Insurers have offered some level of digital capabilities for sales and service for years, but customers’ and distributors’ adoption has been slow. When the COVID-19 pandemic emerged, carriers had to evolve their digital offerings seemingly overnight. While this shift to digital improved customer experience, sped up service and policy issuance and cut costs, it also opened up opportunities for bad actors to commit financial and identity fraud. 

Strong digital capabilities mean insurers also need strong identity verification and fraud mitigation capabilities. The best way to keep the security up to date is to think of it as a continuous process, with regular evaluation of the defenses and enhancements or deployment of new solutions when necessary. 

The Rise of Digital Interactions

Insurance customers, like those in other financial areas, are at risk of identity theft. In most cases, this happens through a large-scale data breach, but it may also occur when a family member fraudulently purchases a policy, for example. As more interactions occur digitally, the number of fraud instances rises. 

Aite-Novarica Group research shows that more than 75% of carriers across life, personal and small commercial lines of business saw more digital activity from customers for both underwriting and claims in 2020. Underwriting data submission is seeing online activity grow significantly. For half of insurers, the rate of digital data submission grew by 50% or more from the year before. 

Other drivers of higher digital activity for life insurers include the adoption of electronic health records for use in underwriting, changing the way agents and customers interact. In personal lines, inspections can be conducted virtually, and artificial intelligence can help assess property or vehicle damage and move the claims process along independently. 

This higher rate of digital transactions is expected to continue, bringing in a new era for insurance carriers. While this shift is largely due to the pandemic, it’s also related to consumer preferences. Younger purchasers are increasingly buying goods and services across industries online, and older customers have familiarized themselves with these methods more during the pandemic. 

See also: Innovation in Fraud-Detection Systems

Emerging Risks

While digital interactions improve the customer experience, they also make carriers and policyholders vulnerable to a new level of risk. Sixty-seven percent of insurers noted that they have seen a higher level of fraudulent activity as a result of their increased digital traffic. Fraud has increased nearly evenly in three main areas: the point of application, the point of account access and the point of payment. 

Account takeover is of high concern for life insurers; the lack of advanced identity security available at call centers serves as an opportunity for those looking to commit fraud. They might call saying they forgot their policy number, then answer security questions with stolen personal data and reset the account password to take over the account fully. Property/casualty insurers have noted a rise in claims fraud through illegally obtained policies. 

Multilayered Approach to Minimize Customer Friction

Insurers should ensure their fraud mitigation and identify verification processes provide a smooth customer experience while also protecting all stakeholders from advanced fraud tactics like synthetic identities and stolen personal information. This should involve a multilayered approach that spans both functional areas and capabilities, assessing gaps and strengths. A multilayered approach requires merging data from all available sources, combining fraud solutions and increasing security controls based on specific user information. Multifactor authentication, digital fraud risk scores and link analysis can all help insurers address fraud risk. No single technology will detect and prevent all fraud, but, rather, a combination of solutions and coordination across functional areas will bolster defense throughout the policy life cycle.

To learn more about how insurers are combatting the increased fraud activity emerging with digital capabilities, read Aite-Novarica Group’s full report Insurance Fraud: Rethinking Approaches in the Digital Age.

Employers are adjusting their workplaces to accommodate evolving expectations of the workforce and regulatory requirements. How have human resources leaders aligned benefit and HR programs to support new or changing business needs? How are employers addressing the return to the office? With an increasingly competitive landscape for recruiting talented employees, how are organizations attracting and retaining talent? And how are employers pivoting to advance diversity, equity and inclusion initiatives?

The recent virtual conference, Elevate, presented by Out Front Ideas with Kimberly and Mark, hosted a panel of human resources leaders to answer these questions and more. The guests were:

• Paul Garrier — vice president, global total rewards operations, PepsiCo
• Misty Hambright — senior manager, benefits strategy, American Airlines
• Michelle Hay — global chief people officer, Sedgwick

Adapting to the Vaccine Mandate Requirements

As employers await a ruling by the Sixth Circuit Court of Appeals on the vaccine mandate, many have already invested significant time and energy to encourage workers to get vaccinated. PepsiCo has provided incentives for those choosing to get vaccinated and has made it easier for employees to receive a vaccine. Yet, there is hesitation to require vaccination within an ever-tightening labor market because it could alienate some groups. Employers are focused on keeping workers safe but are also trying to balance their messaging on requirements.

Other employers have shifted to a fully remote work environment and have not yet had to approach mandating the vaccine. To keep their employees safe, Sedgwick pushed back their return to the office to 2022. The company is also focusing on recruitment and retention efforts, leading to further hesitation to require vaccination. 

Reassessing Worker Needs in the 'Great Resignation'

The term “Great Resignation” has come to describe the phenomenon of employees quitting their job after reevaluating their employers throughout the pandemic. The record loss of workers meant employers were faced with reassessing the needs of their workforce, with a particular focus on benefits and flexibility. While this has been a dynamic issue, employers must view it through their employees’ lens.

While PepsiCo has not seen a mass exodus, the company has been keenly aware of the additional stresses on their workers, such as the pandemic and social unrest. The company has focused on providing support and changing the employee value proposition while also digitizing the benefits experience to engage their workforce.

When evaluating attrition trends, Sedgwick has found a higher loss of workers employed less than a year. These employees may feel less connected to their colleagues or managers without an in-person connection and find it easier to leave the job. Sedgwick has counteracted those losses by redesigning onboarding, accounting for the virtual nature of the work, with an emphasis on building new employees’ contributions and confidence in the first few months. The company is also equipping people managers to check in more frequently with employees. Empowering employees to know what benefits are available to them and how to take advantage of those benefits has also proven critical. 

Airlines were hit particularly hard throughout the pandemic when travel was restricted or discouraged. American Airlines saw 40% to 50% lower capacity, forcing severance packages or extended leave. Now, with a return to travel, American has felt the effects of the labor shortage. Where free travel on standby used to be enough to recruit individuals, the company has had to expand benefits significantly. A redesigned web experience, extensive maternity and disability leave, gender dysphoria benefits and the expansion of gender reassignment benefits have all been vital in recruiting efforts. The company has also kept these benefits public as a recruiting tool and educational tool for both employees and executives.

Supporting the Underrepresented 

People of color (POC), LGBTQ+ and women represent those hit the hardest by the pandemic. Fears around health and safety in the workplace, career progression, isolation and mental health have been driving concerns for these minority groups. Interactions with different colleagues have been critical in reducing biases, which has not proven easy with work happening remotely. Women also faced increased household responsibilities, reducing their representation in the workforce. 

While visibility and influence within organizations have increased for minority groups, employers should still focus on their representation. PepsiCo has looked to expand representation within the organization’s managerial roles while also strengthening efforts through the support of minority-owned businesses and community impacts. The company has encouraged business partners to follow suit. 

Social capital -- a set of shared values that allow individuals to work together to achieve a goal effectively -- is essential in an inclusive work environment, and employers should equip managers to understand how the issue affects minority groups. Managers should also have resources and mentors available for individuals in those groups. 

See also: How Workplace Has Changed for Women

Managing Social Media Brands

All organizations have a brand to represent, and the proliferation of social media has made protecting that brand more challenging than ever. Organizations should have a plan to directly respond to their mentions across social media. That plan should include reframing how they connect with their audience and creating a different mindset to anticipate potential issues. 

Social media may have its pitfalls, but it is instrumental when bridging the divide between commercial and employment branding. Glassdoor recently stated that 79% of job seekers use social media when conducting a job search, with over 84% of organizations recruiting through the platforms. In the current labor shortage, social media can prove especially important in recruiting and retaining.

Evolving Benefits

Thinking outside the traditional benefits strategy has become a necessity with increased employee demands. American Airlines rose to the challenge through expanded retail health benefits, recently pivoting its pharmacy benefits manager to CVS. With this integration, employees had minimal disruption to their pharmacy program and were given a more holistic approach to their health. 

American Airlines also sought to ease concerns around healthcare costs post-retirement. When forced to reduce staff at the height of the pandemic, American offered offered retiree health reimbursement arrangements as part of the early-out packages. The company has built the offering into the 2022 health plan, enabling employees to receive account credits from the company over the years by using preventative health measures. 

The Future of Work

If the pandemic has proven the need for anything, it is flexible and hybrid work environments. Some employers will shift from employee-managed schedules to a minimum requirement of in-office workdays. Getting back to an in-office setting is critical to dynamic collaboration and mentor development, but balancing it with remote work is just as crucial for recruiting and retaining.

View the archived recording of this session here.

The COVID-19 pandemic has solidified the prospect of "lower for even longer" interest rates. Insurers and reinsurers already familiar with the challenges of reduced investment returns, effective asset and liability matching and optimizing capital face more of the same – but with some differences in the economic backdrop. 

In the spring of 2020, when vaccines started to offer some light at the end of the long COVID-19 tunnel, attention turned to ensuring economies were able to achieve sustainable and self-reinforcing recoveries. Pre-global financial crisis, the stock response of the previous 40 or so years to any future economic slowdown or shock would have been to cut interest rates significantly. But with interest rates already so low and the effectiveness of central bank quantitative easing policies weakened, the emphasis has been to shift to a longer-term trend of capital investment from governments in, for example, infrastructure, to support economic growth. 

What does this potentially mean for insurers’ and reinsurers’ investment and capital management strategies to 2030 and beyond? 

Pluses and minuses

From an investment point of view, it’s likely to create a good environment for growth-related assets over the next 12 to 24 months despite returns on government bonds remaining weak. 

Longer-term, though, the policy shift may create higher economic volatility. It raises the possibility of higher inflation – a pernicious enemy of P&C insurers, in particular, and something the market has virtually forgotten about. While higher inflation is unlikely to be a big problem for advanced economies, it’s certainly a plausible risk that insurers will need to consider in modeling and stress testing both the resilience of investment portfolios and as a driver of liabilities and asset/liability matching. 

Strategic asset allocations that balance resilience and returns are likely to come to the fore; some companies may want to take more risk when credit is cheap.

Indeed, as government spending becomes a more important economic policy tool, there should be good investment opportunities in real assets, including green infrastructure and other areas of innovation. Such opportunities will also play well to (re)insurers’ expanding ESG (environment, social and governance) agendas and potentially add to the ESG credentials that a lot of investors, including those in the insurance-linked securities (ILS) space, are increasingly drawn to.

Of course, changes in governments’ fiscal policies won’t be taking place in isolation. Insurers will also have to contemplate how to allow for and adapt to significant structural economic trends that are likely to characterize the first half of the century and will therefore interact with and influence the policy agenda. 

See also: Navigating the Future of Risk Management

Four structural trends that will matter for (re)insurers in the first half of the 21^st century:

1. Shifts underway to a lower-carbon economy -- e.g., transition to electric cars from internal combustion engines. The shift will affect how and where insurers and reinsurers invest premium income, both from an ESG and returns perspective, and may have an impact on how they allocate capital to the business lines they write. In aiding and helping to steward climate transition efforts, insurers have an opportunity to be a force for good.

2. Technology – enough said, really. Technology is changing the way we live and work, from where and how work is done and the new investment opportunities it fosters, to the type and scale of risks that insurance is needed to cover. The global pandemic is only likely to accelerate this trend, bringing with it particular issues for insurers around capital efficiency and things such as access to technology and cybersecurity for business and governments collectively.

3. The societal lens — society is increasingly demanding and expecting to see proof of sustainability, inclusiveness and diversity. For (re)insurers, that demand speaks to issues such as reputational risk, the insurance gaps that exist around the world and the potential need for public/private cooperation to fill those gaps.

4. The shift of wealth and capital from West to East — as seen in the rise of China and emerging markets and where the largest opportunities for growth in financial services will exist. Notably, from an investment perspective, while some insurers might have historically placed China government bonds in an emerging market bucket, they are increasingly offering the high quality, policy certainty, low credit risk and higher liquidity attributes that typically appeal.

Capital choices

The changing economic backdrop will inevitably put further onus on strong financial and capital modeling and management.

Insurers weathered the initial COVID-19 capital storm well for the most part, but its legacy is lots of uncertainty. One area of capital management that has already come in for closer scrutiny from regulators, for example (notably as part of the Solvency II review), is recovery and resolution plans. 

Another factor in allocating and managing capital longer-term that is firmly on regulators’ and rating agencies’ radars, as well as that of wider stakeholder groups, is climate risk. As climate risks – and opportunities – have become ever more financially material, the need for an enterprise-wide perspective, taking in both the asset and liability sides of the balance sheet, is being further reinforced.

Taking risk and capital management as a whole, the shifts occurring suggest there will be a case for challenging implicit assumptions in models and reassessing mid- and longer-term views of risk and risk appetite. One area we highlighted in a recent article focusing on life companies, for example, is the potential benefit of value of new business (VNB) metrics in helping companies decide where they concentrate business acquisition efforts. 

Modeling and capital optimization will be an important part of guiding the efficient use and resilience of capital, taking into account options such as reinsurance structures, business domiciles and mergers, acquisitions and divestments. Appetite and capacity of reinsurance and ILS markets for a broad range of risks remains strong, and better understanding of exposures will lead to better negotiating positions. Equally, there should be continuing opportunities for acquisitions and divestments given the relative cost of capital. These could certainly be routes for companies to focus capital in their core and most profitable business areas, to take advantage of diversification benefits and to maintain a watchful eye on regulatory capital requirements. 

With these kinds of goals in mind, there are opportunities for companies to make more use of capital models with customized inputs to really gain insights into their business; to ask the right questions based on the market and economic outlook and their key performance indicators. One area where many companies appear to have struggled to date, and where such analysis would have an application, for example, is to align capital projections with business planning forecasts – as required for the Solvency II ORSA (Own Risk Solvency Assessment).

See also: 7 ‘Laws of Zero’ Will Shape Future

In search of clarity

While there is almost certainly more that companies will be able to do with their existing models over the coming years to adapt and deal with the economic and market changes taking place, what about "the perils of the unmodeled"?

Without taking steps to keep up with the measurement of developing risks, be they pandemic, cyber or climate-related, insurers could have a problem despite all the modeling advances made in the last 10 to 15 years. This potential problem is all the more important when you consider that many insurers will really need to drive combined ratios down into the low 90s to produce an acceptable return on capital in light of the expected level of investment yields. That will need a whole balance sheet approach.

After all, consistent returns underpin why a lot of investors are attracted to insurance stocks and provide their capital in the first place. Often, interest boils down to one thing: dividends. During the pandemic, many regulators put a brake on that investment thesis by basically telling insurers they couldn’t pay dividends, and the situation has been complicated by the uneven playing field created by the different approaches taken by different national regulators. But, as things return to normal, the industry will have to demonstrate that future dividends aren’t at risk. 

Investment and capital strategies that balance growth with resilience, recognize structural economic trends and drivers and smooth out potential volatility in the post-COVID economy will play an important part.

Now that we've been talking about the Internet of Things for a decade-plus and have been deploying it for several years, reality and fantasy are separating out. A new report from McKinsey offers some sharp insights both into how the IoT will develop from here and into how companies -- including many insurers -- should adjust as they try to use the IoT in products and services.

First, the lessons. The McKinsey report says that companies that have used the IoT successfully took seven main steps:

• They assign a clear owner in the organization for the IoT. "At present," the report says, "many organizations have... decision making dispersed across functions, business units, and levels."
• They design for scale from the start. McKinsey says many companies get caught up in the technology and focus only on pilots, resulting in “pilot purgatory.”
• They commit. "Deploying multiple use cases at the same time forces organizations to transform operating models, workflows and processes to ensure value capture," the report says.
• They invest in technical talent, both by recruiting aggressively and by retraining their current data science workforces.
• They change the entire organization, not just the IT function. "Too often," McKinsey says, "IoT deployments are regarded as technology projects run by the IT department rather than business transformations. Technology alone will never be enough to unlock the potential of the IoT.... Instead, the core operating model and workflow of the business must be redesigned."
• They push for interoperability. "The IoT landscape is dominated by fragmented, proprietary, supplier-specific ecosystems," the report says. "While effective within the ecosystem, such an approach limits the ability to scale and integrate, constraining the impact of IoT deployments and driving up costs. Corporate customers can specify interoperability as a buying criterion."
• They shape their environment. "For example," McKinsey says, "prioritizing cybersecurity from the beginning and starting with the hardware layer is critical to developing end-to-end security. Working with trustworthy suppliers can reduce the likelihood of a breach, but adopting a cybersecurity risk-management framework that incorporates not only technical solutions but also business processes and procedures that fit a company’s environment and requirements can be much more effective."

In terms of how the IoT market will develop, McKinsey acknowledges that the predictions in a 2015 report on the IoT were too optimistic -- but the impact was still massive. The consulting firm estimates that the IoT unlocked $1.6 trillion in value in 2020, including the value captured by consumers and customers of IoT products and services, and says that figure could grow to between $5.5 trillion and $12.6 trillion by 2030.

McKinsey said that five factors have asked as headwinds, restricting the development of the IoT:

• Not enough focus on change management. The report says, "Companies and governments often treat the IoT as a technology project rather than an operating-model transformation," so they don't pay enough attention to the need for "cross-functional actors to change people’s behavior, systems, and processes, as well as introduce vigorous performance management."
• Lack of interoperability. And the report cautions that "ubiquitous operating systems for the IoT are still far off," meaning that "the IoT landscape contains numerous proprietary, 'walled garden' ecosystems."
• Cost and complexity of installation. "Almost every at-scale deployment requires customization, if not an entirely bespoke solution."
• Concerns about cybersecurity "as the rising number of connected end points offer vulnerable points for hackers to exploit."
• Worries about privacy. Not only do companies have to contend with the adoption of the California Consumer Privacy Act and the European Union’s General Data Protection Regulation, but, the report says, "companies are grappling with what customers are willing to give up in return for lower prices or special offers in a retail setting."

On the plus side, McKinsey reports that three factors are accelerating the progress of the IoT:

• Customer perceptions. They see real value in the IoT, a marked change from the study McKinsey did in 2015.
• Vast improvements in technology. "Sensors now cover the entire spectrum, from visual to acoustic and everything in between; computing is more than fast enough; storage is ubiquitous; battery power has improved," the report says. "Progress in hardware has been matched by significant developments in advanced analytics, AI and machine learning that enable faster, more granular insights and automated decision making from data provided by sensors."
• Better networks. 4G wireless networks are reaching more people, and 5G networks are being rolled out quickly.

The report singles out two areas that will affect many insurance companies. McKinsey says factories could generate 26% of the gains from the IoT by 2030. Those gains will likely involve greater automation and create opportunities for improving safety -- considerations that will ripple through workers' comp, P&C and other forms of insurance. The report also says that safety, in general, will improve greatly. It says, for instance, that while we all wait for our autonomous cars to arrive we will increasingly be driving vehicles with much-enhanced safety features, courtesy of the IoT. Insurers will, of course, want to enhance safety as much as possible and will need to adjust pricing as risks change.

It may well be that McKinsey is too optimistic in this report, just as it was in 2015. That seems to be how predictions go in the early days of a massive technology trend -- even though we've seen for decades that the tendency is to overestimate change in the short run while underestimating it in the long run.

But the change will clearly be massive, and we've seen enough by now that we in the insurance industry can start to finetune our approach as we try to drive that transformation.

Cheers,

Paul

Disruption in the insurance industry is being driven from two sides. Externally, consumers are demanding better digital solutions and are replacing agents and paperwork with mobile apps and integrated experiences. Internally, companies are rushing to leverage machine learning and artificial intelligence to improve underwriting models, which requires tighter data integration. Failure to innovate technologically could mean losing policyholders to more nimble digital-native competitors. In fact, a report from PwC says more change occurred in the insurance industry in 2021 than the combined past years.  

Insurers must quickly advance their digital capabilities and focus on customer experience rather than products. This means becoming more agile, reducing the complexity of legacy products and processes, changing delivery models, right-sizing cost infrastructure and collaborating with partners for innovation.  

APIs - Critical to Delivering Digital Consumer Experiences

As consumers flock to using digital platforms, insurance companies are now required to double as app developers. This requires building entirely new technological frameworks and skill sets, while working at a very different pace and with different methodology.

Where internal system engineering traditionally works on the company’s on-premise systems, with legacy data stores and slow and stable release cycles, delivering best-in-breed digital experiences requires adopting new technologies, deploying to the cloud and releasing in agile iterative cycles.

The marriage of internal legacy systems with new agile development can prove challenging -- and often hinders digital transformation. This is where an internal application programming interface (API) hub can accelerate the process.

APIs enable different pieces of software to “talk” to each other by sharing data and functionality. APIs serve as the “bridge” between the internal systems and new consumer apps, enabling the development of consumer software to work separately from the rest of IT while maintaining a clear integration.

APIs - Powering the Next Generation of Business Relationships

It is not just better apps that consumers expect. Modern consumers expect services to come to them and be integrated into their existing buying flows. A consumer renting an apartment, for instance, will expect a renters’ insurance offer to be available as part of the leasing process. A user buying a car will expect an insurance quote to appear in the checkout flow. A business buying machinery or hiring employees will expect insurance to tie seamlessly into their ERP/payroll systems with a 360-degree view of all data integrations.

See also: Open Banking APIs: A New Growth Engine

These integrations provide ample opportunities to introduce insurance into existing flows but also require tight integrations between businesses. The only way to power these integrations is by offering APIs and allowing partners to use those API to tie insurance into their systems. APIs thus open up crucial revenue streams.

APIs Are Necessary to Introduce New Technologies

On top of these consumer expectations, there’s also tremendous innovation happening at the core of the business, introducing more advanced AI and ML into the underwriting processes. As companies rush to hire top talent to build these models, it is critical to ensure that their models will have easy access to the data and systems they need to be useful. Even the best neural network is useless if it can’t integrate into the underwriting system.

APIs serve as that technological pedestal, acting as the layer connecting data stores and systems to new models and decision-making systems. An investment in good APIs and API tooling will accelerate the introduction of new systems by multiple factors.

APIs, APIs, APIs...

Whether you are thinking of delivering better digital experiences, creating better channel partnerships or improving internal processes, an investment in APIs is critical. In our company’s annual survey of API usage, we found that 94% of developers in the financial services industry (which includes insurance) plan to increase or maintain their usage of APIs. While many companies are funding digital transformational programs with APIs at the core of their strategy, they struggle to use APIs effectively. 

A key hurdle for many organizations is they don’t know the APIs that exist across their business. Whether it’s due to organizational silos, disparate infrastructure and tools or lack of resources and ownership, companies fail to effectively implement an API strategy. Legacy API management vendors do not address modern API requirements and just lock organizations into their technology, restricting expansion and growth. That’s where API hubs offer an exceptional advantage.

API Hubs to the Rescue

Successful insurance companies are adopting next-generation API hubs to discover and connect to all their APIs more easily. This open, self-service, single hub is where development teams can publish and share APIs so others can quickly find and use them. A hub speeds innovation. For the broader organization, it helps to reduce the time to market of products—which brings new revenue streams.

Additionally, a hub enables initiatives like “open insurance” for providers that want to create an ecosystem with a common approach to securely share data through APIs to drive value. 

Insurtech firms like Lemonade, Cuvva and CoverWallet are using APIs to gain footing in the insurance marketplace and provide simple and easy consumer experiences. We are seeing more and more big insurers incorporating APIs in their business models to remain competitive and provide service excellence. 

Are you an insurer considering an API hub to serve as a catalyst for digital innovation in your company? Here’s how to get started:

1. Inventory your APIs. Begin by understanding the APIs that exist throughout your organization. It is important to catalog your APIs and collect all the resources so you have an accurate inventory. Make sure you include all teams, including engineering, product design and back-office functions.
2. Document your APIs. Next, for each API, generate documentation (preferably in an open format, like an OpenAPI Spec file). Without proper documentation, your team can’t see or use the APIs that are available.
3. Establish a hub or platform for your APIs. Once you have the accurate inventory and associated documentation, the next step is to establish an API hub where all APIs can be seen and accessed. The structure can be simple, such as a web page in your intranet. Or it can incorporate advanced features like integrated testing and provisioning capabilities. You can build the API hub yourself or use an external vendor. Often companies soon realize the benefit of having an outside vendor create their API hub after trying unsuccessfully to build their own, mainly due to lack of resources, time, skills or competing business priorities. Once your API hub is in place, it’s important to make sure it is well-facilitated, orchestrated and managed while ensuring security.   

See also: Making Inroads With Open APIs

APIs are the foundation for any application modernization effort, and they have the potential to help change the velocity of innovation for the insurance industry. Digitally enabled insurers that take an API-first strategy are more able to enhance the experience for their customers, policyholders, employees, partners, shareholders and others while keeping pace with changing market demands.

Sometimes, it seems as if more insurtechs are getting funded than one can keep track of, and every one of them wants to work with a big insurance carrier to prove out their solution. Carriers are by their nature risk-averse, and these startups are pushing the envelope of what’s possible with new technologies. There are risks associated with working with insurtechs. But insurers that take too conservative an approach to working with insurtechs may miss out on opportunities to gain competitive advantage. 

First, let’s talk about the advantages of working with startups. A well-run startup can use its small size and scrappy culture to a carrier’s advantage, because it enables the carrier to be nimble. Need a change to the solution or identify something that can be improved? The insurtech provides rapid turnaround, giving you the equivalent of a custom-built product.

Over my career, I’ve worked with both startups and carriers, and the most successful relationships are forged when the insurer seeks transparency and is willing to be very hands-on. Communication between product and engineering must be near-constant from beginning to end, and early vetting should make sure that the startup and carrier teams can work together successfully.  

Remember, startups are forging new paths, building new technologies and creating novel use cases. In most cases, they won’t have a polished solution to deploy, unless they’re very mature. They’ll be developing their product or service as you move forward to a pilot. If you’re spending a lot more time with product discovery than you would with an established vendor, that’s a sign that you’re doing it right. Startups need to gain a full understanding of the challenge they’re addressing and what roles will need to be established to tackle it. Once they’ve got that down, the entire team will be able to move forward with technology that quickly delivers the value you’re looking for.

Mistakes to avoid

Startups move fast, and sometimes they move too fast for insurers, which typically work at a more measured pace. This mismatch can cause the relationship to break down. Both sides need to be on the same page with the same expectations about timelines, deliverables and priorities from the very start. 

Don’t send line-of-business managers to work with the insurtech alone. A product person or someone who is technically literate and knowledgeable about the carrier’s technical capabilities needs to work as a liaison. Without a strong technical background, the carrier’s representative may green-light projects that will cause engineering serious headaches later down the road. Technology needs to be at the table from the start.

Startups are ambitious, and it’s not at all uncommon for them to take on more than they can realistically handle. They simply have a different tolerance for risk than a carrier does. To mitigate this misalignment, start small. Identify a project that can be completed and deliver value in a short time. You will limit your risk and be able to test-drive the working relationship to see how well the startup can live up to its promises before you get in too deep.

See also: How Infrastructure Is Reshaping Insurtech

Security and technology evaluation

It’s important to get the relationship off on the right foot, and that starts with evaluation. When you first meet with a young insurtech, ask the following questions:

• How will we deploy your solution, and how long will it take?: Unless there’s a very good reason for an on-premises deployment, modern software is now deployed as a service. So, if they’re talking about a six-month or longer deployment, that’s not a good sign. 
• What’s innovative about this?: If you can get a similar solution from an established vendor, there’s no reason to take on the risk of working with a startup. The startup should be able to clearly explain the advantages of their technology compared with what's already commercially available — and those advantages need to be significant. 
• How easy is it to integrate your solution with other technologies?: Will they build their own application programming interface (API), or are they using APIs that already exist. You need to understand exactly what you may be in for when it comes to connecting their solution with the rest of your stack.  

You’ll also want to conduct a security audit, but don’t be surprised if the startup can’t meet all of your requirements at first. Voice your concerns. Smart startups will address your security concerns quickly. 

Concerning data, limit your risk by only providing the insurtech with the minimum it needs to meet your objectives. Be especially conservative with personally identifiable information. Do they really need full names of customers? Would a first name work? Do they need a full address or just a ZIP code? Don’t provide any more data than is required. 

The importance of transparency

The key to success is to remember that an insurer will be co-developing the solution with the startup, and this relationship only works if there is transparency. Work incrementally with an agile approach, and, once you’re into the main project, have the startup accomplish the hardest technical tasks first.

Insurtechs are a risk, but the potential rewards are great. Build a transparent relationship where each side works as a partner, and together you will build something amazing.

Prior authorization is the “single highest cost for the healthcare industry” in the U.S., totaling some $767 million a year, according to the CAQH index. 

Physicians spend nearly two full business days per week on prior authorization requests, and payers devote thousands of manhours reviewing and approving them in an antiquated, manual process involving phone calls and faxes. 

The arduous task often delays necessary treatment and sometimes results in treatment abandonment — patients just get tired of waiting, so they give up — both of which hurt patient outcomes and ultimately raise costs in the long run.

Prior authorization has been identified as one of the biggest opportunities for applying artificial intelligence (AI) to help lower the administrative burden and cost. Considering that 82% of healthcare leaders want to see their organizations be more aggressive in adopting AI technology, now may be the perfect time to take the leap toward applying AI to solve the prior authorization problem. Here’s how it can work:

1. Establish parameters for automatic approval.

A machine learning platform can look at previous prior authorization requests and identify the conditions most likely to result in an approval. For example, to be approved for an MRI of the knee, a patient must have already attempted anti-inflammatory medication and physical therapy and had an X-ray. Based on such parameters, payers can build a system for automatically greenlighting incoming requests that meet those conditions, greatly reducing the workload. Those that don’t meet the criteria would get flagged for manual review. 

2. Create a standard for prior authorization submission.

One of the biggest issues with prior authorization is that every payer has different requirements. Requirements can differ even within the payer’s own system based on variables like geography, provider group and more. That means providers must figure out the process each time, binding them to a manual, labor-intensive system. An automated system would establish a baseline protocol for submissions. For example, providers could see a checklist of what’s required in the submission workflow based on the payers’ specific parameters, drastically reducing the back-and-forth that frequently ensues when providers fail to initially submit the required documentation. 

See also: 3 Steps to Demystify Artificial Intelligence

3. Enable system and data interoperability.

Lack of interoperability has prevented automation of the prior authorization process. While the data required to easily approve prior authorization requests is very often contained in a provider’s electronic health record (EHR), the provider can’t easily share it with the payer for review. The data has to be relayed via fax. Interoperability is essential for the application of AI in prior authorization, and the right platform must have widespread interoperability with every major EHR to enable automated, electronic review of records. 

4. Digitize unstructured data.

Some 80% of the data contained in roughly 1.2 billion clinical documents created every year is unstructured, in the form of handwritten medical charts, physician notes, forms and scanned documents. But most payers’ systems can’t read and analyze this data, even though it contains vital details required for prior authorization review. The use of AI would require a system that could digitize and analyze this unstructured data to read and identify the requisite parameters for automated approval. This capability would also have additional data analytics benefits for overall population health and care planning, such as spotting trends, correlations and effective new treatments.

5. Consider social determinants of health (SDoH).

These contextual factors, like socioeconomic status, education and access to care, can play a significant role in patient outcomes. But most EHRs and payers’ systems don’t consider these factors, preventing providers and payers from making the most informed care decisions. By integrating SDoH data from established sources, AI-based prior authorization systems can consider these factors as part of the approval process and flag requests for manual follow-up that meet certain conditions. 

See also: The Intersection of IoT and Ecosystems

6. Put submission and approval at the point of care.

By streamlining and accelerating the prior authorization process, AI can slash time spent per transaction from 20 minutes down to just six and in some cases deliver near-instant approvals. This acceleration means the request for authorization can happen at the point of care within the patient visit workflow, reducing time to treatment and treatment abandonment.

Deploying AI to solve the prior authorization problem would dramatically reduce the time and cost associated with this necessary, but cumbersome, part of healthcare. In fact, studies show that automation could cut the cost by nearly 73%, from nearly $10 per transaction to under $3 — a huge impact on lowering the most costly healthcare expense.

With the push to implement AI reaching a crescendo, now is the time for organizations to act or risk getting left behind. We owe it to providers and patients to take advantage of every opportunity to reduce their burden and deliver better care with a better experience at a lower cost.

A 2020 report from LIMRA found 54% of all people in the U.S. were covered by some type of life insurance. A 2021 report from the same organization found a mere 14% of Americans were covered with a disability insurance policy, down from 16% in 2020.

But which product — life or disability insurance — is more likely to be needed by a policyholder? 

During the average career, someone is 3 1/2 times more likely to become disabled than they are to die.

It’s an eye-catching incongruity. 

Then consider that many Americans live paycheck to paycheck and are woefully unprepared for an injury or illness that prevents them from earning steady income for an extended period.

A recent study from Breeze found 47% of Americans couldn’t cover a $1,000 expense with just personal savings (57% of women and 38% of men). The study also found the plurality (29%) of employed respondents could only last one to four weeks on both savings and debt if they suddenly stopped earning an income. 

Despite the huge need, disability insurance remains a very small slice of the insurance marketplace. Only about $430 million in disability insurance premium was written in 2020 compared with almost $200 billion in life insurance premiums in the same year.

Why?

For too long, disability insurance has been hurt by outdated technology and sales strategies, as well as a lack of clarity around the product. 

See also: Managing Absences for Disability Insurance

Legacy insurance carriers have lacked a direct-to-consumer platform (D2C) to provide disability insurance to consumers. With the majority of disability insurance sales still coming through the traditional network of brokerage general agencies (BGAs), this product has been sold the exact same way for over two decades.

Insurance is going the way of quick, online quoting that uses data and predictive analytics to not only approve or deny applicants but also determine their policy details. But disability insurance is playing catch-up. Carriers have lacked the data science capabilities required to quickly, digitally and accurately match consumers to a disability insurance policy based on occupation, health and other personal factors. 

That lack means certain occupations cannot get fairly valued disability insurance quotes in a streamlined manner and are possibly pushed away from purchasing. 

Look at the increasing number of 1099 workers. They may want disability insurance because they do not receive the same protection as full-time employees and may change jobs frequently.

However, carriers have lacked the data analytics to accurately and quickly price out a disability insurance policy for 1099 employees because there are so many variables at play. 

Selling disability insurance has long been complicated because there is widespread confusion about what the product is, the benefits it provides and how the underwriting process works. The potential to grow this market just through consumer education is massive. But agents and brokers have stayed away because of the complexities involved in underwriting.

See also: What Is Happening to Life Insurance?

At Breeze, we’re working to grow the disability insurance market through a direct-to-consumer platform that uses data analytics to accurately and quickly quote policies in an entirely digital manner across a wide variety of professions and backgrounds. The legacy carriers we work with can still sell disability insurance through the traditional agent and broker network but now have a D2C marketplace that can hit consumers in every corner of the country. Agents, brokers and BGAs can also use our platform.

The potential for disability insurance is massive -- and the more that activity can move online, the more consumers can be reached.

The managing general agent (MGA) and managing general underwriter (MGU) business has exploded in the past five years. Today, MGAs and their MGU cousins account for approximately $60 billion in premium flow, up from $25 billion in 2012. Given that agents and brokers need to partner with MGAs to deliver expert insurance solutions for their most complex and specialty clients, that growth is hardly a surprise.

However, the agent/broker channel is experiencing record consolidation that may present new challenges to MGAs’ expansion plans. At the same time, changes across the insurance ecosystem, from an increase in direct-to-consumer models to disruptions caused by insurtechs and new entrants, are poised to alter the distribution landscape. Without strategies focused on technology innovation and investment, MGAs could face business roadblocks as distribution changes.

A recent SMA research report, “Distribution Technologies for MGAs and MGUs: Current State and Future Plans,” examines how MGAs are approaching technology innovation and investments to expand their market shares today. The five different digital sales-oriented capabilities and nine servicing capabilities analyzed in the report offer enterprise-wide insights on how technology solutions can help MGAs expand their business with new and existing distribution partners. Results from a survey of MGA executives also highlight critical areas affecting distribution plans, including the biggest challenges when implementing technology for partners, the types of offerings available in the market and where MGAs are investing in digital capabilities today.

SMA’s research found that not only are MGAs anticipating distribution changes in the coming years, but they also are prioritizing investments to improve the customer experience for agents and brokers, including deploying new digital capabilities and enhancing existing ones. (The satisfaction MGAs feel about the performance of digital offerings vary, with mixed results across all the sales and servicing capabilities examined.)

In some cases, most MGAs expressed more dissatisfaction than satisfaction with the capabilities offered to distribution partners. For example, on the servicing side, 29% of MGAs reported dissatisfaction with the billing inquiry capabilities provided to distributors, whereas only 18% said the offering is satisfactory. The research also shed light on opportunities for vendors to offer capabilities not currently provided to MGAs.

See also: First Steps to Digital Payments Processes

Although investment and innovation challenges lie ahead, MGAs are in a unique position to embrace technology within both underwriting and distribution, with numerous opportunities to expand their footprints, enhance digital solutions and strengthen relationships. But MGAs interested in growing their market share with new and existing distribution partners must understand that agents’ technological needs are changing. Fewer agents believe digital capabilities from partners are “nice to have,” as more expect advanced capabilities to be the baseline for doing business.