Customers now expect exceptional service from all businesses, and low-code platforms hold great promise for businesses’ internal and external users alike. They’re capable of aggregating data from multiple administrative legacy systems and quickly bringing value to customer service functions. 

Many of these platforms are rich in user interface functionality. They allow for drag-and-drop efficiency instead of burdening users with extensive lines of code. Circumstances may not be as flexible as with other technology, but the speed and integrity of low code make it a viable choice.

Additionally, integrating low code to existing IT operations provides modern tech experience to in-house system managers who, in turn, grow their expertise. For example, domain experts can immerse themselves in articulating need requirements and even build out the solution. Those who already have systems development expertise can be assets in the transformation.

See also: Thinking Big for True Transformation

Low-code platforms are rich in functionality and capable of rapidly creating enterprise-level applications, and vendors offer different solutions with varying levels of functionality. Some are robust with powerful capabilities, providing user interfaces, automated workflows, automated case-management processes, integration with many different systems and more. 

These solutions often come through built-in connectors to automate processes. 

IT pros in the insurance industry both influence and benefit from digital transformation. IT has significant experience with methodology and process. Pros understand and can describe business requirements in a product backlog and are familiar with testing and deployment processes. Such IT experience can be advantageous if complex integration needs arise. In turn, the platform offers significant leverage to the product team seeking an automated solution to a business problem.

Some businesses find themselves frustrated by the functionality of commercial off-the-shelf packaged software. Those products result from requirements dictated by the larger market needs and generalized feature set, though this is now changing. These features may not apply to all and may need heavy customizations to adapt within an existing ecosystem. Such frustration is a low-code opportunity that's tailorable to a client, suits its needs, is cost-effective and is simply a better fit.

There are four ways for insurance organizations to leverage low-code:

• Build out enterprise-class applications. 

A full-stack platform brings everything necessary to create a customer-facing user application. That includes a user interface, business process management, business rules, case-centric capabilities, content and document management power and third-party connectors that allow connectivity that provides for and extends legacy systems. 

• Complement an existing system. 

Underwriting often involves manual processes where paper notes present valuable information. However, it is hard for software systems to digest and make sense of this material. Low-code solutions with character recognition and language processing capabilities can integrate and automate gathering this vital information. 

• Integrate relying upon multiple existing systems. 

Low code can orchestrate leveraging these systems into modern service, whether administrative, claims, internally developed or inherited systems or multiple other varieties.

• Reduce technical debt

Low code is easy to maintain and increases user productivity by speeding the development process. It reduces several tasks to a single workflow, enabling more automation and integration of apps, ultimately reducing overhead costs.

Many legacy systems are expensive and complicated to migrate. Retaining these systems but capturing information held within them through low-code platforms makes all that intelligence available to the user. Low code simplifies. It brings efficiency and value to the business while managing costs and risks.

See also: 3 Ways to an Easier Digital Transformation

Moving to this level takes significant commitment. Insurance IT infrastructure can be well out of date. If merging old technology with new was a simple one-to-one proposition, every company would’ve done it long ago. Additionally, mergers and acquisitions among organizations that keep creating short-term demands to absorb various legacy systems steal from long-term transformation plans.  

There are no indications that this fluctuation will slow any time soon. While making sense in a chaotic environment,  insurers must also choose and commit to agile, modern digital solutions that address this legacy influence. 

No plug-and-play solution resolves all these complicated obstacles. Demonstrated expertise in navigating technical roadblocks should be sought. Doing this will position the business to incorporate the latest technology to design a system that functions with power and features that meet the business needs and customer demands.

The insurance industry’s historic legacy is a double-edged sword. As an industry with roots that span as far back as the days of Hammurabi’s Code, the insurance world’s stability has both provided security and, at times, resisted necessary change. One of these necessary changes is the adoption of new technologies to structure the processing of the massive increase in data that the modern world brings. As the global insurance ecosystem dives further into digitization, the problem of big data will only persist should carriers choose not to adapt to this new status quo. 

However, not all challenges may affect all insurance industry players equally. Large and small carriers, in most cases, have inherently different business processes, capabilities and priorities due to their variance in size. How might these key differences affect their abilities to address the needs of the 21st century with new data-structuring technologies?

Larger carriers’ challenges lie in their scope and age. These organizations have typically existed for longer than their smaller counterparts, meaning they usually rely on relatively older legacy systems and processes. This long-standing dependency on legacy systems creates a greater technical debt, meaning that larger carriers will usually have to play digital “catch up” on a deeper structural level in their business processes. 

Additionally, larger carriers typically use multiple platforms for the same business operations (e.g., multiple policy admin systems across different lines of business), as opposed to smaller carriers, which typically use one. Larger carriers face a lack of uniformity in data collection, adding operational efforts (such as extract, transform and load, or ETL) to sync up data formats from different sources. 

The challenges smaller carriers face differ, but they are equally pressing. These smaller organizations often have a lower budget allocation for IT modernization. This may result in compromising on the benefits of data structuring in favor of short-term growth. Smaller carriers typically also face more competition in their segment of the economy, so any data restructuring may not establish them as leaders in their field right away. Additionally, once their initial investment is made, smaller carriers must keep up the momentum by staying in the loop of even newer technologies. This fast-paced modernization may cause some strain on their budgets and could be unsustainable. 

See also: Technology Addiction: A Fatal Distraction

Larger carriers’ advantages come from their size and resources. They typically have larger IT budgets, so investments in new technology will not put as much of a financial burden on them. Because of these larger budgets, they also can sustain these investments for the long term. Larger carriers often inherently have more data than smaller carriers due to their many platforms and lines of business, and leveraging such data enables them to reap the benefits of modernization more immediately than their smaller counterparts. 

Smaller carriers, on the other hand, have advantages in that they are typically dealing with less data relative to that of larger carriers. The platforms they use for business operations (such as billing and claims), are typically common across lines of business, as opposed to larger carriers that usually have multiple platforms. Due to these reasons, smaller carriers can adopt new technologies to facilitate data structuring with greater ease and flexibility. 

Regardless of the unique considerations for differently sized carriers, it is clear that adopting technologies to drive better business function is an overriding business need. The benefits of embracing data structuring are far and wide; it can not only enhance the efficiency of insurance functions but can improve their accuracy. From risk underwriting to pricing algorithms, and target-driven product development to claims fraud detection, all aspects of the insurance value chain can greatly benefit from the enhancement of data organization.

How, then, can carriers of different sizes tackle the challenges of adopting new data structuring technologies? For smaller carriers, a key strategy is tighter planning and allocation of resources. Stakeholder expectations must be set realistically, as data restructuring may not yield immediate results. A well-tested method of alleviating financial strain is taking advantage of open-source or relatively inexpensive technologies to provide a basic framework for adoption. This helps alleviate the risks involved in investing with a limited budget.

For larger carriers, establishing long-term goals for adoption can help provide a solid foundation for implementing new technologies. The level of restructuring required at carriers of such a size is innately more complex and time-consuming than that required of their smaller counterparts. Therefore, aligning objectives and intent across the organization is an essential step in preventing delays and inaccuracies as new technologies are applied.

See also: Insurance Technology Trends for 2022

Carriers of all sizes would benefit deeply from an investment budget that is flexible and makes room for contingencies. Persistence is the key when it comes to implementing modern technology. Defining clear goals and setting achievable expectations based on available resources will both allow technological investments to be sustainable and build a better foundation for future adoptions. 

As the insurance industry becomes more global and digitized each year, the fact still stands. All organizations, large or small, must acquaint themselves with these new methods of enabling standardized data structuring, collection and sharing – or risk getting left behind in the modern digital age.

Home and extended warranty providers cover appliances and products that break down – a useful service if you are a customer facing hefty and unexpected repair bills. However, customers are often frustrated when engaging their warranty plans because of confusing terms and coverage plans, long wait times and an unclear process. Field service management software can digitize steps of the warranty workflow to improve customer satisfaction and provide quality and convenience.

1. Put the customer first

The warranty market is a client-first industry that is focused on insuring items that mean a lot to customers. Therefore, it’s critical that the customer journey provided by warrantors is seamless from end-to-end. By implementing connected digital platforms into the service experience, providers increase transparency and communication with their clients, giving them step-by-step updates on their requests, timelines and invoices. Customized, self-service online portals enable customers to schedule maintenance or repair, check service technicians’ whereabouts and status and communicate directly within a mobile application or browser. In fact, 90% of customers expect a business to offer an Uber-like experience with a self-service portal. A centralized location for all service information allows customers to access details of their policy and work history at a moment’s notice and provides simple touchpoints for interaction with the servicer. Consumer-related metrics like customer happiness and response times account for 55% of Forbes Home’s rankings of warranty companies, reinforcing that, when customer is king, the entire business prospers.  

2. Improve the on-site experience

The structure of the warranty system means companies rely on field service technicians to represent their organizations when interacting with the customer. It is therefore crucial that technicians are properly prepared to deliver high-quality service during their visit, to build customer loyalty through an enjoyable experience that resolves the customer problem. Providers that leverage artificial intelligence (AI) through field service management systems can intelligently dispatch the best technician for the job, equipped with the tools and parts needed to get the job done. Leveraging AI-based schedule optimization software can increase productivity by 68%, and AI capabilities not only delight the customer during the service interaction but can also help clients manage their possessions within their policy. Integrated AI can send out alerts to connected devices warning against imminent product recalls and predict potential repairs. Implementing technology that puts the customer first and focuses on service experience will differentiate warranty businesses from their competitors. In fact, consumers that purchase extended warranties and service contracts are twice as likely to recommend the retailer where they made purchases, making their experience all the more important.

See also: How Technology Is Changing Warranty

3. Simplify the process

Once the service work is completed, the servicer must be paid for work performed, and the repair must be logged against the warrantee’s policy. The best full-service digital platforms offer management solutions that enable automated warranty claims processing and intelligent audits based on business logic. Automated claim adjudication with built-in validation improves efficiency and protects warranty reserves. This automated technology also prevents fraud and reduces costs by only validating claims that are eligible for payment and reducing turnaround time on claim status and payment processing. Internet of Things (IoT)-enabled claims management and real-time business intelligence allows providers to cull through information faster to make data-driven decisions. With an organized system of information easily accessible, business leaders can automate standard processes and quickly review key performance indicators (KPIs) in real time to understand and improve service operations. 

4. Expand support systems

Warranty providers often cover products for third-party organizations, meaning they usually serve a wide range of clientele. Warrantors, in turn, must often depend on a blended workforce of full-time, part-time and contracted technicians and employees to meet demand. However, properly managing a large remote workforce that is constantly on the move is challenging and time-consuming. Field service management software is a comprehensive tool that offers providers the ability to engage a broad network of qualified technicians, integrate contractor onboarding and intelligently dispatch workers for the best results. Blended workforces can help eliminate skill gaps, expand geographic reach and support changing demand with a supplementary service provider network. By using software that ensures dispatched service techs have the required background screenings, insurance coverage and certifications and that dynamically chooses contractors based on rankings and credentials, warrantors can increase appointment bookings and reduce rework. In fact, 73% of companies with a blended workforce outperform competitors with employed-only staff, and leveraging workforce managing technology can help businesses scale without dampening service quality. 

Warranties are an important part of home and property management. As more individuals choose to work remotely and increase the time spent using their appliances, devices and vehicles, the coverage for these items will be more important than ever. Implementing comprehensive service management software into warranty business operations can help improve customer service, expand service offerings and automate existing processes to free time and reduce costs, all while improving the quality of service for steady customer retention and brand reputation.

I'll be quick this week. It's my older daughter's birthday, and she tells me I have more important things to do today than spend a bunch of hours hunched over my computer writing a commentary. (We're going hiking in the canyons along the coast near Point Reyes, just north of San Francisco, on a beautiful, sunny, almost-spring day. I know: Life is tough.)

But before I go I did want to call attention to a story on home-based businesses that I think exemplifies the sort of opportunity that is arising as we start to come out of the latest wave of this awful pandemic and head toward a new normal. 

The article says half of the 30 million small businesses in the U.S. are already home-based, and loads of surveys and analyses have suggested that the allure of working from home has only grown in the pandemic. These home-based businesses offer an opportunity both for new products and for education-based sales by agents and brokers.

The piece says small businesses tend to be treated as monolithic for insurance purposes, even though the home-based businesses can be very different than ones based in an office or store -- a survey of 1,000 home businesses found, for instance, that 24% were based on e-commerce or home crafts. So, there would seem to be opportunities to tailor products better.

The survey also found that 91% of the small business owners know they need insurance coverage but that 44% either do not have coverage or do not know what liabilities are covered by the insurance they have -- a clarion call for agents and brokers. 

The opportunity with at-home businesses will be just one of a myriad of adjustments that we'll see this year and beyond. Allstate recently said, for instance, that its auto repair costs are up significantly because of supply chain disruptions that relate, in part, to Covid. Workers' comp carriers are having to adjust to changes in work locations, tasks and schedules. The gig economy is getting a boost because Covid has required much more flexibility -- plus all those drivers to deliver all those items we decided not to buy in stores. And so on. 

I'm sure I'll return to the post-Covid opportunities and complications many times in coming months, but that's enough for now. 

Until next time, repeat after me: Happy birthday, Shannon!

Cheers,

Paul 

This is the second in a planned series following our initial article, Barriers to Insurance Innovation.... and New Year’s Resolutions to Overcome Them, which was published in January as a blog on InsurTech Consulting and by Insurance Thought Leadership as 2022 Resolutions to Foster Innovation. In that article, we identified the differences and commonalities among carriers and insurtechs. This series will feature practical, experience-based perspectives and insights from successful leaders who have had careers in either or both of the insurance and insurtech sectors.

This particular article is based on our recent interview with Pete Frey, associate vice president, commercial lines, emerging capabilities and competitive intelligence at Nationwide. Pete is the perfect leadoff interview because of his deep experience on multiple sides of insurance innovation and technology. Pete perceives many critical gaps in empathy and understanding between insurer and insurtech organizations and shares his ideas on how to narrow or close those gaps to overcome some of the barriers to innovation. 

Pete’s career has included 14 years with American Family in agent technologies and emerging usage-based insurance, time with insurtechs Zubie and Hubio in connected car telematics and UBI product leadership roles and for the past four years with Nationwide leading commercial lines telematics and related emerging technology product strategies.

Q: What has changed with insurtech/carrier adoption over the past two years?

Pete Frey: Carrier and vendor partner interaction requires a different dynamic these days. The pace of things, the increased dependence on insurtechs and the competitive landscape in insurance has led to some different expectations when it comes to that dynamic, and how partnerships are now a strategic necessity. 

Insurtechs are doing a better job of building teams that include insurance industry experience and acumen, and that goes a long way toward understanding insurers' pain points to solve. Likewise, the role of the insurance CVC [corporate venture capital] unit has expanded and is helping insurers drive the CVC mindset deeper into the organization

Innovation, in general, has to be a core strategy, but the approach to it must also change, and it must be viewed with a bit of a different lens. When times are challenging for insurers, innovation is usually the first thing to go due to bigger priorities or limited budgets and resources. Carriers may not be able to afford to focus as much as they’d like on innovation during those times. 

To stay relevant, however, they have to find ways to keep innovative pursuits going and part of their portfolio. Easier said than done, however!

See also: Key Considerations for Managing Innovation

There is general recognition that the dynamics between insurers and insurtechs needs to change. The former vendor-customer relationship paradigm no longer works well enough. There is a real need to better understand each other’s problems and challenges at a granular level in order to forge practical, effective partnership relationships.

• Levels of expectations on both sides need to be better aligned; insurtechs prefer to move quickly; carriers recognize the need to move quickly but are not always able to
• Insurer innovation leaders need broad organizational support, persuading and lobbying their peers to think and act more innovatively; innovation requires an enterprise-wide effort
• Insurtechs should recognize that insurers are also resource-constrained (in spite of their bigger balance sheets) and that funding for innovation competes with many other corporate priorities

Pete describes the “flywheel method” of making incremental but increasing progress as a minimum starting point vs. over-thinking concepts with no progress. He also shares that insurtech readiness to launch a trial or pilot requires some patience and preparation along with understanding insurers' pain point priorities. A telltale sign can follow a demo session where the insurtech explains its capabilities in great detail and ends by asking, “How do you think we can help you?” This can be a red flag while shifting the next steps onto the insurance company, which is already juggling projects and priorities.

Q: How can insurance carrier innovation be a sustained effort with so many distractions and competing priorities that emerge each year?

Pete Frey: Vocal and visible support from the C-suite is more critical than ever. Innovation is about a lot more than just chasing “shiny objects”; the industry must shift toward “sustainable innovation” that has a much deeper connection to the company’s business strategy. And it needs to be aligned and in cooperation with all business units; distribution, underwriting, services, claims, marketing and finance. Here, Pete referenced a favorite quote he attributed to Amazon founder Jeff Bezos; “Be stubborn on vision but flexible on details.”

Proof of concept (POC) projects need to have clearly articulated objectives stated and agreed on up front by all parties.

Innovation doesn’t always have to be about spending money. Innovators at insurers and insurtechs need to be more resourceful, connecting and applying good ideas and learnings from others. Innovation requires more lateral thinking and fewer blinders, especially when applying various learnings within the enterprise. 

Innovation leaders need to be evangelists and ensure continuous alignment with the business by demonstrating and explaining how practical approaches can be just as innovative as well as productive.

Q: How do you distinguish between advancing new capabilities from simply launching technology?

Pete Frey: Telematics (and other types of Internet of Things (IoT) need to be seen as building new capabilities rather than just rolling out a new technology. This is becoming even more true as these technologies begin to pervade our space at a more rapid pace and at a broader scope across the entire value chain. For example, telematics success involves all functions coming together and doing their part, from distribution and sign-up, to services and claims handling to surrounding the product and customer experience alike.

Q: What can startups and insurtechs do better to partner and position carriers to say "yes”?

Pete Frey: Insurtechs should be prepared to understand and align carrier use cases at a deeper level. 

They should include strong carrier experience in their leadership and functional teams and consider forming an advisory board. Customer and expert advisory boards of some sort would also be beneficial. A platform for two-way feedback is very valuable.

And finally, insurtechs need to be better listeners in every sense of the word; he encourages attendance and participation in industry conferences, attendance at webinars and investing time in reading industry journals. 

Q: What can carriers do to support and guide insurtechs in today’s environment?

Pete Frey: In POC situations, insurtechs and carriers need to agree in advance on what success will look like and how it will be measured.

Insurtechs should expect and be prepared for a trial period, possibly without revenue, although in some circumstances carriers will agree to reimburse the insurtech for a pre-agreed amount of costs in the event that success metrics are met. 

Carriers need to plan better so that, when POCs are completed and successful, carriers are able to begin to deploy the solution without having to “park” the project for an extended period. So, measuring KPIs and agent, customer and user experience matters, as well.

Again, carriers need to become more creative in innovating and piloting effectively in ways that do not always require funding. With finite resources and competing priorities, carriers will need to be more creative in leveraging insurtech resources, whether it’s low-fidelity test-and-learn efforts, low- to no-cost POCs or cost-sharing collaborative efforts across multiple partners and carriers to help accelerate innovative capabilities.

See also: How to Embrace Insurtech Culture

Q: What’s on your 2022 insurtech wish list?

Pete Frey: With a focus on the small to mid-size commercial market, Pete identified a need for more efficient underwriting solutions using technology that integrates third-party data and an easier process for independent agents to write and submit new business. This should include the elimination of time-consuming “busy work” on submissions to carriers, including a wide variety of file format variations and missing data. Today, there is much administrative work, missing or incorrect information and a lot of back and forth between agents and underwriters to tackle, for starters.

We wish to thank Pete Frey for his time, insights and candor and hope you find this information as interesting and valuable as we did. What we took away from this interview at a high level is that insurtechs and carriers both need to take the time and make the effort to understand one another’s needs, capabilities, constraints and strategic objectives to collaborate and achieve true innovation together, as partners rather than in the traditional vendor/ customer relationship.

Watch for the next article in this series and feel free to write us with any comments and suggestions about interviews you would most like to see.

Insurance companies have traditionally lagged in modernizing their core applications. Most CIOs want to have a modern system, but they often cite a number challenges to core transformation:

Logic behind sticking with the legacy system 

1. If It's Not Broken, Why Fix It?

Most insurance companies would state this logic: Why should we replace the old system; what’s the problem?

The fundamental concept companies must understand is the way they measure problems. If you measure problems only with broken status, then maybe a system can still work until it is fully broken. But market dynamics depend on many other factors, like competition, speed to market, operational cost, goodwill, etc., and each company should evaluate the definition of "broken" and then evaluate the legacy system.

If you are not improving your core parameters like sales, market share and reduced operations costs on a quarter-on-quarter basis, your systems may be broken.

2. It’s Too Costly

Of course, there is a cost involved. Core admin systems are assets of your organization, so the investment is inevitable. The questions to ask are: What’s the benefit? How long will it take to get up and running? Can the overall transformation process be predicted?

It is important for the insurance company to get some help with transformations rather than try to do everything by themselves. It is critical to see if the vendor has done such transformations. Do they have any strategy to stick around to support the system? How are they investing themselves in building value-added solutions?

See also: Core Systems: Starting a Whole New Game?

3. It’s Risky to Replace

The insurance industry knows that there is risk everywhere, but the question is how we manage and mitigate it. Risks associated with such replacements are:

• Cultural Risk – As part of transformation, companies should plan for a cultural shift, not only within the organization but also with all the stakeholders, such as agents, partners and finally the customers.
• Fit Risk – Will the new system fit into the unique way of working in your organization? An essential point to remember here is that the more you try to be unique, the more it will be difficult to upgrade. Too much differentiation will make your new system a legacy in a few years, as it will not be able to upgrade easily.
• Scope/Time/Cost Risk – These are linked and should be monitored closely. Working with experts who are known for managing large transformation programs could mitigate this risk. Different management and contract styles have shown different results. For example, a large and complex program is best managed as an agile project. 

Companies get slightly confused about the legacy platform. Should they think about whether to replace systems based on resources or on whether there is a problem with the system's fundamental architecture? The architecture of the application should support faster speed to market and better and faster customer service, and it should be central to the organization's digital strategy. Don’t focus on skill availability; concentrate on the application's capability.

Choosing the approach

Core modernization is no longer optional, but choosing an approach can be classified into four buckets depending on: a) how unusual your requirements are and b) the quality of the existing system. While deciding the approach, one should always keep in mind the big picture of organizational growth strategy and changes in customer expectations in the digital world.

Decision Chart: Core Admin Evaluation chart.

High Quality - Unique Process (Modify): Companies that have acquired or developed an application recently with modern architecture should stick with the existing platform. However, they should continuously try to add functional as well as technical features to the system to keep it current.

Low Quality - Unique Process (Rewrite): One of the predominant reasons for rewriting or custom-building applications is the lack of commercial off-the-shelf (COTS) products available to support the unique needs of the insurer. We still suggest looking for a specialty risk product in the market, but rewriting a sleek application is also an option. The key benefit of rewriting is that we can reuse some key assets, like business rules and data sets. Before deciding to rewrite into a better architecture, there are two points to consider–

• Is it worth sticking to existing processes or will it be better to move toward standardization with some deviation, i.e. some customization to existing COTS products?
• Do we intend to solve a single core admin system problem or to support the entire IT ecosystem?

High Quality - Standard Process (Upgrade): Companies already having a COTS product should plan for regular upgrades of the application. While insurers purchase standard products and configure them to their needs, they normally don’t plan for an upgrade as additional time and budget. This leads to the challenge of an unsupported version. Companies should not only plan for application upgrades but also infrastructure upgrades. Most insurance COTS products come with major and minor upgrades. Minor upgrades will provide bug fixes and security enhancements, but all major upgrades will require adoption of new features and functionality, training of staff and technological adoption based on industry standards. Enterprise applications, unlike mobile apps, require a bit of handholding before we can upgrade. So here is a serious suggestion: Budget for upgrades. If you don’t, one day you will require a transformation budget.

Low Quality - Standard Process (Transform): Many insurance companies are stuck with the old core admin system, which is difficult to change, and have adopted "modify" as a strategy. Lack of documentation, skilled resources and technological compatibility make these applications painful to maintain. They pose some serious operational challenges and restrict the growth of the organization. The insurance industry is full of niche software providers and many COTS products that provide some great applications and lots of in-built standard processes. One should perform a full-blown search to find such players for a long-term solution. Companies should do a better fit gap analysis for their long-term needs before selecting a core application. They have the choice to select best-of-the breed applications or the full suite for their core needs.

See also: Finding Success in Core Systems

Conclusion

Customer expectations are changing rapidly. To keep up with the competition, insurance companies should regularly evaluate the capabilities of their core admin system to support business growth. They should use the matrix mentioned above to categorize each application into the four buckets. CIOs should do this evaluation every three to six months to ensure that IT is always ready to support the growth and service demands of the business.

The premium volume generated by what A.M. Best calls “delegated underwriting authority enterprises” (DUAEs) has doubled in the last decade. The DUAE label encompasses managing general agents (MGAs), managing general underwriters (MGUs), program administrators and other entities that write on behalf of risk capacity providers such as insurance carriers and reinsurers. 

MGAs are the largest piece of the DUAE segment, and they have been a part of the insurance landscape for more than a century. Originally a mechanism for insurance carriers to expand into new regions, many MGAs today focus on industry groups and lines of business requiring specialized underwriting expertise and carefully cultivated distribution systems. Insurers typically turn to MGAs to access profitable segments that would be too difficult or too expensive for them to reach using their existing agent and broker channels and their own underwriters. Through MGAs, they can access desirable business without significant investments.

DUAEs are “capacity seekers” and typically rely on insurance carriers and reinsurers for risk capacity. MGAs and other capacity seekers scour the market to find providers that have an appetite for their business and that have the experience, resources and systems to manage a partnership effectively. Carriers and other capacity providers look for reliable DUAEs they can trust to produce a portfolio of well-underwritten business that fits within their risk appetite and underwriting parameters.

The traditional mating dance between capacity seekers and providers is inefficient and prone to producing unhappy marriages. Identifying and connecting with potential partners often relies on personal relationships and extended networks. An MGA looking for capacity typically will call all relevant carrier contacts and get in front of as many carriers as possible without any initial filtering. Neither MGAs nor carriers have a clear, complete and unbiased view of the marketplace. Finding a good fit is often a matter of chance.

Capacity seekers and providers also tend to interact using outmoded technologies. This can slow and complicate identifying partners and negotiating deals and impede many subsequent essential interactions. The insurance industry has been slow to embrace new technologies, and the resulting inefficiencies are rarely more apparent than in this realm, where efficient communication and coordination among unaffiliated entities is essential for success.

Carriers and reinsurers are the traditional providers of risk capacity, but they are not the only ones. A market for insurance-linked securities (ILS) emerged in the mid-1990s as a mechanism to tap the global capital markets for an alternative source of risk capacity. Insurance-linked securities are catastrophe bonds and other financial instruments whose values are driven by loss events. They use offshore special purpose vehicles—essentially dedicated insurance or reinsurance entities—to fund losses resulting from, typically, a specific peril affecting a defined pool of risks. The ILS market has grown rapidly: According to the Artemis Deal Directory, in 2021, cat bond and ILS issuance reached $14 billion. However, its potential has not been reached, in part, because of difficulties in matching ILS capacity with DUAEs. More so than in the traditional capacity marketplace, capacity seekers struggle to establish a toehold within the highly specialized ILS market and therefore are not fully benefiting from the largest and most liquid source of risk capacity.

Closely allied to the DUAE market is the rapidly growing embedded insurance segment. Embedded insurance is coverage packaged with a product or service and purchased at the point of sale of that product or service. Embedded insurance isn’t new—some types, such as auto insurance purchased with a car rental, have been around for many years. However, embedded insurance has become more prevalent in recent years as customer expectations have changed and technology makes instantaneous underwriting and policy issuance at the point of sale a largely friction-free process. According to a report by InsurTech London, the embedded insurance market is forecast to grow to $722 billion—six times its current size—by 2030.

See also: How to Embrace Insurtech Culture

The challenges involved with matching third-party distributors (usually product or service providers in various sectors) looking to offer embedded insurance products with insurance carriers willing and able to offer such products are similar to matching MGAs with carriers. Insurance companies that offer embedded insurance products often struggle to identify and reach distribution partners. At the same time, manufacturers, retailers and service providers often lack contacts within the insurance industry and may have little understanding of insurance business processes. This inefficient process is ripe for a digital makeover.

The DUAE and embedded insurance markets are growing rapidly, but they could be expanding faster and more efficiently with better long-term outcomes if the marketplace was more transparent, processes were streamlined and simplified and technology was used better. A 360-degree view of the market enables capacity seekers to understand their capacity sourcing options better. Computer algorithms can efficiently match capacity seekers with capacity providers. Better communication technologies can improve the due diligence process, speed negotiations and provide a framework for information exchanges. The outcome should be increased efficiencies throughout capacity-sourcing processes; accelerated speed to market for MGA and similar programs; a better alignment of values, objectives and priorities among partners; enhanced communications throughout the lifecycle of the partnership; and overall greater satisfaction with the process by all parties.

Today, the know-how and technologies to transform outdated and inefficient capacity-sourcing processes are available. Change is already occurring and will accelerate sharply as a critical mass of capacity-seekers and capacity-providers recognize the benefits of an organized digital marketplace with an efficient electronic infrastructure. With the addition of third-party administrators and other players in the insurance value chain to the digital ecosystem surrounding the delegated underwriting model, the entire marketplace will be more efficient, which will accelerate growth and enable the market to reach its potential.

Many discussions about disruption and innovation in life insurance have focused on the distribution channel and improving the customer experience. Others have directed attention to adding efficiencies in the underwriting process to shorten issuance times. The challenges, particularly against the headwinds of COVID-19, have been a priority of life insurance carriers and reinsurers. Predictive modeling has been their primary tool, with an emphasis on its integration with other elements of the underwriting process.

What is predictive modeling?

Predictive modeling is the statistical process of using historical data and machine learning techniques to analyze patterns and predict possible future outcomes or probabilities. It is widely used in many industries. In the insurance industry, its leading uses are to increase automation levels, improve the accuracy of pricing models and fine-tune marketing initiatives.

In life insurance, predictive modeling is used for a variety of applications to benefit the industry and the consumer alike. For example, predictive models build underwriting programs that accelerate the application process and improve the overall customer experience. In the past, an application would take weeks and sometimes even months to complete, as bodily fluid tests were usually required. Thanks to predictive modeling for accelerated underwriting programs, the process can be shortened to just a few days. Often, fluid tests can be waived if the carrier can obtain favorable data from applicants, such as their prescription drug history. It’s a win-win for the insurer and the consumer.

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Pandemic effects

The pandemic has heightened the need to improve efficiencies in life insurance. A tight labor market has led to shortages of medical personnel, and higher volumes of patient visits have created stress in the system, meaning that the test results underwriters need may take longer to obtain. This leads to frustrations for insurance companies, insurance agents and ultimately the applicant, as the time to issue a policy has increased.

One positive outcome of COVID for many life insurance companies has been the push to digitalize as traditional face-to-face selling and paper-based applications are no longer the industry norm. The acceleration of digitalization has allowed more historical data to become available for predictive modeling.

As an increasing number of life insurance companies implement data digitalization, predictive modeling should become more widely used. As more advanced machine learning techniques are developed, the predictive models should continue to become more refined.

Accelerated underwriting programs mean that predictive models will mostly handle the straightforward and repetitive cases, and human underwriters can focus their review on more complex cases. A concrete example is the removal of fluid-test requirements for policies with lower face value. These innovations will lead to faster adoption of predictive modeling.

Using artificial intelligence with integrity

As predictive modeling becomes increasingly prevalent in the life insurance industry, a legal and regulatory framework is emerging to govern its use. For example, the National Association of Insurance Commissioners (NAIC) has adopted five key tenets in its guidance on the use of artificial intelligence (AI). Known as “FACTS,” the acronym stands for fair (and ethical), accountable, compliant, transparent and secure (safe and robust). It is important that the industry embraces the NAIC's AI principles, taking social responsibility into account when building predictive models. What is chosen to use in the model is as important as how the model is used. 

Quite often, underwriters will develop a hypothesis that is then tested against available data. As the industry continues to accumulate data related to the near- and long-term impacts of COVID, this approach will allow for more accurate forecasting of how to underwrite and price life insurance. And this work is not being done in a silo; it intersects with other initiatives that the life insurance industry is undertaking to improve the customer experience and the efficiency and effectiveness of the underwriting process.

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The ultimate goal is to integrate the underwriting process with evolving predictive analytics capabilities. To accomplish this objective involves correlating details from a variety of evidence sources, including prescription history, criminal history and digital electronic health record (EHR) databases, with information collected on the policy application to provide underwriting recommendations in real time.

Some view the increasing use of data analytics by insurance companies with concern. However, the thoughtful and responsible use of predictive modeling benefits a variety of stakeholders. With the power of predictive modeling and its resulting efficiencies, life insurance companies can simplify the underwriting process, reducing both time and complexity. This is significant as it enables broader reach, allowing insurance companies to target underserved demographic segments such as the middle market, which is important to the industry and society at large. Ultimately, the longstanding life insurance protection gap should narrow.  

Life insurance companies need to embrace these technology-driven solutions to stay relevant and better serve their customers ― which will ensure their ability to not just survive but thrive.

If current investment figures are any indication, global markets have a great appetite for computer vision, with $21.1 billion of funding received by over 900 companies. And the market for this technology is expected to grow by another 7.8% to $17.4 billion in 2024.

Computer vision makes for a highly compelling case where artificial intelligence (AI) acts as an enabler for the human workforce. It is a branch of AI that helps systems extract actionable information from visuals, such as images and videos. It acts as the "eyes" through which a computer understands and assesses an image. 

In retail, a planogram report that can manually cost around $72 can be done for just $8 using this technology. After working at a data science company, I have learned that the computer vision and visual AI tech used to design supply chain workflows, identify defects or diseases in agricultural produce or research images in pharma drug discovery can all be leveraged to improve the vehicle insurance market. 

Here are ways that AI technology can help insurance companies produce higher accuracy regarding damage detection and claims assessment processes. 

Damage Detection

Already, AI, robotics, IoT and drones have merged with geospatial AI techniques to improve the quality of harvests and prevent crop damage and have redefined the agricultural industry. The connection between controller and data bus ensures that alerts from sensors get communicated to the controller. It generates snapshots and summary reports that go to central information servers and are stored in the cloud. These successes can also be translated to the insurance industry. 

Imagine an insured vehicle has an accident, and the user reports this incident to their insurance company. Through using AI and a computer vision-based model, a drone can be dispatched to the vehicle to get images of the damage from all sides. This accurate estimation can help the insurance provider establish the insurance value even after a car has been used for years. 

These images can be quickly analyzed to check the degree of damage and whether there is a need for repair or replacement. Drones have also been proven to not only bring accurate images but also reduce the risk of any harm to surveyors when the accident site is dangerous to access. 

Detecting Fraud 

Species detection, computer vision, machine learning (ML) and deep learning software use algorithms and statistical models to train computer systems to classify and identify images. I know from working with conservation organizations that you need to have sufficient data of images to train ML models to detect species, which is the same process for detecting fraud in the vehicle industry. 

Video streams from drones can eventually identify damages and understand if the accident is real or staged. The automated assessment of photos and the speedy claim description of the insured party also benefits the insurer: Quick assessments result in less consequential damage and less opportunity for fraud. 

If it is concluded that it was a real accident, the insurance company can look at the level of damage based on conventional data fed into the computer vision-based model. For example, can the bumper be replaced or repaired if it is broken? If there is a scratch, can it be painted or patched up?

See also: 3 Digital Customer Service Strategies for 2022

Claims Estimation

Across life, health and travel insurance industries, AI and ML make it possible to spot anomalies and make claims estimations more accurate. 

Insurance companies can experience better productivity with AI systems as they use automated decision science to quickly analyze accident images, assess damages and identify repair costs in real time. This can accelerate the decision-making and claims process, which used to be done by surveyors in the field. 

AI verifies various intricacies of observing an accident, such as who reported the accident and who was present in the car. This way, computer vision can also check if the consumer has complied with the policy requirements before paying any claim.

The aforementioned scenarios are just the tip of the iceberg of what computer vision can do for the insurance sector. The convergence of computer vision technology with high-quality data analytics tools can provide a competitive edge, especially because global business related to AI in the insurance segment will touch $4.5 billion in 2026. But to see fast innovation and growth, industries must share their learnings, accept there is overlap and cross-reference.