I've spent the last six years bragging about insurtech's potential in improving the insurance business, for instance in the 2016 article My Four P's of Insurtech and, at the end of 2017, the book All the Insurance Players Will Be Insurtech. One of the insurtech topics I have talked most about has been telematics (usage-based insurance for my U.S. friends), such as in The Past, Present and Future of Telematics and UBI

But, since its inception, Root's auto insurance book has not performed well. For each dollar of premium paid by the client, their risk transfer approach has always cost more than $1.35 (Lemonade has done worse.)

So we have an insurer that in 2017 underwrote $4 million in premiums and -- in just four calendar years -- has scaled to more than $700 million. Root obtained a $3.6 billion evaluation at the halfway point of this journey.

As of March 25, that valuation had tumbled to slightly above $500 million. Something has not gone as they expected.

In recent weeks, we've read about Root reducing marketing and other expenses:

• "Cutting marketing spend by 62% in Q4 and run-rate fixed expenses by roughly $48 million annually from peak 2021 levels"
• Root layoffs 

However, these cuts don't seem to compensate for the main problem: the amount of claims compared with the premiums.

For reference, this is the historical series of U.S. auto insurance key performance indicators (KPIs)...

...and the evolution of the loss ratios in 2021:

Here we have the key point: the book of business' (un)profitability and the role of insurtech (usage of telematics data).

How it started

Root started its journey in 2015 and the following year began to transfer risks using telematics:

• "Root takes into account the driver's habits, which it uses to offer low-cost insurance to safe drivers"
• “The worst 15 to 20 percent of drivers are really causing the majority of accidents," he said, and the rest of consumers pay for that. “We give good drivers the rates they deserve.”
• "We only insure good drivers. And by eliminating the other drivers—the people who cut you off in traffic, swerve through lanes, and tailgate—we save a lot on claims"
• "Simply let the insurance company watch you drive for a little bit and come up with a quote based on that actual recent driving history [...] After a two-week initial trial period, out pops an insurance premium and then the user no longer needs to keep the app running."

I like this idea of using telematics data for providing the first quotation. Even Progressive has liked it (this probably is even more indicative that it makes really sense) and introduced Snapshot Road Test in 2020.

See also: 5 Tips to Ensure an Insurtech Fails

How it's going

Root's loss ratio has been really, really bad for the new policies, and not too bad for the ones they have renewed.

From Root's Form S-1: "As of June 30, 2020, our term one and term two policy retention rates, excluding policies that do not make it through the underwriting period and company-initiated rescissions, were 84% and 75%, respectively. Over time, retention rates may improve as we build deep relationships with our customers, and already we are seeing an improvement in retention with bundled offerings. Our retention rates include customers that retain through the first day of the subsequent term and exclude policies that do not make it through the underwriting period, as defined by state law, and company-initiated rescissions. Adjusting for these customers reduces one- and two-term policy retention by 33% and 10%, respectively."

From an oversimplified, outside-in perspective, Root's usage of telematics data for insuring only good drivers (eliminating the other drivers) and charging them an adequate price is not performing well at all: the first period of coverage has an awful loss ratio!

The company needs to prune the portfolio at each renewal.

Even Lemonade has started to play with telematics data and acquired Metromile (the pay-per-use insurance icon). I recently spoke about this situation in Business Reporter's Future of Insurance, claiming that insurance professionals have chosen the wrong insurtech idols!

Root is not using telematics data well for pricing and risk selection. Moreover, they have even denied the usage of telematics data for claim management and for changing driver behaviors.

But there are many different startups and incumbents’ initiatives out there that are showing great returns on their telematics investment and can be used as inspiration.

One great example comes from one of the members of my IoT Insurance Observatory: Discovery Insure. I fell in love with this telematics approach in 2013 when I saw their brochure for the first time (below) and I started studying their behavioral change approach. My recent exchange (below) with their CEO Anton Ossip shows the potential of telematics data in the auto insurance business.

This is a great example of Insurtech as the superpower for assessing, managing and transferring risks.

Matteo: We have known each other for almost 10 years, and I have enjoyed discussing with you the sequence of innovation cycles you and the Discovery Insure team have implemented. How has telematics been relevant in this journey?

Anton: Our business began in June 2011. The simple premise was whether we could create a business that encouraged and rewarded people for being better drivers. This was especially relevant in a South African context, where we had the third-highest road deaths per annum in the world. We had the benefit of 20 years of shared-value insurance that Discovery had pioneered globally through the Vitality program that encourages people to live healthier lives. We believed we could leverage off this science and know-how to achieve this. That is how Vitality Drive, our behavioral-based incentive program, came to be. When we first started the business, the use of telematics technology in the insurance industry was not common, but it enabled us to offer a highly differentiated value proposition to an otherwise saturated market. Through vehicle telematics, we are able to accurately measure a client’s driving behavior from how and when they drive to whether they use their cellphones while driving. By doing this, we’ve been able to collect over 14 billion kilometers of driving data, which has allowed us to risk-differentiate and offer more accurate premiums as well as provide exceptional rewards to our clients who drive well. Our telematics technology also allows us to provide unique safety features to our clients, such as Impact Alert, where we can detect if a driver has been in an accident and send emergency assistance without them having to call us.

Vitality Drive has proven to be an extremely successful value proposition, not just for our business but for our clients, who receive significant value. Over the last 11 years, we have grown to be one of the larger insurers in our market, growing at double digits, profitable and demonstrating constantly improving actuarial dynamics. We recently spoke about our journey since inception, which I have linked here.

Matteo: I’ve always admired Discovery’s capability to track the innovation initiative impact. Could you share the main economic benefits achieved through the usage of telematics?

Anton: As a business with lots of actuaries, measuring every aspect of the business is part of who we are. From day 1, we saw the incredible correlation between driving ability as we measure it and claims frequency and severity. In our experience, there is so much value you can get from telematics, but it’s not just the data that achieves this. It is ultimately how it’s used. The Vitality Drive program engages customers throughout their journey with us, and through this we have been able to achieve the goals we set out for ourselves, including:

• Attracting the best drivers. We found that drivers who joined Vitality Drive were on average more than 27% better drivers than the general population.
• Improving their driving behavior. On average, clients who install a telematics device have a 15% improvement in driving behavior within 30 days.
• Improving our loss ratio and passing these savings back on to clients. We found that our best drivers have on average a 54% lower loss ratio than our worst drivers. This allows us to reward these drivers with over 70% of their premium in rewards.
• Retaining the best drivers by offering them greater rewards. We find that our drivers with a Gold or Diamond Vitality Drive status have an 84% lower lapse rate than drivers with a Blue Vitality Drive status. Over time, this decreases our overall loss ratio and lapse rate.
• Getting to our clients the fastest and offering valuable safety features. For instance, in the last half of 2021, we reached out to over 36 000 clients when our data detected in real time that they might have been in an accident.

The data we’ve gotten from our telematics devices has also given us the ability to innovate and adapt our model over time so that we are able to offer the most relevant benefits to clients"

Matteo: Is it possible to change policyholder behaviors? This is a question I had to address in many of the workshops with the IoT Insurance Observatory members for the last six years in Europe and North America. Could you share something about the lessons learned and achieved results?

Anton: Yes, through Vitality Drive, we have seen that it is possible to positively change behaviors. We have seen that the Vitality drive program achieves behavior change quickly, where we see an incredible improvement in the driving behavior of our clients as a result of installing a telematics device. On average, drivers have a 15% improvement in driving behavior within the first 30 days.

But we’ve also put the mechanisms in place to sustain this over time. Most drivers know that some of the things they do when driving are not ultimately good for them or those around them. As an example, it’s no surprise that texting while driving is a very dangerous thing to do. This is where the concept of goal setting comes in. Merely educating clients driving well does not encourage behavior change, even though people will often recognize the importance of such behaviors. By setting challenging yet attainable goals and providing explicit rewards for achieving the result, people increase their effort to improve the relevant behavior. Vitality Drive offers weekly rewards for meeting your drive goal, and we’ve seen that people who meet their goals every week improve their driving behavior 15 times more than drivers who only achieve their goal once a month. So, without the correct nudges offered in the right way, most people don’t change their behavior.

See also: Time to 'Flip the Bird' on Insurtech

By combining our telematics data with our claims data, we are able to more accurately predict accident risk. We see that clients who drive better (as indicated by their driving scores) are less likely to get into an accident. Clients who improve their driving behavior score by more than 300 points in one year have a 24% reduction in their motor accident frequency, again showcasing the efficacy of the model.

Matteo: Looking to Discovery Insure’s journey, I have seen a focus on innovating commercial auto over the last few years. Would you like to share any facts and figures about these new offers?

Anton: The transport sector contributes significantly to GDP, with 76% of freight in South Africa being transported by road. Three and a half years ago, we extended this to business customers and now have a growing base of commercial fleet drivers on the Vitality Drive for Business program. Our commercial presence is growing quickly, with the size of book doubling annually over the past two years. Discovery Business Insurance is a natural extension of Discovery Insure and is committed to creating better businesses by sharing value through incentives. Even during this early stage of our Vitality Drive for Business program, we have seen encouraging results from Vitality Drive for Business that show that vehicles driven by better drivers have a lower loss ratio. Our driving data shows that vehicles that have the best drivers have a loss ratio that is 87% lower than those vehicles that are not on the Vitality Drive for Business program.

We have also extended the Vitality Drive program through partnerships with Covea in the U.K. (Vitality Car) and in the Saudi market as (Tawuniya Drive). Both of these businesses show favorable dynamics and provide the opportunity to make a significant impact to drivers in those markets. We expect such partnerships to continue to develop over the next few years. We haven’t stopped at developing a program for personal lines clients.

As FloodFlash CEO, my focus gravitates toward certain news items as they float across my personal ticker. So far this year I’ve been drawn to the events industry re-opening and how we will finally be able to meet the brokers we work with across the U.K. and overseas, and then to the Met Office as the weather forecasts showed the first warnings that ultimately became Storms Dudley, Eunice and Franklin, all of which struck the U.K. in February.

These storms filled my newsfeed as wind, rain and snow pummeled the U.K., eventually leading to widespread floods. FloodFlash claims are almost entirely automated, so having that heads-up two days in advance has little impact. We have removed loss adjustment from the process, so there’s no need to mobilize early or book support functions. Nonetheless, I keep an eye on the events and trends that will affect FloodFlash in the coming hours, months and decades.

A career quantifying the probability of "black swan" events has taught me that the world is full of randomness. I sympathize with the unknowableness espoused by Nassim Taleb rather than the idea of pre-written destiny found in the world of Hollywood (although the latter makes for a better movie). However, trends sit below the randomness. The confluence of these trends has the power to steer products, companies and markets.

One such market, that of catastrophe insurance, plays host to two sets of unstoppable macro trends. Climate change, population growth and urbanization are all driving up annual catastrophe damages. And increasing computer power and the proliferation of IoT networks mean that mass-market parametric insurance is possible for the first time. These trends will shape the catastrophe insurance market for years to come. They are also why Ian and I started FloodFlash.

Those macro trends explain why parametric insurance has started to take hold. In this article, I want to explore three smaller but significant trends that are accelerating parametric growth. Together, they explain why parametric insurance has gone from a conference buzzword to form award-winning coverage used by clients worldwide.

#1: For the first time, all businesses understand what they need to survive a catastrophe

Catastrophes kill businesses. The U.S. Federal Emergency Management Agency (FEMA) says “90% of smaller companies fail within a year unless they can resume operations within five days.” COVID created a world in which every business is alert to the threat of being closed.

The best way to steady a business whose source of income is in crisis is to provide cash fast. This is where the gap between traditional and parametric insurance products begins to emerge.

Traditional claims employ an arduous loss-adjustment processes. Catastrophic flood claims take months to resolve. That’s months in which a business might have no source of income but plenty of debt in the form of mortgages, rent, staff wages or tax liabilities. When protecting a business’s balance sheet, you sacrifice time at the altar of perfect indemnity. Not just time waiting for the final settlement, but staff resource managing and chasing the claim, too. And, as FEMA says, time is the one thing businesses can’t afford to lose.

Parametric insurance uses pre-defined values for claims. That means insurers remove the value of damage from the underwriting equation, and with it the requirement for claim adjustment. Parametric claims happen in hours, not the months it can take traditional catastrophe coverage to pay out. FloodFlash paid a Storm Franklin claim in under six hours. In the wake of COVID, that’s what businesses demand, and need, to survive.

It’s a relief to think that you don’t have to bother with chasing insurance companies. Most businesses with any sort of business interruption spend so much time trying to sort out the claim[…] It does involve the individual running the firm, and usually the top person within the firm. To take away that worry so the people running it can just get on with their business is a hell of a relief -- Clive Steggel, whose business, CRS Consultants, flooded during Storm Christoph in January 2021.

See also: Parametric Insurance: 12 Firms to Know

#2: Hard markets drive insurance innovation

Like any other market, insurance has the dynamics of supply and demand. On one hand, there are people looking to buy insurance coverage for their risks. On the other are those with capital looking for a return by covering that risk. When there is plenty of money in the system, supply of capital is plentiful. That means lower insurance premiums and looser policy wordings: a "soft market."

When money flows out of the insurance market – typically due to paying out claims from one or a series of catastrophe events – the supply of capital tightens. There is less capital to insure the same amount of risk. Premiums rise, and risks are harder to cover. We are experiencing a “hard market” right now.

Insurance prices have risen consistently over the last few years, and COVID-19 has made capital and capacity even harder to come by. According to the Marsh Market Index, global property insurance pricing increased by 17% in Q1 2021, with U.S. prices increasing by 14% in the same period, capping off many months of increases.

One of the first casualties in a hard market is catastrophe coverage. When the supply of capital runs dry, insurers are more reserved about the business they write. Policy wordings tighten, prices increase and exclusions start to creep in. This is where parametric insurance comes into its own.

Parametric insurance is attractive in hard markets for two reasons. The first is the lack of uncertainty: Using pre-defined values for a claim means the insurer is exposed to fewer variables. Insurers pass that benefit on to clients as lower premiums.

The second reason comes down to how parametric covers are structured. If a client sees an unattractive price, they can adjust the parameters of the coverage to suit their budget. They might not get penny-perfect indemnification, but they have coverage in place to protect their cash flow and survive.

The adage that "necessity is the mother of invention" holds true in the insurance market. Previous recessions have hosted the creation of some of the world's most successful technologies. Necessity is now driving the demands for parametric covers. As a specialist parametric broker told me recently: “It has gone crazy since Christmas.”

#3: The word is out

I’m not the only person recognizing these trends. Venture capitalists concerned with what the world looks like in 10 years have also cottoned on. Renowned VC and early Facebook executive Chamath Palihapitiya announced his latest venture at the beginning of last year: OTT Risk, a platform for pricing and trading parametric business interruption coverage. Descartes Underwriting, Parsyl and Arbol have all announced big equity raises from VC funds in recent years. Not to mention the FloodFlash Series A raise announced earlier this year.

Fueled by this interest, new and exciting applications of parametric insurance principles are emerging and growing faster than ever. Clients, brokers, insurers and investors have woken up to the possibilities of simpler, faster catastrophe insurance, and they are already experiencing the benefits. The capital pouring into parametric insurance firms will fuel this growth.

These parametric insurance trends mean movement is accelerating every day. Based on the trends on my news ticker, 2022 is set to be a landmark year. By December, more livelihoods and more businesses in more markets will be protected – and survive – because of parametric insurance.

In 2017, a large insurance carrier challenged our law firm to significantly reduce its legal spending and cycle times without any material uptick in indemnity costs or compromise to the quality of legal services. Last year, the carrier publicly reported that the program we jointly developed was responsible for closing 25% of the carrier’s claims litigation annually with an average reduction in legal costs of 49% on closed files, which has led to millions of dollars in cost savings to the carrier.

Over the past five years we have implemented, tested and refined numerous measures to deliver those results. Along the way, we have learned a lot about how a law firm can deliver more value to an insurance carrier and its policyholders. Here are three critical items that any carrier working with outside defense counsel should consider and discuss with counsel.    

1. The Appropriate Staffing Model on Each Case

Typically, outside defense counsel will assign two attorneys—e.g., a partner (or partner-level attorney) and an associate—to each case. In fact, the litigation management guidelines for many carriers state that this is the expected or preferred staffing model. The conventional thinking is that the carrier does not want to pay a partner’s higher hourly rate for work that can be adequately performed by an associate. The problem is that, when two attorneys work on a case, there is invariably some duplication of effort. While the partner generally handles the more complex and strategically important tasks, both attorneys must review the pleadings, motions and discovery to remain informed. Further, the two attorneys must communicate closely. Two attorneys working the case means more overall attorney time, which translates to higher defense costs.

Carriers that employ staff counsel have figured this out. Carriers using a staff counsel model typically assign only one attorney to handle all aspects of each case.

Carriers that employ outside defense counsel would be well-served to consider the complexity of each assigned case and to work with counsel to identify those cases that can be staffed with only one attorney. Yes, that one attorney must be experienced, and, yes, that experienced attorney will handle basic tasks (e.g., direct oversight of drafting and responding to discovery, drafting and arguing simple motions) while billing at the partner rate. But, in our experience, the result is a meaningful reduction in average attorney fees per case. 

See also: Time to Send Employees to Sleep?

2. Methods for Identifying and Pursuing Risk-Transfer Opportunities

What better way to reduce defense (and indemnity) costs and shorten cycle times than to convince another party or its insurer that it is obligated to defend and indemnify a policyholder who has been sued? Outside defense counsel who are truly committed to lowering a carrier’s defense costs should implement measures to systematically identify and aggressively pursue risk-transfer opportunities. “Systematically” is emphasized here for good reason. Counsel’s efforts to transfer risk should be structured and methodical in each case. Here are some steps outside counsel can take:

• Provide detailed training to all firm litigators on how to identify and pursue risk-transfer opportunities.
• Create a checklist of information and items to be obtained from the policyholder to facilitate a risk-transfer analysis (e.g., contracts with vendors and management companies, other insurance policies that may provide coverage, etc.). During the very first communication with the policyholder, ask that all such items be immediately gathered and provided, and keep asking until they are received.
• At the outset of each case, automatically assign the handling attorney the task of conducting a risk-transfer analysis and reporting the results to the carrier.
• Create robust templates (preferably using automated document assembly software, as described below) for tender demand letters.
• Develop a calendar with automatic reminders that prompt continual follow-up on tender demands until a response has been received.
• Keep metrics on the cases resolved through risk transfer and use the metrics for process and performance improvement.

Risk-transfer opportunities are the proverbial “low-hanging fruit.” Carriers should work with their panel counsel to ensure that they are systematically (there’s that word again) harvesting this fruit. 

3. Time- and Cost-Saving Technologies

Software claiming to use AI has become all the rage and, without question, may be beneficial in certain types of cases (e.g., those that are document-intensive). But several more basic technologies can significantly reduce the time required to complete billable tasks on a wide variety of legal matters. Outside defense counsel should consider: 

• Automated document assembly software: These programs have become very inexpensive to implement and simple to use. Various types of case-specific information—such as the case caption, court, case number, parties and their counsel, claim number, etc.—are typed in once, and thereafter documents are automatically populated. A small library of automated templates can save countless hours of time on each case.
• Macros and autotext: Some text is used repeatedly in litigation documents. Consider, “Defendant lacks sufficient knowledge and information to form a belief as to the truth of this allegation and on that basis denies it in its entirety.” This language might be used repeatedly in an answer. Likewise, the same objections often appear many times in a discovery response. With macros and autotext, there is no need to type the same language again and again, or to repeatedly scroll to another location in the document, copy the text, scroll back and paste it. The language can be inserted with a simple mouseclick or keystroke. 
• Quick steps and quick parts: These are similar to macros and autotext, but they are used in MS Outlook, reducing time-on-task for email communications. 
• Task-based matter management systems: While the facts of each case vary, litigation is largely a series of repeatable events. Many matter management systems permit automated assignment of repetitive tasks and the ability to “program” into the task the relevant instructions and required information for completing it. Potentially billable time to provide such information and instructions (or to research it) can be minimized.
• Role-based automated task assignment: Carrier litigation management guidelines often prescribe that certain types of work should be performed by qualified paralegals and billed at the paralegal rate. We use a system that automatically assigns such tasks to paralegals, thereby ensuring compliance with guidelines and billing at the appropriate rate. This reduces inadvertent overcharges and cuts down on administrative time (ours and the carrier’s) for invoice review.

See also: The End of the 9-to-5 Workday

You Can Get There From Here

The above are a few of the many measures and strategies our firm has taken to significantly reduce the legal defense costs for a large carrier. The results have been extremely well-received.

While none of the measures are overly complicated or difficult to implement, it does require commitment and discipline to consistently use them. We are all creatures of habit, and we tend to return to the same old ways of doing things until a newer, better behavior or routine becomes ingrained as the new habit.

With that said, any outside defense firm that is willing to commit to and invest in these strategies, and take steps to ensure that they are consistently used firmwide, should be able to meaningfully reduce carriers’ legal spending and cycle times. Carriers that seek such results can begin by simply challenging their outside counsel to deliver more value and then discussing how to get there together.

New variants of the COVID-19 virus and the “Great Resignation” affected the insurance industry deeply in 2021 and are primed to keep influencing 2022. To enhance the customer experience and improve internal efficiencies, insurers’ focus this year is on digitization. 

These efforts will include using technology to improve the ease of doing business for agents and implementing tools and applications to increase employee productivity. 

Aite-Novarica Group has identified 10 trends that will shape property/casualty insurance around the globe in 2022 and beyond. These include:

• Insurtech goes mainstream. Even during a global pandemic, investment in insurtech has continued unabated. One curious trend is that traditional core vendors now view themselves as insurtech firms or architects of insurtech adoption, with some acquiring startups in areas like predictive analytics. Speed to market is always a key objective for insurers, resulting in the growing trend of low-code/no-code engines in their core platforms.
• Increased adoption of purpose-built AI-based solutions will change the game. Despite concerns surrounding data privacy, model bias and regulations like the European Union’s AI Act, insurers are continuing to invest in AI. Insurers are adopting purpose-built AI-based solutions to overcome financial and operational challenges. Core systems vendors are offering insurers access to these solutions through application programming interfaces (APIs) and open-platform architecture. These solutions tend to be cloud-based and can be implemented immediately. 
• Insurers and distributors will come together to embrace digital. As insurers and distributors implement agent portals and vendor agency management systems, many of these solutions do not meet customer expectations in today’s digital world. The ability to offer capabilities such as real-time quotes and automated underwriting requires digital investments in online and mobile capabilities. Insurers and distributors need to work together to provide more robust digital capabilities and stay competitive.  

See also: Future of P&C Tech Comes Into Focus

While these trends will be important for property/casualty insurers this year and in the future, they are by no means the only areas of focus. Data and analytics, the evolution of cyber risk, claims optimization and more are occupying property/casualty insurers’ time and budgets. 

Customer expectations are at an all-time high, and countless digital technologies are emerging in the insurtech sector. Aite-Novarica Group expects insurers and vendors to continue working together to prioritize the insurance experience for all stakeholders as the year moves on.

To learn more about the trends our team foresees dominating the space in 2022 and into the future, please read our full report, Top 10 Trends in Property and Casualty, 2022.

As corporate offices increasingly reopen, many managers are focused on finding the right mix of work from home and work in the office, and that's certainly important. But another key topic has been flying under the radar and deserves more attention: the fact that the model of the 9-to-5 work day needs to adapt, too, and in some cases be eliminated.

While many jobs don't lend themselves either to remote work or to variable work hours -- think of construction workers, restaurant employees, most doctors and nurses and so on -- many jobs in insurance afford a great deal of flexibility, and we'd do well to take advantage of what we've learned in the two years of working from home during the pandemic. Employers could see a boost in productivity, while employees could live healthier, better-adjusted lives. 

When many of us started working from home, we not only gained the time that our commutes used to eat up but found that we could structure our days however we liked. Sure, we had Zoom calls -- lots and lots of Zoom calls -- and we might be expected to respond fairly quickly to a boss or coworker during the meat of the day. But whatever output we were supposed to produce -- analysis for a claim, underwriting, whatever -- could then be slotted in whenever we wanted. 

Some of us work better in the morning and tackled projects when we were fresh. Others work better in the evening or even late at night (count me in that group) and increasingly pushed the work that demanded the most attention into those times of day when we thought most clearly and, perhaps, had the fewest interruptions.

Many of us learned the value of naps, something that would never have even occurred to me before COVID. In the past, if I felt tired, I'd have kept banging my head against a writing project because I felt locked into a work schedule -- but would have gotten nowhere. Now, I close my eyes for an hour and, when I return to the project, am clear-headed enough to feel some creativity and generate some flow. I'm more productive even if you count the naptime as work time. (I don't, of course.)

There still needs to be some coordination, of course. If a morning person is working with a night person on a project, simple communication could make a project take many days if they just keep passing drafts and questions back and forth, while having them both focused on a project for an hours-long stretch could allow completion in a single day. But, to the extent that individual, remote work is possible, breaking the 9-to-5 paradigm can deliver big productivity gains.

Employees may benefit even more. If they just owe a chunk of hours per week or a certain amount of output to the employer, they can sleep in when they're tired, can make that trip to the gym when they're most motivated, go shopping when there won't be much traffic and so on. Parents with small kids may benefit the most, especially if both work, because they can cover for each other. Work fits into life, rather than the other way around.

The biggest obstacle I see to greater variability in hours is that employers just aren't accustomed to measuring employee performance that flexibly. If an employee is in the office, the employer feels reassured. With remote workers, seeing that green signal of Teams shows that they're at their computer. Surely, some sort of work is going on. 

Employers will have to find new ways to evaluate employee performance, based on some combination of volume of work and quality. And, yes, some employees will game the system once constraints on hours are removed, so HR departments will have to stay on their toes. 

A recent New York Times op-ed on flexible hours says that "a few simple tweaks to work culture would make a big difference.... Scrap all but the most essential meetings. Don’t expect remote workers to be always available or use invasive software to keep them on task. Focus on results and normalize later start times. To foster collaboration among workers who are on different schedules, companies could set limited core hours."

I've actually lived that flexible future for more than 35 years. Even when I showed up at a Wall Street Journal office in suit and tie every day, the life of a reporter lets you do pretty much whatever you want. You show up early, you show up late, you leave early, you leave late, you work in the office, you work at home -- all that matters is what shows up in the paper, and that's there for everybody to see. (Once or twice, when I went a couple of weeks without my name in the paper, my father called and said he just wanted to be sure I was still employed there.)

When I became a partner in a consulting firm, I had to commute to headquarters in Chicago two or three times a month from the Bay Area, which was no fun, especially with little kids, but when I was home, I was home, and had lots of flexibility. If my daughters wanted me to jump in the pool with them in the middle of the afternoon, I could just about always indulge them (and myself). 

And the sorts of writing projects, mostly books, that I've done for the past 20 years, leading up to my work with ITL, have certainly allowed for flexibility, including probably the best decision I made as a parent. My younger daughter was a nationally ranked distance runner in high school, and I felt bad that she would have to head out in the heat in the summer to do a hard 10- or 12-mile run, so I made a standing offer that I'd go with her any time she asked (on a bike, of course; I couldn't possibly have kept up with her on foot). She'd pick a history topic and ask me to tell her about it for the hour or so she'd be breathing hard, which indulged my fondness for telling stories and would let me make some use of all the histories I've read over the years. Those run/rides were some of the best bonding time imaginable -- and she later earned a history degree from Yale, on her way to a law degree and a job in Washington, DC. 

Flexible hours don't work for many jobs, just as remote work doesn't, but, if flexibility is possible, I highly recommend it. And it's possible for a lot of insurance jobs.  

Cheers,

Paul

It's not often that someone tells me that something I published made him "physically cringe." In fact, I'm not sure I've ever received that particular form of hate mail. But someone made that claim recently on LinkedIn and tagged me, after I published at www.insurancethoughtleadership.com a piece that I thought was pretty straightforward. It argued simply that insurtechs should work with human agents to provide the human touch even as they improve the technology that connects with customers and insurers. 

The writer argued that "insurtechs can definitely be independent agents themselves and provide the advice and human touch that some customers require. I think this is the model that will be successful for transactional and simple products."

Who needs human agents?

I prepared to wade into the discussion -- and found I really didn't have to, because so many others had already made my points for me.

Matteo Carbone, who I think of as Mr. Insurtech, wrote in defense of the agent's role: "At a global level, only 6% of personal line premiums have been generated without a human touch."

Another wrote that, when insurtech platforms first came out, "Their leaders were implying that they are going to disrupt the existing system. Some belittled the existing system, only to turn to agents when they could not pull off what they initially claimed they would. Many did not have any insurance experience and knew very little about all the issues and moving parts associated with insurance. There just has been so much insincerity and frankly taking advantage of investors.... Is there a marketplace for selling insurance online? Sure, but it's not causing the disruption as some had falsely claimed it would."

Still another: "Look to the travel agent.... Despite popular conceptions, select travel agents are experiencing a golden age. How? They evolved to luxury and niche (complex) excursions for high-net-worth individuals or people with specialized interests (helicopter skiing, exclusive resorts, ecotourism, etc.) The ones who just assumed people would always be intimidated by booking basic holiday packages were devoured by Expedia (which absolutely provides advice and comfort via online chats). There's a salient lesson in there somewhere."

I'm not at all arguing that agents don't need to stay on their toes. As you'll see from this month's interview and from the articles we've highlighted, agents very much need to keep up with the times. And not all comments were so firm in their support of agents. (You can read the full exchange here:. I've highlighted the article below that stirred up the fuss -- "3 Reasons for Insurtechs, Independent Agents to Collaborate.")

But I did find it encouraging that so many rallied around the role of the agent, which I see evolving much as travel agents have.

That, and it's always nice to be read.

Cheers, 

Paul 

According to McKinsey’s Global Innovation Survey, 84% of executives agreed that innovation is critical for their business and is an important component of their growth strategy, but only 6% are satisfied with innovation performance. This gap between strategy and results can be felt across the commercial insurance industry. While commercial lines carriers and brokers have focused intensely on digital transformation initiatives for the past several years, many lines of business, core operational processes and manual workflows have not been modernized in a meaningful way in 30 years.

We all know that digital transformation is a journey, not a destination. Large-scale change doesn't happen overnight, and digital strategies can take years to develop and implement.

“I’ve been in the insurance industry for 20 years, and, as long as I’ve been here, we’ve been transforming,” says Stacey Brown, head of global technology innovation, AXA XL, a division of AXA, and founder at InsurTech Hartford. “And I’m certain that, long after I’ve retired, we will still be transforming. Change is the only constant. There is always resistance to change. Everyone in an organization can know they need to change, but they can’t agree on how.”

We also know that change agents at all levels of the organization play an important role in sustaining the momentum of any innovation initiative.

Change agents are essential to overcome organizational inertia and resistance to change; they help motivate and align people around the “how and why.” But what qualities define an insurance change agent, and how can insurers identify and nurture those qualities? To help answer these questions, we reached out to several insurance industry leaders and subject matter experts who know first-hand what it takes to roll out successful digital strategies and mobilize internal change agents to embrace – and lead – meaningful change.

Change Agents Stand Out

A common theme is that identifying internal change agents isn’t an issue; they’re easy to spot.

“Innovative change agents often think outside the box, leveraging knowledge and experiences from a wide variety of areas – from different jobs, roles and industries to reimagine the possibilities,” says Denise Garth, chief strategy officer at Majesco. “Because of this background, they are often considered rebels or rabble-rousers who too often are discounted but instead should be embraced by leaders.”

Brown agrees: “Change agents are vocal for the most part. They tend to stand out in organizations because they are outspoken about how they see that things could be different. If you want to empower change agents and teams to embrace or lead change, you need to give them a reason. Help them understand why innovation is important and how it fits into the organization’s strategic goals. Find out what motivates them. The intrinsic and extrinsic motivators to embrace change will differ from person to person. Sometimes, ‘your job will suck less’ can be a motivator. Sometimes it’s incentive plans, promotions or opportunities to advance in their career and take on new challenges.”

The real challenge for insurers is how leadership responds to change agents – whether companies encourage challenges to “the way we’ve always done it” or attempt to ignore or suppress them.

“I would argue that one of the greatest roadblocks to digital transformation in commercial insurance is a lack of organizational courage,” says Jason McDermott, president and CEO of Chisel AI. “In an industry composed of professional risk managers, courage to challenge the status quo is not a natural strong suit; it must be purposefully cultivated and nurtured.”

It takes courage to step up and speak about the need to change and improve. “You need to be comfortable with challenging people, with being the only person at the table who thinks one way and who isn't going to get swayed the other way automatically,” says Mark Rieder, senior vice president, head of innovation at NFP, a leading insurance broker and consultant.

Any type of organization can transform its culture, according to Kris Østergaard, author of Transforming Legacy Organizations: Turn Your Established Business Into An Innovation Champion To Win The Future. “But it doesn’t happen by itself, and it is probably also the most difficult endeavor that organizations can set out on – much more difficult than getting to know and apply technology. Culture is the ‘hard problem’ of corporate innovation. It demands that companies transform their entire systems away from misaligned key performance indicators, legacy IT and business models, ineffective work methods, too-high-risk averseness built into strategies and business plans and short-term thinking. It has far more to do with this than it has to do with people’s lack of willingness to change. Of course, there is human resistance to change. It is a real thing. But human beings are actually remarkably adaptable to change – if they have the right conditions to change under.”

See also: Bright Prospects for 2022

Building a Culture of 'Change Resiliency'

“It all comes down to two things,” says Kacie Conroy, director of IT at M3 Insurance, one of the top insurance brokers in the U.S.: “Merge the IT and business worlds together to innovate and to experiment early and often. This means you need to build a culture of experimentation and change resiliency. That also means that the term ‘failure’ needs to be redefined. The only failure is not trying, not experimenting, and not learning. This approach allows you to learn, adapt and ultimately bring more value to your business.

“When cultivating innovation in your organization, locate those ‘intrapreneurs’ who thrive on change, are curious and think creatively to establish a foundation of innovation. Use this newly formed community to participate in pilots of new, innovative technology.

“Technology is the easy part. The focus, and the hard part, is all about HOW you innovate, HOW you implement the change. With seemingly unlimited options, it requires businesses to think more creatively like an artist when it comes to painting the picture of their innovation strategy.”

“What isn’t changing?” asks Amy Radin, author of The Change Maker’s Playbook: How to Seek, Seed and Scale Innovation in Any Company. “Today’s pressures are not defined by any one trend; they are the sum, with compounding effects, of multiple parts of the business model changing simultaneously, unpredictably and at times in conflict with each other.”

“Change agents are people at the top and throughout an organization who provide leadership and direction that motivate, inspire and empower others to execute toward a new future state,” Radin says. Based on Radin’s experience, these leaders:

• Recognize the inevitability of change and demonstrate urgency to act
• Visualize a purpose and North Star direction
• Magnetically attract diverse talent – intellectually curious, continuous learners and collaborators
• Create a culture where people are empowered to execute, take risks and bring forth new thinking
• Ensure people have access to required capabilities and resources
• Establish governance that is fit for the purpose of transformation
• Are decisive and role models of agility
• Are customer- and partner-focused, letting market insights drive strategy 

NFP’s Rieder believes that insurance leaders who are effective at leading change and motivating change agents possess the ability to help people “come to a decision on their own and allow them to be the ones bringing the ideas to the table.” Innovation leaders need to “be comfortable with being behind the scenes, pushing people ‘towards the light.’”

Tapping Into an Innovation Ecosystem

While we’ve focused primarily on internal change agents, insurers often look to distribution partners and insurtechs for guidance and solutions to help accelerate change. The emergence and maturation of a robust insurtech ecosystem has generated ideas and innovative solutions that insurers can tap into. Dan Keough, chairman and CEO at Holmes Murphy & Associates and co-CEO at BrokerTech Ventures, stresses that insurance innovation is collaborative, requiring industry-wide cooperation and alignment both within and beyond the insurer’s walls:

“At the highest level, there should be alignment around change, and the solution impacting change to achieve end-results we are working toward, together,” Keough says. “Effective change agents are action-oriented individuals who have a great understanding around the problem we are collectively trying to solve, and those who are relatable to the individuals with the task [change] at hand. Transformative change needs to be supported and led out by senior leadership, and then activated through and by internal entrepreneurs [e.g., labs by BTV & Holmes Murphy].

“As an example, in our first BrokerTech Ventures Cohort, we were able to learn about Broker Buddha – an insurtech company that is addressing the insurance application process, activating technology to create ease and efficiency, demonstrating a smoother process for our service teams, ultimately delivering a greater client experience for our carriers and to the end-client. The success of such change/transactional transformation was predicated around the alignment of stakeholders along the insurance value chain, who all worked together to produce a better outcome for our client.

“Ultimately, alignment around change, and integration throughout the stakeholder value chain, delivers a culture of innovation and one which is open for lasting and transformative change.” 

Bold Is Beautiful

If there’s a common denominator in the perspectives above, it’s that change is constant and inevitable. How insurance organizations manage change is critical.

“Change is always scary, uncomfortable and harder to accept than the status quo,” says Chisel AI’s McDermott, “but it can also be tremendously rewarding. Having spent 30-plus years of my career working with technology startups, I’ve experienced firsthand how it feels to take a leap of faith and stand on the ledge of uncertainty. So, we need change agents with the courage to provoke change, to act as the catalyst for change and to emphatically guide co-workers and peers through the transformation. With technology as the enabler, it takes individuals with grit and determination to thrust innovation forward within their organizations, rally others for the change ahead and reimagine new approaches to drive tangible business outcomes.”

See also: 3 Reasons for Insurtechs, Agents to Collaborate

“Technology moves at such a rapid pace, and the insurance industry is now seeing this firsthand,” says M3 Insurance’s Conroy. “In some ways, insurtech is challenging our risk management roots. We need to get more comfortable with change, specifically the unknown, and stop striving for perfection.”

“I also think we as an industry need to be bolder,” Rieder says. “I see a lot of people get caught in ‘pilot hell,’ where they’re doing 12 technology pilots at once. Well, how’s that impact top-line revenue growth or bottom-line efficiency if you just test a bunch of stuff and never pull the trigger? You need to get into the game. You’ve got to get off the edge of the pool and start swimming.”

Further Reading

Check out this recent article for more perspectives on change management and how to cultivate a culture of innovation in commercial insurance. Industry leaders and change agents -- including Tony Fenton, vice president of commercial lines underwriting and product, Nationwide; Brian Falchuk, author of The Future of Insurance: From Disruption to Evolution; Ryan Collier, chief digital officer, risk placement services; Tina Osen, president, Hub International Canada; Abel Travis, vice president and head of Fundamental Underwriters, a division of AF Group; and Bob Frady, vice president, HazardHub at Guidewire Software -- provide their insights on how insurers can embolden change agents and embed courage into their culture from top to bottom.

The 18th of March marked this year's World Sleep Day, a day dedicated to raising awareness about the importance of healthy sleeping patterns. It's a celebration of sleep and a call to action on important issues related to sleep, such as how sleep affects job performance and safety. Experts suggest we should get between seven and nine hours of sleep a night, but the average U.K. employee only achieves around six hours. What can businesses and brands do to support and improve workforce wellbeing?

We know from data collected across the world that the quantity and quality of sleep have declined steadily over recent years. Sleep loss can make it more challenging to maintain focus, attention and vigilance in everyday life.

Lack of sleep can also have a profound impact at work, as feeling tired and trying to stay awake takes a lot of mental energy, making it more difficult to stay focused on tasks.

Sleep-deprived employees are also more likely to make errors, either through a lack of attention to detail or a mistake due to slower reaction times. Alertness, vigilance and concentration are diminished by long-term poor sleep, as are problem-solving, creativity and decision-making abilities. In some professions, increased reaction times may mean missing an important task, but in other professions -- such as doctors, first responders and truck drivers -- slow reaction times can be the difference between life and death.

What does your business do to manage the risks associated with employee fatigue? Those working in certain industries, such as logistics, will be familiar with the strict rules surrounding drivers' hours and the implications of getting things wrong. Meanwhile, employers in other sectors might not have such specific legislation. It's important businesses and leaders can reference policies or risk assessments that deal with fatigue. Fatigue risks need to be a factor and inform management decisions.

As with any workplace risk, businesses must consider what might happen and not just wait for issues to reveal themselves. With regard to fatigue, it's possible that some employees might feel reluctant to raise any concerns, and others may not be able to recognize the signs of fatigue.

Solving sleep deprivation at work is hugely important. Here is my advice to businesses on where to start:

Awareness and education

Virtually everyone in the world has had a bad night's sleep and felt the impact the following day. However, feeling tired is just the tip of the iceberg, and many people disregard, or are unaware of, the health issues associated with regular poor sleep.

As you'd expect, organizations are becoming increasingly aware of the impact of sleep deprivation on their financial performance, and more importantly their employees' health and wellbeing. Many businesses have already taken steps to support sleep and recovery in their workplace.

It all starts with providing the right support and information to educate your employees on the basics of getting a good night's sleep.

Everyone at work should be able to identify the signs of fatigue and know what to do about it. Many job-specific risks are covered during employee inductions and training, but few organizations include fatigue. This can be communicated simply, through leaflets, microlearning or short sessions introducing the concept of sleep and the impact on the workforce.

Understanding the physical effects

Understanding the possible health issues that arise from poor sleep helps with iprevention. There is strong evidence to indicate that chronic sleep loss may lead to serious health consequences, such as an increased likelihood of cardiovascular diseases, impaired immune function and early onset of Type II diabetes.

In addition, there is evidence to suggest that chronic sleep loss (such as long-term fatigue) is associated with certain mental health issues, such as schizophrenia and clinical depression.

These health issues are preventable, and employees at all levels should understand the impact of poor sleep.

See also: Construction Workers’ Mental Well-Being

Identify the risks

Every business should identify its key fatigue risks, seek solutions and allocate resources to the risks with the most significant impact.

Business leaders should be looking at who is at risk, then whether their work is physically or mentally demanding and how lack of sleep can affect the business, as well as the employee's engagement, happiness and performance at work.

It's important to consider factors such as a long commute, as this can affect an employee's sleep and performance. Any life events, such as having young children, can also reduce sleep, so businesses should see if they can provide additional support.

Track and monitor

Businesses need to monitor and track performance, and there is a wealth of information and platforms available to employers to identify potential fatigue issues.

Being alert to your staff's behavior patterns will help you identify if any of your team are having issues with sleep, as will listening for workers who are always complaining about being tired. For high-hazard roles, you should conduct regular cognitive testing.

Don't just brush the fatigue issue under the carpet. Employees might be reaching out and will benefit from your support.

Motorists are involved in an accident every 60 seconds in the U.S., and the damage, injury and stress can complicate an already difficult situation. Insurers face the challenging task of getting accurate information as quickly as possible to manage loss cost and additional expenses, while supporting policyholders in their moment of need. 

However, only half of drivers involved in an accident end up filing a claim. Of those claimants, just 9% to 13% provide first notice of loss (FNOL) from the scene of the accident. Receiving FNOL after the vehicle leaves the accident scene can lead to much higher costs and longer cycle times for insurers. Rather than the insurance company initiating a tow directly to the repair shop, the vehicle will likely spend five to six days captured in tow storage, lengthening the process (and frustrating the policyholder) while also increasing transport and storage fees. 

With the right tools and accident scene management processes in place, insurers can quickly receive notice of an accident along with the information needed to enable earlier loss determination and ensure proper vehicle routing to streamline the claims process and avoid secondary expenses. Let’s explore three ways insurers can save time, frustration and money while handling accident claims. 

Recover more vehicles from the accident scene with crash detection response

Crash detection technology is poised to go mainstream with both insurers and auto manufacturers, and it promises to have major long-term impacts on claims and repair. But with the average age of vehicles on the road today exceeding 12 years, we are likely still more than a decade away from reaching a critical mass of connected cars. Smartphones, on the other hand, are prevalent throughout the world, with 90% of consumers owning one. And there’s a very strong chance these devices will be in the vehicle at the time of an accident. 

These devices contain many sensors that, combined with optimized algorithms available through an appropriate mobile telematics app component, can accurately predict the severity of the crash to determine if there are injuries and identify the likelihood of a vehicle being undrivable. Beyond the obvious – and extremely important – health and welfare benefits of instant accident notification, the technology also significantly improves the overall accident management process. With crash detection technology in place, especially when tied into accident response and insurer claims management systems, first responders and insurance companies receive near-instant notification that an accident has occurred. 

In addition to these notification and claim initiation benefits, crash detection technology allows for more accurate liability determination and automatically connects the driver to their insurer for help immediately following an accident. Current FNOL processes are typically based on rudimentary inputs, often collected orally from the policyholder. Digital telemetry and crash reconstruction data can not only shed light on the collision itself (force of impact, etc.) but also the events leading up to the crash, including whether the driver was talking, texting or using an app on their phone, overall vehicle speed, if the brakes were engaged before the collision, and more.  

See also: 'Digital' Needs a Personal Touch

Enable digital intake and follow-up with an accident management dashboard

Connecting an insurer’s claims system to a mobile app provides the option to submit details of the accident digitally, removing the barrier of a phone call and in turn reducing congestion from the contact center. Not only does this simplify the customer experience, but it also uses contact center resources more efficiently. Location data and details can also be automatically detected, automating the collection and sharing of essential case information.

However, even in cases where a customer reports the accident directly from the scene, incomplete information can require additional follow-up calls that delay vehicle pickup and overall cycle time. With added delays also comes the risk of keeping the vehicle in storage, accumulating storage and rental fees as the missing information is collected. To avoid follow-up calls that further delay cycle time, implementing digital communication tools can help fill in these missing blanks.

An accident management dashboard makes it easy to handle and update cases through an easy-to-use interface. It also helps to expedite follow-up communication when additional action or information is required through a digital communication feature – all while eliminating the need for an outbound phone call. Instead, claims handlers can digitally update final tow destination, approve advanced changes, share updates, and request receipts. Because this is all done digitally, the requested information can be shared much quicker to ensure there are no hiccups that delay cycle time.

Leverage data and experience to alleviate vehicle release complexity

When a vehicle is not recovered from the accident scene, a new challenge arises: dealing with the vehicle release. The vehicle release process can be rather complex due to varying requirements from state to state and even shop to shop. Whether it’s negotiating release fees, cash requirements or processes and paperwork, securing a vehicle release from a storage yard or salvage lot requires a certain level of expertise. Without this experience, release costs can also add up, and cycle time can be extended by an industry average of five to 15 days.

Experience in accident management significantly simplifies the complexities of releasing a vehicle from storage. Look for an accident management partner that has navigated this landscape and can leverage extensive data on historical release charges and regulations to anticipate requirements and negotiate the best release fees. In addition, your partner should have a team of dedicated release coordinators that will manage the entire release process, ensuring your agents can remain focused on your policyholders. Even in cases where on-scene capture was not possible, insurers can still benefit from simplicity, cost reduction and a shorter process for policyholders.

There are many challenges and complexities with managing the accident lifecycle efficiently, but embracing a digital approach and leveraging an experienced partner reduces these roadblocks to deliver exponential benefits for policyholders and your claims organization. While some costs are unavoidable, these three approaches can help insurers reduce cycle time and manage costly, complex and time-consuming claims processes. That’s good news for everyone involved.

One key goal of digitizing the life insurance customer journey is to create speedy and seamless application experiences, which, it is hoped, will increase conversion rates. 

Research, however, has shown that there may be a hidden cost to fast, frictionless digital insurance applications. The prevailing view in psychology, popularized by Nobel Prize-winner Daniel Kahneman’s book Thinking, Fast and Slow, contends that humans have two modes of making judgments. One is very quick and intuitive, but doesn’t gather all available information or take time to consider a response. The other is slower and takes more effort but is logical and considered. 

Insurance companies have been focusing on making the applicant user experience (UX) as fast and frictionless as possible. Although a worthy goal, it also increases the likelihood of intuitive responses to the provided questions without real thought or care, thereby leading to misdisclosures. Could there be value in introducing "positive friction" (i.e., more time for consideration) into the application process? 

Disclosing … fast or slow?

Responding to questions on a life insurance application is a constant and unexpected exercise in thought, judgment and decision-making. Research has shown that often people will have a tendency (or bias) to satisfice, meaning they will provide “good enough” rather than optimal responses, to minimize their efforts. In situations where people are encouraged to respond quickly, “accurate enough” (i.e., approximate or incorrect) responses for metrics such as height, weight or alcohol intake might be provided, instead of putting in the effort to give more precise responses.

A second concern is whether encouragement of fast thinking might lead to greater misdisclosure by spurring applicants to rely more on their intuitions during the application process. This is not to say people are intuitively attempting to gain economic advantage: Indeed, in studies in which participants earned a bigger payment by deceiving a fellow participant, they were found to be honest more often, sacrificing the incentive, when they had to decide on a response quickly. Similarly, people are not necessarily intuitively seeking to secure themselves the best insurance deal. Formulating a lie is actually quite mentally taxing, as is figuring out how to “game” an insurance application. 

When misdisclosure occurs intuitively, it does not necessarily derive from a desire to game the application process. Often, it stems from an applicant’s desire to display their social value. Applicants are more likely to misdisclose details about themselves that are weighted with social stigma, such as recreational drug use or high body mass index (BMI). This is due to susceptibility to the social desirability bias — the natural human impulse to present oneself in the best light. 

RGA research has found that people responding to questions under time pressure are less likely to disclose sensitive details about themselves than those not experiencing time pressure. Hence, encouraging people to respond quickly may make it more likely that they would intuitively aim to present a positive social image, leading to misdisclosure. 

These biases are particularly concerning for life insurance underwriters, as they are natural, affect people in many situations and are easy to self-justify. In a study using real application data, RGA compared self-reported BMIs with those obtained in paramedical exams and found that a full two-thirds of the applicants underestimated their BMIs. The vast majority of underestimations were for less than 10% – a possibly justifiable “white lie” for an applicant, but a material amount to an insurer across a whole portfolio. The implication here is that applicants might have been intuitively managing their self-images by subtly underestimating their weight but not brazenly misreporting a weight to secure more favorable underwriting. 

A Case for Positive Friction

These findings are significant for underwriters. Application forms that encourage fast thinking can lead to misdisclosure through careless mistakes, approximate answers and intuitive biases. How can insurers mitigate misdisclosure risk while improving customer underwriting journeys? 

Designing effective applications means making it psychologically easy for applicants to answer questions honestly. This can be done by providing memory-prompting cues, such as images, or by breaking complex multi-part questions down into much smaller components. These can make applications easier to fill out while still producing honest and accurate disclosures.

Insurers can also leverage the social desirability bias to improve disclosure rates. For example, forms can be written using language that contains subtle reminders that an applicant’s social responsibility is to report their lifestyles honestly, rather than tweaking their numbers in ways that would add luster to their self-images. Additionally, presentation of social norms can be reframed in ways that will encourage people to conform to them in their responses. For example, cues for “normal” levels of drinking, smoking or BMI can be provided via scales that have high (but realistic) limits. 

Third, application designers can acknowledge that friction in a digital process might not always be a negative in user experience. Indeed, positive friction can be used creatively to benefit users and businesses alike. UX designers in other industries are already using it: Bank apps, for example, now have warning screens that will prompt users to stop and check payee details to mitigate risk of fraud, or even to protect vulnerable customers from impulsive late-night purchases. 

See also: A New Boom for Life Insurance?

Final Thoughts 

Could positive friction be a plus in digital life insurance applications? More testing and study will be needed to understand whether slowing user application processes could improve not just disclosures but the entire user experience. Indeed, it is possible that reducing the process’s friction too much may be incompatible with applicants understanding their policies fully, which may risk the sorts of misunderstandings that could lead to early lapses and cancellations and possibly reduce trust in a brand, as well. 

Psychologists have also found that, when people put effort into creating something, they may value it more. This phenomenon, first written about in 2012, is known  as the IKEA effect. What this may mean for insurers is that the need for more effort on a customer’s part, even if it means taking longer to fill out  an application, may not necessarily be negative for conversion in the long run. With more effort, the customer’s investment in the application process may increase throughout the sales journey, potentially building a higher perception of the policy’s value. 

Digital form designers may want to consider whether a side effect of frictionless interfaces might be responses provided with minimal thought, increasing risk of misdisclosure. This could happen in instances where fast responses lead customers to approximate their answers and make careless mistakes. There is also a risk that encouragement of fast responding increases applicant use of their intuitions to provide responses, which increases the effect of biases such as social desirability that harm disclosure rates. 

Finally customer journey designers may also ask whether there may be material sales trade-offs in customers’ experience by slowing applicants down. Slower application processes may offer a higher chance of customers fully considering their purchase, and that greater investment in effort may lead to an increased perception of value and greater trust. The path of least resistance may not lead to the best outcome.