2022 was a confusing year in claims. Inflation wreaked havoc in many ways – but technology matured and helped many claims operations streamline their work significantly. To see what 2023 holds in store, ITL Editor-in-Chief Paul Carroll talked with Andy Cohen, president and chief operating officer at Snapsheet, an innovator in claims management. Cohen says claims operations are poised to go on the offensive in 2023 and make great progress – though not necessarily in the ways you often read about.

ITL:

To get us started, how would you summarize the year in claims in 2022?

Andy Cohen:

2022 was a really challenging year for the industry, writ large, both from a macro and a micro perspective. Inflation obviously affected the cost of repairs and all the inputs in the insurance value chain. And you had this bounce back of both frequency and severity of losses. The year was pretty benign for Cat, but then Hurricane Ian was one of the biggest storms ever. From a claims perspective, people were resetting and on the defensive in 2022.

That really sets up for 2023 for the carriers. I think most carriers are going to go on the offensive now that they have an established base on frequency, have their staff fully back and can execute a playbook to attack both expense and loss costs.

ITL:

In terms of the technology that you and others are developing to process claims faster and more efficiently, how would you describe the progress in 2022? And then what do you see maybe being possible in 2023?

Cohen:

2022 was very much a continued acceleration of technology that can drive the right work to the right people at the right time. Technology increasingly helps reduce human interactions on claims, managing expense while sifting through the files and identifying those that need a human touch. There was a huge amount of progress among companies that are bringing claims in-house for the first time, insurtechs that are building claim operations and MGAs [managing general agencies].

I think 2023 is when the major carriers really start to focus on automation. It’s not for the sake of reducing people. It’s moving claims from a reactive process – think of an old school, diary-driven, analog process – to a digital, proactive process. That’s where we're seeing carriers really focus the capex investment and R&D dollars. You’ll have this whole new cohort of claims resources that replace the people who left the workforce, and the technology will point them in the right direction and guide them through the claims management process in a way that hasn't been possible with legacy technology.

ITL:

I'll run something by you that I wrote recently. I think people are maturing in their understanding of technology. Rather than seeing AI or some other technology as the answer to everything, they’re focusing more on how it can solve actual problems in a real business setting, even though some of those problems may not be that sexy.  For instance, there’s a ton of focus on how AI can inspect photos of auto damage and render a quick estimate – but that doesn’t actually take that much time out of a claims process that can last weeks, and AI can speed that process in lots of other ways, too, perhaps more important ways. Does that thesis make sense?

Cohen:

Your thesis is spot-on. The tag line I like to use is, Let's move from alchemy to reality.

There's a huge opportunity to take these discrete steps, whether it's models, whether it's AI, whether it's workflow, whether it's predictive analytics, and string them together to get to a much more powerful outcome. You get a much clearer ROI, whether that’s in a better customer experience or in reduced loss cost or expense.

It's really about simplifying the process. When anyone in the world gets in an auto accident, only three things can happen. They're going to have the vehicle repaired, they're going to cash out or it's going to be a total loss. Carriers are using technology and workflow to figure out as fast as possible, is it going to be a cash out, is it going to be a repaired claim or is it going to be a total loss. Then they get the right resources, including the right people when a person is needed, based on the desired outcome. Carriers of all types – auto, home, commercial lines, personal lines – are tackling these really challenging issues with design-based thinking that starts with, What is the best outcome for the customer?, and uses technology to free up scarce, knowledgeable human capital to work on the parts of the process in the middle that aren't super easy or aren't super clean.

ITL:

Triage based on AI seems to be something that loads of companies are working on.

At the risk of digressing for a moment, how good has AI estimating based on photos gotten?

Cohen:

The AI is exceptionally strong at identifying whether the car is going to be a total loss, though that was more challenging this year because rapid inflation meant the cars were worth more. Total loss rates actually went down a couple of points this year as a result. The AI is also getting really good on certain use cases – light hits, low damage, older model years – but it's not where it needs to be. If an estimate takes 25 minutes, maybe the AI can shave a couple minutes off a medium-severity estimate, but the AI costs more today than the two minutes is probably worth.

The real benefit is operationalizing technology in the end-to-end and doing it so that as the AI continues to advance and goes from saving two minutes to 15 minutes, we can take advantage of it.

ITL:

When you take a look at the whole process, how much expense can you take out of the claims process?

Cohen:

It depends on the line of business, but with our claims platform we've been able to remove the adjuster from significant chunks of work. If you think about the adjuster in the legacy world as a switchboard operator, they had to do things like confirm coverage, understand the limits deductible, set the reserve, send an email, acknowledge it, perhaps pass it over to a vendor to go assess the damage or fix the car. Think about all the steps the adjuster had to take to keep everything moving. But we’ve seen dozens of carriers go from automated coverage verification or fraud detection through setting the reserve and communicating automatically and passing the assignment out. 65% of all communications coming out of our platform are automated.

That’s where you’re not talking just about taking out minutes of work but can get three or four times the level of efficacy out of your adjusters by removing administrative tasks from the equation. On a claim of $4,000, adjustment expenses might be $400 to $500, and you can take a big chunk out of that. Meanwhile, adjusters can spend more time on complex cases, walking the insured through their options and the process and the next steps and generally keeping them informed.

You also get huge benefits from a compliance and regulatory standpoint. If it's a property claim in Florida and you need to attach the Florida Homeowners Bill of Rights to your communications, the system can automatically do that. The customer submits documentation or invoices or receipts, and the system says, Yes, I received them. Think about how much that reduces inbound calls asking about status. We're seeing just massive savings right now.

ITL:

How much time can you take out of the process?

Andy Cohen:

We passed 700,000 appraisals and supplements last year, and we’ve been able to scale while maintaining best-in-class cycle times. We can complete an estimate in just a couple of days, and that's hugely valuable because that reduces the need for rental and storage. Before COVID, the average number of rental days for a claim was roughly 13 days, and in 2022 we approached 21 days. When you shrink that time, you not only cut expenses, you improve the customer experience.

ITL:

To zoom out a bit, I assume that, as chaotic as the auto repair world is at the moment, electric vehicles are going to toss all the cards up in the air.

Cohen:

The penetration of electric cars is far outstripping the ability to repair them. They’re just different. There are way more sensors on the cars, way more parts. Even the bay you use to fix them needs more space.

ITL:

Sounds like there will be plenty for us to talk about this year and well beyond. Thanks for taking the time.

Once upon a time, insurtechs talked trash about incumbent insurers. Nowadays, they definitely have sweeter words for incumbents.

Lemonade moved from affirming customers' distrust to celebrating a partnership with a "known and trusted for years” incumbent. Similarly, at its last investor day, Hippo dropped the names of previous employers (all well-known Insurance incumbents) of their leadership team members to affirm the credibility of their plans:

As we did recently for Lemonade, (you can read it here), let's dive into Hippo's investor day (here is the entire recording) and quarterly figures.

In a previous edition of this newsletter, I highlighted Hippo's "connected home approach and the embedded component [I like both these elements] and the bloody technical results of their book of business [I don't like them]."

Top Line

The positive signs shown by Hippo in the second quarter have been confirmed in the third.

Loss Ratio

On the claim side, the signs are less positive. Last quarter had a 110% loss ratio, despite seven percentage points of favorable development from claim reserves. The performance was far worse than at the top 10 homeowner insurers even though they had a horrible 98% loss ratio in Q3 '22, according to S&P Global data).

Even acknowledging that the trend is improving from last year, the loss ratio of 89% in the first nine months of 2022 is far from sustainable.

See also: Embedded Insurance Is Everywhere

Combined Ratio

And the combined ratio doesn't look good at all... mounting to 138%.

Net Losses

The quarterly losses are still a major concern: $129 million in the third quarter (even if $53.5 million is for goodwill impairment), which brings:

• the cumulative losses for the first nine months of 2022 to $270 million
• the cumulative losses since inception to almost $900 million.

Considering the mounting losses, can a turnaround be quick enough to stop the bleeding before all the cash is gone? In each earnings call, management has reassured investors that they will "reach bottom-line profitability without the need to raise additional capital." However, this is the elephant in the room.

Some of the digital assets presented by Hippo management at the investor day were pretty interesting. Let's look at them:

1) Embedded Distribution. Embedded insurance is the most hyped topic in the sector nowadays, Recently, I commented that "everybody is trying embedding insurance somewhere." However, more people talk about it than are actually selling policies. Well, Hippo performs pretty well with embedded insurance. They created a tech architecture to effectively manage it and an industrialized approach to scale partnerships. About 50% of their homeowner insurance sales in August (maybe they shared this figure just because it was the best month) were from embedded insurance partners. Among these partners, mortgage originators and builders are the best-performing. (It makes sense if you understand the typical behavior of a homeowner insurance policyholder in the U.S.: A survey by the IoT Insurance Observatory a few years ago showed how about 60% of the families interviewed have had the same insurance coverage since they moved to a new home.)

2) Smart Home. This has been an element of Hippo's story since inception. Challenged about the benefits of this technology in some earning calls by analysts, Hippo has talked about acquiring less risky homeowners (more self-selection than a real risk reduction).

I've seen many incumbent insurers doing much more better with he usage of smart home devices. Being a promoter of smart home insurance approaches for a while, I believe their use of this technology is pretty primitive. It is disappointing to hear that the best they can actually do is only to know that a device is still active and to confirm a discount based on that. The IoT paradigm should be used for something better.

3) Home Care and Maintenance Checklist. This tool to engage with the policyholder and influence behavior is definitely more interesting! Initial traction had already been impressive, with half of the policyholders (who downloaded the app) activating Home Care and one-third of those implementing the recommendations. They also implemented a feature to provide a virtual service call. This will probably not affect the loss ratio in the short term but definitely has potential for a return in a few years. (I've already seen positive impacts generated by the usage of QR code-based IoT approaches to promote compliance with safety and maintenance tasks.) Some of the Home Care features seem to be the foundation for monetization. Hippo shared the ambition (even if still has to figure out how) to sell additional services to its customers.

4) Book a pro. Here is the monetization through a platform strategy for home protection services!

One of my 2022 posts that was read the most was about "why should an incumbent buy one of the listed full-stack insurtech carriers?" That was almost a year ago. I was pretty skeptical that there was any rationale for an incumbent.

Since then, valuations have dropped significantly. Maybe it is time to consider the opportunity. Hippo's digital assets would generate hundreds of millions of dollars in synergies on the homeowner insurance business of a large incumbent. Moreover, as I write this in late December, Hippo is trading at something below 0.5 their tangible book value. Their market cap is around $270 million (down about 85% in the last 12 months).

I would not be so surprised to see an established U.S. insurance incumbent acquiring them at the current valuation as an answer to the bold innovation moves already done by some of their competitors on homeowner insurance.

Commercial lines insurers have endured their fair share of ups and downs since COVID-19 was declared a global pandemic over two years ago. And, through the course of 2022, geopolitical conflicts and inflation have rocked economies, leading to further uncertainty about the stability of markets worldwide. Undoubtedly, insurers are planning for expected and unexpected events that may disrupt their businesses in the New Year, but are these plans shifting how insurers approach innovative, transformational technologies?

For years, SMA has been tracking insurers' plans and progress in transformational technologies in commercial lines and is revealing new insights in the recently published report, "Transformational Technologies in P&C Commercial Lines: Insurers' Progress in 2022 and Future Predictions." The report examines 13 transformational technologies and their impact now and in the future. What is evident is that investments in digital, artificial intelligence and connected world technologies remain top priorities for insurers, but data shows they are being strategic about how they accelerate certain technologies.

One example of a technology that has high activity around it moving into 2023 is machine learning (ML). Eight in 10 commercial lines insurers are investing in ML today, mainly via predictive models, and insurers increasingly recognize its foundational support of other AI technologies and applications. In fact, at this pace, ML is expected to become embedded in nearly every aspect of the insurance business soon. Computer vision is on a similar trajectory of becoming a revolutionary technology and is slowly gaining traction within commercial lines. Although some insurers have progressed with computer vision in the past few years, most remain in the beginning planning stages. But given how valuable aerial imagery is for claims and underwriting, solutions based on computer vision are expected to become standard and mandatory within the commercial property segment.

See also: The Risks of AI and Machine Learning

Insurers are also keeping a pulse on technologies that may be further out on their strategic planning horizon but have potential long-term implications. For example, autonomous vehicles (AV) could transform many aspects of our lives, and tests are already underway in controlled, campus-like environments. There are vehicles on the roadways with various levels of autonomous features. Insurers' activity in AV today is very low – only 18% have plans moving into 2023 – but it is still critical for commercial lines to fully understand the nuances of these vehicles and the risks they may present.

Although some insurers are practicing moderation in their activity and investment in some technologies, it would be imprudent to hold back plans and risk falling behind peers. The rapidly advancing technological environment and the dramatic changes wrought by the seemingly never-ending pandemic indicate that transformational technologies demand constant monitoring. Insurers must continually renew and review strategies to prioritize and address business problems and new opportunities.

For more information on commercial lines insurers' plans for transformational technologies, see SMA's recently published research report: “Transformational Technologies in P&C Commercial Lines: Insurers' Progress in 2022 and Future Predictions." Watch for a companion report on personal lines that will be released in the near term.

As focused as the South African insurer Discovery has been on breaking new ground with lifestyle-oriented, incentive-driven products and supporting them with a superior customer experience, company officials came to realize that something had to change for those products to fulfill their promise. 

“Our existing processes generated complexity, high costs, significant inefficiencies and high volumes of mundane administrative tasks. We needed to make a change and transform the services we provide to our people,” Kammy Sing, group head of people operations at Discovery, recounted in a recent blog post.

Mission accomplished. Today, the company, which employs about 12,000 people, reports significant improvements in employee productivity and satisfaction as a result of efforts to enhance the employee experience. And that’s translating into success for products like the behavior-based Vitality Drive automotive offering, according to Discovery. The insurer reports that it has seen a sharp reduction in customer accident frequency with the product, along with claims savings, improved loss ratios and a significant increase in good drivers on the books, all while paying out the equivalent of $70 million in incentives to customers.

The insurance industry’s struggles to attract and retain people to replace an aging, eroding employee base are well-documented. But as companies like Discovery have learned, it takes the right people to sustain innovation, stay relevant and grow the bottom line. Here are six creative approaches that are enabling insurers to uncover, connect with and hold on to top talent: 

1) Position insurance as an “in” career path.

“Insurers have a compelling story to tell,” PWC asserts in a 2022 report. “If they open up and start promoting themselves and the industry, they’ll put themselves in a strong position for growth, led and supported by intelligent and capable people.”

The story insurers should be telling is one that resonates with Millennials and Generation Z and rebrands a career in insurance. The goal should be to shift the perception of insurance as a staid, impersonal industry, to one that gives employees an opportunity to be a positive force in peoples’ lives and the community by protecting them from risk and serving them in times of need. Appealing to people's entrepreneurial sensibilities, with pathways for adjusters and independent agents to run their own business, should also be part of that rebranding.

They should promote the opportunity to participate in exciting, higher-risk/higher-reward startup-type opportunities with digital spin-off companies like MassMutual’s Haven Life. How about offering people the chance to build new business ecosystems and lifestyle-oriented products centered on, or involving, insurance? These are the kinds of opportunities that appeal to people who want to ply their skills in the digital economy and, in the process, help to remake an entire industry.

According to the Boston Consulting Group, 2020 was the first time insurance employees included company values among the 10 workplace attributes that they care about most. So, as part of the rebranding, insurers also need to demonstrate and tout their ability to connect people to a higher purpose. 

2) Cast a wider net.

The pandemic has helped usher in an era of recruiting beyond borders, as access to talent is no longer restricted by geographical proximity to a physical office. To take advantage, insurers first need to zero in on the skills they need to recruit to execute their business strategies, then find ways to tap the broader talent pools to which they now have access. 

Besides expanding the scope of their recruiting efforts geographically, companies can use new talent sourcing models to find the right people. Offering the opportunity to work for a multi-company, multi-industry ecosystem with an insurance industry component could be compelling to younger members of the workforce. So could a shared-talent type of model, where someone could have a chance to work for a partnership between an insurer and a fintech company, for example.

Insurers also need to consider new models for attracting and building talent internally. Chubb, for example, launched Chubb Academy to recruit a diverse range of younger talent from across Continental Europe, with no requirement for a university degree or previous insurance industry experience. The program is designed to develop people via a two-year program in property and casualty commercial insurance, with the opportunity to move elsewhere within the company. 

See also: The Staffing Crisis in Insurance

3) Reel them in with a superior recruiting experience.

A highly engaging, transparent and easy-to-navigate recruiting experience is a must for insurers to attract the right talent. Recognizing that hiring processes were lengthy, expensive and risked putting off talented candidates, Discovery reinvented certain key internal and external-facing aspects of the hiring journey with intelligent technologies like robotic process automation (RPA) and virtual assistants, which resulted in a 25% reduction in time-to-hire. 

4) Be progressive and flexible with hybrid work.

During the pandemic, according to BCG, 75% of insurance employees worked remotely some or all of the time (well above the 51% cross-industry average); 94% said they prefer to work remotely some or all of the time. Providing employees with flexibility as to when and where they work not only can help insurers attract and retain talent, it can also reduce costs.

5) Provide a superior employee experience.

Providing an empowering and unique employee experience is a must in today’s talent-constrained world. And while robust benefits and flexible work arrangements are a good start, it’s important that insurers build on that by arming employees with the latest digital tools to excel in their interactions with clients, and in their collaboration and communications internally. The opportunity to be hands-on with artificial intelligence, machine learning and other emerging technologies is highly appealing, particularly to younger members of the workforce. 

In the BCG survey, insurance workers ranked good relationships with colleagues as the most important facet of their job. So, if companies are sourcing talent and assembling teams from geographically diverse areas, they must have tools that enable collaboration and communication from anywhere. 

Insurers also can give themselves an edge by providing superior experiences to their external workforce, such as by providing tools that streamline commission processing and licensing for agents. And behind all this, insurers also need to be hyper-focused on the employee experience, using tools to monitor and manage that experience across every level of the organization.

6) Offer opportunities for mobility and upskilling.

People want the ability to build new skills, take on new challenges and find interesting new pathways within a company. To cater to those sensibilities, “prescient companies are creating rotations within and across functions, especially at junior levels, to create more diversity of experience,” PWC observes. “They’re giving individuals exposure to different parts of the business — including leadership — and even arranging temporary gigs outside the company at start-ups (including insurtechs). The end result is a larger pool of internal talent that can be plugged in when and where it’s needed.”

In early 2021, AXA UK launched a data academy to upskill workers across all its insurance divisions, exactly the type of creative approach insurers should be taking to ensure they’re well-positioned from a talent perspective to thrive in a fast-evolving business environment. 

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

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

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

The Role of Spreadsheets 

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

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

Cost of Using Spreadsheets in 2023

Relying on spreadsheets can be risky for the following reasons:

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

See also: It's Time to Rethink the Spreadsheet

The Benefits of Using a Risk Management Platform

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

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

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

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

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

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

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

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

Benefits of Using Risk and Claims Software

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

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

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

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

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

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

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

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

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

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

1. Data Strategy 

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

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

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

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

See also: How to Unlock Data--and Profitability

2. Next-Generation Analytics and Risk Models

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

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

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

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

3. Embedding Analytics into Workflows

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

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

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

See also: How to Benefit From the Power of Data

Driving From Systems of Record to Systems of Insight

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

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

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

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

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

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

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

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

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

See also: Cybersecurity Trends in 2023

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

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

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

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

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

Everyone needs to calm down.

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

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

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

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

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

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

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

See also: When Captive Agents Go Independent

Variety of models

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

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

The models include:

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

Growth of aggregators

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

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

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

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

See also: A Heyday for Independent Agents

Employment branding is key

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

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

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

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

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

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

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

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

ITL:

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

Aimee Kilpatrick:

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

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

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

ITL:

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

Kilpatrick:

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

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

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

ITL:

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

Kilpatrick:

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

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

ITL:

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

Kilpatrick:

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

ITL:

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

Kilpatrick:

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

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

ITL:

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

About Aimee Kilpatrick

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

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

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

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