, distribution servicing and claims.Integrating hyper-local historic and real-time weather data into new solutions that leverage artificial intelligence and other high value third-party data is creating powerful capabilities in claims and risk scoring.  

Driver safety solutions powered by contextual telematics, including weather and road conditions, is enabling new and important safe driving and travel features. New and exciting integrations of multiple data sources will continue to drive innovation in the insurance sector. Marrying this with greater weather data accuracy is the key to making these developments even better. And knowing which data and models produce the greatest accuracy is paramount to making these emerging and known uses cases optimal and actionable.

The P&C insurance industry, through collaboration with innovative data and weather scientists, has an opportunity to minimize the impact of changing weather conditions to the benefit of all stakeholders, including policyholders.

Following the explosion of the Challenger space shuttle in early 1986, the investigation bogged down in technical detail that made it hard to determine what went wrong. For good measure, certain lines of inquiry were discouraged or even blocked -- President Reagan had instructed the head of the commission, "Whatever you do, don't embarrass NASA." Then, legendary scientist Richard Feynman, a member of the commission, reduced the inquiry to a simple image on national TV. 

Feynman -- long a hero of mine, partly because he didn't play by anybody's rules, not even Reagan's -- took a sample of the rubber O-rings that had been the subject of a host of technical discussions and slipped it into his glass of ice water. As the whole country watched, the O-ring stiffened. Game over. No more data needed. 

His little demonstration showed that the O-rings used as seals in the Challenger wouldn't function properly in the freezing temperatures in which it was launched and had allowed a leak of gases that blew up the shuttle and killed the seven astronauts. 

We may have just been given a similarly galvanizing image about the dangers of rising sea levels.

If you haven't seen it already as it made the rounds online, the video is here. It shows a house in Rodanthe, NC, on the Outer Banks, washing out to sea late last week. A neighboring house had surrendered to a storm hours earlier, and another was swept away by waves back in February. 

While we've all been talking about rising sea levels and coastal erosion for years now, this video cut through all the theoretical considerations and made the issue real, at least for me. Here's the kind of second home I might have bought -- a modern home bought just a year and a half ago -- being knocked down by waves and just floating away. 

A New York Times article says, "Sea levels in the area have risen roughly one inch every five years, with climate change being one key reason. State officials say that some Outer Banks beaches are shrinking more than 14 feet per year in some areas."

Sea levels are expected to rise by one foot on average along U.S. coastlines in the next 30 years, according to a multiagency federal report released in February, the article says. 

It closes with the story of Matt Storey "pacing on the outdoor deck of the beachfront home he had bought in November and christened 'Mermaid’s Dream.' He estimated there were roughly 70 feet of sand between the house and the beach when he closed on the property. On Thursday, the waves were lapping by the pilings of the house. 

"Mr. Storey, who lives in Raleigh, N.C., said that he felt somewhat confident buying the house, particularly because it had been moved back from the ocean in 2018 at a cost of $200,000.... While he expected potential erosion problems eventually, he did not anticipate them coming so fast."

While Storey has no real recourse and says he's just going to ride out whatever happens to that house and another he owns nearby, I'm hoping the recent video can serve as a wakeup call. While the article describes attempts to fight back -- building a sea wall to keep sand dunes from forming in the middle of the main road or possibly pumping sand from the bay side of the Outer Banks to the ocean side to replace what's being washed away -- I'm thinking Mother Nature is going to win here.

So, I'm hoping people stop building or buying homes in areas that are vulnerable to being washed out in the next 10 to 15 years. And I hope insurance companies can lead the way. Even if we non-expert home buyers get fooled into thinking a house in Rodanthe isn't that vulnerable, insurance companies can use pricing for homeowners policies to send dollars-and-cents signals about the risks.

Richard Feynman isn't around to help us visualize issues any more. He died of a rare cancer in 1988. But a lot of smart folks at insurers can build on the viral spread of the Rodanthe house video and start shaping the public understanding of the growing dangers from rising sea levels. 

Cheers,

Paul

Insurance is a data-driven industry, and underwriting is its heart. It’s an uncomfortable fact, then, that data from the only longitudinal study of North American P&C underwriters reveals that many important parts of underwriting seem to be mired in decline.

It is no overstatement to describe the results of the most recent Accenture and The Institute’s underwriting survey as alarming. Underwriting may be in crisis.

In my previous post, we looked at the survey results from a high level. Today, we’re going to zoom in on the findings about underwriting quality specifically.

Underwriters seem to be losing faith in their craft

In 2008, 2013 and most recently 2021, we asked underwriters to rate the quality of the processes and tools they use to do their jobs. The scores for 2021 were the lowest we’ve seen—though, interestingly, the decline has not been uniform.

For example, 62% of underwriters in 2021 told us they’d rate their organization’s underwriting strategy as superior—down eight percentage points from 2013. Likewise, confidence that their organization employed a superior pricing strategy fell 11 points, from 61% in 2013 to 50% in 2021.

These are substantial declines, but they are far from the biggest ones in our most recent data. That dubious honor goes to confidence in the accessibility and ease of use of the tools used to support underwriting, which shrank from 55% in 2013 to 33% in 2021. Perhaps more concerning, confidence in both technical and non-technical training declined along similar lines.

We also asked underwriters to rate the importance of different areas of potential improvement for underwriting. The top four issues identified were, in order of the portion of underwriters highlighting them as important:

1. Improving the quality and accuracy of data around underwriting submissions (95%)
2. Improving training and talent development (91%)
3. Improving tools for rating and pricing risks (90%)
4. Eliminating non-core tasks to allow more time for risk analysis (88%)

See also: The Future of Underwriting

Change is needed—but where?

My view is that these findings are a clear indication that many underwriting leaders, amid the industry’s growing focus on expenses, growth and analytics, have taken their eye off the ball of traditional underwriting quality.

This has created a tremendous challenge for the industry, made more urgent as many markets are softening and the risks insurers cover grow more complicated. Do today’s underwriters have the skills they need to drive profitable business?

It’s not at all clear that they do—but neither is it a foregone conclusion that they do not.

In recent years underwriters have been equipped with many powerful new tools to help them measure risk and write policies more quickly. Our survey suggests that these tools have not had the hoped-for impact (and in some cases have actually made underwriting less efficient).

But the power of digital tools to take underwriting to new heights is still undeniable. To reverse the decline suggested by our survey, underwriters and carriers need to close the gap between the potential of these new tools and their actual impact on underwriting. This will require changing the carrier’s internal structure to let underwriters focus on underwriting.

It will also require making these modern underwriting tools truly accessible and intuitive. A good example of this is how underwriting guidelines are handled in the industry today. In general, these guidelines are more concerned with containing every piece of information that could possibly be useful than they are with helping underwriters quickly, accurately write the risk.

Guidelines instead should be broken up into pieces and made fit for purpose so that underwriters can quickly and easily find the information they need when writing policies. Ideally, a guideline system should “push” information to underwriters at the moment of need instead of requiring the underwriter to “pull” it from a lengthy document or database.

The digital tools to make all this happen, of course, are widely available in the industry today. This survey suggests that carriers that seize the initiative and implement changes along these lines will see a significant bump in underwriting performance.

In my next post, we’ll look at what the survey revealed about tech investment in underwriting.

What makes an insurance carrier an insurance carrier and not a generic financial services organization? This is more than a philosophical thought experiment.

I think the best answer to this is underwriting. A carrier could, in theory, outsource every part of their business, and, as long as it was still analyzing and pricing risk, you could still accurately describe it as an insurance carrier. Underwriting is the heart of the insurance business.

This is what makes a longitudinal study of underwriters so important.

Since 2008, Accenture has partnered with The Institutes to survey underwriters about underwriting. To my knowledge, this is the longest-running longitudinal underwriting survey in the industry.

And the results of our most recent P&C Underwriting Survey, conducted last year, are nothing less than alarming.

Here are five key takeaways.

1: Underwriters don’t spend much time underwriting.

We found that the average underwriter today spends 70% of their time at work on non-underwriting activities. The average underwriter in our study spends 40% of their time on administrative tasks, 30% on negotiation and sales support and 30% on actual underwriting.

One underwriter told our research team that “underwriters have been turned into marketing executives instead of underwriting executives.”

Another spoke of “the misconception that technology has made it easier for more workloads. It helps with better decision-making, but it adds time for each submission to open and use all the new tools.”

2: Inefficient systems, redundant inputs and manual processes are the biggest hurdles.

These were the most commonly described hurdles to underwriting business success by a wide margin. Others challenges with small but still significant pickup were outdated or inflexible systems, lack of information at the point of need, poor organization of underwriting information and insufficient focus on training.

3: Underwriting quality is declining… according to underwriters.

We found that the percentage of underwriters who describe their underwriting processes and tools as “superior” has declined considerably since our last survey in 2013. We measure this across five dimensions in the survey, and all five have declined. For example, 52% of underwriters told us in 2013 that their technical training programs were superior. In 2021, that shrank to 34%. Frontline underwriting practices declined along similar lines, with 63% of underwriters rating their own as “superior” in 2013 and just 46% doing the same last year.

See also: 5 Keys to Transforming Underwriting

4: Technology may be doing more harm than good.

The use of technology, broadly speaking, has been ineffective at reducing the workload of underwriters, with 64% telling us it has increased their workload or made no difference.

There’s an important nuance to unpack here. Most underwriters have seen some positive impact from technology on their work. A majority of respondents to our survey said it has boosted their speed to quote, improved their ability to handle larger amounts of business and boosted their access to knowledge.

But just 46% say it has had a positive impact on automating or eliminating non-core tasks, and only 35% say it has boosted their ability to cross-sell accounts.

5: The talent management picture is bleak.

Perhaps the most alarming findings of this recent survey come from comparing how underwriters felt about talent management at their carriers in 2013 and 2021. In a nutshell, carriers have hemorrhaged positive sentiment.

Taken on its own terms, each of these five findings contains a concerning truth about the defining function of insurance organizations today. Taken together, the results are nothing short of alarming.

So what’s behind them? And—more importantly—what is to be done about it?

In this blog series, we’ll explore these vital questions.