While the "heat apocalypse" that is baking much of Europe may seem like just more of the same extreme weather we've been experiencing globally for years now, it seems to me that we've now reached a new level of disruption, with significant implications for insurers. 

Like prior heat waves, this is one is exacerbating wildfires, destroying homes and other buildings, causing mass evacuations and generally upending millions of lives. The "heat apocalypse," as it's being labeled in France, is causing stress that is killing people -- hundreds just in Spain last week -- and overloading hospitals. But, as awful as all that is, insurers have been adjusting, and the public has become inured. 

The new news here, it seems to me, is all the downstream disruption -- the business closings, the cancellation of flights and trains, etc. that will produce a flurry of claims for insurers and that will only get worse as global warming continues. 

Although most of the climate change debate seems to focus on just how much temperatures will rise by 2035 or 2050 and just how destructive that increase will be, major effects have begun happening here and now -- and insurers are on the hook. 

In England, temperatures of 104 degrees Fahrenheit are expected this week. That may not sound unbearable to Floridians, Texans or those of us who live in California's Central Valley, but the average daytime high in London in July is 70F. When I lived in Brussels, where the climate is very similar to London's, we once went straight from a rainy spring to a rainy fall, with only one clear, reasonably hot day in between -- and that was a Thursday, so I was in the office and missed summer that year. 

English homes are built to retain heat, not cold air. Fewer than 5% of English homes have air-conditioning. The transportation infrastructure is tuned for a mild climate, too, so the heat is hitting hard.

Luton Airport, near London, had to close for repairs because the runways were melting. The Royal Air Force closed two airports for the same reason. Municipalities spread sand on roads because the asphalt was getting sticky and endangering drivers. Rail transit shut down because of fears that the metal rails would buckle -- electrified commuter trains had additional problems because stress on the grid meant that their power lines were unreliable. 

With millions of people unable to get around, businesses closed across the British Isles.

All the other problems associated with extreme weather are, of course, still happening, too. Temperatures in Spain and Portugal hit 117F last week, and there are wildfires in those countries, as well as France, doing massive damage to property and forcing evacuations. 

"In rural areas," the Washington Post reports, "heat waves are expected to have an increasingly serious impact on agricultural production. This year, French farmers faced a mix of frost, a record-hot May accompanied by a spring drought, and intense hailstorms that brought heavy rain, followed by more drought this summer.

“'The drought in much of Europe is critical,' the European Commission’s research branch concluded in a report released Monday, which warned that 'a staggering portion of Europe' — about half of European Union and British territory — is now at risk of drought."

Drought, wildfires, tornadoes, hurricanes, derechos and other forms of extreme weather will continue to generate the vast majority of claims for insurers, but the lesson for me from the "heat apocalypse" in Europe is that lots of claims for travel and business disruption and perhaps for auto accidents are already hitting insurers, too. 

So, even if you don't think of yourself as being in the business of insuring against extreme weather, you may be. 

And the exposure will only grow as climate change worsens. Look at the images below. The top image is from two years ago. It was a hypothetical example of a weather forecast from 2050 that would show how extreme the temperatures could get in England. (For those of us not conversant in Celsius, 40C is 104F.) The bottom image is an actual forecast from the past week. They're eerily similar.

Now think how hot 2050 could actually be. Or 2025, for that matter. 

Cheers, 

Paul

The insurance industry has experienced record-breaking fraud attempts since the pandemic’s onset, significantly outpacing other sectors during the same period. Consequently, insurance carriers have reached a pivot point when it comes to fraud detection and prevention.

According to IDology’s Eighth Annual Fraud Report, 75% of insurance companies report increases in fraud attempts, nearly 10 percentage points higher than the next sector. The repercussions have been swift and severe. The Coalition Against Insurance Fraud’s most recent assessment found that insurance fraud costs people $80 billion annually, increasing annual premiums for the average family by up to $700. 

Several factors contributed to this increase, including enhanced phishing attacks, mass work-from-home deployments, decentralized fraud teams and nation-state attacks. While insurance fraud is a crime, the perpetrators are intelligent and well-organized. They know how to exploit the industry’s vulnerabilities for financial gain, and they capitalized on this unique moment to commit fraud at an alarming rate. 

At the same time, broad industry trends, including customer desire for self-service onboarding, extensive personal identifiable information (PII) exposure from data breaches and authentication infrastructure gaps, made it easier for threat actors to commit insurance fraud.  

In response, insurance carriers must enhance fraud detection and prevention measures, ensuring they can protect platforms and customers from constantly shifting fraud trends. Let’s look at three ways every company can strike a balance between fraud prevention and customer experience. 

#1 Verify Customer Identities Without Collecting Excessive Data 

After years of astonishing data breaches and personal information misuse by digital platforms, many consumers are rightly wary of handing over their information. As a result, two-thirds of Americans report they are extremely or very concerned about cybersecurity, data breaches and ransomware attacks. 

Similarly, 70% believe that businesses obtain their personal information without consent, and 90% want new federal laws that protect their data online. 

Of course, this puts insurance carriers in a difficult position. With threat actors opening unauthorized accounts and defrauding insurance providers, implementing identity verification and Know Your Customer (KYC) protocols is a natural solution. 

However, nearly half of Americans will abandon enrollment if the process is overly onerous or companies ask for too much information. Today’s consumers are vigorously guarding their Social Security and driver’s license numbers, dates of birth and home addresses, making it especially challenging to balance fraud deterrence and customer expectations. 

That’s why insurance carriers must develop the capacity to verify customer identities without collecting excessive data by analyzing readily available but less invasive data, such as IP addresses, phone numbers and email addresses. With the right solution in place, insurers can effectively analyze this information to verify identities and reduce fraud without impeding customer experience.

See also: How to Thrive Using Emerging Tech

#2 Implement Customized Identity Verification Protocols 

Today’s consumers are unapologetically self-sufficient and digital-first. For instance, nearly 70% of consumers would rather self-serve than speak with a customer service representative. 

To empower self-enrollment and self-service functionality without compromising identity verification protocols, insurance carriers must implement customized workflows that support customer preferences while continuing to thwart fraud attempts. This includes solutions that minimize data collection but also requires the industry to develop protocols for prequalification that streamline the application process while preventing unauthorized account openings or other fraud efforts. 

This can be achieved with a solution that optimizes identify verification workflows without encroaching on customers' desire to be self-sufficient. 

#3 Adapt to the Latest Trends 

Fraud trends changed significantly during the pandemic, introducing new risks while mitigating others. Threat actors took advantage of the peculiarities of pandemic life to enhance their fraud efforts, and their tactics will continue to change in the days ahead. 

The insurance sector can’t afford to remain stagnant in the face of evolving threat patterns. 

Notably, insurance carriers should pay close attention to fraud attempts targeting mobile technologies. While mobile apps and digital communications are prerequisites for doing business, they also introduce fraud prevention challenges, requiring insurance carriers to implement identity verification and fraud detection solutions across all device types and platforms.  

Deterring Fraud Is Part of the Customer Experience 

Insurance fraud increased significantly in recent years, representing a turning point for insurance carriers and their customers. 

Security and customer satisfaction are inextricably linked. Now is the perfect time to enhance the customer experience with identity verification solutions and processes that keep customers safe and criminals unsuccessful.

While COVID was life-changing for all of us, the pandemic catapulted customers and businesses alike into the digital world, revamping standards for how we engage to conduct business while also creating a universal demand for digitization for almost every aspect of our lives. Some industries were quick to adopt AI and technology into their business models, while the auto insurance industry was a little slower to adopt despite the fact that 79% of customers would trust automotive claims powered entirely by AI.

Those that did adopt early had remarkable success. In fact, 58% of insurers that are already using AI experienced improved business resilience. The customer demand for AI is strong today, and it is time for all insurers and body shops to start thinking differently about their claims and repair processes and how those processes can be revolutionized through implanting AI and VI – Visual Intelligence. 

Visual Intelligence (VI) is a form of computer vision (a field of AI) that uses image-processing technology and machine learning algorithms to derive insights from photos and videos. At Solera, we have introduced VI at different touchpoints to help the industry make faster and better decisions about a claim. For example, we use VI to pinpoint damage and itemize a line-item estimate within about three minutes by processing photos and vehicle repair data. In this article, I will refer to AI for the photo estimating process but want to note that all AI solutions are not equal, so a close evaluation of AI estimating capabilities is key to success in leveraging this technology to gain greater efficiencies with an elevated level of estimate accuracy and customer satisfaction. 

The current insurance claims processing model is often criticized as being too slow, disconnected and outdated. After experiencing damage or a collision, a customer must call their insurance company to file a claim with a member of the staff, who then sends the claim to the body shop within the insurance company’s network, leaving the administrative work primarily in the hands of the body shop: to contact the vehicle owner, schedule an initial inspection and complete the repair estimate before scheduling the repair. This is the same process that was in place 30 years ago when Direct Repair Programs (DRP) were just getting started.  While technology has improved dramatically, especially over recent years, the DRP process has not changed.  

Over the last two years, customers of all ages began to leverage digital in new and exciting ways to simplify life, from ordering food to having virtual doctor appointments and ordering a wide variety of personal services. Some even used digital options to buy their next vehicle online for a home delivery. I often refer to the pandemic years as the tipping point for digital, as today customers really do “think digital first.” The question for auto insurers and body shops is, how do we leverage these customer digital first preferences to re-imagine the way insurers and body shops interact and assist customers in creating a more seamless claims and repair experience.  

It is clearly time to rethink how auto claims and repairs are processed and ask how the industry can leverage digital tools to improve this process to better service customers and automate many of the manual tasks, which will increase efficiencies and lower operating costs. AI is now an integral part of the customer journey across all industries, and consumers are actively seeking out claims and repair providers that put automation first. 70% of consumers would switch insurers for a faster digital claims experience, while 65% of consumers would choose a repairer using AI to minimize the risk of error in the claims process. In addition to meeting customer demand, AI implementation is also a significant benefit to insurer and body shops as it creates more efficient workflows and requires less employee assistance.

See also: 5 Trends Changing Auto Insurance

From the moment a vehicle sustains damages, the digital journey can begin, with the customer reporting the claim digitally via a customer friendly app or link instead of having to call into an insurance call center where at times hold times can seem long. This can also reduce handoffs in the claims process, simplifying the workflow and reducing the risk of miscommunications. While filing the claim digitally, the customer can also take photos of the vehicle damages and upload them directly through a user-friendly photo app or link to create an AI powered estimate for the body shop that already includes competitively sourced auto parts and AI-generated repair times. Just think, this could allow the body shop to simply review the AI estimate for approval, click a button for parts ordering and call or text the customer with repair date options. The change dramatically reduces the front office admin work while streamlining the process for the customer. 

For insurance call centers, leveraging more self-service digital options for customers who prefer digital would reduce the stress on the call center and provide the photos needed to advance the auto repair quickly, freeing staff to handle the more complex losses. Data capabilities available today can quickly auto-populate claims forms with data, speeding up the processing time and improving accuracy to create a better experience for customers, while AI technology can produce an intelligent estimate of the damages, including the needed parts through the photos provided by the customer. Additionally, transforming the insurer and shop relationship can open greater repair capacity. Not only can insurers work with DRP shops, but with today’s technology customers will have more freedom of choice in selecting a non-DRP body shop as insurers can electronically pre-approve shops outside the DRP that accept the AI repair estimate and have the equipment and skills necessary to complete quality repairs. 

AI leveraging the deep learning of Visual Intelligence is already at work across the industry, and insurers that have chosen to move forward in their digital journeys have already met strong success. 55% of customers surveyed said they have taken digital pictures of their vehicle damages and submitted them to the insurer to speed the claims process, and 100% of insurers were planning to invest in AI insurtech software in the next 12 months. Body shops have also leaned into AI to deliver on digital objectives, and 52% experienced improved profitability after adopting more technological process. With demand for AI on all sides, the insurance industry’s digital journey is already beginning, and it’s clear that the future of claims is an AI-powered touchless or low-touch experience.

While highly automated digital auto claims and repair process will take a lot of thought and planning along with the expertise of a top software provider, the impact will be off the chart with high customer satisfaction, lower body shop administration cost and increased repair capacity, which will lower repair cycle times. The benefits to adopting digital with a well-planned process are truly off the chart, and this is the future for the auto insurance and repair industry. The big question is: Is our auto insurance and repair industry ready to leap into the future and adopt the full benefits of an AI-powered digital claims process?

With their massive ad budgets, personal lines insurers can beat their names into our heads -- yes, yes, Flo, I get it. But what are agencies supposed to do? How can they put themselves in front of the right customer at the right time with the right product, in a way that piques the interest of that customer?

I asked Joel Zwicker, industry evangelist at Agency Revolution, which helps agencies with their marketing. Although I'm sure he'd be more than happy to help you spend a massive budget, he had two much simpler and less expensive ideas about how to market more effectively. 

For one, Zwicker says in our interview that agencies don't focus enough on renewal customers. He says there is so much cachet associated with bringing in new customers, that agents don't spend enough time on the massive numbers of leads that they have for additional business with existing customers. He says many agents worry they'll bother those customers by asking for more business but dismisses that worry out of hand and offers an easy way to broach the topic: Ask customers to assign you a Net Promoter Score -- then follow up with the fans.

For another, Zwicker says agencies need to focus more on niches so they can develop and demonstrate the sort of deep expertise that will draw clients. He says agencies often understand the need for a niche but don't go deep enough. For instance, he says, "Some people focus on contractors, but that’s a broad area. Specifically, do you do roofing contractors? Okay, let’s go deeper. Just commercial asphalt, or are we talking about hot tar?"

He says niches don't all need to focus on the product, either. For example, he cites agencies that provide a particular type of experience -- perhaps giving wealthier customers the sort of private-client experience that they get from their financial advisers, or arranging for all touchpoints with the customer to be digital.

Zwicker's approach to marketing won't get you all the attention that Flo does, but you won't have to spend billions of dollars, either. And you won't annoy me the way she does.

Cheers,

Paul

P.S. Here are the six articles I'd like to highlight for agents and brokers:

Agents Must Practice and Prepare

New business opportunities are difficult to come by. So why don't producers properly prepare and practice for those oh-so-valuable prospect meetings?

Inflation and the Auto Insurance Outlook

Auto insurers should expect higher claims costs in the second half and longer wait times for damaged vehicles to be repaired and returned to their owners.

Why Agents and CPAs Must Collaborate

Insurers and accountants have similar concerns on behalf of clients, so the more agents and CPAs collaborate, the better. 

Go All-in With Data Tracking

Agencies are highly motivated to use technology to track data on existing clients, to retain them. We need this same commitment in the pre-sale process for new clients.

Agencies Turn to Networks for Growth

Networks of agencies understand how important it is to provide expert guidance and resources throughout the digital journey.

Digital Is the Assistant We Always Wanted

So why do many companies and advisers in our industry resist digital advances like customer self-service and apps?

“Do you know the only thing that gives me pleasure? It’s to see my dividends come in.” – John D. Rockefeller, 1908

It’s 2022, and inflation, geopolitical instability, rising interest rates and more are driving uncertainty to heights not reached since the late 1970s. Meanwhile, economic growth is falling and market volatility is at its highest since the onset of the pandemic. In the wake of this, many insurance companies have begun to reevaluate their equity investments. Is it time for them to follow John D. Rockefeller’s example and focus on dividend-paying equities?

When compared with an index equity strategy such as the S&P 500 Index commonly found in many insurance company portfolios, a dividend-paying equity strategy may offer insurers lower volatility, income opportunities and potential tax advantages. It may also prove to be a more effective equity strategy during a period of rising interest rates when viewed from a duration perspective.

A History of Lower Downside Risk

Historically, insurance companies have been reluctant to invest in equities, preferring fixed income securities’ typically higher yields and lower volatility. More recently, the need for portfolio growth led companies to take on equity exposure, often via passive index funds. Insurers became more willing to accept the higher volatility and lower income of equities in return for their potential capital appreciation. Unfortunately, insurers also accepted that they would only be able to convert the value of their equities into cash by selling shares, triggering a taxable event.

The Great Financial Crisis (GFC) of 2008-2009 caused many insurance companies and asset managers to again adjust their approach to equity investing. During the GFC, insurance companies experienced the downside of passive investing: When the market falls, passive investments bear the full brunt of the downturn. Lost to many in the chaos of the time was that dividend-paying stocks did not drop nearly as much as the broader market (as Figure 1 illustrates, the decline of dividend-paying stocks was only about 80% of the broader equity market between September 2007 and February 2009).

In fact, dividend-paying stocks have outperformed in other downturns, as well, notably after the tech bubble burst in 2001 (see Figure 2). After the GFC caused interest rates to drop and equity yields to rise, insurance companies began to look for an equity investment solution that combined higher yields with lower volatility. Many turned to dividend-paying stocks.

See also: Private Equity Drives Agency Change

Benefits of Dividend-Paying Stocks for Insurers 

Dividend-paying stocks can offer insurers several potential benefits, mainly steady income streams, lower volatility and some tax advantages.

Income Stream

Income-producing investments are very important for insurance companies and typically make up most of their assets. Companies often use this income to pay operating costs or increase earnings. Many dividend-paying stocks offer a consistent income stream paid on a quarterly basis. In fact, many dividend payers (unlike most fixed income securities) offer growing payouts by annually raising their dividend, while also offering the potential for capital appreciation if the equity market rises.

Lower Volatility

Equities tend to be riskier than bonds because the equity of a company represents a subordinate claim on the cash flows of a company relative to its bonds. As such, equity markets tend to loathe uncertainty because it calls into question the present value of these future cash flows. Within the cross-section of equities, though, dividend-paying stocks tend to have lower volatility. Because these stocks typically provide a cash payout each quarter, the level of return uncertainty associated with them is lower than for companies whose expected equity return is based solely on price appreciation.

Tax Advantages

Companies that receive dividends from their equity investments can take advantage of a tax rule that the average investor cannot. Known as the Dividends Received Deduction (DRD), this rule allows companies to deduct from their taxable income a portion (between 50% and 65%) of the dividends they receive from other companies. This rule applies to all dividends received except for those paid by real estate investment trusts (REITs) or other companies that are tax-exempt according to the Internal Revenue Code.

Tax-advantaged dividends tend to be a preferred source of funding from equities for these companies because the other source would be the sale of equity investments. Again, a good portion of dividends received can be deducted from taxable income, but equity sales will always generate either a capital gain (which is taxable) or a loss (which will reduce earnings).

Taken together, these three benefits provide a compelling argument for insurers to consider dividend-paying equities rather than an index fund representing the broader equity markets.

A “Shorter Duration” Equity

Insurers always face the risk of inflation, and that is especially true in 2022. Rising interest rates are also a reality now as the U.S. Federal Reserve has begun to aggressively raise rates and promises to continue this practice, with at least several more 50-basis-point increases expected in the near term, in an effort to tamp down inflation rates not seen since the late 1970s. Conning’s view is that most dividend-paying stocks will likely offer better protection in a rising rate environment than stocks that don’t pay a dividend.

Fixed-income investors are familiar with the concept of “duration,” which helps predict the behavior of bond prices as interest rates change. If we compare a 10-year bond that pays a coupon twice a year to a 10-year bond that pays no coupon until maturity (a “zero coupon” bond), we can see that the coupon-paying security will have a lower duration than the zero-coupon bond. As a result, the price of the coupon-paying bond will fall less than the zero-coupon bond as interest rates rise.

A similar case can be made that dividend-paying stocks are lower-duration instruments than non-dividend-paying stocks. In a general sense, any stock will have a higher time to maturity (essentially infinite) than any bond. As in many things, though, what matters is relative. With stocks, the analogy to the principal payment that is received when a bond matures is the price received upon the sale of the stocks. The intrinsic value of the stock is based upon the present value of the sale price and any payments received before the sale.

Because dividend-paying equities typically pay a consistent income stream in the nearer term while non-payers do not, dividend-paying equities effectively have the lower duration of the two groups and should be affected less as rates rise.

The relative relationship between the two groups of stocks (dividend payers versus non-payers) in a rising rate setting tends to hold up well across the economic spectrum, with a couple of exceptions. Stocks that pay very high dividends and also have significant debt on their balance sheets can be hurt more by rising rates than other dividend payers. For example, REITs, telecoms and utilities tend to suffer more as rates rise than less levered industries that pay more modest dividends. This implies that focusing investments on the very highest yielding stocks might not be wise in this environment. A strong argument can be made for investing in a broadly diversified portfolio of dividend-paying stocks to soften some price volatility during rate increases while still providing a competitive income stream (see Figure 3).

Going Forward

History has demonstrated the potential benefits of equity investments for insurance companies. Passive strategies, though, have tended not to provide the income stream, lower volatility or tax advantages of a dividend-paying approach. In addition, many executives and investors have yet to experience a period of rising rates as sharp as is likely in 2022.

Income-producing equity portfolios may be a good fit for insurance companies but should be approached with caution. Not all income portfolios are created equal, and they can differ widely in terms of the consistency of income streams, volatility and tax advantages, not to mention sensitivity to interest-rate increases.

Many small and mid-size insurers may not have the capabilities or desire to manage equities internally and should consider an external manager to provide them the insights into these issues and to help them navigate through an environment that promises to be very volatile for the foreseeable future.

Risks of Dividend-Paying Stocks for Insurers

Equity prices will decline in bear markets. Potential changes in dividend tax rates could lessen demand for the asset class. A sharp increase in interest rates could affect prices of income-oriented equities.

In recent years, insurers have begun to adopt digital initiatives to improve the customer experience, use data and analytics in key processes, introduce digital products and services and reduce operating costs. Despite the advances in how insurance is offered to the public, many people still do not have insurance. Most uninsured are 19 to 34 years old; can artificial intelligence have an impact with them? 

AI can detect those who do not have sufficient insurance protection. From there, companies can produce policy recommendations that can better fill gaps based on individual needs. Whether it be in the areas of health, auto or home -- the recommendations that are offered are adapted as the life situations of the policyholders change. In essence, the industry can use AI and machine learning to offer to anticipate the customer’s needs as they progress through life events and their risk category changes. 

Another way AI can help is through hyper-personalizing messages to the client. The old line is that insurance isn't bought, it's sold. And carriers struggle to engage the younger generation with relevant messages. AI helps educate individuals about the risk they may face, with the context, messaging and approaches that are meaningful to them. 

What contributes to individuals being uninsured? 

Two of the biggest barriers to getting insurance, for the customer, are cost and accessibility, according to a study conducted by Oregon Health and Science University, Department of Family Medicine. This issue can be mitigated with AI technologies. Rather than wasting everyone's time by wading through insurance policies that are not relevant to a person, the insurer can immediately recommend a package that makes sense to their personal lifestyle and background. By making insurance more approachable for those in the 19-34 age range, insurance companies can begin to narrow the protection gap and keep their customers covered. 

AI technology has already been available to help insurers better anticipate customers' changing needs, including major life events such as having a child, buying a home or achieving a milestone birthday. Over time, a person’s risk category changes just as their needs and priorities do, or the impact of weather patterns change, and they may not be aware of how their insurance policy needs to be updated. If they are uninsured, they may not know where to begin when it comes to choosing the right policy for themselves and their families. The insurance industry owes it to consumers to help them better understand insurance, their risk change, their coverage–it needs to be simpler.

With evolving technology, insurers are getting better at assessing real-time risk category changes. Because the AI teaches itself over time, it can study the needs of those from the uninsured population and target the types of policies they may need. This results in a more accurate representation of this population. There is also a significantly reduced need for human intervention. 

See also: Life Insurance and Millennials

Updating policies once insured with AI 

Previously, a person would have bought an insurance policy, then forgotten about it, only to later realize, when they need it, that their risk category changed years ago. Now, AI helps insurers assess risk changes for that individual, advise clients and prevent loss before it’s too late. This process allows the customer to be at ease, knowing that their policy will be subject to updates as needed. 

AI optimization can also include circumstances such as natural disasters; unfortunately, too many are left realizing that they are no longer covered after a disaster has occurred, such as occurred following recent wildfires in the West.  

Conclusion

If insurers are to reach the uninsured between ages 19 and 34, it is of utmost importance for insurance companies to make sure that their customers receive the services that they need, through an optimized process for connecting with each other. 

I thought I'd try something different this week: a series of shorter items rather than a longer exquisition. That's partly because I found a whole series of items worth pointing out but also because I need to note the news that sparked my headline about how insurers are taking over the world:

The stadium where my beloved Pittsburgh Steelers play will, after 21 years, no longer be called Heinz Field, after the local corporate food icon, and will instead be named after Acrisure, an insurance brokerage based in Grand Rapids, Michigan, that bought the naming rights. 

I had held out hope that the stadium would some day be named Hines Field, after longtime Steeler wide receiver Hines Ward, who, in my not-so-humble opinion, needs to be in the Hall of Fame, but I defer to the power of the insurance industry. 

Now, on to some developments on: how drones are being used to inspect power lines; how electric vehicles are reaching a tipping point that could have major implications for auto insurers; the arrival of a new generation of "digital assistants"; why insurance customers may cut spending; and how embedded insurance is providing what Swiss Re calls a "second act to insurtech."

Autonomous Drones Inspecting Power Lines

An article in Wired describes how drones are being used to take a look at pylons in the U.K. electric grid to spot issues that could, among many other things, cause wildfires. Crucially, these drones are autonomous. They don't have to be maneuvered by an operator. And they can be controlled from anywhere -- the operator, who can handle a fleet of drones at the same time, doesn't need to be out in the field. The drones remove the need for workers to climb towers to conduct inspections (time-consuming and dangerous) and allow for photos to be taken much closer up than is possible with helicopters at a small fraction of the cost. 

While the article focuses on the U.K., it also describes early uses in Florida, Norway and Sweden.

As a resident of California, which seems to have become the wildfire capital of the world, I'm all for anything that will reduce that risk.

Electric Vehicles Have Reached a Tipping Point

An analysis by Bloomberg finds that electric cars in the U.S. has passed a tipping point: accounting for more than 5% of new car sales. "If the U.S. follows the trend established by 18 countries that came before it," the article says, "a quarter of new car sales could be electric by the end of 2025. That would be a year or two ahead of most major forecasts."

Such a swift switch would have wide repercussions. Car makers, already retooling to build more electric vehicles, would need to accelerate the changes in their factories, supply chains, work forces, sales forces and more. EVs need less maintenance than cars with internal combustion engines (many fewer moving parts), so those that service cars will see business diminish. 

Insurers will, as usual, have to adapt to the new realities of all those businesses and individuals they insure. They will also have to deal with the fact that EVs are more expensive to repair -- and will likely widen the difference with conventional cars because the massive batteries will be able to power many more (delicate and expensive) sensors and safety devices.

The change will also create uncertainty as the ground shifts in such a major industry. Who knows, all the new EVs flooding the market might even affect a certain individual who made most of his record-breaking fortune with an EV named after a Serbian-American inventor and who may or may not buy Twitter. 

New Generation of "Digital Assistants"

I've been a skeptic about digital assistants ever since tech types started geeking out about them three decades or more ago. No, I don't want my refrigerator ordering milk for me. I can buy milk all on my very own, thank you very much. Now, we're in business if, while I'm in a store, the refrigerator can tell me how much is left in the carton and that I not only have cilantro but that it hasn't melted into mush in my produce drawer. But the vision for "assistants" has really been about devices that would take control, so they missed on two counts: They didn't know enough to actually be able to take control of my whole refrigerator, let alone of more complicated parts of my life, and I didn't want to give up control even if they did know enough.

But a kinder, general, less obtrusive generation of digital assistants may be on its way. A Fortune newsletter quotes one of the AI developers as saying, “If you had another person on your team, what would you shamelessly ask them to do? That’s what we want this software to do.” 

In a demonstration that a developer has posted online, the article says, "software uses a basic SQL database to perform a variety of tasks. A user types 'can you grab the name and population for every country?' and the software goes ahead and pulls that data from the database and assembles it in a simple table. Then a user asks the software to 'make a bar plot of that,' and the software does so. But the plot is hard to read because it contains too many countries. So the user asks it to just 'to show the countries with the six highest populations,' and the software comes right back with a much easier-to-read chart. This time, though, the labels for the six countries are overlapping, which still isn’t great. So the user types, 'Good. But the x axis is still a bit hard to read, can you fix that?' And remarkably, the software does so—by writing the labels on an angle—even though the feedback from the user was not that specific. Later in the demo, the software grabs publicly available U.S. unemployment figures from the internet and charts those."

Don't add a digital assistant to your Christmas list just yet. I've been promised one repeatedly since the late 1980s. But these kinds of digital assistants should be available in some form in a few years -- and I'd actually use one.

Will Customers Cut Spending?

Just a quick data point here for those interested: A Guidewire survey found that:

"With most people (86%) concerned about the cost-of-living crisis, many are considering how to cut back. For almost half of insurance customers (48%), that will be insurance cover that they are not legally obliged to have. Policies likely to get the chop are cover for travel (18%), home contents (17%), and bicycles (16%)."

Embedded Insurance and a "Second Act to Insurtech"

Another pointer for those interested: A rich look at the prospects for embedded insurance, based on a conversation between Sebastien Bert, co-head of strategic partnerships for the Americas at Swiss Re, and Carrier Management.

If you've made it this far and have an opinion on this week's use of short items, whether good or ill, please let me know.

In the meantime, I'll be commiserating with my fellow Yinzers about the loss of an iconic name on the Steelers' stadium while assuring those I know that insurance brokerages are good people, too.

I do worry that Pittsburgh fans will have trouble pronouncing Acrisure while screaming at their TVs in the fourth quarter of a nail-biter, after perhaps one or two too many Iron City beers, but that should be the least of our worries this year, now that we have no idea if our quarterback will be any good. Don't get me started....

Cheers,

Paul 

Many insurance companies are realizing a one-size-fits-all approach to customer needs is out of date. 

Call it the Amazon effect. Customers need speed, service and selection—all at once. Spurred by the pandemic, consumers are rethinking how they spend their time. Inflation, too, has people scrutinizing their spending. 

Today’s insurance companies must deliver the efficiency of technology and the personalization of human interaction. It’s no secret that many insurers need to improve their customer experiences. But often, they don’t know where to start.

Digital transformation can be the key to keeping customers satisfied. 

Digital Transformation: A Billion-Dollar Opportunity

According to Accenture, the insurance “switching economy” – revenue up for grabs due to consumer spending patterns and switching rates – is booming. Accenture estimates that nearly $500 billion in life insurance and property and casualty insurance premiums are in play “as a result of declining customer loyalty and the perceived commoditization of products.” 

McKinsey found that a large, established insurance company could double its profits in five years by digitizing its business. Companies that fail to embrace digital transformation risk turning their offerings into commodities. 

In an industry where hundreds of billions of dollars are up for grabs, investing in digital innovation is not optional. 

New Table Stakes: What Insurance Customers Expect

Active Digital and Harris Poll found that 88% of customers value an insurance carrier that customizes communications. Eighty-six percent want to interact with their insurance company through all digital channels. Additionally, 79% of customers agree that having a person available to help them online or through an app would make them choose one insurance company over another.  

According to IBM, three key steps that marry technology with personalization can help deepen the company-customer relationship. These include leveraging data to personalize customer experiences, using AI throughout the customer journey and interacting with customers at the right time and place through contextualized content. 

What Today’s Best-In-Class CX Looks Like

More insurance companies are turning to digital-driven, customer-centric models that focus on customer experience (CX). According to IBM, 85% of insurers use CX initiatives throughout the customer journey, and 90% of companies have a C-suite position dedicated to the consumer experience.

Focusing on CX helps insurers compete on more than just price. McKinsey found that better CX can promote sustainable growth and drive profits faster than raising advertising spending or lowering prices. 

Further, McKinsey found that car insurance companies offering best-in-class CX doubled and even quadrupled new signup volume and saw profits 30% higher than those that didn’t. Satisfied customers are 80% more likely to renew their policies than unsatisfied customers. 

Employee Engagement Builds Customer Loyalty 

Employees are a crucial ingredient in your customer-centric digital transformation. Employee enablement and customer experience are two sides of the same coin. 

Insurance Innovation Reporter found a strong inverse relationship between employee turnover and employee satisfaction and productivity. The more stable your talent roster, the better your customer experience. 

The connection between employee engagement and customer experience is more crucial in the insurance industry than any other. Engaged employees deliver better customer experiences. Happier customers have a higher lifetime value due to their willingness to buy more, their tendency to refer more and their generally lower service cost. 

See also: The Rules of Digital Transformation

Meet Employee Needs and Enhance CX with Digital Transformation 

How can digital transformation improve customer experience and promote employee enablement? Here are some tips for approaching digitization with the customer in mind. 

Tip 1: Make Your Company More Available to Customers

Insurance companies must meet customers where they are – even if it’s a new venue for the company. These include social media platforms like Twitter, Instagram and TikTok or messaging platforms like Facebook Messenger, SMS, WhatsApp and Telegram. 

Not sure where to begin? Focus on personal connection and integrating existing channels. Improve transparency with automated updates on processes and payouts via email, SMS or messaging. 

Expanding self-service options can improve customer satisfaction while freeing employee bandwidth. For example, invest in help content or publish resources such as a list of approved vendors to help customers get the answers they need faster. 

Use technology to classify customer needs and requests. Consider implementing "rules" that organize and rank all incoming claims. For instance, customers appreciate it when simple claims are solved quickly. 

Tip 2: Mix Technology With Personal Touch

By combining the efficiency of self-service with the warmth of personalization, insurance companies can increase productivity and cement customer loyalty. 

How? Digitally minded insurance companies must streamline the quote, claims and signup processes. Automation can reduce the cost of the claims journey by 30%. Adding online claims reporting lets you streamline the process by asking fewer questions and leveraging technology that delivers dynamic adjustments. 

But you also must ensure customers have a reliable way to access a human. Maintain a robust online presence but have real, informed agents behind each profile, ready to address questions and complaints.

Tip 3: Seek Feedback, Stay Flexible

Customer-centric digital transformation is dynamic. It’s not something you do once and then stop thinking about. Instead, it is an iterative process that improves with continuous assessment and feedback from employees and customers. 

Insurance companies pursuing digital transformation must provide more touches over the customer lifecycle. When insurance companies initiate contact outside the standard signup and renewal conversations, it signals to customers that their insurance company is active, available and on top of things. 

Insurance companies should provide talent with training and development opportunities. This shows employees that their employer is committed to helping them succeed. 

Technology can do things people can't and vice versa. When insurance companies embrace digital transformation while centering customers, they can unlock unprecedented levels of loyalty and longevity.

At the beginning of the Ukraine conflict, ransomware gang Conti issued a statement threatening to deliver "retaliatory measures in case the Western warmongers attempt to target critical infrastructure in Russia." A few months later, a separate hacker group launched an attack with the following message for its victim: "You're the most widely used payment application in Russia, so the reason we've selected you for targeting should only be obvious.... Your files have been encrypted, you can thank Conti for that... If you're looking for someone to blame for your current situation, look no further than Vladimir Putin."

In light of the current Ukraine conflict, more and more ransomware gangs are beginning to issue political statements alongside their demands. This may create some issues for both the hackers and their victims, as these messages run an increased risk of triggering the "war exclusion" contained within all cyber insurance policies. A typical war exclusion will read as follows:

"Alleging, based upon, arising out of, directly or indirectly caused by, resulting from, or in connection with war (whether declared or not), invasions, hostilities, civil war, strikes or similar labor actions, acts of foreign enemies, terrorism, hijacking, warlike operations, rebellion, revolution, insurrection...".

Attacks issued with political statements are more likely to be perceived by insurers as hostile or warlike actions indirectly caused by, resulting from or in connection with the war. Remember, often "war" does not need to be declared. If these statements do trigger the war exclusion within the victim's cyber insurance policy, it could make it more difficult for a ransomware gang to collect their ransom, given that their target may be more reluctant to reach into their own corporate pocket to pay any extortion demand.

So why are groups making such statements? While it may be an oversight, or they may not realize the potential insurance implications in doing so, that's unlikely. Hackers are well-versed and have been known to specifically target companies that maintain cyber insurance. It's more likely that these new attacks are simply motivated more by political/ideological interests versus purely economic gain. The statement being made is the primary goal, with the monetary reward secondary. In addition to political retaliation, some of these statements may also be the result of feuding hacker groups, with their victims being caught in the crosshairs.

There may be an even more sinister explanation. It's also possible that the hacker groups understand that such statements have the potential of negating insurance coverage. Launching an attack and attempting to force the targeted organization to personally pay the demand, more effectively strikes at the hearts of their victims.

Regardless of the reason, such statements would appear to indicate this new wave of attacks is being driven by politically motived cyber mercenaries seeking retaliation and revenge. The bigger question is, if this is indicative of more aggressive impending attacks, or a precursor to a full-fledged cyber war.

There may be some hope. Most cyber insurance policies contain carvebacks, excepting (to the policy exclusion) acts of "cyber terrorism." A typical carveback may read as follows: "cyber terrorism means, use or threatened use of disruptive activities against the insured's computer system committed with the intent to further stated social, ideological, religious, economic or political objectives."

See also: Ransomware Grows More Pernicious

Insurers have been fairly reluctant to cite the war exclusion, but a surge of attacks could make them reconsider. The question is, will these statements be enough to justify the attacks as acts of "war" (and excluded by the policy), given that they are hostile and warlike actions in support of the war? Or will they be perceived acts of "cyber terrorism" (and covered by the policy), given that the hackers appear to be using disruptive activities to further their stated political/ideological objectives?

This is something the courts may ultimately have to grapple with, but the decision may come down to the exact phrasing of the statement itself. In the example of the statement issued by Conti, they clearly state "retaliation against attacks by western warmongers." Such phrasing may be more likely to be deemed a retaliatory act of "war." The specific ransomware gang itself may also play a role. Attacks launched by suspected state-sponsored actors with ties to a foreign government (such as Cozy Bear and Lazarus) are more likely to trigger the war exclusion, especially when their attacks are accompanied by political or warlike statements.

In the interest of maximizing insurance coverage for retaliatory ransomware, there are a few steps companies should take. In addition to implementing advanced security measures and implementing comprehensive policies and procedures, the C-suite should also perform a careful assessment of its cyber insurance policy, ensuring its terms and conditions pertaining to cyber extortion are as broad as possible. Additionally policyholders should pay special attention to the "war exclusion," given that all policies contain different versions -- some more problematic than others. In the meantime, hackers can do themselves and their victims a favor by refraining from such statements when making extortion demands.

ITL:

It has always seemed to me that marketing is a tough thing for agents and brokers. Customers can be told what the products are and what brands the agents are representing, but how can you communicate, believably, what level of service you’ll provide, and how can the customer know whether they’ll click with the agent?

Joel Zwicker:

People choose an independent agency for two reasons: It is your expertise, and it is the relationship. That’s how agencies need to market themselves.

Far too many agencies forget that they have a whole book of business leads right in front of them. You have an acre of diamonds. Many agencies you talk to will say, well, we have two policies per client, so we've done a really good job because the industry average is around 1.62. But think about it: My family and I have five or six policies. If my insurance agent only has two policies with me, he's left well over half my business on the table. If you’re an established agency, you have more than enough opportunity sitting right in front of you.

Agencies need to remember they are in the renewal business. They should have a strategic communication plan to continually share their expertise, building deeper relationships that will maximize their book of business.

You also need to have niches. Too many agencies want to sell to anybody. The sexiest thing in the world is new business. But you’re just not going to wind up with more quotes than you could ever imagine. An agency needs to take a step back and truly understand who their ideal client is, then focus on that type of client.

ITL:

Let’s start with niches. It's fairly easy in commercial to think, Okay, I'm going to be the guy on landscaping businesses or pizza parlors, but it sounded like you were saying that the niche idea goes even beyond commercial. What would some niches in personal lines look like?

Zwicker:

Here’s one from personal experience. When I worked at an agency, we didn’t focus on traditional home and auto. Our niche was toys, things like cruiser motorcycles, classic cars, boats, snow machines and, off-road vehicles. So, we had expertise – and if someone has the disposable income to have a nice boat or a cruiser motorcycle or a classic car, chances are they have some nice properties and other things they want to insure, as well.

Another common one would be to take a private client-type approach, focusing on higher-end neighborhoods in your area or higher-end clientele.

Another niche is not necessarily the product that you're selling but the client experience. I can think of a client of ours whose niche is that the experience is all digital, through email, text and video. Everything is done in multi-step sequences that incorporate video so you can see, say, how to file an auto claim.

ITL:

Once you’ve picked your niche, how do you make sure the world knows you have that expertise?

Zwicker:

Here’s a commercial example, from my friend and our client whose niche is laundromats. If you were making a list of the top 10 niches that you're going to make money on like gangbusters, laundromats wouldn’t be on that list. But he knows them better than anybody. Why? Because he spent 20 years working with them, and that's what he's focused on. When he talks at events, when he writes white papers or posts on his website or blog, when he's doing an email, he demonstrates his expertise and stays focused on his niche.

Some people focus on contractors, but that’s a broad area. Specifically, do you do roofing contractors? Okay, let’s go deeper. Just commercial asphalt, or are we talking about hot tar?

Too many agencies try to be too broad with their expertise. Be specific. Find that area where you're really an expert. Then share stories about claims experiences or coverages you should be leery of, maybe highlight some other vendors that may partner with you.

ITL:

Now that you’ve identified your niche and demonstrated your expertise, how do you build the relationship so you generate more and more business from those clients?

Zwicker:

The vast majority of agencies have an incredible database of leads. It’s just being able to target them. It’s understanding when someone has commercial general liability but no cyber, property but no personalized home or auto, no umbrella… whatever the example is. You also keep in mind that there are other opportunities, too, in life insurance and annuities and financial planning if you nurture the relationship.

Simply remember why these people chose you in the first place: your expertise and your relationship with them. Then continue to share your and your staff’s expertise.

Here’s an obvious one that’s often the toughest thing to do: You ask for the business. Simply ask for the chance to discuss those other lines of business.

A lot of agents are afraid of annoying clients, or assume that everybody knows that you offer all these services. Assume nothing. Agents fear that, if I start asking, I’ll trigger them to maybe shop their insurances or go elsewhere. And I have to say that that is maybe one of the most ridiculous thoughts you should have in your head. If you think for a moment that an email, a text, print or a phone call from you, on a quarterly basis, asking about other business is going to trigger that person to shop elsewhere…. They’re already getting any number of imprints in their mind about what to buy, minute by minute, hour by hour, day by day, just by turning on the TV, listening to the radio or going online. Why would a simple request from you trigger them?

And here’s a powerful, easy way to talk to your clients: Ask them to assign you a Net Promoter Score. You see who really values you, and you know who would be most likely to respond if you ask for additional business. Combine that information with the data points in your management system about

what additional policies those customers might buy from you, and you have an awful lot of low-hanging fruit.

ITL:

Great stuff. Thanks, Joel.

Joel Zwicker is insurance evangelist at Agency Revolution Suite and formerly an insurance agent at one of Canada's largest independent insurance agencies. He now works to provide independent insurance agents the best marketing tools for their unique needs.