With the continuing pandemic, insurance market conditions are ripe for a surge in agent/broker errors and omissions (E&O) claims.

Disputes among policyholders, brokers and carriers have become more common. Already, there have been wide-ranging lawsuits over virus coverage for business interruption, workers’ compensation and related cyber coverage. The COVID-19 Litigation Tracker reports that since January 2020 there have been over 3,100 lawsuits related to COVID-19.

Claims and lawsuits against insurance carriers and brokers about policyholder coverage for such lines as business interruption and workers’ compensation are already rising in the wake of the pandemic, according to preliminary data from the Independent Insurance Agents & Brokers (IIABA). E&O claims are expected to increase even more as COVID-related losses are excluded or deemed uncovered. New liability protection laws in several states now protect employers from lawsuits based on the pandemic, but those laws expire after the pandemic, and they don’t cover agents and brokers for E&O.

“Errors & Omissions” are what they seem – mistakes that can be costly to the policyholder. A simple coverage error (like a mistake in limits) in an insurance policy can open the broker to a significant E&O lawsuit. Errors can occur throughout the insurance policy production process. And brokers hold significant liability, especially if the error is in the final policy delivered to the policyholder.

Glen Clark, Rockwood Insurance’s CEO, said that in the wake of the pandemic “there is some cautious concern that COVID-related claims activity for agents and brokers will increase once the current slate of COVID-related claims against carriers are settled.”

For insurance agencies, E&O claims can be expensive. The average E&O claim severity is $40,000 and has been increasing by about 10% annually, according to industry reports. Although estimates vary, more than one in every eight insurance agencies will probably have an E&O claim filed against it this year. 

Rockwood Insurance, which manages two agent/broker E&O insurance programs for major carriers, recently surveyed its claims since 2013 to identify the causes of losses. Frank Huver, senior vice president of Rockwood Programs, said policy language issues such as “misleading marketing information, inaccurate information/misrepresentation, failure to explain coverages or exclusions, clerical/administrative errors and other related errors” accounted for nearly 40% of the losses from agent E&O claims. Huver reported that the survey attributed 60% of losses to “the failure for the broker to procure adequate coverage.”  

Administrative Policy Errors

Faced with a costly denial of coverage, the policyholder may sue the broker for an error discovered in the policy itself. The broker may have liability if the policy documents contain errors. And that’s the rub – and why administrative and misrepresentation errors may be among the most common reasons for an E&O claim. 

Policy-issuance and policy errors are common if a policy is not carefully checked. Until recently, the policy-checking process was cumbersome.  Usually, it fell to the customer service rep (CSR) and was done manually. Just think about the task a CSR faces manually checking an entire insurance policy for errors. A common commercial insurance policy can easily be 50 pages long, and it is not unusual for a large commercial policy to run to 500 or 1,000 pages. To find errors, the policy document needs to be compared with other policy source documents, like the application, the quotation and the endorsements. The task can be daunting. 

Despite being a critical management process for brokers and agents, manual policy checks suffer because of business pressures, human errors and resource requirements.

Shikha Khetrapal, chief operating officer for Vantage Insurance Partners, pointed out that even with the best manual policy check by the broker’s CSR there remains a chance that an error might get overlooked. She said that maybe 95% of all errors would be caught by manual CSR policy checking, “But even if only 2% of the errors get through, the ones that remain may have the greatest value for a potential loss.”

That risk, she said, could be reduced if not eliminated by investing in policy-checking technology. “A key investment by technology is important, especially if it is in technology that can reduce human error,” she said.

See also: A Heyday for Independent Agents

Chronic Backlog

It’s common for a larger broker to take 60 to 90 days after the policy is bound to deliver it to the policyholder, if not more. Indeed, for years at the annual meeting of the Risk & Insurance Management Society (RIMS), industry workshops were frequently dominated by conversations about backlogs and slow policy issuance. But the industry is changing. Both the London market and U.S. regulatory authorities now require policies to be delivered to policyholders in 90 days, reports Lance Ewing, vice president of risk management at a large casino operator. He is also the former president of the RIMS.

Delays in policy checking can affect a broker’s reputational risk. Khetrapal, a former key executive with one of the largest brokers, said that “the reputational damage that happens if policy issuance is delayed could be seen as not providing the best service to our customers, the policyholders.” 

The insurance industry is unusual in that there is a specific "buying date" for most transactions. Policies renew and must be "purchased" on a certain date; new vehicles, equipment or buildings must be covered on the day the insured takes ownership, and claims must be reported by the agency to the carrier promptly after reported to the agency. Therefore, the ability to manage and prioritize the work is of utmost importance. 

Some tasks, like checking new policies when received, or processing some kinds of endorsements, may seem to be less urgent and get put aside, especially if an agency faces hundreds of policies to check at the last minute. The truth is all agencies can and should target to operate with reasonable turnaround for every transaction. When items are not processed in a timely manner, it leads to inefficiency and, potentially, E&O claims.

The problem with policy checking and policy review has only increased as product innovation has become the way insurers differentiate themselves in the marketplace. New and more complex coverages continue to enter the market, creating additional process management challenges. With the pandemic, they may exclude risks that were once covered. Coverage issues and limits have become more complex, and more subject to error. And more recently, with the increases in cyber risks and the issuance of cyber policies, the potential for policy errors continues to increase.

Amid all this change, agencies and insurers face significant personnel management issues. According to a report by the Manpower Group, 46% of U.S. insurance companies say they cannot find the people with the skills they need. The industry needs to bring at least 60,000 new agents and brokers on board each year just to maintain the current size of the distribution operations. Recruiting has been tough, and insurance-related companies using temporary staff rose from 12% in 2018 to 18% in 2019. Inadequate training, limited product knowledge and unfamiliarity with insurance technology can lead to higher E&O exposures.

Further increasing the E&O exposure, the COVID crisis looks like it has made this part of the CSR’s job even worse – especially if they are required to work remotely from their home. Access to the needed documentation to fact-check a policy may not be accessible from a remote location. Computer access may be limited if internet access is unavailable. In fact, most agencies do not realize they have a problem until the E&O claims start to increase and management realizes that their CSRs simply don’t have enough time to complete the job. That realization may come faster in the pandemic especially as brokers, in the wake of COVID-19, can easily have problems retaining key personnel, especially CSRs.

Enter Technology

The best protection against E&O risk is to automate the insurance process by investing in smart insurtech solutions that completely reduce or eliminate manual efforts. Automation of the policy life cycle, from data input to payment, has the potential to streamline policy management, as well as boost its efficiency and accuracy. When done right, digitization will result in both lower costs and better customer experience. 

Khetrapal said that “there is so much opportunity for brokers to adopt the application of technology to automate our process, that there is no justification for manual policy checking and data entry.”

Policy-checking is a critical part of that process and probably accounts for the bulk of the technology solution for E&O risk. Policy checking helps in identifying issues and gaps in the coverage to reduce the E&O risk. The technology enables CSRs to upload renewal policies to check for any discrepancies. The solution compares current term, prior term policies and endorsements against multiple documents ranging from the proposal to the carrier quote, the ACORD application, binders and the schedules.

Policy-checking technology, using artificial intelligence and machine learning, identifies in minutes any discrepancies in the policy. Account managers can then focus on the action required to address each discrepancy.

Policy-checking technology is becoming much more common, especially at larger agencies. Vikash Kaul, chief technology officer at EPIC brokers, a recent policy-checking technology adopter, said, “Our operations teams were looking to improve efficiency in the policy-checking process, and we knew that it had to be done through technology. We identified the needed technology, and it has proven to be a reliable solution that can bring in tangible cost savings and efficiency improvements to our organization.”

Manual comprehensive process policy checking ends up as a cursory activity. Brokerages may not have invested in standardized procedures for policy checking, leading to variations and human errors. Besides improving accuracy and avoiding mistakes, policy-checking technology can eliminate the backlog in just a few days. That alone can free up CSRs and brokers to spend far more time solving more complex problems.

As the insurance industry undergoes a massive digital disruption, it creates a sense of urgency and forces insurers to face risks and challenges, including the increasingly complex nature of processes and operations, the rapid evolution of technology and an increase in fraud. Concurrently, the data sets collected by insurers have practically exploded in terms of volume, speed, format, accuracy—and the value they can bring to those companies that know how to harvest it. 

Given the exponential pace of change, insurance leaders need to understand the implications of these trends, especially from a data and AI perspective, and consider carefully how they should respond. Augmented intelligence is changing the paradigm, helping insurance companies evolve processes, cut costs and improve customer experience with faster insights. 

The Age of ‘Augmented Insurance'

To keep pace with the disruptions, insurance organizations keep evolving their distribution strategies, explore new partnerships, alter their products and transform how they use technology to deliver upon their strategy--all based on data and analytics insights. Many insurance companies already use predictive analytics to anticipate possible future customer behavior (including risk of cancellation), identify fraud risks, triage claims, anticipate trends and predict prices. But all this has required significant investment in sophisticated tools, technologies, infrastructure and--most importantly--people. Fully automated processes may work to speed up operational activities, but strategic thinking has required insights that are curated, contextual and trustworthy. Augmented intelligence breaks this dependency on manual intervention for curating deep, advanced and contextual insights.

The principle behind augmented intelligence is to act as a force multiplier to human intelligence, autonomously managing complex data processing and analytical tasks, enabling businesses to make faster and smarter decisions. As a result, it allows data scientists and analysts to focus on solving blue sky queries and data science projects and removing the burden of ad-hoc insight and narrative generation.

The AI Imperative for Insurers

Insurers today are compelled by their existing and emerging competitors to deliver new offerings to better meet consumer needs and preferences. Recent advances in artificial intelligence, machine learning and augmented intelligence have vastly changed the analytic landscape by removing long-entrenched barriers and making advanced analytics platforms much more accessible to insurers. These new platforms have made it possible for key stakeholders such as underwriters, agents and claims adjudicators to get answers to complex business questions--like why did my claims revenue fall? or what will happen if I increase my underwriter margin by x%? and to make informed decisions based on the answers. 

Whether the goal is to maximize market share, increase profitability, optimize cost--or some combination of these--insurance stakeholders require a multipronged strategy and actionable insights to achieve their objectives. They should be able to:

1. Analyze key signals and performance trends from various business divisions in real time.
2. Perform root-cause analysis to arrive at key measures that affect performance and understand why and how performance can be improved. 
3. Run multiple scenarios by changing the key inputs and impact on the targeted key performance indicator (KPI) and select the optimized strategy based on it.
4. Design the next-best-move-based cognitive recommendations that take both internal and external factors into consideration.

Augmented intelligence uses machine learning algorithms to automate data and analytics processes, significantly reducing the time-consuming exploration, explanation, prediction and prescription analytics processes, as well as contextualizing the insights to user personas – we are talking about cutting down weeks of turnaround time across several decision support analysts, to near real time and no analyst intervention. Products that truly support advanced augmented analytics capabilities deliver on the promise of comprehensiveness and depth of insights across the value chain at the speed at which the business needs them; and because these are smart products they also overcome the challenges related to low adoption of analytics with a self-service enriched, personalized experience for the end user. 

See also: A New Burst for Augmented Reality

Solving for Various Personas

1. Maximize Productivity

2. Reduce Costs 

3. Optimize Business Processes  

Checklist for Augmented Intelligence Implementation

When implementing an augmented intelligence initiative, insurers must think in terms of the full scope and implications for the organization. A few caveats to consider before going full steam on augmented intelligence strategy are: 

1. Identify the relevant use cases to experiment — Augmented intelligence tools should ideally increase the breadth of analytics capabilities available to end users--which means use cases should be prioritized keeping this goal in mind. Additionally, rather than conducting use case discovery workshops with IT and business intelligence stakeholders alone, ensure the involvement of functional business leaders at the very onset to capture the specific business needs. This will result in smooth implementation processes as well as high adoption rates across functional roles.

2. Take stock of your use case data and infrastructure — While data is the common denominator for any successful artificial intelligence program, you also need to ensure your data has the relevant measures or drivers to run advanced analytics models. For example, if you do not account for drivers and causal factors in your claims data, the augmented analytics tool will not be able to explain the phenomena driving the changes. Additionally, augmented analytics projects require infrastructure that can support large data sets and run millions of queries and advanced machine learning models in seconds. Whether on premises or on cloud, always consider the data needs and infrastructure requirements. Ensure they are in line with the identified use cases so as not to compromise on the solution’s efficiency or speed of delivering insights.

3. Orchestrate with existing BI applications — As the name suggests, augmented intelligence "augments" the potential of your existing analytic and insights assets. Don’t consider it as a replacement to your existing dashboards or BI tools. Choose a solution that can seamlessly blend with their existing architecture and doesn’t require heavy architectural modifications. 

4. Select the right augmented intelligence partner — Your success with augmented intelligence depends on who you entrust it with to take it to the finish line. Having the relevant capabilities that can support the varied requirements as well as devise ways to overcome the common adoption hurdles associated with analytics tools is critical. Moreover, if the vendor doesn't have a road map on how to further develop the product, or have a support team of domain experts that can help you design new use cases, chances are your experiment will meet a pre-mature death. 

See also: Untapped Potential of Artificial Intelligence

Conclusion 

The ability to rapidly respond to an uncertain environment is expected to become a new core competency. Augmented analytics should be viewed as an always-on, immersive system that guides key stakeholders and provides visibility for lines of business, teams and locations. Insurers need to graduate employees from tedious manual processes, focusing their efforts on decision-making that adds business value instead. Insurers need to think about how augmented intelligence can become a key enabler of strategic choices, and not a barrier to success.

Your high-hazard clients have difficult and dangerous jobs. The day-to-day is physically and mentally grueling. As a result, working in these industries often creates a tough mentality, which encourages people to push through fatigue and pain to get the job done. 

There’s a problem with this mindset. 

The “tough enough” attitude leads to excessive injuries on the job site. 

It’s time for the safety culture to change. Honest conversations about safety need to be normalized. When an employee says they’re too tired to finish a physically demanding task and need to rest, that needs to be okay. 

Safety and productivity do not need to be in conflict with one another, especially given the technology we are armed with today. 

Employees should feel empowered to talk openly about safety and have the opportunity to say they’re uncomfortable with a specific task. 

Asking for help needs to be an action that’s admired, not feared. 

Implementing this type of culture change with your client doesn’t happen overnight. It’s a process that needs establishing and repeating. First, you’ll need support from managers. Their buy-in will have the most significant impact on individual job sites. Then, work on getting employee participation in safety conversations. 

It should be a daily habit in the client’s business. It’s time to make safety conversations normal. 

Safety Leadership Begins With Management 

Safety culture change begins with management. Supervisors set the tone. They’re the eyes and ears that will see who’s taking unnecessary risks. Team leads and managers are in a position to stop unsafe practices and eliminate hazardous activity. 

Supervisors can affect crew culture by reminding each employee to take a step back and remember what motivates them. Employees may enjoy their job, but at the end of the day they’re working to earn a paycheck. That money goes to support their family and supply their basic needs. Encouraging employees to remember why they’re working will keep them thinking about the safest way to do their job so they can continue providing for their loved ones. 

Team leaders need to set an example. For example, they can keep a picture of their family or significant other with them at their station or in the vehicle they use. Just by seeing the picture, employees may think about their own families. Having a perspective on what really matters will affect the actions someone takes on the job. 

Everyone Should Participate in the Safety Conversation 

Safety conversations shouldn’t be one-sided lectures. The same “let’s be safe today” material will quickly lead to employees tuning out their supervisor. 

Your clients will reduce incidents when employees are engaged in the conversation and leading it. Employees need to participate in daily safety meetings. It’s a time to reinforce positive behavior, not call out employees for bad practices. 

Daily meetings before work are the best opportunity to remind teams to take their time and tell someone if they’re tired or in an uncomfortable situation. It establishes the expectation of safety as a priority and will be fresh on the mind of employees. 

Using an insurance provider like Foresight, they can leverage safety technology to track behavior and discuss best practices. 

Here’s a list of things your client can cover during their safety meetings: 

• Ask each employee to discuss good safety practices they saw on a job 
• Reflect on the previous day and any situations that could have been addressed differently (again, avoid calling employees out) 
• Encourage open dialogue and conversations throughout the day 
• Discuss coming jobs and the best approach to completing them safely 

Reducing Turnover by Making Safety a Priority 

Your clients want to keep their best people. It can be challenging to find skilled employees, and it takes time to train them and build their skill level. Safety is a significant factor in retaining talented people in high-hazard industries. 

If your client’s employees are experiencing injuries on the job site, they’re much more likely to leave. Again, it all gets back to why they do the job. If they’re concerned about their safety every day and fear they could be injured, or worse, they will leave.  

There’s another problem. Companies that have a difficult time retaining employees will be caught in a seemingly endless and costly cycle.

When accidents happen regularly, your client will begin to lose its seasoned workers. Your client replaces them with new, inexperienced employees that need time and training. Their lack of time on the job makes them a high risk for workplace incidents. 

See also: The 7 New Business Models

Redefining Safety Culture and Conversation 

On-the-job accidents are preventable. It starts with a cultural change in the industry. Opening up the dialogue with employees is the first step. People have to be comfortable saying they need to step away from a task for the sake of safety. Engaging employees in safety conversations daily will change how they view work. Instead of a box to check off, it’s another tool they use to do their job. 

As a broker, you have the opportunity to lead and educate your high-hazard clients. Due to the risks, insurance is likely one of their largest expenses. By making safety a priority and opening the conversation, you can work to reduce onsite accidents. When you work with an insurance provider like Foresight, good safety behavior is rewarded with lower premiums. Brokers can be drivers in changing workplace safety culture.

A Heyday for Independent Agents Paul Carroll, Editor-in-Chief of ITL At Insuretech Connect last week in Las Vegas, I was struck by all the love being shown for independent agents. Weren’t insurtechs supposed to disintermediate agents and put them out of business, not fall all over themselves to provide the best technology, the best service and the best anything else that agents could want? How times have changed. 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 Striking the Perfect Balance on AI by Heather Wilson As insurance executives plan their AI investments, here are some best practices that will help to ensure successful business outcomes. Read More The Case for Cloud Computing by Ravi Krishnan Growing ransomware attacks should be the weight that tips the scales in favor of the cloud, where much greater cybersecurity is possible. 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 Is Your Approach to ESG Creating Risk? by Pamela Davis Taking any stance on social or environmental concerns requires an organization-wide approach to think about nearly every aspect of the business. Read More Why Insurers Will Turn to Sonic Branding by Michele Arnese Building sound and music into digital services and marketing will make brands recognizable, reassuring, trusted and appreciated. Read More Fried Chicken and Customer Loyalty by Bill Wilson Customer loyalty, and thus retention and profitability, isn’t driven by cheap prices, AI bots, big data or nifty phone apps. Read More Optimizing Surgical Outcomes by Calvin E. Beyer and Brand Newland Innovative providers have distinguished themselves with Enhanced Recovery After Surgery protocols. Read More 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

Participating in ITC2021 was a blast! It was great to see so many people in person for the first time in a couple of years. But aside from the joy everyone was experiencing in just being together, there was a serious undercurrent to the event. In fact, as I polled individuals on their impressions of the event, many discussed how the participants came with a mission... a purpose… intention… and were serious about fulfilling their individual missions by capitalizing on the convergence of so many innovative companies and thought leaders.

If nothing else, ITC2021 demonstrated that innovation is alive and well in insurance, and the transformation of the industry is accelerating.

In his keynote, Evan Greenberg from Chubb stressed that all the technology advances do not change the fundamental nature of the insurance business – it is still about “the art and science of taking risk.” I couldn’t agree more. In fact, I have made similar statements myself.

Looking at the P&C industry, one of the overarching trends is the move to more and more specialization. This translates into a deeper understanding of the risks faced by individual and business customers – not just in the large pool but at a micro-segmentation level, as well. The insights and experiences about those risks translate into new products and coverages; enhanced loss control engineering and safety advice; and specialist firms to distribute, underwrite and service the products. This is not to say that the multi-line, general purpose companies will falter. On the contrary, they are participating in this general trend in each of the segments they serve.

Wait – I was supposed to be talking about the cool technology solutions and the innovations that are changing the industry, right? How did I get off track? As I see it, the amazing advances in technology, the innovative applications of technology by insurtechs and others, and the emergence of startups are actually quite consistent with and supportive of the increasing focus on risk expertise (and the value of insurance professionals). We are not going to automate away the roles of agents, underwriters, adjusters and others.

See also: Tomorrow’s Insurance Is Connected

There is no question that I was very excited to learn about the evolution and success of many insurtechs, discover new entrants with interesting propositions and track the innovations that incumbent players are incorporating into their solutions. They are catalysts for industry transformation. And they do offer great potential to automate tasks and workflows, provide new insights to improve decision making and provide opportunities for insurers to create new value propositions for customers.

But in the end, this industry is all about the people. Technologies will augment human expertise to improve efficiencies, enable new products and design better ways to sell and service insurance. But the strengths of the industry have always been its people and its passion for helping individuals and businesses to address the risks inherent in their lives and business operations. That passion was evident in the many serious and purposeful discussions that took place over the three days in Las Vegas.

At Insuretech Connect last week in Las Vegas, I was struck by all the love being shown for independent agents. Weren't insurtechs supposed to disintermediate agents and put them out of business, not fall all over themselves to provide the best technology, the best service and the best anything else that agents could want?

How times have changed.

As Joe Schmidt, a fintech deal partner at venture capital firm Andreessen Horowitz, wrote in a recent note: "The growth and success of independent agent distribution — not direct marketing — has been the single most important trend in insurance over the past decade."

He says that, in the past, "the real money was made by the insurance company through profitable underwriting. But 'where the real money is made' has shifted dramatically over time, from underwriting to distribution, as evidenced by higher multiples on brokerages vs carriers and the percentage of premium paid to agents for acquiring customers."

He says the reason for the shift is that customers are demanding more choice, and they know that working with an independent agents provides more options than they'd have with a captive agent.

"As of 2019," Schmidt writes, "nearly 90% of commercial, 50%+ of life, 48% of homeowners, and 31% of auto policies were sold by independent agents — and the numbers continue to grow faster than not only the entire market, but also outpacing direct sales growth over the same period."

He notes that Nationwide converted its base of more than 2,000 captive agents to independent agents in 2020 and expects a wave of innovation to support independents, of the sort I saw last week in Las Vegas.

"Large businesses, like Vertafore ($5.4B), Applied Systems ($1.75B), iPipeline ($1.63B), have targeted this segment," Schmidt writes. "More recently, many next-generation carriers (notably Hippo, Swyfft, Coalition, Pie) have utilized independent agents to distribute their product, and others have launched strategies after starting direct to consumer (Ethos, Bestow, CoverWallet)."

But, he says, "this is still the early days of independent insurance agents." He expects companies to emerge that will "continue to improve and streamline workflows around aggregation, marketing, sales, payments, compliance, and more."

The latest quarterly insurtech report from Willis Towers Watson supports Schmidt's analysis about the growing importance of distribution. It says that "driving efficiency in insurance distribution continues to be a major priority for investors. This quarter, 55% of deals involved start-ups focused on distribution (i.e., digital brokers, MGAs and lead generation). In addition, 10 of the 15 insurtechs that raised mega-rounds this quarter focused on improving insurance distribution, with varying approaches."

While the report noted a wide variety of ways that insurers are trying to improve distribution, it singled out wefox, the Germany-based digital insurer, which "relies heavily on local agents for policy distribution but has built efficiency in other ways by automating nearly 80% of administrative processes."

Seth Rachlin, the global insurance leader at Capgemini, told me at Insurtech Connect that, like wefox, "Carriers all want to supply the tools to help agents. It's not like the old days where someone gave a territory and wished you luck."

So, independent agents have gone from being treated as relics of another era to having carriers and technology companies competing for their attention.

Not bad.

Cheers,

Paul

As part of this month’s ITL FOCUS on catastrophic weather, we spoke with Christopher McDaniel of the Catastrophe Resiliency Council on how the industry is banding together to establish data standards that will help tackle the problem.

---

ITL:

Let’s start at the beginning. Please tell us a bit about how the Catastrophe Resiliency Council got started.

McDaniel:

There was a precursor project, it wasn't really an organization, that started in 2020 and lasted about a year. It was something that a whole host of industry players asked us at The Institutes to do. Once that was completed, we established the council in May.

When everybody sees the name CRC, they think resiliency is outwardly facing to the consumer, but we're really not doing anything consumer-facing. Everything we're doing is to prepare the industry. The key thing we're working on now is catastrophe modeling standards.

At the moment, there are three or four major vendors out there that provide catastrophe modeling tools, but each has its own language, The carrier has to exchange information with the broker, and a broker has to exchange information with the reinsurer. It's just like the Tower of Babel. We're all speaking different languages.

The result is a process where participants have to manually translate the data from one format to another format. Sometimes, there is more than one translation, which is kind of like making a photocopy of a photocopy. You wind up losing data over time.

So, we’re driving the adoption of a standard.

ITL:

Standards can be tough, in my experience in the high-tech world. Everybody wants a standard as long as they’re the one who gets to set it. How has the experience been for the CRC?

McDaniel:

The standard was created in Europe by a group called Oasis. They created an open standard – which we spent that first year validating, on behalf of the industry, to make sure it was a good standard. Now what we’re doing is promoting a universal translator, if you will. Every language can be translated to that open standard, so we don't lose the fidelity.

CRC didn't create the standard, and we didn't create the translation tool, but we're the ones driving the process of getting the standard adopted and getting carriers, brokers and reinsurers certified. We want everybody certified, so everybody in the industry knows that if they're talking to another organization then they’re all speaking the same language.

ITL:

Once you have everybody speaking the same language, how does that translate into practical effects?

McDaniel:

Ultimately, the idea is to have a common database that everybody's using. It will be protected, so everybody knows that their proprietary information won’t be shared. But we’ll do things like create a database for exposures. We’ll go into common standards for contract language, to give everybody a foundation. Once we get everybody on the same page, we’ll be able to do so many other things.

ITL:

I assume a lot of operational efficiency will result.

McDaniel:

Yeah, there are armies of people at the carriers, brokers and reinsurers doing nothing but translate back and forth manually – while that photocopy gets blurrier and blurrier all the time.

ITL:

And are all the various entities playing nice with each other thus far?

McDaniel:

Yeah, they actually are, because this is not something that we're pushing on them. This is something the industry is asking for from us. The challenge is getting the vendors that have the proprietary standards. And we have three of the major ones on board.

ITL:

Are you tackling hurricanes first, or what is the road map in terms of the kinds of disasters you’re modeling?

McDaniel:

The approach is more by type, and we’re starting with property – whether that means a hurricane, earthquake, fire or whatever.

Eventually, we’ll get to other types, including cyber.

ITL:

How can people track or even participate in what you’re doing at the CRC?

McDaniel:

As an educational thing, we have something called the Catastrophe Resiliency Network. There’s a podcast and a news magazine. We just finished a podcast that’s going to be released in the next week or two and have five or six more that we're going to be recording around catastrophe modeling and how catastrophe changes affect industries.

ITL:

Thanks for taking the time. Best of luck. And please keep us apprised of your progress.

Introduction

Does the word "surgery" make you cringe as you consider the negative thoughts associated with the realities of surgical procedures? Despite advances in modern medicine, being on the receiving end of surgery is not without significant risk. This is why the concept of informed consent is embedded in every medical consent form patients are required to sign as a means of acknowledging and accepting the known or potential risks of the procedure. 

Even when the surgical outcome appears to have been successful, there is a risk of experiencing complications. Unfortunately, the outcomes of surgical procedures vary for many different reasons. Traditional methods of surgery achieve only average results in total when compared with the universe of surgical procedures profiled in MDGuidelines from the Reed Group, which provides average healing times for most procedures. The healing times are expressed in the expected duration of days of disability following the procedure. 

Traditional approaches will never achieve better-than-average outcomes in this model. The rising complexity of medical research and medical technologies offer the promise of improving surgical outcomes. However, without changing preoperative education and care, this promise will not materialize, and costs of surgical procedures will likely outpace medical cost inflationary trends. There is a need for innovation and breakthrough solutions to achieve cost containment in the way in which patients, employers, health insurance and primary care physicians and surgeons approach surgery differently. 

How Surgeries Affect the Workplace 

Surgery affects 5% to 10% of the population in any given year. Virtually 100% of employers have one or more employees undergo a surgical procedure each year and, thus, experience the costs related to outdated surgical approaches. In one estimate, over 50% of healthcare expenditures were the result of surgical procedures. And that analysis did not include the cost of common surgical complications, including opioid painkiller addiction, which affects 9% of post-surgery patients.

Employers are not immune from the complications and risks when employers choose elective surgical procedures outside the sponsored health benefit plan. Employers have a vested interest in employees receiving the best care when surgery is required for musculoskeletal, women’s health, cancer or other health reasons. The incentives may vary somewhat depending on the setting of healthcare benefits. Yet, the end goal remains the same: helping employees to navigate a scary, expensive time and to get back to life as soon as possible. 

The Impact of Suboptimal Surgical Outcomes

Suboptimal surgical outcomes have consequences that are borne by both patients and their family members, as well as their employer organizations. The major adverse impacts from suboptimal surgical procedures include the following representative examples summarized below:  

What Are Enhanced Recovery After Surgery (ERAS) Protocols? 

In the field of surgery, over the last decade advanced, innovative providers have separated themselves from their peers by implementing minimally invasive surgery as part of broader Enhanced Recovery After Surgery (ERAS) protocols. Such protocols can take many forms and include interventions before, during and after surgery. ERAS represents the entire surgical experience re-imagined with patients and their recovery front and center.

See also: 2021: The Great Reset in Insurance

Enhanced Recovery emerged in Europe over a decade ago. Since then, over 4,000 journal articles have been published enumerating the benefits of this approach across nearly every procedure type. ERAS protocols often include:  

• tailored nutrition pre-surgery rather than lengthy fasting
• multiple, non-addictive pain medications to get -- and stay -- ahead of surgery pain
• techniques to prevent common surgical complications
• strategies to improve the patient’s ability to return to normal life function sooner

Patients experiencing ERAS-based care demonstrate:

• 30% shorter hospital stays
• 50% fewer complications
• 90% reduced opioid use
• Thousands of dollars in savings per surgery
• Faster return to normal life, including work

At a time when our society desperately needs solutions to the opioid crisis, ERAS provides one. In fact, it changes the picture entirely. What if you could change the underlying dynamic and prevent the first dose exposure to opioids? That’s exactly what ERAS does.

Surgeons, anesthesiologists and surgical teams have come together across disciplines to implement these care pathways in countries around the world, including the U.S. However, the adoption has been inconsistent. 

As the writer William Gibson once said, “The future is already here—it’s just not evenly distributed.”

Three primary systemic barriers explain the lagging levels of adoption for ERAS protocols:

1. The reluctance of patients to ask their doctors hard questions about alternative treatments, less invasive surgical procedures and non-opioid pain management strategies
2. Conventional wisdom and long-standing industry orthodoxy
3. Slow adoption of innovation in many organizations, especially smaller and rural healthcare centers

SIDEBAR:  Opioid First-Dose Prevention 

A major benefit of the ERAS procedures has been the measured reduction in the amount of opioid pain medication both prescribed by surgeons and consumed by patients. In fact, adherents to ERAS protocols have shown verified reductions of up to 90% when compared with surgeries performed using standard/traditional pre-operative procedures. These evidence-based clinical findings are significant in that ERAS provides a direct pathway to reducing exposure to prolonged use of opioid pain medications. In turn, ERAS can reduce the probability of patients developing an addiction. Moreover, the potential downstream ripple effect of opioids being consumed by other family members is likewise reduced. ERAS protocols are a proven strategy for effectively preventing the first dose of highly addictive opioid pain medications and all the resultant potential side-effects, complications, misuse and addiction. 

Consider the Benefits of Surgical Quality Analysis

Through a surgery quality analysis, Goldfinch Health processes medical (including pharmacy) claims for one to three years and produces a summary of areas to watch and opportunities for improvement in one of the highest-cost areas of healthcare and employee productivity: surgery. 

The picture that often emerges is one of not only opportunity but urgency. For example, Goldfinch recently reviewed a population that showed during COVID-19:

• 18% reduction in major musculoskeletal procedures (back, hips, knees, shoulders)
• And a 25% increase in steroid injections into joints

Of course, this means members in this population have put off surgery. But, in the end, most of those cases are inevitable. There will be a knee replacement or shoulder procedure needed. Due to the time, stress and treatments that have occurred in the meantime, those members will report for surgery with diminished physical and mental health. It truly is a powder keg waiting to blow. 

Another group believed strides had been made related to opioid use. A deeper look at the data revealed progress had been made—but not in post-surgery opioid use, where painkiller use remained three times higher than national guidelines recommend. 

Considering surgery often touches more than 60% of high-cost claimant cases, these insights provide the vision to act before healthcare and productivity costs overwhelm your budget. 

See also: Mental Health in Post-COVID Era

SIDEBAR: Representative Insights Derived from Surgical Quality Analysis 

This surgery quality assessment by Goldfinch Health includes assessment of:

• Outpatient vs. inpatient procedures (highlighting the potential for 40% (or greater) cost savings with outpatient procedures, and the formula for getting there)
• Large incision (“open”) surgery vs. minimally invasive surgery approaches
• Post-surgery opioid use  
• Surgical complications benchmarked against industry standards

Conclusion: Who Can Benefit from a Surgical Quality Analysis? 

Surgical quality analysis is a proven strategy for self-funded employee benefit plans for private and public employers as well as union-sponsored health plans. Employee benefits administrators and trustees will gain insights from engaging in a surgical quality analysis. A surgical quality analysis of self-funded claims data will offer key insights as to instituting modern medical case management strategies to optimize healing and achieve cost containment strategies. In short, self-funded organizations seeking to improve the outcomes of surgical procedures to reduce patient safety risks, promote faster healing, expedite return to work, decrease lost work time and associated lost productivity and achieve cost containment can expect to find value in a surgical quality analysis.

I was perusing LinkedIn and came across this post from Emily Glanz, a commercial insurance adviser at Cottingham & Butler in Iowa:

"A few weeks ago, we had a death in our family. My husband’s 98-year-old grandpa passed away. We were sad, but we celebrated his long and happy life. Grandpa was a creature of habit and ate at KFC every day for the last 10 years until he passed away.

"One day after he passed, KFC in Dubuque, IA reached out to express their sadness. Taking it one step further, they updated their sign facing the busy street to pay tribute to Grandpa. Our family was so touched."

I’ve worked in a client-facing role since the age of 16. I like to think I understand the power of strong customer service, client empathy and the resulting loyalty that comes with that… BUT this is a shining example of creating loyalty. This is powerful customer-service. Kudos to you, KFC. And thank you.

What a wonderful story and a lesson for the insurance industry, especially agents.

Growth comes from acquiring business; profitability comes from retaining existing business.

See also: Latest Insights on Customer Behavior

Customer loyalty, and thus retention and profitability, isn’t driven by cheap prices, AI bots, big data or nifty phone apps. Loyalty springs as much (or more) from the heart as the mind.

One of the first blog posts I ever wrote 4½ years ago was about customer loyalty. I explained why I had been with the same insurance agency since 1973. Here is my story:

How Do You Create Customer Loyalty? Why Do Consumers Stay With a Particular Agent or Carrier for Years?

Insurers must regain competitive ground in the digital race for the customer, and all roads that make sense … lead to cloud adoption.

Growing ransomware attacks should be the weight that tips the scales. T-Mobile was breached just recently. Half of its customers (105 million) now have their Social Security numbers, names and birthdates exposed. The information is already up for sale. Last year, insurers and healthcare systems were hacked in greater numbers. Ransomware victims across all industries paid out $370 million in cryptocurrency in 2020, 336% more than in 2019.

Vigilance in cybersecurity requires a different approach

Cybersecurity is not optional. It is table stakes. The issue is no longer all about keeping the data and systems safe. It is about looking out for and being able to nip potential vulnerabilities and hackers in the bud, before the hack actually happens. Vigilance is not reactive, it is proactive.

Pre-cloud security matched pre-cloud threats.

It used to be that the typical trajectory of a security exercise within a company would be periodic business continuity and disaster recovery checks. You might also have audits that are mandated by a public service organization or you might have specific customers that request to be in conformance with SOC audits, etc.

That type of security practice has spun 180 degrees. What changed?

Anyone can hack now.

The increasing consumerization and democratization of data and technology tools has made nearly every citizen in the world a potential hacker. Any interested party with a high IQ is potentially someone who can hack into your systems. The new urgency and vigilance is no longer about conforming to audits, conducting periodic checks or conforming to state or public-sector-driven regulations. It’s about continually being secure by examining your own insecurity. Cybersecurity is an enabler to doing business.

See also: Why Cloud Platforms Are Critical

The frequency of hack-possible events is making security far more complex.

Insurers and vendors all have security measures in place. But cyber hackers are twice as fast at breaking solutions as the solution providers are at updating their security tools. This makes cybersecurity a process rather than an event-driven initiative. Hackers have also improved in their ability to handle complexity. Where hacks come from and who can be a perpetrator is always expanding. Corporate security teams are doing their best, yet they are still sometimes scratching their heads, asking themselves, “Just which part of our data and systems do we protect?” And the answer, of course is, "all" and "everything." Nothing is truly safe. Cybersecurity is no longer a point-in-time exercise, and it has to cover every part of your data and platform framework. 

Answer = Cloud

Public cloud vendors answer these two related problems: expansion of the hacker community and the increasing complexity of protecting against hacking events. With public clouds, the large cloud vendor is doing the job of security for all of us — proactively taking responsibility for their customers.

Microsoft Azure is a great example. Microsoft invests more than $1 billion annually in cybersecurity research and development for Azure alone. This doesn’t include Microsoft Office or any of their own products. Microsoft Azure has more than 3,500 dedicated security experts. Their job, day in and day out, is to counsel their customers and close gaps. “Here is how well-designed your technology stack is against cybersecurity, and this is what Azure can do for you.”

With the cloud, security is job zero

If an insurer gets one takeaway from this blog, it should be this: Cybersecurity is job zero. It is not an add-on.

When we talk about securing a customer’s stack, there are six key things that we should do for them. These principles are universally adhered to:

1. We implement a strong security foundation. We must begin with role access. No matter who you are, your role is given only a certain sphere of access, and that is all you can access. As a cloud software vendor, we ensure that level of identity foundation.
2. Insuring traceability. A traditional issue in security was that, until three or four years ago, when hacks happened, it could take months for companies to figure out the root cause. What was hacked? What was the precise level of leakage, especially in insurance companies? The delay in understanding could lead to billions of dollars in loss. Insuring traceability, which includes monitoring alerts and audit action and changes to your environment, happens in the cloud in real time. You don’t need to wait two months for some IT guy to get into the old logs and figure out what has been lost or hacked. Your systems have real-time traceability.
3. Security must be applied on all layers. When you consider an organizational stack that resides in the cloud, that includes a client’s network, their servers, their websites, their applications and databases. Everything is now in the cloud. When we say that we manage their security, we apply security at all of these layers as well. We aren’t just securing their database or their front end.
4. Data must be protected both in transit and at rest. This is a modern, cloud-driven cybersecurity attribute. If you think of a traditional insurance organization, volumes of data are stored in their archival systems, such as their legacy administration and billing systems. This is data at rest. But an incredible amount of data is in constant transfer between the insurer and brokers or the insurer and customers. That is data in transit. What a cloud-native environment does is to protect data both in transit and at rest.
5. Least access as privilege. This is a logistics issue related to role-based access. Another traditional problem within internal IT shops has been that there is not always transparency if an employee leaves or is fired. HR may take 24 hours before notifying IT.  IT takes two hours to deactivate that person’s access from the respective systems. By this time, security has already been compromised. All cloud systems function on a different principle — the principle of least access privilege. A person only has access to the portion of the system that they are supposed to touch. There is no universal access. The CFO doesn’t automatically get access to everything. Cloud security functions on the basis of least access privilege. If a person needs greater access, they have to ask for it and gain permission before it is granted. This is paradigm shift in security that the cloud has brought about.
6. Security guidance through the well-architected playbook. Let’s say that your organization moves to the cloud to improve their digital presence and manage their data more effectively and to save additional expense. What you’re getting is so much more than that, though. Integrated security is the “value-add.” You’re receiving protective security and security expertise. This is life in the cloud. When you sign up, you get measured for how secure your full system is. The playbook has security design principles that will allow you to measure your system security. “Here’s how well-designed your systems are, based on key design principles. Here are some gaps that you need to fix.” The playbook also provides things like incidence response simulations. It has investigation policies and processes available as templates. It is a ready-to-use "security cookbook" supported by subject-matter experts. It is less prescriptive and more actionable. “Here’s where you are. Here is what needs to happen for you to get where you need to be.”

And if that’s not enough…there’s the financial picture

Cybersecurity costs money. If you are investing in internal security, you will likely spend more than if you are letting your environment be managed as a cloud-native environment where security is a part of the solution. The cloud hands you cost avoidance as a part of your business case or return on investment. The cloud provider is taking on this responsibility. This is intentional cost-avoidance on the part of the insurer.

In data-intensive organizations, such as financial, healthcare or insurance organizations, there is a significant amount of leakage every year due to security breaches. These aren’t necessarily data thefts; they are losses that are just eliminated by the cloud. The razor-sharp, stringent data security mechanisms that are in place for cybersecurity naturally fix other data leakage issues. This is an unintentional cost-avoidance, but it happens nonetheless.

Which brings us to our last point. The same real-time monitoring that can be used for security purposes will even help insurers to adopt better real-time monitoring for any issue. If you extend the concept, moving to the cloud forces the organization to whip its data and processes into shape enough to migrate, then the cloud takes over. The simple process of preparation is a beneficial exercise. Every aspect of cloud migration makes an excellent case for doing it now.

See also: A Novel Approach to Cybersecurity

For a broader look at many of the key benefits of cloud adoption, be sure to view the Majesco and Microsoft webinar, New Normal: The Catalyst for Cloud Adoption, or read Denise Garth’s interview/blog with Manish Shah, President and Chief Product Officer, Majesco, and Jonathan Silverman, Director of Insurance Industry Solutions, Microsoft, titled Majesco CloudInsurer Plus Microsoft Azure: A True Insurance SaaS Platform.