As of Nov. 14, the control of Congress was too close to call. There was not an official winner in several races, and some projected losers are contesting the results. The U.S. Senate will remain under Democratic control, even though the Georgia race will be determined by a runoff election on Dec. 6. Control of the House remains undecided, though trending toward the Republican party.

Regardless of this outcome, with Joe Biden remaining president, we expect Capitol Hill will remain gridlocked. Given that this was a mid-term election, most of the key elections occurred at the state level, with many of the national issues being fought locally. For insurers, this will result in multi-state efforts to understand and respond to regulatory challenges.

Uncertainty around election outcomes and control extended to the state level. Eighteen states remained in Democratic control, while Republicans retained control of 23 states. Eight states remained divided, with one party controlling the governorship and the other party controlling both houses of the state legislature.

The Post-Mid-Term Market Overview

If Republicans do gain control of the U.S. House of Representatives, investors will likely celebrate the end of one-party rule, as many of the most anti-growth measures being contemplated in Congress will fall by the wayside. Regardless, we believe 2023 could be a difficult year for markets, especially in the first half.

There are four major policy drivers of growth—monetary, fiscal, trade and regulatory.

• Monetary policy - The Federal Reserve’s Federal Open Market Committee (FOMC) is not likely to change course based on the election outcome. We expect the Fed to drive the economy into recession, one we hope will be mild and short, to bring inflation down into its target range.
• Fiscal policy - As spending bills must start in the House, per the U.S. Constitution, House party control is important. If Republicans gain control, as seems likely, it is unlikely that any new spending and, consequently, more inflation-spurring demand-side stimulus will be forthcoming. New taxes are less likely, as well. The lame-duck session will probably deal with funding the government (avoiding a shutdown threat, we hope) and the National Defense Authorization Act, as both will have some bipartisan support. If Democrats keep control, we would expect higher spending, such as a re-invigorated Build Back Better bill, and higher taxes.
• Trade policy - Trade and foreign relations are largely purviews of the Executive Branch, so we expect little impact from the mid-term results. Further, there is not that much difference between the parties when it comes to dealing with China and Russia, the two biggest concerns right now.
• Regulatory policy - We can expect continuing aggressive regulatory initiatives from the current administration. However, as Congress holds the purse strings, whichever party gains House control will determine how easily the Biden team can achieve the appropriations to fund them.

So, we expect earnings and equity markets to struggle, especially in the first couple of quarters of next year, until the FOMC ends the tightening cycle. We believe the U.S. dollar will ease a bit but continue to be strong against economies still under stress, especially in the U.K. and continental Europe. In this environment, high-grade USD bonds in the short to middle part of the yield curve should provide the best opportunity for income and stability. If we have a recession and it is short and mild, we will look for an earnings recovery in consumer sectors in the second half of next year, with opportunities in USD equities and longer-dated bonds.

Environmental, Social and Governance Progress or Pushback?

Regardless of what happens in Congress, with the election further locking in single-party control at a state level, insurers will continue to face a patchwork of ESG disclosure and investment regulations. Our opinion is that this is likely to lead to higher compliance costs for insurers as the differences in ESG disclosure among the states increase. We also think the ability to reallocate investments will be hampered as some states continue to prohibit divesting from fossil fuels. From a public relations perspective, these differences among the states may make it more difficult to provide a clear and consistent message about ESG from insurers to their stakeholders.

Evidence of the gap between state views on ESG has been on display during 2022, and the mid-term elections have widened that gap. Red and red-leaning states have begun to push back against efforts to increase ESG disclosure and investment. Blue and blue-leaning states are likely to increase their oversight of ESG corporate initiatives.

Insurers are stuck between a rock and a hard place. On the one hand, stakeholder pressure to divest from fossil fuel investments and withdraw underwriting support for fossil fuel products is strong and growing, particularly in Europe, where a string of insurers and reinsurers have adopted such measures in recent years. On the other hand, a number of Republican-controlled U.S. states – notably Louisiana, Florida and Texas – have pushed back on actions that they perceive as a violation of fiduciary duty and as damaging to local fossil fuel interests.

The state pushback against ESG has taken two forms: 1) No ESG investment and 2) Boycott. The states with “No ESG” laws do not allow state funds to be used for ESG or social investment. The boycott states bar local authorities from doing business with banks and investment management companies that have adopted ESG policies and divested from fossil fuel-based energy companies.

See also: Climate Change and Product Liability

Little Progress in Tort Reform

Tort reform typically has bipartisan support, and this mid-term election saw little progress. No state had tort-law reform on the ballot, but Arkansas, California and Missouri were considering initiatives.

Although ballot initiatives were absent, Republican success in achieving or tightening control of state legislatures and governorships creates a more favorable business environment for future tort reform. Our eyes will remain on Florida, as it convenes a special legislative session in December to address the challenges facing its home insurance market. Florida is by far the most expensive state in the nation for home insurance, with premiums in 2022 running at nearly three times the U.S. average, so pressure for reform will continue to be strong.

Industry Pushback on the PRO Act

When it comes to insurance distribution and advice, many state and federal regulators have focused on suitability. However, proposed changes to U.S. labor laws have been a growing concern among advisers and their firms. The Protecting the Right to Organize (PRO) Act, if passed, would affect U.S. labor law. The House passed the PRO Act in early 2021, and unions and other Democratic groups were pushing for the Senate to pass the PRO Act in 2022. The PRO Act has stalled in the Senate, as it would need at least 60 votes to avoid a filibuster, and obtaining those votes may continue to prove difficult given the continuation of the Senate’s near balance of Republican and Democrats.

The PRO Act offers broad reform, and multiple insurance and financial advisory trade groups have pushed back against the act because it would reclassify many independent agents and advisers as employees. To determine the independent contractor status of an employee, the PRO Act would use the “ABC” factor test employed in similar legislation in California, though the California rule included a carveout for financial advisers.

Medicaid Expansion Slowly Continues

Healthcare continues to be a focus within every election cycle. While the topic of the Affordable Care Act (ACA) was muted compared with prior election cycles, in some states Medicaid expansion was a hot topic. Based on mid-term results, that expansion slowly continues.

For insurers, an increase in Medicaid-eligible individuals provides the industry with an increase in membership and premium growth. Only 12 states have yet to adopt and implement the Medicaid expansion program per the ACA; of those 12, 10 had a gubernatorial election, and one had a ballot initiative focused on Medicaid expansion.

Ballot initiatives have been popular and effective in expanding Medicaid. However, in the 12 remaining states, only Florida, South Dakota and Wyoming allow voter-driven ballot initiatives. The remaining nine states would require voters to elect a governor and local state representatives who would support an initiative.

Voters in South Dakota passed a ballot initiative to amend the state’s constitution to expand Medicaid eligibility. Governor Kristi Noem (R), who won reelection, has stated that, while she does not support Medicaid expansion, she will implement the amendment if it is passed.

See also: Healthcare Inflation's Impact on Auto Insurers

Private Equity Annuity Insurers Remain Focused on the States

One subject where control of the Senate is particularly important is the involvement of private equity firms in the annuity industry. In March 2022, Sen. Sherrod Brown (D-OH), chair of the Senate Banking Committee, called on the NAIC and Federal Insurance Office to study private equity annuity insurers’ impact on the retirement security of individuals. He was especially interested in the impact on retirees who transferred their defined benefit pensions to such insurers. That request was followed by Banking Committee hearings in September in which Sen. Elizabeth Warren (D-MA) echoed Sen. Brown’s concerns.

We think, with the Senate remaining close, there is a low likelihood of federal regulation affecting the ability of private-equity-backed annuity insurers to continue engaging in pension risk transfers.

Data Protection and AI Regulation, the Question Is When, Not If

As technology firms expand their scope, the potential for hidden biases in the algorithms driving those systems is a concern among some regulators.

While there were no initiatives addressing data protection or AI on state ballots, control of governorships and state legislatures will determine the course of regulation. Both political parties have expressed interest in increasing data protection and privacy regulations.

According to the National Conference of State Legislatures, in 2022 at least 35 states and the District of Columbia enacted or considered consumer privacy bills. Insurers would like the freedom to use personal data for underwriting and pricing. Sensor-based technologies are rapidly developing uses in property insurance underwriting. Data-privacy legislation differs across jurisdictions but focuses on creating and regulating boundaries around the collection, use and disclosure of personal information by businesses.

Social media and genetic information are of interest to life and health insurers to help improve underwriting. All sectors are leveraging AI and machine learning to increase efficiency.

At the federal level, the bipartisan American Data Privacy and Protection Act (ADPPA) would create a comprehensive federal consumer privacy framework and generally preempt state laws. At this point, we believe it is unlikely that the bill will be considered in the full House or Senate before the conclusion of the 117th Congress on Jan. 3, but ADPPA could become a priority issue for the new Congress.

The NAIC’s work on developing new model laws on the use of AI is likely to continue, despite the election outcomes.

See also: The Risks of AI and Machine Learning

State Insurance Commissioners

Insurance is regulated at the state level, and a change in a state’s insurance commissioner can affect the regulatory priorities of those states’ insurance departments. In the 2022 mid-term elections, the states in which insurance commissioners were on the ballot -- California, Georgia, Kansas and Oklahoma -- all kept their incumbents in office.

California: Commissioner Ricardo Lara (D) won reelection.

Georgia: John King (R), the incumbent appointed by Gov. Brian Kemp (R) to replace the former commissioner who resigned, won election to a full term.

Kansas: Incumbent Commissioner Vicki Schmidt (R) won re-election. Schmidt has been a national leader at the NAIC across health and property/casualty work.

Oklahoma: Commissioner Glen Mulready (R) ran unopposed for his second term.

In addition, in several states, the governor appoints the insurance commissioner. A change in the state’s executive branch could bring about a change in the office of the insurance commissioner, but we will need to wait and see which of those elections will result in a change of commissioner.

It Ain’t Over ‘Til It’s Over

While this election has been bitterly fought and the outcome of many key races remains unknown, neither side can declare total victory in Washington. As a result, at the federal level, the likely election outcome is gridlock. This will lead to further rule by agency and executive regulations. However, the U.S. Supreme Court’s ruling in West Virginia v. Environmental Protection Agency may have opened an avenue for lawsuits blocking some agency and executive regulations. At the federal level, then, the 2016 presidential election remains dominant, as it enabled the GOP to obtain a 6-3 majority on the Supreme Court.

Where Republicans strengthened their control at the state level, we would not be surprised to see several outcomes favorable for insurers. There is likely to be less regulation, a more friendly tort environment and higher barriers to ESG or DEI (diversity, equity and inclusion) investment and reporting requirements. Health insurers may be relative losers due to more restrictions on Medicaid.

On the flip side, where Democrats enjoyed success at the state level, we think the outcome will be slightly negative for life-annuity insurers due to more regulation around underwriting. We also see a negative for property-casualty companies, leading to a less friendly tort and business environment with added pressure to divest from fossil fuels. Health insurers appear to have emerged as the relative winners, with no major adverse changes, at least for the near term.

One of Yogi Berra’s most famous quotes was, “It ain’t over ‘til it’s over.” With the U.S. elections, it’s never over. With that in mind, in 2023, as executives manage their way through higher inflation, possible recession and increased economic uncertainty, it can be tempting to put the 2022 midterms in the rear-view mirror. We think that management teams, however, should remain engaged at all political levels to shape a more favorable regulatory landscape. After all, the next election is less than 725 days away!

While it's tempting to see the world in blacks and whites, my experience with innovation is that it typically happens in grays, at least for years. Even when a company has a breakthrough idea and captures the imagination of investors -- Amazon with e-commerce, Tesla with electric cars, AirBnB with room and home rentals -- it takes time for reality to fill in behind the stock market valuations. 

Distribution in insurance has, I think, been living in a world of grays for some time now. It's been clear that technology can do a lot to improve interactions with customers and sharply increase the efficiency of agents and brokers, but there's been no aha moment. 

In fact, what many thought was a clear vision of the future -- that agents and brokers would be disintermediated as carriers set up direct relationships with customers -- has turned out to be false. If you look at valuations of agencies and brokerages, they've actually expanded their role and power in recent years. 

Instead of disintermediation, I think the future will be a hybrid of agents and brokers and technology. For now, the human element will dominate. Over time, the role of technology will increase, steadily taking on more and more of the mundane work and freeing (while also pushing) agents and brokers to focus more on providing high-value counsel.

To see how that future plays out, you could do a lot worse than follow the progress of VIU by HUB, which provides a digital platform for customers to see multiple quotes on auto, home and life insurance and to have an agent contribute as needed. VIU pretty much fits my vision of what the future will look like, which is why I was delighted to get the chance to conduct this month's interview with Bryan Davis, the EVP in charge of VIU.

Insurance distribution could still have what I think of as a Hemingway innovation moment. A character in his "The Sun Also Rises" said he went bankrupt two ways, "gradually, then suddenly." But I think innovation in distribution will stay in the "gradually" stage for the foreseeable future, with important innovation certainly happening, just on a curve with a steady upward slope, rather than one with a "suddenly" disruption in the graph.

Cheers,

Paul 

 

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

AUTOMAKERS BUILD NEW INSURANCE FUTURE

As data and technology pervade the car manufacturing industry, automakers have made fresh inroads into insurance.

THE DEATH OF 'THE ROBINSONS'?

"The Robinsons." who bundle home and car insurance, represent the crown jewel in customer lifetime value. But the segment is very much at risk.

3 WAYS DE&I CAN BOOST AGENCIES

Data has shown that, compared with individual decision makers, diverse teams make better decisions 87% of the time.

HOW RISK MANAGERS, BROKERS MUST COLLABORATE

Solutions can address brokers’ administrative risks from within, in a way that focuses on the customer/risk manager experience and leads to vastly improved alignment.

CYBER TRENDS THAT WILL CHANGE 2023

Here are six cybersecurity and incident response trends and priorities that can help organizations in 2023.

10 TIPS FOR LEADING TEAMS

What does it take to be a successful leader? How can you lead change effectively? Here are 10 tips that can help you lead change in the insurance industry.

HUB International debuted a digital platform in June called VIU by HUB that lets clients and prospective clients see detailed quotes from six to 10 carriers for home and auto insurance on a digital platform, then speak with an agent if they are interested in purchasing a policy. The platform is available now for auto, home and life insurance buyers, with additional carriers being added as available. VIU (pronounced "view") will gradually extend into other lines of business, such as renters and small commercial. VIU is also partnering with businesses in adjacent industries to embed its platform within the home- and car-buying journey so customers can shop for and purchase insurance at the point-of-sale.

ITL recently sat down with Bryan Davis, a HUB Executive Vice President and head of VIU, to talk about the hybrid, agent/digital platform and its broader implications, including through embedded insurance.

ITL:

I'm curious about the transition in terms of the business model, going to a hybrid model that includes digital. Could you tell me a bit about how that will work?

Bryan Davis:

The key thing is to take an outside-in perspective. We all can anchor on, Hey, we should be doing what's right for the customer. With COVID, the world went digital overnight, so customers got introduced to a new way of interacting with brokers. And cloud computing advanced, literally in months, because it had to improve to make the world's e-commerce happen at the speed that people demanded.

Historically, we've forced the customer to accept mediocrity. But I'm very excited about what the future is, because customers told us loud and clear, Instead of me having to adapt to your world, which is pretty clunky, I would much rather you adapt to my world, like Amazon and Apple have. And technology is allowing us to do that.

There is still a need for an intermediary for complex transactions. Think retirement plans. Think employee benefits. So, VIU is complementary for HUB, not contradictory.

ITL:

Some behaviors that took hold during the pandemic seem to be reversing, at least in part. For instance, some people are returning to the office. Do you think the customer behaviors you're seeing will last?

Davis:

I would say the percentage who didn't ever want to interact with a person has increased because of COVID from perhaps 15% of customers to 30%. The percentage of customers who were a hybrid has gone from 45% to perhaps 55%. Those are the people who say, I want digital, but I want the option to pick up the phone and talk to someone, and I may even want the option to go in and see somebody face to face. That still leaves a lot of customers who want to transact with an intermediary, but I would say they are open to new ways of interacting; it doesn't have to be all in-person at brick and mortar.

The key is being adaptable, to interact with the customer how the customer wants. I don't need to call you between the hours of eight and five to talk about a simple endorsement to my policy. But if I'm talking about my second home, with a premium of $50,000 a year, or about my Ferrari or fine art, I might need to talk to you in person.

ITL:

The model I've had in my head for a while about the future of work is a centaur, just with jobs becoming part-technology and part-person, rather than half-person and half-horse. First, do you agree with that thesis? Second, if you do, what kinds of things are being taken off the plates of agents and brokers so they can do the more important stuff?

Davis:

I think your thesis is spot on. If keying in information to get a quote was your value as an agent, I hate to inform you, but those days are gone. Data prefill sources can pull information—we know how old the roof is.

So, the value of the agent now is providing neutral advice. One carrier may be saying, Hey, I'm 30% less, but the broker will point out that the policy is only paying for actual cash value of your roof while another covers full replacement cost.

The agent finds, I'm freed up on data entry and getting all the forms in place, so I can really give my client advice and counsel about their risk needs and their gaps. Most of our producers are so tied up with back office that they don't have much time to give advice and to really go after new prospects. But transactional insurance will be more like 75% to 80% digital, and now with an advice component at checkout and after a new-business sale. That's what I see playing out over the next five to six years.

ITL:

What else do you plan for the next three to five years?

Davis:

Research shows that a massive amount of business will be coming through embedded insurance, so there is a strong value proposition for a broker to be able to offer choice and neutrality at the point of sale and beyond. That's a huge growth opportunity.

If you ask my daughters, who are 15 and 13, where they bought their insurance in the future, I think the decision will be based on where they bought whatever is being insured, whether that's a home, a car or something on Amazon. So, if a broker can combine neutrality with a digital channel, that’s a very interesting value proposition that will play out.

ITL:

How would that look? One of your daughters is now 25 years old, and she's buying a car. She goes into the dealership and they say, Well, you need some auto insurance. How does that get referred to a broker? What part of the commission goes to the car dealer as the finder's fee?

Davis:

Let's say she'll have the choice of 10 to 20 A-rated insurers. The decision will most likely come down to ease and price. Those advancements in cloud computing I talked about will mean the insurance transaction can happen right there in the car or right as the vehicle rolls off the Carvana truck. No more of this, you call a broker, and the broker has to call the carrier, and the broker has to get back to the customer, and so on. It’s all seamless.

As for the commission, everybody is different on partnerships. If the partner gets licensed, they can get commissions. If they don't, it's a referral marketing fee. Partnerships are not new. It used to be, Hey, I got a guy, go call him. Now, I don't have to make that call.

Imagine Ford says, here are all my cars. Now, here's my insurance marketplace, with all the carriers. You pick which one you want. That's the future.

ITL:

I assume the advice component will be some combination of AI, maybe provided via text, and of interaction with a person via chat or phone call, if needed?

Davis:

Exactly. The question is, who's in position to be neutral and to have your best interests at heart? It's not the carrier. It's the broker.

Of course the carrier will say, You should buy me because I'm the cheapest, when you might be the cheapest because you don’t pay claims or because you reduce the amount of coverage I have. Right now, customers are finding out about issues at a claim. That's not a good thing.

Digital brokers provide a fresh perspective. You don't have to sacrifice ease to get neutral advice from a broker. You can have both. And we think that's a strong value proposition.

ITL:

Thanks so much.

A recent article in Wired surprised me with its pessimistic outlook about nuclear war in Europe. It said that one group of "superforecasters" put the likelihood of a nuclear weapon being detonated somewhere in Europe by April 30 of next year at 9.1%. 

While a detonation is a truly scary prospect, the article also conducted an analysis based on "micromorts." It says that a young person has a risk level of roughly one micromort -- one chance in a million of dying each day -- just by being alive. And the prospect of a nuclear detonation adds only one micromort per day to the risk for someone living in London, which is the same additional risk that comes from traveling 230 miles by car or six miles on a motorcycle. Going on a scuba diving trip adds five micromorts. 

Now, insurers are in the business of quantifying risk all the time for all manner of activities, and I'm not sure that the concept of micromorts need change anything about underwriting, but it strikes me that micromorts could be a useful way to communicate to the public both about what is, and isn't, risky behavior.

The Wired article used a lot of its real estate to explore the implications of nuclear attacks and to explain the methodology of superforecasters, but I can imagine much more prosaic calculations.

Lots of people seem to worry about being hit by lightning. Might it help to tell them that, with only roughly 20 people killed by lightning each year in the U.S., the danger amounts to just .00000000002 micromort for each of us? Ride six miles on a motorcycle, and you've incurred 50 billion times as many micromorts. And the chance of being killed by a shark is roughly 1/1,000th the micromorts of the risk from lightning.

I certainly found the estimate about scuba diving interesting, given that I came reasonably close to being a statistic while just minding my own business. My wife and I had done a somewhat aggressive dive at the Blue Hole about 50 miles off the coast of Belize, getting to a depth of 140 feet, which is a bit beyond what's considered recreational diving because we had to do a long decompression stop on the ascent. All was fine -- until the captain of the dive boat capsized it three miles offshore. The boat sank so fast that I, napping down below, had to climb out through a porthole. Our equipment went down with the boat, and we only rescued a few life vests for the nine divers and four crew, one of whom couldn't swim. The boat sank at dusk, and nobody was going to miss us soon enough to find us before morning, so we faced the prospect of swimming toward shore or hoping to tread water all night. Fortunately, some Rastafarians were out for a sail and spotted us. They had a dinghy attached to their homemade boat and ferried us in batches to land. 

Having done about 50 dives, I have my own sense of risk and wouldn't let a few micromorts influence me, but I still could imagine using the stat in conversation with my daughters, who are certified but have done just a handful of dives. (Of course, my main advice is to avoid incompetent Belizean captains who claim to be experts on the reef system but clearly aren't.)

Increasingly, insurers are trying to use data from wearables (steps, heart rate, etc.) and from scales (not just weight but body mass index, bone density and more) to steer people away from behaviors that put their health at risk. Why not use measures of micromorts to make sure people understand the risks associated with their activities, too? 

The measurements of micromorts aren't perfect, any more than the data from wearables is, but the concept of micromorts sounds to me like a good place to start.

Cheers,

Paul

 

Compliance has a lot to offer for cyber security but also some significant limitations. Since the challenge of cyber was born, the need to meet compliance standards has been a significant factor in getting cyber security into boardroom discussions. Today's standards have benefited from those discussions and are broadly mature and well-thought-out.

But the double-edged sword of standards under legislation is that a company may assume by ticking the right boxes to meet those minimum requirements that they are considered secure and invest less time and resources into the continuing and evolving job of achieving cyber stability. Security leaders concerned with achieving true operational assurance know that the goal of compliance is not simply to be compliant.

For starters, compliance doesn't always get it right. Legislation is periodic, but cyber risk is ever-present and evolving. Cyber security has always been an arena of hyper change. Expecting legislation to keep pace with attacker innovation would be foolish; tomorrow's threats are unlikely to fit neatly into categories defined by current and past threats, and the prevention, detection and response to future threats require a more flexible mindset and security program.

There are countless examples of high-impact breaches affecting companies that are entirely cyber- compliant. Last year, it came to light that the telecoms giant Synaverse suffered a five-year-long breach despite being compliant with multiple standards such as GDPR, ISO 9001, and even supply chain-tailored standards like TL9000. In the past, compliance standards such as PCI DSS only necessitated quarterly vulnerability scans.

As a result, we've seen high-profile attacks exploit known vulnerabilities that already had patches available. The targeted companies were fully compliant at the time but still suffered preventable breaches. Standards are often updated in the aftermath to encompass a more risk-based approach, but this is still reactive. The reality remains that compliance rules will always lag behind the ever-evolving world of cyber risk.

Crucially, cyber risk, by its very nature, is bespoke. Compliance controls, on the other hand, ensure a common standard - but no two organizations are the same. Therefore, building a risk profile requires deep business context and an understanding of "self" before we look at understanding our enemy.

See also: 4 P&C Mega Risks in 2022

The challenge for CISOs is prioritizing those risks and continuously hardening defenses. Of course, 100% prevention is unrealistic - but that's okay. The goal is to make it so labor- and resource-intensive for attackers that it no longer makes sense for them to continue attacking the hardened target. Cyber crime is a business and being truly proactive makes it more difficult for attackers to achieve their ROI.

Adhering to compliance rules can significantly increase an organization's ability to manage risk - which, if it's not already clear, is the core goal of cyber security - but it can only go so far. Most CISOs today would agree that the further you move away from the time a compliance box was checked, the less confidence there is that the compliance rule is still effective and still managing risk at the expected level.

Compliance might be the start of the cyber conversation, but that conversation today has moved along. In the current era of cyber-threat, it's about marrying up teams with a proactive mindset and the right technologies to know the company inside-out. Only then can we hope to preempt and prevent the many ways that an attacker could do damage.

It seems inevitable that, in the near future, an innovative health care organization – let’s call it The Platform – is going to seize the market opportunity of broader value. It will cobble together the pieces and demonstrate to organizational purchasers that it consistently delivers better health outcomes at significantly lower cost than previously has been available.

To manage risk and drive performance, The Platform will embrace the best healthcare management lessons of the past decades: risk identification through data monitoring and analytics, driving the right care, quality management, care navigation and coordination, patient engagement, shared decision-making and other mission-critical health care management approaches. It will practice care that is grounded in data and science and is accountable on outcomes.

But The Platform will also appreciate that a few specialty vendors have developed deep expertise in dealing with clinical or financial risk in high-value niches – where healthcare’s money is – like management of musculoskeletal care, chronic disease, maternity, surgeries, high-performing providers or specialty drugs. It will understand that it often makes sense to partner with experts who can prove and guarantee high performance rather than trying to learn to achieve high performance within each niche. The Platform also will realize that simplicity is a virtue and that bundling specialized services under one organizational umbrella is easier for health plan sponsors to manage and for patients to negotiate than an array of individual arrangements.

The Platform and organizations like it will spark the interest of self-insured employers and unions, because they’re at risk and likely to be persuaded by a better deal (and particularly one with guarantees). But they’ll also find reception by other organizations that carry risk or are responsible for managing care and cost: e.g., stop-loss carriers, captives, fully insured health plans, Medicare Advantage plans, Managed Medicaid plans, third party administrators and advanced primary care organizations. If The Platform demonstrates better performance than its conventional competitors, it might scale rapidly, sweeping the market. Traditional healthcare vendors might find themselves in a more competitive marketplace than they’ve experienced in past decades.

The key here is that, in the U.S., patients and those who pay for health care deeply want a better way. Most healthcare organizations pay only modest attention to quality and are holding on to pricing that reflects what the market will bear and that is unrelated to cost, though excellent care can be delivered for far less. The difference between what is and what realistically could be is large enough that an opportunity exists for business to switch to upstarts representing stronger value. What’s needed is an integration platform that facilitates an easy-to-use comprehensive framework of high-performing, best-in-class specialty services.

In the healthcare value-focused community, many organizations have demonstrated that they reliably produce better results, particularly in high-value niches. Of course, most vendor organizations are eager to be publicly recognized as “high-performance” vendors. The trick is competently identifying those that consistently deliver.

It’s reasonable to believe that a robust ecosystem of risk-reduction mechanisms can result in far better health outcomes while conservatively reducing total health spending by 25% or more. That said, to my knowledge, no one has yet brought together all these approaches within a single health management organization. Most health plans make more if healthcare costs more, so they have not yet shown an interest in offering lower-cost healthcare (without compromising quality). But value-based arrangements are finally getting traction, and purchaser interest in value is accelerating. The fact that better results are occurring in the market means that high-performing approaches will continue to evolve and succeed.

See also: Mental Health in Post-COVID Era

High-value models are already being developed by advanced primary care firms like Marathon Health and CareATC and retailers like Amazon Care and Walmart Health. These and similar efforts could hugely disrupt the current U.S. health system by moderating the excessive services and costs that the legacy healthcare industry has come to depend on. Going the next step in healthcare management by assembling and scaling the powerful capabilities of high performers is an opportunity waiting to be exploited.

The fundamental tension within U.S .healthcare is whether our health system will strive to optimize quality, cost and value or strive to optimize revenues and margins. Responses to this question determine the approaches that characterize every aspect of healthcare, whether it’s the scientific evidence that guides a protocol or the interoperability of an electronic health record, or whether patients have access to information that can help them make better care choices.

For decades, the industry’s profiteering has dominated healthcare. The question now is whether purchasers will favor high value, turning the tide and remaking our health system in ways more consistent with the welfare of healthcare’s patients and purchasers.

This article first appeared at The Health Ccare Blog.

Earlier this year, the Intergovernmental Panel on Climate Change (IPCC) concluded in its Sixth Assessment Report that "global surface temperature will continue to increase until at least the mid-century under all emissions scenarios considered."

The more global warming we experience, the greater the changes to the climate system. These changes include increases in frequency and severity of heat waves, heavy rainfall, droughts, intense tropical cyclones and sea level rise. Many changes are now irreversible for centuries to millennia.

The effects of these changes are being felt across every region of the world and across all economic sectors, with the IPCC report revealing that approximately 3.3 billion to 3.6 billion people already live in “contexts that are highly vulnerable to climate change.” In the past two decades, the U.S. alone has endured over 250 weather and climate disasters, with cumulative costs of over $1.6 trillion. 

However, impacts of climate change are not uniformly distributed across society; they disproportionately affect the poor and marginalized groups. With at least 3.3 billion people living in situations that are highly vulnerable to climate change, according to the IPCC report, designing infrastructure to ensure that it remains resilient in the face of climate change is becoming increasingly urgent.

According to the Global Infrastructure Hub, there is also a projected $15 trillion shortfall in global infrastructure investment by 2040, while an estimated 75% of the infrastructure needed worldwide by 2050 is still to be built, much of it in emerging economies.

Preparing for a changing climate

Because infrastructure assets often have a long lifetime (50 years or more), high up-front costs and limited flexibility, understanding physical climate risks (PCRs) and embedding resilience from the outset is critical to ensuring assets meet their objectives in terms of serviceability, financial return and social outcomes. 

Until now, there has not been a uniform approach to appraising infrastructure assets against climate risk. This is mainly because most asset owners lack the right tools and are unsure how to accurately quantify risk, adapt assets to risk and prioritize investment in critical infrastructure that is more resilient.

The Coalition for Climate Resilient Investment (CCRI) aims to meet this challenge head-on with the launch of market-first methodology that pulls together best practices from asset management, engineering, finance and climate resilience sectors, providing infrastructure asset developers, investors and regulators with a robust, step-by-step process that quantifies the impact of PCRs on asset performance.

Recently launched by CCRI and led by CCRI member Mott MacDonald, the Physical Climate Risk Assessment Methodology (PCRAM) allows asset managers and owners to make informed decisions - from asset design and through the whole life cycle of the project - on how best to adapt new and existing infrastructure assets to reduce the material impacts of extreme weather events.  

See also: Time to Move Climate Risk Center-Stage

Vulnerability of climate-blind assets

Infrastructure projects have always faced serious challenges in design, delivery and operation, and climate change only exacerbates the risk. When it comes to PCRs, there has been lack of a structured, forward-looking approach to risk management across all stages of the value chain and the project lifecycle. Decisions made in regard to asset delivery and management, especially in the design and procurement phases, are rarely informed by climate projections and a robust understanding of future PCRs. 

Currently, insufficient attention is paid to the potential value destruction in the long term, as well as inefficient recognition or reward of associated improvements. This should not be the case, as integrating climate risk assessment to adapt infrastructure assets from the outset, including through adjustments to operations, can lead to both significant reductions in the costs of climate adaptation measures later on and improvement in the quality of revenue streams. 

Mott MacDonald tested the methodology on five real-world infrastructure assets, including a nearshore wind farm in East Asia and a hydropower plant in Africa, with each case delivering a "resilience dividend."

Until now, the private sector has not had the right tools to make decisions that optimize costs throughout an asset life while incorporating climate risk mitigation. The cost-benefit analysis of implementing resilience measures for these assets clearly demonstrates the significant medium- to long-term benefits from investing in resilience compared with the cost of not implementing such measures. Put simply, PCRAM presents a compelling business case for resilient investment, unlocking the finance needed to protect vulnerable communities from the impacts of climate change.

The insurance sector was no exception to the past several years of overwhelming digital transformation that pushed so many industries quickly forward. However, with consolidation happening in our industry, many are wondering about the future of insurance technology. How can companies continue their growth trajectory and remain profitable?

From my perspective as president of one of the fastest-growing companies in insurtech, here are three things insurtech leaders should focus on in the next year to keep profitability consistent:

Put technology on the front lines

Our industry has fully begun to accept and integrate new technology that can bring more data and greater awareness to loss events. Insurance leaders can’t be afraid of harnessing this technology. AI tools specifically developed for front-line awareness are one way technology can effectively reduce loss events.

For example, in commercial trucking insurance, technology can monitor drivers’ safe-driving habits and overall performance. Data from in-vehicle sensors can identify which drivers are performing well and which need additional coaching, to determine more accurate risk pricing.

AI will never replace the role of human decision-making in the insurance field; it enhances our capabilities to create better outcomes.

Focus on prevention first

So much of the insurance industry is focused on indemnification, but the future of the industry will be in looking beyond the claims. Future leaders will master the skill of harnessing data-driven insights to focus on prevention first, instead of indemnification.

Imagine how much money and time could be redirected if insurance companies helped their clients think ahead and head off negative outcomes. In my practice in the trucking sector, we know that our drivers are coachable and that loss events decrease over time. The AI tools we use recognize drive patterns, identifying frequencies in potential risks like speeding, hard braking and hard turning. With drivers’ safety as a core part of our mission and offerings, we can direct coaching sessions on modifying these behaviors, thus preventing accidents.

There will always be surprises and unpredictable events; accidents happen that even advanced technology can’t foresee or prevent. But in the cases where we can intervene – on the roads, in homes and offices and on job sites – companies should bring fresh attention to preventing those loss events from happening.

See also: What Big Tech Can Do for Insurance

Remember people are at the heart of insurance

Even with new technology, in this industry teamwork is one of the most powerful tools of all. As has been proven time and time again, teams that can collaborate and communicate effectively will remain profitable. Especially now, as more teams reenter the field or traditionally in-office roles become partially or fully remote, elevating team culture should be a key mission for leaders.

Ensure diversity of talent remains a consistent goal for your organization – a range of perspectives and backgrounds will help your team take a well-rounded approach to meeting business objectives and problem-solving around potential blocks.

Remember that leadership is not a closed loop – feedback is important to keeping teams, especially in insurance and insurtech, nimble and engaged. Stay honest, communicate with candor and act with integrity. You’ll find that decision-making will happen more effectively and that pivots can happen quicker when the need arises.

It’s unclear whether continued industry consolidation or another spike of growth will lead the market over the next few years. Whatever happens, insurance companies at any stage should not be afraid to maintain people-focused leadership, embrace technology and unite these capabilities to account and solve for risk – a very human problem. Ultimately for us, it’s about safer roads, safer people and being a good partner to those who need our expertise.

While the insurance industry has years of experience providing quality customer service with tested methods, companies must leverage new technologies to eliminate manual processes, automate claims, optimize workflow and improve overall customer service, and they are having a hard time keeping pace.

AI can help insurance providers automate job scheduling and keep numerous requests organized so that downtime and unnecessary travel are eliminated. Completely customizable schedule optimization software can help organizations map to their personal key performance indicators (KPIs) and account for factors such as geography, workloads and skillsets – enabling quick determination of which adjuster is most appropriate for the job.

Furthermore, insurers can democratize scheduling and increase adjuster productivity and efficiency by empowering adjusters to leverage domain knowledge that improves job prioritization. Schedule optimization technology allows providers to create job dependencies that streamline a succession of work orders based on priority and order functionality. Therefore, companies can reduce cycle times from first notice of loss (FNOL) to investigation and increase adjuster utilization, helping their bottom line.

Optimize claims processing

Historically inefficient tasks that plague the insurance industry are the dated forms of claims processing. Field service solutions tailored to insurers can define the intelligence for automating the closed-loop claims process to create an end-to-end claims management solution. Companies can improve operational efficiency by automating claims adjudication, validation and auditing with configurable logic, enabling workers to focus on exceptions rather than contractor payments. Additionally, insurers can optimize reserves and reduce claims costs with automated solutions by leveraging warranty management adjudication logic to validate service rates, job information and manufacturing, parts and contract information to ensure only valid claims are eligible for payment.

Likewise, real-time claims validation reduces the time contractors spend waiting on claims status and payment, while simultaneously identifying fraudulent activity by checking claims against personalized business rules and flagging ineligible claims before payment. A fully integrated, configurable claim management system can be used to protect the integrity of claims processing. Those who incorporate a unified, end-to-end field service management (FSM) platform are better-equipped to combat fraud, reduce claims process friction, optimize costs and improve customer satisfaction.

See also: Good, Bad and Ugly of Going Digital

Digitize customer interactions

Due to the pandemic, 90% of insurance claims are now processed virtually. According to a J.D. Power Satisfaction Study, the way an insurer handles FNOL makes up 25% of an insurance customer’s satisfaction level. Insurtech software provides helpful tools to simplify the claims process, allowing customers to connect to company-specific consumer portals to access details regarding their claims. Portals allow clients to upload relevant information and photos of their claim and provide adjudicators with augmented reality (AR) and virtual reality (VR) tools to corroborate claims and increase accuracy and efficiency when analyzing damage off-site.

Agent-guided service and self-service customer portals allow a modern, user-friendly claims process without common complexities. Through customer portals, policyholders have the autonomy to self-select appointment times and access real-time status updates from FNOL, resulting in a 27% improvement in net promoter scores and a 30% improvement in customer satisfaction ratings. When outlining customer service protocol in insurance, companies must keep in mind that clients have likely experienced a recent loss or damage to property, and a superb, responsive and navigable customer journey should be a top priority to maintain retention and build client loyalty.

Move to modernize

Although an established industry that has reigned supreme in business for centuries, the insurance space is changing. There are an estimated 1,500 insurtech startups around the world – startups that will transform the industry by leveraging digital, AI and advanced analytic technologies to improve efficiencies and drastically cut costs, while increasing the ability to implement innovative solutions faster as market forces evolve. Today’s consumers have more choices, lower prices and greater control than ever. To meet evolving customer expectations and revive adjudication and claims processing standards, insurance companies must take advantage of field service and insurtech tools to remain competitive and profitable.

We love shortcuts. Time is valuable. Gas is expensive. I can avoid four stoplights and a school crossing if I take a left instead of a right turn at the place other people turn right. They don’t know what they are missing. I am “in the know.” I’ve timed the shortcut, and it works.

In a way, this is the secret sauce of the new insurance marketing tactics. People love shortcuts. They need them desperately in their busy lives. Insurers that understand the various needs of different market segments and affinity groups can create new avenues for business.

To do so, insurers must think three-dimensionally. With many insurers using traditional roads, innovative insurers are looking at the map and thinking, “We can get people from point A to point B faster, with less traffic, if we give them new routes,” and maybe even find other ways to simplify their lives along the way.

These are some of the issues Majesco and PIMA considered as they researched and developed their joint report, Expanding Channels for Insurance: A Spectrum From Traditional to Affinity and Embedded. The report surveyed PIMA members on their views regarding current products and channels and on their future plans. The data exposed some areas where there is a real opportunity for channel growth and product improvement across the channel spectrum. The channel spectrum is wide, but understanding it and how it affects the market and customer behavior is the key to unlocking shortcuts for the customer and large opportunities for insurer growth. (See Figure 1.) Some of the greatest opportunities for insurers lie in the embedded space — providing ancillary offerings that ride along with other products and services.

Figure 1: Distribution Channel Spectrum

We’ve already discussed improving placement for P&C products and L&AH product placement. Today, we’re uncovering the other products and services that might be bundled along the way and discussing the multi-channel approach — the shortcuts that customers are wanting today.

The Case for Value-Added Services

Other Products & Services represents one of the best opportunities for growth. Value-added products are underused by insurers and yet still wanted by customers, both individuals and businesses. Other Products & Services were offered by the fewest number of surveyed. (See Figure 2.) Some of these are striking and suggest opportunities for growth as well as meeting rising customer expectations.

Majesco’s consumer and SMB research has consistently found these value-added items have high interest. We have stated that the definition of a product has shifted beyond just the risk product to include value-added services and customer experience, which extend and enhance the customer relationship to drive more loyalty and potential revenue growth.

As an example, financial planning is an increasingly important service as “financial well-being” expectations and needs continue to grow. In particular, it is likely underused by the Gen Z/Millennial generation, providing an opportunity to establish a long-term relationship. This is a formula that Sofi is using to capture customers in the GenZ/Millennial space.

Likewise, caregiving is increasingly important and part of the “financial well-being” concept as people age, and the sandwich generation gets caught between planning for their retirement and caring for their parents. Caregiving is a vastly untouched opportunity for insurers to extend customer value, loyalty, trust and revenue. Time-pressured pre-retirees find it difficult to manage everything from doctors' appointments to prescription schedules. How can insurers step into the gap between home-based care and full-time care to ease these burdens? Where is the shortcut that gives back time and improves care?

See also; Modernizing Insurance for the Digital Era

The opportunity goes beyond shortcuts, however, because new insurance marketing philosophies are beginning to form around the idea of better meeting group needs with group packages of insurance and services. Affinity groups, which many times offer niche/community-oriented solutions, should be the first to pick up on the idea of whole-experience packaging for products and services. How can partnerships be applied to create platform or ecosystem-supplied marketing and distribution channels?

Figure 2: Other Products & Services offered by PIMA members surveyed

The Need for New Channel Growth

Consistent with the other two product groups (P&C and L&AH), the most-used channels for value-added services are Affinity Relationships (61%), Agents & Brokers (55%) and Digital (42%). Despite this similarity, the actual levels of use vary as compared with L&AH and P&C. Overall, as shown in Figure 3, Other Products & Services are 17% to 30% lower than in L&AH and compared with P&C, 17% lower for Digital and 11% lower for Affinity Relationships.

Other similar patterns in channel usage continue with the Other Products & Services group, including varying levels of channel variety for specific products. In general, simpler products are offered through more channels while more complex ones are offered through a smaller number of channels. As an example, one of the least-offered products, Caregiving (just 6% offer this product), has the highest channel variety. In comparison, three of the most-offered products (Discount Programs, Roadside Assistance and Legal Services) have lower channel variety, limiting reach.

Because Other Products & Services are not a risk product, they lend themselves to alternative channels, particularly Digital, Affinity Relationships and Embedded options. As companies seek to expand these offerings, they should consider aligning them with a broader array of channels as well as aligning them to be purchased with risk products through the channels where they are sold, increasing reach and driving growth.

Figure 3: Channels used to distribute Other Products & Services

Like the P&C products, very few of the Other Products & Services are offered through embedded options. However, Other Products & Services are using embedded options more than P&C products, with five of the six using all three options (Soft, Hard, Invisible – Figure 4) compared with only two of the 14 P&C products. Interestingly, Other Products & Services had the highest net usage, of 26%, for Invisible Embedded as compared with 20% for L&AH and 12% for P&C. Once again, this indicates an untapped product and channel market to drive customer engagement, loyalty, value and revenue.

Figure 4: Embedded options used with Other Products & Services

Analyzing the Market Opportunities for Other Products & Services

We used three dimensions to help identify market opportunities for Other Products & Services: product offering popularity (the size of each circle), channel variety (the vertical axis) and use of embedded options (the horizontal axis) as shown in Figure 5. We uncovered three potential growth options.

1. Move off Zero

Once again, four products and services have no embedded options and have lower channel variety: Risk Management, Home Healthcare, Risk Monitoring, and Money Management. Absence Management could also be considered with its low embedded use and channel variety. Even though most of these are relatively small to moderately sized in the number of companies offering them, leveraging more of the channel spectrum, especially embedded options, could lead to growth opportunities. It also opens up opportunities for those who do not provide these products and services to expand reach, value and revenue.

2. Reach New Markets With Popular Products by Leveraging the Channel Spectrum

Compared with the other products and services, Financial Planning/Wellness, Discount Programs and Legal Services are offered by a larger number of companies, yet they have lower embedded use and have not leveraged the breadth of channel variety. Growth opportunities with these popular products can be accelerated by expanding to new channels, particularly embedded options.

3. Two Ways to Grow

Not surprisingly, Roadside Assistance has a high offering rate, high channel variety and Table Stakes embedded use, given its value and inclusion for many auto products. While this could suggest a crowded market with limited growth, surprisingly only 23% of companies offer it. In Majesco’s consumer and SMB research, this offering was considered to be of great interest and value, suggesting it is an unmet market need offering a growth opportunity.

In addition, even fewer companies are offering Caregiving (only 6%). Those that do are using high channel variety and embedded options. As a point of reference on market opportunity, the American Association of Retired Persons estimates that about half of all people over 65 will need some kind of long-term care, such as in-home care, an assisted living facility, or a nursing home. Given the potential growing interest with the aging of Boomers and Gen X, future growth opens market opportunities to capitalize on.  

Figure 5: Market opportunities for Other Products & Services based on product popularity, channel variety and embedded usage

A Multi-Line Channel View

Looking at the three products separately provided a view of market opportunities within those segments. However, many companies are multi-line or have partnerships with others to offer products they do not create. More importantly, looking at a multi-line view provides a customer lens given they likely buy a range of products within those three segments. 

We combined the three product groups in Figure 6 to provide a multi-line view. Some interesting macro insights emerge:

• L&AH commands a compelling lead over P&C both in terms of most offered products, channel variety and embedded options used. 
• Other Product & Services falls behind L&AH but has some products that are ahead of or even with P&C. The one exception is Roadside Assistance, which outpaces all products in all segments.
• L&AH’s dominance in multi-channels and Affinity Relationships has provided a strong foundation to experiment and embrace embedded channels, putting them at an advantage overall. Building and retaining that advantage through other partnerships, including insurers, to provide a wider array of products, could create a business model for growth that can capture a large portion of the anticipated embedded insurance market.
• This view highlights the potential of new offerings that combine different products to create customer experiences that drive growth. For example, the combination of home, caregiving, disability insurance or long-term care insurance could provide an elderly homeowner with IoT-based home devices the ability to not only get a discount for homeowners but also the ability to provide alerts to take meds, monitor falls, provide reminders for doctor appointments and more – combining products to meet a broader need and providing value.
• In general, there is a wide-open opportunity to expand into more channels for all product segments given the mid-to-low channel variety. At the same time, some of those channels can be leveraged to accelerate embedded options. Together, this would expand the market reach for products that offer customers more options to buy when, where and how they want to buy.  
• Majesco’s consumer research highlighted strong interest in bundled products that offer a broad, holistic solution to customers’ health/wealth/wellbeing, and many combinations could be created among the three product segments. Likewise, Majesco’s SMB research found the same demand for a holistic, broad combination of products that meet new expectations.

Figure 6: Multi-line market opportunities based on product popularity, channel variety and embedded usage

With customer expectations changing rapidly, companies need to create distribution advantages that give them a unique and competitive advantage to acquire and retain customers. This advantage is rooted in leveraging a broader array of the channel spectrum, including embedded insurance that is built into the customer experience and leverages the trust of other brands.

What actions should insurers consider?

1. Establish new partnerships and channels encompassing the emerging start-up-fueled distribution, embedded and partner services landscape to extend reach before the opportunities are tied up.
2. Stake out your position by either commanding more of the total value proposition or becoming a specialist in someone else’s ecosystem.
3. Refocus to a “buying” over “selling” approach – through a multi-channel strategy that meets customers where and when they want to buy.
4. Use a blended focus on product and business needs, value-added services and channel preferences. It is crucial to consider all of them to innovate and meet different generational needs and expectations to drive growth and engagement.
5. Invest in next-gen platforms and capabilities that embrace openness by investing in talent and technology and adopting an open, API-centric, cloud, AI/ML, microservices platform.

See also: Distribution Management: A Path to Maturity

Insurance’s New Multipliers

For insurance organizations to grow, expanding market reach with broader channels and products is a necessity. The success that is found in individual products is greatly multiplied when opportunities are built around customer lives and business operations. In nearly every case, insurers need to prepare themselves and their technologies to bundle, expand, embed, partner, customize and flex to meet future market demands.

The attraction of the broader array of channel options, and in particular embedded options, is aligned to what customers want and expect. They want to buy insurance when, where and how they want --- with convenience and speed. The question is…can you meet these new expectations? Do you offer your products through multiple channels? Do you have a distribution strategy that broadens your market reach? Multi-channel, multi-line, multi-service — these are the business multipliers that will take insurers from good to great.

As you and your teams brainstorm about channel and product growth opportunities, you may wish to use findings from Expanding Channels for Insurance: A Spectrum from Traditional to Affinity and Embedded as a springboard for conversations and planning. For additional perspectives, you may wish to view our recent webinar, Finding White Spaces in the Product/Distribution Channel Landscape.