Mark Twain is credited with saying, “Everybody talks about the weather, but nobody does anything about it.” That’s no longer true.

Well before the climate change debate focused the world on meteorological threats, insurance companies were well aware of the risks associated with extreme weather events. What is less understood is how technology and weather science have evolved to help predict and warn of approaching events, giving advanced notice to alter course and relocate to safety. And now, when sophisticated, highly specific weather data is integrated with high-resolution geospatial imagery, artificial intelligence and telematics, the results are exciting and unprecedented. Consider the merging of high-quality weather information with property imagery at the ground level or the blending of surface conditions, atmospheric conditions and driving patterns. These advancements in weather technology and innovation show that, today, somebody is doing something about the weather. 

Weather and Insurance

Weather has a wide-ranging impact on the P&C industry and its policyholders, namely catastrophic and other property damage events as a result of a hurricane or isolated storms producing hail or tornadoes. Events that affect large populations such as wildfire and flooding have been dominating headlines over the last decade, with record-setting payouts in the billions of dollars. These frightening scenarios are just some of the obvious ways in which insurers and their customers are affected by weather.  

Insurance is all about gauging the likelihood and degree of risk and transferring the exposure by charging appropriate premiums in exchange for protection. Therefore, insurers and their expert risk modeling partners need to be rigorous when it comes to assisting with rate-making, pricing, accepting/rejecting risks and deciding how much exposure to take in a given geography or how much premium to cede to reinsurers. Each of these critical decisions is made and projected into the future and has tremendous impact on profitability when disastrous events do happen. 

Beyond Just Weather: Climate Change

According to Swiss Re, the effects of climate change threaten to cut the world’s economy by $23 trillion by 2050. In the U.S., wildfires, hurricanes, tornadoes, winter storms and extreme temperatures were among 20 weather and climate disasters in 2021 that each cost $1 billion or more, totaling $145 billion and killing 688 people, according to the National Oceanic and Atmospheric Administration (NOAA).

These events highlight the need for businesses, communities and individuals to prepare and react. In addition to the frequency and severity of weather events, there is also an increase in secondary perils associated with weather -- including flooding, wind and hail. 

According to a Deloitte study, most U.S. state insurance regulators believe all insurers will face heightened risks -- physical, liability and transitional -- over the medium and long term. Half of those surveyed believe climate change will have a high or extremely high impact on coverage availability and underwriting assumptions. For those that get it right (the product, the pricing and the reinsurance), there's a market ready to buy. For those that get it wrong, there could be significant losses. 

Despite these difficulties, insurers also must balance selling and underwriting new business to remain competitive and maintain and gain market share.

See also: Extreme Weather, COVID, Home Claims

Modeling Risk

Insurance carriers tend to model future risk on past occurrences, where mounds of historical weather data are relied on to make those decisions. This, coupled with risk modeling sciences, aids in planning and calculating forward. Yet, climate change, along with the increase of property located in harm’s way and the higher costs of materials to repair and replace structures, converge to suggest the need for even more predictive efforts. The emergence of increased capabilities for insurers to ingest data, greater precision in geospatial mapping and real-time data are allies in the battle for managing risk.  

Given all the importance and rigor within the industry however, little is known about just how weather data is developed – at least among insurance executives and other key decision makers. After all, weather information is essentially “free” and supplied through governmental agencies like NOAA (National Oceanic and Atmospheric Administration) and the National Weather Service, which gather information from satellites, radars and other meteorological sensors. Think of this as the raw material that is repackaged, sold and distributed in places like your favorite weather app. Weather providers use this very information to, in turn, be incorporated in real-time weather analysis algorithms, predictive models, forecasts and ultimately an insurer’s decision-making process.

Weather Data and Use Cases

But is all weather data created equal? The short answer is no. There is a matter of refinement, meteorological science, algorithms and knowledge that make all the difference when it comes to accuracy for both historical and predictive uses. Advanced technologies take multiple data sets and generate indices from them that communicate the impact of a weather peril. These analyzed insights combine historical, climatological and predictive technologies to produce actionable decision support before, during and after a major weather hazard. High resolution in the weather data along with street level or geocoded detail is key to accuracy. 

In each stage of analyzing risk for the insurance company, sophisticated weather technologies combined with details on staffing, policyholder assets and past property impacts can inform numerous constituents in the process. While inaccuracies in weather reporting may translate to a minor inconvenience for the general public when a rainstorm unexpectedly occurs, the stakes for insurer accuracy are dramatically different. High-value weather data can bring clarity and insights to your decision-making to help you avoid costly impacts to your business. 

Use Cases

Much is also changing in the ways insurers use weather data, including new products, like parametric insurance models, which automatically pay out immediately following a qualifying event. Combining contextual data with telematics-monitored driving behavior is yet another recent use case expanding the ability to better determine automotive risk. 

Other newer uses include actionable alerts to relocate or protect property in advance of a dangerous storm. The key here is pinpoint accuracy to ensure responsiveness.  

Some of the more traditional uses include

• Financial loss impact projections – post event for reserving and assessing probable exposure
• Resource deployment, pre- and post-weather event
• Underwriting: risk selection, risk scoring, geomapping for purposes of pricing, management of risk exposure
• Loss and claim investigation
• CAT modeling, e.g., hurricane, wildfire
• Enterprise risk management, portfolio perspectives 

See also: Auto Claims and Collision Repair: The Great Reset

Winds of Change

Numerous recent developments have emerged to focus society in general, and the insurance industry specifically, on various aspects and applications of sophisticated weather technologies. 

The ESG (environmental, social, and governance) movement is suddenly causing corporations to embrace long-term value creation, with its emphasis on stakeholders, society and sustainability, and has become a strategic imperative for insurance companies. Incorporating climate change and other potential disruptions into business models can help insurers drive long-term value for all constituents. 

A wide variety of new and emerging technologies are enabling transformative improvement across the insurance enterprise, including product pricing, underwriting, distribution servicing and claims.Integrating hyper-local historic and real-time weather data into new solutions that leverage artificial intelligence and other high value third-party data is creating powerful capabilities in claims and risk scoring.  

Driver safety solutions powered by contextual telematics, including weather and road conditions, is enabling new and important safe driving and travel features. New and exciting integrations of multiple data sources will continue to drive innovation in the insurance sector. Marrying this with greater weather data accuracy is the key to making these developments even better. And knowing which data and models produce the greatest accuracy is paramount to making these emerging and known uses cases optimal and actionable.

The P&C insurance industry, through collaboration with innovative data and weather scientists, has an opportunity to minimize the impact of changing weather conditions to the benefit of all stakeholders, including policyholders.

Following the explosion of the Challenger space shuttle in early 1986, the investigation bogged down in technical detail that made it hard to determine what went wrong. For good measure, certain lines of inquiry were discouraged or even blocked -- President Reagan had instructed the head of the commission, "Whatever you do, don't embarrass NASA." Then, legendary scientist Richard Feynman, a member of the commission, reduced the inquiry to a simple image on national TV. 

Feynman -- long a hero of mine, partly because he didn't play by anybody's rules, not even Reagan's -- took a sample of the rubber O-rings that had been the subject of a host of technical discussions and slipped it into his glass of ice water. As the whole country watched, the O-ring stiffened. Game over. No more data needed. 

His little demonstration showed that the O-rings used as seals in the Challenger wouldn't function properly in the freezing temperatures in which it was launched and had allowed a leak of gases that blew up the shuttle and killed the seven astronauts. 

We may have just been given a similarly galvanizing image about the dangers of rising sea levels.

If you haven't seen it already as it made the rounds online, the video is here. It shows a house in Rodanthe, NC, on the Outer Banks, washing out to sea late last week. A neighboring house had surrendered to a storm hours earlier, and another was swept away by waves back in February. 

While we've all been talking about rising sea levels and coastal erosion for years now, this video cut through all the theoretical considerations and made the issue real, at least for me. Here's the kind of second home I might have bought -- a modern home bought just a year and a half ago -- being knocked down by waves and just floating away. 

A New York Times article says, "Sea levels in the area have risen roughly one inch every five years, with climate change being one key reason. State officials say that some Outer Banks beaches are shrinking more than 14 feet per year in some areas."

Sea levels are expected to rise by one foot on average along U.S. coastlines in the next 30 years, according to a multiagency federal report released in February, the article says. 

It closes with the story of Matt Storey "pacing on the outdoor deck of the beachfront home he had bought in November and christened 'Mermaid’s Dream.' He estimated there were roughly 70 feet of sand between the house and the beach when he closed on the property. On Thursday, the waves were lapping by the pilings of the house. 

"Mr. Storey, who lives in Raleigh, N.C., said that he felt somewhat confident buying the house, particularly because it had been moved back from the ocean in 2018 at a cost of $200,000.... While he expected potential erosion problems eventually, he did not anticipate them coming so fast."

While Storey has no real recourse and says he's just going to ride out whatever happens to that house and another he owns nearby, I'm hoping the recent video can serve as a wakeup call. While the article describes attempts to fight back -- building a sea wall to keep sand dunes from forming in the middle of the main road or possibly pumping sand from the bay side of the Outer Banks to the ocean side to replace what's being washed away -- I'm thinking Mother Nature is going to win here.

So, I'm hoping people stop building or buying homes in areas that are vulnerable to being washed out in the next 10 to 15 years. And I hope insurance companies can lead the way. Even if we non-expert home buyers get fooled into thinking a house in Rodanthe isn't that vulnerable, insurance companies can use pricing for homeowners policies to send dollars-and-cents signals about the risks.

Richard Feynman isn't around to help us visualize issues any more. He died of a rare cancer in 1988. But a lot of smart folks at insurers can build on the viral spread of the Rodanthe house video and start shaping the public understanding of the growing dangers from rising sea levels. 

Cheers,

Paul

 

 

 

 

 

Insurance is a data-driven industry, and underwriting is its heart. It’s an uncomfortable fact, then, that data from the only longitudinal study of North American P&C underwriters reveals that many important parts of underwriting seem to be mired in decline.

It is no overstatement to describe the results of the most recent Accenture and The Institute’s underwriting survey as alarming. Underwriting may be in crisis.

In my previous post, we looked at the survey results from a high level. Today, we’re going to zoom in on the findings about underwriting quality specifically.

Underwriters seem to be losing faith in their craft

In 2008, 2013 and most recently 2021, we asked underwriters to rate the quality of the processes and tools they use to do their jobs. The scores for 2021 were the lowest we’ve seen—though, interestingly, the decline has not been uniform.

For example, 62% of underwriters in 2021 told us they’d rate their organization’s underwriting strategy as superior—down eight percentage points from 2013. Likewise, confidence that their organization employed a superior pricing strategy fell 11 points, from 61% in 2013 to 50% in 2021.

These are substantial declines, but they are far from the biggest ones in our most recent data. That dubious honor goes to confidence in the accessibility and ease of use of the tools used to support underwriting, which shrank from 55% in 2013 to 33% in 2021. Perhaps more concerning, confidence in both technical and non-technical training declined along similar lines.

We also asked underwriters to rate the importance of different areas of potential improvement for underwriting. The top four issues identified were, in order of the portion of underwriters highlighting them as important:

1. Improving the quality and accuracy of data around underwriting submissions (95%)
2. Improving training and talent development (91%)
3. Improving tools for rating and pricing risks (90%)
4. Eliminating non-core tasks to allow more time for risk analysis (88%)

See also: The Future of Underwriting

Change is needed—but where?

My view is that these findings are a clear indication that many underwriting leaders, amid the industry’s growing focus on expenses, growth and analytics, have taken their eye off the ball of traditional underwriting quality.

This has created a tremendous challenge for the industry, made more urgent as many markets are softening and the risks insurers cover grow more complicated. Do today’s underwriters have the skills they need to drive profitable business?

It’s not at all clear that they do—but neither is it a foregone conclusion that they do not.

In recent years underwriters have been equipped with many powerful new tools to help them measure risk and write policies more quickly. Our survey suggests that these tools have not had the hoped-for impact (and in some cases have actually made underwriting less efficient).

But the power of digital tools to take underwriting to new heights is still undeniable. To reverse the decline suggested by our survey, underwriters and carriers need to close the gap between the potential of these new tools and their actual impact on underwriting. This will require changing the carrier’s internal structure to let underwriters focus on underwriting.

It will also require making these modern underwriting tools truly accessible and intuitive. A good example of this is how underwriting guidelines are handled in the industry today. In general, these guidelines are more concerned with containing every piece of information that could possibly be useful than they are with helping underwriters quickly, accurately write the risk.

Guidelines instead should be broken up into pieces and made fit for purpose so that underwriters can quickly and easily find the information they need when writing policies. Ideally, a guideline system should “push” information to underwriters at the moment of need instead of requiring the underwriter to “pull” it from a lengthy document or database.

The digital tools to make all this happen, of course, are widely available in the industry today. This survey suggests that carriers that seize the initiative and implement changes along these lines will see a significant bump in underwriting performance.

In my next post, we’ll look at what the survey revealed about tech investment in underwriting.

What makes an insurance carrier an insurance carrier and not a generic financial services organization? This is more than a philosophical thought experiment.

I think the best answer to this is underwriting. A carrier could, in theory, outsource every part of their business, and, as long as it was still analyzing and pricing risk, you could still accurately describe it as an insurance carrier. Underwriting is the heart of the insurance business.

This is what makes a longitudinal study of underwriters so important.

Since 2008, Accenture has partnered with The Institutes to survey underwriters about underwriting. To my knowledge, this is the longest-running longitudinal underwriting survey in the industry.

And the results of our most recent P&C Underwriting Survey, conducted last year, are nothing less than alarming.

Here are five key takeaways.

1: Underwriters don’t spend much time underwriting.

We found that the average underwriter today spends 70% of their time at work on non-underwriting activities. The average underwriter in our study spends 40% of their time on administrative tasks, 30% on negotiation and sales support and 30% on actual underwriting.

One underwriter told our research team that “underwriters have been turned into marketing executives instead of underwriting executives.”

Another spoke of “the misconception that technology has made it easier for more workloads. It helps with better decision-making, but it adds time for each submission to open and use all the new tools.”

2: Inefficient systems, redundant inputs and manual processes are the biggest hurdles.

These were the most commonly described hurdles to underwriting business success by a wide margin. Others challenges with small but still significant pickup were outdated or inflexible systems, lack of information at the point of need, poor organization of underwriting information and insufficient focus on training.

3: Underwriting quality is declining… according to underwriters.

We found that the percentage of underwriters who describe their underwriting processes and tools as “superior” has declined considerably since our last survey in 2013. We measure this across five dimensions in the survey, and all five have declined. For example, 52% of underwriters told us in 2013 that their technical training programs were superior. In 2021, that shrank to 34%. Frontline underwriting practices declined along similar lines, with 63% of underwriters rating their own as “superior” in 2013 and just 46% doing the same last year.

See also: 5 Keys to Transforming Underwriting

4: Technology may be doing more harm than good.

The use of technology, broadly speaking, has been ineffective at reducing the workload of underwriters, with 64% telling us it has increased their workload or made no difference.

There’s an important nuance to unpack here. Most underwriters have seen some positive impact from technology on their work. A majority of respondents to our survey said it has boosted their speed to quote, improved their ability to handle larger amounts of business and boosted their access to knowledge.

But just 46% say it has had a positive impact on automating or eliminating non-core tasks, and only 35% say it has boosted their ability to cross-sell accounts.

5: The talent management picture is bleak.

Perhaps the most alarming findings of this recent survey come from comparing how underwriters felt about talent management at their carriers in 2013 and 2021. In a nutshell, carriers have hemorrhaged positive sentiment.

Taken on its own terms, each of these five findings contains a concerning truth about the defining function of insurance organizations today. Taken together, the results are nothing short of alarming.

So what’s behind them? And—more importantly—what is to be done about it?

In this blog series, we’ll explore these vital questions.

Since 1980,the U.S. has sustained 323 weather and climate disasters that have resulted in over $2.1 trillion in damages. Climate-related disasters have become more frequent in all regions of the globe, with the World Meteorological Organization calculating that disasters have increased by a factor of five in the past 50 years. As we face a future with more frequent and more disastrous weather events, insurance agents need to be ready at a moment's notice to provide clients with timely communication on coverage, policies and safety information. Wildfires, floods, hurricanes and snowstorms are among some of the disasters that have caused havoc and require immediate reactions.

While no one can predict a crisis, agents serving areas that experience extreme weather on a seasonal basis can prepare clients (and themselves) for climate-related disasters with relevant messages about how to protect their property and lives. There is an obligation to communicate to clients if something's going to affect their wellbeing and communities. Creating a preparedness plan that readies agents for these situations can go a long way to facing these situations when they occur and ultimately supporting clients.

Some disasters, like earthquakes, are largely surprises, but many weather events are seasonal and predictable. California's wildfire season, for example, historically runs from July through October. However, extended drought conditions mean the state is susceptible to human-caused wildfires all year long. Agents need to know what seasonal conditions and potential disasters can affect their customers and make sure they prepare them year-round for both anticipated and unexpected climate crises.

When disasters strike, there is the initial wave of chaos, but the impact can last more than one day, and customers need more than just one check-in. They need to be communicated with on a continuing basis as the situation evolves. As an individual agent, there is only so much one can do to contact everyone affected; this is why automated messages/calls are critical during crises. Those who leverage automated communications, whether through email, text or call that can be personalized, can create custom calls to action to help customers. Some examples of messages to include are: evacuation instructions, resource center information and post disaster claim information. Automated messages allow you to stay connected with your clients and provide a sense of relief when it is needed the most.

Preparing tailored messages for climate-related emergencies is a great way to stay ahead of any situation. Agents who fail to prepare are preparing to fail their clients. Creating ready-to-go materials for these types of events that can be used when a disaster arises will streamline processes. The last thing an agent wants is for a disaster to happen and to find themselves with no materials prepared for their clients. By using technology solutions that provide relevant content that can be customized, you can instantly have ready-to-send materials to your customers at a moment's notice. Automated systems can deliver materials that can address nearly any situation you might encounter. Curating materials/messages about general or specific disasters, safety kits, will allow agents to easily prepare, customize and distribute information in a timely manner. And, when disaster strikes and customers need to know their next steps, agents can quickly send out prepared messaging about how to file a claim so customers can start the process immediately.

See also: Need for Scalable Response Teams

Those trying to respond with manual processes are unlikely to respond in a timely manner to clients. Without the support of technology, agents would need to manually go through their book of business to identify those affected, then create messaging and directly contact each individual. This is likely to take days, if not weeks. For clients going through a difficult time, knowing that an agent is there to support them is important. An automated system allows you to have a communication strategy that can be used in emergencies and be sent in minutes.

This allows agents to focus on processing claims being submitted by clients instead of being bogged down by the initial wave of necessary respondents. Prepared communications also allow agents to provide clear directives to those affected on the information needed to streamline the claim process and veer off any confusion or delays. During this period, customers want to easily access information regarding their policies and process claims as quickly as possible. Agents who are able to deliver this efficiency to their clients can expect to retain those clients long-term, while those who do not are likely to experience an exodus as those same unhappy clients spread their experience to people they know.

Understanding your customers' expectations when it comes to their protection is important, and delivering at a crucial time is exactly why they pay insurance premiums. Technology can help identify those customers instantly and reduce the time needed to reach them. From direct communications to making it simple for clients to navigate your websites, these things matter to them. Creating easy-to-use pathways for clients to access this information will reduce the difficulty as an influx of claims are submitted. Setting yourself up for success means preparing where possible and leveraging the necessary tools to provide clients with quality service at any time.

According to a new Chubb survey, which was fielded in at the end of 2021, U.S. and Canadian homeowners and renters are often overlooking risk. This fifth annual survey, which examines the respondents’ attitudes and behaviors toward property protection, not only looked at renovations and weather-related risks, it also explored purchasing decisions in the past two years.   

The survey found that 44% of U.S. homeowners experienced internal water damage in their home in the past two years, up from 27% in 2020. Non-weather-related water losses continue to be the number one source of property damage, as 48% of all interior property damage is caused by water, according to Chubb’s internal claims data.  

Other key findings:  

Protecting a Renovation Project

While home renovations can add value to your home, such projects also present potential new risks and damages if not handled properly. The survey found the top three types of renovations U.S. and Canadian homeowners and renters were considering included a bathroom overhaul (40%), a kitchen renovation (26%) or a living or family room refresh (23%). While renters might not be top of mind when it comes to renovations, minor projects are often acceptable with the landlord’s permission, especially if the renovation will help to increase the property’s value. 

During a renovation project, workers on the premises raise the risk of injury or damage. To make sure a home renovation project is insured properly, homeowners must work with their insurance agent or broker before starting a project to make sure that prime and any subcontractors have workers' compensation and liability coverage. 

Protection Against Water Damage 

A home renovation project is the perfect time to install a water shut-off device to help alert the homeowner of water leaks and minimize the potential for costly damages. According to our recent homeowners’ risk survey, 26% of U.S. and Canadian homeowners and renters with no personal experience with water damage preemptively installed a device; and 56% of U.S. homeowners have installed a water shut-off device in their primary homes after they or a friend experienced a water leak. Frequency of water-related losses can be significantly reduced with proper education about ways to mitigate the risk. 

Riskier Purchasing Behavior

With the hot housing market, it’s becoming more common for home buyers to waive home inspections to make their offer appear more attractive when the seller is presented with multiple offers. What’s more, our recent survey found additional risky purchasing behavior—some U.S. and Canadian homeowners have purchased a home sight unseen within the past two years. Those 18 to 24 years old were more likely to purchase a home sight unseen (39%) or consider purchasing a home sight unseen (34%) than other generations. Homeowners who purchase a residence sight unseen can leave themselves vulnerable to several risks, such as water damage or other potential issues (e.g., problems with the home’s physical structure and mechanical systems) and costly repairs associated with damage to roofs, plumbing and electrical systems. 

It’s vital for homeowners to have inspections during the home-buying process to pinpoint unresolved maintenance issues and potential sources of damage. Proper due diligence can help future homeowners understand if the home has structural issues in the foundation, a roof that needs total replacement or load-bearing walls rotted out from water damage. Even with a home inspection, an overwhelming 65% of U.S. and Canadian homeowners and renters who purchased a home in the past two years found areas of concern after a purchase. 

Weather-Related Risks 

No matter where U.S. and Canadian homeowners and renters live, weather-related exposures are often affecting their lives. In fact, the increased frequency and severity of natural disasters and extreme weather have become a factor in some homeowners’ and renters’ property decisions. For example, our survey found that homeowners and renters in the Southern U.S. (24%) and Western U.S. (20%) said the frequency/severity of tornadoes contributed to their decision to sell primary and secondary residences. Similarly, 15% of homeowners and renters who live in the Southern U.S. would consider selling their primary and secondary residences due to the frequency and severity of tropical storms/hurricanes compared with 12% of those who live in the Northeast U.S. and the 9.3% who reside in the Western U.S. 

For more information, download the Chubb 2021 Homeowners Risk Report – Trends in Home Renovations and Water Damage, the Chubb 2021 Homeowners Risk Report – Trends in Purchasing Behavior, and the Chubb 2021 Homeowners Risk Report – Impact of Weather on Property Decisions.

Automating insurance business processes is certainly not a new concept. Many insurance companies have implemented rules-based engines and business process management software and continue to do so. However, insurance is complex and heavily regulated, with state and regional exceptions quickly overwhelming these process models and solutions. Ultimately, this leads to a massive repository of rules that is messy and difficult to maintain. To overcome this challenge, some insurers are investing in "intelligent decision-making."

What Is Intelligent Decision-Making?

Intelligent decision-making is fundamentally the ability for AI to ingest information and use it to make a decision or recommendation for the next best action. It can be used to automate and streamline everyday tasks to complement and enhance the productivity of skilled knowledge workers and customer service representatives. 

The first key component of intelligent decision-making is digitalization. The insurance industry is still a heavily paper-based industry, but times are changing, and insurance is amid a transformation driven by digital technologies. Advances in technology and digitalization have dramatically increased the volume, variety and velocity of data, which is the second key component of intelligent decision-making. Data enables insurers to make more informed decisions about risk and business processes. 

However, data on its own is worthless without the ability to use it for insights to transform the business. Hence, the third component for intelligent decision-making is AI. AI uses machine learning algorithms to analyze data to replicate human decisions, resulting in faster and improved decision-making processes. The key value proposition of an intelligent decision-making engine is the ability to integrate AI-driven machine learning models into core transactions systems.

The final component for intelligent decision-making is value tracking. Delivering value is crucial for the success of any AI and intelligent decision-making project, so it is essential to measure the business benefit and ROI from implementing AI and machine learning models. 

See also: The Evolution of Leadership Intelligence

Challenges of Intelligent Decision-Making

Intelligent decision-making is not easy, and insurance companies need to overcome many challenges to use it successfully. Some challenges arise due to the regulation of the insurance industry. For example, carriers and compliance officers need to prove to regulators how the model makes decisions. Doing so is not always straightforward; some types of AI, such as neural networks, are not transparent. There are also fears about model bias and fairness, especially when associated with age, gender and race.

Insurance companies must also consider data usage and privacy issues. Ethical use of data is becoming essential. It goes further than simply adhering to the rules and obligations imposed by regulators; insurance companies must also apply their own judgment in line with organizational values and commitment to building customer trust.

Lastly, to use intelligent decision-making successfully, companies must put in the work to improve their data quality. AI and intelligent decision-making are only as effective as the data used to train the models. Poor data quality leads to inaccurate and faulty algorithms.

Use Cases for Intelligent Decision-Making 

Companies are using these models to drive efficiency in several ways. Companies can detect point-of-sale and claims fraud by using AI to identify fraudulent behavior such as suspicious quotations, policy applications and claims. An intelligent decision-making engine can improve productivity and effectiveness in underwriting with instant information about underlying risk characteristics and by reducing manual dual entry of submission data into rating engines, underwriting workbenches and policy systems. 

Lastly, as consumers have become more familiar with digital tools and more comfortable with remote and virtual interactions, insurance companies are looking for better ways to engage with and enhance the customer experience. An intelligent decision-making engine can be used to analyze all customer and operational data to determine the next best actions along the customer journey.

Concluding Thoughts

Insurers are navigating a complex industry full of complex regulations and massive rule repositories, but implementing intelligent decision-making is helping some carriers respond to these hurdles more rapidly. An increase in digitization, the rise of AI, and better value-tracking methodologies have paved the way for more advanced technology like intelligent decision-making.

To learn more about how property/casualty insurers are using intelligent decision-making to bolster their processes, read Aite-Novarica Group’s report Intelligent Decisioning for P/C Insurance: How AI Is Automating Insurance Business Processes.

Chips. Who knew they could be such disruptors?

As COVID affected supply lines throughout the world, the manufacturing and supply of computer chips that seemed to cause the most disruption. Everything from PlayStations to pickup trucks were placed on wait lists — parked in anticipation of necessary microprocessors and controller boards. The fallout is pushing some industries to their limits. This one supply chain issue can be linked to a host of consumer disruptions.

Take auto rental. At the onset of COVID, rental companies decided to thin their fleets in an attempt to ride out the travel-sparse months with low auto rental demand. At the same time, computer chips weren’t arriving at auto manufacturers in time to keep up with demand for new cars. New car lots emptied out. Used car lots emptied out. Used car values skyrocketed (up 40% in 2021).

Now travel picked up. Rental car companies couldn’t meet demand. They couldn’t expand their fleets with new cars. Many are scrambling to find acceptable used cars. No matter what they do, they can’t shift gears fast enough to meet the market. They are forced to raise their prices to all-time highs. The result is that they are sending frustrated customers straight to Uber, Lyft and Turo.

Are insurers on the cusp of frustrating customers, as well?

Choosing to wait on technology transformation in insurance can be just as disruptive as not receiving timely technology in manufacturing. Insurers need to rapidly adapt and let market demand pull them into the future.   

A joint Majesco-Deloitte paper titled, Insurance Billing and Payments: From Back Office Calculators to Channel Growth Accelerators, examines how and why insurers' billing and payments operating model is changing — as seen through the eyes of insurance executives at a recent round table.

In our last blog on billing, we established the case for billing transformation. Using current data and interviews with engaged insurance executives, we discussed how customer service is increasingly difficult without next-gen, digital billing. Difficult service will soon become impossible service as new products and value-added services require new billing models. These models are not compatible with yesterday’s billing systems, and patchwork solutions are not feasible.

“How agents and insureds are dealing with every other type of bill or payment is the last experience that they think about. Insurance legacy systems are not the way they want to deal with insurance.” — Roundtable Participant

The convergence of different forces is driving new customer behaviors and creating new risks. At the same time, new expectations for the interactions between customers and companies are rising in communications, education/researching, transactions, problem resolution and buying. In Majesco’s customer research, we found strong interest in using innovative methods for pricing, billing and payments for insurance across a range of methods as well as the demand for value-added services. These new products and services demand new billing and payment options.

The result of these changes is creating a series of “from – to” shifts that have huge implications for billing and payments. We’ve identified six of the shifts as those that need a quick response to align billing models with customer trends.

From contents coverage to coverage of single items 

Digital data and advanced analytics now allow insurers to break apart the “lump” of contents coverage in a standard property policy to focus coverage on a limited set of specific items of highest importance or value to the customer.

From standard six- and 12-month billing to on-demand, parametric and usage-based billing

Similar to single-item coverage, digital data, advanced analytics and mobile technology now let insurers break apart the standard lengths of insurance policies into flexible, non-contiguous “chunks” of coverage whenever they are used, as determined by the customer, not the company. Parametric insurance uses defined parameters that trigger different elements including on/off coverage and payout, such as insurance for Uber or Airbnb coverages for the sharing economy. Parametric insurance makes a mess of traditional billing systems. (For an example, read the introduction to our last billing blog.)

Usage-based insurance (UBI) requires billing to be more flexible and transparent based on mileage driven or timeframe of use. UBI includes the capture of real-time data to calculate the price.

From personal use OR commercial use of assets to personal use AND commercial use

Platform companies like Uber, Lyft, VRBO, Airbnb and Turo have liberated people’s assets from the confines of "personal use only" by connecting them with people who want to use them temporarily and are willing to pay to do so. Because many personal assets like cars, homes or rooms within homes can include significant periods of non-usage that still incur costs for their owners, these platforms empower millions of asset owners to earn money at a scale that was never possible before.

From indemnification to prevention

Insurers have decades of historical data on losses, so it is well known how often different perils occur and how much monetary damage they incur. The problem is that this knowledge is only created after the losses have occurred. Sensors and IoT technology are lifting the veil on these events as they’re happening or even before they happen, making it increasingly possible to prevent losses from occurring in the first place, or limiting the damage they cause.

From standard billing to subscription billing

Subscription billing has grown very popular across many industries, but insurance is just now beginning to catch up. Subscription types require more than just calendarized transactions. Subscription capabilities include frequency changes, free trial periods and the application of promotion codes. Billing’s subscription capabilities should also extend to freemium or premium services — mimicking popular app features, where services could be supplemented by ads. 

From standard billing to seasonal billing

Insurers have traditionally shied away from seasonal insurance products and those that you can turn on and off — likely because of the loss of consistent income and the possibility that, once the product is turned off, it may not be turned back on again. The consumer, however, might rather pay for the seasons in which they are using the insured property. 

Ultimately, what is required is that billing and payment solutions must be built to adapt and flex as the market, product, services and customer expectations continue to shift. Insurers need the flexibility to deal with anything new that might be thrown at them, enabling agility, innovation, and speed. 

“The big challenge is keeping up with the customer because they are groomed by forces outside of insurance. They pay online. They order online. They pay with credit card, Venmo, PayPal and even Bitcoin.” — Roundtable Participant

See also: 3 Steps to Achieve a Digital Architecture

Meeting the shifts with a tech vision that delivers ROI

“If you take the technology and put it into the old operating model, it will underperform what you get from the investment, operationally and strategically.” — Roundtable Participant

Most carriers are primed for growth as the economy rebounds, with firms bullish about top- and bottom-line gains fueled by greater technology investments. According to a 2021 survey of top executives by the Deloitte Institute for Financial Services, most surveyed insurers have pivoted to a post-pandemic growth strategy, often doubling down on technology investments that allowed them to engage with customers to drive further efficiencies and deliver long-term business model upgrades. Given the need to digitize and virtualize their operations overnight, 96% of firms are accelerating major digitization and platform initiatives, intending to enhance efficiencies and improve customer experiences. 

While recognizing that delivering near- and mid-term ROI is a key lens by which firms need to develop and execute a sustainable technology vision, it is critical that technology executives keep two long-term trends in mind:

• Empowered customers: The explosion of data has paved the way for the AI-enabled personalization of the customer experience. As customers increasingly recognize the value of their activity and the data it generates, it is inevitable that they will demand more power to create, capture and transfer that value themselves. This will herald a new era of customer empowerment, with the value of data dictated by the ability to access it.
• Ecosystem strategies: Innovative firms will continue to emerge in the distribution, payments and servicing space, further challenging existing operations and supporting technology. Firms that actively monitor ecosystem players and develop "agile" partnerships will capture more value.

“With today’s technology, it shouldn’t be a moonshot to be able to know who the customer is, what products they have and what information will be most valuable to anticipate and help them. Data and analytics can help them digitally and predict and meet those needs.”  - Roundtable Participant

In addition to collaborating with business and operations executives to redesign operating models, executives need to design their technology vision based on a few considerations:

Understand where ROI is generated and the horizon for capturing it. 

The technology stack that supports billing includes engagement, integration, core and data layers. Innovation pace at each of these layers is different and so are the time horizons to capture value. Engagement and data/insight capabilities have the power to deliver significant value while core platforms are more foundational investments. Build-vs.-buy decisions should be dictated by speed to market, speed to value and sustainability criteria.

Pursue a holistic, enterprise model with rapidly expanding capabilities for billing.

Insurers need to consider much more than just redesigning for a modern solution. Instead, they must shift to an enterprise model with modules and services, a configurable chassis and a robust ecosystem of partners that provide new capabilities, data and services that together can help insurers rapidly adapt to changing market demands. 

Impose “digital first” through APIs.

Fully digital insurers can react to trends and establish a presence through multiple sales channels, and storefronts. To get a better picture of the importance of establishing an API platform in the cloud, read this blog.

Embrace the need for pervasive data access and insights for both internal and external stakeholders. 

In addition to regulators, external stakeholders, including the customer, as well as distribution and servicing partnerships, will increasingly need data access. Internal access to data and insights is more critical in the near term while expectations of external stakeholders on access will increase over time.

Understand and accept execution complexity.

The scale and complexity of billing modernizations requires very detailed planning and risk management across operations and technology. This is usually further complicated by the complex legacy architecture landscape involved. A few considerations include:

• A compressed timeline between deployments where teams are given only one sprint each for design, development and testing
• Releases of new functionality at the same time or just prior to a customer migration/deployment
• The number of migration/deployment events and the ‘fatigue factor’ of repeating this for an extended period
• The ability to support an overlapping chain of activities required from testing to validation to migration to operation readiness

Develop an ecosystem of partners.

An enterprise billing chassis provides the configurability and flexibility needed to respond to the requirements of innovative products, services and payment methods, and it answers the need for customer service capabilities that will pay off in customer engagement, loyalty and retention. A payment gateway can provide flexibility through security within its domain, but payment integration outside the gateway. 

“Billing has been underinvested for a long time. The entire paradigm of what we need to do in the future, how we need to shape all the investments that need to be done versus playing small ball must change. We need to show the bigger picture of what’s at stake.”  — Roundtable Participant

Caring for the customer experience is key. It is becoming clear that the product shifts required to meet customer demands will mandate the long-overdue modernization of billing and payments. Now is the time to act to ensure that billing technologies won’t be the disrupter of insurance experiences and insurance profitability. 

Today’s blog is co-written with Ajay Radhakrishnan, managing director at Deloitte Insurance.

“New normal” was the phrase heard around the workplace throughout much of the first year of the pandemic. It’s become the colloquial term used to describe the lifestyle changes society undertook that have become commonplace, such as remote work.

If “new normal” was the buzzword of 2020, “great resignation” seems to be reigning supreme over the past year. In July 2021, 4 million Americans quit their jobs, and there were a record-breaking 10.9 million job openings at the end of the month.

Fast forward to today, and the war for talent is still in full swing. Thanks in part to 4.4 million Americans quitting their jobs in February, employers are seeking to fill a staggering 11.3 million jobs, according to the Bureau of Labor Statistics.

What’s motivating this great resignation? The pandemic has certainly made individuals take a step back and reevaluate what’s important to them, what they want for their careers and the significant impact and financial burden on their families. A Prudential survey found that nearly 80% of employees are seeking benefits such as retirement plans, health, disability and life insurance, paid family medical leave and emergency savings programs.

In response, employers are seeking to offer a broader portfolio of offerings, including an overall benefits package that addresses the wants and needs of today’s employees. This was a key discussion in roundtables Majesco held and reflected in a report Majesco commissioned Celent to do, Next-Gen Platforms in Group and Voluntary Benefits. Carriers, in turn, need to deliver innovative product offerings quickly to enable employers to offer some of these new benefits employees are seeking. While it may be a stressful time for HR departments, there is significant room for growth for L&AH insurers in 2022 and beyond.

Growth has returned to L&AH

Despite a need to undertake digital transformation to leverage benefits of the cloud, new technologies and ecosystems to bring products and services to market more quickly, many carriers were forced to trim budgets in 2020 due to profitability challenges. In fact, from 2016 to 2020, DWP growth in the L&A space was down 1.7% compared with increases of 6.5% for accident and health and about 4% growth for both commercial and personal lines for P&C, per Celent analysis.

But those challenges appear to be in the rearview mirror. Among North American life insurance CIOs polled by Celent in its 2022 report “CIO Pressures and Priorities, 2022: Life Insurance North America,” growth was the No. 1 area of emphasis among CIOs. Nearly 80% of CIOs reported a significant focus on growth, narrowly outpacing digital acceleration, another key focus on the heels of the pandemic.

Traditional insurance products focused on life, disability and A&H are no longer sufficient for the new needs and expectations of today’s insurance buyer. Consider that, in 2021, millennials overtook Gen X and Boomers as the dominant 30- to 60-year-old insurance buyer segment in the U.S. and will be joined by members of Gen Z in 2025. These cohorts are accustomed to digital, easy-to-buy products from other industries and have different work and lifestyles that drive different needs and expectations for their insurance and benefits.

Carriers are being forced to adapt or risk being left behind. In Majesco’s 2021 Strategic Priorities Report: Despite Challenges, Leaders Widen the Gap, the Modernize and Optimize gap between Leaders and Laggards grew significantly from 9% to 33% over the past three years.

One area of strong growth focus for insurers is on wellness. Among all voluntary benefits growth in 2021 for North America, wellness outpaced all other products with 27% growth, according to Celent’s preliminary 2021 Group & Voluntary PAS ABC Report — up from 15% in 2019.

See also: Go Ahead, Let the Analysts Freak Out

Addressing the life insurance protection gap

Another growth opportunity for insurers is in the life insurance market. There is a significant protection gap for U,S, households, with 48% of consumers living without life insurance, but there’s reason for optimism as 2021 data shows strong buying signals.

Propelled by 26% fourth quarter premium growth, total life insurance new annualized premium grew 20% in 2021, representing the highest annual growth since 1983, according to LIMRA’s Fourth Quarter U.S. Retail Life Insurance Sales Survey.

As noted from the report’s release, “Our research shows that the pandemic raised consumer awareness and demand for life insurance protection. Three in 10 Americans tell us they are more likely to purchase coverage due to COVID-19,” said David Levenson, president and CEO, LIMRA, LOMA and LL Global. “This interest has translated into record sales. Nearly two-thirds of carriers reported significant positive gains, including nine of the top 10 carriers.”

With the biggest area of growth available from younger generations seeking coverage, carriers need to evaluate their distribution and underwriting models. These digital customers are expecting a frictionless, digital buying experience that is on par with their interactions in other sectors.

Modernizing the back office to create an intelligent core

While modernizing core back systems has been on the radar for carriers for some time, the pandemic shifted its priority on many carriers’ roadmap as they significantly limit digital transformation. The need to bring products to market quickly, operate on more efficient systems and enhance scalability in the cloud has forced carriers to undergo significant core system digital transformation processes.

One of the key drivers for many insurers in the process of replacing legacy systems is putting solutions in place that are better suited to integrate via APIs with third-party partners and solutions to benefit from the data and workflows and extended innovative capabilities of those platforms. By embracing next-generation intelligent core platforms, carriers can position themselves to meet the dynamic demands of today’s multi-generational employee base.

New business and underwriting systems are a leading focus area for carriers seeking to better leverage data to personalize and prioritize the products that fit with employees’ life stages and personal needs and interests.

The upheaval of today’s workforce was bound to happen eventually as insurers and employers alike adapt to the younger generation. The timeline has just been accelerated by the pandemic. But amid the chaos, L&AH insurers with next-gen intelligent core systems are poised to capitalize on the growth opportunities presented by today’s evolving employee needs.

The digital future is today, and high performance is expected of the industry.

If I say, “Tell me about your home security system,” you might describe the sensors that are on your windows or the keypad that is close to the entry door. You may tell me that you installed a doorbell cam, or maybe say, “I don’t have a security system on my house. I’m not sure I need one.”

What you might not tell me about may be areas of your home security where you are vulnerable but where you haven’t thought about the risk. Maybe you keep a garage door opener in the car that’s parked outside every night. The weather in May is gorgeous, so you like to keep the windows of your home open. You rarely take the time to arm the security system when you leave.

If we think of the insurance company as a home, it has similar types of vulnerabilities that are ripe for exploitation.

Where are insurers most vulnerable?

An application programming interface (API) gateway protects the enterprise from outside hacking by closing up the points of vulnerability you may never have considered. At a high level, there are three types of security vulnerabilities:

1. Role-based vulnerabilities. This is the wrong person having access to the wrong items and areas.
2. Data-based vulnerabilities. These might include the open spigots of data spilling into the outer world because “someone left the data on.”
3. The API function itself. This would include open access to an application through the system or developer toolkit.

In our previous blog on API security, we discussed role-based security and not allowing full access to every API for every internal associate – from developers to business users. This is essential just to keep everything structurally secure. But the idea of security roles is just as applicable when it comes to outside access. APIs are rapidly growing in use. The dramatic increase in embedded insurance, partnerships and platforms means that insurers are finding themselves with a host of new people who need to access some level of systems and processes. Keeping track of system keys and keeping watch over access has to become an automated process. The API gateway will be this essential guard at the gate. It will keep roles straight and prevent anyone from accessing systems through exposed API endpoints.

Data leakage is a completely different type of issue. In today’s API environments, keeping track of who, how and when an API is being used is largely a matter of someone within IT who is tasked with knowing the complete system architecture. The use of an API at the time it was installed may have been perfectly secure. Data was moving from point A to point B and was facilitating whatever transaction it needed to facilitate. Over time, however, system teams may upgrade an API or shift its usage. This might be happening on the other end of a partner system. It doesn’t mean that the flow of the data has been turned off, just that it is no longer fulfilling its original purpose. This presents two security issues. The data may fall into the wrong hands, and hackers may also have a route into core systems. All of these issues are real and multiplied within companies that govern their own APIs directly from their internal systems, not yet using cloud API platforms.

See also: How API Hub Can Spark Innovation

API gateways — a portal for secure access

Use cases help us to identify the disparities between a secure environment and an insecure environment. Let’s say your company has 50 APIs with no gateway in place (all of them windows with potential outside access) and you begin to measure your potential exposure. You catalog how many outside users have access to these APIs end-to-end and realize that the system security that you have in place is piecemeal and not completely visible anywhere on a dashboard or console. Your business may have imagined it was more secure than it actually is.

An API gateway would fix these issues. It will add a horizontal shared orchestration layer on top of the APIs, so end users are only accessing up-to-date, usable APIs that they need at a console level. The console works as well on the inside as it does on the outside of a company’s systems. A dashboard will give system administrators complete visibility into usage, breakage, volume and invalid attempts at entry. Customers will end up with less API complexity and an environment that is understandable and manageable. Still, some companies may wonder how secure they can be if they are operating in a hybrid cloud environment that still houses on-premises systems.

“If we’re never going to fully be on the cloud, only our cloud-based systems will be secure. Right?”

Part of the beauty of an API platform in the cloud is the gateway’s ability to make the full environment more secure by securing API endpoints.

Let’s say for a moment that you are currently running in a hybrid environment. In some cases, your back-end systems are situated in the cloud. Others are on-premises. It would make sense that you might need two different gateways or two different API platforms. Yet that is not the case. With an API-platform approach, your multi-nodal systems can all be managed at the API gateway level. Your nodes could be different, or the processing could be in the cloud or on premises. A gateway can make points of entry and exit secure. It can add security to every system where APIs are hooked in.

The last hurdle to implementing an API Platform

One of the last hurdles that organizations have when it comes to adopting a new API approach is simply understanding how easy it is. We have been trained that nothing is truly easy when it comes to systems, so we think, ”Why would setting up an API platform be any different? Insurance is a different kind of industry, and we have different protocols. Won’t we need to set up insurance-specific security standards?”

Yes, insurance is unique. Standards and governance principles are specific to every industry and insurance is no exception. No, you will not need to fuss over insurance-specific standards. Cloud providers have made it super-simple for insurers to set up their gateways. Insurers will find that they don’t need to write code to define rules or build out environments. They will be using drag and drop, picking and choosing options for gateway setup. It is part of the interface.

In addition, the modern cloud-based or cloud-native API platforms, like AWS or Azure, have prebuilt frameworks or prebuilt activators already built out, whether it is for specific functional needs, like claims processing, or for specific industries, like healthcare or insurance. They have prebuilt rules templates, which, as a new customer, or a new deployer, you can simply plug in. When you copy and paste the framework into your gateway, it inherits the rules that are defined for our industry. Once connected, you’ve created an industry-specific API gateway, and your organization is now far more protected because you’ve reduced key points of vulnerability.

At Majesco, realizing an API-centric enterprise for our clients means a concerted program to craft an end-to-end API orchestration platform founded on a cloud-native API management service. Exciting developments are underway in this regard. Stay tuned for more in the coming months!