With extreme weather events such as Hurricane Ian and its $112.9 billion of damage, and more than 7,490 wildfires recorded just in California last year, climate change is making it increasingly difficult to accurately forecast property damage risks. Insurers using obsolete, patchy or outright inaccurate data are bound to suffer significant losses.

This, in turn, has contributed to a sharp rise in premiums. Homeowner policy premiums rose 12% across the U.S. from 2021 to 2022.

Insurers can no longer rely on historical trends, so they are resorting to virtual models to simulate the impacts of future risks: The so-called digital twins are digital counterparts to real-world physical objects or properties. They can be used by insurers to assess their exposure and continue to underwrite profitably in the era of climate change.

Insurers may not be able to see into the future, but they do have access to increasingly rich and up-to-date property data. By feeding these insights into a digital twin simulation, insurers can identify the potential extent of damage to a property under different weather conditions.

Digital twins model a range of future weather-related scenarios 

The ability to simulate real-world conditions to ascertain how physical systems or buildings would be affected under various circumstances is transforming a range of industries, from large-scale construction projects to cybersecurity. However, more than anywhere else, digital twins are making their mark in the insurance industry.

By creating comprehensive property models with reliable data points, insurers can determine the risk of damage in severe weather conditions. With high-quality insights obtained from aerial imagery, properties can be 3D-mapped at scale. Using artificial intelligence to extract and make sense of large datasets, insurers can obtain enough information to create high-fidelity digital twins of almost any kind of physical structure, regardless of size or condition.

It then becomes possible, for example, to simulate high winds and low pressure zones and evaluate potential damages at different wind speeds. This can be particularly useful for insuring areas frequently affected by hurricanes. Similarly, the risk of properties that insurers already know are in flood or wildfire zones can be modeled under different weather conditions.

The success of the insurance industry hinges on the availability of rich and accurate insights. The "virtual data" collected from digital twin simulations can then be used for a range of critical processes such as underwriting, claims processing and fraud detection, without the need to base damage predictions on previous, potentially outdated or irrelevant historical trends.

See also: Time to Embrace AI in Climate Change Fight

Digital twins will become more important than historical risk trends

The impact goes beyond just underwriting. Digital twins can help accelerate claims processing by reproducing the scenarios or circumstances behind a claim, such as conditions of damage. Moreover, the ability to simulate an event can be valuable when combating insurance fraud, by rapidly verifying the accuracy of a claim.

For example, if a homeowner intentionally sets fire to a section of their property, using a digital twins simulation the insurer can identify if the fire spread from an area where an electrical fault may have occurred, or alternatively if the cause was unnatural. All in all, digital twin capabilities reduce the time and cost of producing insurance products. When used in tandem with other technologies such as aerial imagery and advanced AI, insurers can produce digital twins at scale. This is particularly useful for insuring against large-scale natural disasters such as flooding and wildfires, for which large amounts of property intelligence are outdated due to erratic weather patterns.

Digital twins are one of the best examples of technology working to counteract the adverse consequences of climate change. By using accurate, high-quality data points to create virtual representations of physical structures, insurers can improve their risk evaluation and decision-making processes.

The ability to simulate different weather conditions against these high-fidelity replicas, also allows insurers to make better predictions and recommendations to clients. It’s only a matter of time before digital twin data becomes more important than historical data for insurance risk management.

Digital twins provide insurance companies with insights that help them stay ahead of the competition and better navigate the challenges posed by extreme weather events. Those without digital twins will find it very difficult to stay afloat in a fiercely competitive and rapidly changing industry.

By 2027, experts expect the surety industry to reach a valuation of more than $25 billion.

However, for the surety market to continue growing, it needs to digitize and embrace the latest technology — including blockchain technology.

This article explores the future of blockchain in the surety industry, discusses the pros and cons of digital bonds and explains how to get bonded and insured digitally. 

Why Does the Surety Industry Need to Digitize?

In response to the COVID-19 pandemic, businesses in all industries were faced with a sudden demand: Go digital or get left behind.

The surety industry has lagged on digitalization. In fact, bond execution still involves antiquated technology like typewriters and fax machines.

The slowness to adapt has to do, in part, with the exclusivity of the surety field. Surety bonding has always been a niche area within the specialty insurance and property and casualty sectors. 

Many people don’t know how to get bonded and insured, nor do they understand the difference between bonding and traditional insurance. This uncertainty has led to a slow transition to digitalization. 

What Do the Experts Say?

With more and more businesses going digital these days, it only makes sense for the surety industry to follow suit.

In an article published by Surety Bond Quarterly, Michael Lischer, the VP and director of surety at IMA and chair of the NASBP Automation & Technology Committee, asked why bonds can’t be issued digitally. He said it’s especially surprising that this isn’t an option because so many other processes, from buying cars to borrowing money, can be done online. 

Lischer acknowledged that, in the surety industry, obligees must have faith that their bonds are authentically and appropriately issued. Paper bonds provide this feeling. However, he believes digital bonds can, as well — particularly with the help of blockchain technology. 

See also: Is Blockchain Still on Track?

What Is the Role of Blockchain in the Digitalization of Bonds?

For those who are hesitant about incorporating blockchain technology into the surety industry, a lack of understanding about how blockchain works may be part of the problem.

Blockchain technology gets its name from the fact that it stores data in blocks, which are linked in a chain.

Blockchain allows for exceptional data consistency because no one can delete or modify the chain without a consensus from the entire network. The system features built-in tools and mechanisms to stop unauthorized transactions for maximum consistency and security. 

Blockchain is already used in many fields, including retail, to create unalterable ledgers for order tracking, account management and payment processing. 

When speaking about blockchain technology in the surety industry, Lischer noted that blockchain bond solutions have the potential to be more secure than traditional processes because of the automatic authentication process.

How to Get Bonded and Insured With Blockchain Technology

If blockchain technology were applied to the surety industry, the process would start with an electronic record.

A bond specialist would create the bond and share it with all parties. Any changes made to the bond would automatically be added, and then everyone involved would have access to and could see a history of the changes throughout the entire process. 

Blockchain technology eliminates the need for typical and inconvenient elements of the bonding process. Examples include wet signatures, raised seals and acknowledgments from notary publics.

Incorporating blockchain technology can also increase the speed at which bonds are issued and reduce the costs of issuing hard-copy bonds.  

In the same article from Surety Bond Quarterly, Patrick Schmid, the VP of The Institutes’ RiskStream Collaborative, explained that the digitalization of the surety industry could also transform insurance regulations and compliance.

Schmid noted that blockchain creates the possibility for regulators to monitor permissioned insurance information in real time. This real-time monitoring would also help when it comes to verifying information, including bonds and powers of attorney.

How Do Digital Bonds Reduce Financial Risk?

Increased security is one of the most significant benefits of incorporating blockchain technology — and digitalization in general — into the surety industry. 

Every year, fraud in the insurance industry costs U.S. consumers approximately $80 billion, according to the Coalition Against Insurance Fraud (CAIF).

The insurance industry leaves much room for error, which increases the risk of fraud. If insurance and surety companies could store claims and bond information on a blockchain, they would have an easier time identifying and stopping suspicious behavior before fraudulent activity can occur.

Blockchain technology would introduce several elements that reduce fraud and increase financial security, including efficient documentation authentication and the creation of a permanent record of all transactions.

Because blockchain technology is encrypted, participants in the surety issuing process can trust that transactions are secure and authentic. Encryption protects everyone’s privacy and helps to minimize confusion.

In an interview with Risk and Insurance, Brian Scarbrough, a partner at Jenner & Block, explained that encryption also eliminates the risks of multiple networks being hacked at once. 

Users trust an entire network of participants instead of putting their faith in one centralized party. This approach also encourages honesty because all parties must vote on a transaction before it’s added to the blockchain. 

See also: Blockchain: A Hammer Looking for a Nail?

What Are the Downsides of Going Paperless?

The decentralized nature of blockchain technology naturally increases security. However, it can also be challenging to maintain.

This issue is even more likely to occur if a single organization creates its own blockchain. The computers running the network could end up centralized, which defeats the purpose.

Many people also have negative ideas about blockchain. They don’t understand it and, therefore, don’t trust it, meaning they might be hesitant about moving forward with digital bonding and working with a bond specialist who offers this option. 

When Will Blockchain Become the Norm?

Blockchain certainly has the potential to revolutionize the insurance industry and the surety industry, specifically.

Several businesses are currently trying out blockchain technology to serve their clients better. However, it will take time before blockchain becomes the norm.

As more professionals successfully issue digital bonds, others will likely follow suit and develop more trust in the technology.

KEY TAKEAWAYS:

--Your brand must show customers who you are by connecting platforms, ecosystems and data -- not showing them the internal constraints you face. Every experience must feel natural.

--Applying the brand vision from three lenses -- execution, ecosystem and customer -- will let insurers see the customer properly and will let the customer see insurers accurately and positively.

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I am a book lover across a wide range of genres and keep book stores busy. Post-pandemic book sales are experiencing a slight decline, but one particular format of book is selling better than ever — the e-book. In fact, 30% of readers chose an e-book instead of a print book in the last year. While that number may not seem like a majority, it’s a 43% rise within the last decade.

For some people, e-books represent convenience. There is no trip to the bookstore. You can purchase it 24/7. You can search the “shelves” more easily, and (if you’re using Amazon) you know that some algorithm somewhere is placing curated choices directly in front of you, based on your previous purchases.

Because e-books are digital files, they are accessible through multiple channels. This includes channels where the purchase is not the primary option. Nearly all public municipal libraries have partnered with digital providers such as Hoopla and Overdrive to allow checkout from the library’s catalog. For college students, the backpack has been getting lighter, with digital edition rentals available through common textbook providers and Amazon. Google has also been compiling rights-free titles to keep historical volumes alive for research and fun.

The brand, the brand culture and customer engagement.

In every case, e-book distribution is heavily tied to the brand — both the publisher and the distribution brand. This is beginning to be the case in insurance, as well. Insurance may be sold through a marketplace, sold as a part of another brand’s service package or even embedded invisibly in another brand’s product or service.

With books, once the distribution has occurred, it’s the responsibility of the publisher to have provided a usable title, with features such as easy search and robust interior links. The "customer journey" through the book is the key driver for retention. With insurance, the customer journey (along with price) is also the key driver for retention.

Never has the back-end insurance business been so connected to the brand. Insurers now wear their culture on their sleeves. Usability is paramount. Insurers show whether they care about their customers by the ease of the customer journey. The ideal insurance process draws customers in through multiple, easy-to-use channels, then keeps them happy through “invisible” engagement — processes and tasks that are so easy that even considering a competitive offering would seem like nonsense.

A unified vision that results in an invisible process.

In our last customer experience blog, we considered Six Technology Hurdles to Insurance’s Customer-Friendliness. In today’s blog, we answer those hurdles with one vision — using technology perspectives to plot a course for improved customer engagement. Create a compelling story with customers by turning your internal operations culture into one that you are proud to show off. Connect with customers by connecting platforms, ecosystems and data. Show them who you are by not showing them the internal constraints you face. Create an “invisible” process where every experience feels natural because it was made to feel that way.

The three lenses of insurance transformation.

Applying the vision from three lenses will allow insurers to see the customer properly and will allow the customer to see insurers accurately and positively.

These lenses are:

The Execution Lens

Implementing the technologies and processes that will make it all possible.

The Ecosystem Lens

Creating an ecosystem of partners that will allow the flow of information and data to automate and improve the process.

The Customer Lens

Delivering a 360-degree experience across numerous activities, unhindered by silos.

When the transparency of the culture and invisibility of the customer experience are aligned, they both tell the story of an organization prepared for the future. Customers can then look into an insurer’s culture and grasp the planning and care, instead of trying to peer in and get a glimpse of the mess.

Non-negotiable technology: the foundations of execution

Process and technology are inextricably linked. Supporting customer features and capabilities requires a specific set of digital technologies to enable the front-end user experience. The technology approach must include strong build-implement-run capabilities and options, including the pre-integration of key solutions. For successful execution, the solution must incorporate component-based design and assembly, plus APIs and pre-integrations.

A next-gen, robust architecture enables redefined business services. Maintenance and upgrades are fine-grained and frequent, far easier to test and place into production.

Application programming interface (API) libraries make re-use and similar connections simple. Insurers should use an extensive API library, such as Majesco API Management and Majesco EcoExchange with partner solutions. Using a library, in conjunction with policy, billing and claims, creates a unified platform for integration that can be implemented with key components at any time and in a flexible manner. APIs also give insurers the ability to more easily integrate with multiple vendor systems.   

Smart insurance: the framework for ecosystem design

Workflow will drive the next generation of system improvements, and data will make it possible. A digital mindset is important — recognizing that the capture, extraction and creation of digital data is required to support workflows and analytics across the enterprise. This forms the foundation to improve business intelligence and capitalize on analytics, AI and advanced technologies.

Straight-through processing is now more possible than ever. The ability to leverage AI in both underwriting and claims is essential for consistent success. Smart data capture involves the intelligent intake of structured data sources, leveraging data pre-fill capabilities and adaptive interviews to ask only the questions required from the customer. In addition, smart capture includes the extraction of unstructured data from PDFs, forms and other unstructured data sources such as emails. Critical abilities include not only capturing structured data or converting unstructured data into structured data but also the ability to index data and route it through relevant transaction workflows.

See also: Lowering Costs of Customer Acquisition

Never-ending journeys: the customer experience that satisfies

Both framework development and technology assessment MUST be used through the lens of customer experience. Here is why:

Let’s say, for a moment, that your company is now motivated to improve the customer experience. You spend time in meetings discussing what kinds of features you may like to add to your customer dashboard. You build a case for certain elements to be added to the mix. You consider the balance between what should and should not be shown to a customer without agent guidance. Without using the customer lens, you could end up with services where hurdles and silos are still acceptable and visible.

Is the company identifying the silos, not by what they think they have in the back office but by what they know they can’t allow customers to do for themselves in the same session?

There’s almost nothing more frustrating than starting over. For the customer, switching systems or apps is like getting sent back to the beginning of a streaming movie or losing a digital bookmark in an e-book. Insurers can begin looking at their customer journeys in light of hurdles, re-keying, re-logins and do-overs. And, the more insurers use security codes and greater password constraints, the more they will need to give full access in one location.

A Customer 360 Vision unifies not only the dashboards but the data sources to provide an experience without hurdles, multiple logins and start overs. The customer doesn’t want to know that they may be accessing multiple policies, billing and claims systems for one particular request. They want the complications removed. They want a process that simply works as it should and does not have any hindrances in their way.

Figure 1: Use Case with a Customer 360 View

Would insurers rather that customers see the inner workings of how silos force them into customer service corners, or would it be better to both cover and fix insurance service issues by creating systems and processes that hide any trace of hurdles and silos? A customer 360 service vision makes its own case for new approaches to systems and data.

Staying “on brand”

There’s a commonly used term in business today — “on brand.” The idea is interesting. It forces companies to assess whether their products, services and culture fit their brand, or if maybe the organization itself needs to shift to allow an internal “re-branding” that will fit the customer. Does your back-office brand fit the brand culture that you wish to portray? Are you able to engage the new generation of insurance customers? Is your organization growing uncomfortable with being able to stay on brand as an insurer with competitive offerings in the industry?

Now is the time to assess and shift. Grow the brand that will meet today’s and tomorrow’s needs by creating a brand-ready, brand-capable, brand-new digital customer experience.

Be sure to read Core Modernization in the Digital Era, or watch Insurance Growth & Opportunities — How Next Gen Technology, Products, Data, Channels and Ecosystems Are Driving Change in the Face of Increasing Market Changes.

You’ve just visited the grocery store, and it’s likely that you made a choice at the checkout. Did you scan and bag your items, or did you let a cashier scan and bag them for you? The choice may depend on just how many groceries you purchased or how you feel about your store’s tech level.  

Even now, though, it’s clear that there is a next step or two to be made in grocery store technology.

Where is the line where you simply feed your groceries onto a conveyor and they are automatically scanned and bagged? Where are the technologies that run and pick everything off of the shelves for you and deliver them to a waiting area or to your home without a delivery driver? Home deliveries are becoming more automated. Uber Eats and Postmates are already using robot deliveries in test locations with high population densities. 

Which raises the question: Just how far can technology take any industry? In many cases, technology makes its case so profoundly that we might call it a no-brainer — like making deliveries from a restaurant with no driver, no fuel, no insurance, no parking issues and no delivery tip. 

Underwriting technology for commercial insurance is also a no-brainer. When we look at all that today’s tech-enabled underwriting can accomplish and how it reallocates crucial resources to the brainy tasks, it makes its case. It is an “elegant” solution to so many commercial and specialty insurance challenges that it deserves an immediate look and quick implementation.

Drawing on joint research efforts between Majesco and Strategy Meets Action, let’s look at the benefits of today’s optimal underwriting technology to see how it produces real insights through collaboration.

The quest for insights, integration and intuitive workflow

Insurers seek to enable underwriters to focus on complex risk assessment, portfolio management and relationships with agents and brokers. Insurers need to improve the speed of underwriting, making it easier for brokers to do business with the company, and ultimately need to improve risk selection and profitability — not just for each policy and product but across the whole spectrum of business and geography. Insurers need to make complex concepts into simplified insights that leverage the underwriter expertise.

Digital thinking and platform vision

How can underwriting become a seamless hub of information, fed by the best data management and analytics practices available today? Which advancements make a real competitive difference — moving commercial and specialty insurers from capable to innovative? What does this environment look like?

A next-gen framework must support the workflow of relationship management, transaction processing, collaboration with brokers and portfolio management of the entire book.

It must also support processes to leverage new data, new models and new analytics to garner deeper insights, based on the three key attributes of digital thinking:

Intuition

In underwriting, the user experience should be tailored and personalized. No two underwriters are the same. The new underwriter has a completely different set of tasks compared with an underwriting veteran. As underwriters grow, their roles may change and shift. A digital underwriting platform will tailor its processes and workflow based on underwriter specifics to provide guided and balanced experiences. 

Today’s digital underwriting platform also must enable communication and collaboration among underwriters, brokers and others who may be involved in the process.

See also: Dramatic Shift in Underwriting Ahead

Integration

The first steps of automation were those made to integrate requirements data into the scoring process and to facilitate the underwriting workflow. Today, this integration is vastly expanded to contain connections with everything possible — data, collaborative communications and decisions. Application programming interfaces (APIs) need to connect with centralized data platforms to provide real-time synchronization with policy administration, rating engines, various tools and spreadsheets, analytic/predictive models, transformational technologies and new data sources (structured and unstructured).

Everything gains its power in the integration layers. Workflow becomes easier to automate. Data becomes easier to access and understand. With advanced digital communication tools, information sharing becomes more fluid and automatic, both within the company and outside its walls. There are so many valuable streams of data available today, but most are hindered by an inability to integrate the data into the current workflow.

Insights

Insights are made up of the “just-right” information presented in easily digestible views from multiple angles and layers. All relevant sources of data and analytics for the transaction, decisions and portfolio management are vital and accessible. Dashboards, alerts, business intelligence and advanced analytic tools are made available across any and all data points and through any lens: product, broker, underwriter, policyholder, market segment, region, etc.

Today’s digital underwriting provides the latest data and analytics for product/pricing/appetite and underwriting guidelines that are linked to intuitive and intelligent workflows and engines.  

Tech capabilities that advance underwriting for commercial and specialty insurance products

The technology to support new digital attributes goes beyond the basic underwriting found in policy solutions. It is more advanced and comprehensive than even the underwriting workbench of the past that was focused on workflow and process. What is required is a digital underwriting platform that not only enables today’s workflow and process but elevates the underwriting process and decision-making, as well.

This evolution of underwriting is powered by solutions that leverage:

• a digital no code/low code platform
• AI and advanced predictive analytics
• new communication and collaboration tools

This can be accomplished through a next-gen underwriting workbench that runs standalone and integrates seamlessly with other systems and data for rapid implementation and flexibility for future enhancements and upgrades.

Underwriting technology is a wise investment

Most commercial and specialty insurers are adept at understanding their customers and niches. Now is the time to pay close attention to the pains that their business customers are encountering.

When the economy is posing headaches for companies large and small, and many businesses are struggling to survive, areas of expense come under fire. It’s vitally important that insurers are seen as the protectors of business — with insurance as a high-value asset — as opposed to just a necessary expense that can be shopped around like any capital expenditure. Commercial and specialty insurers need to remain competitive by providing the accuracy, value and innovation that will keep company customers loyal. Commercial and specialty insurance underwriters need to transform underwriting into a center of support, engagement and insights, ready to contribute to cost savings for their own company and all those whom they serve.

If you think about it, this makes the decision to modernize commercial and specialty underwriting with digital and advanced data technologies a no-brainer. Every front-end improvement contributes to the insurer’s bottom line. Every step forward makes commercial and specialty products more competitive and makes insurer solutions more collaborative. For organizations that consider themselves business partners, digitally enhanced underwriting will build trust in the business relationship and protect both businesses and insurers from the unknown. Is your organization ready to take advantage of today’s next-gen underwriting platform?

To hear the latest from Majesco and SMA on Underwriting and analytics, be sure to watch Majesco’s webinar, The Art and Science of Underwriting Powered by Artificial Intelligence and Machine Learning. 

While many promises of disruption from insurtechs have fallen flat, now is the time to lean into digital transformation. On the cusp of a potential economic downturn, organizations must continue to adopt advanced solutions that foster quantifiable ROI and impact. And while there is a focus on how artificial intelligence (AI) and automation are critical when functioning with fewer resources on hand (and rightfully so), there isn’t enough focus on explainable AI. 

Explainable AI, or the ability to look inside the “black box” of decision-making of an algorithm and understand the reasons behind its predictions, is pivotal to better understanding customers, detecting fraud and staying ahead of potential legislation that has ability to disrupt the industry. Insurers are not alone in their struggle to obtain useful and unbiased data. Explainable AI paves the way for improving business outcomes and keeping companies accountable to new and emerging ethical standards. 

Mass customization through AI 

On the surface, using explainable AI to predict customer churn might seem less exciting than AI-driven telematics or using AI to configure risk models for states affected differently by natural disasters. But picture this: Your AI model alerts you that Customer X has a significant chance of taking their business to a competitor. Without explainable AI, which makes it easy to understand precisely why this is likely, your organization would have to accept defeat and watch the customer close their account once their contract was up. 

With explainable AI, it may be revealed that the customer is extremely price-sensitive, and because their rates went up due to an accident last year, they’re looking for solutions that are more within their price range. The AI arrives at this prediction from extensive first-party data, including past interactions with customer service representatives and subsequent surveys. In this instance, offering a lower rate could reduce the chance of Customer X leaving to 50%. One customer may not hold an organization afloat, but thousands of instances like this one can help keep consistent growth in economic fluctuations.

Aside from the obvious benefit to the insurer, targeted, customer-centric personalization of policies and customer service interactions contribute to a better customer experience and thus, a loyal customer base.

Detect fraud faster and improve your data

It wasn’t long ago that Geico unveiled its use of AI to speed collision estimation. Essentially, after an accident, customers submit photos of damage to their vehicles, which helps speed claims and repair processes. Without explainable AI to outline why certain damages or costs were identified, the software could cause considerable challenges if customers were unhappy with the decisions. It’s only fair for the insurer to provide details for why a claim was denied or only partially approved.

In the case of fraudulent claims, insurers need a way to quickly detect when something’s amiss. In verticals like retail, with lots of data constantly being added to systems, data can be updated instantaneously based on real-time interactions to improve AI-backed decision-making. However, this method requires a steady cadence of data to keep up with changing trends. Machine learning (ML) models predicting insurance claim fraud may be limited to adapting on a much less frequent basis, causing what is sometimes called model drift. 

This means that enterprise data, and therefore ML models, may be inaccurate for a period, until the feedback loop closes and the model is able to update. Implementing rules systems on top of ML can provide an automation stop-gap so that, until relevant data is fed into the system, rules can act as a guardrail and reduce risk for ML models when data drifts from its training distribution.

Further, the ability to analyze a model and its recommendations is crucial for identifying erroneous or biased data that should never have made it into training. Data science workflows that use explainable AI to drive upstream data improvements continuously boost the quality of their organization's data, while boosting confidence in output and results. 

See also: Modernizing Insurance for the Digital Era

Stay ahead of pending legislation 

In the last few months, regulators have upped the ante with a clear desire to create uniform, ethical standards for using AI and automation. For example, New York City is instituting a law that penalizes employers for bias in AI hiring tools starting in January 2023; as a result, companies are scrambling to audit their AI programs before the deadline. On the federal level, the Biden administration released a Blueprint for an AI Bill of Rights, which will likely inform more rigid legislation focused on transparency and accountability.

Compliance-minded insurers have no choice but to turn to explainable AI, using software to understand — and prove — the variables that came into consideration for sensitive decision-making. This is underscored by a December 2022 lawsuit alleging disparities between how a leading insurance carrier processes claims for minority policy holders. The suit cites the company’s relationship with a claims management platform provider – and its partnership with a Netherlands-based AI firm that delivers a fraud detection score to indicate the likelihood of fraud throughout the claims process. 

This lawsuit is a bellwether: as wider adoption of AI and automation software penetrate the insurance industry, the use-cases for ethical, transparent AI will skyrocket.

Insurance needs explainable AI

Insurers can’t stop the momentum of digital disruption. With rumblings of an economic downturn, insurers can't pump the brakes while competitors ramp up processes reliant on AI and automation. With the help of explainable AI, insurers are set up to succeed in attracting and retaining customers, detecting fraudulent activities and staying compliant with pending legislative efforts ensuring AI is accessible and fair.

 

“If you do not change direction,” Taoism founder Lao Tzu warned, “you might end up where you are heading.”

It’s a bit of ancient wisdom sure to resonate with modern enterprises as they seek to transfer their CX approach from the well-beaten path through a fast-fading single-channel world to one that leads to a new digital-first multichannel universe where tech-savvy Millennials and Gen Z—not to mention their expectations and business—reside.

Consider the following findings from a recent Salesforce survey:

• 56% of customers—and a full 68% of potential millennial/Gen Z customers—prefer digital channels over traditional ones.
• Further: “More than half (56%) of millennial and Gen Z prefer mobile apps and are more than twice as likely than silents/baby boomers to prefer voice assistants like Siri and Alexa.”
• Nearly forty percent of customers “won’t do business” with a company if they cannot use their preferred channels.

The challenge is particularly acute in the insurance industry where providers are working to pivot to that multichannel future while also operating as multi-line policy providers and attempting to stay ahead of the ever-evolving risk curve.

From an Insurance Nexus survey:

• In North America, 43% of consumers selected the broker channel as preferred. 57% chose the online channel and twenty-nine percent prefer an aggregator.
• Though nearly a quarter of millennials use an agent or a broker, only 16% identify brokers as a preferred insurance channel— “making it the fourth most popular choice after online, aggregator, and affiliate partner channels.”
• 61% of Gen X and Baby Boomers use an agent or a broker with half “selecting that channel as one of their most preferred.”

This means that insurance providers, to remain competitive, must do several different things well simultaneously.

As a Reuters white paper recently put it: “From digital native Gen Zs to silver-surfers, consumers are now accustomed to Amazon or Uber-style experiences, and they want affordable, transparent, and customized solutions.”

So, can the insurance industry accomplish this feat?

Can providers effectively manage all their foundational duties while simultaneously pivoting toward an omnichannel engagement strategy?

The answer is absolutely.

But it will require a multifaceted approach to distribution that is highly flexible and adaptive as well as responsive to the differing needs based on who the client is—i.e., individual or commercial buyer—and where they are on their own digital journey. A given customer may, for example, be comfortable submitting information for a digital quote but prefer to close the actual transaction with a broker or underwriter.

On a more macro-level is will also require some degree of “co-opetition”—an increasingly common phenomenon described by Harvard Business Review as “cooperating with a competitor to achieve a common goal or get ahead.”

“[Co-opetition] isn’t always easy, because people tend to think in either/or terms, as in either compete or cooperate, rather than compete and cooperate,” Adam Brandenburger and Barry Nalebuff write. “Doing both at once requires mental flexibility; it doesn’t come naturally. But if you develop that flexibility and give the risks and rewards careful consideration, you may well gain an edge over those stuck thinking only about competition.”

In other words, placing the customer first in a rapidly shifting business ecosystem could mean rethinking how the boundaries within those ecosystems are drawn in the first place.

And with consumers’ expectations being continually shaped by encounters with other brands in other sectors, for insurance providers, time is truly of the essence.

To get from here to there, providers will not only want to lean on outside technical and strategic expertise—the “consultant factor,” as I called it in a previous article—but also on laying the following two primary building blocks:

• A Technology-First Mindset. The mindset of insurance companies when a new or improved digital engagement tool is adopted by another industry should not be to lean into reliance on existing legacy systems and service models, but, instead, to immediately begin the process of ideating internal use cases and begin the integration process as soon as possible. In a multichannel world, providers must meet customers where they are at. That may mean, say, opening up lines of communication via instant message or an intelligent bot; a self-service web portal or mobile app; a conversational AI digital virtual agent; a human agent; or, most likely, a seamless, reactive hybrid of the three. Utilize experienced third-party insurtech firms whenever needed in whatever way possible—competitive advantage and both the short- and long-term prospects of the company will depend upon it. Customers are too inundated with options to settle in 2023. Remember, Customer acquisition in insurance is estimated to costs nine times more than customer retention.
• Freedom from Friction. Insurance should digitally pave its customer purchase journeys: Significantly, 96% of independent agents surveyed by Clearcover say their customers are seeking more digital tools now than they were pre-pandemic. Providers ignore this fact at their own peril. “Driven by insurtechs, insurance is moving towards efficiency driven by technology, data, and predictive analytics,” Mike Brown writes. “It’s getting away from the legacy operations defined by human underwriters, nine-to-five dealmaking, and cumbersome processes. A computer only needs a couple of minutes to underwrite an insurance policy. It’s an opportune time for tech companies to get a seat at the insurance table. They have robust data and technological infrastructure that could be leveraged to underwrite and sell insurance products.” If insurance companies want to protect their own turf, they’re going to have to be lithe, smart, and quick, technologically speaking.

Insurers are being challenged to rethink not just the experiences they provide customers but their entire approach to customer engagement and how they collaborate with their distribution partners, agents, brokers, and intermediaries. The quote-to-card value chain and traditional pillars of brand, price, product, and the claims “moment of truth” are being challenged and disrupted.

Many customers say that today superior service is often more important than price and a great claims experience is expected.

Considering all of this, multi-channel is the new front door to your business: Without the right technology, business culture, workforce, and processes, you face becoming obsolete.

If you’re ready for an extreme customer experience makeover, grab a sledgehammer. It’s time to build the modernized, digital-first omnichannel experience.

 

Sponsored by ITL Partner: OZ Digital Consulting

Lots of experts see cars’ increasing ability to automatically notify insurers and public authorities about crashes as a breakthrough. And it is. Authorities will quickly be able to dispatch help, if it’s needed, and insurers will be able to take hold of the claims process so early that they’ll be able to knock out lots of cost while speeding the repair process.

But what if customers don’t want to automatically notify insurers and public authorities about a crash?

Many will, of course, appreciate the peace of mind that comes with knowing that help will be sent even if they’re incapacitated in an accident. Many will feel coddled after they have even a minor accident and their insurance company calls or texts to ask if there’s anything the company can do to help. If customers get the sense that they’re being moved more quickly through the repair process, they’ll like that, too, and some PR and advertising could even sell customers on the idea that having costs taken out of the claims process allows for lower rates.

So, what’s not to like?

Well, we’ve already seen that crash detection can lead to many false  positives — Apple Watches, for instance, seem to think that many sudden stops by skiers are actually car crashes and dispatch help. Those annoyances will diminish as the technology improves, but they won’t go away.

And some people simply don’t want to report a crash. They don’t want it on their driving records, because it will raise their insurance rates and perhaps even imperil their license. 

Even if a driver welcomes having a crash reported, they may not want to do it right away. Maybe they’re late for a meeting. Maybe they’re discombobulated and want a chance to clear their heads. 

In rare cases, maybe the driver doesn’t want to use the tow service or repair shop that the insurer is steering them toward as part of cost-cutting efforts. 

Broadly speaking, I’m raising the issue of decision rights. We’ve seen lots of big plans for technology fail over the years because companies failed to account for the fact that consumers value those rights. I worry that the effort to enable automatic crash notification, while totally laudable, will at least be slowed unless insurers find ways to leave those decision rights with consumers. 

Remember “internet refrigerators”? The grand idea was that your refrigerator would know when you were out of, say, milk and would order it for you. But you don’t have an internet refrigerator, and I don’t, either. Why? Because I don’t want a refrigerator making that decision for me. I’d be delighted to have a refrigerator that knew whether I had dill and could tell me while I was at the store, while no one was at home to check, but I don’t want a refrigerator to automatically keep me stocked with it. Sometimes, we need dill. Sometimes, we don’t.

There is a straightforward way of addressing the decision rights issue: Ask the customer.

Do you want your insurer to be notified immediately if you have an accident? How about public authorities? Given that false positives are a possibility, how certain should our algorithms be that you’ve had an accident before reporting it? How serious an accident should we report — one at 5mph, 10mph, 25mph? For someone who’s had an accident, maybe start by asking if they want to report it now, then if they’re okay with using the official towing operator and repair shop. Etc.

Automatic reporting can be a game-changer, for all the reasons our friends Stephen Applebaum and Alan Demers lay out here. They estimate that the technology, now possible because of smartphones, could save an average of $1,000 per claim on the 15 million auto claims filed just in the U.S. each year, for a whopping $15 billion in savings.

I just think everything will go far more smoothly if we develop the technology with the customer, and not just the insurance process, in mind from the very beginning.

Cheers,

Paul

 

For many years, I have advocated for the insurance industry to coalesce in pursuit of a perception change. The industry clearly gets a bad rap. ProfitableVenture notes seven reasons why people think insurance companies are bad. I think at least a few are missing from this list. 

You hear people say insurance companies are not trustworthy, are uncaring during times of need and only focus on profits. From college-students considering careers, we often hear that insurance is boring and bad.

The only child who ever said they want to go into insurance when they grow up was someone with a relative in the business. Someone who guided them into the industry by helping to debunk the stereotypes and myths about the space. To all my friends in the industry, tell me that isn’t true…

The industry has two major perception strikes against it: It’s bad, and it’s boring. People coming out of school today can’t handle boring, and they certainly don’t want to work for a company seen as doing bad in the world.

But, those who know a little something about insurance know that both of these perceptions are simply not true.

The fact is, the insurance industry is one of the most caring and philanthropic around. People working in insurance are there to protect you and the property you own. Helping others is part of the insurance DNA, and the vast majority of insurance brokers and underwriters are committed to serving their clients in their best interests. 

McKinsey and the Insurance Industry Charitable Foundation, a nonprofit that unites the collective strengths of the insurance industry to help communities and enrich lives through grants, volunteer service and leadership, reported in 2020 that industry-wide charitable giving was more than $560 million between 2015 and 2019. 

Using information collected by IICF, the Insurance Information Institute estimated U.S. insurers and their charitable foundations donated $280 million in response to the COVID-19 crisis alone. 

I couldn’t find much data on volunteerism, but all the insurance brokers and underwriters I know support their hundreds of thousands of employees to volunteer in communities across the nation and around the world. The IICF alone has tracked more than 110,000 industry volunteers giving more than 320,000 hours of service through IICF volunteer projects. Volunteerism is widespread and important in the insurance industry.

The industry is doing many good things in the world. It gives back – in a big way.

As for being boring, the insurance industry is far from it. I tell anyone who will listen, “Don’t knock it till you try it.” I’ve seen over the years how people reluctantly agree to take on insurance-related clients to lead communications, awards, executive positioning, brand activation efforts and more, only to fall in love with the complex topics, financial metrics and real implications of the work. Managing risk is the foundation of decision-making, and in today’s world of volatility – from climate change to political uncertainty – weighing the risks and mitigating them is more critical than ever. It’s an incredibly interesting space to be in, and I highly encourage young people to give it a shot.

See also: Key Insurance Exposures for 2023

But, back to the task at hand. How do we change the long-held negative perceptions about the insurance industry? I believe that the insurance industry should come together to undertake a wide-scale and fully integrated campaign to improve the industry’s reputation. That campaign should include such actions as:

1. Reaching out to high school and college students – particularly kids interested in math – to show them the kinds of solutions provided by insurance and the possibilities for building careers in insurance.
2. More effectively measuring the total philanthropic impact being made by the industry in terms of giving and volunteerism and reporting the result to consumers, businesses and government officials.
3. Being more visible among business leaders on issues of climate change, health and wellness and other topics. Taking a seat at the table among the thinkers and actors working to make the world a better place. Insurance executives should lead conversations at the local level and at national and international platforms like local chambers of commerce, TED, Business Roundtable, World Economic Forum, Cop and so many more.
4. Calling out the bad players for what they are. Let’s not gloss over the fact that there have been some shady businesses in the industry in the past. Likely, some still exist. Let’s step up and call out those players. Let’s get rid of the bad actors.

We didn’t get to this place of overarching negative perceptions about the insurance industry overnight, and those perceptions won’t be shifted overnight, either. But, if the industry were to come together to more vocally explain its good work and great impact and more forcefully educate young people about the incredibly fulfilling careers to be had in insurance, there is no doubt in my mind that the industry’s reputation would improve. You can bet I’ll be telling my kids to consider a career in insurance

The cyber market has been in flux for about as long as it’s been around. New hackers use new techniques to exploit new vulnerabilities and use new methods of collecting ransoms. Meanwhile, victims and their insurers scramble to try to stay one step ahead of the bad guys, as rates rise – then rise some more. To sort through the latest trends, we sat down this month with Emma Werth Fekkas, RVP of underwriting at Cowbell Cyber. She offers any number of insights, including that those constant rate rises are likely a thing of the past.

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ITL:

Let me start by asking you what you think the two or three biggest issues are that are facing cyber market at the moment.

Emma Werth Fekkas:

One of them is around clarity of coverage, what it does, where it applies and how it fits into other policies and overall risk management. Cyber is such a new product and new coverage that I think we're all still trying to find our bearings and find where this is really the best fit.

ITL:

Are there particular areas of confusion?

Werth Fekkas:

There are a couple of hot buttons. One is around war. There are a lot of cyber terrorism carvebacks and a lot of debate around what was the intention of a cyber policy. Does it apply to cyber terror terrorism—and how do you define cyber terrorism? Should government come in and define it? There's been a lot of movement to define kinetic war differently from cyber terrorism. There's a lot of debate, and currently, different insurers are handling that differently.

ITL:

Quick aside. I think the term “kinetic war” is just a crazy euphemism. I mean, people are firing guns, artillery and missiles at each other, and we use a cute little word, “kinetic,” to describe that.

Werth Fekkas:

Right?

ITL:

I didn’t mean to sidetrack you.

Werth Fekkas:

The other piece is what we call infrastructure exclusions, or named perils, things like that. Prior to COVID, cyber started covering things like business interruption, and the wording kind of broadened to make coverage more appealing and meet the needs of our policyholders. But the wording sometimes can take on something it wasn't intended to and start to look more like a property or GL [general liability] coverage. So there is some pullback, defining when business interruption for a cyber policy would fit in and when it goes under more of your standard property and casualty coverage.

ITL:

Is there a big issue related to rates? Insurers have typically really wanted to push rates up because this is potentially really expensive stuff, but clients have often balked.

Werth Fekkas:

I think you're going to see rates coming down. It depends a bit on where you are in revenue. Rate declines will be slower for larger companies, I think, than for smaller companies. But I do think we're coming into a softer market now. And so we are going to see more competition and more price adjustments.

ITL:

That’s interesting. How quickly do you think that can happen? This year? Next year?

Werth Fekkas:

I would say throughout this year. You're probably going to see a significant difference between January and December, for sure, moving faster in the smaller and middle market space than in the larger space.

ITL:

A thesis I’ve had for a while is that insurance needs to move to what people are calling a “predict and prevent” model, away from “repair replace,” and cyber seems like a perfect spot for the transition. The more secure you are, the less you need to worry about insurance and the less the insurers need to worry about the risks. Are you seeing a shift?

Werth Fekkas:

I am. At Cowbell, we're able to continuously scan our policyholders and notify them of any vulnerabilities that are coming up. A little while ago, Log4J was a big one. We were able to get an idea of how many clients were potentially affected and notify our insureds and their brokers of how to mitigate the problem. We're going to have more and more of that.

There's going to be more and more partnership between cyber insurers and technology vendors to help companies see what they can do up-front to mitigate certain exposures.

ITL:

Is it a big deal, medium deal or small deal that law enforcement has managed to recover ransom payments made in cryptocurrencies, which were long thought to be untraceable?

Werth Fekkas:

It's a fairly big deal. It's certainly helpful for us to have some protection, to be able to mitigate what we're paying and to know we're getting to the root cause of some of these attacks. On the other hand, there have been frustrations among clients about having assets frozen and other measures taken, even though they know those measures protect them, in the end. To clients, it can look like investigators aren’t helping, that they’re part of the problem.

ITL:

How about trends in attacks?

Werth Fekkas:

Business email compromise is still the main way in. If it ends up in ransomware, of course, it's higher-severity. Overall, the main issue is higher frequency.

ITL:

What about countermeasures companies are taking?

Werth Fekkas:

We always stress training, but, of course, not all training is created equal. MFA [multi-factor authentication] is a big one. But if you just have MFA for email, it’s not as effective as if you have MFA across your entire system. Another one is EDR and MDR. EDR is endpoint detection and response. It checks each computer as an endpoint and notifies you when there's a threat there. MDR is more toward monitoring. We’ve learned in the past couple of years that a lot of threat actors are kind of dormant in your system. They’re monitoring your activity so they can make it look a lot more natural when they send you a phishing email. So, MDR seems very helpful, as well.

ITL:

You can monitor what might be monitoring you.

That really covers it from my end. Any thoughts you want to leave us with?

Werth Fekkas:

There’s definitely lively conversation in cyber right now, coming out of the hard market. Now is the time to do a post mortem, of what was working and what wasn’t? What can we now do as the market softens?

ITL:

Thanks, Emma.

 

Across the insurance landscape, commercial P&C firms are facing a host of challenges when it comes to underwriting talent. Rapid shifts in the makeup of the workforce, combined with technological innovation, global trends and industry-specific realities, have added considerable complexity to the process of attracting and retaining high-impact employees.

These difficulties manifest across the talent lifecycle, from recruiting and onboarding to advancement and retention – and the industry is feeling the pressure. According to a white paper from training firm Attensi, 55% of insurance executives surveyed said that talent acquisition and retention difficulties could prevent growth in the year ahead. And with a report from PwC finding that 71% of P&C insurers expect to increase staff in the next 12 months, the problem will only intensify.

One way to overcome the talent crisis is by leveraging technology to support talent. Technology provides a real opportunity for employers to differentiate themselves in the market and foster a happy, engaged and productive workforce. While many view it as having disrupted the status quo, when pointed in the right direction it can serve as a unifying force, enabling diverse underwriting teams to achieve transformative results while collaborating more closely than ever. Let’s explore how.

The Challenge: Demographic and Professional Evolution

Perhaps the biggest driver of the talent crisis in underwriting is that the hiring pool is changing rapidly. PwC found that the average age in the U.S. workforce is now 43 to 45, down from 55 just a few years ago – and that’s created pressure at both ends of the spectrum.

At the younger end, millennial and Gen Z prospective employees are digital natives – they have used modern technology throughout their lives, including in their educational and internship experiences, and expect their companies to arm them with the right tools and support. But many insurers have taken the opposite approach, making limited to no investment in modern digital workflow tools and cutting valuable training programs. To would-be underwriters, this lack of support is often striking, leading them to seek employment in other industries and further shrinking the pool of candidates.

At the other end, baby boomers and Gen X underwriters are finding that their roles are changing rapidly, with more quantitative workflows and fewer manual tasks that were once core to the profession. The risks they must account for are more numerous and ambiguous than ever before, such as climate and cyber. This has led to some senior underwriters feeling pushed out of their roles at the precise moment they are most needed.

Amid these rapid shifts in the workforce, it is imperative that different generations are brought together, not driven apart. Through close collaboration, senior underwriters can pass on a wealth of industry knowledge to those just starting out, while new hires can help their mentors learn the latest technologies. Together, they can combine their varied perspectives to shape and interpret quantitative findings far more effectively than any one person.

The pandemic has exacerbated the disconnect between employees and the breakdown in communication. Remote and hybrid work has made it even harder to onboard underwriters and give them the support they need, so they often feel a lack of engagement and empowerment. The pandemic has also led to a decrease in communication and organic training opportunities that happen when underwriting management and the underwriters collaborate in person and discuss risks. All of this can have an isolating effect, making employees less likely to feel a sense of meaning and community in their jobs – and less likely to stick around.

See also: Why the Decline in Underwriting Quality?

The Solution: Technology That Unites and Empowers People

While there are many elements that go into talent acquisition and retention, we believe that the right technology can facilitate real-time sharing of information, bringing together employees of all stripes and driving greater collaboration in the workplace. This kind of teamwork is something that many people are missing in the modern workplace, especially as we emerge from the pandemic. By driving greater collaboration, firms have an opportunity to differentiate themselves and more effectively fill underwriting roles – and keep them filled – even as the talent crisis ramps up.

Let’s examine some of the potential impacts across the talent lifecycle:

• Recruiting – Insurance firms should view modern technology as a recruiting tool, just as they do benefits and culture. The most talented candidates tend to gravitate toward roles that give them a chance to work with the latest systems – they make the role more engaging while providing an opportunity to practice related skills that could apply far into the future.
• Onboarding – Technology that drives communication and teamwork makes for a better employee onboarding process, especially in a post-pandemic world. When new and more junior employees can more easily navigate platforms, view how others interact with them, ask questions and get answers from veteran underwriters, they are more prepared to make an immediate impact, boosting their confidence. These cross-generation interactions can also help more senior employees learn the latest technologies, driving impact across the business.
• Development – Underwriting is a dynamic business function, with new risks and better processes always coming to the fore. With the right technology, underwriters can seamlessly adapt to these shifts and ensure they remain high performers even with this inherent uncertainty. It also enables them to maintain their edge over underwriters who do not have access to these capabilities, setting them up for career-long success.
• Retention – The right technology can drive retention at all levels. Junior underwriters feel more engaged and empowered, while veteran underwriters can evolve their workflows, remain in the industry for longer and apply their expertise to solving new challenges and training future generations.

There isn’t a single ideal approach to this evolution of underwriting technology – the right approach can vary widely based on the nature of your employees, clients, region, target audience and more – but the bottom line is that what you do can have a major impact on your talent pipeline. Stay tuned for specific examples of how the concepts outlined above can and have been applied to advance insurance businesses in ways never thought possible.

You can find this article originally published here on twosigmaiq.com.