This article was written by Christian Mumenthaler, Group Chief Executive Officer, Swiss Re, for the International Insurance Society, a sister organization of Insurance Thought Leadership, under the umbrella of The Institutes. To see more IIS articles by Mr. Mumenthaler and other IIS experts, visit internationalinsurance.org.

The pandemic has accentuated the global insurance protection gap. Last year it reached a new high of USD 1.4 trillion, according to the Swiss Re Institute. This growing gap between economic losses and those that are insured exacerbates the lack of societal resilience, especially in emerging and developing countries.

As the protection gap in US flood insurance shows, even in developed markets there are risks considered uninsurable. Only one in six homes in the US has flood insurance. As a result, the cost of storm damage in an average year results in USD 19 billion in uninsured losses from flooding, compared to USD 5 billion in insured losses.

Digitalisation can be a great lever for re/insurance to reduce the protection gap. First, it opens a whole new spectrum for insurers to collectively cover risk – including those that are currently uninsurable. Second, digital technology can help to overcome the major obstacles for people and businesses to buy insurance: affordability, ease of access, attractiveness of the product and transaction costs.

More risks become insurable with deeper risk knowledge

Modelling of risk with more granular data and analytics provides exceptional risk information, allowing the insurer to rate a risk based on individual exposure and propose tailored solutions. In the case of flood risk in the US a generation ago, we had limited ability to determine the true flood risk for a location. Today, our fully probabilistic US flood model can identify differences between risks within the same flood zones. This means that insurers can offer flood coverage on a house-by-house basis even in areas which were previously deemed uninsurable.

Big data and Cloud computing enable new insurance models that were formerly not possible due to lack of real-time connectivity and access to vast amounts of data. One such new model is parametric insurance, where indicators for natural disasters and weather events are currently the main triggers. However, with the right curated data, other triggers can also be identified.  Instead of wind speeds or rainfall to protect farmers from crop failure, new parametric insurance is linked to indices that are not weather-related. For example, we have developed coverage for the loss of a tourist destination's attraction due to terrorism or travel disruption, using hotel occupancy or flight delays as triggers for payout. In this way, more of the currently uninsurable risks can also be covered.

Another new approach enabling more accurate risk assessment is real-time data on behaviour. Pricing based on risk behaviour can incentivise behavioural changes, mitigating moral hazard for risks that can be controlled by the insured.

For example,  our telematics app Coloride in the field of motor insurance can identify risky maneuvers, speeding habits and phone usage while driving, and offers post-drive coaching when the trip is over. Over time, Coloride assigns a risk score to each driver that an insurer can use to calculate a user-based premium. By offering a financial incentive to safe drivers and flagging risky behaviour, insurers encourage responsible driving, making roads safer for everyone. 

With more risk knowledge, insurers can offer more affordable coverage for behaviours that help mitigate risks. Accordingly, they can provide protection for risks they couldn't cover before.

Pave the way to ethical technology use

In essence, I see big data as the fertile ground to create new markets and to diversify risks that up to now were considered uninsurable. I think it's no surprise that data is sometimes referred to as the new gold. As the value of this intangible asset for re/insurers further increases, it is of utmost importance to ensure trust in the use of data, Artificial Intelligence and Data Analytics (AIDA) systems.

At Swiss Re we have implemented rigorous standards and frameworks on digital governance, data protection and privacy, transparency, conduct and analytical model validation. As a data-driven risk knowledge company, we are also actively addressing the ethical challenges of new technologies that regulators have only recently begun to tackle. 

Only responsible digitalisation can make a sustainable contribution to reducing uninsurability. That's why we also want to ensure fair treatment and inclusion beyond regulation. It is important to us, for example, to check that the underlying algorithms and models are transparently trained and calibrated, and lead to unbiased decisions. The digital responsibility principles we are developing include robust governance controls, such as continuous monitoring of automated decision-making processes to prevent individuals or specific group of individuals to be unfairly impacted.

Digitalisation reduces the barriers to access

To diminish the uninsurability of risks we must also tackle high transaction costs. The costs of distribution, administration and claims settlement swallow up a third of insurance premiums. The digitalisation of the value chain will eliminate many inefficiencies in the insurance market.

Faster and real-time assessment of policyholder's risks, taking out policies online and automated claims settlement drastically reduce the costs of insurance. Artificial intelligence and machine learning are bound to further accelerate processes. Affordability and effortless customer journeys pave the way to higher insurance penetration in the future.

Apart from changing the vertical processes of the industry, digitalisation is also ploughing up the horizontal distribution landscape. With partnerships, existing acquisition and distribution platforms can be leveraged by new channels and platforms – leading to a win-win situation in scalable ecosystems. The inhibition threshold to conclude an insurance policy embedded in a proven customer journey is significantly lower than when concluding an insurance policy alone.

Especially in developing countries, insurance distribution via mobile is a game changer for accessibility. Through mobile phones, farmers who do not have access to the internet can insure a crop, for example. When they suffer a loss, they receive a timely payout via mobile to get back on their feet. 

Some risks remain uninsurable

The ongoing technology-based shift of re/insurers from "detect and repair" to "predict and prevent" will bring great progress in dealing with risks before an event. The new approaches to prevention must not forget risks that are considered uninsurable. Of course, helping to mitigate an uninsurable risk is worth at least as much to the industry as covering it financially. Through smarter use of data, we see the risk landscape evolving rapidly, creating opportunities and new ways to help society benefit from risk knowledge. However, we must accept that digitalization cannot overcome all currently uninsurable risks, but with it we can take an important step towards societal resilience and reducing the protection gap.

The insurance industry’s sales and customer success teams are under pressure to deliver positive customer experiences faster than their competition. Customers expect an honest, positive experience in all end-to-end transactions like quoting, policymaking and policy activation. 

So, what makes a positive customer experience?

Nearly 80% of all American consumers point to speed, convenience, knowledgeable help and friendly service as the most critical elements of a positive customer experience, according to a recent report by PwC.  

Traditionally, an insurance company’s customer service team would answer every customer’s phone call and email and talk about how to do business with the insurer. That works, but the issue is scale.

Long wait times, language barriers and a high volume of client calls and emails have increased personnel costs and led to poor prioritization of cases and a weakened customer experience for many insurers. Today, rising costs and long wait times have led carriers and brokers to deploy insurance chatbots to meet increased demand.

Chatbots are changing the insurance industry’s customer service strategy:

• Close to 30% of life and property insurers have deployed chatbots in the last five years.
• Chatbots have become the leading application of AI in insurance for routine operations like customer service and lead management.
• By 2026, chatbots will fill 40% of all insurance industry customer service roles.

Whether rule-based or AI-enabled, chatbots lift resource constraints and drive customer service strategies across the insurance sector. As a result, chatbot deployment will remain a priority for insurers in the foreseeable future.

There are two main types of chatbots that insurers widely deploy: rule-based and AI-based. This article will consider rule-based bots.

Advantages of Rule-Based Chatbots

Rule-based chatbots follow a predesigned sequence of questions and commands that a given user will find helpful. To configure them, insurers must analyze data to anticipate what tasks users are most often trying to accomplish. 

Users will choose among various options (e.g., “Help me file a claim,” “Help me complete enrollment,” “How do I adjust my plan?”), and, depending on their selection, the chatbot will direct them to the right resource.

A recent survey by Drift discovered the most common frustrations for customers are websites being hard to navigate, simple questions not being answered and contact information for a business being too hard to find. Rule-based bots can improve the customer experience by directing a user to the correct information immediately after being asked.

When a customer asks an unprogrammed question to a rule-based bot, it can transfer the conversation to a human. This ensures the chatbot can resolve simple cases while freeing capacity to deliver better customer service for more complex issues.

See also: Integrating Chatbots, Policy-Handling Apps

Based on the responses given by the user and how the rules-based chatbot is programmed, the bot can either give a written reply back or trigger a task such as sending out an email, sending the user to a different page, scheduling a meeting or issuing an invoice.

Best Practices for Rule-based Chatbots 

High-quality, rules-based chatbots rely on rich data sets to respond to various user actions. For example, an insurer can plan different chatbot sequences depending on:

• Whether the user has visited the website before,
• What insurance product they’re looking at
• If the user has spent lots of time clicking through the website with little reading (“Are you having trouble finding something?”).

Rule-based chatbots are valuable for maintaining existing business. For example, let’s imagine a client’s policy renewal is coming up. Instead of going through a manual renewal process and answering tedious questions with the client, you could program the bot to recognize the logged-in user and ask the user if they want to purchase additional coverage or review their policy upon entering the website.

By effectively analyzing their user data, insurers can program a rules-based bot to appear with the right message, at the right time, to the right user, on the right device.

Rules-based chatbots are quick for insurance companies to implement but less flexible than their AI-enabled counterparts. This doesn’t mean rules-based chatbots are a poor choice. Every customer service team has three or four questions they get asked more than any other. Following the popular 80/20 rule, many insurers will be surprised to find how much time even a simple rules-based bot can save.  

See also: Will Chatbots Take Over Contact Centers?

By letting bots guide customers to answers for routine questions, companies can better deploy staff. Representatives can answer the more involved questions that require the human touch. Freed from the majority of queries that don’t, they can take the time they need to provide the wow factor in service.

My next article will cover AI chatbots.

 

The Supply Chain Fiasco Paul Carroll, Editor-in-Chief of ITL Now that ports have been identified as the major bottleneck in the supply chain dysfunction that is slowing the economic recovery and raising prices, a Twitter connection of mine offered a novel solution: “Assign all ships, trucks, yards, workers and rules to an app. Call it Port Simulator, and the world’s 15-year-olds will have [the supply chain problem] fixed in a week or two. It is literally [the premise of] every simulation game I’ve ever played.” If only the answer were that simple. In fact, it now seems the supply chain fiasco will run deep into next year, putting a crimp in the plans of almost every sort of business across the globe and requiring agility by those that insure them. continue reading > Majesco Webinar Register for this webinar to better understand the rapid shift and increased importance of data and analytics including contributory data, AI/ML models, and ecosystem partners that provide new insights across the entire value chain.  Register Now SIX THINGS Insurtech Is Much More Than Just Hype by Stephen Applebaum Despite Chubb CEO Evan Greenberg's claim that insurtech is just hype, the movement is real and important and exciting and valuable. Read More Boldly Insure Where No One Has Gone by Christopher McKeon, Ann Satovich, McKay Simmons, Christopher O’Connor and Brad Barger Commercialization of space is a once-in-a-generation opening.   Read More Tackling the Growing Problem of Insurance Fraud Sponsored by Daisy Intelligence This eBook explains trends in insurance fraud, the reinforcement learning approach, keys to successfully embracing AI and how to save millions in fraudulent claims payments. Read More Future of Digital Insurance Claims by Mark McNally We could be in danger of leaving the customer out of the equation in the rush to digitize and automate insurance processes. Read More Make Lemonade Out of Lemonade by Anthony Habayeb Lemonade's recent glitch sheds light on public fears about AI -- and about what must be done to keep AI innovation from slowing. Read More Long Live the Claims Adjuster! by Mark Breading There is tremendous momentum for leveraging technology in claims, but that does not mean the adjuster will become obsolete. Read More Innovation at the Point of the Customer by  Bobbie Shrivastav Innovation must focus on claimants, who deal with all sorts of requirements while going through perhaps the worst time of their lives. Read More The Right Way to Engage Customers Sponsored by Statflo The right way to engage with customers is, of course, whatever they say it is – which likely means much more texting than you’re doing now. Watch Now MORE FROM ITL Making the World More Resilient In this webinar, ITL Editor-in-Chief Paul Carroll sits down with Chris Wei, Chairman of the Executive Council of the International Insurance Society and a longtime senior executive at Aviva. In advance of the IIS annual forum on Sept. 27-29, they explore how the industry can help drive a sustainable global recovery.   Watch Now OCTOBER FOCUS: Catastrophic Weather   In the face of catastrophic weather, insurers are doing what insurers do: helping identify, quantify and mitigate the risks, while making customers whole when disasters strike. They are also increasingly digging further into the roots of the problem. As you’ll see in the articles we’ve highlighted for this month, insurers are focusing more on how to raise the alarm about climate change and on how to make the world more resilient in the face of the challenges that we face today and that are surely coming. Keep Reading Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

Now that ports have been identified as the major bottleneck in the supply chain dysfunction that is slowing the economic recovery and raising prices, a Twitter connection of mine offered a novel solution:

"Assign all ships, trucks, yards, workers and rules to an app. Call it Port Simulator, and the world's 15-year-olds will have [the supply chain problem] fixed in a week or two. It is literally [the premise of] every simulation game I've ever played."

If only the answer were that simple. In fact, it now seems the supply chain fiasco will run deep into next year, putting a crimp in the plans of almost every sort of business across the globe and requiring agility by those that insure them.

In many ways, the supply chain trouble traces back decades, to companies' efforts to make production as efficient as possible, keeping the minimal amount of supplies on hand. That "just in time" approach is great -- until it isn't. And it wasn't, as of the early days of the pandemic.

As the New York Times explains the problem, "Factories in parts of the world where a lot of the globe’s manufacturing capacity sits — places like China, South Korea and Taiwan as well as Southeast Asian nations like Vietnam and European industrial giants like Germany — were hit hard by the spread of coronavirus cases. Many factories shut down or were forced to reduce production because workers were sick or in lockdown. In response, shipping companies cut their schedules in anticipation of a drop in demand for moving goods around the world.

"That proved to be a terrible mistake. Demand for some things — restaurant meals, trips to vacation destinations, spa services — indeed cratered. But Americans took the money they used to spend on such experiences and redirected it to goods for their homes, which were suddenly doubling as offices and classrooms. They put office chairs and new printers in their bedrooms, while adding gym equipment and video game consoles to their basements. They bought paint and lumber for projects that added space or made their existing confines more comfortable. They added mixers and blenders to their kitchens, as parents became short-order cooks for cooped-up children. The timing and quantity of consumer purchases swamped the system."

When factories tried to catch up with demand, the lack of shipping capacity meant that many products just piled up in warehouses, and the problems compounded from there. Truck drivers and dockworkers in the U.S. were stuck in quarantine, as dozens of ships were forced to anchor offshore Los Angeles, Oakland and other ports and wait days to unload and load again. The nearly week-long closing of the Suez Canal exacerbated the delays, as did COVID-related closings of major ports in China.

Many companies have responded to the supply chain delays by ordering extra products, adding another layer to the problem.

By now, we have a full-on mess, centered on a lack of available shipping containers. They are the building blocks of global shipping, and there just aren't enough of them in the right places.

Some hundreds of thousands of them, for instance, are currently sitting on 79 ships off Long Beach, Calif. (holding some $8 billion of merchandise). There are plenty of cranes available to offload the containers -- but nowhere to put them while waiting for trucks to transport them to their destinations. (Port tarmacs, usually at 60% to 80% capacity, are now at 90%, according to the Wall Street Journal.)

There aren't enough trucks to come get the containers, anyway. Because ports can't take any more containers, many trucks have nowhere to put their empties -- so containers sit idle on truck chassis, taking both the container and that chassis out of circulation.

Ryan Petersen, the CEO of Flexport, a logistics company, said he took a three-hour loop through the port of Long Beach on Thursday and, out of hundreds of cranes, counted only seven that were even operating.

"The terminals are simply overflowing with containers," he said, "which means they no longer have space to take in new containers either from ships or land. It’s a true traffic jam."

All levels of government have talked about trying to help alleviate the supply chain problems, but the efforts have mostly been talk to this point. Probably the biggest change thus far is that Long Beach will allow logistics yards to stack empty containers four or even five high, rather than the current two. Petersen says that change will "free up tens of thousands of chassis that right now are just storing containers on wheels. Those chassis can immediately be taken to the ports to haul away containers."

But tens of thousands won't solve the problem of hundreds of thousands sitting just offshore -- and with more on the way. It will likely take many months to smooth over the container issue.

In the meantime, new disruptions will arise until the pandemic finally subsides. 4.3 million Americans quit their jobs just in August, as people reevaluate career choices in what some are calling the Great Resignation. Their absence will cause pockets of issues with supply and transport. Meanwhile, more than 735,000 Americans have died from COVID, and it is still taking an average of more than 1,650 lives a day.

The supply chain issues will force major changes in how business is done. In the short term, all sorts of companies will have to adapt to shortages and come up with workarounds in transportation, factory scheduling, retailing and more. In the long run, because businesses are unlikely to go back to the super-lean approach to supplies and suppliers, at least not for the foreseeable future, they will have to rewire transportation, warehousing and logistics operations.

The changes will, of course, require adaptation both in the short run and in the long term by all those that insure these massive operations. The persistence of the supply chain issue will also create opportunities to provide risk-management expertise so that companies can be much more resilient in the face of the next global challenge than they were at the outset of this one.

In the meantime, we consumers will all just have to muddle along in the face of shortages. I don't have a 15-year-old to turn loose on the problem, but I do have a 25-year-old who is world class at Tetris. Maybe I'll get her thinking about Port Simulator and see what she comes up with.

Cheers,

Paul

---

P.S. Here are the six articles I'd like to highlight from the past week:

Insurtech Is Much More Than Just Hype

Despite Chubb CEO Evan Greenberg's claim that insurtech is just hype, the movement is real and important and exciting and valuable.

Boldly Insure Where No One Has Gone

Commercialization of space is a once-in-a-generation opening.

Future of Digital Insurance Claims

We could be in danger of leaving the customer out of the equation in the rush to digitize and automate insurance processes.

Make Lemonade Out of Lemonade

Lemonade's recent glitch sheds light on public fears about AI -- and about what must be done to keep AI innovation from slowing.

Long Live the Claims Adjuster!

There is tremendous momentum for leveraging technology in claims, but that does not mean the adjuster will become obsolete.

Innovation at the Point of the Customer

Innovation must focus on claimants, who deal with all sorts of requirements while going through perhaps the worst time of their lives.

During the COVID-19 crisis, another outbreak has happened in cyber space: a digital pandemic driven by ransomware. Malware attacks that encrypt company data and systems and demand a ransom payment for release are surging globally. 

The increasing frequency and severity of ransomware incidents is driven by several factors: the growing number of different attack patterns; a criminal business model around "ransomware as a service" and cryptocurrencies; the recent skyrocketing of ransom demands; and the rise of supply chain attacks. In a new report, cyber insurer Allianz Global Corporate & Specialty (AGCS) analyzes the latest risk developments around ransomware and outlines how companies can strengthen their defenses with good cyber hygiene and IT security practices.  

Cyber intrusion activity globally jumped 125% in the first half of 2021 compared with the previous year, according to Accenture, with ransomware and extortion operations one of the major contributors. According to the FBI, there was a 62% increase in ransomware incidents in the U.S. in the same period, which followed an increase of 20% for all of 2020. These cyber risks trends are mirrored in AGCS’ own claims experience. AGCS was involved in over a thousand cyber claims overall in 2020, up from around 80 in 2016; the number of ransomware claims (90) rose by 50% compared with 2019. In general, losses resulting from external cyber incidents such as ransomware or distributed denial of service (DDoS) attacks account for most of the value of all cyber claims analyzed by AGCS over the past six years. 

Increasing reliance on digitalization, the surge in remote working during COVID-19 and IT budget constraints are just some of the reasons why IT vulnerabilities have intensified, by offering countless access points for criminals to exploit. The wider adoption of cryptocurrencies, such as Bitcoin, which enable anonymous payments, is another key factor.

Five areas of focus

In the report, AGCS identifies five trends in the ransomware space, although these are constantly evolving and can quickly change in the cat-and-mouse game between cyber criminals and companies: 

• The development of ransomware as a service has made it easier for criminals to carry out attacks. Run like a commercial business, hacker groups such as REvil and Darkside sell or rent their hacking tools to others. They also provide a range of support services. As a result, many more malicious threat actors are operating.
• From single to double to triple extortion: "Double extortion" tactics are on the rise. Criminals combine the initial encryption of data or systems, or increasingly even their back-ups, with a secondary form of extortion, such as the threat to release sensitive or personal data. In such a scenario, affected companies have to manage the possibility of both a major business interruption and a data breach event, which can significantly increase the final cost of the incident. "Triple extortion" incidents can combine DDoS attacks, file encryption and data theft – and don’t just target one company, but potentially also its customers and business partners. A notable case was a psychotherapy clinic in Finland. A ransom was demanded from the hospital. At the same time, smaller sums were also demanded from patients in return for not disclosing their personal information. 
• Supply chain attacks: There are two main types – those that target software/IT services providers and use them to spread the malware (for example, the Kaseya or SolarWinds attacks), and those that target physical supply chains or critical infrastructure, such as the one that hit Colonial Pipeline. Service providers are likely to become prime targets as they often supply hundreds or thousands of businesses with software solutions and therefore offer criminals the chance of a higher payout. 
• Ransom dynamics: Ransom demands have rocketed over the past 18 months. According to Palo Alto Networks, the average extortion demand in the U.S. was $5.3 million in the first half of 2021, a 518% increase on the 2020 average; the highest demand was $50 million, up from $30 million the previous year. The average amount paid to hackers is around a tenth of the average demand, but this general upward trend is alarming. 
• To pay or not to pay: Ransom payment is a controversial topic. Law enforcement agencies typically advise against paying extortion demands to avoid encouraging attacks. Even when a company decides to pay a ransom, the damage may have already been done. Restoring systems and enabling the recovery of the business is a huge undertaking, even when a company has the decryption key. 

See also: Access to Care, Return to Work in a Pandemic

Business interruption and recovery costs

Business interruption and restoration costs are the biggest drivers behind cyber losses such as ransomware attacks, according to AGCS claims analysis. They account for over 50% of the value of close to 3,000 insurance industry cyber claims worth around €750 million ($885 million) it has been involved in over six years.

The average total cost of recovery and downtime – on average, 23 days – from a ransomware attack more than doubled over the past year, increasing from $761,106 to $1.85 million in 2021. 

The surge in ransomware attacks in recent years has triggered a major shift in the cyber insurance market. Cyber insurance rates have been rising, according to broker Marsh, while capacity has tightened. Underwriters are placing increasing scrutiny on the cyber security controls employed by companies. 

Checklist with IT security best practices

AGCS has published a checklist with recommendations for effective cyber risk management. 

In the event of an attack, cyber insurance coverage has evolved to provide emergency incident response services that typically include access to a professional crisis manager, IT forensic support and legal advisory. Further offerings include IT security training for employees and assistance with the development of a cyber crisis management plan.

For additional information, please visit Allianz: Ransomware Trends - Risks and Resilience.

When looking to modernize their processes and solutions, the first instinct for many agencies may be to add solutions to their insurtech stack. But before purchasing additional technology, agencies should first look at how they are using the tools they already have; they may be sitting on a gold mine of untapped potential. You just need to know where to look and how to bring the treasure to the surface — and it won’t cost you a dime.

Agencies sometimes forget why they bought software in the first place. The decision usually begins with a financial reason, whether it’s to reduce costs, increase efficiencies or connect with a new audience. By the time RFPs, selection, implementation and onboarding are complete, that focus on why can be blurred. Often, employees use software because it’s there, not because they fully understand its value. 

Moreover, in complex industries like insurance, B2B software often does more than agencies anticipate. After the sprint to get basic workflows up and running, it can be difficult to settle into a steady marathon pace. Incremental experimentation, learning and training can easily fall by the wayside.

There might be an opportunity to unlock more value out of the insurtech you already have in place. In other words, you might be able to get more out of the investment you’ve already made — without spending another dime. Let’s explore several ways to uncover where these opportunities might exist:

1. Get end-users fully on board

It’s not uncommon for the decision-makers on a software purchase (like an agency owner) to be different from the people who will be using it day-to-day (like a customer service representative, or CSR). And if owners don’t involve their employees in the buying process, employees haven’t been filled in on the value or rationale behind implementing the product. They might initially feel hesitant at the thought of new technology at the workplace.

Take client portals. Many agencies want to provide self-service portals where tech-savvy clients can verify coverage, file a claim, request policy changes and retrieve documents. Agency owners see portals as a tool that decreases time on paperwork and increases opportunity for agents to act as a trusted adviser.

But put yourself in the shoes of an agent who took those phone calls for 15 years: They may feel as if their daily communications with clients are no longer of value or may feel like they are being replaced by technology. Agents who don’t understand the purpose of the software are left wondering how best to spend their time, and this misperception can mean cultural consequences that affect staff morale and retention.

Without the right communication upfront and a thoughtful onboarding process, your employees may view your new software purchase as a threat or a hindrance to their work — jeopardizing the investment you’ve made. 

2. Create a culture of continuous learning

Some agencies put recruits through a one-time software tutorial. Then, they ask employees to sacrifice one day a year to a hands-on training loaded with more material than anyone can retain.

That means employees are unlikely to learn the new features and capabilities in the vendor's releases throughout the year. Conversely, the agencies that benefit most from those updates tend to have a culture of continuous training.

The key is to make training and learning a very present part of your culture. That means making your software trainings not only readily available but also approachable. For example, share bite-sized, five-minute video lessons that your employees can view whenever they want and give them incentives for doing so. Your vendor should have a growing library of videos and will be able to offer help for best ways to use them.

3. Dig deeper into your provider relationship

One of my favorite questions from customers goes something like this: “I saw a demo by one of your competitors. Their agency management system can do X. Why can’t you guys do that?”

Me: “Well, we’ve had that capability for five years….”

Some agencies are reluctant to lean too much on their tech company as they don’t want to seem needy. But agencies that get the most value out of their investment see their software provider as a partner rather than as a vendor. 

What’s the difference? Interactions with a vendor are transactional. An insurtech partner, on the other hand, is invested in your agency’s success. They want you to use your solutions to the fullest and they invest in resour,ces and people to support that goal. They are interested in user feedback, and they want to hear about your needs.  

Here’s some advice: Contact your vendor all the time, give them your tech wish list and put them to work. If your vendor doesn’t have a solution yet, you might convince them to put it on their road map. And if the solution already has that capability you’re looking for, they will gladly show you how to use it.

See also: Insurtech Is Much More Than Just Hype

4. Focus on the journey

Insurance is complex, and good insurtech solutions have extensive capabilities to help agencies manage their business and clients. Agencies that get the most value out of their investment understand it takes time for users to take full advantage of their technology. 

Agencies should treat their technology like any other investment. Think about someone who opens an investment account and a month later says, “Well, I haven't double my money yet, so clearly this isn’t working. I'm going to close my account.” Crazy, right? Smart investing is for the long haul — and your software investment is no different.  

Work with your vendor to map out your software journey to understand the milestones that will make your users successful and the real value you can expect in the first month, the first year and beyond. You can apply the same principles to solutions you already have in place, as well. Put an emphasis on continual adoption and training, create and track metrics to determine success and measure progress over time to get a true picture of the return on your investment. 

The software is already yours

Focusing on getting more out of your existing solutions is a win for your bottom line, a win for your users and a win for your clients. Agency leadership should share with employees why and how the software will help them do what’s most important: providing excellent service and building strong client relationships. Use your vendor more to unlock all the potential of your software and motivate your employees to not only use the software fully but also train on it continually. By reframing the use of software as a prized skill and cultural strength, your agency will unlock untapped value and keep employees happier.  

Being a disruptor is hard. It requires taking disproportionate risks, pushing the status quo and — more often than not — hitting speed bumps.

Recently, Lemonade hit a speed bump in their journey as a visible disruptor and innovator in the insurance industry. I am not privy to any details or knowledge about the case or what Lemonade is or isn’t doing, but the Twitter event and public dialogue that built up to this moment brings forward some reflections and opportunities every carrier should pause to consider.

Let’s take a moment to make lemonade out of Lemonade events.

We should be talking about and demonstrating how we’re moving thoughtfully, safely and cautiously with new technologies. That’s how we’ll build confidence in the general public, regulators, legislators and other vital stakeholders.

Fear and Scrutiny Is Mounting

Pay attention, AI innovators; if we don’t more intentionally engage and address the risks of algorithmic systems and our intended use of consumer data with the public and regulators, we are going to hit a massive innovation speed bump. If all we do is talk about “black boxes,” facial recognition, phrenology and complex neural networks without also clearly investing in and celebrating investments and efforts in AI governance and risk management, the public and regulators will push pause.

Media coverage and dialogue about AI’s risks are getting louder. Consumers are concerned, and in an absence of aggressive industry messaging about responsible AI efforts and consumer-friendly visibility into how data is being used, regulators are reacting to protect individuals.

In July, Colorado passed SB-169. As a fast follow-up to the NAIC AI principles last year, Colorado’s law is the most direct scrutiny into insurance algorithmic fairness, management of disparate impact against protected classes and expectations for evidence of broad risk management across algorithmic systems. We will see how many states follow this lead, but insurance should watch for state legislation and DOI activity. The FTC and U.S. Congress are also developing policy and laws aiming to create greater oversight of AI and data.

Responsible Is Not Perfect – That’s OK

Regulators are trying to find the balance between enabling innovation and protecting consumers from harm. Their goal is not a perfect and fault-free AI world but establishing standards and methods of enforcement that reduce the likelihood or scope of incidents when they happen. And they will happen.

Regulators across the U.S. are realistic. They know they will never be able to afford or attract the level of data science or engineering talent to deeply and technically interrogate an AI system, so they will need to lean on controls-based processes and corporate evidence of sound governance. They are hungry for industry to demonstrate increased methods of organizational and cross-functional risk management.

I find a lot of regulatory inspiration from two other U.S. agencies. The Food and Drug Administration (FDA) offers the concept of Good Machine Learning Practices (GMLP). The Office of the Comptroller of the Currency (OCC) recently updated the model risk management handbook and emphasizes a life cycle approach to mitigating the risks of models and AI. Both recognize that minimizing AI risk is not simply about models or the data but much more broadly also about the organization, people and processes involved.

Slow Down the 'Black Box' Talk

Talking about “black boxes” everywhere not only is inaccurate but also counter-productive.

I’ve talked to and collaborated with hundreds of executives and innovation leaders across major regulated industries, and I’m challenged to identify a single example of an ungovernable AI system making consequential decisions about customers’ health, finances, employment or safety. The risk is too immeasurable.

The most common form of the broad technologies we colloquially call AI today is machine learning. These systems can be built with documentation of governance controls and business decisions made through the development process. Companies can evidence the work performed to evaluate data, test models and verify actual performance of systems. Models can be set up to be recorded, reproduced, audited, monitored and continuously validated. Objective verification can be performed by internal or external parties.

These machine learning systems are not impossibly opaque black boxes, and they are absolutely improving our lives. They are creating vaccines for COVID-19, new insurance products, new medical devices, better financial instruments, safer transportation, and greater equity in compensation and hiring.

We are doing great things without black boxes, and, in time, we will also turn black boxes into more governable and transparent systems, so those, too, will have great impact.

See also: 5 Risk Management Mistakes to Avoid

Risk Management, Not Risk Elimination

Risk management starts from a foundation of building controls that minimize the likelihood or severity of an understood risk. Risk management accepts that issues will arise.

AI will have issues. Humans build AI. We have biases and make mistakes, so our systems will have biases and make mistakes. Models are often deployed into situations that are not ideal fits. We are relatively early in understanding how to build and operationalize ML systems. But we are learning fast.

We need more companies to acknowledge these risks, own them and then proudly show their employees, customers and investors that they are committed to managing them. Is there a simple fix for these challenges? No, but humans and markets are generally forgiving of unintentional mistakes. We are not forgiving of willful ignorance, lack of disclosures or lack of effort.

Let’s Make Lemonade Out of Lemonade

Returning to where we started, this Lemonade event has provided an object lesson about the challenges balancing demonstrations of innovation with public fears about how companies are using AI.

Companies building high-stakes AI systems should establish assurances by bringing together people, process, data and technology into a life cycle governance approach. Incorporate AI governance into your environment, social and governance (ESG) initiatives. Prepare for the opportunity to talk publicly with your internal and external stakeholders about your efforts. Celebrate your efforts to build better and more responsible technology, not just the technology.

We have not done enough to help the broader public understand that AI can be fair, safe, responsible and accountable, perhaps even more so than the traditional human processes that AI often replaces. If companies do not implement assurances and fundamental governance around their systems — which are not nearly as complex as many regulators and members of the public believe they are — we’re going to have a slowdown in the rate of AI innovation.

As first published in PropertyCasualty360.

What is transformation? Industry leaders and consultants throw out many, many ideas about how to integrate technology into business processes, make it seamless for the customer, etc. The best definition I’ve come across is from a philosopher, Sadhguru, who wrote:

“When we say ‘transformation,’ it means that nothing of the old has remained. Something totally new has flowered within you. Now you look at a rose plant that is full of thorns. Springtime came, and rose flowers burst out — it is a transformation. The thorns are still there — there are more thorns than flowers — but we do not call it a thorn plant. We call it a rose plant because of that single rose. Everyone's attention goes more toward that single rose than a hundred thorns that are on the plant, isn't it? So all the thorns in you, maybe you cannot remove them right now, but if one rose flower blossoms, everyone is willing to overlook those things.”

Sadhguru was talking about transforming oneself, but doesn’t this same philosophy hold true when we look at enterprise-level transformations? Amid thorns – a.k.a legacy systems – what could be the rose? Some would say, “It is modernizing the core.” Others may say, “It’s leveraging an AI engine” to solve x, y, or z. I will argue that the rose is the customer. Who are we really doing transformation for?  

What does innovation at the point of the customer mean? It means the customer is the focus of how we approach solving problems. For example, at Benekiva, an SaaS platform for life, annuity and health, our claims and servicing modules offer carriers a 100% digital process – end to end. Our focus is the beneficiaries. Why? They are the ones having to deal with all the various requirements while possibly going through the worst time of their lives.  

As you innovate at the point of the customer, other “customers” appear, such as your claims associates. As you peel the onion, you find out the claim lands in an associate’s hands. What is their experience? Where does the beautiful, digital-first experience go? How many systems are they touching to process a claim? What happens if I need additional information from the beneficiary? 

Innovation at the point of customer doesn’t stop at the end-user – that is just the starting point. As you start working backward, you keep innovating and evolving. You don’t stop because “this is just back-office.” You push the pedal to accelerate. Why? Because your customers don’t just expect an Amazon-like experience – they demand it! Any piece that causes friction gets noticed and hurts the experience, which ultimately hurts the brand.

See also: Different Flavors of Transformation

How does one go about innovating at the point of the customer? There are three areas to consider:

• Your team: When I look at hiring people in my product development team, I have come up with a triple-threat model. I look for solutions-focused individuals who love solving problems and are curious by nature. I look for technologists – individuals who have worked in technology and have a deep understanding of various integrations and the architecture landscape. Finally, I look for project management -- individuals who have led enterprise-wide initiatives and can help organizations with change management.    
• Your approach to innovation: We follow a fail-fast and learn-fast model, which allows us to look at how and what we innovate in an MVP (minimum viable product) mindset. We don’t allow perfectionism to get in the way of innovation. The faster we deliver, the quicker we get feedback that allows us to keep iterating or throw a feature out, as it won’t fit. The voice of the customer keeps us grounded to ensure we focus on the near-term needs. For the long term, looking at a customer as a whole and at the macro trends that may shape the customer allows us to keep an eye out for the future.    
• Your partner network: Whether you are a Tier 1 carrier or an up-and-coming insurtech, we all have constraints. Have you ever seen a home builder lay the foundation on their own, build their own cabinets and do all the electrical and plumbing work? Homebuilders are masters at having a partner network – they have an electrical guy/gal, windows person, etc. To innovate with the customer in mind, you must be surrounded by partners that elevate the pieces of the customer journey. At Benekiva, our gateway architecture allows our partner network to integrate admin systems, document management solutions and external data sources to provide a seamless process for the claimant and the associates.  

As Sadhguru shares: “Everyone's attention goes more toward that single rose than a hundred thorns that are on the plant, isn't it?” When you place your innovation focus on the customer, “thorns” still exist but aren't the focus.

Decades ago, a refrain began that predicted the death of the insurance agent. The internet was going to cut out the middleman! Disintermediation would result in the demise of the traditional insurance agent! But here we are – years later – and distribution intermediaries such as agents, brokers and wholesalers are not only surviving, they are thriving. I believe that claims adjusters, and claims professionals in general, are starting on a new and improved journey.

The pandemic has served as a catalyst for putting digital transformation across insurance on the fast track, and claims is one of the areas that is primed for implementing digital capabilities. As more claims information is captured and managed digitally, new opportunities to leverage AI technologies arise. This leads to a vision of full automation, high levels of straight-through processing and (logically) a diminishing role for claims professionals. These themes are explored in a new SMA research report, “P&C Claims in the Post-Pandemic Era: Emerging Stronger, Accelerating Transformation.” There is tremendous momentum for leveraging technology to automate and enhance the claims process, but that does not mean that the role of the adjuster will become obsolete… and it brings to mind the old Monty Python gag, where an old man is flung onto a heap of bodies, only to announce that he is “not quite dead yet.”

So it may be with the claims adjuster. As a matter of fact, the stage is set for claims roles to be elevated as they focus on high-value activities. And the phrase “not quite dead yet” doesn’t really do the situation justice, for these roles as they are very much alive and evolving. The key lies in exploring the complexity of the claims landscape.

There is no question that many simple claims are best handled in automated fashion, with digital workflows, connections to restoration partners and AI-based decision-making. The ability to reduce cycle times and settle claims faster benefits everyone, especially the claimant.

But there are many complex claims, especially those where serious injuries have occurred, where large commercial properties are affected or where insured vehicles or property are related to industries with unique risks. Add to that the vital areas of fraud detection and investigation, litigation, medical management and recoveries. It becomes clear that human expertise and experience will still have important roles to play.

All these areas will benefit from automation, and claims experts will be aided by AI capabilities. However, the need for human-to-human connection, expressing empathy to claimants and applying judgment in complex, multi-faceted situations will always be needed and will remain the hallmark of good claims organizations.

See also: How to Recruit Claims Adjusters

For more information on the evolution of P&C claims, see our recent research report, “P&C Claims in the Post-Pandemic Era: Emerging Stronger, Accelerating Transformation.” This report identifies how insurers have responded throughout the pandemic and how claims technology plans have changed over the past 18 months. Digital transformation and AI technologies are also addressed, based on SMA surveys of P&C executives. Finally, a vision of the future of claims is presented, including the role of the claims professional. Far into the future, we are still likely to be saying: Long live the claims adjuster!

Insurers looking ahead into 2022 are likely to be concerned about an economic and investment environment that offers a lot of uncertainty. There are new highs in stocks, cycle lows in bond yields and spreads, recurring waves of virus variants, central banks in apparent disarray and political turmoil everywhere. Despite all these danger signs, we are guardedly optimistic that the current recovery will continue well into the new year.

2021 has been a transition year. Reflation, i.e., the building back from the 2020 depression, was good in Q1. Inflation, the big fear in Q2 and Q3, threatens to be bad. Across the globe, we see a transition from a goods recovery to a services recovery, with the U.S. and China leading the way.

What’s next? Do we maintain growth or face stagnation? Either way, is it with or without the scourge of high inflation? [See the “Growth-Inflation Matrix” below.]

Many are reading the “up” cards (i.e., the current facts) that show some economic growth indicators slowing while inflation is rising. The Delta variant has prompted mask mandates to re-emerge in some areas, and returning to school is challenged too; it’s logical that the mood of the consumer has been dampened. Further, stress in the Chinese property sector highlighted by default concerns regarding Evergrande threatens global stability. However, we should look at a few of the “down” cards (i.e., unresolved areas of concern.)

We believe the rollover from recovery to expansion in the U.S. is well established, built on strong pre-pandemic fundamentals, fueled by substantial central bank support and lavish government spending. Roughly 70% of economic activity in the U.S. is consumer spending. While the U.S. consumer pulled back some over the summer, most recent data show that Delta is nearing its peak. Employment data continues to improve, and supply chains appear to us to be on the mend. We expect the slower third quarter growth will prove to be temporary.

Fiscal Spending: Beyond the Necessary? 

After long-standing requests from central bankers for fiscal help, the Biden administration is definitely complying, rolling out several significant spending bills running in the trillions of dollars. This is being called “stimulus,” but the “down” cards here may be the unintended consequences. And we expect there will be many, given that the final bill appears likely to be between 5,000 and 10,000 pages of mandates, taxes and regulations. 

A number of market observers have expressed concerns with all this spending, but Conning’s main concern isn’t inflation - it’s the crushing of incentives and stifling of production. In the end, that may kill the recovery, as on the margin it discourages very productive people from producing more and less productive people from improving. 

Yet the spending continues, with calls for more. 

Paying for It All at the Cost of Growth

What could break the cycle? Perhaps figuring out how to pay for it. The flip side of spending in terms of fiscal policy is taxation. Some observers say the current proposals amount to the biggest tax increase in more than 50 years; regardless, they don’t appear to us to be pro-growth.

Some policymakers who subscribe to Modern Monetary Theory (MMT) believe the central bank should be able to support all the spending we need through monetary policy. But the world’s central bankers appear confused, oscillating between easing and tightening as they try to decide which is faster: growth in virus variants or economic activity. The U.S. Federal Reserve itself is not immune from the opinion split: About half a dozen of FOMC voting members see no rate increases through 2023, another half dozen expect to raise rates up to four times by then, and the remainder expect one or two increases.

Two old sayings combine to form a powerful deflationary force in the economy: “Necessity is the mother of invention” and “practice makes perfect.” We think production will do what production always does when demand spikes (absent government interference): expand, build back and repair itself to meet demand. The need for new and better processes can spur innovation and creativity, such as the advances that led to the recent U.S. energy independence. The incentives and competition of the free market make us better and better at those advances, lowering their costs and improving their efficiencies.  

See also: Biggest Risks to an Economic Recovery

Regulatory Role May Decide Recovery’s Strength 

That “government interference” part, however, is a significant qualifier given this administration’s regulatory proclivities. Conning believes the likelihood of many policy changes is reduced by the current divided government along with President Biden’s falling approval numbers in national polls, so the momentum we’ve built will likely carry us through with good growth into 2022. But the threat of slowing the expansion still looms, as regulatory burdens are not transitory.

Does that mean “stagflation”?

Stagflation is stagnant growth with high concurrent consumer price inflation. We think we will continue to have good growth, so stagnation is not the base case. But stagflation has an evil twin, what some have called “Japanization,” given the two lost decades of Japan’s economy – long-term economic stagnation without inflation despite expansionary monetary and fiscal policies.

In the U.S., we now see increasing regulation, especially in energy, banking and climate-targeted mandates, proposals for higher taxes and “free money” via MMT. If, thanks to these policy developments, we don’t sustain the recovery, we think the near-term risk feels more like Japanization than stagflation.

We have, and we expect to continue to have, a robust recovery from the economic doldrums of 2020, but, needless to say, rerouting trillions from the private sector to the government can easily derail it. Should some version of the massive spending, tax and regulatory bill make it through the House, only two Democratic senators, each from the largely Republican states of Arizona and West Virginia, would stand in its way. It bears watching but, for now, we think there’s a good chance to continue our sustainable expansion that will support current market valuations.

Growth-Inflation Matrix

Forward-looking statement disclosure: These materials contain forward-looking statements. Readers should not place undue reliance on forward-looking statements. Actual results could differ materially from those referenced in forward-looking statements for many reasons. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying any forward-looking statements will not materialize or will vary significantly from actual results. Variations of assumptions and results may be material. Without limiting the generality of the foregoing, the inclusion of forward-looking statements herein should not be regarded as a representation by the investment manager or any of their respective affiliates or any other person of the results that will actually be achieved as presented. None of the foregoing persons has any obligation to update or otherwise revise any forward-looking statements, including any revision to reflect changes in any circumstances arising after the date hereof relating to any assumptions or otherwise.