Insurtech has come of age. Just last week, we saw:

• Travelers acquiring Trov
• Lemonade and Root publishing their financials.

I love numbers, and I've crunched insurtech financial numbers for the past few years, so let's have a look.

Lemonade has written almost $370 million in premiums (showing 42% growth from 2020), and Root has written more than $740 million in premiums (showing 20% growth from 2020). However, both these full-stack insurtech players have run an insurance business with a combined ratio (gross of reinsurance) above a 150% combined ratio in 2021. This means that, for each dollar of premium paid by the client, the companies' risk transfer approaches a cost of more than $1.50.

Almost the same has happened over the past three years.

How it started

We all remember how Lemonade has fascinated insurance professionals:

Lemonade CEO interview in 2017:

"Insiders agree: 'At least 40% of what insurance carriers receive in premiums is paid out in claims. So if Lemonade is 80% cheaper it must lose money on every policy.’ That is not true. Renters insurance covers personal property, not real estate. The expected loss is therefore significantly lower and so should the corresponding premium be. Unfortunately, the enormous overheads incumbents have, make low-premium products impossible. Their minimum premium reflects their high costs rather than your low claims.”

"We apply behavioral economics to neutralize the adversarial relationship, the conflict of interest, between customers and their insurance provider. We take 20%, and the rest (80%) goes to paying claims, and this includes our reinsurance. If less than the 80% is used to pay out claims, for instance 75%, the 5% unclaimed money is donated to charities chosen by customers. The maximum amount that can be given back is 40%. Lemonade gains nothing by refusing a claim. This way, we are reinventing insurance from a necessary evil to a social good."

See also: 10 Insurtech Trends at the Crossroads

Moreover, on their blog:

"That changes everything. Insurers typically make money by investing premiums ('float') or by paying out less in claims and expenses than they took in premiums ('underwriting profit'). Lemonade relies on neither. We collect premiums monthly, so the money earns interest in your bank account, not ours, and we return unclaimed money at year’s end in Lemonade’s Giveback.

"Knowing you’re not in conflict with your insurer, and that you embellish claims at the expense of a cause you believe in, may change your behavior, too, setting off a virtuous cycle. Ultimately, we’re after a new Nash equilibrium, one where aligned interests breed trust, resulting in a product that is inexpensive, hassle-free and lovable."

Over these years, I've been pretty skeptical about this storytelling:

And I have challenged the sustainability of their financials a few times.

They didn't like my analysis so much.

How it's going

Let's start with the giveback:

A giveback of $2.3 million accounts for one cent on each dollar of written premium. Pretty different from the expectation given by the iconic pizza slice that characterized their storytelling back in the days.

See also: Game-Changing Trends in 2022 for the Future of Insurance

Let's look at the financials. For each dollar of premium, claims cost 90 cents, including the loss-adjustment expenses. (It seems that old claims have been under-reserved; we could discover in 12 months that even the current year reserves are not adequate). To acquire this (underpriced?) business, Lemonade invested almost 60 cents in marketing for each dollar of premium. All other costs add almost 40 cents.

It doesn't seem that behavioral economics, charity and storytelling have made any dent in the insured risks.

So, all the insurance professionals who fell in love with their disruptive storytelling over the past six years should feel a little betrayed. I see a fantastic team driving a superb marketing machine with a cool front-end... but no sign of disruption yet.

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Smart Homes Are Finally Getting Smarter Paul Carroll, Editor-in-Chief of ITL Despite all the hype for smart homes, I've remained a skeptic for the 30 years or so since I first heard about the concept, partly because there wasn't a standard way for all the disparate devices to talk to each other. There wasn't a sort of operating system for the house, and a bunch of one-off devices weren't going to provide enough benefit.  Well, three of the biggest guns in the tech world -- Apple, Google and Amazon -- just announced a new standard for communication that will be available later this year. The standard, called Matter, will let just about all new smart home devices, and even many old ones, talk to each other.  Progress will still take time, and I remain to be convinced that many of the long-touted "benefits" of the smart home -- an internet-connected toaster or the ability to turn lights on and off remotely, for instance -- actually offer anything of value, but at least there will finally be a communication platform that will let companies, including insurers, tie all the benefits together and look for synergies. continue reading > New Research Don't miss this new report from Capgemini and Majesco as they leverage insight from recent executive roundtables to dive into the recent workforce changes and its impact on the employee and employer relationship. Download Report SIX THINGS The Power of Low-Code Platforms by Vinayak Joglekar Customers now expect exceptional service from all businesses, and low-code platforms hold great promise for businesses’ internal and external users alike. Read More A New Paradigm for Sourcing Capacity by Dogan Kaleli Capacity-seekers and capacity-providers are starting to recognize the benefits of an organized digital marketplace with an efficient electronic infrastructure. Read More Reconfiguring Your Approach to Underwriting Sponsored by Intellect SEEC  Explore how companies can lay the groundwork for modernization and innovation by reconfiguring their approach to core systems. Read More Predictive Modeling’s New Mantra by David Zhu With the power of predictive modeling and its resulting efficiencies, life insurers can simplify underwriting, reducing both time and complexity. Read More Getting WC and Long-Term Disability to Mesh by Heather Garbers Employers need to build a better bridge between workers' comp and LTD to better manage the common ground between them – the employee’s health. Read More Data Modernization Isn't One-Size-Fits-All by Vaibhav Uttekar Large and small carriers, in most cases, have inherently different business processes, capabilities and priorities due to their variance in size. Read More A Better Approach to Extended Warranties by Brad Hawkins Field service management software can digitize steps of the warranty workflow to improve customer satisfaction and provide quality and convenience. Read More InsurTech Ohio Spotlight with Ron Rock Sponsored by JobsOhio  Ron Rock discusses how the insurance industry is rapidly evolving, and the importance of recruiting and retaining top software and programming talent.  Read Now MORE FROM ITL February Focus: Blockchain Sponsored by Gigaforce While blockchain has been an intriguing topic for some time now, interest has skyrocketed in recent months.  Facebook said late last year that it believes so much in the "metaverse" that it was changing its name to Meta. Microsoft followed quickly with its own vision of how technology could enable a whole new sort of world, where our selves are disembodied and our interactions occur via virtual reality. Venture capital firms such as Andreessen Horowitz are all over the investment opportunities in the metaverse, sometimes referred to as Web 3.0. And pundits are making bold proclamations about how life as we know it is about to change forever.  Read More A SMART PATH TO OPTIMIZING IT COSTS Sponsored by Rimini Street In this webinar, ITL Editor-in-Chief Paul Carroll sits down with Jim Duggan, vice president, client engagement, global service delivery, at Rimini Street, and Anne Plese, Rimini Street's senior director of product marketing. They discuss how insurers can optimize their data centers and generate savings that can help fund innovation initiatives.  Read Now   Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2022 Media Kit

Although I haven’t seen much written yet on what rising interest rates will do to the insurance industry, the trend has to be a positive – even as other signals stay negative. 

Insurers have for some years now fretted about what low interest rates are doing to the returns on their massive investment portfolios. So, it has to be a welcome prospect that the Fed will raise interest rates multiple times this year – Morgan Stanley recently predicted six increases, each of 25 basis points, or hundredths of a percentage point.  

The lack of return on the investment portfolios has forced insurers to press harder elsewhere. The area that I hear most cited is underwriting, where firms are imposing discipline to make sure they return a profit as long as they can’t count on investment returns to cover any failings. But insurers have felt pressure to create efficiencies across the board, including in the distribution channel. So, any easing of pressure because of a rise in interest rates should tend to alleviate some of the more drastic actions insurers might be contemplating.  

Likely good news for agents and brokers! 

At the same time, McKinsey is making ominous noises about how the industry is faring. As summarized in Reinsurance News a recent report from the management consulting firm said that insurance industry profits are “practically at a standstill.”  

The report said that premium growth slowed from more than 4% in 2020 to just 1.2% last year and that earnings dropped 15%. More ominously, McKinsey concludes that half of insurers around the world aren’t earning their cost of capital.  

So, even if interest-rate pressures diminish, insurers may feel the need to keep pulling every possible lever to become more efficient, including with agents and brokers. 

Of course, we’re all still wrestling with the pandemic, and we all may have even bigger worries soon enough, given the Russian decision to invade Ukraine. Here’s hoping the pandemic and geopolitics settle down enough that we can actually focus on limited issues like interest rates and premium growth, rather than having to figure out existential ones.  

Many legacy insurance companies established their internal technological infrastructure a long time ago, and, even if these systems are occasionally updated, a completely new way of looking at the system as a whole is needed. This is where DevSecOps comes in.

DevSecOps is the next iteration of DevOps, the combination of software development and IT operations. The "Sec" in the new iteration is for "security," whose concerns are incorporated throughout the development pipeline to optimize internal processes and create high-quality, secure releases. Insurance companies handle large amounts of sensitive information. Properly securing this data is paramount to protecting clients as well as remaining in compliance with data security regulations.

But how does a DevSecOps pipeline directly address the unique concerns of the insurance industry?

Let’s look into these three ways DevSecOps helps propel insurance companies forward:

1. Streamline Processes

Many things need to happen to bring an update or application from planning through deployment. The initial spark of a new development project is likely something as simple as noticing a hole in the industry—a need that is going unfulfilled.

DevSecOps provides a framework by which your team can quickly and securely move an idea through production while ensuring all of your bases remain covered.

Redundant tasks, errors found late in the pipeline and repetitive manual tasks are a drain on productivity, so automated tools are a huge part of an optimized DevSecOps pipeline. Various tools address different parts of the pipeline but work together to reduce errors and speed a project toward deployment without sacrificing quality.

The customers’ expectations are constantly evolving. Frequent and reliable development releases are the only way to provide these capabilities to customers. Insurance companies that can be trusted to offer continued access to these services will be seen as market leaders.

Automation, team collaboration and other DevSecOps practices are widely recognized for their ability to optimize the Salesforce development release process.

See also: Key Considerations for Managing Innovation

2. Enhance Code Quality

DevSecOps includes multiple quality checkpoints with the goal of ensuring proper code structures, reducing errors and improving the experience for your end user.

Insurance companies simply can’t allow improper functionality to enter their system and potentially affect data pools. 

Data and metadata influence our working environments in many ways—including defining how certain fields relate to each other. For instance, filling in a customer’s name in one field might bring up their address in another field. A failure to properly link these two fields can create large problems.

Tools like static code analysis and CI/CD enable team members to produce the highest-quality code without sacrificing large amounts of time to manually verify coding structures.

Data sets in the insurance industry can be huge. A data governance plan will involve the efforts of various sections of a company. 

DevSecOps processes incorporate the efforts of various teams to arrange essential data into workable sets. The data can then be incorporated into processes and future developments to provide various benefits:

• Reduce errors
• Improve planning for future updates
• Provide useful analytics
• Assist successful deployments
• Deliver actionable feedback

3. Remain Secure and Compliant

Cyberattacks are becoming increasingly prevalent. In fact, businesses suffered 50% more cyberattack attempts per week in 2021. These attacks can be disastrous for any company. Insurance companies, however, run the risk of exposing all of their customers’ sensitive information on top of the massive costs associated with experiencing a data loss.

The threats against a company’s systems are constantly changing. Our responses to these threats need to be continually evolving, as well. 

See also: Don't Just Indulge in “Innovation Theater”

A streamlined DevSecOps pipeline enables insurance companies to quickly release patches, updates or other security applications to stay on top of emerging vulnerabilities. Secure releases with reliable coding structures are an essential aspect.

Protecting this sensitive information is incredibly important. This is why data security regulations exist. Companies that operate with sensitive information—such as the insurance industry—are required to take adequate measures to protect it.

Documentation of data access, records kept and any breaches to your Salesforce system can be implemented through proper DevSecOps processes.

Handling and storing system files, metadata and customer personal identifiable information (PII) is essential to remaining compliant. DevSecOps strategies imbue every step with an eye toward proper handling of this information.

While insurance industry sentiment is that higher repair costs for advanced driver assistance systems (ADAS) features offset ADAS loss-cost benefits, a new study from LexisNexis Risk Solutions finds that’s not entirely true. 

The report, “True Impact of ADAS Features on Insurance Claim Severity Revealed,” provides a look at a sampling of 11 million vehicles from model years 2014-2019 to examine the multivariate effect of ADAS features on claim severity. While changes in claim severity in vehicles equipped with ADAS features were minimal, the decrease in claim frequency was significant. 

U.S. insurers have been trying to get ADAS feature information at a VIN level for years. Still, many believe technology has advanced too quickly, and the expense of repairing these features neutralizes the loss-cost impact of ADAS. However, as can been seen in the chart below, having at least one core ADAS feature provides a reduction in loss cost, which will vary depending on the combination of core ADAS features and how each specific combination of features performs. According to the report, having ADAS feature information can result in the following:

• 23% reduction in bodily injury loss cost;
• 14% reduction in property damage loss cost; and
• 8% reduction in collision claim loss cost in ADAS-equipped vehicles compared with similar non-ADAS vehicles.

An educated guess for why all coverages resulted in a decrease in severity in ADAS-equipped vehicles is that the decrease in severity for liability coverages can be justified by the idea that vehicles with ADAS may collide with less force, resulting in less damage to another vehicle (property damage claim) or injury to a third party (bodily injury claim). 

A decrease in collision severity, however, deserved a deeper look. By controlling for common rating variables, the report isolates the impact of ADAS. With collision, there tends to be proportionally lower percentages of high severity claims with ADAS within a given cluster of values of control factors, resulting in an overall lower severity.

See also: Key to Transformation for Auto Claims

Depending on which ADAS features are present, the level of warranted discount will vary. This brings us to the challenge insurers face when trying to get normalized ADAS feature information across automakers, which often have their own naming conventions for features of the same technology (e.g., collision avoidance vs. automatic braking). Thus, solving for the multiple naming conventions found among ADAS features, vehicle build data provides greater transparency for specific features often equipped above standard base trim lines. Insurers focused on total risk analysis can begin to understand the safety features on the vehicle in combination with the risk factors associated with the driver. This new data can be used as a part of insurance companies’ rating segmentations to better meet the expectations of their customers, who often purchase vehicles with advanced safety features with the expectation that the features will help lower their insurance rates.

Understanding which vehicles have which ADAS features, combined with loss-cost performance, equips insurance carriers to apply appropriate discounts to the individual and the vehicle, delivering on consumer expectations along the way.

LexisNexis Risk Solutions has good news for insurers – this ADAS data helps show there is a distinct loss cost-benefit, and normalized VIN-level feature information is now available.

Implementing customer relationship management (CRM) software offers an array of benefits. It enables agencies to improve customer relationships, optimize daily operations, close more deals and make better decisions. However, before implementing an insurance CRM system, it is crucial to understand that the software does not solely benefit the business’ relationships with prospective and existing customers. CRM also aids in communication and collaboration among various departments.

To seamlessly deploy a new CRM system, businesses must ensure proper implementation.

Step-by-Step Guide for Implementing Insurance CRM Software

Implementing insurance CRM software requires a lot of planning, budgeting and effort. Without due preparation, it can end in failure. Here are the six steps insurance agencies must follow when implementing a new insurance CRM system: 

1. Identifying the Needs and Requirements

Before embarking on the journey for software selection and implementation, businesses must first identify their goals and needs. Hence, the first step involves identifying the reason behind implementing a CRM. Businesses must monitor their existing processes and systems and find areas that can be improved and challenges that can be resolved with a CRM system. 

Ascertaining the scope of the project is crucial to ensuring its success. Businesses that do not remain focused on specific workflows and requirements have a hard time choosing the right CRM software. Once the business has identified the challenges and built a convincing case for change, it can kickstart the process of CRM implementation. 

2. Creating the Implementation Team

Insurance CRM implementation requires skill, time and resources. Hence, it is crucial to have key players in the implementation process. The arrangement of the CRM implementation team depends on an array of factors such as the size of the business, expectations and customizations. 

See also: How to Choose the Right CRM Package

The implementation team must consist of representatives from different departments, such as sales, marketing and customer support. The different perspectives help the team members better understand and adapt to the processes. When building a team, make sure to define proper roles and responsibilities for the team members. Ideally, the insurance CRM implementation team must consist of: 

• Project owner
• Project manager
• Subject matter experts
• Department heads
• Cross-departmental users
• Technology resource

3. Finding the Right Insurance CRM Vendor

Nowadays, there is no dearth of vendors dealing in CRM software for insurance companies. However, finding the right vendor is key to ensuring a successful insurance CRM implementation. Here are some questions that businesses can ask: 

• How long have they been in business?
• How often do they release software upgrades and updates? 
• Do they keep pace with the rapidly changing needs and requirements of the industry? 
• What kind of after-sales support and training do they offer? 
• What is their standard implementation roadmap? 
• Can the insurance CRM software be customized to meet the business' unique needs? 
• Do they offer a free trial or demo of the software? 

4. Setting a Realistic Budget

Irrespective of the scale of the implementation or the level of research, unforeseen costs are unavoidable. For instance, the insurance CRM implementation cost may increase according to the level of customization required by the business. When setting aside a budget for the software implementation, a number of businesses often overlook onboarding and training costs. The total cost of ownership for CRM typically includes: 

• Monthly or annual subscription fees
• One-time implementation costs
• Data handling and migration costs
• Software licensing costs
• Testing and retesting expenses
• Customization and process re-engineering
• Software support and maintenance expenses

Apart from setting a budget, businesses must also set a realizable timeline for the implementation. They must bear in mind that not all CRM systems work identically. While small agencies can easily implement a CRM within one to two months, larger corporations can take four to six months. 

5. Developing an Implementation Strategy

After setting the budget and selecting the vendor, businesses must formulate an insurance CRM implementation road map. The business must gain an understanding of how the different team members will participate in the software implementation process. After that, the business can equip them with the right training. 

Businesses that are overhauling legacy systems can also improve and integrate their existing CRM workflows. The CRM implementation strategy depends on the type of deployment, be it cloud-based or on-premise. 

Once the insurance CRM implementation strategy is set, businesses can start the deployment. They can also plan a phased rollout and change to the new software in increments over an extended period. This helps in ensuring that any problems or challenges remain isolated from business processes. 

6. Post-Deployment Support and Upgrades

The insurance CRM implementation process does not end with deployment. To get the most out of the investment and achieve long-term benefits, businesses must nurture their CRM implementation. The CRM implementation team must now shift its focus to gathering feedback from the end-users and tweaking the software. 

Modifications or customizations may be required as more features are rolled out. Businesses will also have to make provisions for onboarding and training new employees. On-premise insurance CRM software users will have to install updates and even upgrade the hardware when needed. 

Finally, the business can evaluate the success of its implementation and assess if the insurance CRM system meets its expectations. 

See also: Sorry, but There Is No Magic Bullet

Final Words

When implementing CRM software, insurance companies must also pay attention to the software selection process. Small and medium-sized insurance agencies can opt for cloud-hosted CRM systems, as they are quicker to implement and easy on the pockets. On the other hand, businesses with a significant budget and infrastructure capabilities can go for on-premise insurance CRM systems. Irrespective of the deployment, businesses must apply the above-mentioned best practices to ensure a successful software implementation.

Our economy is increasingly global, digitized and connected by supply chains involving transactions among large companies and small and medium-sized enterprises (SMEs). However, the roles SMEs play in the supply chain create some concerns.

According to the World Economic Forum’s Global Cybersecurity Outlook 2022, “88% of respondents indicate that they are concerned about cyber resilience of SMEs in their ecosystem.” Typically, SMEs do not have the same resources as their larger counterparts to spend on cybersecurity and are often exploited as a means to ultimately victimize another company in the supply chain. In fact, the WEF also reports, “Nearly half (44%) of the surveyed CEOs indicated that software supply chain attacks will have the greatest influence on their organization’s approach to cybersecurity in the future.”

What can be done? 

To secure supply chains overall, each link along the chain must be secured. This starts with creating, at all levels, a culture of cybersecurity -- technical measures to safeguard against cyberattacks such as phishing, ransomware and social engineering. Cyber resilience incorporates these technical measures and supplements them with a prevention-oriented and preparedness mindset embodied by each employee and each company along the supply chain. It also enables the business to recover quickly when an incident occurs.

For the past few years now, organizations operated under the assumption they will fall victim to a cyber attack at some point. As a consequence, detection and prevention, the primary domains of cybersecurity, are no longer sufficient. Preparedness and the ability to recover effectively and maintain operations in the event of a cyber incident is cyber resiliency. 

We must recognize that cybersecurity best practices are everyone’s responsibility and that it is a journey, not a destination. Bad actors and their tactics are constantly evolving; so, too, should an organization’s cyber resilience. Furthermore, cyber resilience encompasses the aftermath of an attack and acknowledges that cyberattacks do not end when the ransom is paid, for example. Rather, the affected organization should have an incident response plan in place to facilitate business continuity in the event of a cyberattack, as well as share lessons learned from the incident with others so similar incidents can be prevented. 

See also: Quest for Reliable Cyber Security

Another part of cyber resilience is acquiring cyber insurance. While simply buying a cyber insurance policy may not make an organization fully immune to a cyberattack, it will reduce the financial uncertainty involved in how the organization responds. Most policies encourage the adoption of cybersecurity best practices, such as multi-factor authentication and cybersecurity awareness training across the whole organization.

A good policy provides businesses with peace of mind, knowing that they are doing everything in their power to defend themselves against a cyberattack and that, if one still manages to penetrate their walls, the effects will not wreak total havoc on the business. Having a cyber insurance policy alone is not enough, but it is certainly a step in the right direction to achieve cyber resilience. 

The aftermath of a cyberattack is often wrought with reactive measures and questions like, “How can we afford this ransom payment?” and “How will we recover our lost data?” If an organization does not have a well-thought-out incident response plan with trusted and tested backups in place, a cyber attack can be devastating. Practicing cyber resilience, however, will help tremendously.

Growing up in Australia, where surfing is part of the culture, I have a healthy respect for waves. They're a part of something powerful, cohesive and much larger than the individual.

As an insurtech CEO since mid-2020, I've been getting asked about waves a lot--specifically, the first, second and third waves of insurtech. On the heels of our recent Series B raise, fintech reporters want to know: Is insurtech still perceived as a bubble or a blip?

Depending on your definition of the advent of insurtech, we're about a decade in. Yet there are still tens of thousands of lines of insurance, some of which haven't been innovated in 30 or more years.

With so much opportunity to offer better delivery, service and risk innovation, it's time to think about insurtech as a permanent fixture in the larger insurance ecosystem--and about how we evolve together, for the sake of our customers, our industry and the economy.

Investor Interest is Increasing

Market speculators and media headlines always make a great deal of noise around any adverse activity in our industry, but insurtech itself has been a steam engine since its inception. In Q3 of 2021, insurtech funding reached $5.3 billion (compared with $1.87 billion in Q3 of 2020), and topped $15 billion for the first nine months.

2021 was a landmark year for VCs as a whole, most of whom need to deploy their capital within the next five years. Any hesitancy in early 2022 is largely a byproduct of general economic uncertainty as global markets adjust to a third Q1 of pandemic conditions. The most forward-thinking venture capitalists are allocating specific funding toward insurtech to expand and add sustainable growth to their fintech portfolios.

Mutual Respect Between Incumbents and Insurtechs is Growing

Initially, incumbents were hesitant to acknowledge insurtechs as competitors, and vice versa. Many "1.0" insurtechs sought to disintermediate or automate fundamental insurance functions such as underwriting, broking and relationship management. Many incumbents believed they could beat insurtechs by rushing tech upgrades to antiquated quote-rate-issue platforms, only to be met with myriad challenges in adoption, training and cost.

Today, most of the longest-tenured global carriers have incubators and accelerators within their headquarters dedicated to insurtech. While true insurtechs have a bit of a leg up when it comes to agility and deployment because we are able to build from scratch rather than convert or upgrade legacy systems, it's a net positive for customers and the industry that incumbents are now constantly challenging and innovating. And early insurtechs learned a lesson in that you can't build an insurance company without serious insurance talent. Which brings me to my next point.

See also: 2022 Resolutions to Foster Innovation

Diversification of Opportunity Enriches Industry Talent

Not every insurance professional is a fit for the pace at an insurtech, and not everyone who thrives at an insurtech would succeed at a legacy company. Many will succeed in both arenas. But what the "great resignation," pandemic and "aging out" of talent in our industry have laid bare is that nurturing a talent pipeline for insurance is a responsibility we all must take seriously. There is a substantial benefit to having a breadth of career options industry-wide that draw from the traditional insurance paths--underwriting, claims, actuarial, risk management, safety--as well as innovators of technology, engineering, marketing and product development.

Younger generations in the workforce prefer to view careers as a jungle gym over a ladder, and the ability to move among legacy, insurtech or hybrid workplaces can offer the kind of development and enrichment critical talent thrives on. A stronger talent pool and happier, healthier workforce makes our industry better--and makes us better at serving our customers.

We Serve a Common Purpose

In the business of insurance, at the end of the day, someone is looking to us when things have gone wrong. They don't care whether we call ourselves an insurtech, a mutual or state fund or a global carrier.

You can call what's happening with insurtech a bubble, or 2.0 or third wave. But if we're each solving for one of those 10,000 lines of business that haven't been innovated in the last 30 years, I call that a win.

It’s been a wild year for insurance, and for auto insurance, in particular. As the pandemic and local governments’ responses to it have evolved, motorists have significantly changed their driving frequency, driving behaviors and ownership patterns. And, unfortunately, there’s no reason to think that 2022 will be any more settled than 2021. 

For starters, driving patterns have been fluctuating dramatically. In January 2021, travel on U.S. roads and streets totaled 223.3 billion vehicle miles, down 11% compared with the same month in 2020, according to the U.S. Federal Highway Commission. By November 2021 (the most recent month for which data is available), there were 278.4 billion vehicle miles, a 12% increase over November 2020. In fact, though traffic was down significantly in the early part of 2021 over 2020, by November, total vehicle miles for the year was up 11%!

In addition, it’s  common to hear people complain that motorists seem to be driving worse than before the pandemic. Statistics show that it’s not our imagination: The Zebra’s annual survey on distracted driving found that 40% of respondents said they interact with their Apple devices while driving, a 14% increase over 2020, and 55% of Android users said they did so while behind the wheel, a 2.7% increase over 2020. 

People are also holding onto their cars longer than ever before, with the average age of vehicles on American roads climbing to 12.1 years in June 2021. Supply chain disruption caused a shortage of new cars on the market just as demand for vehicles soared. As a result, the price of a used car rose by anywhere from 32% to 36% in 2021, depending on whom you ask.

Finally, new cars have significantly more technology than older cars. And while these technologies do increase driver safety and prevent accidents, when there is a wreck, damage will be more costly to repair.

See also: 5 Trends Changing Auto Insurance

Impacts on Auto Insurance in 2022

Lasting impact of new vehicle technologies: Damage severity is increasing. That’s not surprising, with so many sensors embedded in the bumper and other exterior areas of a car. A simple fender bender can damage these sensors to the point of making a car undriveable. As a result, the average claim will grow, and roadside assistance will be required for accidents that previously left vehicles perfectly safe to drive.

Insurers’ roadside assistance programs will also be affected in another way, because, as vehicles become more complex, it’s more difficult for a single towing and roadside assistance service provider to become specialized on all vehicles. For example, at least half a dozen car models have no exterior door handles, or they have handles that only pop out when a fob is present. This makes lockouts much more difficult to perform. It’s not out of the question that five to 10 years from now, tow providers will need to work through secured software or remote relationships to get these vehicles open, jumped or even towed. 

Another factor will also increase the severity of damage. People are holding onto cars far longer than they used to, and, the older a car is, the more likely it is break down at some point and initiate a claim. 

Roadside assistance programs: Roadside assistance is by far the most common claim for auto insurers, and the whipsaw trends in traffic volume have caused significant disruption. When traffic volume cratered in early 2020, tow providers had to lay off employees and even sell trucks and equipment to survive. Now, with traffic volume surging, they’re scrambling to keep up. In fact, a recent HONK survey of more than 580 tow providers found that more than one in five are having to turn down work. Tow business owners are working to hire employees and buy trucks so they can meet demand, but, in the meantime, the survey shows tow providers are prioritizing jobs that are closest to an available truck. Dispatching systems that take location into account can help reduce wait times for customers, but until the supply-and-demand imbalance is righted, insurers’ customers will likely see longer than usual wait times for help across the board.

Opportunities ahead: Despite the difficulties, there are big opportunities ahead for auto insurers. One of the largest involves telematics that can help with risk assessments and claims management. As a result, insurers can get a much more accurate, up-to-date picture of an individual’s risk, managing it in real time on a trip-by-trip basis. Instead of basing risk on predictors like financial history, where a motorist attended college and where the car is typically parked, insurers can look at individual behaviors in real time. 

See also: Nonstandard Auto Insurance's Key Role

There will be a lot of regulatory hurdles to overcome, but the momentum is clearly behind applying more sophisticated telematics to risk assessment. Insurers that have thoroughly digitized their operations will be well-positioned to capitalize on this massive amount of data once it becomes possible for insurers to access and use it.

In sum, 2022 will look a lot like the second half of 2021 for auto insurers. But it’s also clear that there’s much opportunity for insurers to lay the groundwork to differentiate themselves and position themselves for growth once the disruptions caused by the pandemic settle out.

Despite all the hype for smart homes, I've remained a skeptic for the 30 years or so since I first heard about the concept, partly because there wasn't a standard way for all the disparate devices to talk to each other. There wasn't a sort of operating system for the house, and a bunch of one-off devices weren't going to provide enough benefit. 

Well, three of the biggest guns in the tech world -- Apple, Google and Amazon -- just announced a new standard for communication that will be available later this year. The standard, called Matter, will let just about all new smart home devices, and even many old ones, talk to each other. 

Progress will still take time, and I remain to be convinced that many of the long-touted "benefits" of the smart home -- an internet-connected toaster or the ability to turn lights on and off remotely, for instance -- actually offer anything of value, but at least there will finally be a communication platform that will let companies, including insurers, tie all the benefits together and look for synergies.

To see how a platform like Matter can unleash a market, you can look to any number of examples from the history of technology. For instance, personal computers were available in the second half of the 1970s, but they all operated using different software. When IBM debuted its PC in 1981 and used a Microsoft operating system that any company could license, the standardization of the computing platform let the PC market take off. The search engine became far more powerful when Google became a standard. The market for music transformed when Spotify became the standard for streaming. In the physical world, Amazon's Prime has set a standard for shipping that has taken e-commerce to new heights.

Yes, all those standards have given rise to monopoly complaints. Google faces privacy concerns, too, and Spotify's attempts to build on its success and move beyond streaming have given it a great, big Joe Rogan problem. The monopoly and privacy concerns, if not problems with overreach, could well surface with smart homes at some point, but those are mostly to be dealt with down the road, after the market expands considerably. For now, standardization will almost entirely provide benefits.

For insurers, having an operating system for homes would help them work with technology suppliers and other partners to tie together sensors for water leaks, fire, radon and carbon monoxide, etc. and offer discounts on policies while better protecting clients. Building on Matter, insurers and partners could also better integrate those sensors and cameras with security systems that protect homes and offices. Insurers could also tap into devices such as the Amazon Echo and Google Home to provide voice alerts that a big storm is heading for your neighborhood, so you should remove anything from the patio that could get damaged or turn into a projectile, or that the possibility of a hail storm means you might want to keep your car in the garage all day. 

Or whatever. The point is that, once you have a platform, innovations can build on each other, often in unexpected ways. And I think Matter could finally provide that platform for the smart home. 

If you're interested in reading more, here is a Wall Street Journal article that explores Matter in some detail. Here is me complaining in 2016 about how the lack of a standard means of communicating limited the utility of smart home devices; the commentary includes links to a piece by an old colleague that goes into even more detail. Here is me in 2020 explaining that insurers will eventually have to make a business case for smart home technology and show that widely deploying, say, sensors for water leaks has to cost less than the price tag for the damage they would prevent -- concluding that we weren't there yet. And, lest you get the sense that I'm always pessimistic, here is a link to the ITL Focus from December, on smart homes, which includes some commentary from me, an interview with Mr. Telematics himself, Matteo Carbone, and six articles on what insurers are doing with smart homes.

Finally, my daughters suggest I steer you to a Disney movie called "Smart House" from 1999, which they recall watching as little kids. The movie is about a home that gets too smart for its own good, presaging at least some of the problems we might eventually encounter, but, remember, it's a Disney movie, so it has a happy ending. 

Cheers,

Paul