As consumers and the general public become more actively involved in environmental and social causes, organizations are responding by committing to written environmental, social and governance (ESG) policies or practices. Driven by investors and activists, ESG has served to measure an investment against a wide range of behaviors, such as a company’s carbon footprint, ethical sourcing standards or the handling of diversity and inclusion. 

Yet having an ESG stance is not enough. No company will be truly successful adopting ESG principles unless they understand that their responsibilities to their community encompasses far more than just making money for their stockholders. Taking any stance related to environmental or social concerns requires an organization-wide approach to think about nearly every aspect of the business. Not doing so will likely result in an ineffective program that opens the door to reputational damage that can affect everything from attracting customers and employees to the long-term sustainability of the business.

Where the Risks Are

Many companies believe that the function of an ESG stance is to garner shareholder and public favor. That may be true, but the opposite is also true – ESG principles, if not adhered to, could well land you in the spotlight for the wrong reasons. For example, a subsidiary of a well-known company settled numerous shareholder derivative lawsuits over its handling of sexual harassment claims. Another lawsuit brought by a nonprofit organization accused tech companies of sourcing cobalt from mines that employed child labor in the Democratic Republic of Congo. The era of companies being able to sweep bad behavior under the rug is soon to be over. 

As serious as these oversights are, so is the lack of cohesion with the organization’s business strategies. For too long, companies have been allowed to look profitable when the cost of using public assets – such as clean air and water — has not been property accounted for in determining profits. Any ESG approach should guide business decisions, not live apart from them. ESG should be giving organizations a strategy for setting objectives. When ESG is a statement and not a core operating principle, the opportunity to strengthen operations through an ESG approach is missed.

So, too, when the focus is too narrow. ESG should not be considered solely as a guideline for meeting compliance requirements. While conveying the company’s practices as they relate to compliance is beneficial in some respects, any organization using ESG appropriately will find it easier to build processes that surpass minimum compliance needs. 

Is the company just monitoring compliance so it can crow about it, or do they view ESG principles as an essential part of its success as a corporate citizen? Are policies aligning with the company’s commitment to environmental and social concerns? Is the company’s management ensuring that all activity and efforts are developed through their adopted philosophy? Is the corporate culture one that adheres to the ESG standards? Does leadership understand how ESG principles can drive success, or do they see them as a necessary evil to gain market share? It’s time for companies that want to appear as leaders in their fields to be held accountable for doing what is right by the environment and their employees. 

See also: The Year of a New Beginning – From ESG Commitments to Action

Why ESG Matters

Knowing those answers matters greatly. A sound, well-executed ESG effort can reduce overall operating costs. It is well established that customers are attracted to the notion of a more sustainable product or to an organization that does its utmost to reduce its carbon footprint. 

Even decreasing that footprint is evidence of how a strong ESG statement can benefit the organization. An ESG policy that’s acted on can give a company clearer incentive to embrace more transparent, socially responsible actions and create more transparency, both inside and outside the company. Within the company, the focus shifts to the business’s purpose, allowing for easier regulatory compliance and oversight. Outside the company, a more transparent business attracts consumers. The more transparent the company’s inner workings, the more confidence the public has in doing business with that company.

A well-crafted ESG plan supported by senior management enables companies to make strategic decisions in line with their principles and in advance of negative publicity. Those companies that wait for social activism to force their hand are showing they can be shamed, but they are not exhibiting leadership. Ask yourself: Why is leadership valued in every other area of management, except for stewardship of resources? 

Building an ESG Approach

It makes sense then to adopt an approach to ESG through which business can operate. Using ESG as the funnel through which every aspect of your operations flows helps bolster the decision-making process. 

Set ESG Goals

What is your organization looking to achieve with your ESG statement or principles? Think about how your grandchildren will view your decisions. Can you see yourself explaining to them that you blindly followed the Friedman doctrine of shareholder primacy at the expense of everything else, no matter what the impact on their future?  Because we serve nonprofits, we have held to the principle for more than 30 years that our investments should not fund companies contributing to the many societal and environmental problems nonprofits are working so ardently to cure. Eliminating all investment in fossil fuels was an obvious decision for us more than a decade ago. Today that decision is no longer restricted to just mission-driven companies like ours.

Use ESG as a Growth Strategy

Develop clear ESG guiding principles. A strong ESG approach gives your company the flexibility to grow the business through ESG-related activities. For example, construction or real estate development companies that demonstrate their commitment to sustainability could attract more clients looking for sustainable buildings or properties.

Plus, the activities your organization undertakes to align with your ESG stance can also help you get better aligned with the customers and communities you serve. When divesting of fossil fuels-related investments, for example, you are sending the message to your customers that their concerns are ones you share.

Create Incentives for the Team

Without the buy-in of everyone in the organization, your ESG approach will not pass the sniff test. To get everyone on board, build incentives into your operations that relate directly to meeting ESG goals. 

Add Accountability and Reporting

When you first start, tracking progress toward ESG principles will probably seem cumbersome, even elusive. Not everyone will agree on what should be measured or how. But part of the progress is having those conversations and agreeing to start somewhere.

As you build an ESG framework, remember to include regular updates for employees to reinforce your commitment to those guiding principles you set forth. As more employees opt to work for organizations that embrace social and environmental change, remaining accountable to your employees helps boost retention and employee satisfaction.

Educate

Not everyone will be on board with the adoption of an ESG-centric business approach. Our own organization had to educate board members and convince our employees on how ESG can benefit both our constituents and our organization. 

Many organizations find it hard to convince the board and investors that ESG will not hamper profitability. Even as a nonprofit, we need to produce a reliable net income year after year to maintain our solvency as insurers. We can’t go to the stock market to increase capital.  It must come from earnings.   

We know that many of our highly talented staff and leadership have joined us because of our ESG stance. We often overlook the fact that many resources, including human resources, determine the bottom line. Satisfied employees who are part of an organization demonstrating accountability to community are a terrific boost to efficiency. In fact, as more companies turn to more environmentally friendly and socially conscious decision-making, the companies left behind will be the ones who refuse to invest in ESG. 

We need to educate our leaders into understanding that long-term vision goes beyond the next quarter. Long-term planning, with an ESG framework in place, opens up opportunities that might otherwise have been missed. 

See also: ESG Means ‘Extremely Strong Gains’

Building ESG Over Time

Your ESG approach does not need to be a perfect, all-inclusive plan. Incremental changes – for example, divesting 20% of your investments in fossil fuels or reducing the carbon footprint by 10% this year, or even asking your cleaning crew to switch to biodegradable cleaning supplies – starts the conversation within your organization. 

Each year, your organization can build on that foundation. This year, our organization is adding a question to our RFPs: “What is your position on sustainability?” We are a relatively small company, but we can start the conversation with the scores of vendors, large and small, that we engage every year. Imagine if all the small and mid-sized companies started asking this question. Each of us is just one small voice, but together we can raise the profile of these important conversations. More than lip service, your ESG approach should be a commitment that runs through the entire organization.

What makes a consumer choose a particular insurance product? The scope of the policy will certainly be important; the price, the recognizability of the brand and its perceived reputation will be factors, too. How findable a policy is, how it compares with rivals, how easy it is to purchase. All of these issues will matter. Ultimately, the customer will want to feel reassured that they have bought the right cover and that they can trust the brands to deliver should things go wrong.

In a world where technology dominates our lives, a customer’s experience of researching, finding, purchasing and using a product or service become critical determining factors in how that person feels about the provider and whether they will return to the brand in the future or recommend it to others.

Of all the financial sectors, insurance has perhaps become more immersed in digital than others. As such, it has seen wave after wave of change, from the delivery of policies via online and mobile to the arrival of aggregators and comparison sites separating brands from consumers still further and the entry of insurtech players offering new forms of cover, data innovation and streamlined business models. 

If the insurance industry has become a focal point for experimentation and innovation, the consumers are, at least in part, the driving force of change. We are in many ways becoming an expectation-based economy where the ability to meet or exceed expectations determines success.

In parallel and to a degree underpinning these changes is the rapid evolution of the way we access, use or consume information and services. Smart and innovative technology is atomizing around our senses. From screens, we are expanding into virtual experiences, screen-free voice-based technology and cloud-based platforms that will surround us as we move through the day and from place to place. The interactive, multisensory brand experience will be our new normal.

Building emotional audio connections

Within this evolution, the need to build emotional connections that transcend the tech is widely recognized by user experience designers and marketers. For example, building sound and music into digital services and marketing is seen as a powerful way for brands to be recognizable, reassuring, trusted and appreciated as humans react faster and more deeply to audio stimulus than visual information.

The speed of change is illustrated by the tremendous growth of smart speakers. In the U.S., 33% of households own a smart speaker, a number that is expected to grow to 66% by 2022. 

Younger, tech-savvy consumers already rely on the online community to choose the brands they want to help them through life. More than 27% of millennials said they learn about an insurance provider through digital engagement. So, to reach the new wave of potential customers, brands must tune in to their emotions as well as practical needs.

The sound of a brand’s DNA

There are signs that some insurance brands are beginning to recognize that a more robust approach to sonic branding is vital to compete in a complex space. Strategic investment in sound to create a holistic, recognizable experience across customer touchpoints is a critical element.

The critical step is to create sonic intellectual property (IP) owned by the brand and designed based on a brand’s values in the same way that a visual identity is produced and used repeatedly in many different contexts. A sonic strategy that fits the purpose in today’s world is not the same as a jingle or simplistic sonic mnemonic – think Intel or McDonald's. In fact, we’ve found that, across all sectors, the use of simplistic sonic assets is declining.

See also: Underwriting in the Digital Age

Brands are increasingly using progressive sonic branding that works across the multichannel digital world. For example, a flexible Sonic DNA can be used in brand advertising, where advertisers can commission any desired amount of brand-owned music that can be endlessly edited to fit the context. The music is rooted in brand values while remaining instantly recognizable. 

This can be augmented by licensed music if the fit between brand and artist is clear. However, stock library music that is neither owned nor adds any tangible value is least attractive.

How do the world’s leading insurers sound?

To understand how insurance brands are currently using sound, amp assessed the top 26 insurance companies, including AXA, Aviva and Legal & General, and ranked them based on how well they are currently using sound in marketing.

The data and analysis were drawn from our yearly Best Audio Brands Index, which assesses the way the top 100 global brands (as judged by Interbrand) use sound and invest in music within their branding strategies.

We found that just nine out of the 26 insurance brands had what could be called a sonic logo or identity and that these brands are using that sonic identity in approximately 40% of their marketing output.

Six insurance brands have invested in owned brand music, and just three have a sonic identity that has been integrated with the music.

AXA and Aviva are notable in that they are developing their sonic brands to a place where they can now take ownership of the way they sound in many different contexts on a strategic level.

However, we found that more than 60% of the insurance brands we looked at are still using stock music in most of their marketing channel output, so clearly the sector has a huge opportunity to improve the way it sounds to consumers.

Brand recognition and trust are critical to consumer choices, so we expect the insurance sector to become a hotbed of sonic innovation.

Artificial intelligence (AI) is hot. Funding for AI startups has steadily increased over the past decade as a host of innovative tech entrepreneurs have stepped forward to solve a broad range of business problems. In many respects, AI is a natural fit for the insurance industry. This business is a numbers game; it’s about understanding correlation, predicting risk and identifying trends and anomalies, so the current rush to adopt AI doesn’t come as a surprise.

AI is indeed powerful — but it’s not magic. For years, tech visionaries and Hollywood screenwriters have offered us visions of a future in which machines exhibit human-like thought patterns combined with a virtually unlimited capacity to consume and digest new information. Digital assistants like Siri and Alexa have furthered those impressions, using natural language processing to understand human speech and respond to simple requests. They have reinforced the notion that artificial general intelligence (AGI) is already upon us.

Back in 2005, Gartner published and branded its now-famous “Hype Cycle.” A new category of technology emerges, a flood of VC money follows and, eventually, most early-stage companies fail or are acquired by bigger players. Ultimately, the majority of hyped technologies succeed in providing net positive value but not before they’ve been through the stage that Gartner calls “the trough of disillusionment.” That stage can be painful; it’s where a lot of startups fail. It’s also where a lot of once-promising internal projects are relegated to the trash heap.

There are, however, some extraordinarily good reasons for the current hype around AI. Insurers are achieving remarkable efficiencies and using it to transform claims management, improve risk assessment and detect fraud. The key, generally speaking, is to use AI to augment and enrich existing business processes rather than replacing them wholesale. The human touch still matters, but it can be rendered far more effective with the assistance of natural language processing, machine learning and predictive analytics.

To be successful with AI, executives should adopt the view that this technology serves as a key component within their overarching business strategy. As such, it requires careful analysis and forethought. With the right approach, insurers can achieve impressive returns on AI investments. That’s not a future promise; it’s already happening today.

Successful deployment of AI requires a careful balance between visionary optimism and cautious pragmatism. As insurance executives plan their AI investments, here are some best practices that will help to ensure successful business outcomes:

• Start with a list of your biggest challenges, then identify a path to solving them, one step at a time. Think beyond innovation and experimentation. Engage with stakeholders throughout your organization with the aim of identifying specific problems and operationalizing AI to achieve tangible benefits in the near term.
• Assess the opportunity for solving those challenges by reengineering (not necessarily replacing) existing business processes to incorporate AI. Map various AI technologies against those challenges. Aim at augmenting human intelligence — not replacing it.
• Assess your organization’s capacity to adopt and integrate AI, including fundamental competencies in AI technology, data access and data quality, change management and willingness among the target users to adopt proposed solutions.
• Get senior management involved … but at the right time. AI is strategic, and the C-suite needs to be informed and involved. They can bring vision, energy and support to your AI initiatives, provided that you engage them at the appropriate stage in the process. If senior management is involved too early, they could specify new initiatives that are ill-suited to AI. Early C-suite involvement can also frequently lead to inflated expectations. A better approach is to bring well-considered proposals that multidisciplinary teams at ground level have fleshed out.
• Make this a cross-functional exercise. Develop AI project teams that incorporate a range of perspectives and skill sets and don’t limit them to a single team. By creating multiple groups, each with its own dynamic and operational focus, your organization will benefit from a greater diversity of ideas.
• Start an AI-related education and skills program now. Even though you may not be sure yet of your specific needs for retraining and reskilling, begin to make education offerings available now that will help your workers adapt to future changes. Such programs will pay dividends down the road, giving your organization a head start in the change management process.

See also: 3 Steps to Demystify Artificial Intelligence

As you evaluate technology, plan your pilot rollout and eventually operationalize AI within your company, here are some additional factors that will contribute to your success:

• Before the pilot starts, set a timetable and criteria for deciding whether to go into production. This timetable will add rigor to the decision-making process and put pilot project advocates on notice that implementation is an important consideration from the very beginning.
• Adopt technologies that can scale and that can be used by your intended audience. If, for example, a chatbot is ill-suited to serve your customers as a primary channel, don’t adopt it with the vague hope that it will improve substantially soon.
• Get your data in order. AI relies on high-quality data, and it benefits from a holistic view of information enabled by integration. Assess your organization’s ability to unify and harmonize your data and to ensure its accuracy, consistency and completeness.
• Make sure AI can interface well with your existing systems. Select initiatives to prioritize needs to consider “the last mile” of implementation. Get your IT teams involved early so they have a hand in creating a feasible solution.

Finally, it’s important to be flexible and transparent and to manage expectations. Some pilots will prove to be impracticable fairly early. That’s to be expected, but stakeholders should understand that AI pilot projects are like a portfolio of investments; some will succeed while others will not. AI isn’t the answer to every problem, but insurers that neglect to get on board will be eclipsed by those that do. Be willing to learn from successes and failures and apply that knowledge to your future endeavors.

As first published in PropertyCasualty360.

Powering the Recovery Paul Carroll, Editor-in-Chief of ITL At last week’s Global Insurance Forum, Swiss Re Group CEO Christian Mumenthaler said the industry has been in a sort of hibernation for the past year and a half to two years, in terms of big deals and bold moves – but is about to wake up. “I think we’re in for a very interesting two or three years, with lots of change in the industry,” he said at the virtual event, “Powering Recovery,” held by the International Insurance Society. Roy Gori, CEO of Manulife, said insurance has “an opportunity to change the paradigm of how people think about our industry.” He described the opportunity as “once-in-a-lifetime.” continue reading > New Research Read the latest report from SMA to better understand the pain points and opportunities in underwriting and how Majesco’s Digital Underwriter360 for P&C revolutionizes the industry.  Read Now SIX THINGS Future of Work and Collaboration by Stephen Applebaum and Alan Demers Work will never resemble what it did in the past, and there will be no “all clear” signaling the end of the pandemic. Read More State of the Insurance Marketplace by Kimberly George and Mark Walls In the face of rapid change, what are the implications? And what risks should organizations be prepared for? 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 Underwriting in the Digital Age by Denise Garth Only 25% of an underwriter’s day is spent on selling and broker engagement. They are spending entirely too much time on non-sales work. Read More Blockchain: The Next Big Thing by Robin Westcott Blockchain technology has game-changing implications for data sharing and how we underwrite, determine loss-costs and more. Read More It’s Not Human Vs. Machine; It’s PLUS by Dave Ovenden What is right for your business, and where do you strike the balance between people-focused and automated processes? Read More Driving the New Standard in Insurance by  Jeff Wargin Over 90% of respondents felt the insurance industry could increase its relevance and grow faster than inflation and the general economy. Read More Minimize Fraud, Lower False Positive Rates and Increase Automation for Low Value High Volume Claims Using Halo Based AI Sponsored by Daisy Intelligence This whitepaper explains how using Halo-based AI minimizes insurance fraud, increases automation, lowers false-positive rates and delivers excellent financial results. 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

At last week’s Global Insurance Forum, Swiss Re Group CEO Christian Mumenthaler said the industry has been in a sort of hibernation for the past year and a half to two years, in terms of big deals and bold moves – but is about to wake up.

“I think we’re in for a very interesting two or three years, with lots of change in the industry,” he said at the virtual event, "Powering Recovery," held by the International Insurance Society.

Roy Gori, CEO of Manulife, said insurance has “an opportunity to change the paradigm of how people think about our industry.” He described the opportunity as “once-in-a-lifetime.”

Mumenthaler, Gori and many of the other speakers at the three-day event --videos of which you can see here -- said the industry had managed a stunning pivot to digital in the face of the pandemic, almost overnight. But they also pointed to numerous challenges and opportunities for the industry as the world gradually puts the pandemic behind us.

Gori, for instance, said the pandemic has underscored the role that insurance plays in creating personal financial stability, while also creating the opportunity for the "complete digitization of every aspect of our business … to eliminate the friction that makes insurance an unattractive proposition sometimes." He said Manulife has "done more in the past 18 months than in the prior 18 years" in digitizing and has seen the benefits -- e.g., straight-through processing now handling 81% of claims, up from 68%.

He sees a major role for insurance in the sorts of public-private partnerships that will be necessary to implement the infrastructure bill that, in some form, seems likely to pass in the U.S. Congress soon. Insurers can also help with what appears to be a new emphasis for global supply chains -- while companies have spent many years optimizing them for efficiency, the pandemic has made clear that companies need to build much more resiliency into them.

He cited two other key challenges/opportunities: "Cyber crime is up 600% in the pandemic," he said, "and 100 million people have been pushed back into poverty.... What can we do to close the income gaps that have been created?"

Mumenthaler said the Swiss Re Institute measures the protection gap -- the gap between the economic losses in the world and the insured losses, across all lines of business -- and saw a 6% increase during the pandemic, to $1.4 trillion. He said there "should be an obsession to close that protection gap."

He said he sees an opportunity to apply behavioral science to not only better understand customers but to work better with governments to address massive problems like future pandemics, major terrorist events and large-scale cyber attacks.

"The big events are entirely foreseeable," he said, citing a 2007 paper by 20 chief risk officers that not only said a pandemic was coming but that laid out almost all the repercussions we've experienced in the past year and a half. "Very few risks are totally off the screen," he said. But insurers can do a better job of helping governments to not only see the risks but to "pre-finance" responses, when actions are far less costly, rather than wait until disaster hits.

Dan Glaser, CEO of Marsh McLennan, agreed with Mumenthaler that supply chains need to focus far more on resiliency. "The world was in a hyper-efficiency mode," he said. "But the hyper-efficient companies shouldn’t be viewed as best in class. We have to see that risk-adjusted returns are more import than actual returns. Companies need to be asked: How prepared are you?"

The IIS' Global Priorities Report, released in conjunction with the forum, underscored the challenges facing the industry. The report, based on surveys sent to nearly 10,000 executives worldwide, found that "changing customer expectations during these crises can result in insurer frustration, as consumers may not fully understand how their insurance policy works and what it covers. One executive noted the challenge of correcting 'how insurance is viewed by the general public. It is not meant nor intended to cure all ills, yet it is often expected to.' This was especially true during the pandemic."

The report found that the biggest worry is about competition from outside the insurance sector: "Executives worry that digital engagement has taken over and that the industry faces disruption from new entrants with 'better-organized data and a stronger consumer orientation.'"

I could go on and on. There is an awful lot of meat both to the videos from the three days of the forum and to the Global Priorities Report -- which I encourage you to view and to read. But I'll just cite two more of the speakers, whose comments I thought were especially insightful, then let Marsh McLennan's Glaser bring us home.

As we've seen, ESG (environment, society and governance) has become a hot topic as companies are being pressed to be better corporate citizens, and that emphasis is likely to increase coming out of the world-shaking pandemic. Neeti Bhalla Johnson, president, Global Risk Solutions at Liberty Mutual Insurance, said insurance has a unique role to play in many aspects of ESG, notably climate change, because the industry has both "the asset and the liability side of the balance sheet." In other words, the industry carries the risk, while also have enough capital to help address it. She said ESG could also help address the industry's talent gap, because new types of people will want to join forces with insurers to tackle big ESG problems.

Meanwhile, Lorenzo Chan, president and CEO of Pioneer Inc., used the pandemic to make a bold step toward addressing the protection gap by, as he put it, going down the pyramid. He said that everyone typically goes for the best prospects, at the top of the pyramid, but he aimed at the "micromarket" in the Philippines. He says lots of people had negative associations about insurance -- slow to pay, tricky in the fine print, etc. -- so he looked for partners he could work with who were trusted by a broad market of the less wealthy. He wound up working with supermarkets, motorcycle distributors and, in particular, pawn shops.

"We unlearned everything we knew in traditional insurance," Chan said. But, in the process, Pioneer went from 180,000 customers in the micromarket to 18 million, and Chan thinks there is still considerable room to grow.

Talk about narrowing the protection gap.  

As Marsh McLennan's Glaser looks at the challenges ahead, he says: "In my 40-year career, it’s always been thus: There have always been things on the horizon that look dangerous. We’re one of society’s ways of sensing those dangers."

He adds: "Insurance is a noble business. It’s hard to think of a business that does more for society."

Cheers,

Paul

P.S. If you're at InsureTech Connect in Las Vegas this week, please stop by and say hello. I'll mostly be hanging out at The Institutes' booth, #1117 on the expo floor. I may be off doing some video interviews for a series we're pulling together, but I shouldn't be gone long. I hope to see you there.

The insurance marketplace has been changing rapidly, with the economy having a significant impact on both carriers and businesses, including employers, public entities and the middle market. So, what are the implications for the industry? And what risks should organizations be prepared for?

At the recent Out Front Ideas with Kimberly and Mark virtual conference, Elevate, an executive panel discussed the state of the commercial insurance marketplace across multiple lines of coverage and their outlook for the future. Panelists included:

• Cynthia Beveridge – president, AON Broking
• Patrick Gallagher – CEO, GGB-Americas, Gallagher
• John Glomb – CEO, Philadelphia Insurance
• Mark Wilhelm – chairman & CEO, Safety National

Economic Impact

The combined impact of an aging workforce and the pandemic in the insurance industry is causing significant challenges in recruiting and retaining talent. COVID-19 accelerated retirements with the inherent risks it created for baby boomers in a physical workplace. Beyond just retirements, all industries feel the effects of the Great Resignation due to employees questioning their career choices and priorities, seeking more money, flexibility and happiness. The shortage of trained talent has meant overhauling previously successful recruiting efforts. With talent requirements unrelenting, tactics like higher offers, new training and development and incentives to draft a much younger workforce have all been employed. 

Looming economic uncertainties have left employers realigning their discretionary spending on insurance purchasing due to higher premiums across the market. Employers are also facing their own issues with staff shortages across the U.S., leaving many to rethink their operational security, cash flow and real estate. Government and insurance regulations, model improvements and consolidations are all considerations in how these businesses will continue to stay profitable.

The pandemic has forced carriers to reconsider their customer-focused ease of use by encouraging smaller insureds to carry cash reserves, ensuring access to lines of credit and offering flexibility in billing plans. Displaying this empathy throughout uncertain times builds trust and may even lead to a longer-term relationship. 

See also: The Evolution of Marketplaces

Insurance Marketplace

Prior to the effects of COVID-19, the industry was looking at a standard hard market with a spike in premium increases, but the pandemic moderated the rates and premiums that carriers needed. Typically, corrective actions at the carrier level, including growth and repricing, would lead to a softer market. However, more accessible data has provided insight into inflation, interest rates and industry demographics, making carriers more selective, leading to a fluctuating market. Carriers with specialty niches can use this data to provide a truly customizable experience that clients expect.

With the exception of cyber and E&O, rate increases are decelerating, showing signs of equilibrium. Now that there is more demand for valuable return on investing, carriers are reviewing the profitability within their books of business and looking for opportunistic strategies. Clients are demanding more collaboration and solutions to their risks, not just an insurance product making alternative risk mechanisms, like captives or different deductibles, more popular. Contract wording and certainty will continue to be a necessity to clarify coverage for all stakeholders.

As the courts reopen, carriers are preparing for lawsuits to abound. The rise of litigation funding, social inflation and the effects of COVID-19 will continue to create major challenges for employers. Rising medical costs could increase workers’ compensation rates, creating uncertainty for underwriters and actuaries trying to set rates and predict profitability. The severity of claims and advances in medical technology could also drive rate increases. 

Emerging Issues

The challenges presented by cyber policies create an opportunity for new solutions, especially with ransomware on the rise. New solutions for supply chain clients, like aggregation and vendor management, are also in demand. Environment, social and governance (ESG) principles have become a key point of discussion within the industry and beyond as climate change risks continue. Additionally, addressing the underserved and the gaps in coverage through better access to capital have required the industry to rethink these solutions.

High-profile sexual abuse cases have resulted in states introducing reviver laws, allowing the opportunity for victims to reopen cases where the statute of limitations had been exhausted. These laws have created pressure on the pricing for abuse coverage, whether the industry is carrying appropriate reserves for those losses and if future reinsurance will be available. 

See also: The Perils of the Purchasing Process

COVID-19 continues to pose a great risk, with death claims still occurring and additional presumption laws being created. New legislation around vaccine mandates is also creating an increased responsibility for the industry as employees consider litigation. Additionally, public entities face risks from sexual abuse, police excess of force and cyber immunities under attack. Other lines of business, including business interruption, event cancellation, cyber, E&O and D&O, are contending with the risks of increased tort reform. 

To watch the recording of this Out Front Ideas virtual conference session, click here.

If you’ve been paying attention to the technology landscape, you’ve heard of blockchain. The inherent capabilities of this distributed ledger technology are vast, in its ability to efficiently, transparently and securely transmit information. As a neutral, not-for-profit advisory organization and statistical agent, AAIS needs access to key data with which to create loss costs and other insurance products and solutions for our member carriers. This is what led to the use of blockchain technology to develop our Open Insurance Data Link (openIDL) platform. 

The Data Access Problem

As an advisory agency, our goal to create innovative products and inform better public policy starts and finishes with the data we can access. The obstacle to leveraging data is that it is often “locked” in proprietary silos and legacy systems that carriers are powerless to access efficiently. Additionally, companies like AAIS need more granular data that companies were not willing to share, concerned they might jeopardize market position. We often found that regulators encountered similar obstacles when asking for data to inform public policy. 

The Birth of openIDL

During the exploration of a solution to data sharing in the insurance industry, it became clear to us that our industry needed an external data strategy that could remove existing barriers. Companies need to be able to assert control, support privacy of their data and allow enough transparency to others, including regulators and innovators, to improve the insurance data ecosystem. As with any ecosystem, change would need to be introduced with balanced and deliberate decisions around the use of data. It was apparent that blockchain/distributed ledger could be the conduit to support change.

With the help of stakeholders across the insurance community, AAIS set out to develop a technology platform that would fulfill data requirements for insurers while retaining the privacy of their data and providing regulators with the transparency and insights they need, when they need them. Together with IBM, AAIS built openIDL on Hyperledger fabric because of its commitment to open source as the best way to equitably bring change to industry. It was the first step toward ensuring that openIDL could not be owned by any one organization and used as a proprietary weapon within the industry. We sought freedom from that kind of control. openIDL would be an industry solution.

Understanding the need to apply governance principles to our open-source community led us to work with the Linux Foundation, one of the largest open-source consortiums in the world. AAIS came to realize that donating the openIDL technology to the open-source community at Linux would increase adoption of the platform across the industry and across the broader insurance ecosystem. So, on April 12, 2021, openIDL became a Linux Foundation project.

See also: Blockchain Smooths Subrogation

COVID-19 Data Call…The First Use Case

The first use case for openIDL focused on regulatory reporting because basic claims and policy data from statistical reporting and data call (Figure I) activities are core data elements needed throughout the insurance ecosystem. It was also important to include the regulatory community in this development because any real change would need to be fully understood and accepted by regulators to penetrate the entire ecosystem. 

An openIDL Pilot

By the time the pandemic hit in early 2020, the openIDL platform was ready for a test run in support of a COVID-19 business interruption (BI) data call, with nine state regulators and two large carriers agreeing to participate in a proof of concept (POC) using openIDL. The POC would replicate an earlier COVID-19 data call (Figure II) from the National Association of Insurance Commissioners (NAIC), using the capabilities of blockchain as applied to regulatory reporting.  

The Results: Success 

The openIDL POC yielded tangible successes. Not only was openIDL able to recreate the earlier COVID-19 BI data call, but new value was derived by introducing third-party data from the Federal Payroll Protection Loan database. Newfound insights were uncovered without the carriers’ private address level data ever leaving their control and possession. The utility of blockchain’s immutable ledger could be used to gain accountability and access to insights that we have never seen before, while dramatically improving the output and process of insurance regulatory reporting for both insurers and regulators. 

During the pilot, openIDL exhibited several advantages over traditional methods of regulatory compliance. Among them: 

• insurers could deliver far timelier data, more efficiently and potentially instantaneously once their dedicated openIDL “node” was populated 
• insurer data could be leveraged by regulators, while remaining private, secure and in full control of participating carriers
• insurer information could be correlated with data from other sources to reveal deeper, previously unattainable insights 

Ultimately, the ability to share insights while maintaining the privacy and security of data for all openIDL participants is a game-changer, ushering in a new era of quality underwriting capabilities, new product and service development and increased value to policyholders.

Next Steps

With openIDL now a Linux Foundation Project, AAIS and the Linux Foundation Regulatory Reporting Steering Committee will continue to work with regulators, insurers and other stakeholders to expand and evolve openIDL as the next-generation standard for statutory and periodic reporting, and perhaps the foundation for broader applications across the insurance ecosystem. Participation by stakeholders across the industry is welcomed! 

See also: Breakthrough for Blockchain?

If you would like to learn more or participate in future proofs of concept, please contact Robin Westcott at robinw@aaisonline.com or Lori Dreaver Munn at lorim@aaisonline.com.

Underwriters in the commercial market are, in some ways, facing a promising future: Valuate Reports recently estimated that the segment’s compound annual growth rate through 2028 would be 8.5% — a healthy clip by any standard. This is far above the overall average direct written premium (DWP) growth rate of 3% to 4% over the last decade or more.

Yet market research indicates that, while commercial carriers are adopting digital technologies and next-gen core systems at a rapid pace, age-old manual underwriting processes and lack of relevant data when they need it continue to cause bottlenecks and friction, leaving customers, underwriters and brokers frustrated.

Businesses insurance premiums are now at $350 billion annually, but the workflow generally remains paper-based. Only 25% of an underwriter’s day is spent on selling and broker engagement. Underwriters are spending entirely too much time on core processing and other non-sales work.

Imagine if underwriters could spend more time with their customers and focus on delivering a better customer experience instead of being bogged down by cumbersome, error-prone manual processes and information gathering. Imagine having intelligent, relevant information pushed to the underwriters’ fingertips at the exact moment they need it, empowering them to make better decisions.

As an industry, we are on the cusp of making this vision a reality. SMA research indicates a gap between what insurers do today and what is needed today and in the future. In fact, 80% of insurance executives expect underwriting roles to be significantly different in the next five years. They know they must evolve underwriting to make their companies competitive amid the rapid changes in customer needs and expectations, new digital technologies and data sources and increasing competition from both established players and new entrants.

This evolution will be powered by a next-generation underwriting workbench that leverages an easily customizable and scalable digital platform, robust data-ingestion capabilities, AI and machine learning and new communication and collaboration tools across commercial and specialty lines of business.

In addition to tedious, time-consuming tasks of manually gathering data, the most glaring pain points to be addressed are:

• A lack of an integrated and unified view for underwriters to access risks and make quick decisions
• The absence of holistic policy data at a single place to enable quick and accurate underwriting case management
• An overdependence on underwriters for making key decisions
• The lack of sufficient time for underwriters to develop relationships with distributors, given inadequate system capabilities
• Inefficient collaboration and communication channels between underwriter and distributors
• A need for constant follow-ups with line managers for updates, resulting in longer waits for closing out open cases, leading to poor experience

Progress depends on the creation of an end-to-end underwriter workflow and case-management capability. It requires a capability for intelligent data ingestion and extraction, coupled with standardized and automated processing.

A key in making underwriting work better, faster and in a cost-effective way is increased and predictable collaboration between the broker/agent and the underwriter. Ultimately, there is great value for the business by being highly responsive to customers through transparent collaboration among underwriters and brokers.

Next-generation underwriting capabilities are here. The challenge for the industry is in adopting a mind-set that permits digital transformation to take root and grow.

We believe performance excellence will flourish when insurers embrace change, leverage powerful new technologies and adopt new ways of working that are evolving at a rapid pace.

Mike Adler, principal, KPMG, and Denise Garth, chief strategy officer, Majesco, are co-authors of this article. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities

As AirBnB and VRBO have opened up the vacation home rental market to millions of property owners, t The ease with which owners can use technology to list either their primary or secondary homes has transformed the way we take our holidays. 

The pandemic has, interestingly, fueled more growth in the secondary or vacation home markets as people choose to take their holidays closer to home or look for second spaces to continue remote working. According to the National Association of Realtors, vacation home sales rose 16% in 2020 over the previous year. That’s nearly triple the 5.6% growth in existing-home sales. The surge is continuing this year, with sales up 33% to April over last year.

Just as the vacation home rental market has embraced technology, so, too, has the insurance industry. Insurtech is reducing costs for owners and insurers as well as improving the customer experience. Providers are using advanced technologies such as AI and machine learning to develop insurance offerings that allow for more customizable coverage and pricing that can account for complex insurance requirements. 

This is an important step forward specifically when it comes to insuring vacation properties. With the help of platforms such as AirBnB, VRBO and others, owners are able to rent out their primary or secondary properties, or part thereof, for longer, shorter or intermittent periods. Which brings with it a much more complex insurance landscape for agents to navigate with their clients.

What should agents consider when looking to insure rental homes for their clients?

Different types of property owners need different types of coverage

Knowing what kind of property owner your customer is will make sure you start the discovery process in the right place. This can be as simple as knowing if they are a private owner or, for the purposes of the property in question, they are a commercial owner. A commercial owner can mean a company that owns numerous properties or an individual who is running a bed and breakfast. 

The ownership structure of the property can also affect the type of coverage required. If it is owned by an LLC or other type of legal entity and there are different users and owners of the home, it's important to be clear who the actual parties to the insurance contract are. It can be easy to get this wrong. For example, a party who is classified as an additional resident as opposed to an additional insured might affect the validity of the coverage.

Understand the type of coverage needed

A more commercial type of vacation property will likely be better-suited to commercial insurance as opposed to a more traditional homeowners policy. It will typically offer more in the way of liability insurance and be applicable across a portfolio of properties, making it more efficient than writing individual policies for each home.

However, a policy can be more nuanced for the smaller owner who is renting out their own vacation home or their primary residence from time to time. Traditional insurance policies can be vague when it comes to cover for use of the residence for rental purposes. The contract may allow for occasional short-term rentals, but it will be important to understand what the owner's intention is when it comes to how much of the year they want to rent out the property, to ensure they have the right kind of coverage.

In some cases, landlord’s insurance might be applicable if the property is to be rented out most of the time. In other cases, where the rental periods are briefer, a landlord's endorsement to their primary policy can be activated for those times the property is available to rent. 

Think about the different liabilities

Offering a property for rent will crystalize liabilities for the owner they would not otherwise be exposed to. This is particularly the case if the owner intends to offer bed and breakfast services beyond simple accommodation. Cooking for guests, serving alcohol or providing a shuttle service, for example, all come with their own inherent risks and liabilities. In these cases, liability coverage in traditional home owners contracts are unlikely to be sufficient. 

A homeowner’s existing injury liability may also not apply if the accident occurs when only a  part of a property is rented -- for example, when just a room or an apartment above the garage is rented but is part of a primary residence.

This is just the tip of the iceberg when it comes to understanding the kind of liability protection a homeowner may require when looking to rent out one of their properties to holidaymakers.

See also: Market Boundaries Are Blurring

Be diligent

In summary, agents need to make sure they thoroughly consider three things: how long the owners will rent out the property; if the owners ever intend to use it; and whether they want to offer services beyond accommodation. Every property owner can have different answers to each of these questions, but all will affect the blend of coverage and types of liability they will be exposed to. 

Insurtechs are able to offer updates and more customizations than traditional forms of homeowners insurance, so it's worth understanding the owner's intentions well and hunting around for specific policies that will cover their particular situation.

OCTOBER 2021 FOCUS OF THE MONTH

Catastrophic Weather

FROM THE EDITOR

Living in Northern California, I find myself pretty much in the wildfire capital of the world these days. Some days in late summer it was so grey outside that it felt like I was in Mordor. And many nearby areas have been hit far harder. Lake Tahoe, one of the most beautiful areas in the world, was covered in smoke so thick for much of August that breathing was downright dangerous.

Sadly, the lousy air and the wildfires that cause it represent just one of the many threats from catastrophic weather these days. In an unusually active season for Atlantic storms, Hurricane Ida not only hammered Louisiana (hit by five named storms in 2020, including two hurricanes) but followed through and caused massive flooding that killed dozens in the Northeast. A "heat dome" that descended on British Columbia in June raised temperatures as high as 121 degrees and killed more than 500 people -- one town just spontaneously incinerated. More than 650,000 farm animals also died. And that's just the beginning of the list of catastrophic weather events, even though the examples are only from North America.

In the face of all these problems, insurers are doing what insurers do: helping identify, quantify and mitigate the risks, while making customers whole when disasters strike. Insurers 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.

We have a very long way to go, and there's no easy solution -- nobody is going to throw a ring into Mount Doom and suddenly lift the pall that sometimes settles outside my window. But I hope the articles and this month's interview provoke you a bit and help raise the level of debate. 

Cheers,

Paul Carroll, ITL’s Editor-in-Chief

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WHAT TO WATCH

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6 QUESTIONS FOR CHRISTOPHER MCDANIEL

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.

Read the Full Interview

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WHAT TO READ

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WHO TO KNOW

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