Some 20 years ago, I collaborated on a white paper with Bill Gates and other senior leaders at Microsoft on the future of work, to be the centerpiece of the annual gathering he held in those days for Fortune 500 CEOs at his home.

He framed a problem in a way that has stuck with me. It has yet to be solved -- but that's where you and your companies come in, as you take advantage of what we've all learned during the pandemic and map out new ways of working as we scope out a new normal.

The problem concerns focus -- and how to get a lot more of it in our work lives.

Now, Gates is famous for his ability to focus and drive deeply into a problem. When I knew him, if he got curious about a topic he'd take a tall stack of thick books along with him on vacation and sit on the beach under an umbrella while working through them for a week. I once was at Gates' table at a conference when the after-dinner speaker came by. The speaker had just published a technical book on nanotechnology that was a hit in Silicon Valley -- and learned that nanotechnology had been the subject of one of Gates' beach excursions. The two got into a heated debate about how quickly nanotechnology would develop, and it was clear to all of us listening that Gates carried the day as he acknowledged massive potential but said nanotechnology wouldn't develop nearly as fast as the speaker predicted. The arc of nanotechnology in the 30 years since that debate confirmed the ability of Gates to focus on, absorb and process massive amounts of material.

The rest of us aren't so fortunate. But Gates had an idea. He framed it around research that, he said, showed that someone takes 15 minutes to regain focus once interrupted.

He wanted software to protect us from interruptions except those that were truly urgent -- from a key client, a boss, a spouse or child -- and funnel routine interactions into certain stretches of the day, where they can all be dealt with at once.

Some of those capabilities are now possible in Microsoft Teams and other sorts of software, where you can specify how available you want to be. But the world has mostly moved in the other direction. We get notifications on our phones on the very latest in the saga of Antonio Brown running out on the Tampa Bay Buccaneers and on all sorts of other trivia, and we check our email and our texts constantly to see what just arrived. (Someone once aptly described email as a way for others to put things on your to-do list.)

I want what Gates laid out, and I don't see why I can't get it. I don't want to just set my status in Microsoft Teams. I want a software agent to help me structure my day and keep me focused by filtering out what's not essential.

Being on the West Coast in an East Coast world, I always need to deal with some pressing emails when I start my day -- but I don't need to see all 150 that have accumulated overnight. I could train an intelligent agent pretty quickly about which I needed to see and which could wait -- reducing my first pass through email to maybe 15 minutes or half an hour, rather than some stretch of wildly varying length. I'd then give myself a bit of time to catch up on the general news of the day -- in various jobs at the Wall Street Journal, I sometimes had to be up to the moment on events, and old habits die hard; I get twitchy when I'm out of touch. But I could then train an agent to shut off all but the urgent, so I could tackle the main work of the day for two or three hours without interruption before getting to the less important tasks that have piled up. Afterward, the agent could protect me for another uninterrupted stretch.

Cal Newport, who wrote a book called "A World Without Email," tells a fascinating story about the difference between George Lucas and Francis Ford Coppola following their breakout successes -- Lucas with "American Graffiti" and Coppola with the "Godfather" films. Coppola bought a huge home and, eventually, a winery. Lucas bought a modest home and built a tower where he could sequester himself and work uninterrupted several hours a day. It was in that tower that he figured out how to pull together a project he'd been noodling over for years. You've heard of it as the "Star Wars" franchise. (Along the way, for good measure, Lucas' efforts spun off Pixar.)

I suggest that we all need some version of Lucas' tower. I realize that many jobs require far more interaction than my work as a writer and editor in a remote locations does, but I still believe that we can create large pockets of focus for just about everyone that will make individuals and businesses much more productive. And now is the time to address the issue, as long as we have license to rethink so many things about what work should look like post-pandemic.

I think the vision laid out by Gates two decades ago is the right approach -- a software agent that I train in the same sort of way that we all train our spam filters -- even though even Microsoft has only produced an anemic version of its founder's vision.

The way I see it, if you've read this far in the email, I've now put the problem on your to-do list. Good luck. Let me know how things work out.

Cheers,

Paul

It’s that time once again when predictions about the insurance industry’s outlook for 2022 come rolling in like waves. They are interesting to those of us in the industry and may provoke discussion and healthy debate or even serve as a call to action for others, even though most predictions turn out to be incorrect or poorly timed. As Bill Gates famously said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don’t let yourself be lulled into inaction.”

Just take an objective look at the early 2020 predictions, which said little to nothing about the prospects of a multi-year global pandemic, not to mention the acceleration of certain technologies and derailing of others. Granted, this is an extreme example, but it illustrates the point. Predictions about the rate of M&A activity and adoption of technology seem to be generally accurate about “if” they might happen but mostly inaccurate as to the “when” they will happen.

Rather than add a prediction to the fray of what might happen, let’s concentrate on something that many in the insurance and insurtech space would like to see happen, framed as New Year’s resolutions for 2022. Let's focus on removing barriers to innovation.

The insurtech movement is somewhere between seven and nine years in play and certainly gaining no matter the standard of measurement: Global investment sums, sheer numbers of startup launches and the level of M&A and SPAC activity are all at record levels. During this period, there has been a loud and growing chorus of discord between the cadence of new ideas, concepts and technology and the contrast of that with protracted insurer adoption cycles. To make matters worse, the number of startups focused on identical or similar solutions is far greater than the number of insurers with sufficient bandwidth to evaluate or pilot all of them. As one industry pundit recently shared with us, “There are just too many dogs chasing the same bone.”

This is not a statement of blame, instead a commonly shared observation from all participants: insurers, startups, investors, established solution providers, analysts and thought leaders. 

Does anyone working in the P&C insurance ecosystem really believe the speed of insurtech adoption is acceptable? In fact, you could go so far to say the current rate of adoption is actually a threat to the insurtech movement itself. Either way, the speed of insurtech solution adoption will be a critical factor in industry progress in 2022 and beyond.

What startups say

Startups are often surprised about the number and complexity of barriers in the insurance space. While it is well understood that the industry is mature, highly regulated and dominated by many very large companies, most startups are dismayed by the number of decision makers and the time it takes to do just about everything: scheduling meetings, signing non-disclosure agreements, reaching terms to start a pilot, etc. Long sales cycles are a familiar and widely accepted obstacle when trying to partner or simply demo one’s solution.  

Upwards of a year or longer from introduction to pilot phase is common and, in some circles, considered fast. Ironically, startups may find an insurer’s information security protocols, no matter how onerous, a welcome step because the prior steps were truly difficult. The infosec stage is also a step closer to pilot or implementation, so no doubt a relief once reached.

To avoid barriers, some startups have opted for a managing general agency (MGA) model to deploy their technology somewhat more directly, but this approach leaves out the majority of insurtechs, which work within existing insurance models. Partnering with other solution providers can help accelerate things, but here again there are complications. Finally, while startups often begin prospecting with the largest carriers, they find that the larger a company is the harder it is to do business with. (On a positive note, startups that do overcome these barriers tend to realize long-lasting, successful relationships with insurers.) 

See also: Insurtech Trends for 2022

What insurers say

Insurance carriers believe they are misunderstood in some areas while generally agreeing about the criticism directed toward them. They’ve also bought into the realization that disruption is part of the future of insurance and have thus made their own insurtech investments, stood up innovation teams, sponsored accelerators and competitions and much more. 

Insurers are quick to point out a bevy of legal, regulatory and privacy exposures that may be overlooked by startups. But there is a realization of the need for innovation and true admiration for the unobstructed thinking that allows startups to be nimble.  

Carriers also cite real world factors such as the need to upgrade or even transform legacy systems, while moving many operations to the cloud. Insurers also say they are moving at an unprecedented tempo and are trying all sorts of new concepts, with lots of evidence of newly announced partnerships, investments and deployments. Money and resource constraints are real and restrict the number of new endeavors.  

What they both say

When you carefully consider the startup and incumbent vantage points, there is a high degree of empathy and understanding for each. They want to help each other and realize their success depends on working together early and often. 

COVID-19 derailed many plans, accelerated others through necessity and channeled focus toward business continuity and later to hybrid workforces. This is a major issue for large companies no matter how much of a game face companies project.

Overcoming barriers in 2022: platforms and ecosystems

The insurance business process is highly complex and involves hundreds of potential interactions internally and externally, including connections with thousands of ecosystem participants. Until now, this has been a major barrier to process efficiency,

The emergence of insurance industry platforms, also called marketplaces, represents an important cure for this complexity that can facilitate commerce among insurers, insurtechs, supply chain participants and policyholders. For both insurers and insurtechs, integrations are reduced from many to few or even to one. For policyholders, customer experience is improved. For all participants, costs and time to market are reduced, and access to more and different trading partners is significantly expanded. The ability for insurers to test and engage with innovative startup solutions is considerably simpler, faster and less risky. 

See also: Building a Digital Field of Dreams

Where do we go from here?

In the spirit of making New Year’s resolutions we would like to see for 2022 that will alleviate innovation and adoption barriers, here are our top wishes – a mix of practical, incremental and bigger breakthroughs:

• once an insurer and startup begin discussing the NDA process, it will be completed in one week or less
• startups will know and anticipate their prospective insurance carrier’s audience much better and will dial into problems, pain points and priorities 
• insurers will identify and share their problems, pain points and priorities more clearly and will also distinguish among what’s desirable today, tomorrow and in the future
• insurers will find ways to take more risk and create more sandbox areas to pilot, sort of an innovation lab 2.0 with real funding and authority
• startup offerings will become more categorized by type to make awareness, comparison and contrasting possible
• startup vaporware will be eliminated or reduced to more immediate, tangible solutions vs. future road map ideas
• when insurers are not interested, they will say so as soon as they know it and offer any constructive feedback
• intermediaries and those well-positioned to help move the needle will be more involved, from scouting to solution alignment 

This last wish for 2022 is extremely relevant to us, because we are one such intermediary and leverage our deep subject matter expertise and extensive relationships across the ecosystem to assist market participants, including insurers, insurtechs, supply chain partners and investors, to execute on their strategic objectives.

We want to wish you all a very successful 2022.

You have decided it is time to move out of your apartment or house and into another one. You are packing up your closet, and you realize there are some decisions to make. Half of the closet is filled with items you like but just don’t use. Do you take the time and energy to move those things to your new place?

Let’s take this one step further. Let’s say your new home has a “smart closet” that won’t allow you to bring along the clutter. It is designed to help you maximize your use of space by only allowing you to store items that are regularly used.

One of the benefits of the smart closet is ease and speed of access. You never have to look through shirts that never get worn to arrive at ones that do. The racks and shelves in the closet fit what you need. If you don’t wear hats, there’s no hat rack. If you mostly wear sandals and flip flops, the shelves are made shorter than a standard shoe rack. The smart closet automatically customizes itself to you and your “operational needs.” Life is a little easier with a smart closet.

It’s this same logic that goes into the development and use of cloud technologies. Insurance administration within SaaS 3.0 is all about precision in what is used, what is stored and how it is managed. As we move into the future of SaaS (software as a service), this precision will give insurers real competitive advantage. But what is SaaS 3.0? How does it differ from what we have been calling SaaS all along?

The true definition of SaaS 3.0 is everything that comes under the heading of “differentiated experiences.”

This would include things like:

• Internet of Things transformation
• Embedded insurance
• Predictive analytics
• Simplification at an infrastructure level with purpose-built databases and server-less microservices

It may help to think in terms of functionalities. SaaS 3.0 will help insurers to do more in terms of predictive underwriting models and risk stratification. These are just a few of the opportunities. The deeper insurers dig, the more they will realize what is possible.

A smarter strategy for building purpose into the product

Insurers are finding that, when it comes to technology, what they don’t need bogging down their systems are the functions, capabilities and data that they will never use.

With cloud systems, you don’t bring all of the unused items that have been sitting in the closet. You clean, pitch, start from scratch, then move what needs to be moved after it has been organized and vetted for its usefulness. It’s a fresh start that stays fresh. How does this strategy work?

See also: Why SaaS Is Key in Core Systems

Five core principles are the future of SaaS. These answer the issues inherent in yesterday’s monolithic systems. When we look at the core principles properly, we see that they make sense because they allow for customization that fits an insurer’s purposes instead of making an insurer’s operations fit into a system box. Let’s look at these five principles.

1. "Componentized" — Create loosely joined cloud-native architectures that operate as microservices.

A large insurance organization may need many or most of the capabilities that come with an entire policy administration platform. A small insurer may need far less in the way of functionality. Perhaps they only need form-intake capabilities and don’t require the rest. In a SaaS 3.0 environment, each set of services or capabilities might be easily used as simple components. So, instead of monolithic products, such as a property & casualty system or a full underwriting platform, all capabilities become available as microservices. As a part of SaaS 3.0, we need to be able to segment monolithic, “old school” ERP systems. We need to "componentize" the microservices but keep them loosely connected with each other.

2. Specialized — Each service is designed for a set of capabilities.

As a natural byproduct, these microservices are developed for a specific function. It’s like walking into a restaurant where everything is a la carte instead of paying for a full buffet where you won’t eat every dish. Each capability has its purpose, and you only select the specialized purposes that fit your experience or need.

3. Communication-ready — APIs act as a gateway to an application or point of data.

How do these capabilities engage with the larger platform? How do they talk with each other? Insurers are currently using application programming interfaces (APIs), but most aren’t coming close to what is possible. APIs are shifting from simple data exchange tools to become the primary gateway for capabilities to talk with one another. The fundamental lever for SaaS 3.0 is to use APIs as the nerve center for ID stacks. Insurers will no longer need to create point-to-point connectivity between two systems. If every system contains open APIs that can connect to any other system, insurers will be gaining communication efficiency while they reduce resource needs and integration time. Open APIs remove layers of integration. They invite collaboration, which, in turn, fosters innovation. SaaS 3.0 is an environment built for easy innovation.

4. Data-ready — Applications are designed on purpose-built databases optimized for specific workloads.

Nearly every insurer is in the midst of analyzing their customer journeys and how to use cloud technology to improve them. Many have hit a hurdle that they don’t quite understand. As they begin to unravel the issue, they come to realize what they are missing can be solved in SaaS 3.0.

Here is the issue: If you look at an application or a piece of software, it is relatively easy to understand the user experience (UX) —the piece that the customer gets to touch and feel and use. Underneath that is something we typically refer to as business integration. Underneath that is the database or data warehouse — a huge bucket that holds all the data. Below that are infrastructure items like servers, networks and security. But when we talk about SaaS or Cloud 3.0, executives and business strategists are many times focused on that top layer.

“How do we make our applications cool and unique and downloadable on iPhones?” Discussions around microservices and APIs are often restricted to the top layer and the iOS App Store and Google Play, etc. Everything below that layer, however, is potentially-restrictive to the innovations insurers could be making at the top layer. The layers below the top can hold insurers back, but some insurers are reluctant to go there. Conversations on SaaS frequently stall at the point where architecture analysts ask insurers, “What is your existing database?” It might be a SQL database or perhaps data is sitting in an Oracle data store. When discussing how data will be used or moved, insurers may back off. “Oh, we can’t do that.” There is a refusal to move.

In those cases, data’s real value is stymied by what I call data inertia. It’s too “heavy” to move. Either insurers have made a huge investment in their databases that they don’t wish to deconstruct, or they have acquired and merged so many times that numerous databases are held together with very important and fragile Band-Aids.

Cloud conversations need to percolate down to the core of how data is stored and managed. For SaaS 3.0, applications need to be designed with purpose-built databases that are optimized for specific workloads.

Consider how we use databases: There are transactional purposes. (Data A + Data B = Output C). There are reporting purposes. (Data is used to generate reports, dashboards and financials.) There are machine learning/AI purposes. (Data can improve operations and teach us something.)

If we purpose-build and purpose-use databases, then we can partition out database requirements so we have a separate stream of databases that are used purely for that particular function. Reporting won’t infringe on the transactional layer, and it won’t affect performance and methods. This is the core of what needs to happen. This proper design and use of individual databases is arguably more important than anything being done in the transaction layer because it is an enabler. The face of the organization holds more promise when the core is doing what it needs to do to support it — and only what it needs.

5. Justified — Operational impact as a key imperative.

We need to think of operational impact in the SaaS world much more differently than in the  traditional technology world. When cloud computing began to grow, there was the conceptual idea that cloud brings efficiency with it. Today, though, we have to consider and measure the full realm of operational impact. We need a solid and evolving set of metrics to measure how we are progressing along parameters of performance, efficiency, operational excellence, cost optimization and scalability.

Better SaaS starts with clear insights

By keeping operational impact at the forefront of SaaS conversations, the organization can clearly justify the shift to cloud technology. The evidence that you compile in analyzing the current stack against future deployment is performance-based and not anecdotal. For those who work with Majesco, we begin with an operational impact analysis so that we can jointly review and understand all of the operational impact levers that are benefits to cloud deployment. We call them pillars. Each pillar stands on its own as a reason cloud works so well, but it’s easy to see how they jointly support best practices in the enterprise. The pillars include:

• Performance Efficiency
• Operational Excellence
• Stack Modernization
• Reliability
• Quality Optimization
• Security Standardization
• Cost Optimization

See also: The ‘Race to Zero’ in Insurance SaaS

The New Year traditionally brings with it a time for reflection and the need for fresh starts. As your organization contemplates how it will adapt and change to meet the years ahead, it may be time for you to compare your current state with the possibilities to be found in cloud technologies through the lens of SaaS 3.0.

For a high-level look at some of the great reasons that cloud adoption is on the rise, be sure to revisit Majesco’s webinar, New Normal: The Catalyst for Cloud Adoption.

Creating a great customer experience is one strategy to build brand loyalty. Many of us have had bad experiences working with insurance companies – poorly handled claims, unresponsive agents, lack of timely payment – which can lead to customer churn. However, if insurance companies develop and implement strategies that provide great customer experiences, ones that are supported by digital technologies that streamline operations and simplify how customers interact with the insurance providers, then customer loyalty will remain high. 

According to the Harvard Business Review’s The Pitfalls of Overlooking the Back Office, “As customers, we all know the customer experience travels across organizational silos and in and out of management tiers. We all know the experience of giving our identification information again and again at different stages of one call to one organization. This is a poor customer experience, and it reflects an absence of back-end integration,” said Karen Cham, professor of digital transformation design at the University of Brighton in England.

Here are three recommendations for how insurance providers can improve the customer experience and turn those customers into lifelong advocates for your brand. 

Pay claims in real time

After incurring damage to a house or in an auto accident, people must go through the dreaded process of working to file an insurance claim: fill out the paperwork, provide supporting documentation, have it reviewed by an agent, submit additional paperwork and finally receive payment many weeks later. It’s a tedious process that is time-consuming and often creates customer friction. The lengthy process of getting paid for a claim can damage the relationship between the customer and the insurance provider. 

Taking advantage of the speed and efficiency of digital technologies, insurance providers can reduce the pain and shorten the time it takes to disburse funds. There are many ways that customers can receive payment in a timely manner, most notably via digital payouts. For example, an insurance company can pay a customer digitally via digital wallets, through Venmo and PayPal or directly to the customer’s bank account rather than issuing a check and sending it in the mail. This allows the customer to control where the funds are delivered and helps reduce operational costs. 

Deliver personalized experiences

Digital technologies not only make processing and paying claims faster, they also help insurance providers gather volumes of customer data. When customer data is compiled (through such avenues as the Internet of Things, mobile-enabled insurtech apps and wearables) and analyzed, it gives insurance providers a better understanding of their customers and each customer’s unique interests and shows trends about larger demographics. By understanding how certain customer groups behave and interact, such as those based on age or income, insurance companies can provide services and promotions that are tailored to each customer’s specific needs. 

Younger customers, such as millennials and Gen Z, prefer to use mobile technologies for most aspects of their lives. Insurance companies need to make sure that all channels, including website, mobile and desktop, are unified and provide the same experience to the customer. Likewise, having single sign-on for customers, so that they can view multiple accounts, makes it easy to see all of a customer’s accounts at once. Mastering omnichannel marketing, making it easy for customers to engage with insurance agents and delivering personalized experiences are proven methods for improving the customer experience. 

See also: 6 Ways to Transform Customer Experience

Cultivate emotionally intelligent agents

Insurance agents serve on the front line of almost every customer's experience. When a customer is in an auto accident or if a storm damages their house, the first person they call is their insurance agent. This is a critical time in the relationship between the customer and the carrier because the customer is often scared, angry or possibly injured. This is the time when an agent needs to demonstrate compassion and display a high level of emotional intelligence to tackle the situation. 

Insurance providers should consider implementing emotional intelligence training for their agents who interact with customers on a regular basis. Having insight into what a customer is feeling, being concerned about fixing the situation or simply lending an ear to let the customer vent goes a long way toward strengthening the relationship between the provider and the customer.

For me and my organization, we understand what it means to make customers happy around the world. Training insurance agents to provide emotional support to customers and implementing digital technologies to streamline operations, lower costs and improve the customer experience helps give your company a competitive advantage.

In an era where customers can easily jump ship to go to another provider, it’s imperative that insurance companies devote time and energy to creating a great customer experience that ensures loyalty.

The insurance sector is facing unprecedented change in a rapidly evolving environment. Energy transition, circular economy, urbanization, digitization: These trends have far-reaching consequences for the way we live and work. From sustainable investing to healthy living, from sensor revolution to climate change, the playing field has become incredibly varied and complex over a relatively short time. How is this playing out for the insurance sector? 

Amid the abundance of sector reports by industry analysts, reinsurers, sector associations and consultancies, we provide you with a recap of what we believe are the key trends to monitor closely for 2022 and beyond. 

Trend 1: Insurtech has matured and gains even more momentum 

While insurtech has been around for some time, the past year's growth has been picking up substantially. We’re well past the days of simplistic disruptive thinking, where startups would present themselves as the Uber of X. Traditional insurers clearly understand the importance of becoming digital. And insurtechs have learned the underlying complexities of the insurance business model they aim to renew. It’s not all that easy, otherwise it would have been done by now!

The opportunity to transform traditional, legacy-driven processes remains massive, as is reflected in global investment transactions in insurtech – by the end of the third quarter of 2021, up another 23% from the year before and hitting $10 billion. The largest financing deals were Wefox (Germany, a digital insurance carrier, $650 million) and Bought by Many (U.K. pet insurance, $350 million. Compared with overall fintech data, insurance actually still remains an underinvested sector. 

Reinsurers are increasingly become active through their own venture capital arms. Their urgency to develop solutions to build resilience in our turbulent environment (pun intended) is clear. In October 2021, Munich Re announced a $500 million fund to invest in early/growth stage companies across insurance and climate technology, cybersecurity and privacy (more on that later!), commercial and industrial equipment tech and the future of transportation. 

Insurtechs will provide a continuous stream of innovative products and services to the sector, working with (re)insurers to improve their products or to access markets. Insurers will have to monitor closely how they can tap these opportunities to enhance their competitiveness, through incubation, partnerships or investment funds (e.g., the Achmea Innovation fund). We expect to see more collaboration between incumbents and new entrants as they often complement one another. At the same time, just as in other sectors, new entrants will continue to shake things up and trigger the incumbents to take action. 

See also: How to Work With Insurtechs

Trend 2: The past is gone – the present is the best indicator for the future 

Insurance is a long-term numbers game carefully balancing risks and premiums, traditionally using data sets with limitations in accuracy, reliability or predictive power. In a turbulent environment, historical patterns will no longer be a reliable predictor. This has implications for the way insurers collect their data for risk assessment and policy pricing. 

Enter IoT, smart sensors and telematics -- and the ability to harness the data and link this to alerts, warning signs or smart workflows. Being able to register, connect, collect, analyze and understand data in often near-real time is a game changer for a data-driven sector like insurance. 

The number of devices connected to the internet is expected to triple over just a few years – from 20 billion in 2017 to 60 billion in 2025 -- enabled by cloud computing, exponential growth in computational power and ever more powerful mobile internet (5G). 

The Internet of Things (IoT) generates vast amounts of data through sensors in networks, cameras, industrial sensors, mobile phones, traffic lights, cars, bicycles, smart home appliances and devices, sea containers and postal packages. Sensors help to reduce failures, incidents or accidents. There are endless possibilities and of course all kinds of privacy concerns that require attention. Still, looking at personal lines: Each year the proportion of customers willing to share data (home, car, health) in return for rewards or value is increasing as the digital lifestyle becomes more widespread. 

Harnessing real-time alerts in the context of comfort, safety and insurance will become a key capability for insurance providers. Data may serve to boost customer engagement, nudge customer behavior (e.g. safer driving) and trigger rapid response services. Telematics and fleet management solutions have become mainstream, but every other insurance sector will become smart or connected – there are simply too many benefits. This way, insurance becomes augmented, providing prevention and mitigation of a wide range risks while closing the engagement gap to customers. Insurers that are not able to process the new data streams will find themselves at a disadvantage. 

There are not only benefits, there are also serious concerns and risks with these developments. There will be a continued discussion on the ethical framework for leveraging ubiquitous sensor data. Where lies the balance between personalized profiles and solidarity? The technological possibilities are taking us into uncharted waters, and we have to find our bearings to plot a course. 

There is also the necessity to deal with a parallel increase in cybercrime. Insurance solutions are augmented with a wide range of IT security services to prevent or mitigate cyber-related incidents. Cyber resilience is a critical element as countermeasure against deliberate cyberattacks (ransomware, phishing) but also prevents unwanted incidents causing business interruptions. The cyber insurance market is expected to grow at a record pace in the coming years, and insurers need to arm themselves and their policy holders. 

Trend #3: Insurance is more attractive when embedded in something else 

Insurance has always been a necessity -- either by law or because it’s simply smart to have. It's not particularly appealing or attractive, but if you add insurance to an existing transaction where people buy or rent something they actually want, that helps a lot! 

Embedding insurance has been around for decades: Think bancassurance or travel insurance you bought when booking a flight. What has changed is that this has now been digitized, turned into a fully automated workflow, reducing unit costs to an absolute minimum and being incredibly scalable through modern technology. So it now becomes viable to offer day-to-day travel insurance or extended guarantees right in your digital shopping cart. These policies can be switched with a swipe or even automatically. Embedding insurance solves the typical drawbacks of traditional insurance: It’s fast, easy and personalized. And becoming an additional revenue stream for all kinds of organizations. 

Leveraging driver data to make better underwriting decisions is done by Tesla. Now that people are increasingly shopping online (COVID-19 being one of the drivers), there will be a wide range of opportunities for embedding insurance in trusted digital channels.

While embedded insurance is focused on the point of sales, parametric insurance is a similar way simplifying the claims process. If a certain index (wind speed, rainfall, water level, crop index) reaches a threshold, a payout is triggered automatically. 

Trend #4: (Re)insurers accept their responsibility to build climate resilience 

The reality of climate change and the need to increase resilience against extreme weather events is something that is becoming a hot topic for the insurance sector. Insurance Europe, the European insurance and reinsurance federation, issued a statement for COP26 expressing their unequivocal support to the collective global momentum to combat climate change, in line with the Paris agreement, the European Green Deal and Europe’s targets to reduce its greenhouse gas emissions by 55% by 2030 and achieve a net-zero economy by 2050. 

2021 is expected to become one of the costliest years in terms of weather-related losses following floods, wildfires, hurricanes, hail and extreme cold, with tremendous human costs but also affecting economies for years to come. Insurability is already becoming problematic in some coastal regions, suffering from more frequent and extreme disasters. The moment that an insurer and its reinsurer will not be able to fulfill their obligations following a catastrophe is getting closer. 

The insurance sector has a pivotal role in dealing with the effects of climate change, well beyond disaster recovery -- from an investment perspective, by adopting environment, social and governance (ESG) strategies; by developing solutions that provide protection against climate-related events; by providing investment capacity for the transition toward a more sustainable economy; and by offering risk management expertise to build awareness, reduce exposure and increase resilience. The insurance sector has a clear understanding of the long-term costs of unmitigated climate change. With a direct financial interest to act, the industry will be an important element in the transition to a more sustainable planet. 

See also: Insurtech Is Much More Than Just Hype

In closing 

It may sound counter-intuitive, but digital technology may just be the thing to restore or enhance the customer relationship. Digital flows can reduce the friction in quoting and binding policies or radically reduce lead times in handling claims, replacing on-site with remote inspections. This does not mean the end of personal channels. There are complex situations and products that call for advisers and face-to-face discussions. And while personal contact may have become too expensive or time-consuming, having a brief online meeting can be an excellent alternative. But simple, administrative tasks need to be automated, as there is no sustainable competitive advantage in performing these by hand. 

We’re living in a world of digital transformation, with insurtechs looking to exploit inefficiencies across the insurance value chains. It’s critical for all players to improve their digital capabilities. Insurers have essential qualities: capital, distribution channels, talent and a huge repository of knowledge and expertise. It’s becoming increasingly important to be able to harness those assets. The cost of falling behind isn't because you witness a sudden drop in revenues but because, to remain relevant in the long run, you must provide a great place to work for top talent and foster your position and relevance in today’s society. 

We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run (Amara’s law). In other words: Change happens gradually, then suddenly. Do you also feel we’re now getting to the sudden part? We’re interested in your thoughts!

Nothing is stitched together like a baseball.

A baseball uses only two pieces of leather, each cut in an hourglass pattern and sewn in such a manner that there is a continuous line of nestled Vs, like the birds you might have drawn as a kid. The stitches are raised, allowing pitchers to vary the spin on the ball, which affects the trajectory and better enables strikes. In this way, every stitch has a small impact on the outcome of the game.

Today we’re discussing insurers and the ways that they can grow business by providing the next-generation agent experience. This experience will incorporate agents and customers in a digital process. Can insurers cut two pieces of experience that align and fit together, then bind them with technology that will give them strength and allow them to work together as one, cohesive distribution tool? Can they use all of their resources to put their creation into action, pulling together a digital dream team that’s built to compete?

Majesco has been focusing on how insurers can Build a Field of Insurance Dreams by using next-gen technologies to prepare themselves to compete. Some insurers are making their strategies come to life by stacking in cloud-native computing, microservices, API-ready connections, data and automation. Insurers must be very thoughtful in how they pull together the best of the best to achieve optimal results. 

In September, Celent expanded our study of the agent/insurer relationship with the release of a Majesco-commissioned report, Reshaping the Distributor Insurer Relationship: A Survey of Independent Insurance Agents. I then discussed the findings with Karlyn Carnahan, head of P&C insurance, Celent, and Brad Denning, principal at PwC who leads their distribution management practice, in a fascinating webinar, Seismographic and Technology Shifts Reshape the Distributor-Carrier Relationship. Our conversation was instructive for any insurer that uses agents as a part of distribution, because it covered not only what is needed to foster the best relationships but discussed the overall philosophy and strategy for forging valuable tech solutions. Below are excerpts. We started with Karlyn’s overview of the Celent report.

A field in the midst of change

Demographic pressure, customer experience pressure, ease-of-business issues and digital technologies are sweeping through the industry and shaking up the distributor-insurer relationship.

Karlyn Carnahan

“Agents are going through a lot of changes that they are trying to deal with just as insurance carriers are. The shifting customer expectations that carriers are facing are also impacting insurance agents. Customers expect to be able to interact 24 hours a day, and independent agents don't typically work 24 hours a day, so they're trying to figure out how to create their own digital transformation in order to manage these customer expectations. Most agents aren't equipped to do that.”

And there are changes within the agencies themselves. Partners are retiring. Mergers are more frequent. Insurers need to educate new agents quickly at the same time they are helping them to put together relevant offerings.

Of course, the insurer has its own goals. They are looking at this generation of customers and knowing that digital service must be broad and, in many ways, automated to achieve the speed customers want as they gather information or transact business.

See also: Future of Digital Insurance Claims

Did the path to digitalization end with agent portals?

Denise Garth

Digitalization is a wide-open topic, and there are a lot of definitions relative to distribution. How do you define it? Why is it more than just agent portals? Why does a digital initiative need to accomplish improvements for both the front and the back office?

Brad Denning

“When we first started down this path, [digitalization] was focused on efficiencies and taking costs out of the system. Insurers were trying to automate and bring efficiencies to all of the manual processes and the movement of paper. Once that was accomplished, it seemed as though everyone just moved toward an agency portal type of solution. People thought, 'If we’ve put everything on the portal, we've digitized everything.'

“But sometimes we see challenges when carriers don't necessarily take into account what digital transformation really means for their agencies and their producers — thinking about their distribution force as true customers. You have to take that customer-centric view of what it means to be digital. And if you don't look at both the front and back office, you're going to be neglecting an important part of the value chain.

“There is a wide variety of distributor expectations, and, certainly as they move forward, that has to be keenly monitored by carriers so that they are meeting and exceeding expectations to maintain those strong relationships with key producers, attracting new producers as each generation continues.”

Agent to Carrier — “Know me. Know my business.”

If you’re wanting to create a distribution dream team, you want to give the agents with the skills the best tools to help them do what they do best. Interacting with agents requires knowing agents — not just knowing a little bit about the agent mindset, but deeply understanding agents and the way in which they work to get their jobs done; otherwise, digital work is wasted. The agent perspective provides competitive knowledge.

Denise Garth

“Let’s look at the agency perspective, rather than the operations perspective and expand on the outside-in view.”

Karlyn Carnahan

“The challenge that insurance companies have is that we've been thinking about the customer experience, but from an internal perspective. We think very transactionally around our own workflow. How do I process a payment or make a claim? It's important to streamline, eliminate friction and automate where possible, but that is driven around our own workflow. That's not necessarily how an agent or policyholder thinks about the customer experience.

“From an agent's perspective, it's much broader than the pure transaction. The agent is thinking, 'Know me and recognize the value I have and help me protect my clients and help me service my clients. Contractually speaking, they are my clients, not yours, so don’t disintermediate me and don’t get in the way.'”

Not knowing the agent — an example

Knowing the agent may sound simple, but, in reality, understanding must go beyond surface workflow into the deeper motivations and activities. The problem with minimal understanding is that an insurer will inadvertently create great capabilities that may never be used because they aren’t built using the agent perspective.

Karlyn Carnahan

“I was interviewing a CSR, and she was talking about a particular carrier. She said, 'I could request my endorsements online. They've enabled it. It's faster. It's easier. I could do it and get it over with, but I will never use their functionality,' and I said, 'Well, why not? That doesn't make sense.'

“She said, 'Because when I put in the information requesting the endorsement, I don't get confirmation. So, here's the use case: I put in my information. The underwriter takes a few days and between the time that they process it and I request it, there’s a loss,' she said. 'I have no proof that I asked for that endorsement. And that puts me in an E and O situation.'

That’s an incredibly thoughtful response that confirms the issue. Carrier digitalization of agency processes must include thorough research into actual agency usage and needs.  

Are insurers aligning user experiences?

Brad Denning

“Up until recently, most carriers have looked at customer experience as the policyholder experience — and the producer experience as a completely different set of priorities and governing principles. This can leave the producer experience lacking. When you're not aligning your customer experience at the enterprise level to your strategy or to your producer, you find producers running into experiences that carriers would never put upon their policyholders. How do you interweave and collaborate so that those experiences are unified? Accounting for nuances is extremely important for carriers.”

Preparing for next season — how do insurers begin making distribution changes?

Brad walked us through a Distribution Management Maturity Model that accounted for five states of distribution inside an insurer. These ranged from “Current state chaos” to “Predictive analytics & AI.” I then asked Brad and Karlyn to help insurers envision moving through these states of distribution and what is involved. The idea isn’t to go from one to five overnight. The idea is to progress. How should insurers begin their journeys?

Brad Denning

“I would encourage insurers to first document pain points and use data to highlight the impact of those pain points on your organization.

• How many people are used to doing “X” process?
• How many different manual processes are used to satisfy a particular enterprise process?
• What's the spending associated with maintaining X, Y and Z?

“It’s not that difficult to come up with five to 10 metrics and measurements of that current state. And usually when you're in that state, the data is easy to find, and it's hard to refute. You then build the story of, 'Wouldn't it be better if we could do X, Y and Z?' Build a fact-based case to get alignment within the organization that there is a problem, but there is an opportunity for operational efficiency.”

See also: Underwriting in the Digital Age

Karlyn Carnahan

“Here is a relatively simple and easy thing to do. Start by sending a quick survey out to your agents, and say, 'Here are 12 items. How important are they to you?' Ask, 'How well are we doing these things?' You’ll see whether or not you're providing the agents with the things that are most important to them.

"Follow that question up with, 'If we were able to improve it, how likely is it that you would send more business to us?'

"Now you have your answers. You have both the internal piece, as Brad suggested — 'What is the cost of being inefficient?' Then you have the external piece — 'Where should we begin thinking about these inefficiencies to find that low-hanging fruit, and what kind of an impact would it make in terms of new business production?'”

"Some insurers will be sidelined at this point because they think, 'I can’t do this until I replace my core system.'

"That's not true. There are other options than replacing your core system. It might be a strategy to think about, but there are other things that you can do faster in order to deliver a better experience for your agent and provide the capabilities that they're looking for. Wrapping with a digital platform is a very realistic option to provide some great capabilities.”

Are you ready to play the game?

The Field of Insurance Dreams is filled with opportunities. Can we design and build the insurance experiences that are meaningful for customers and the agents who serve them? Transformation begins with understanding. Alignment is crucial. Technology can bring us efficiencies and satisfy user expectations. If it’s time to look at your distribution with an eye toward the future; don’t delay!

For the full set of distribution insights, be sure to download Reshaping the Distributor Insurer Relationship: A Survey of Independent Insurance Agents, or view the full conversation in to our Majesco webinar, Seismographic and Technology Shifts Reshape the Distributor-Carrier Relationship.

The growth of so many organizations is slowed by the reluctance to hold team members accountable for producing results. We have to reframe the way we think about accountability and stop looking at it in such negative terms.

Accountability is a reflection of how important each team member is to your success.

Agencies struggle with accountability for two reasons. One, they fear it and only think of it in negative terms. Two, they aren’t sure how to create a healthy culture of accountability.

Removing the stigma

When you hear the word “accountability," what immediately comes to mind? Chances are you cringe a bit and start thinking about having difficult conversations and critiquing your team members. And that can be part of accountability. The ironic thing is, though, a culture of accountability prevents most of those types of conversations from being necessary.

Every role on your team is critically important; there are results you must get from each. If those results don’t happen, the team and the business suffer. If you don't hold the individuals filling those roles accountable for making necessary contributions, the message is that they, and their role, aren't that important.

Imagine if the leader sat five people down and asked four of them to discuss their progress toward their goals but didn't ask the fifth. I promise you that the fifth person would walk away feeling as if they weren't important and that their contributions didn't matter.

A healthier cadence

Perhaps people have such negative connotations associated with accountability because accountability is a step of last resort—it only happens once something has gone horribly wrong. Accountability should be part of regular and frequent conversations that take place among the team.

It isn’t about looking for reasons to criticize. It's about monitoring progress toward goals and ensuring each team member carries their weight. The opportunities to celebrate that progress then become more apparent for individuals and the collective team.

In an even marginally successful organization, accountability results in far more opportunities to celebrate than it does in criticism.

Believe it or not, your team, especially the highest performers, wants to be held accountable. They want to know that their efforts are important, recognized and celebrated.

See also: The Sharing Economy and Accountability

Building a foundation of healthy accountability

The steps to successfully introducing and maintaining a healthy culture of accountability aren't difficult to follow. Because agencies tend to hold their salespeople the least accountable of any team members, I will use that role in my examples where appropriate.

Step One

Define the key results you need to get from each role on your team. Fight the temptation to list all the results you may get; stay focused on the two or three that are most important.

Producer example — The key results would be to (one) write new business and to (two) retain current clients.

Step Two

For each of the results identified in Step One, identify the primary behaviors necessary to produce results. Again, stay focused on the two or three most important behaviors.

Producer example — (using the new business example) For a producer to write new business, they must (one) regularly add new opportunities to their pipeline and then (two) efficiently and effectively close those opportunities.

Step Three

Determine how to validate and quantify that the behaviors identified in Step Two are happening. These become the key performance indicators (KPIs) for each role.

Producer example — The KPIs for the goal of writing new business should be (one) the number of opportunities recently added and (two) the conversion and close rates of the opportunities already in the pipeline.

Step Four

Nobody should be more vested or invested in the success of a position than the individual filling it. Provide your team with the tools to track their KPIs and give them the responsibility to track them. This act alone will usually improve results. The things we measure tend to improve.

Step Five

Review those KPIs in regular one-on-one meetings. At a minimum, leaders should have monthly one-on-one meetings with each team member to review their KPIs. There will then be frequent opportunities to celebrate progress and, if results are lagging, a chance to correct the behaviors in a timely manner.

See also:Eliminating AI Bias in Insurance

It’s the right thing to do

In an organization that has avoided accountability, getting started may be a bit uncomfortable. But, for the benefit of the business and especially for each individual depending on the business, it’s the right thing to do.

If you deal with the initial discomfort of accountability, you'll likely never have to deal with the pain of missing your goals.

Download the Producer Planning guide for an outline of the KPI tracking plan.

The Tax Cuts and Jobs Act of 2017 (TCJA) changed the landscape of the municipal market in several ways, as the buying behavior of both P&C and life companies altered their allocations to the asset class. P&C companies shied away from increasing the amount of tax-exempt municipals they owned, in some cases reducing holdings. Life insurance companies used the increase in taxable supply to complement longer-duration corporate allocations. 

In the past four plus years, relative value has diminished across investment-grade fixed-income sectors. However, Conning notes that segments of the broader $4 trillion municipal bond market offer insurers opportunities not only for diversification but to also to enhance portfolio yield and improve aggregate credit quality. 

The municipal market has a larger percentage of securities rated A- or better than the corporate market, and they often offer higher yields than corporate debt of similar quality and duration. Municipal securities, particularly taxable deals, will typically have a longer duration and a lower history of defaults than corporates (see Figure 1).

Figure 1 Municipal vs Corporate Bonds

Starting high level and then homing in on a specialized subsector, Conning has identified four municipal market segments that could offer value to an insurer’s portfolio: taxable municipals, not-for-profits institutions, lower-coupon tax-exempt securities and tax-exempt mortgage securities (TEMS). 

1. Taxable Municipals 

The less mainstream taxable municipal market offers insurers more opportunities to invest in longer-duration, higher-quality securities that, on average, offer greater yields than corporate debt of similar tenor and quality. 

The taxable municipal market grew out of 1986 legislation that limited issuance of tax-exempt bonds, and issuance has spiked twice in the interim. When the tax-exempt market seized up amid the financial crisis in 2008, municipal issuers turned to Build America Bonds (BABs), which were issued as taxable securities but provided municipal issuers a direct 35% federal subsidy (see Figure 2). The second spike resulted from the aforementioned TCJA passage, which ended the advance refunding of tax-exempt debt with other tax-exempt debt, effectively reducing new tax-exempt issuance and driving up taxable issuance. 

Figure 2: Taxable Municipal Issuance 2008-2020

Insurers with concerns regarding the dwindling supply of higher-quality corporate debt issuers may find taxable municipal securities an effective alternative. In addition, the National Association of Insurance Commissioners (NAIC) has adopted new risk-based capital (RBC) bond factors for year-end 2021, and the larger amount of higher quality debt available in the municipal market offer insurers more options to potentially address RBC concerns. 

The taxable municipal market today features more robust liquidity, and demand from domestic as well as foreign investors has increased at a rapid rate. According to Municipal Securities Rulemaking Board, total municipal trading volume in 2020 was $1.93 trillion, with $371 billion, or nearly 20%, being taxable. The federal government’s current focus on an infrastructure bill may lead to additional opportunities, including the possible return of a financing program like BABs with a subsidized interest component. Reintroduction of such a program could see issuance of $150 billion to $180 billion in the first year alone.

2. Not-for-Profit Institutions 

Debt issued by not-for-profit entities such as hospitals and higher education institutions via the corporate bond market rather than the municipal market offers insurers diversification and greater spreads than comparably rated investment-grade corporate debt. 

Known as “corporate CUSIP taxables,” this growing class of securities is a sub-class of municipal bonds that utilize a corporate CUSIP identifier. Issuers decide whether to issue via the corporate or municipal market based on financial considerations, such as the use of funds, funding costs, depth of investor pools, and ease of registration, and typically access the corporate bond market to issue longer-dated structures. While these issuers come to market with corporate CUSIPS, they are issued by a municipal syndicate, traded off municipal trade desks and covered internally by Conning’s municipal research analysts. 

See also: Death, Taxes and Life Insurance Trusts

Hospitals and higher education institutions combine for more than 80% of this market’s issuance and offer insurers opportunities to expand their investable universe from a pool of higher quality debt than traditional corporates. One recent example demonstrates the type of opportunities available. Conning was able to invest in a new issue 20-year debt of an A1/AA- rated healthcare institution at 90 basis points over Treasuries, a significant pickup to similarly rated corporate debt in that part of the curve. Conning initiated internal coverage of the credit with a Low AA rating and Stable outlook based on a strong market position and financial metrics that held up during the pandemic. The credit also has a successful growth strategy which made us confident in the institution’s long-term prospects.

3. Lower-Coupon Tax-Exempts 

Tax-exempt municipals issued with coupons below 5% offer investors to take advantage of yield differentials which affect retail and not institutional investors known as the "down in coupon" trade. For example, in the current market, the average 3% coupon currently offers around 35 basis points of additional yield over 5% coupons in the 15-20-year part of the curve (see Figure 3).

Figure 3: "Down in Coupon" Yield Comparison

This opportunity comes about because of a change in tax laws 30 years ago that was aimed not at institutions but at the largest holders of municipal bonds: retail investors. Conclusion Despite the dramatic changes in the U.S. municipal capital markets during the past four years, insurers should not ignore the sector altogether. There are pockets of the municipal market that may offer relative value in a market where value can be hard to find. Conning encourages insurers to keep their eyes open for select opportunities in both the taxable and tax-exempt municipal markets. Our experience reminds us that markets are always evolving, and our goal is to help insurers take advantage of unique opportunities as they arise and help clients build portfolio investment solutions to address their business needs. 

A provision of the Revenue Reconciliation Act of 1993 focused on retail investors’ purchases of municipal bonds at a “discount” (a formula determines the minimum discounted purchase price). The new law decreed that, if a “discount” security was eventually sold, transferred, or redeemed, the accrual of that discount would be taxed as ordinary income rather than at the holder’s capital gains tax rate. 

This law change does not affect insurers, which pay the same tax rate for both ordinary income and capital gains. However, individuals in the highest tax bracket could be faced with more than double the tax liability for these securities (the 35% rate for ordinary income versus the 15% for capital gains) should they sell them before maturity. The additional yield is intended to compensate the retail investors for the potentially higher tax liability, but insurers can take advantage of the higher yields when presented. With Conning’s deep experience in the municipal bond market, we can identify and assess these opportunities on a security-by-security basis.

4. Tax-Exempt Mortgage Securities (TEMS) 

A narrow but potential opportunity to enhance yield and diversification also exists in tax-exempt mortgage securities (TEMS). 

TEMS are long-dated debt issued by the housing finance authorities from two state housing agencies: Utah and Idaho (the latter no longer issuing new debt). The securities are structured as mortgage-backed securities with cash flows mapped to a specific Ginnie Mae pool. Each monthly series of issuance is secured separately from previous offerings and must be evaluated on a deal-by-deal basis. The first TEMS issuance was in May 2014 and to date there has been $2.66 billion with the average monthly issuance over the past 12 months of $43.3 million.

See also: Self-Insured Retention vs. Collateral – What is the True Cost of Risk?

These securities are slightly more expensive than if the underlying GNMA collateral were purchased directly, but investors are compensated as most income received is tax-free, thus at times offering relative value to Ginnie Mae MBS and other tax-exempt alternatives. As the debt is backed by mortgages, it offers insurers diversification and an amortizing structure with a much shorter duration profile, albeit with refinancing risk. 

Conning has long experience with the underwriters of these securities and municipal traders collaborate with our MBS desk to assess relative value on each offering. Our recommendation to clients who find this subsector attractive is to participate not just in one deal but a number over time, redeploying cash flow from prepayments to maintain a target TEMS allocation in a portfolio over time.

Conclusion 

Despite the dramatic changes in the U.S. municipal capital markets during the past four years, insurers should not ignore the sector altogether. There are pockets of the municipal market that may offer relative value in a market where value can be hard to find. Conning encourages insurers to keep their eyes open for select opportunities in both the taxable and tax-exempt municipal markets. Our experience reminds us that markets are always evolving, and our goal is to help insurers take advantage of unique opportunities as they arise and help clients build portfolio investment solutions to address their business needs.

Board members and company executives can be held liable for an increasing range of scenarios. Today’s market volatility, with the increased threat of asset bubbles and inflation, the prospect of a growing number of insolvencies due to the pandemic environment, together with rising scrutiny around the environmental, social and governance (ESG) performance of companies and the urgency for robust cyber resilience are key risks for directors and officers (D&Os) to watch in 2022, according to the latest annual D&O report by Allianz Global Corporate & Specialty (AGCS).

Uncertain insolvency issues continue to be key topic in the D&O space

The withdrawal of support for companies established during the pandemic sets the stage for a gradual normalization of business insolvencies in 2022. The Euler Hermes Global Insolvency Index is likely to post a +15% y/y rebound in 2022, after two consecutive years of decline (-6% forecast in 2021 and -12% in 2020). 

While the wave of insolvencies has so far been milder than anticipated, mixed trends are expected across the world. In less-developed markets, such as Africa or Latin America, the number of insolvencies is expected to increase faster compared with more developed economies, such as France, Germany and the U.S., where the impact of the governmental support is expected to last longer. 

Traditionally, insolvency is a major cause of D&O claims as insolvency practitioners look to recoup losses from directors. There are many ways that stakeholders could go after directors following insolvency, such as alleging that boards failed to prepare adequately for a pandemic or for prolonged periods of reduced income. 

Market volatility, climate change and digitalization key issues 

The financial services industry, but also companies from other sectors, continues to face multiple risk management challenges in the current economic climate. Markets are likely to become more volatile with the increased risk of asset bubbles and inflation rising in different parts of the world. At the same time, more banks and insurers are expected to assign individual responsibility for overseeing financial risks arising from climate change, while investors are paying closer attention to the adequate and timely disclosure of the risk that it poses for the company or financial instrument they invest in. The tightening regulatory environment, the prospect of climate change litigation or ‘greenwashing’ allegations could all potentially affect D&Os. 

Meanwhile, digitalization has accelerated following COVID-19, creating enhanced cyber and IT security exposures for companies. This requires firms’ senior management to maintain an active role in steering the ICT (information and communication technologies) risk management framework. 

See also: CISOs, Risk Managers: Better Together

IT outages and service disruptions or cyber-attacks could bring significant business interruption costs and increased operating expenses from a variety of causes, including customer redress, consultancy costs, loss of income and regulatory fines. Last, but not least, brand reputation can also suffer. All this can ultimately affect a company’s stock price, with management being held responsible for the level of preparedness.

Heightened litigation risk in the U.S.

Litigation risk continues to be a top D&O concern, in particular around shareholder derivative actions, which are increasingly being brought on behalf of foreign companies in U.S. courts. 

Since early 2020, a group of plaintiffs’ firms has brought more than 10 derivative lawsuits in New York state courts on behalf of shareholders of non-U.S. companies seeking to hold directors and officers legally and financially accountable for various breaches of duty to their corporations. 

The financial hurdles to bring suit in the U.S. are significantly lower than in many other countries, and U.S. courts and juries are considered more plaintiff-friendly than many others around the world. The consequences to directors and officers forced to defend themselves in derivative litigation before U.S. courts can be severe. In what may turn out to be a record-setting settlement for a U.S. derivative lawsuit, in October of this year defendants agreed to pay a minimum of $300 million to settle litigation brought in a New York state court by shareholders of Renren, a social media corporation based in China, and incorporated in the Cayman Islands, after allegations of corporate misconduct.

Elsewhere in the U.S., the report notes that a decision by the Delaware Supreme Court in 2019, Marchand v. Barnhill, which focused on the fallout from a listeria outbreak, is potentially leading to greater exposure for individual corporate directors in the form of shareholder derivative suits, as it is seen to have lowered the previously high standard required for plaintiffs to prove a board’s failure to comply with their duty of care, as established in the landmark Caremark Int’l verdict in 1996. Board members must accordingly re-examine whether there is sufficient Side A cover (which covers liabilities incurred by an individual in their capacity as a director or officer) in their D&O insurance program.

Scrutiny over SPACs

Another emerging risk in the global D&O insurance space comes from the growth of so-called Special Purpose Acquisition Companies (SPACs), also known as "blank check companies." These represent a faster track to public markets. Advantages fueling the growth of SPACs over traditional initial public offerings (IPOs) include smoother procedures, less regulatory and process burdens, easier capital sourcing and shorter timelines to complete a merger with target companies. 

During the first half of 2021, the number of SPAC mergers in the U.S., both announced and completed, more than doubled the full year total of 2020, with 359 SPAC filings raising a combined $95 billion. The growth of SPACs in Europe may not match the scale of the U.S. boom, but there is still a growing expectation that it will increase despite a less favorable company law environment compared with the U.S. In Asia, the market is slowly gaining momentum, with a significant uptick in companies in China, Hong Kong and Singapore as a new route to accessing capital markets.

See also: Where Were the Risk Managers for King’s Landing?

SPACs carry a set of specific "insurance-relevant" risks, and losses are already reported to be flowing through to the D&O market as both the SPAC and the private target company typically obtain D&O coverage. Exposures could potentially stem from mismanagement, fraud or intentional and material misrepresentation, inaccurate or inadequate financial information or violations of rules or disclosure duties.

In addition, a failure to finalize the transaction within the two-year period, insider trading during the time a SPAC goes public, a wrong selection of a target to acquire or the lack of adequate due diligence in the target company could also come into play. Post-merger the risk of the go-forward company to perform as expected or failure to comply with the new duties of being a publicly listed company also needs to be considered.

To learn more about D&O risk trends, please see the full report at AGCS annual D&O report: 2022.

People love to play games. And gamification can help carriers leverage behavioral psychology to increase sales and reduce customer churn — especially as people buy more insurance online. 

Carriers that have adopted gamification in their marketing strategies are already experiencing the benefits. For instance, Aetna, a health insurer, saw a 50% increase in healthy behaviors from their clients after implementing gamification techniques companywide. 

What Is Gamification?

Gamification refers to the use of game design elements to improve customer experience and customer engagement. They can include quizzes, contests, point systems and leaderboards.

Gamification can make tedious processes fun! Some of the best ways to gamify your customers’ interactive experience include: 

Several insurance companies have adopted gamification in their marketing strategies. Some of the most common applications of gamification in insurance include: 

• Educating customers on products/services 
• Simplifying complex processes 
• Promoting innovative business models 
• Promoting the company’s brand 
• Promoting awareness for healthy behavior 

Gamification in Insurance

Lead Generation 

Some insurers are using gamification to educate clients on their products. Carriers can facilitate this by creating gamification systems and applications that provide customers with information about the different insurance plans available to them. 

For example, Tryg, a Danish insurer, created a quiz about dental health. The quiz was intended to generate leads for their outbound team and increase awareness of their dental insurance products. The test had five teeth-related questions, such as, can white wine stain your teeth the same way red wine can, etc. 

The quiz produced 595 leads, and a 29% conversion rate for those who completed it. Those who participated were informed beforehand they’d receive a call from Tryg’s outbound team, who answered questions about their products and gathered even more leads. 

This method of gamification taps into the user’s emotions by making them feel like they have accomplished something by completing the quiz while the insurer promotes their brand and educates clients on their products/services. 

See also: Gamification: Key to Engaging Sales Force

Encouraging Healthy Living

Gamification can also influence people to change their behavior for the better by raising awareness for healthy behavior. 

For example, UnitedHealthcare, a health and life insurance company, created a program called “UnitedHealthcare Motion” that uses a gamification app to help companies improve the health and well-being of their employees. 

Each plan member is given an activity tracker and an app to record their daily activity. The app is personalized using local maps so users can know what 10,000 steps look like. If an employee meets their daily walking goals, they get an opportunity to earn $1,000 for out-of-pocket medical expenses. 

UnitedHealthcare’s gamification is successful because it generates competition and accomplishment among the users who meet their goals and allows the users to progress over time. 

Building Brand Affinity 

Some insurers are even integrating branded elements with existing games and applications to increase brand affinity with a new user base. 

For example, Farmers Insurance Group, a home, auto and life insurance company, integrated a Farmers-branded blimp to Zynga’s popular FarmVille simulation game. In the FarmVille game, each user is given a virtual farm with crops to protect and harvest. 

The carrier-branded blimp can help protect players’ crops from withering away. Thanks to one retro-pixelated blimp, the Farmers brand is now associated with the concept of protection -- in a fun way -- in the minds of countless players.

This is an excellent example of how insurers can use gamification to their advantage without creating an entire system or application from scratch. 

Tapping Intrinsic Motivation

Insurance companies need to understand how gamification can influence emotions and behavior. 

Psychologists point to two types of motivation: intrinsic and extrinsic.

• Intrinsic motivation occurs when we perform an activity for our internal satisfaction and internal rewards rather than material rewards. 
• Extrinsic motivation happens when we complete a task based on external causes, such as avoiding punishment or receiving a reward. 

While extrinsic motivation is helpful in the short term, intrinsic motivation produces more lasting results. 

When customers are intrinsically motivated through personalized gamification strategies, they are more likely to have long-term loyalty and be satisfied. This is because intrinsic motivation goes beyond points and badges; it affects a user’s sense of competence and self-efficacy. 

For example, suppose an auto insurer created a customer engagement/road safety awareness program where users track their driving behavior through telematics. The insurer could identify hazardous driving behaviors the user shows and improve their safety based on the data. In that case, gamification ultimately affects intrinsic motivation because the user's action is motivated by the internal satisfaction of driving more safely, continuing to best himself and potentially lowering his premiums.

Creating a Meaningful Gamification System

Scott Nicholson, an author and professor of game design and development at Wilfrid Laurier University, says scoring systems are based on assumptions and biases of businesses that created the game. To create a gamification system that has long-term success, carriers must generate games that connect with users’ goals and values. 

For example, people have different priorities when it comes to their health. Insureds experiencing high levels of stress might find more value in a game that rewards them for meditation. Overweight customers might prioritize a game that encourages them to exercise daily. By adding options to the game, insureds can focus on areas that are most important to them and establish a more prosperous relationship with their carrier. 

See also: Building Healthy Workplaces

Get in the Game 

Insurers need to understand how gamification can help customers stay engaged, understand insurance products better, lower their premiums and improve their lives all at the same time. As insurance becomes more digitized, carriers should experiment with gamification across their digital properties to better connect with customers. With gamification, they can better understand what customers want and simplify complex processes to speed purchasing of insurance products. 

Of course, insurers also need modern systems for underwriting, rating and processing new and renewal business before committing to gamification.  Without state-of-the art internal systems, gamification is more likely to fizzle than sizzle and frustrate rather than entice.