What were we thinking? It’s a common question in every area of life! We find ourselves in a particular state, and we wonder what decisions we made that brought us to this point. These might be the good decisions that prepared to take advantage of opportunities. They may also include decisions that seemed correct at the time and now have us wishing we had selected an alternate path.

Either way, Majesco has been carefully understanding and weighing insurers’ awareness, planning and execution across key areas that substantially influence growth for seven years now in a way that yields some valuable insights. We know what the industry was thinking and doing seven years ago, and we can compare it with what insurers consider to be important today. You can see the full set of insights in Majesco’s strategic priorities report, A Seven Year Itch – Changes in Insurers’ Strategic Priorities Defined by Three Digital Eras Over Seven Years.

Why a seven-year itch? It was made famous in the Marilyn Monroe movie. But the underlying concept about a seven-year itch is change, which picked up in a disruptive way by the mid-2010s with the emergence of new technologies and insurtech and accelerated in the past two years due to the pandemic.

The pace changed. The market changed. Technology changed. Competition changed. 

And change changed.

A key question to ask yourself: Do you have a seven-year itch for change? Your competition is changing. Your customers demand it.  And leaders are making the change to adapt, innovate and thrive. 

Over the last seven years, we have seen three digital eras of insurance innovation and how insurers are now capitalizing (or not!) on what they have learned to establish themselves as the next generation of leaders. How do you compare?

The 3 Eras of Digital — Do you recognize them?

Hope you like roller coasters and can stomach the rapid highs, lows and curves, because we've been on a seven-year roller-coaster, with the ride not only continuing but not slowing down! New and constantly changing risks, shifting customer behaviors and expectations and numerous insurance innovations have quickly erased the idea of status quo. Sources of data have proliferated. New distribution channels are highly sought. Companies that had never considered partnering are now reaching out. Insurtech capital seemed like it was going to peak, but it hasn’t. The pandemic and numerous mergers and acquisitions added fuel to the changes.

If insurers have learned anything, it has been that it won’t pay to wait for the calm period. It’s okay to embrace the wild ride.

Seven years ago, Majesco also began our strategic priorities research. We wanted to focus on the challenges – both internal and external – facing insurers and how those shaped their current and planned strategic initiatives for growing their businesses. Looking back at the beginning to this year’s results, three distinct eras become clear.

• Digital Disruption Era — In 2015 and the first era, insurtech was new and booming, causing a wait-and-see attitude regarding technology and business investments.
• Digital Transformation Era — A couple of years later, the second era began, with the industry’s outlook becoming optimistic, driving a wave of technology, insurance innovation and business model transformation.
• Digital Acceleration Era — We are now entering the third era due to COVID disruption and adaptation, reflecting strong signs of resurgence and resilience by insurers.

Throughout these seven years, the rising importance and adoption of advances such as platform technologies, application programming interfaces (APIs), microservices, digital capabilities, new/non-traditional data sources and advanced analytics capabilities have become crucial to industry leadership. Market trends like the gig/sharing economy, fading of industry silos with emergence of new competitors, the rise of ecosystems and partnerships and much more are driving insurance innovation with new business models, products, services, customer experiences and distribution channels.

However, the different levels of awareness of these developments and the strategic responses to them have in many cases redefined industry players into three categories: Leaders, Followers and Laggards. Gaps between them remain, and the size of the gaps continue to change as the goalposts continue to be moved ahead by Leaders.  

The view for the future — focus on growth

The pace of change is driving strategic discussions on how insurers will prepare and manage the changes needed in their business models, products, channels and technology. What is leading these conversations today?

According to our survey, growth remains the top focus of insurers’ business activities and performance over the past year, driven by changing or introducing products (58% impact) and expanding channels (24% impact). This focus was highlighted with the reallocation of resources to change how insurers do business. The strong correlation between changing/new business models and growth (r=0.65) indicates deeper structural changes are well underway to the traditional ways of doing business and focused investment on the future of the business.

Figure 1: The state of insurers' strategic activities in the past year

Seven-Year Trends

In the first era, Digital Disruption, we saw a decline in the average assessments of company performance and strategic activities as companies tried to understand the implications of insurtech. This quickly led to the realization that legacy systems were holding insurers back and limiting their ability to compete with new business models, products, channels and technology capabilities. This pushed insurers to refocus on innovating by creating a new foundation of software-as-a-service (SaaS) platform solutions that replaced legacy systems during the Digital Transformation Era. As legacy began to be replaced, channel expansion, new business models and new product development began to rise and converge. The pandemic once again saw a decline as insurers addressed implications of the pandemic. But as we enter the Digital Acceleration Era, it reflects the rapidly growing demand for digital capabilities by customers due to the experiences of the pandemic.

See also: What Happens When Insurance Truly Goes Digital?

As digital transformation continues to accelerate, insurers are once again experiencing rapid growth as the top strategic factor, signaling they are successfully navigating and adapting to the new market conditions created by the pandemic. Insurers are turning their circumstances into insurance innovation and growth opportunities.

Figure 2: Seven-year trends in the state of insurers' strategic activities in the past year

Strategic outlook based on industry positioning

The survey results for this year continue the trend of disparities between insurance Leaders, Followers and Laggards based on their strategic outlooks.  Encouragingly, Laggards made significant progress in closing their gap from 64% to only 20% as compared with Leaders when considering the state of their company last year, influenced by an increased focus on digital transformation acceleration. However, Laggards still are too focused on the traditional business model, with sizable gaps of 25% to 30% in reallocating resources to change how they do business, expand channels or offer new products and new business models – which is reflected in their view of their company three years out.   

In contrast, Followers are treading water with a 13% gap to Leaders compared with 12% last year. Two of their biggest challenges, reallocating resources and expanding channels, are crucial for future growth. They likewise are too focused on today and not recognizing that customers’ rapidly changing needs and expectations will demand them to adapt to new products, business models and channels to meet customers on their terms.

Figure 3: The state of insurers' strategic activities in the past year by Leaders, Followers & Laggards segments

Internal Challenges Shape Insurers’ Focus

The Digital Disruption Era saw a rise in internal challenges with a grand scale paralysis regarding many initiatives due to the unknown influence of insurtech.  

As the industry adapted and embraced tnsurtech in the Digital Transformation Era, budget and legacy systems challenges began to wane due to increased technology investment and replacement. However, data/analytics capabilities, data security, digital capabilities and talent rose, driving the average concern level for internal challenges to its peak level in 2018.

On the cusp of the COVID and the Digital Acceleration Era in late 2019, insurers were increasingly confident about internal challenges, consistent with the positive assessments of their companies’ past year performance and strategic activities.

Surprisingly, after the first year of the pandemic, internal challenges average levels dropped further, weighed down by low concerns for a post-COVID work environment and an aging workforce. Rather, innovation, digital capabilities and legacy systems replacement rose to the top, driven by the pandemic-accelerated need to become digital-first businesses.

However, a new work reality is setting in, with attracting and retaining talent vaulting to the top challenge.  Finding and keeping talent – both business and technical – is critical for insurers to build and grow their new digital-first businesses.

Figure 4: Seven-year trends in concerns about internal challenges

Internal Challenge Awareness and Execution

Consistent with their focus, Leaders demonstrate the highest levels of awareness regarding their internal strengths and weaknesses, reflected in gaps of 15% with Followers and 24% with Laggards. These differences are influenced by gaps between Leaders and both Followers and Laggards for data security (45%, 22%), data and analytics capabilities (35%, 24%) and legacy systems (28%, 27%). The lack of awareness and planning, let alone execution, puts Followers and Laggards dangerously at risk, particularly for game-changing data and analytics capabilities.

In assessing the gaps based on large (over $1B in DWP) versus mid to small insurers, large insurers reflect significantly higher awareness regarding speed to market (+10%), data and analytics capabilities (+9%), legacy systems (+14%) and aging workforce/retirements (+10%). While large insurers typically have access to greater resources – capital and people, mid-small insurers have less complexity, giving them an edge and opportunity to close these gaps if they can move more rapidly from awareness to execution.   

Figure 5: Concerns about internal challenges by Leaders, Followers and Laggards segments

A notable set of internal challenges gaps that drive doing business differently – digital strategy (19%, 15%), insurance innovation (20%, 18%), aligning IT and business strategies (26%, 10%), distribution ease of doing business (22%, 15%) and change management (24%, 14%) –  are of crucial concern. The large double-digit gaps, coupled with the pace of change, will likely expand and put Laggards and Followers at a significant disadvantage … affecting future growth. 

External Challenges Confronting Insurers

External challenges trends for insurers reflect the continuous, rapid pace of change and constantly changing market and business assumptions that insurers faced during each of the three eras. The lack of addressing the internal challenges exacerbates external challenges – putting insurers at a consistent disadvantage to other competitors.  

Insurers’ external concerns have focused on changing market dynamics reflected in the pace of change, emerging technologies, and changing customer expectations. This suggests insurers are more concerned about their own internal capabilities to rise to these challenges than about new competitors doing so (an inside-out view instead of an outside-in view). Similar to the lowest rated concerns, these three remained the top three to four issues over the seven years of the research. 

Figure 6: Seven-year trends in concerns about external challenges

External Challenge Awareness and Execution

Overall gaps between Leaders, Followers and Laggards for external challenges are nearly identical to the internal challenges gaps. However, the differences emphasize the view that Leaders are more forward-thinking and visionary while Followers and Laggards are still stuck in yesterday’s and today’s paradigm.

In particular, Laggards are explicitly behind Leaders across more external challenges including pace of change (35%), rise of direct sales (35%), embedded insurance (24%), exchanges (34%), and new/innovative insurance products (31%). Likewise, Followers are most vulnerable on the rise of direct sales (23%), embedded insurance (19%) and new competition from outside the industry (22%). For both Laggards and Followers, these areas are substantially reshaping insurance and are directly related to insurance innovations that are driving growth for the next generation of leaders. This reflects a major blind spot for Laggards and Followers in the changing customer and market dynamics that will have significant retention and growth implications over the coming years, putting them at a competitive disadvantage.

Figure 7: Concerns about external challenges by Leaders, Followers and Laggards segments

Large insurers are significantly more aware of and focused on the external challenges as compared with the mid-smaller insurers.  Mid-small insurers must keep themselves abreast of these external challenges that influence customer and market dynamics. Taking concerted efforts to engage outside their organizations with others involved in innovation, insurtech and other industries is crucial to thinking outside the box. This outside-in perspective is vital in today’s rapidly shifting marketplace.

See also: Thinking Big for True Transformation

Insurance’s new wake-up call

If the insurance roller coaster has taught us anything through all three digital eras, it might be this: The time it takes to go from recognizing change (social, climate, technology) to reacting to change (insurance innovations such as new products, new distribution, new technologies) must grow shorter to remain competitive. The only shortcut is through partnerships to track, assess, engage and respond to these trends to better position themselves and their partners to succeed in the future.

To consider how your organization measures up to Leaders’ strategic priorities, be sure to download A Seven Year Itch – Changes in Insurers’ Strategic Priorities Defined by Three Digital Eras Over Seven Years.

Quantum computing is coming, and, when it arrives, it’s going to revolutionize how data is processed and stored. However, quantum technology, in the wrong hands, could create a multitude of digital risks, including advanced cyberattacks. For the insurance industry — which is increasingly relying on data as a key asset to digitize transactions, improve underwriting decisions and speed processes — this poses a significant problem and represents a potential exposure area that could jeopardize all levels of the industry, from the average insured to the large legacy carriers. 

What are quantum computing and quantum resilience? 

According to IBM, “quantum computing is a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.” Dr. Michele Mosca at the University of Waterloo predicts that there is a one in seven chance that some fundamental public-key crypto will be broken using a quantum computer by 2026. That chance increases to one in two by 2031. 

With quantum computing comes quantum threats, as a quantum computer is capable of undermining the widely deployed public key algorithms used for asymmetric key exchanges and digital signatures — both vital parts of protecting the confidentiality, integrity, and authenticity of data transfers in the current computing environment. 

Without effective mitigation, the impact of adversarial use of a quantum computer could be devastating to the insurance industry, especially where information needs to be stored and protected for decades. 

Quantum resilience mitigates the effects of these vulnerabilities and ensures that precious data remains safe by breaking the data into smaller, encrypted pieces and anonymously storing them in different places. When an algorithm is quantum-resilient (also known as quantum-resistant or quantum-safe), the cryptographic algorithms are supposedly resistant to cryptanalytics attacks from both traditional and quantum computers. 

While quantum computing does seem a bit menacing, Q2K doesn’t need to be another Y2K. By thinking about quantum now, insurance can concentrate on what can be done to prepare for quantum’s arrival and prevent another widespread panic. 

What is being done to work toward quantum resilience? 

Many organizations, such as the open Quantum Safe project and the National Institute of Standards and Technology (NIST), are aware of the threat quantum computing poses and are working to create quantum resilience. NIST is collaborating with government, academia and industry to develop a new set of encryption standards, positioned to be released in 2024, that work with classical computers while also resisting quantum threat. The standards will include software recommendations as well as hardware updates. Software giants such as Microsoft, Google and Amazon Web Services are also among those developing quantum-safe encryption algorithms.  

Some organizations are even investing in dedicated quantum resilience teams as an extension of their cybersecurity group, while others are monitoring the threat closely and getting ready to act when standards are made available. 

It might be hard for insurance to justify investing in quantum resilience measures; however, the industry needs to be patient and can’t lose sight of the threat of quantum computing by compromising on safety measures, as insurance could be particularly vulnerable to devastating cyber attacks — especially since insurers often carry not only the data of their customers but also their partners. 

What are the risks to insurance with quantum computing? 

Just as with other industries that rely on heavy encryption to deal with sensitive data and information, cybersecurity is of the utmost importance in the insurance industry — especially for organizations looking to gain and maintain clients’ trust. With the rise of insurtech and innovations such artificial intelligence, insurance is in a transition where it’s trying out new connections, new relationships, new vendors and new technologies – experimentation that also increases its cyber risk.  

Not only that, but many large carriers use older legacy systems for their data. This poses both a challenge and risk, because they may not have the capability to implement all the security measures needed to protect against current and quantum threats. This also means that when implementing new algorithms or upgrading existing applications, different approaches are required to elevate the software while maintaining its integrity and the data. 

Insurance carriers need to ask themselves how long they want the legacy systems to continue and whether they believe quantum computers are a threat to their operations. If you’ve adopted a new technology that you want to last, upgrading it to be quantum-resistant is vital as you digitize and modernize.  

What can the industry do now to protect itself and its dependents from quantum attacks? 

One of the ways the insurance industry can secure its data and mitigate against cyber risk is externalizing its data by using data exchange platforms such as ADEPT (ACORD Data Exchange Platform & Translator). While this does open insurers up to some risk, it can be beneficial in the long run if the right partner is chosen, especially because internal systems are prone to attacks.  

For example, insurance carriers can use these data exchange platforms as a backup in case they’re hacked. If an organization is hacked, not only can they lose access to their data, but they can also lose access to certificates of insurance and other vital information and documents that can help them get on the road to recovery. However, by using a data exchange platform, insurers have access to a backup version of the certificate and can quickly work to get back on their feet.  

When selecting a data exchange platform, insurers should look for companies that use RSA encryption – currently the most widespread and effective cryptographic key distribution technique. RSA encryption relies on the fact that it is very difficult for computers to factor large numbers. So the prime factors to a large number can act as a "key": The information is encrypted with a big composite number, and the receiver must know the prime factorization to decrypt the information. But these prime factors are kept a secret between the sender and receiver, and an eavesdropper can only see the composite number. With classical supercomputers available today, they would need to wait trillions of years to crack the code and find the prime factors. It has been proposed that a quantum computer, however, could exponentially speed up this process. Shor's algorithm presents a blueprint for a quantum computer to factor an equally large prime number in only eight hours if the quantum computer were large enough. Today, quantum computers are far too unreliable to demonstrate Shor's algorithm – we are a far cry from operating the millions of qubits in concert that would be necessary to break RSA encryption. But if we wait to become quantum-resilient until after Shor's algorithm is truly realized, we risk widespread vulnerability to cyberattacks.

Another way a carrier can protect its data and insureds is by keeping abreast of when quantum standards are published and taking steps to implement hardware and software upgrades. A way to do this is by partnering with organizations that can provide resources and training on quantum computing and resilience while also notifying them when new standards and regulations are released. That way, insurers can update their technology and implement patches as soon as they are available to keep their data secure.  

As the industry moves to modernize, it’s vital that carriers adopt technologies and work with partners that are proactive in protecting valuable data and take steps to promote awareness and education of quantum resilience while preventing another Y2K from occurring. 

Cyber insurance, once a luxury, is now becoming a part of an organization's cyber resiliency toolkit, along with incident response readiness. However, in the face of accelerating insider cyber crime, a rise in ransomware attacks and other threats, some insurers are increasing their premiums. Others are simply exiting the market altogether. As a result, cyber insurance is becoming more expensive and harder to obtain. This is a matter of insurability.

Behind all of this, there is the upfront cost of making sure your organization is first equipped to satisfy the increasingly rigorous security controls to meet the coverage qualification criteria. To simply qualify for protection, businesses must be able to demonstrate their cyber resilience and prove they have deployed appropriate protection.

We argue that the best place to start is by securing a well-known defensive weak point: privileged access that has administrator-level powers.

Keep Your Privileged Access in Check

If an attacker manages to crack into a privileged user account, they gain the literal keys to the kingdom, and it could be game over for defenders. This is one reason why businesses should ensure key corporate assets are only accessible to authorized users with the right security controls satisfied.

Privileged Access Management (PAM) is one of the best solutions to protect and manage access. Yet, as well as improving an organization's security posture, a PAM solution also demonstrates that a business has reduced the risks and is better prepared to face the latest threats. We are not alone in making this claim, because underwriters are also now questioning clients as to whether they have deployed secure access solutions before signing off on insurance policies. PAM should therefore be a foundational part of any organization's cybersecurity posture and readiness.

Insurers evaluate cyber risk using a variety of models and metrics. Cowbell Cyber, for instance, uses specific factors that rate an organization's cyber risk along eight criteria: Network Security, Cloud Security, Endpoint Security, Dark Intelligence, Extortion, Funds Transfer, Compliance and Software Supply Chain. They assess an organization's insurable threats and map them to risk exposures, on a continuous basis. The result: a cyber insurance policy tailored to your risk and business needs.

The methods of assessing risk will vary among providers, but they are all looking for the same fundamentals: strong cybersecurity defenses that respond to the latest threats. Secure access is an important part of risk reduction insurers are looking for when making insurance premium decisions.

The authoritative Verizon Data Breach Investigations Report 2021 found that 61% of breaches involved credentials, with stolen credentials used in 25% of breaches. It is so easy to buy or steal passwords that organizations must be realistic about the limited protection they offer. PAM is a more robust way of securing access, protecting privileged accounts from unauthorized access and limiting the potential damage of an incident.

See also: Cyber: Black Hole or Huge Opportunity?

Managing Privileged Access

A PAM solution monitors administrator accounts to ensure only authorized users are accessing its network and promptly catches any suspicious activity. For example, a PAM solution would be on high alert if a privileged account started to access large amounts of sensitive data or if a high number of privileged user accounts were suddenly accessed outside of normal business operations or from suspicious network locations.

Users rely on PAM tools for protection against external and internal threats. PAM solutions effectively reduce risk by their ability to recognize and stop unusual behavior before it becomes damaging to the network. Key features in a PAM solution include orchestration and automation. The orchestration of the PAM solution keeps functions running smoothly, giving other critical solutions the access they need without increasing the risks, such as integration with vulnerability assessment or data loss prevention solutions. PAM ensures a multifaceted defense system that shuts down any potential risks and provides seamless, secure access when needed on demand. The automation feature in PAM manages authentication, authorization and monitoring, with no added work for security teams such as rotating passwords after a task has been completed.

As an extra layer of security for privileged accounts, multi-factor authentication (MFA) assists in protecting privileged accounts from unauthorized access for a greater amount of workflows, systems and users.

As attacks continue to grow in volume and sophistication, cyber insurance policies have had to constantly adapt and raise their requirements for businesses. They expect businesses to have a comprehensive security posture in preparation for a wide variety of attacks. Businesses that have already deployed PAM and MFA solutions in their security systems will certainly be more appealing as insurers look to evaluate their coverage options.

I, like many of you, began to feel the economic tides shifting a few months ago, whether it was the rise of gas prices or the trip to the grocery that rang up to a little more than usual. The general feeling was that we were entering into a new normal. 

Interestingly, what is happening is not new. Rather, this "book" will likely read like another classic from the ’70s and ’80s titled, “how did this happen, and how do we get out of it?” Just ask Jimmy Carter. Although inflation was routinely blamed on oil prices, currency speculation, greedy business and union bosses, the truth came out after the crisis was over. Guess what the primary influence of inflation was: monetary policies that financed massive budget deficits. The U.S. funded an expensive war in Vietnam and attempted to steer monetary policy to achieve employment goals, and investors became nervous about the value of the dollar in relation to our deep deficits. Sound familiar? You could replace those headlines with: The U.S. funded an expensive war against a pandemic and attempted to manipulate monetary policy to float the economy during that time with quantitative easing, and investors became nervous about a changing geopolitical landscape. 

If the current trends mirror the past, we will likely see core inflation and interest rates continue to rise. The era of cheap money will officially be over, and economic growth will stagnate. I used to think cheap money references were attributed to big banks and high-wealth individuals. Interestingly, due to the explosive growth in home values, this trickle-down effect of monetary policy helped home equity to grow a staggering $9.4 trillion, which then triggered a massive refinance effort unlocking $70 billion into the market with cheap interest rates. The quantitative easing efforts grew the Federal Reserve ownership of mortgage-backed securities from $1.4 trillion to $2.7 trillion in a little more than a year. This unlocked cheap money and helped to spur economic growth. The party is coming to an end. 

What happens now? You can see what will happen, like a slow-moving train wreck. This cheap capital will eventually dry up, inflation may mitigate but remain elevated and economic growth will slow. The term "stagflation" is now in vogue. 

Will we recover? Sure. No doubt. Just as the story from the ‘70s and ‘80s taught us, cooler heads will prevail, and we will come out the other end, but it will take some time. 

What does this mean for insurance companies? 

• The economy is opening post-COVID, and this will not slow. People are not going back into isolation. Therefore, the concerns of elevated frequency over prior years will continue. The impact of catastrophes will also continue to be elevated. 
• Supply chain issues will drive prices upward. The best indexes to watch will be the core CPI for general trends but the PPI for a more exact view of construction costs, which have almost doubled since May 2020.
• Employment cost indexes are beginning to tick upward as a trailing indication that inflationary pressures will only continue to see pressure for the long term. 

See also: Insurance Technology Trends for 2022

What can an insurance company do about this? 

• Get out and see the impact first-hand. First and foremost if you are an insurance CEO, you should have already completed a round of field rides with your front-line claims adjusters observing estimates being developed. If you are waiting for your actuary team to pick up on this, you will be waiting too long and will miss out on insights. 
• Customer shopping will pick up. You need to communicate with your customers about their insurance coverages, alternatives and the value you bring.
• Communicating is fine; developing solutions is better. The average American pays 14% of their income on insurance annually. (Please do not ask me to raise my deductible again. There has to be a better way.) Your product team must be as focused on alternatives as they are on developing rates and underwriting guidelines. 

There has never been a better time to challenge our conventional thinking. Will consumers view the insurance industry as a dynamic, solution-driven partner in their life or as a static, same-as-always industry? If we have been prudent with our risk management efforts, then we should take this time to respond to our customers' needs. I continue to recommend that incumbent and insurtech companies work together to spur innovation. 

Ultimately, we have a chance to break through and change the narrative from, I have to buy insurance, to, I am excited to transfer the risk in my life during these uncertain times.  

As Einstein said, “We cannot solve our problems with the same thinking we used when we created them.” 

In recent years, the combination of heightened customer demands for a more seamless user experience, combined with the rise of purpose-built insurtechs, has forced insurers to accelerate their innovation cycles. Data-driven processes such as marketing, underwriting and portfolio monitoring, to name a few, require a deeper understanding of the customer, based on requests for as few data points as possible. Insurers are also seeking opportunities to customize user journeys to enhance satisfaction with onboarding and claims processing.

In response to these challenges, insurers are developing world-class innovation teams, expanding their data science and technology capabilities and partnering with purpose-built MGAs to “test the waters” in a more limited scope. While some insurers are pursuing a combination of these strategies, almost all of them are putting an emphasis on improving data usage, particularly in the context of external data.

In the last decade, the market for external data has grown tremendously, with large bureaus such as Experian, Equifax and CoreLogic offering more data products than ever and hundreds of new data vendors emerging on the scene. Insurers were already consuming vast amounts of external data to run decision-making functions on risk, but now they are inundated with thousands more products to choose from across many more data types.

Consider the following examples. Aerial imagery data can provide more accurate property details than tax assessor data, while also automating certain claims around roof damage. Footfall data can be used to verify the hours a business is open and whether the property is regularly hosting large events or gatherings outside of normal business hours, suggesting the presence of additional risks. And digital intent data can provide clues about customer satisfaction, helping insurers reduce churn through preventative methods.

As insurers innovate across the new data landscape, they are faced with a series of challenges. First, not all data vendors are equal, and careful attention must be paid to data quality, collection methodologies and usage restrictions. Second, onboarding each data vendor for testing can take months to even a year depending on whether customer data must be enriched for an accurate data test. Third, with so much new data, enterprises need tools to help them “sift through the noise.”

In this context, an External Data Platform (EDP) is a valuable tool to accelerate data discovery processes. EDPs provide rapid access (via API or Data Share) to a curated collection of external data products from hundreds of different upstream providers, data dictionaries and due diligence certifications focused on usage restrictions and collection methodologies. When it comes to testing, EDPs also structure data in ways to feed into automated machine learning platforms that can test thousands of attributes and hundreds of model variations to identify the most predictive attributes across a sea of data sources.

See also: How Analytics Can Disrupt Work Comp

EDPs are also helpful in the context of solution deployment as they can provide access to production-grade data via APIs or full files delivered to in-house data lakes. Moreover, they provide the ability to procure external data from multiple vendors simultaneously via a single API. Thus, it can be said that these platforms provide access to hundreds of sources, via a single API and a single contract. 

For insurers seeking to accelerate their analytical innovation cycles and move ideas “out of the lab,” data discovery tools such as EDPs are vital. Insurers are in a competitive arms race with insurtechs and other carriers as they seek to leverage the best technologies, data and people to maintain and grow their businesses. Those that fail to innovate will almost certainly lose market share, and pushing the bounds of analytical innovation will be the primary mechanism for innovation in the coming years.

2022 and 2023 are lining up to be historically expensive years for commercial P&C insurance. The headwinds of inflation, labor instability and anticipated economic downturn have CFOs concerned about not only rising insurance premiums but also the rapidly growing opportunity cost of capital that is tied up in insurance collateral obligations. These factors can present a competitive advantage to companies with strong balance sheets. In response, top-performing brokerages need to introduce solutions for insurance-related collateral to help clients manage their balance sheet and to increase corporate financial liquidity and flexibility. 

A rapidly evolving P&C environment for corporate clients

In recent years, large companies have migrated away from guaranteed cost insurance programs to loss-sensitive and captive insurance programs due to their ability to lower premium costs and increase company cash flow. The primary focus of management continues to be on premium costs, but this addresses only half of the expense issue. The market has overlooked the very real cost of foregone economic value caused by insurance collateral requirements. 

The leading solution used by companies to collateralize their insurance requirements, letters of credit, suffers from a major drawback. These letters of credit are treated as drawn capital with respect to their corporate credit facilities, thereby reducing the amount available to the company to run and grow their business. The amount of collateral companies are required to maintain via these letters of credit is often higher than the realized, or paid, claims.

To make the problem worse, recent years have seen marked premium increases due to more stringent underwriting and higher claims costs, which have forced carriers to push for higher collateral requirements in deductible programs. Workers’ compensation coverage, commercial auto and general liability insurance programs have become more expensive in terms of both premium prices and the opportunity costs associated with inaccessible, collateralized balance sheet capital.

Troubling skies ahead: Balance sheets under threat

Looking ahead, collateral requirements are set to rise significantly in loss-sensitive programs, driven by multiple factors.  Expected wage inflation is helping to boost overall renewal premiums collected for workers’ compensation insurance, according to Travelers. With respect to claims experience, that same report says workers with less than a year’s time on the job filed 35% of all workers’ compensation claims, a troubling statistic considering employers are in the midst of an historic hiring spree.  

According to the American Trucking Associations, there is a driver shortage of more than 80,000 positions. Amid the shortage, many organizations have lowered driver applicant standards, a practice that comes with risks, as these new employees are more likely to be involved in a vehicular accident. The projected outcome of these factors is an increase in claims and a resulting acceleration in collateral requirements within deductible programs.  

The increasing possibility of a recession in the wake of global central bank tightening will further contribute to a liquidity crunch and strained balance sheets. The combination of stricter lending requirements and fluctuating cash flows will have CFOs intensely focused on balance sheet and liquidity management. While less competitive companies will need this liquidity plan to manage financial performance fluctuations, stronger companies will seek to increase and deploy accessible capital toward business investment and M&A.  

See also: Catastrophe Bonds: Crucial Liquidity

Skilled brokers required to navigate clients through the storm

In this turbulent environment, a focus on price negotiations with clients’ carriers is not enough. Brokers will need to fully navigate clients through this tempest by providing liquidity solutions that enable growth, reduce cost and provide competitive advantage. The burden of collateral obligations associated with insurance programs can be remedied through Insurance Collateral Funding - a solution that enables companies to not only fund their insurance collateral requirements but to transfer them off their balance sheets to free significant amounts of capital to deploy toward business operations and investment.  

Insurance Collateral Funding replaces any form of collateral including existing letters of credit, trust accounts and surety bonds, and can be treated as off-balance sheet financing.

Here are four actions brokers can take today with their clients using a solution like Insurance Collateral Funding:

• Provide liquidity. Have a liquidity plan in place for your clients that will release trapped insurance-related capital if your clients have the need during uneven business cycles. 
• Enable growth. Know which clients are positioned to out-invest their competitors in a recessionary backdrop. Firm acquisitions will be less expensive, and the acquiring firm will benefit from additional liquidity to capitalize on these opportunities.
• Create client choice. By moving an insured’s insurance collateral off the balance sheet, you are giving your corporate client choices when it comes to program design and how they work with their carrier.
• Open the loss-sensitive door. For those firms still in guaranteed cost programs, brokers can move them to loss-sensitive programs without the historical friction involved in so doing.

Brokers are in a position to advise their clients on how to unlock the full potential of their balance sheets. The most capable brokerages will be rewarded for operating as skilled navigators through the choppy waters ahead.

Earlier this year, Duck Creek Technologies conducted a global survey of 2,000 consumers to learn more about where strategic opportunities may lie for carriers in 2022. 

While there were a number of findings that presented carriers and brokers in a positive light, it was clear that a large majority of consumers – when asked about their perception of insurance – were indifferent.

Indifferent is not negative. Indifferent can mean there is a chance for great opportunity. 

Insurance… on demand.

Following the survey, 48% of respondents said they would find add-on products appealing, and 58% said that they would find insurance on demand appealing. These points are interesting and, along with a number of other findings from the survey, highlight how consumer attitudes toward insurance are changing rapidly. Are insurance policies supposed to be "set it and forget it"? Maybe not. 

The on-demand finding is a result of consumer movement toward “what you want, when you want it” models. Of course, insurance is a lot more complex a scenario than your television, razor or coffee subscription. However, there is a large market opportunity for those organizations that can meet consumers where they are. 

Examples of on demand insurance are being seen in auto – accelerated by changes to driving behavior around the pandemic – and travel, along with home and renters spaces, too. It is bubbling under the surface, and the carriers that most quickly and painlessly integrate the right data or IoT solutions into products and processes will win this migration.

On demand insurance (like usage-based insurance) cannot be achieved without data and information, and accuracy and transparency are paramount. Cars have telematics. Travel has records. This all must be documented, verified and then applied to a policy with the same swiftness a consumer would demand when updating any number of their other subscriptions. 

One last thought on this topic: We also found through the survey that nearly one in two respondents would prefer to make any changes to their policy online or through an app. All of this combined really demonstrates that attitudes from consumer experiences in banking, retail, entertainment and so on have already infiltrated the world of insurance.

To engage, or not to engage. 

It may be surprising, but 70% of respondents expressed feeling that their insurance company treats them as an individual. Go, insurance! And, to quote Duck Creek CEO Michael Jackowski, “For an industry that is often painted black, I hope this is heartening for carriers and brokers.” Data statistics like this prove that the move to digital or web-based engagement and insurance’s efforts to modernize in the digital age has not significantly dented how customers feel about the way they are treated (despite previous fears that it may have). 

There are plenty of opportunities that on demand insurance can provide, but, from an engagement perspective, these opportunities are even greater than one might think. In the past, hearing from your carrier meant one of two things: renewal time or claim time. Admittedly, this has not been cause for too much excitement. 

According to the survey, 32% of respondents, on average, never heard from their insurance provider on an annual basis when there was no claim against a policy. That is nearly one in every three people having zero engagement with their carrier outside of a claim. Are there other potential touchpoints with policyholders that carriers are missing out on? Most definitely.

And even from the claims side, we are still not getting it quite right. The majority of time a claim is filed, consumers need real support. It can be an emotional and financially frustrating time, and, often, the hardest part is the waiting game or the uncertainty of a claim status and resolution. In fact, 95% of respondents said they would like to hear more about the status of a claim.

The takeaway is that consumers need to see and hear more from carriers and brokers – whether it is a communication with critical information about a claim or to uncover potential opportunities to conduct further business. Carriers and brokers cannot have the answers if they do not ask the questions. Are there opportunities to bundle coverages? Can goods be added to an ongoing policy? Is the policyholder potentially dissatisfied prior to renewal time, and there is still adequate time to make a difference?

See also: How Carrier Tech Drives Agency Change

Buying preferences are a mixed bag. 

To put a bow on the consumer experience bundle, the survey highlighted that insurance buying preferences are all over the place. Insurance lines vary so dramatically – in complexity, to coverage, to price, to times to fulfill claims and everything in between. Rather than a one-size-fits-all approach, insureds want more personalized purchasing options. 

Here’s that mixed bag: One in four consumers made their purchase through brokers or third parties, 73% on average bought directly from a carrier, and 40% preferred to interact through a website. Many carriers are already recognizing these behavioral shifts and are maintaining multiple channels to engage consumers. But, this requires truly understanding your customer and knowing the persona of the buyer in question. 

Carriers are turning to technology and solution providers to see how they can access the latest and greatest customer engagement tools. Think digital customer service, for example, where carriers can leverage real-time chat, cobrowsing, screen sharing, voice and video to find a middle ground with their consumers. Using AI-powered chatbots helps eliminate communication efficiencies, and e-signature helps ensure that the policy is signed, regardless of where it’s purchased. These personal touches create powerful interactions (at the times they are needed and desired most) by technology. 

Where are we?

From research, to inquiry, to sale, to purchase and to service, great customer engagement opportunities await. Carriers that meet people, products or processes where they are will find success.

Carriers have proven they are resilient over the past couple of years. Now, they are also proving they are innovative. Three areas that carriers might want to consider looking into when undergoing this process: accelerating speed to market, maximizing operational efficiency and growing distribution channels.

All three of these areas will enable carriers to expand their reach, meet current demand and optimize resources to ensure the desired customer experience is achieved. 

Keep an eye out for this space. It is ripe for disruption – and carriers know it

Smartphones have done so much for usage-based insurance (UBI), providing the technology to help move away from expensive aftermarket hardware through software leveraging smartphone sensors. One of the clear benefits has been lowering the startup costs of a carrier’s UBI program. Nonetheless, more innovation is needed for UBI to become more broadly adopted. As much progress as the industry has seen in recent years, I don’t think we can categorize UBI participation as mainstream when only 22% of people reported participating in such a program, according to internal research we plan to publish in the coming weeks.

Not just any innovation is needed, though. I think an improved product-market fit is critical, particularly in the interface with the end-user, the insurance customer.

Among the survey respondents, 67% said they are aware that connected vehicles could capture and transmit driving behavior data that can be used for potential insurance discounts. Moreover, 71% of respondents who had not used their vehicle and driving behavior data to get those potential deductions said they are interested in doing so. 

The auto insurance industry has considered – and positioned – telematics as an opportunity to further engage with their customers. In fact, most of the telematics solutions available today, such as smartphone apps, offer plenty of touchpoints.

However, I think most consumers may view car insurance as one of those products you check in on once or twice a year, if that. As a result, it’s understandable that consumers may not be accustomed to interacting with their insurance carrier’s smartphone app.

So, is the industry pushing a product that consumers do not want to use? I don’t believe so. I think the low level of telematics adoption for UBI is more likely a case of mismatching a product with a service industry.

Finding That Product-Market Fit

The research shows consumers value the benefits of UBI, but, until recently, the only way they could access those benefits was through having their telematics data captured by smartphone apps or aftermarket devices. Insurance carriers had no choice, and they made a huge effort to encourage consumers to participate in UBI programs. But the game has changed. Now, there are connected cars and the telematics exchange, more advanced technology that can receive telematics data generated by connected cars, analyze it and normalize it to have that data available for a variety of use cases.

An exchange solution provides the elusive product-market fit for UBI. Having the ability to participate in a telematics program, like UBI, by simply turning the vehicle key is likely the simplest approach. In addition, with an exchange platform, the telematics data is ready and accessible at the point of need without a monitoring period. 

This is a technology leap with huge potential to push a wider adoption of telematics and UBI products, because the solution provides the desired benefits without requiring aftermarket devices or smartphone apps: The data flows more seamlessly from the source to the exchange, where it is analyzed, normalized and used to build telematics-based solutions that can integrate into insurers’ workflows. 

See also: What Happens When Insurance Truly Goes Digital?

Higher Buy-In With Connected Cars

When I speak to insurance carriers about the prospect and value behind a telematics exchange along with the availability of telematics data, they are usually surprised. In the U.S., our estimates, based on internal analysis, show 16% of passenger vehicles circulating in 2020 were connected. Of the people driving those vehicles, our estimates suggest 60% have agreed to share the data generated by their cars for insurance purposes. That means potentially 40.6 million connected cars on the road in the U.S., with over 24 million drivers participating in UBI-type solutions. As we can see, telematics adoption by connected car drivers is much higher than smartphone app users.

When discussing higher executions of a telematics exchange, you can pull from a resource that has data collected from over 9 million vehicles and 250 billion-plus driving miles. This equates to tens of millions of years of vehicle logging and a massive opportunity for carriers. When data is sourced from different sources and normalized, it can suit a variety of telematics use cases. One such output would be a solution that could offer behavioral scores and attributes that can be integrated into workflows and used at several points of an auto insurance policy lifecycle, including point of quote and renewals, running alongside other data insights. 

The higher rates of telematics adoption when it is offered to connected car drivers, in comparison with consumers using aftermarket devices and smartphone apps, is very encouraging. Interest in UBI solutions is also growing, partly because of the COVID-19 pandemic lockdown. The auto insurance industry will still need to innovate and offer flexible solutions, which are becoming more of the norm, instead of a competitive advantage. 

New products

Within this perspective, the simplicity of a telematics exchange can help insurance carriers take advantage of new telematics solutions with confidence in the product-market fit. Insurance carriers can know of any potential risk they are embracing when they offer an auto insurance policy at point of quote, not just at renewal. The consumers who are taking advantage of the option to share their telematics data related to driving behavior and vehicle performance may use their telematics data by simply turning on the ignition. The more seamless flow of data can help allow faster access to potential benefits and may contribute to a more transparent relationship between insurance carriers and their customers. And this is just the beginning.

It’s an encouraging time in the industry, to say the least. Powered by advanced analytics, telematics exchanges are making it possible to deliver innovative products with better-quality data aggregation and analysis, more informed insights, real-time scores and much more.

The number of companies that are at risk of insolvency globally is on the rise. reversing a trend seen earlier in the year that briefly indicated insolvencies were actually going down.

The systematic increase of insolvencies will have a widespread impact on the global economy. When firms of all kinds are unable to pay off their debts, the general distribution of cash and cash equivalents will always be at risk. Furthermore, while this current rise is expected to be temporary—and in many cases, simply represents an adjustment to the “post” pandemic economy—insurers and other major financial players must account for the likelihood that increased levels of insolvency will directly affect the general availability of cash, the functionality of global supply chains, global GDP growth and various other factors.

The Irreversible Link Between Insolvencies and Inflation

As one might expect, the recent rise in inflation—which has occurred in nearly every country around the world—is inextricably linked with many companies’ risks of insolvency. This risk has been especially prevalent among companies that are heavily reliant on international shipping and also among those that are notably energy dependent. In the U.S., inflation figures have hovered near 9% year over year, and similar (if not higher) figures have been produced throughout Europe and other nations.

There is a strong correlation between the recent rise in insolvencies and the recent rise in inflation. When the costs associated with performing certain functions increase—including the acquisition of raw materials, manufacturing of these materials, shipping of finished products, labor and many others—and the revenues yielded in producing these goods are not proportionately compensated, insolvency issues are likely to emerge.

This problem is particularly exacerbated by the simple fact that many firms that have large amounts of debt to service are locked into inflexible contracts. As inflation rises and the costs associated with performing any sort of institutional function directly increase, firms around the world are finding it harder to maintain their economic status quo.

The Proliferation of Global and US-Centric Economic Issues

Recent economic reports indicate that the rise in insolvencies will directly affect the economic well-being of the U.S., the U.K. and most other countries around the world.

Perhaps one of the most startling figures is the projection that the U.S. economy (as measured by GDP) is expected to retract by 1.4% compared with where it was a year ago—a figure that is especially startling considering that the population has increased by nearly 1% over the past year. This means that, necessarily, American GDP per capita is on the decline.

But the rise in insolvencies, along with highly correlated issues such as inflation, is not limited to the U.S. In fact, in response to these and other economic challenges, Atradius recently adjusted its future global GDP growth forecast from 3.2% to 2.4%. While a portion of this adjustment can be attributed to increased global development (making it more difficult for many countries, particularly China, to keep growing at their previous rates), the very existence of an adjustment is still problematic.

See also: Choose Your Companies Carefully

The Good News—There Is Still Hope for Avoiding an International Recession

The most recent batch of economic data might, on the surface, make it difficult to be optimistic about the world’s economic future. After all, the sudden and widespread increase in insolvencies indicates that the simple practice of servicing debts will be much harder to accomplish.

But, even in light of this recent information, there still is some good news: The probability of a near-term global recession is somewhat low. The global economy will continue to grow—especially in the developing parts of the world—and, as the world is able to recover from the COVID-19 pandemic, this growth will accelerate. The odds of a recession in the U.S. in the next six to 12 months are moderate and rising, while, in Europe, a recession is almost a given. 

Of course, there are still quite a few trends and variables that economists will need to account for. The general lubrication of global supply chains, the existence of international conflicts (including the Russian-Ukrainian war) and the general cost of energy will all, to some extent, affect the near future of the global economy. Nevertheless, there are at least a few reasons to remain optimistic and forecast a better tomorrow.

Why compete with top-notch insurtechs when you can collaborate with them instead? After all, policyholder needs are evolving fast—and so are the opportunities to leverage an endless stream of innovations by forming an insurtech ecosystem.   

Think about it this way. In 2021, insurtechs in the property and casualty space attracted a record $9.4 billion in capital investment. During the first quarter of 2022, they also clocked the highest participation in early-stage capital investment ever recorded. And it's easy to see why. Their advances in applied AI, mobility, data analytics and other technologies are rapidly transforming the industry. 

For incumbents, that change can represent a threat—or a massive opportunity. According to Accenture, the revenue gap between innovation leaders and laggards in the P&C sector could top 37% by the end of next year. As much as $200 billion in revenue will be driven by new risks, products and services between now and 2025. 

As it turns out, a go-it-alone approach to grabbing the biggest piece of the action isn't a sound strategy for either insurtechs or incumbents. Here's why collaboration is quickly becoming the name of the game.  

Ecosystems: Endless Opportunity—for All

Take an array of different innovations that dozens or more insurtechs bring to the table. Add what only insurers can offer: regulatory expertise, historical and experiential data and the reliability and support that are foundational to the entire customer life cycle. Mix into new combinations to create whole new value propositions. Reap and repeat continuously. 

That's the idea behind an insurtech ecosystem. More than a set of alliances, and further-reaching than even the most robust partnership program, ecosystems offer a powerful way for insurers to rapidly deploy amazing new insurtech capabilities without interruption. But that’s only if it's done right. To be successful, here are five questions every insurer should ask before building an ecosystem of their own.  

Okay, So What Exactly Is an Ecosystem?  

An ecosystem is a defined network of pre-validated solutions from an array of world-class providers that can be rapidly used on their own, or in combination, to deliver differentiated offerings that provide a competitive advantage. 

Maybe it's the embedded travel insurance offered by Norwegian Cruise Line or the Apple warranty on your iPhone 14. Perhaps it's the usage-based insurance (UBI) that rewards you for driving that snazzy new Tesla so very safely. Or it could be the smart-home sensors that monitor for water leaks to help you avoid costly claims. Maybe it's all of the above. 

Whatever the case, the ecosystems involved in these and a growing number of other insurance offerings deliver value that far exceeds what is otherwise possible by each of the participants on their own. 

Why Are Ecosystems So Important to Future Insurance Models?  

Ecosystems are foundational to today's most innovative operating models, and tomorrow's. Usage-based, "pay as you drive" auto coverage, for instance, is predicated on ecosystems that can span telematics, mobile connectivity, automobile or smartphone manufacturers and more, all tied into insurers’ core systems. 

According to JD Power, UBI policies were purchased by 49% of consumers who were offered one in 2021. And Forrester says UBI could account for nearly 20% of all auto policies by the end of 2023. 

Meanwhile, InsTech London projects that the embedded insurance market will top $722 billion by 2030—six times its size today. In fact, McKinsey estimates that up to 35% of all personal lines premiums could be generated through ecosystems during that same period. For auto, it could reach 30%—or more, if Elon Musk has his way. 

Harnessing the power of an ecosystem approach requires a modern, cloud-connected insurance platform enabled by API-connected applications, embedded analytics and workflows that leverage the full value of external and core system data. Today's most robust platforms also offer expansive marketplaces of prebuilt, pre-vetted insurtech solutions that enable insurers to build ecosystems that fit their specific needs and launch new capabilities quickly and without interruption. 

How Do You Get Started Building One?

Start by aligning your ecosystem strategy with real business challenges. What pain points need to be solved? Understanding that insurance has one of the highest ratios of cost of labor to final price, a good place to start is by identifying areas where you can release trapped value within the existing delivery chain. In our experience, that typically means a focus on claims because it typically has the highest volume of manual processes.

But, as Bryan Falchuk, author of The Future of Insurance, recently put it, "You can't efficiency your way to success over the long term." While streamlining back-office processes is valuable, Falchuk says, customer-facing innovation is what sets you apart. Decide if your ecosystem strategy is to focus on optimizing internal processes, customer-centric innovation or (ideally) both.

What's the Best Way to Choose Partners?

Insurers need to be careful in selecting insurtech partners. This is not (just) about finding the next whiz-bang technology. It's about sourcing the technologies that fill in critical pieces of the puzzle needed to achieve your ecosystem strategy. 

According to Accenture, considerations include: 

• Skill: Select ecosystem partners that give you access to a wider range of capabilities such as personalization or digital engagement
• Scale: Bring on partners that have greater size and reach in the areas you need it, such as cybersecurity or data
• Scope: Source partners that extend your insurance offering into new areas or enable you to introduce whole new services  

What Are the Secrets to Success?    

An ecosystem isn't a library of static assets. It's a living, breathing community of collaborators that must be nurtured—and continuously refreshed. At Guidewire, for instance, we recently created an insurtech incubator to ensure that the value propositions enabled by the solutions within our ecosystem continue to be relevant to insurers. 

What's your go-to-market strategy? Develop a road map for getting there. In our experience, it's critical to include a regular cadence of ecosystem asset drips. We even created a pitch day competition set to launch later this year to provide an opportunity for our customers and partners to learn about the insurtechs in our program, and even vote on the best value propositions. (You can follow the fun here.) 

Coupled with the right platform, a robust ecosystem can help insurers meet ever-changing customer needs, protect and expand market share and achieve sustainable business growth—by collaborating with insurtechs instead of competing with them.