Given my Irish roots, I took pleasure in the 1995 publication of a book called "How the Irish Saved Civilization." It described how Irish monks provided the bridge for Europe between the fall of Rome and the rise of medieval states by preserving and copying the great works of Western thinking during the Dark Ages. 

That book popped to mind when I recently read a fascinating piece in Wired about how monks today have moved beyond making cheese, beer and other products to support their ascetic communities and are now taking on gig work that wouldn't have been foreign to their predecessors all the way back in the sixth century in Ireland. The trend suggests just how far the gig economy can stretch, if we think about the issues creatively enough. 

The article in Wired describes how communities of monks and nuns are gravitating toward electronic piecework, largely through a group called the Electronic Scriptorium. Like their predecessors in the Dark Ages, they are curating knowledge, for instance by putting libraries' card catalogs into the formats that they must be in to for the collection to be accessible online.

The article says: "Several monastic communities are working together to catalog approximately 2 million photographs in the archives of The New York Daily News; they will soon begin on those of Time magazine. Benedictine monks near Abiquiú, New Mexico, have worked to catalog public and school libraries, and at the Incarnation Priory in Berkeley, California, monks have edited computer files for Readmore, a New York subscription information company. In Lufkin, Texas, cloistered Dominican nuns have digitized records of the National Institute for Occupational Safety and Health. In the past four years, monks and nuns have transferred a dizzying array of information from paper to cyberspace: the medical archives of Johns Hopkins University Medical Center, the files of major law firms, the records of government agencies, the recipe collections of Gourmet and Bon Appétit magazines, and the catalogs from the Yale University undergraduate library as well as more than 100 smaller ones."

What a wonderful fit the work has turned out to be. The piecemeal nature of the tasks fits well with the days in monasteries and convents, which are organized around prayer, study and contemplation. The monks and nuns are educated, careful and patient. While outsourcing firms in the Philippines, India and elsewhere can do the same sort of work the monks and nuns do, the fact that employees there typically aren't working in their first language can be an impediment given the exacting nature of cataloging.

The article says: "In doing a library catalog, the worker has to know that 'Shakespear' isn't correct.... The worker must be able to catch it when the Bibliofile program truncates the first A of a title, mistaking it for coding. When logging in a recipe from Gourmet, he or she should recognize that a recipe calling for '2 cups baking powder' would make a loaf the size of an apartment."

The monks and nuns don't need much income to support their ascetic lifestyles, so they afford to earn just $12 to $14 an hour. The work does require some investment in technology -- but not a lot. A group of monks mentioned in the article makes do with a few computers that use the Intel 386 chip, which was state of the art, oh, 35 years ago. 

While we all talked about "remote work" during the pandemic, which meant we could be on our computers in front of the TV in our gym shorts and T-shirts, the monks and nuns can be truly remote. The group in Abiquiú, New Mexico, for instance, lives 13 miles from the nearest paved road. They operate on solar power and have just one cellphone for emergencies -- no one is getting distracted by notifications as the monks sit there, cataloging, in their long robes and cowls. 

Some say they appreciate that the work gives them at least a bit of a connection to the outside world. One monk said he "maintains his sense of humor by keeping a running list of his favorite goofy titles. His favorite so far is Lewis Grizzard's 'Don't Bend Over in the Garden, Granny, You Know Them Taters Got Eyes.'"

I'm not saying that the monks and nuns represent a breakthrough in the gig economy -- though the Electronic Scriptorium might be worth a call for some organizations, because I could imagine some insurance work being a good fit -- but I do think the story shows just how remote work can be and what sorts of talent we can find if we look hard enough and fit seamlessly into a group's lifestyle. 

I also just thought the story was a lovely one and wanted to share -- while reminding you that the Irish saved civilization.

Cheers,

Paul

One of the more persistent consequences of the COVID crisis has been the so-called Great Resignation, a development that has been unfolding over most of the past two years. We’ve seen a steady flow of employees leave the workforce, many doing so after taking stock of their lives amid a rapidly changing world. The insurance industry has by no means been immune. Companies in our industry rely heavily on the institutional knowledge of experienced employees, so, as the pandemic has served as a catalyst for early retirements, these organizations have been especially hard hit.

Employees are an organization’s most valuable assets. It sounds clichéd, but it’s undoubtedly true, especially in an industry where knowledge is a key factor in determining success or failure. People are the soul of any organization; they bring reason and purpose to the daily activities of the business. But employees are also a company’s single most important repository of critical institutional knowledge. Every successful business is built on repeatable systems and processes, but it’s their workforce of committed employees who operate those systems, who monitor and adjust their performance and who ensure that they are delivering the intended results.

Veteran employees, especially, have valuable institutional knowledge, having spent years working with the company’s systems and processes as they evolved. These are the people who are best-equipped to understand the nuances of the organization’s data. When procedures change — for example, when a company has changed the way a particular field within its customer database is used — veteran employees are the ones who can point out the subtle but meaningful distinction years later, helping others in the organization to interpret historical data in the context of today’s datasets. When employees walk out the door for good, that kind of institutional knowledge goes with them.

Unfortunately for insurers, these veterans eventually reach retirement age or move on to other things. It’s not all happening at once, but, for companies that understand where this is all leading, it pays to get ahead of the problem with some mitigating strategies. In this respect, the Great Resignation just might be the wake-up call that many insurers needed.

How might employers in the insurance industry respond? They can hire more people, but that inevitably calls for an intense focus on training and upskilling those new employees. It does little to compensate for the institutional knowledge that may be slowly slipping away. To some degree, of course, hiring and training new people is unavoidable. Nevertheless, these efforts divert resources that could be better applied toward innovation and growth.

In fact, there are better ways to approach this problem than by brute force. Perhaps counterintuitively, technology can tip the scales back in favor of a healthy workforce, driving growth and innovation as well as preserving institutional knowledge. With the right technology, insurers can make for a gentler learning curve, capturing the key factors that drive success and offering new employees a much faster path to productivity.

See also: The Real Disruption From Robotics, AI

Technology has a well-deserved reputation for disruption, but disruption doesn’t always unfold in the ways that people expect it to. Popular wisdom, for example, dictates that artificial intelligence (AI) will replace vast portions of our workforce, resulting in a net loss of jobs as technology supplants human beings. In fact, we’re on a trajectory to do quite the opposite, as AI serves to supercharge human capabilities at virtually every step along the value chain.

The enormous gap between AI myth and AI reality has been fueled by Hollywood portrayals that depict autonomous machines that appear to exercise free will. In fact, AI is firmly grounded in human thinking and human processes. Machine learning algorithms are not created in a vacuum; they’re developed through careful and deliberate processes designed to support and augment the human side of the business. By sheer necessity, we must understand what people need, how they work and how the technology can support them in making more effective decisions. Systems that operate without human oversight are destined to fail; effective AI systems are built to serve that operational model.

AI supercharges human productivity by taking on the rote work that most people simply prefer not to do. It elevates the human role in the process by monitoring, digesting and analyzing vast amounts of information.

In the wake of the Great Resignation, insurers have an opportunity to steer their ships in one of two very different directions. Those that take the default path, simply replacing outgoing employees with new workers, will find themselves increasingly outpaced by the innovators. Those that embrace technology — and that understand how it dovetails with the human element — will find the room they need to adapt and grow through constant innovation.

As first published in Digital Insurance.

The domestic U.S. excess and surplus lines insurance market has experienced rapid growth in direct written premium (“DWP”) in recent years, and our preliminary survey of 2021 annual statement data for a selected cohort of carriers suggests this growth accelerated in 2021, putting the E&S market on pace to write over $60 billion of direct premium in 2021, an increase of nearly 30% over 2020. 

Significant rate activity started toward the end of 2019, and the E&S cohort’s published underwriting results have since improved, with many writers reporting favorable results. Within its largest line of business, Other Liability – Occurrence, the E&S cohort’s booked direct and assumed (D&A) ultimate loss and loss adjustment expense (LAE) ratio for coverage year 2021 is 64%, up slightly from the coverage year 2020 ratio of 63%, but down approximately five to 10 percentage points from the ratios booked between coverage years 2017 and 2019.

However, deterioration in the E&S cohort’s underwriting results across coverage years 2019 and prior, in total, across all lines of business, has resulted in adverse reserve development in calendar year 2021. Though the magnitude of this deterioration is relatively small, it is the first such observation since 2004. Social inflation may account for some of this unexpected development.

All things considered; the results of our survey suggest the E&S market has experienced further hardening in 2021.

The following sections detail the results of our preliminary survey:

E&S Market Growth

As illustrated in Chart 1 below, the 2021 E&S market has likely experienced its largest annual increase in DWP since 2003:

Chart 1: E&S Market Change in DWP by Calendar Year

The 2021 annual growth rate of 29% displayed in Chart 1 is based on surveyed results for the E&S cohort and is therefore shaded blue to denote its approximation for the larger E&S market. The actual 2021 growth rate for the E&S market will not be known until all 2021 annual statement data has been reported and compiled. Nevertheless, we believe the 29% growth rate derived for the E&S cohort is a fair representation, considering it made up 81% of the E&S market in 2020.

The 2021 estimated annual growth rate is the fourth-largest growth rate observed over the last 33 years, trailing only the post 9/11 hard market growth rates in 2001 (35%), 2002 (79%), and 2003 (30%).

If the estimated 2021 annual growth rate is realized, the total DWP for the E&S market would exceed $60 billion as illustrated in Chart 2 below:

Chart 2: E&S Market DWP by Calendar Year

Note: Calendar year data for 2007 and prior was taken from Best's Special Report, U.S. Surplus Lines, dated Sept, 23, 2013. Calendar year data for 2008 and subsequent was provided by S&P Global Market Intelligence.

See also: Choose Your Companies Carefully

One-Year Reserve Development

Chart 3 below displays a long-term view of the ratio of one-year reserve development for the E&S cohort across all lines of business; where the ratio is calculated as the one-year change in net ultimate loss and defense and cost containment expense (as measured by Annual Statement, Schedule P – Part 2) divided by net earned premium (as measured by Annual Statement, Schedule P – Part 1):

Chart 3: E&S Cohort Ratio of One-Year Reserve Development by Calendar Year

As displayed in Chart 3, the E&S cohort has experienced an extended period of reserve releases beginning in calendar year 2005 and extending through 2020, with the magnitude of the reserve releases generally trending smaller in recent years. The results from our preliminary survey suggest calendar year 2021 marks the first year of adverse one-year reserve development for the E&S cohort since 2004. Though 2021 reflects a relatively small amount of adverse reserve development (i.e., 0.4% of 2021 net earned premium), this result follows an extended period of reserve releases, not to mention its signal as a potential inflection point in the reserve cycle.

Chart 4 bifurcates the ratio of one-year reserve development for calendar year 2021 into its component coverage years:

Chart 4: E&S Cohort Calendar Year 2021 Ratio of One-Year Reserve Development – Coverage Year Contribution

As displayed in Chart 4, coverage years 2019 and prior have generally experienced adverse reserve development in 2021, whereas coverage year 2020 has experienced favorable reserve development. 

The favorable experience in coverage year 2020 nearly offset the adverse development observed elsewhere, as illustrated in Table 1 below:

Table 1: E&S Cohort Calendar Year 2021 Ratio of One-Year Reserve Development – Coverage Year Contribution

Though the favorable reserve development observed in coverage year 2020 is likely attributed to a number of factors, we suspect the main driver stems from reduced exposure to loss during the height of the COVID-19 pandemic (i.e., shutdowns and related initiatives may have resulted in reduced insured “activity” relative to premium charged, even after COVID-19 related premium refunds) as well as rate increases that began late in 2019 that may have not been fully recognized in the reserve setting process as of Dec. 31, 2020.

Other Liability — Occurrence Experience

The largest line of business for the E&S cohort (as measured by DWP) has historically been Other Liability - Occurrence. Chart 5 below displays the E&S cohort’s sequential development of booked D&A ultimate loss and LAE ratios for this line of business over the last five coverage years (as measured by Annual Statement, Schedule P – Part 1):

Chart 5: E&S Cohort Booked D&A Ultimate Loss and LAE Ratios – Other Liability Occurrence

As displayed in Chart 5, coverage years 2017, 2018 and 2019 have developed adversely in calendar year 2021, whereas coverage year 2020 has developed favorably. These observations generally align with the trends in one-year reserve development discussed in the previous section.

Specifically, the booked ultimate loss and LAE ratio for coverage year 2017 has increased 7.6% from the initial booked ratio at 12 months of development (as of Dec. 31, 2017). Likewise, coverage years 2018 and 2019 have increased 4.5% and 3.9% from their respective initial booked ratios at 12 months of development. It is likely that a portion of these increases stem from increased severity trends. 

The year-end 2021 booked ultimate loss and LAE ratios for coverage years 2020 and 2021 are significantly lower than the corresponding ratios for the preceding coverage years. This may not be a surprising result considering the widespread double-digit rate increases experienced within the E&S market over the last 18 to 24 months.

Despite the recent rate increases, the coverage year 2021 booked ultimate loss and LAE ratio as of Dec. 31, 2021 is marginally higher than the corresponding booked ratio for coverage year 2020. Based on this observation alone, one may initially suspect coverage year 2021 has a good chance to develop favorably over the next several years, working to offset any adverse development stemming from the prior coverage years. However, we caution the reader against that conclusion, considering the unique nature of coverage year 2020, where exposure to loss was likely reduced on account of shutdowns and related initiatives.

See also: How to Use Social Media Data in Underwriting

Concluding Remarks

At this point, we believe that the hard E&S market will not end any time soon; however, some companies will struggle with prior year reserving issues.

All data referenced in this article was provided by S&P Global Market Intelligence, unless otherwise noted.

For further information, please reach out to the authors. 

To request a copy of our full E&S study based on complete 2021 Annual Statement data (or to request prior such studies), please contact zachary.ballweg@milliman.com. We anticipate the 2021 study will be ready for release in mid-May.

For years now, people in the insurance industry have worried about the impending retirement of so many Baby Boomers. Well, it's happening. They're retiring. A lot of other people are leaving the industry, too, or considering doing so as part of the general reevaluation of work that the pandemic has caused these past two years-plus.

What to do?

To figure how to tackle the problem, I talked with Hunter Fausnacht, vice president, agent & broker development, at The Institutes, who says the talent issue is the biggest challenge facing agents and brokers today. 

The short version of his solution is two-fold. First, agents and brokers need to get creative about where they look for talent and how they pitch to prospects. (Hint: The industry can do a much better job of communicating the excitement of working in insurance during this period of great change and of describing the potential financial rewards.) Second, agents and brokers need to have a plan in place to start extensive training on Day One. There just isn't time any more for the learning by osmosis that tended to occur at agencies in years past.

The longer form of his answer follows in the interview below. I hope you find it as illuminating as I did.

Cheers,

Paul

Editor-in-Chief, Insurance Thought Leadership

ITL:

To start us off: What are the biggest issues you see agents and brokers dealing with these days?

Hunter Fausnacht:

Attracting, training and retaining talent is the No. 1 challenge that everyone from a small agency all the way up to Willis and Aon and Marsh is facing. We knew the Baby Boomer generation was retiring, and there was going to be a shortfall of people to fill vacant jobs. That problem got accelerated significantly with the pandemic and “The Great Resignation,” as people are calling it. A lot of job postings aren't receiving nearly the applicants that they used to, and the pool of those responding isn’t as qualified. So, the challenge is: Where are we going to find people to fill these roles, and how are we going to get them the skills required to perform those roles?

ITL:

Are their solutions, or are we just stuck?

Fausnacht:

There are two things I see the best organizations doing. First, they are identifying new channels of recruitment. They're thinking creatively about where to source their talent, outside of traditional university pipelines and other brokers. They’re marketing a career pathway to people looking to switch industries. Maybe someone who was a carpenter is looking to start a career in insurance, a teacher, someone who has been a stay-at-home mother or father is looking to reenter the workforce. The key is showing them that there is a well-thought-out pathway for them to acquire the knowledge and skills to perform the job. You have to be able to show them the viability and the opportunity of having a career in risk and insurance. And the truth is this could be an extremely exciting and lucrative career pathway. There's lots of opportunity.

Second, the best organizations have an organized plan from day one for you to start learning about risk and insurance and about how to perform your job. Historically, development was more of a learn-on-the-job system. You’d learn informally from your colleagues or your manager. We don't have time to do that any longer. You need to have a training resources format and have already developed a plan.

ITL:

Those two approaches sound like things that a big broker can do fairly easily. What about the five-, 10- or 25-person brokerage?

Fausnacht:

That’s a great question. Large brokers do have the necessary overhead. It's still a challenge for them. The smaller agencies are looking for organizations like The Institutes to have an off-the-shelf learning pathway that is effective and relevant to the job, but also cost-effective. We’ve spent a lot of time with our advisory board and other organizations to tailor learning pathways that are ready to go for new hires.

ITL:

You mentioned a few possibilities of the kinds of people who could form a new talent pool. Are there others?

Fausnacht:

Several startup companies are sourcing international talent, particularly out of the Philippines and India, where they'll run job advertisements and receive thousands of applicants for a customer service role. They’ll have a training program in place and use offshore talent to service insurance clients here in the U.S.

The approach is innovative, and it does seem to be an efficient solution if you can't find talent in other ways. The troubling part is that customer service reps for agencies have always been the entry point for the industry. Unless there's a viable new entry point, we might just be making our talent problem worse down the road.

ITL:

How do you advertise to sell people on the possibilities of the insurance industry?

Fausnacht:

We as an industry have never done a good job with this. Insurance has a negative reputation, or certainly not a positive one, among the next generation of talent, right? They think of a door-to-door insurance salesman. In reality, risk and insurance is extremely exciting. There are a number of different opportunities, from working with Fortune 500 accounts to building your own book of business, which can be an extremely lucrative annuity that most folks just don't know about. You're not going to be able to fully communicate that through a digital ad.

The larger brokers are really investing in campus recruitment to do presentations. It's certainly an extremely competitive landscape. From a digital point of view – which is how you reach the next generation -- there's still a lot of experimentation. Many are communicating that there’s a planned pathway for people to come in and have a rotation program combined with formal training to get the knowledge that leads to additional job opportunities. Many are also tailoring to a changing demographic in the U.S. We've never done a good job at marketing to underrepresented communities, and I've seen a lot more through formal and informal channels to cater to those communities in that next generation. It’s absolutely vital that we have inner city and underrepresented young professionals pursuing careers in this field.

ITL:

Insurance is a massively important industry, and it’s on the move. Based on a long history of writing about innovation, I tell people that the industry is where all the cool kids are hanging out. But it seems that message still has a ways to go.

Fausnacht:

Right. Coming back from the RIMS conference, where I just was, it’s hard not to say, Wow, this is a cool field. But most people don't get to see RIMS, right? They just see an insurance commercial. They think of someone trying to sell them life insurance. That's all they know.

But there’s an awful lot more going on. We just have to get the word out.

Hunter P. Fausnacht

Vice President – Agent & Broker Group

The Institutes

As vice president of the Agent & Broker Group at The Institutes Fausnacht leads the client-relationship management efforts by serving as chief advocate for insurance brokers.

Fausnacht joined The Institutes in 2017 as director of Business Development where he led the growth initiative with the Agent & Broker community. He partnered with the top 100 insurance brokers to deliver knowledge development solutions and advised The Institutes on the learning needs of the modern insurance broker.

Fausnacht is the co-host of the Agent & Broker Group podcast, The Voices of Risk Management, a premier podcast giving followers a peek into the minds of risk and insurance leaders.

Before joining The Institutes, Fausnacht served as vice president of Business Development at the Willis Group where he discovered his passion for developing talent. Prior to that, Fausnacht worked in Business Development at Rolls-Royce covering Asia and the Middle East.

Fausnacht earned a bachelor’s degree in finance and marketing from the Kelley School of Business at Indiana University.

*|MC_PREVIEW_TEXT|*

Is the Email Era Ending? Paul Carroll, Editor-in-Chief of ITL Paradigms die hard, but they can eventually die. The idea of a carriage stuck around long after engines, rather than horses, began to power them, but the horseless carriage became the car over the course of a few decades. TV shows were initially just radio shows or Vaudeville acts done in front of a camera, but "I Love Lucy," "The Honeymooners" and others eventually pioneered a better way, just as cable-TV has morphed into its many, many current forms after initially being just broadcast TV carried on a wire.  Even though email has been around so long that many of us can't remember life without it, it's actually based on an antiquated physical model -- the inbox and outbox -- and the paradigm is showing signs of dying. While it's still not clear just what approaches will supplant email, they could make internal communication more efficient and, even more important, provide better ways of communicating -- even collaborating -- with customers.   continue reading > Webinar Alert How can you differentiate your products from competitors? Check our latest webinar to get expert insight on how Majesco is helping traditional insurers, greenfields, and startups establish a new foundation for growth, launch new lines of business, and enter growing markets. Watch Now SIX THINGS Revolution? Not Yet. Evolution? You Bet. by Bill Walrath In our fervor to embrace new insurtech companies, we may have missed the opportunity to learn from those incumbents that have seen the ups and downs. Read More How to Use Social Media Data in Underwriting by Michael de Waal Social media data provides insurers with an opportunity to gain insights into a customer's risk exposure in real time. But it comes with many challenges. Read More The New Competitive Landscape  Sponsored by PwC Insurers increasingly go to market not as individual companies but as part of ecosystems -- a radical change in thinking. In this high-octane webinar -- featuring Marie Carr, partner at PwC; Andrew Robinson, CEO at Skyward Specialty Insurance Group; and Andy Cohen, COO at Snapsheet; along with moderator Paul Carroll, editor-in-chief at Insurance Thought Leadership -- we discuss where ecosystems are making a difference now, where they will in the near future and where their impact is likely overstated.  Watch Now  It’s Time to Reimagine Digital Payments by Karen Furtado The acceptance and delivery of payments must be in real time, and capabilities must let customers create tailored digital payment experiences that fit their needs best. Read More How Automation Can Streamline Claims by Faheem Shakeel Insurance claims software lets agencies reduce fraud, shorten the claims lifecycle, optimize costs, improve efficiency and a lot more. Read More An Overlooked Target for Modernization by Kayvan Alikhani Maintaining compliance requires manual, repetitive and error-prone processes, handled by small armies of well-compensated experts -- but many can be automated.  Read More The Power of Ecosystem Transformation by Nag Vaidyanathan The ecosystem model empowers technology departments by getting them closer to the end customers, positioning them as supporters of business strategy. Read More InsurTech Ohio Spotlight with Ron Rock Sponsored by JobsOhio  Ron Rock discusses how the insurance industry is rapidly evolving, and the importance of recruiting and retaining top software and programming talent.  Read Now MORE FROM ITL April Focus: Automation and RPA Sometimes, innovation takes time.   Some 30 years ago, I wrote an article for the front page of the second section of the Wall Street Journal that declared a revolution in forms. We were far enough along in the personal computer revolution that software companies were coming out with products that would let users fill out forms on-screen, speeding the process and eliminating the errors that occurred as someone had to interpret people's handwriting. Even more magical, the spread of local area networks meant that information could flow straight from my screen into a corporate database, with no never to ever print the form and have someone re-enter the data. .  Everything I wrote was correct, and forms did take a major step forward, but, here we are three decades later, still drowning in forms. And the insurance industry is Exhibit A.  Read More The Impact of Rising Inflation and Interest Rates on Insurance Profitability  Sponsored by Insurance Information Institute  Paul Carroll, ITL's Editor-in-Chief, and Dr. Michel Leonard, vice president, senior economist and head of the Triple-I’s Economics and Analytics Department, continue their series of webinar discussions by looking at the Triple-I's latest projections for inflation and interest rates and talking about how the insurance industry can prepare. Read Now   Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2022 Media Kit

Many P&C carriers say they will become more data-driven, and many of them have tried -- with mixed results. Such efforts can only succeed through a constant effort to employ data to make better pricing, underwriting and claims decisions.  

A great data strategy transforms a company's data into valuable insights and top-line growth, but shouldn't be limited to internal data. Insurance carriers understand that external data is a must-have, and there are two compelling reasons. First, carriers think it will help their existing business processes and operations. Second, they see the value that leaders are realizing from external data. 

Although a must-have, external data requires considerable effort. Leading carriers consume volumes of third-party data from multitudes of channels, and this data is most often highly fragmented. The system architecture may also need to be changed to accommodate the data, which can be challenging. 

Most carriers don’t have a plan for using and valuing the external data. Procurement is usually driven by senior leadership, without a complete handle on the gaps in internal data that it can fill. They begin acquiring external data without even knowing the landscape and having a definite plan for what to do with the data. Insurance leaders must start with questions such as:

• Can external data assist you in getting a better understanding of your customers and prospects? Can it help in answering questions that were not answered before? Do we, for example, have the potential to better evaluate and comprehend property risk by using features generated from external data? 
• Can external data also aid in discovering new operating models? For instance, can we use fitness tracker data to offer rewards and lower premiums on a health/life insurance plan, resulting in better underwriting and risk management? Similarly, can imagery data be used in property insurance to improve underwriting and cut down on the number of manual inspections?
• Can external data help in demystifying biases and provide granular details? Does adding external data into the training pool reduce the bias? For example, a data provider may provide access to crime data at the location level, allowing for a more accurate picture of risk at the local level rather than the ZIP code level.
• Can external data help provide directional insights in the decision-making process for an insurance carrier? While data precision is vital, it should not be the primary goal; however, the total data quality should not suffer significantly as a result of adding more data elements. What matters most are the directional insights that external data can bring when paired with internal data.
• Is the external data really providing value and worth the investment? A significant portion of the book of business should benefit from the usage of external data. For example, if a carrier is spread out across the Midwest and the external data is biased to, say, only Minnesota and Iowa, it is of minimal value to the carrier.

In this arms race to leverage external data to gain a competitive edge, carriers have made numerous attempts. However, these attempts need to either be successful in the first instance or fail fast. Failing fast is crucial, as it enables carriers to reflect back on what went wrong and can lead to experimentation that creates successful products. 

Numerous things can go wrong, from data need assessment to data collection to data management and everything in between. Successful companies look at the process holistically and have a team that looks for data sources outside the company for a specific use case, as well as an integration team that helps with data acquisition, cleaning and integration within the company. Instead of viewing external data as a one-time purchase, successful carriers retain and maintain the data, as well as find and compare insights based on marrying external data to internal data.

We recommend that insurance carriers follow a three-pronged approach to undertake a more systematic adoption of external data in their offerings:

Look across lines of business

Starting with the end in mind will make it easier to ingest and integrate external data, as well as enable the necessary data architecture modernization. We've seen carriers use third-party data vendors to automate the underwriting pipeline, improving customer experience by providing initial quotes and reducing the standard time for issuance and binding. In another instance, we have seen property insurers leveraging vendors providing property attributes extracted from AI and computer vision and doing digital inspections for underwriting, reserving manual inspections for highly complex instances only.  

See also: A Blueprint for Casualty 2.0

Analyze the impact of external data on the value chain

Not all functional areas of the value chain need to use external data. Upfront planning starts with an assessment of the existing data environment to determine how it can support ingestion, storage, integration and governance and ultimately the use of the external data.

This analysis will help in determining answers to the following questions:

• How many external data application programming interface (API) calls are being made across the different value chain functions?
• What kind of data parameters are expected to be passed via API calls across the different value chain functions? What is the expected format of the return objects and attributes?
• What is the utilization level of the external data attributes being pulled in across different value chain functions? (Complete/significant/partial)
• What is the underlying pricing structure of the external data vendor API? How does it affect costs across different value chain functions?

Once this impact analysis is complete, the data engineers can begin the needed data plumbing for different micro-services (i.e. data integration, feature engineering, AI/machine learning, business intelligence) to be developed for the respective value chain functions. 

Set up efficient model deployment, data governance and monitoring

Insurers should develop sophisticated tech stacks for efficient model deployment and monitoring, which employ the latest analytics workbenches. Carriers should also ensure the data quality by constantly monitoring the incoming data, checking whether the source data have changed and understanding the drivers of any changes.

Strong governance standards should be in place to address data security and usage aspects of external data. A successful strategy is to constantly analyze the value of various external data sources in terms of predictability and accuracy, and to dismiss vendors that generate poor ROIs. 

Conclusion

More data is better data if it aids in connecting the dots and expanding marketing opportunities and future growth. Minimizing risk and generating value with external data, on the other hand, necessitates a combination of creative problem solving, infrastructure and sound execution strategy.

Realizing the value of external data through data orchestration is a big responsibility and can overwhelm carriers. An effective approach is to begin by solving a well-defined problem and then use that success to generate momentum for expanding external-data efforts across the organization.

Emerging threats and risks are precursors to business crises, so all organizations should have an updated risk management plan to implement when these risks become a reality. Business leaders should be aware of the following operational risks:

1. Cybersecurity Risks

Cyberattacks are becoming a real threat in the digital world. A report from SonicWall, an internet cybersecurity firm, shows a 105% surge in ransomware attacks. Significant payouts to hackers and cybercriminals include the $5 million paid by Colonial Pipeline and the $11 million ransom paid by JBS Foods, which encourage continued cyberattacks.

The supply chain is the No. 1 target for cybercriminals. This results in a significant loss of revenue for businesses during downtime and recovery. According to the U.S. Chamber of Commerce, the average downtime after a ransomware attack is 21 days. Some businesses take up to 287 days to clear the ransomware, conduct forensic analysis, back up data and get back online.

2. New Energy With New Hazards

The cost of oil and gas was already on the rise, even before the invasion of Ukraine by Russia. Driven by the climate crisis, as well, governments will continue investing in alternative energy options, including liquefied natural gas, hydrogen and hydroelectricity.

However, after decades of depending on hydrocarbon-based energy options, these changes are monumental and bring forth uncertainty about hazards. As businesses adopt new energy sources, they should be prepared to construct infrastructure, train employees to handle new substances and be ready to manage emerging hazards.

3. Climate Change

Even though extreme weather was thought to affect a few places, specifically areas vulnerable to natural disasters such as hurricanes, earthquakes and tornados, irreversible climate change is increasingly becoming a concern to businesses. According to AON insurance, more than $238 billion was spent on natural disasters in 2021, with insurance covering only $108 billion.

Most businesses are poised to face significant operational risks due to extreme weather and natural disasters caused by climate change. Unfortunately, all businesses are affected by tough weather conditions. For instance, flooding makes it impossible to access different locations. Floods also damage property, electricity and hinder business operations. Businesses can only resume once professionals repair water damage.

See also: How Insurtech Alters Operational Risk

4. Functional Safety

There has been increased focus and criticism on functional safety, specifically surrounding environmental health and safety design and management. Interestingly, this interest doesn’t stem from organic growth but instead pressure from insurance providers to have high-hazard businesses enforce functional safety measures.

Due to this, businesses new to the functional safety realm are wondering how to maneuver these compliance requirements. Fortunately, with the help of advancing technology, they can improve visibility, streamline governance and automate environmental, health and safety (EHS) management using EHS software.

5. Economic and Political Instability

Economic and political instability is another common operational risk businesses face in 2022. Economic volatility resulting from the pandemic and political activities can affect various business dynamics. Increased political polarization, the migrant crisis and more issues will likely lengthen the harsh business environment.

However, while these issues may seem out of control, businesses can do a lot to mitigate the risks of economic and political instability. For instance, developing risk profiles that evaluate risks for immediate responses and building a robust business that can withstand economic shocks can help businesses withstand unstable situations.

Conclusion

Supply chain risks, data privacy, the changing regulatory environment and compliance issues are other major operational risks that businesses should watch out for. However, businesses facing risks from all sides should maximize efficiency and create a focused approach to risk management.

Before the rise of digital marketing, insurance agents could only sell to the people in their town or a potential client they met with in person. Most agents have opted for being a generalist who provides the most commonly offered policies most individuals are seeking. But those who have operated or chosen to move toward specialization are no longer bound by geographical restrictions, making it easier to dominate a market -- which can be lucrative. 

Digital sales channels, search engine optimization (SEO) and social media allow agents to sell any type of insurance to anyone, anywhere. Many successful agents are finding a new opportunity by selling policies to clients in a niche industry across the country. The geographic limitations that once existed for specialty practices are removed in this digital era. Agents who build reputations as experts in underserved, overlooked markets with unique insurance needs are finding increased customer retention, a less competitive field with more policies sold per customer and stronger new-client acquisition rates. 

Specializing can be a more lucrative option 

According to a recent report, the global specialty insurance market is expected to grow rapidly over the next six years, with revenues reaching nearly $244 billion. Specifically, the non-life insurance sub-segment is expected to be the fastest-growing in the global market and register revenue of $43.49 billion. This shift to prioritizing specialty insurance showcases the importance that these underserved businesses put on protecting against unplanned loss. 

Take the pandemic. Some industries have experienced unforeseen financial, property and revenue loss that traditional plans may not have taken into account. By becoming engrossed in the ins and outs of a specific industry, an insurance agent is able to include, upsell or cross-sell policies that better protect clients. 

See also: Bright Prospects for 2022

Finding a niche builds expertise and reputation

There is a huge range of opportunities that are still untapped, just waiting for creative, research-driven, passionate agents to capitalize on. How do you determine what to specialize in? 

Agents should start by researching businesses typically overlooked in industries they find interesting – laundromats, trucking, scaffold companies and day cares are just a few that might not be top of mind but that have specific needs that require additional protection that generalists often do not provide. Additionally, by reviewing your current book of business, you might find that you already have a strong client base in one business category. If the book matches the areas in which you enjoy spending your time, it might be time to consider pivoting your entire book to focus on growing your niche client base. 

Clients looking for general policies have endless options when looking for an insurance agent. But, for those with specific risks affecting their operations, agents who have unique industry insights can guide and inform them of coverage options they hadn’t even thought of. This creates an advantage for agents looking to win new business. Because they are hyper-focused on niche policies, they build in-depth knowledge within an industry that informs expertise to clients. This is a winning combination that will grow your business through referrals and upselling. 

Using digital marketing tools to maximize your niche operation

Technology provides the means for niche agents to both identify clients who need specialty insurance, and build a strong digital brand to attract them. So how can insurance agents who are shifting their focus to create and foster expertise in a specific industry also leverage the growing need to embrace technology? 

Digital marketing tools take off some of the pressure from the high-touch-point communication clients need. Technology partners can provide SEO, social media, custom web pages and blog content that highlights your expertise. This kind of tailored marketing becomes more critical after you’ve established your clientele and are looking to continue to showcase your expertise. These tactics are the most effective way to create strong SEO that leads back to your company, strengthen your brand and build trust within your current client base and with potential clients. By offsetting these digital marketing tools, you can focus on critical tasks. 

Niche insurance offers important liability protection for companies in unusual industries, not often covered by ordinary insurance policies. Insurance agents who develop their own specialized approach will have massive growth opportunities and less competition.

If you restrict your view of your potential niche to the borders of your city or state, you limit your potential. There may only be a handful of any given specific businesses in your area, but, if you expand your search, you’ll find that a niche you didn’t think was big enough has an extreme opportunity for growth.

The complexity of insurance policies and the often-deferred, if ever realized, benefit for the end user have traditionally meant that insurance is a product that is sold and not bought. But, as consumer preferences and buying behaviors change, insurance providers must be prepared to move toward a middle ground, aligning distribution strategies to meet the modern customer at the desired point of purchase. Insurers need to offer differentiated products and convenient ways to purchase insurance to capture the business and, perhaps more importantly, the loyalty of today’s consumers.

Right Product

Traditional insurance products are complex in terms of both actual product attributes and the accompanying policy language and therefore inherently prevent transparency. In fact, recent Bindable research showed that 86% of insurance customers wish there was greater transparency around policy pricing, and 82% would like greater insight into what exactly a policy covers.

Historically, insurance agents have acted as translators between the insurance company and the consumer. However, selling insurance products through non-traditional channels, such as via digital experiences or embedded offerings, often diminishes or modifies the role of the agent. As a result, insurers need to develop simplified products with more straightforward policy language to create seamless experiences, regardless of channel.

Creating more consumable insurance products begins with data. Beyond personally identifiable information (PII), which is most often submitted by policyholders, insurers today also have access to significant amounts of third-party data from varied sources, including social media, geolocation, telematics, wearables and smartphones. 

This quite naturally leads to the expectation that insurers will, and should, leverage that data to not only develop personalized insurance products but to also find other relevant products and discounts based on the “big picture” of the policyholder that the aggregated data presents. Keeping in mind that one product does not fit all risks, having a choice marketplace solution to ensure all potential insureds have an option for coverage is critical in “right sizing” the coverage for the customer.

Right Place

The rise of e-commerce in the early 2000s introduced direct-to-consumer (DTC) sales, and, suddenly, insurers had to change the way sales and service were handled via digital solutions. Over the years, additional channels have continued to emerge, leading to a distinct need for channel strategy. But, as often is the case, challenges lead to opportunities, and, as insurers’ channel strategies have required more sophistication, many providers today are leaning hard into the opportunity for embedded insurance. 

Putting the right product in the right place at the right time through embedded insurance has the potential to increase conversions and make insurance more streamlined than perhaps any other insurance innovation in recent memory. This is true, in part, because policyholders are open to it. According to Bindable’s research, 65% of consumers are willing to purchase insurance through a non-insurance brand, and, of those respondents, most would actually prefer to do business with a non-insurance brand over a traditional broker (72%) or an insurance company (64%). 

Let’s face it, convenience is king. With costs and inflation rising and consumers watching expenses, convenience may be the single biggest trigger for insurance purchases in the near future. When products and channels align, conversion rates increase and acquisition costs naturally drop. Considering how fierce the competition is among insurers for customer attention, (insurance keywords are among the most expensive in Google Ads and Bing Ads, some costing $50 or more per click), any chance one has for reducing the cost of acquiring a customer should not be ignored. Embedding an insurance proposition into an existing point-of-sale (PoS) has a significant impact on getting in front of the right customers.

See also: How to Experiment in Innovation Training

Right Customers

For insurers to achieve profitability, it is necessary to find a healthy mix of risk through customer acquisition and existing customer retention. But, in the midst of a hardening market, this is a tall task for most. To attract the right customers, providers must leverage the right tools, partnerships and processes to meet consumers at relevant engagement points throughout the customer journey. 

Through partnerships with trusted brands, insurers have the opportunity to co-opt a pre-existing relationship status with the most desirable customers. Starting from there, creating a premium customer experience inside a user-friendly digital environment can help, but leveraging the most advantageous channels through partnerships enables the mining of supplemental data that insurers might not otherwise get, improving customer acquisition in the process. Today, all this can be done in a white-labeled interface so the insurance proposition “lives” within a trusted source, ensuring a seamless experience for the consumer. 

The Future of Insurance Distribution

Emerging technologies enable insurers to use newfound treasure troves of data to streamline submissions, improve underwriting and reduce risk. Digitizing insurance processes from quote-to-bind; intelligently gathering, segmenting and using shared data; and embedding white-labeled insurance propositions into ecosystems of trusted brands are all key to easing the burden of acquiring customers and – even better – retaining them. 

With all this in mind, insurers must approach strategy and innovation more thoughtfully than in the past by considering not only what products are offered but also how the products are distributed to best reach the ever-elusive target customers.