Smartphones have done so much for usage-based insurance (UBI), providing the technology to help move away from expensive aftermarket hardware through software leveraging smartphone sensors. One of the clear benefits has been lowering the startup costs of a carrier’s UBI program. Nonetheless, more innovation is needed for UBI to become more broadly adopted. As much progress as the industry has seen in recent years, I don’t think we can categorize UBI participation as mainstream when only 22% of people reported participating in such a program, according to internal research we plan to publish in the coming weeks.

Not just any innovation is needed, though. I think an improved product-market fit is critical, particularly in the interface with the end-user, the insurance customer.

Among the survey respondents, 67% said they are aware that connected vehicles could capture and transmit driving behavior data that can be used for potential insurance discounts. Moreover, 71% of respondents who had not used their vehicle and driving behavior data to get those potential deductions said they are interested in doing so. 

The auto insurance industry has considered – and positioned – telematics as an opportunity to further engage with their customers. In fact, most of the telematics solutions available today, such as smartphone apps, offer plenty of touchpoints.

However, I think most consumers may view car insurance as one of those products you check in on once or twice a year, if that. As a result, it’s understandable that consumers may not be accustomed to interacting with their insurance carrier’s smartphone app.

So, is the industry pushing a product that consumers do not want to use? I don’t believe so. I think the low level of telematics adoption for UBI is more likely a case of mismatching a product with a service industry.

Finding That Product-Market Fit

The research shows consumers value the benefits of UBI, but, until recently, the only way they could access those benefits was through having their telematics data captured by smartphone apps or aftermarket devices. Insurance carriers had no choice, and they made a huge effort to encourage consumers to participate in UBI programs. But the game has changed. Now, there are connected cars and the telematics exchange, more advanced technology that can receive telematics data generated by connected cars, analyze it and normalize it to have that data available for a variety of use cases.

An exchange solution provides the elusive product-market fit for UBI. Having the ability to participate in a telematics program, like UBI, by simply turning the vehicle key is likely the simplest approach. In addition, with an exchange platform, the telematics data is ready and accessible at the point of need without a monitoring period. 

This is a technology leap with huge potential to push a wider adoption of telematics and UBI products, because the solution provides the desired benefits without requiring aftermarket devices or smartphone apps: The data flows more seamlessly from the source to the exchange, where it is analyzed, normalized and used to build telematics-based solutions that can integrate into insurers’ workflows. 

See also: What Happens When Insurance Truly Goes Digital?

Higher Buy-In With Connected Cars

When I speak to insurance carriers about the prospect and value behind a telematics exchange along with the availability of telematics data, they are usually surprised. In the U.S., our estimates, based on internal analysis, show 16% of passenger vehicles circulating in 2020 were connected. Of the people driving those vehicles, our estimates suggest 60% have agreed to share the data generated by their cars for insurance purposes. That means potentially 40.6 million connected cars on the road in the U.S., with over 24 million drivers participating in UBI-type solutions. As we can see, telematics adoption by connected car drivers is much higher than smartphone app users.

When discussing higher executions of a telematics exchange, you can pull from a resource that has data collected from over 9 million vehicles and 250 billion-plus driving miles. This equates to tens of millions of years of vehicle logging and a massive opportunity for carriers. When data is sourced from different sources and normalized, it can suit a variety of telematics use cases. One such output would be a solution that could offer behavioral scores and attributes that can be integrated into workflows and used at several points of an auto insurance policy lifecycle, including point of quote and renewals, running alongside other data insights. 

The higher rates of telematics adoption when it is offered to connected car drivers, in comparison with consumers using aftermarket devices and smartphone apps, is very encouraging. Interest in UBI solutions is also growing, partly because of the COVID-19 pandemic lockdown. The auto insurance industry will still need to innovate and offer flexible solutions, which are becoming more of the norm, instead of a competitive advantage. 

New products

Within this perspective, the simplicity of a telematics exchange can help insurance carriers take advantage of new telematics solutions with confidence in the product-market fit. Insurance carriers can know of any potential risk they are embracing when they offer an auto insurance policy at point of quote, not just at renewal. The consumers who are taking advantage of the option to share their telematics data related to driving behavior and vehicle performance may use their telematics data by simply turning on the ignition. The more seamless flow of data can help allow faster access to potential benefits and may contribute to a more transparent relationship between insurance carriers and their customers. And this is just the beginning.

It’s an encouraging time in the industry, to say the least. Powered by advanced analytics, telematics exchanges are making it possible to deliver innovative products with better-quality data aggregation and analysis, more informed insights, real-time scores and much more.

The number of companies that are at risk of insolvency globally is on the rise. reversing a trend seen earlier in the year that briefly indicated insolvencies were actually going down.

The systematic increase of insolvencies will have a widespread impact on the global economy. When firms of all kinds are unable to pay off their debts, the general distribution of cash and cash equivalents will always be at risk. Furthermore, while this current rise is expected to be temporary—and in many cases, simply represents an adjustment to the “post” pandemic economy—insurers and other major financial players must account for the likelihood that increased levels of insolvency will directly affect the general availability of cash, the functionality of global supply chains, global GDP growth and various other factors.

The Irreversible Link Between Insolvencies and Inflation

As one might expect, the recent rise in inflation—which has occurred in nearly every country around the world—is inextricably linked with many companies’ risks of insolvency. This risk has been especially prevalent among companies that are heavily reliant on international shipping and also among those that are notably energy dependent. In the U.S., inflation figures have hovered near 9% year over year, and similar (if not higher) figures have been produced throughout Europe and other nations.

There is a strong correlation between the recent rise in insolvencies and the recent rise in inflation. When the costs associated with performing certain functions increase—including the acquisition of raw materials, manufacturing of these materials, shipping of finished products, labor and many others—and the revenues yielded in producing these goods are not proportionately compensated, insolvency issues are likely to emerge.

This problem is particularly exacerbated by the simple fact that many firms that have large amounts of debt to service are locked into inflexible contracts. As inflation rises and the costs associated with performing any sort of institutional function directly increase, firms around the world are finding it harder to maintain their economic status quo.

The Proliferation of Global and US-Centric Economic Issues

Recent economic reports indicate that the rise in insolvencies will directly affect the economic well-being of the U.S., the U.K. and most other countries around the world.

Perhaps one of the most startling figures is the projection that the U.S. economy (as measured by GDP) is expected to retract by 1.4% compared with where it was a year ago—a figure that is especially startling considering that the population has increased by nearly 1% over the past year. This means that, necessarily, American GDP per capita is on the decline.

But the rise in insolvencies, along with highly correlated issues such as inflation, is not limited to the U.S. In fact, in response to these and other economic challenges, Atradius recently adjusted its future global GDP growth forecast from 3.2% to 2.4%. While a portion of this adjustment can be attributed to increased global development (making it more difficult for many countries, particularly China, to keep growing at their previous rates), the very existence of an adjustment is still problematic.

See also: Choose Your Companies Carefully

The Good News—There Is Still Hope for Avoiding an International Recession

The most recent batch of economic data might, on the surface, make it difficult to be optimistic about the world’s economic future. After all, the sudden and widespread increase in insolvencies indicates that the simple practice of servicing debts will be much harder to accomplish.

But, even in light of this recent information, there still is some good news: The probability of a near-term global recession is somewhat low. The global economy will continue to grow—especially in the developing parts of the world—and, as the world is able to recover from the COVID-19 pandemic, this growth will accelerate. The odds of a recession in the U.S. in the next six to 12 months are moderate and rising, while, in Europe, a recession is almost a given. 

Of course, there are still quite a few trends and variables that economists will need to account for. The general lubrication of global supply chains, the existence of international conflicts (including the Russian-Ukrainian war) and the general cost of energy will all, to some extent, affect the near future of the global economy. Nevertheless, there are at least a few reasons to remain optimistic and forecast a better tomorrow.

Why compete with top-notch insurtechs when you can collaborate with them instead? After all, policyholder needs are evolving fast—and so are the opportunities to leverage an endless stream of innovations by forming an insurtech ecosystem.   

Think about it this way. In 2021, insurtechs in the property and casualty space attracted a record $9.4 billion in capital investment. During the first quarter of 2022, they also clocked the highest participation in early-stage capital investment ever recorded. And it's easy to see why. Their advances in applied AI, mobility, data analytics and other technologies are rapidly transforming the industry. 

For incumbents, that change can represent a threat—or a massive opportunity. According to Accenture, the revenue gap between innovation leaders and laggards in the P&C sector could top 37% by the end of next year. As much as $200 billion in revenue will be driven by new risks, products and services between now and 2025. 

As it turns out, a go-it-alone approach to grabbing the biggest piece of the action isn't a sound strategy for either insurtechs or incumbents. Here's why collaboration is quickly becoming the name of the game.  

Ecosystems: Endless Opportunity—for All

Take an array of different innovations that dozens or more insurtechs bring to the table. Add what only insurers can offer: regulatory expertise, historical and experiential data and the reliability and support that are foundational to the entire customer life cycle. Mix into new combinations to create whole new value propositions. Reap and repeat continuously. 

That's the idea behind an insurtech ecosystem. More than a set of alliances, and further-reaching than even the most robust partnership program, ecosystems offer a powerful way for insurers to rapidly deploy amazing new insurtech capabilities without interruption. But that’s only if it's done right. To be successful, here are five questions every insurer should ask before building an ecosystem of their own.  

Okay, So What Exactly Is an Ecosystem?  

An ecosystem is a defined network of pre-validated solutions from an array of world-class providers that can be rapidly used on their own, or in combination, to deliver differentiated offerings that provide a competitive advantage. 

Maybe it's the embedded travel insurance offered by Norwegian Cruise Line or the Apple warranty on your iPhone 14. Perhaps it's the usage-based insurance (UBI) that rewards you for driving that snazzy new Tesla so very safely. Or it could be the smart-home sensors that monitor for water leaks to help you avoid costly claims. Maybe it's all of the above. 

Whatever the case, the ecosystems involved in these and a growing number of other insurance offerings deliver value that far exceeds what is otherwise possible by each of the participants on their own. 

Why Are Ecosystems So Important to Future Insurance Models?  

Ecosystems are foundational to today's most innovative operating models, and tomorrow's. Usage-based, "pay as you drive" auto coverage, for instance, is predicated on ecosystems that can span telematics, mobile connectivity, automobile or smartphone manufacturers and more, all tied into insurers’ core systems. 

According to JD Power, UBI policies were purchased by 49% of consumers who were offered one in 2021. And Forrester says UBI could account for nearly 20% of all auto policies by the end of 2023. 

Meanwhile, InsTech London projects that the embedded insurance market will top $722 billion by 2030—six times its size today. In fact, McKinsey estimates that up to 35% of all personal lines premiums could be generated through ecosystems during that same period. For auto, it could reach 30%—or more, if Elon Musk has his way. 

Harnessing the power of an ecosystem approach requires a modern, cloud-connected insurance platform enabled by API-connected applications, embedded analytics and workflows that leverage the full value of external and core system data. Today's most robust platforms also offer expansive marketplaces of prebuilt, pre-vetted insurtech solutions that enable insurers to build ecosystems that fit their specific needs and launch new capabilities quickly and without interruption. 

How Do You Get Started Building One?

Start by aligning your ecosystem strategy with real business challenges. What pain points need to be solved? Understanding that insurance has one of the highest ratios of cost of labor to final price, a good place to start is by identifying areas where you can release trapped value within the existing delivery chain. In our experience, that typically means a focus on claims because it typically has the highest volume of manual processes.

But, as Bryan Falchuk, author of The Future of Insurance, recently put it, "You can't efficiency your way to success over the long term." While streamlining back-office processes is valuable, Falchuk says, customer-facing innovation is what sets you apart. Decide if your ecosystem strategy is to focus on optimizing internal processes, customer-centric innovation or (ideally) both.

What's the Best Way to Choose Partners?

Insurers need to be careful in selecting insurtech partners. This is not (just) about finding the next whiz-bang technology. It's about sourcing the technologies that fill in critical pieces of the puzzle needed to achieve your ecosystem strategy. 

According to Accenture, considerations include: 

• Skill: Select ecosystem partners that give you access to a wider range of capabilities such as personalization or digital engagement
• Scale: Bring on partners that have greater size and reach in the areas you need it, such as cybersecurity or data
• Scope: Source partners that extend your insurance offering into new areas or enable you to introduce whole new services  

What Are the Secrets to Success?    

An ecosystem isn't a library of static assets. It's a living, breathing community of collaborators that must be nurtured—and continuously refreshed. At Guidewire, for instance, we recently created an insurtech incubator to ensure that the value propositions enabled by the solutions within our ecosystem continue to be relevant to insurers. 

What's your go-to-market strategy? Develop a road map for getting there. In our experience, it's critical to include a regular cadence of ecosystem asset drips. We even created a pitch day competition set to launch later this year to provide an opportunity for our customers and partners to learn about the insurtechs in our program, and even vote on the best value propositions. (You can follow the fun here.) 

Coupled with the right platform, a robust ecosystem can help insurers meet ever-changing customer needs, protect and expand market share and achieve sustainable business growth—by collaborating with insurtechs instead of competing with them.

Social inflation has become somewhat of a buzzword in insurance circles in recent years, especially over the past year. The phenomenon is responsible for driving up risk and the cost of claims across a range of lines, ultimately affecting insurer profitability. 

But for all it is talked about, very little is being done about it. Insurers know it is there – they can see it in their results – but, as an industry, we are struggling to define it, measure it and come up with a credible response.

This matters because the plaintiffs’ bar is doing quite the opposite: committing significant resources to understand and exploit litigation opportunities. The insurance industry is steadily losing a battle it hasn’t really begun to even engage in.

Before we get into what needs to be done, let’s take a quick look at what social inflation is and why it is a growing problem today.

At its core, social inflation is an industry-wide rise in claims costs over and above normal economic inflation. More specifically, it is added inflation caused by shifts in societal views toward litigation and plaintiff-friendly legal decisions. 

U.S. litigation has risen for seven consecutive years, topping 8.9% growth for the last year data was available, compared with an average of 3% for the previous two decades. And the level of compensation awarded has also increased, especially in large cases. The number of verdicts of $20 million-plus was 300% more than the annual average between 2001 and 2010. 

The impact of societal trends goes well beyond just high-profile, nuclear verdicts. Social inflation pushes up the cost of claims to such an extent that pricing now does not accurately reflect risk. If this persists, it could ultimately affect capacity and even availability across whole lines of business.  

There are two important drivers of social inflation today: The first is rooted in societal shifts that stem back to the 2008 financial crisis, which left a deep sense of anger and distrust toward large businesses. This has contributed to a tendency among juries and judges to sympathize with plaintiffs’ framing of issues. This is especially visible among the millennial generation who now occupy positions of influence in the legal system and sit on juries.

The second: Law firms and related third parties are deploying sophisticated tactics to monetize the societal trends for higher payouts. For example, some legal entities are investing in powerful data, analytics and technology to identify and exploit liability opportunities. They are also increasing marketing spending; funding liability activities for potential plaintiffs; conducting social media tracking; and adopting behavioral science to influence juries. 

Indeed, a whole sub-industry of consultants and lawyers has evolved to cultivate a claims culture and improve trial outcomes.

Where does this leave the insurance industry? We should be supportive of valid claims and work to resolve claims as efficiently as possible. But, to put it bluntly, we are playing catch-up on the issue of social inflation. As an industry, we are masters in understanding most claims trends, but, when it comes to broad, litigation-related trends, we rely on high-level data and guesswork. 

This imbalance between the insurance and legal entities must be addressed. We as an industry must become experts in social and legal trends, just as we are in other types of claims trends. 

See also: Growing Risks of Social Inflation

Societal shifts need to be respected and managed sensitively. But losing the analytics arms race against the legal system only serves to undermine a healthy functioning insurance market that is vital for society. 

The thoughtful application of the right data and analytics in the insurance industry can move us forward. 

First, we must recognize that social inflation is a human risk. Human behavior can be analyzed and even predicted in much the same way as traditional perils such as natural catastrophes. It requires a different set of tools and data, specifically non-traditional data. Unlike traditional data, it is not based on records but gathered from “live” activities such as internet activity, social media trends and smart technology. These data points provide clues about human behavior, which, with the support of advanced analytics, can be analyzed at scale to create a powerful predictive model. 

By analyzing claims and policy experience together with behavioral data and other non-traditional data, insurers can build a detailed understanding of the link between behavioral indicators and liability. In doing so, we can build predictive social inflation models that can measure levels of social inflation and price risk appropriately – and then take action where necessary. 

Liability insurance has a critical societal function. It exists to protect individuals and businesses from risks such as potentially crippling legal fees. It underpins an innovative and vibrant economy. To leave social inflation unchecked is hazardous not only for the insurance industry but also for the business community it serves and the wider economy. 

The industry and individual insurers should hasten to start paying more attention to this issue – and begin taking action to mitigate and counter the trend. That journey starts with intelligent application of non-traditional data and advanced risk models.

Economists get a bad rap. Economics is sometimes called "the dismal science." It is the subject of jokes such as, "If you laid all the economists in the world end to end, you still wouldn't reach a conclusion." President Truman once said he wanted a one-handed economist because all the economists he knew said, "On the one hand... but on the other hand...."

But in economically confusing times such as we're living in now, economists are our best hope for sorting out some pressing issues, including a key one for insurance: the trajectory of inflation and its likely effect on insurers' returns on investment portfolios, on economic growth in general, on growth in insurance premiums in particular, on costs for repairs, etc. So, I recently sat down with my favorite, "one-handed" economist, Michel Leonard, the head of the Data and Analytics Department at the Insurance Information Institute. 

The short version of his analysis is: The Fed is likely being too optimistic when it projects that annualized Inflation will drop to 4% in the U.S. by the end of the year, but inflation will head back toward the historic norm of 2% by the end of next year.

The longer answer follows. 

We started on an optimistic note, talking about growth in the U.S. economy, which clocked in at a whopping 6.5% on an annual basis in the first quarter. While that figure will clearly trend down toward the historic average of 1.5% to 2.5% and while Michel said a recession is even possible in the next few quarters, he said the insurance industry is positioned for significant growth in the next six months.

The industry's performance tends to mirror that of the overall economy, but some months behind, so its growth should stay strong even as the rest of the economy sees growth rates slow. 

The inflation picture is less rosy. We talked when the latest consumer price index published by the Labor Department showed an 8.5% annual increase for March. (The figure dropped slightly in April, to 8.3%.) And Michel said replacement costs for insurers have been rising some 16% annually, or almost twice as fast. He said price increases will slow for insurers by the end of the year, along with overall inflation, but will still far outpace most costs. He expects annual inflation for replacement costs will still be 12% to 14% at the end of the year.

Some costs may never quite return to historic levels. Given that the pandemic has caused so many to reevaluate their work lives, Michel says many may not want to return to jobs in home construction or auto repair shops. 

"Those are tough jobs," Michel said. "People underestimate how hard it is to work those 12-hour shifts in the body shop." 

There's still loads of uncertainty out there, but I hope Michel's thoughts clarify the situation at least a bit. Assuming they do -- and he's typically right -- I promise to swear off economist jokes (for a while).

Cheers,

Paul

P.S. If you want to dig into his thoughts more deeply, here is a summary from the Triple-I about his latest report. 

Many date the beginnings of the insurance industry’s digital transformation to the emergence of cloud computing some 15 years ago. Others go back further, to the arrival of the commercial version of the internet in the mid-1990s. Some would trace the origins all the way back to the debut of personal desktop computers in the early 1980s or even to the introduction of digital calculators in the 1970s.

Whatever date is correct, it’s clear that digital transformation in insurance has been underway for a very long time. So, why haven’t we moved on? Why are we still focused on digital transformation?

In fact, it’s time we wind down the digital transformation phase and move to the next stage of digital strategy, which we call digital evolution, and then to the third stage: digital intelligence. The ill-defined transformation process is just one part of a digital strategy. To get the full benefits of digital technology, you need to understand and define all the steps that will get you there.

There’s a big bet being laid down in the insurance industry, and it seems like a sure thing: using real-time data and sophisticated analytics to better predict risk and tailor policies to specific customer profiles. It’s hard to argue against the logic that granular, up-to-the-minute risk data reveals better business insight and more actionable information than a single cell in a loss triangle spreadsheet.  

After all, insurers have access to terabytes of data to describe where insurance customers are, where they have been and all sorts of details on a user’s journey that may eventually inform what potentially lies ahead. So, of course, it seems logical that, as analytical capabilities make their biggest strides in decades, the industry should just leap forward and adopt this more algorithmic approach to actuarial science.

There’s just one problem: Most insurers are still spreadsheet-bound and, as a result, hard-pressed to make any progress outside of their spreadsheet environment.

Undoubtedly, more information in the form of data should ultimately lead to better decisions on the part of insurers—even within the confines of a basic spreadsheet. But, even if insurers can recall every detail of an individual customer journey now, the information has an inherently short shelf life. What’s more, it often lacks context to what specifically contributed any net changes during a period-over-period basis.

For example, used-vehicle prices have dramatically changed in the last several quarters. Immediately, it should be apparent that, if the value of the subject at risk increases, then perhaps the premiums for an indemnity contract might go up correspondingly. What gets in the way of progress is manifold---the aggregate costs are steadily increasing, but the prices of each used vehicle in the pool are different. 

Even worse, the capability to understand the subject at risk is traditionally poor. One cannot get an accurate vehicle replacement price with just make, model, year and sales price when new. Salient details, such as specific equipment and configuration, current condition, odometer reading and other features specific to sensors and capabilities, are not captured or available inside the data streams at most insurers.

See also: The New Mandate: 'Video or Vanish'

While pooled for the sake of abstraction, we are all individuals in unique living situations driving distinct vehicles in specific locations with different mobility needs, with discreet topologies, weather and traffic patterns, and surrounded by a variety of other real-world constructs like bridges, downtowns, farms and forests. Local market conditions for prices, labor, parts and services also will vary over time. 

All of these factors are nearly impossible to capture in a single cell of an Excel spreadsheet, the tool of choice for insurance professionals of a bygone era. Existing spreadsheet processes for pricing, rate making, claims estimation and reserving—and even capital modeling—all use historical data at aggregate levels that cannot respond fast enough to the changes that the industry is seeing in the price of used vehicles alone, no less all other factors of risk adjustment. 

In a world seemingly devoid of nuance, it’s easy to fall in line with one camp or another: Team Data vs. Team Spreadsheet. But the reality is that the best way forward is likely a hybrid. Yes, it is vital that companies get a better handle on their forecasting by using real customer data. But analytics can only get better when we admit they have limitations, and we seek to improve them in the quest of better processes and, ultimately, customer satisfaction.

This is a time for breakneck changes and overnight evolution for the insurance industry. For insurers looking to keep pace, they’ll have to honor the past, deal in the present and keep a keen eye on the future

After placing 18th for business application growth in 2020, the insurance industry jumped 24% in 2021 to fourth place among major industries.

This data comes from the 2021 State of Swyft Industry Report. Consisting of compiled information from Swyft Filings’ new business applications across the U.S., the report shows a significant increase in insurance industry applications submitted.

The reasons for this increase in business formations are varied, with many fueled by technological and operational improvements in response to the pandemic. Insurance companies became more agile compared with previous years. This resulted in adopting systems that enabled companies to conduct business virtually—in some cases through AI and automation.

Technology Fuels Growth

In a Deloitte survey of senior U.S. insurance executives covering insurance companies’ current state of affairs, 52% of respondents trimmed discretionary spending in 2021 and earmarked savings for digitizing. 96% of respondents reported prioritizing digital transformation efforts and projects. The surveyed companies said prioritizing was necessary to support financial and operational stability, enhance efficiency and improve customer service.

Given the increased business made possible with the implementation of digitization, more entrepreneurs are choosing to enter the insurance field. Since early 2020, the industry has become digitized and entirely virtual in a way that would have taken several years to accomplish had there not been the pandemic. This nearly overnight transformation has made the field especially attractive to ambitious entrepreneurs.

Tech Trends Shaping the Insurance Landscape

Various tech trends are transforming the insurance industry, and their use will continue to fuel growth. These include applied artificial intelligence, automation and enhanced customer service.

Applied Artificial Intelligence

Applied artificial intelligence promises to transform the insurance business landscape as we know it. AI can discover solutions to complex insurance industry issues. The answers artificial intelligence gathers can be used to enhance operations and strengthen the industry as a whole. Those insurance companies implementing AI will become more diverse and understand what fuels customer needs and actions.

Businesses are also using AI for predictive analysis, which is helping in the development of insurance products. Companies with these enhanced products set themselves up to thrive.

Process Automation

Process automation is another tool increasingly being used by insurance companies. Automation technology improved significantly in many areas, including claims. Automated claims processing cut down associated costs in an industry segment that historically loses insurance companies money, saving substantial amounts in payroll and human error.

The use of pre-populated claim forms, for instance, is just one example of how automation improves the customer experience while saving the company money. Additionally, agents can now text customers updates, and electronic payments are the norm.

See also: Underwriting Small Business Post-COVID

Transforming the Face of Customer Service

Automation and AI have led to more than increased productivity and higher profit margins. These advanced tools are transforming the face of customer service. This occurred by allowing for more and higher-quality customer touchpoints.

Insurance carriers can respond to customer inquiries and concerns immediately and in real time. With chatbots and automated responses, customers can start a conversation until an agent or representative takes over. Technology fulfills a vital role in the customer service journey by providing quick answers to common questions.

AI also enables insurance personnel to access claims histories and distributions and respond to claims. While this is all occurring, the AI technology gathers data to help companies assist customers in the future.

New insurance business owners have an advantage over established company leaders. They can open their companies with all these digital and automated capabilities to set themselves up for success.

New Insurance Companies Primed for Growth in 2022

The increase in new business formations will likely continue in 2022 and beyond. With AI and automated technology now an integral part of the insurance industry, and customer expectations at an all-time high, we predict many new insurance companies will form over the coming months and years. 

Providing companies remain focused on forwarding growth in the digital landscape; business formations are likely to continue to increase in future years.

Growth is also expected to continue in insurance business formations as companies balance AI and automation and human customer service. 

While innovative technology like automated claims forms and chatbots are integral to ensuring that customers are quickly, efficiently and effectively attended to, it’s equally essential that human interaction occurs at strategic times throughout the process. New insurance companies that understand this have a good chance of thriving.

New data sources and technologies applied throughout the insurance process are connecting companies in new and unanticipated ways within evolving ecosystems. In underwriting, particularly facultative underwriting, we have seen industry dynamics completely redefined. Insurers are taking a thorough look at how underwriting works within their businesses, determining areas that could benefit from greater support and identifying the best partners to provide it – including reinsurers. 

For the insurer-reinsurer relationship, these four guiding principles can help forge a path forward in this new ecosystem environment:

1. Connection matters. 

Established insurers, new insurtech entrants, reinsurers and other players are sharing underwriting data, insights and capabilities to fast-track innovation, adapt to change and deliver more personalized customer care. Yet many insurers are held back by issues with capacity, legacy systems and processing speed. Reinsurers have an opportunity to go beyond perceived roles as underwriting “experts” or “consultants” and to become even more engaged as doers, active participants with a stake in shaping the forces remaking the industry. This will require providing more comprehensive underwriting services, including new and reinvented technologies as well as supplementary support programs, that respond to these insurer pain points. 

2. Expertise matters. 

Underwriting’s continuing transformation has not lessened the importance of the expert facultative review. Though resource-intensive to maintain, the facultative yield extends well beyond “just” the individual case. Ill-considered underwriting process changes and poorly developed or neglected guidelines can lead to noticeably lower placement rates and margins, which can inflict real damage on the bottom line. For this reason, insurers are understandably reluctant to relax the rigor of facultative review or otherwise constrict the facultative market. Yet the pressure to produce the most time- and cost-efficient outcomes is mounting. For some carriers, turning to ecosystem support from reinsurers may provide solutions.

See also: Industry Demands an Open Ecosystem

3. Innovation is more than either/or.

When it comes to the question of innovation, the answer is not either/or; it is both. Facultative underwriters must be capable of both technical excellence and experimentation, of both providing rigorous case review and challenging the status quo. It is time to break away from labels that can constrict the industry artificially and to redefine what “facultative” means. Traditionally, after insurer review, reinsurers provide a competitive second opinion. Why not provide that same level of consultation, not solely at the end of the process when all other reviews have been exhausted, but anywhere across the value chain when underwriting expertise is needed?  Applying facultative insights throughout the entire insurance process can create products and services that deliver greater value to consumers.  

4. Partnership cannot become a platitude.

When partners look out for each other’s best interests, everybody wins. That is why it is important to embrace a vendor-agnostic approach, allowing partners to find the right tool within the broader ecosystem to meet their specific needs. It is vitally important to establish clear guardrails within each partnership that keep consumer-centricity paramount. This necessitates a deep understanding of the data tools landscape and best-in-class capabilities and a willingness to make shared success the primary goal. 

In the years ahead, insurance industry winners will be those willing to reimagine the familiar, rethink data collection methods and refine risk assessment practices – all in the interests of bringing affordable financial protection to more people. The old model demands re-invention. Future success demands a meaningful, scalable and material system of supports – an underwriting ecosystem for the future.

Life insurance applications surged 4% in the U.S. in 2020, the highest year-over-year annual growth since 2001, as the coronavirus pandemic was an unprecedented and unfortunate catalyst for consumers to buy life insurance. A less-commonly reported impact the pandemic had pertains to disability insurance.

My employer, Breeze, found that the average monthly benefit jumped 23% to $3,151 in 2021 from $2,561 in 2020. With the pandemic still raging full-bore in 2021, consumers were looking for more disability insurance coverage when they ran quotes through our online platform.

A likely explanation for this is the coronavirus pandemic and its impact on the national psyche. For consumers, there was a somber realization that the worst could happen to them. Before, the status quo line of thinking for most was “that could never happen to me.”

In reality, injury or illness has always been a distinct possibility. The Social Security Administration estimates that today’s 20-year-olds have a 25% chance of becoming disabled during their career.

But the coronavirus pandemic heightened the country’s collective understanding that experiencing a disabling event is not a long shot by any means. As a result, people sought financial security and peace of mind through a larger disability insurance monthly benefit much like they did when buying life insurance at the height of the pandemic. 

Disability insurance replaces a portion of a policyholder’s income, often up to 60%, if physical injury, medical illness or mental health issues leave them unable to work. If a policyholder contracted COVID-19 and was unable to work for an extended period, disability insurance could ensure they could keep paying for the mortgage, groceries and random life expenses that come up.

Even now, in mid-2022, don’t expect this increased demand for more disability insurance coverage to subside anytime soon. Since 2020, there has been a seismic and possibly permanent shift in consumer behavior, whether it pertains to online shopping or insurance buying.

See also: Huge Opportunity in Disability Insurance

Insurtechs: The Solution to Disability Insurance

Insurtechs are well-positioned to meet this demand. Despite statistics showing the average consumer is more likely to need disability insurance over life insurance, the latter is far more prevalent than the former. According to LIMRA, 52% of Americans own life insurance, compared with just 14% who own disability insurance.

Why has disability insurance been undersold? It’s traditionally been a long and confusing underwriting process for both consumers and distributors. For a long time, there wasn’t enough data centrally available to accurately and efficiently represent risk for certain occupations, especially for blue-collar or self-employed jobs. 

Insurtechs have built online platforms and application processes that rely on predictive analytics to expedite the underwriting process. An application-to-approval process that once might have taken months can now be completed in days, even just a single day for qualified applicants.

Insurtechs like Breeze have also brought the entire process online, which is in lockstep with consumer preferences. Buyers, especially younger ones, have no interest in going to in-person medical exams or completing mail-in applications. They want to buy everything digitally and quickly, and this is no less true for disability insurance. Perhaps most importantly, insurtechs have made it possible for insurance agents and brokers to take advantage of the innovations. 

Agents and brokers are arguably the most integral component of the insurance industry. They have the relationships and books of business to produce policies. And now they are able to take an insurtech's online platform and application process, like Breeze's, and fully integrate it into their own website so clients can experience the ease of applying for disability insurance digitally.

Insurtechs working together with traditional insurance agents and brokers make for a perfect marriage. The former bring the digital experience and technology to expedite the application and underwriting process, while the latter bring the industry knowledge and relationships that are needed to produce business.

By working together, they can meet the increasing demand for disability insurance