Core system replacement rates for property/casualty insurers have fallen from their early 2010s peak, but that doesn’t mean modern systems aren’t in demand. Newer trends for policy administration systems (PAS) include cloud-based options and lower-cost implementations. While these platforms remain vital for stakeholders across the entire insurance life cycle, modern solutions are redefining what constitutes a policy administration system. 

Time to market is a key driver. Insurers are looking for systems that can help them develop new products and enhance existing products quickly, improve the flexibility of product development so they can enter new market niches, reduce the overhead costs of system maintenance and legacy platforms, improve data access and analysis capabilities and make third-party integrations seamless. 

In addition, the industry has moved toward general acceptance of cloud-based and SaaS subscription core systems — in fact, most insurers prefer cloud options to on-premises deployments now. Cloud systems are just one element of a more digital-focused experience for employees and policyholders alike. Other aspects of this digital-first mindset include direct-to-consumer quotes (and sometimes policies) through digital portals and mobile devices. 

Customer Expectations Around Self-Service

Expectations for online self-service capabilities have been steadily on the rise thanks to direct sellers of insurance and the influence of other industries (e.g., retail, banking). In both personal and commercial lines, insurers are having to focus more on the customer-facing technology they offer as well as when consumers can access that technology. Failing to meet this demand can lose customers, even in lines of business insurers might not anticipate. The same can be said for employees; attracting IT talent is difficult when the systems involved are older than the job candidates themselves. 

Agent and customer portals are a common component of PAS offerings. If a portal is not built in, the solution likely offers APIs that enable insurers to integrate a high-quality front-end experience with the back end. 

A number of vendors have moved beyond the traditional portal in favor of a digital platform. These low-code platforms allow insurers to deploy highly differentiated customer experiences while retaining good integration with the core PAS solution. 

M&A Activity

Insurers looking into a new PAS should be aware that M&A activity is common in this space. While the rate of activity has declined from its peak, acquisitions are not unusual. Larger vendors like Insurity, Guidewire and Sapiens have all grown their portfolios by acquiring smaller companies with interesting capabilities or customers. This trend continued this year, with some vendors investing in virtual assistants, systems focused on MGAs and surety-specific platforms, among others. 

Larger vendors were also focused on building out their integrated suites, which can be appealing to insurers looking to work with fewer vendor partners. In addition, private equity firms invested in PAS providers this year; for example, Thoma Bravo acquired Majesco last fall, taking the company private again. 

See also: Designing a Digital Insurance Ecosystem

Cloud

Cloud deployment is no longer considered an emerging trend. In fact, some vendors now only offer a cloud-based solution. The potential for lower total cost of ownership and enhancements to performance, scalability and security have made the option more appealing to insurers. Cloud-based PAS platforms also promise to simplify the update process for vendors and insurers alike. While cloud has gained traction in recent years, maturity levels vary widely across vendors and insurers alike. 

Insurers should ensure that their vendor has the right level of cloud experience for their organization’s needs. When choosing a vendor partner, insurers should examine what cloud options vendors can support, whether cloud-native capabilities are leveraged and if the vendor can offer the  automation needed to take full advantage of cloud. Also of note is a slow shift toward multi-tenancy; vendors are likely to continue supporting single-tenant deployments for the time being, but multi-tenant installations and services are gaining traction.

Evolving Platforms

Low-code and no-code platforms are another area gaining focus as they decrease the expertise required to build applications. Low-code techniques have been present in the PAS world for a few decades now, but these capabilities are advancing to meet insurers’ customization needs. In fact, a number of vendors, such as Unqork, Jarus and Salesforce, have built or are building policy administration capabilities on top of their original low-code platform offerings. 

To learn more about the current state of the PAS vendor market as well as learn about prominent solution providers in the space, read Aite-Novarica’s recent report Property/Casualty Policy Administration Systems.

A recent survey by PwC found that nearly two-thirds of employees in the U.S., including executives, are looking for a new job. That number is stunning.

It suggests that insurers need to play some serious defense, to keep employees happy and on board and to keep competitors from poaching talent. But it also illuminates an opportunity to play offense. If lots of employees are looking for a new position, then, by all means, let's go get the best we can.

As someone who chose to get involved with insurance eight years ago because of what I saw as a huge opportunity for digital innovation, I've always been struck by the industry's inferiority complex. People talk about how they fell into insurance, rather than choosing it. Many talk about the industry as slow-moving and boring.

In fact, it seems to me that insurance combines a noble purpose with a great opportunity -- a chance to use digital technology to "put a dent in the universe," as Steve Jobs once memorably put it. As we've seen over the past several years, insurers are not just using technology to be more efficient but to make life easier for customers, whether buying a policy, requesting information or service or filing a claim. And we're barely past the starting line. In time, I believe, the industry will be able to focus on preventing losses, rather than (the already important role of ) making people whole following losses. I also think insurance can play a key role in mitigating climate change by translating future risks into dollars-and-cents calculations today that will steer clients in the right direction.

So, why not take advantage of people's current itch to reconsider their career choices? Why not make a pitch for people to enter the insurance field, where they can play a role in reinventing a multitrillion-dollar industry that provides the bedrock for all others by handling their risks?

As I said, we'll all have to play defense, too. The PwC survey of 1,007 U.S. based employees and 752 executives found that many were in search of better salaries and benefits -- benefits being a blind spot for many executives, who underestimated their importance to employees. The key ones cited in the report are: expanded flexibility, career growth, well-being and upskilling.

I'd underline the role of expanded flexibility, at least over the next year or so. I think many people will be swayed by what the work environment will be like once the pandemic finally recedes far enough for the vast majority of offices to reopen -- with, I imagine, at least some flexibility to work remotely being a key desire.

And these concerns aren't idle. Not only did 64% of those surveyed in August say they were looking for employment, up from 36% in May, but nine out of 10 executives said they were seeing abnormally high turnover in their organizations.

But I think insurance is already making bigger strides than most industries to become a more attractive place to work, in particular by continuously automating more and more of the entering (and reentering and checking and fixing and...) of the information that insurers require. And the trend is accelerating. So much more of the mundane work processing documents will be taken over by computers, freeing us humans to tackle far-more-fulfilling problems.

As an ITL thought leader wrote not long ago, it's one thing to pitch prospects on a career of checking the fine print in a legal contract. It's a whole other thing to tell them that we'll equip them with the most advanced tools available to reinvent one of the world's core industries.

Now is a great time to make that pitch.

Cheers,

Paul

AI-based fraud detection and automation delivers significant financial results.

Using Halo and AI alleviates many insurers uncertainty of the shift in the fraud landscape caused by the pandemic. The inability for insurance companies to automate claims processing and proactively identify and mitigate emerging fraud threats is no longer an acceptable business practice as consumers demand better service.

 

A few weeks ago, I saw a LinkedIn post from Dr. Robert Hartwig that discussed his testimony to one of the U.S. Senate’s subcommittees about the uninsurability of business income from the COVID-19 pandemic. Seeing that LinkedIn post, and reading his testimony, triggered my continuing belief that uninsurability of certain risks has been happening more frequently over the decades.

More specifically, I believe that as we, as a society, become increasingly more dependent on web-connected devices, uninsurability will become more of an issue for both the insurance market and for corporations (and individuals, as well).

I want to thank Dr. Hartwig for giving me permission to use some of his content from his July 21, 2021 testimony to the U.S. Senate subcommittee.

His testimony is titled: “Examining Frameworks to Address Future Pandemic Risk,” and he presented it to the U.S. Senate Committee on Banking, Housing and Urban Affairs, Subcommittee on Securities, Insurance and Investment.

My three key messages

My three key messages for the readers of this blog post:

1. There has been, and continues to be, an inexorable shift to (potentially uninsurable) severity from a small but expanding number of risks.
2. Not all of the risks that fall into the uninsurable severity category are technology-related or technology-driven. Terrorism and global pandemics fall into the uninsurable severity category (in my opinion), as does, or will, certain ramifications of climate change. None of those three are technology-related or -driven. However, technology specifically in the form of web-enabled devices will push more risks – cyber risks – into the uninsurable category.
3. Regardless of the insurability or uninsurability of a risk, the risk itself doesn’t disappear from a corporation’s (or individual’s) need to manage the impact of the risk in some manner. (Neither denial nor hope is a risk management strategy.)

Frequency and severity

Almost all, if not all, P&C insurance professionals would tell any person who asked that the two connected concepts of frequency and severity are critical to analyzing and pricing each risk that happens in their target markets or throughout society more generally. (Frequency and severity are also needed to perform claims analysis – before, during and after a claim event – as well as needed for target marketing, product development, setting reserves and surplus and a host of other operational and financial functions.)

These two concepts were at the forefront of my mind when I decided to write this blog post.

The "frequency of severity" is increasing

However, the continual expansion of technology applications is leading society and the insurance industry into more instances of uninsurable severity. Specifically, I believe that what I call the "frequency of severity" of risks is increasing as our society becomes more digitally dependent on the web throughout its operations, home life, transportation, entertainment, shopping, communication and collaboration, and within other personal and corporate activities.

Simultaneously, as web-connected digital capabilities become the lifeblood of society, insurance firms will find fewer opportunities to generate profitable premium because the risk costs will become too large to profitably underwrite.

From a societal and insurance industry viewpoint, we have lived in a situation of "uninsurable severity" before, following the terrorist acts of war of 9/11. Now, society and the insurance industry are living with another situation of "uninsurable severity" risk: the impact of COVID-19 on business income/interruption.

I identify both of these risk situations (terrorism and global pandemics) as sign posts on the path to a "shift to (uninsurable) severity": a shift that effectively shrinks the market segments that are insurable.

Before discussing why I believe that cyber is yet another instance of a shift to uninsurable severity risk, I want to take a few steps back to consider the P&C insurance industry. The people who have read my blog posts or have read my analyst reports through the years know that I like to discuss context before delving into the heart of an issue. So, …

A macro insurance industry overview of risk

The societal value-added of the insurance industry is to profitably manage or mitigate risk for people, corporations, non-profit organizations and actually businesses of every flavor. One of the critically important words in this first sentence is: "profitably." Insurance firms strive to operate profitably through their ever-changing risk appetite.

Risks emerge on their own (e.g., lightning strikes) through interaction with nature, through interaction with the actions and behaviors of members of society (alone or among members of society), through the applications of technology or through some hybrid combination of any of these elements. (See visual below.)

Insurance professionals, including risk managers, think of a risk landscape. I’ve written reports about the risk landscape (or landscape of risk) through my decades as an insurance industry analyst. But the term "land" has outlived its usefulness for many years.

True, we can, and do, think of risks beyond those occurring on a terrestrial terrain to include risks happening in (or under) the oceans or in air or space. However, with the advent of the web and web-enabled applications and their concomitant risks, "land" is too mentally limiting. The web is a bridge from our historical world of analogue risks to a hybrid world encompassing an ever-changing mixture of analogue and digital risks. The bridge is a host of cyber risks that will affect both the digital applications as well as the analogue applications infused with or connected to the web-connected digital applications.

I propose using “risk radar” instead of “risk landscape” to encompass all past, current and emerging risks regardless of where they exist or appear, including in the application of web technologies. I’ll try to use it in this and forthcoming blog posts. However, I know that I used "risk landscape" in my book, which is going through an initial edit by Wells Media. We’re targeting 2Q22 or 3Q22 for the book to be published as an ebook, audio book and paperback. (I had to put in a plug for my own book, didn’t I?)

See also: The Spectre of Uninsurable Risk?

Shift of impact of risk to an uninsurable level of severity

I am not stating that every risk that society has experienced, is experiencing or will experience will have an uninsurable level of severity. I am stating that there will be a growing number of risks, particularly those associated with web-connected digital artifacts (or analogue artifacts infused with or connected to web-connected digital artifacts), will have uninsurable levels of severity.

The table below shows a 2 X 2, but we all know there is actually a gradient from low to high frequency as well as a gradient from low to high severity. Pandemics, terrorism and, in my opinion, cyber attacks sit in the "high severity" row (or end of the severity gradient).

Most of us trust the companies we conduct commerce with, but there will be more questions like these:

• “How did thieves break into my digitally locked car?”
• “What do you mean I can’t get into my house because the ‘key’ has been hacked and I have to pay ransomware to get into my own home?”
• “How could some person hack into our web-connected devices that we use in our homes to know we were gone and rob us?”
• “Why are all of our corporate systems shut down?”
• “What do you mean that my company’s servers have been used for a dedicated denial of service attack and my company is liable for the damages done to other companies and their clients?”
• “Why is my EV car stopping in the middle of the highway?
• “Why has our company stopped providing petroleum products throughout the U.S. East Coast?

In reality, the trust – between each of us and the web-connected devices we use in our homes, vehicles or corporations – should have been completely vaporized as soon as the first device (home appliance, corporate appliance, personal vehicle, company fleet vehicle,…) was connected to the web.

Web-connected devices have an impact of and level of losses that is no longer local or regional: The impact of the risk is global. To repeat what is in the red outlined box in the visual above for better readability:

I hypothesize that as society – governments, businesses, people – use increasingly more digital technologies (of which increasingly more will be connected to the web), that the scope of cyber attacks will represent a financial scale that represents a level of severity that the insurance industry is not financially able to provide sufficient coverage for.

Pogo is definitely at play here: “We have met the enemy, and he is us.”

Revisiting the CP&C broker commerce conversation

My remarks in this section are based on the areas of focus in the visual of the last section: low frequency and high severity as well as high frequency and high severity of risks.

The first visual I show below illustrates what I call the "conversation and acceptance" of commercial P&C insurance commerce. I have a question mark next to "acceptance" to indicate the changing risk appetite of carriers.

(In case there is any doubt about my use of “changing risk appetite,” I am from the insurance carrier business side of the insurance industry. I absolutely believe that carriers have the right – and responsibility – to change their risk appetites whenever they think it is best to do so for their companies.)

I’m using the curved arrows to reflect that large/jumbo CPC clients will have a hybrid stack of self-insurance, use of primary insurance and use of reinsurance. There will not necessarily be a stacked column of the three elements one after the other. Moreover, I’m showing some of the elements of the CPC carrier that "greet" the broker and the client as they look for cover for the specific risk. Please don’t overlook the "small" potential role of the federal government (depending on the risk being considered for coverage.)

I want to repeat what I wrote in the green box under the CPC client for emphasis: Regardless of the market solution the broker identifies to mitigate the client’s risk(s), the legal onus is on the client to manage the risk in some manner. This always holds (for every risk) and will hold in dramatic fashion for cyber risks. And for the cyber risks in the areas of focus, I believe the role of the federal government will have to explode in a similar dramatic fashion.

Actually, I could foresee when (and it should be when and not if) the federal government plays a major role "covering" cyber risks that are uninsurable. At that time, the federal government will take a very large stick (perhaps through laws, regulations and executive orders) to hammer corporations to better secure their cyber operations to protect their company, their clients and prospects, their subcontractors and others (people and companies) they conduct commerce with.

This will expand the market for technology firms that create and sell cyber security and privacy solutions. It will also expand the market of people with "white hat" cyber hacking skills to work for companies (or technology firms or consulting firms). The technology firms offering cyber security and privacy solutions should also find themselves under the harsh glare of the government cyber laws and regulations.

I want to make another point clear: Brokers involved in the cyber commerce conversations will have to have some minimal level of knowledge of the (changing) nature and implications of cyber security and privacy as well as the cyber solutions available to mitigate their damage to the broker’s clients (and their clients).

I believe there will be a role for CPC insurers to generate non-risk-based fees from the provision of cyber services (e.g., auditing, monitoring, remediation). The CPC insurers participating in the cyber services market would obviously have to determine the resources needed to offer the cyber services.

Not every risk is insurable

The crux of this post is the point that there are some risks (and I believe a growing number of risks) that are (and will be) uninsurable.

See also: Why Open Insurance Is the Future

Criteria for insurability

This raises the question: How can an insurance/risk management professional identify risks that are insurable? Here I introduce some of Dr. Hartwig’s July 2021 testimony. I’ll let the table below speak for itself, but I will repeat his point that “The inability of a risk to meet one or more of these criteria reduces or eliminates its insurability.”

Consideration of a pandemic through the lens of the six criteria

Here – in the table below – is how Dr. Hartwig viewed the current pandemic through the six criteria: You can see there is a relentless parade of "no," with his logic given for the requirement of each criteria not being met.

Cyber risk will increasingly become uninsurable

Turning now to cyber risk (which encompasses various risk segments), I use the same six points of insurability (or uninsurability, depending on your point of view) to conclude that cyber risk is uninsurable.

Remember, the risk is not insurable if only one of the six criteria is not met.

By my analysis, I come up with: two criteria of insurability met, two criteria not met and two criteria assigned a "quasi" rating, meaning maybe yes or maybe no. I answer no to the criteria: 3) determinable and measurable loss and 5) calculable chance of loss.

I suggest you select a specific cyber risk and do your own analysis. I may be too skeptical. I may be looking at the cyber risks too harshly. However, whoever does the analysis should lose whatever levels of trust they have about any of their web-connected devices being safe, secure and private.

Remember, there are only two types of web-connected devices: those that have been hacked … and those that have been hacked but you don’t realize it.

It’s an interesting time to be a business leader. Recent research shows that 25% of employees are considering a job change, while 60% of leaders are still feeling daily burnout. From hospitality to retail, many industries are facing record labor shortages. In the title industry, an unprecedented real estate market is creating hesitancy for homeowners and hardship for agents. After such massive uncertainty on a global scale, risk aversion feels almost instinctual – and, as leaders, the easiest route may feel like the one that leads back to the status quo. 

It can be downright frightening to disrupt the norm when it comes to your company – and disruption is not always positive. Like anything else in business, disruption has to be approached strategically. Unique challenges, however, often demand unique solutions, and being willing to go against the grain can uncover new opportunities and help your company stand out to both employees and customers. Organizations that are more innovative generate 11% more revenue and 22% more growth than those that tend to stick with tradition. Below are four ways leaders can buck the status quo and create positive change for your customers, company and community:

1. Listen to your gut – and your consultants.

It’s just a fact: you’re going to have to take risks in business. At some point, you will need to make a new hire, launch a product, make changes to a long-time service or make another decision that brings risk. You can make decisions that will set you apart by trusting your gut about the things you’re the expert in and reaching out for guidance on the things you’re not. Don’t be afraid to stand up for the vision you have for your company, but also be open to admitting what you don’t know — and accepting that you can’t know everything. There’s a reason that 60% of CEOs at growing companies work with coaches and consultants. When you have trusted advisers to collaborate with, you can approach every decision with the benefit of a wealth of perspectives and expertise.

2. Focus on the humanity.

Regardless of what your industry is, people ultimately make your business run. The people who work in it, the people you partner with and the communities that comprise your customers – all are integral to your success. Always look for opportunities to build and facilitate relationships well beyond the moment of transaction. Eighty-two percent of consumers want more human interaction, and nearly half say they pay close attention to how a company supports its community when making purchase decisions, so being a visibly positive force in yours should be viewed as both an ingrained responsibility and good business sense. A culture of giving back has also been shown to increase employee productivity by as much as 13% while simultaneously improving collaboration. Consider creating a role at your company for a designated community ambassador who is always looking for new sponsorship and volunteer opportunities for your team. When you take the time to build connections with the people who interact with your business, you also build customer loyalty, a positive reputation and high employee retention and morale. 

See also: 7 ‘Laws of Zero’ Will Shape Future

3. Leverage your differences to build a balanced team.

It takes a lot more to run a business than just knowing your industry; you have to be willing to seek out other perspectives, detailed about hiring the right people and dedicated to building a great culture. Instead of thinking about the ways you don’t fit “the mold” of leadership, focus on how you can build a balanced team where one individual’s weaknesses are balanced by another’s strengths – including your own. Having a background that doesn’t fit neatly within your niche isn’t necessarily a bad thing; it means you bring an outside perspective to the table along with a layer of expertise that your competitors likely don’t have. Combine that with the right hires, and you end up with a team that is well-rounded and brings a deeper level of value to your customers.

4. Reconsider traditional hierarchy. 

A traditional hierarchy has been the norm in most businesses for so long that it’s rarely questioned, but, if you want to build innovation in your company, you have to apply it at every level. Hiring self-starters, trusting their expertise and giving them space to thrive fosters an entrepreneurial spirit that is key for inspiring ideas and higher collaboration. Hiring motivated people – and trusting their expertise -- allows both your team and your company to prosper: Employees who feel trusted by their leadership have 74% less stress, 50% higher productivity, 76% more engagement and 40% less burnout. For leaders, giving employees more ownership and less day-to-day oversight results in more time spent on strategic business planning and development. 

The road less traveled

There are a million different paths to leadership, along with an intimidating number of pitfalls to avoid. It’s the ones less-traveled, though, that can lead to the greatest journey and the best reward. From startups to small businesses to large corporations, the companies (and leaders) that veer away from the norm end up making the most impact – not just on their bottom lines but on their employees, industries and communities.

Subrogation is a relatively manual, time-consuming process often requiring physical checks to be mailed on a claim-by-claim basis between insurers. Sounds laborious, doesn’t it? That’s because it is.

In 2018 alone, the total amount of dollars demanded and issued through the subrogation process was over $9.6 billion for all insurance carriers, and multiple sources of data increase the potential for fraudulent claims. According to Claims Journal, up to 10% of claims costs for U.S. and Canadian insurers are attributed to fraudulent claims.

With so many disparate parties, including claimants, carriers, third-party adjusters (TPAs), law firms, recovery companies and regulatory entities, involved in the process, subrogation is in desperate need of innovation. Fortunately, emerging technologies are providing solutions.

In this post-COVID world, with reduced dependency on physical location, the digitization of insurance has caused a significant ripple effect for businesses in subrogation, including those involved in risk management and data protection.

The Proverbial Silver Bullet?

Blockchain, or distributed ledger technology (DLT), can help insurers drive more efficient processes, including use of new “smart” contract models. 

Smart contracts allow insurers to enforce agreements by storing business rules in programing code and have them execute automatically once the required terms are met. Smart contracts can significantly reduce the cost of "netting." Netting is a process when two insurance companies give visibility into corresponding liability and recovery efforts. Today, this process can take days or weeks or months. With transparency provided by blockchain, the netting process can occur in real time. And, this is a huge cost and compliance savings for carriers, as well as for the entire ecosystem.  

Blockchain employs consensus management to manage risk pools, underwriting and claims payments. The contract is digitally signed on the blockchain, providing all parties a single version of the contract, eliminating the possibility for version mismatch or misinterpretation.

Security 

Due to the nature of DLT, blockchain can automate transactions and allow multiple organizations to share data securely. Data is stored on multiple machines, making it essentially “public.” In this scenario, it becomes incredibly difficult for a hacker to alter the content of the data because it would have to be done on every node simultaneously. 

Data is more secure because blockchain networks store data in a format that cannot be replicated or tampered with. Each block of information is also stamped with a unique alphanumeric hash key, which contains information about that block and all the ones that proceeded it. If one block is altered in any way, it will be immediately apparent by comparing it with others in the chain.

See also: Breakthrough for Blockchain?

Transparency 

Blockchain technology is providing new ways of carrying out data exchanges that are more secure and transparent than ever before. The ability to make these transactions without a central authority enables better serving customers by removing the bottlenecks and inefficiencies that come with outdated manual processes.

Having stakeholders house their data on a blockchain creates a shared source of truth, which would facilitate data-sharing, reduce costs and decrease the likelihood of errors. By creating a single source of truth, a blockchain solution would eliminate data redundancy, reduce the potential for errors and speed the process by eliminating the need for continual information requests. An automated blockchain payment solution would eliminate the need for reconciliations, improve audit quality and reduce the potential for payment fraud. 

In addition to claims processing, a blockchain payment solution can streamline operations, improve accuracy and reduce costs across the value chain in such areas as agent/broker commissions and incentives, premium receivables, premium refunds at cancellation and service provider/vendor payments.

Blockchain employs smart contracts and consensus management to manage risk pools, underwriting and claims payments. The contract would be digitally signed on the blockchain, thus providing all parties a single version of the contract, eliminating the possibility for version mismatch or misinterpretation. Blockchain provides immutability by design. And, each party owns their ledger and a record of unconsumed evidence. Decentralized transactions (with common access to a ledger that has a secure audit trail) provides an improved basis for non-repudiation, governance, fraud prevention, financial data and reporting.

The Future of Subrogation – Sponsored by Blockchain

Blockchain is poised to rewrite the rules of competition in the subrogation industry by streamlining operations, enabling data to be shared seamlessly with external stakeholders and disrupting traditional business models and intermediaries.

After a long stretch of global and local crises recorded under a relentless social media spotlight, the world is focused on risk in a different way now than it was even a few years ago. Businesses are building their risk management capability by investing in cyber security, flexible working capabilities and risk data and analytics. More firms are hiring risk managers and exploring insurance options that include risk and crisis management. And as our new Risk & Resilience study reveals, they are thinking about insurance differently, too.

The pandemic and ensuing lockdowns appear not only to have shifted business structures and operating models but also to have transformed business leaders’ views and expectations of insurance.

Insurance has always been considered a necessity, but our Risk & Resilience data, which is based on interviews with more than 1,000 C-suite executives in the U.S. and U.K. across 10 different industries, reveals that businesses are now expecting more from their brokers and partners. 

Let’s take a look at some of the biggest frustrations around buying insurance for businesses as revealed in this report, and how the insurance industry can use these findings to reshape our approach to risk.

A question of trust: Almost half (48%) of those surveyed said their trust in insurance has increased since the start of the pandemic, but only 54% believe that insurance is meeting their businesses' challenges very well.

Trust in insurance appears to have increased since the start of the pandemic, but what business leaders want from it has extended beyond pure financial protection. Balance sheet strength, a solid reputation and a swift and smooth claims handling process seem to now be expected as a baseline. Today, business leaders are demanding more. They want insurers and brokers to demonstrate better understanding of their operations and the risks they face.

Insurance buyers are looking to us to add genuine value to their business through the provision of regular risk insights, risk management tools, services and flexible coverage tailored to their sector and business size.

Delivering on these expectations in today’s complex, connected global risk environment means the insurance industry needs to take stock. A challenge for the industry is how we better apply data and claims insights to help clients future-proof their businesses against emerging known and unknown risks such as cyber, supply chain and environmental, social and governance (ESG) concerns.

See also: Pressure to Innovate Shifts Priorities

Closing the knowledge gap: A quarter of business leaders struggle to understand what cover they need, and 19% find it hard to get insurance tailored for their sector or specialist business.

Our findings also show there are elements of researching and obtaining commercial insurance that are perceived as difficult and where there is a need for better clarity and customer education. These include knowing the premium limits a business needs insurance for, comparing quotes and understanding how a policy would respond to real-life scenarios, as the controversy around interpretation of some business interruption coverage in the face of a pandemic has shown. 

However, the most important part of buying insurance is knowing the types of risk their business needs to be covered for, which was cited by over a fifth (21%) of respondents. Buyers’ number one ask of their insurers is a deep, specialized understanding of the specific risks they face – and points to the existence of a knowledge gap that they are looking to specialist insurance partners to fill. 

Business leaders see the primary value of insurance in terms of financial support provided by a trusted partner. However, there is a tension between clients wanting and seeing the value of a long-term partnership with their insurance provider, but also thinking the insurance industry is too focused on the short term, with a tendency to dip in and out of certain classes of risk and change terms and conditions as market conditions dictate. 

While the relationship between insurer and insured has often been predominantly transactional, it needs to evolve more quickly into one that is more strategic, based on partnering to develop effective risk management solutions. For this to happen, the insurance industry needs to bridge the connectivity gap with clients by better demonstrating knowledge and insights around the risks they face. 

Creating a better connection: 44% don't think their insurers understand their business.

Building a better connection with clients and increasing the perceived value of insurance will require the insurance industry to improve its understanding of how buyers approach risk. Our findings indicate that buyers appear more inclined to insure when they think risk is real and present. 

As an industry, we need to consider how we connect better with clients around the risks that matter, not just today but in the medium to long term, to raise awareness and help them to prepare their business to be resilient against the changing risk landscape. This needs to be done through the lens of sector specialization, increasing understanding of the value of insurance overall as both a risk mitigation and a risk management tool. 

To build better connectivity, our research suggests that the insurance industry should reconsider the relationship among brokers, insurers and clients, as solving today’s complex, increasingly connected risks likely requires other skilled experts to be involved, too. As well as offering risk mitigation expertise, coverage and insight, insurers can be a conduit to those other expert partners and service providers with the depth of knowledge and experience required to manage the multifaceted issues created by many of today’s risks. 

To achieve a genuine partnership with clients, and to deliver the service that businesses indicate they want, will require regular, productive interaction. The challenge for insurers and brokers is to encourage busy clients to invest time – and determine what a more productive relationship will involve and deliver. As the insurance industry engages more with clients, effective communication and the ability to develop relationships and to share deep technical understanding and also to talk about broader business issues will be paramount. 

See also: Building Telematics Can Mitigate Risk

The results of our research show that the insurance industry is at a point of inflection, and that it is time for a service rethink. 

Our findings show that there is a big opportunity for the insurance industry to support businesses by harnessing data, tools and insights to provide more specialist, tailored and flexible coverage that meets sector needs and provides greater risk and crisis management support and insight. The industry is already making moves in this direction, for example looking at ways to deploy AI and use parametric triggers. Use of these types of innovation is likely to increase. 

Moving forward, we have a greater role to play, principally in designing and enforcing protocols and standards to help organizations improve their resilience against a broad range of risks and helping them to be more operationally resilient while operating in a high-risk and uncharted environment.

As coronavirus infection rates rise again, businesses around the world are asking themselves an uncomfortable question: Will consumers buy?

Since the outbreak of the pandemic, consumer behavior and business engagement with their customers has gone into uncharted territory. Consumers, influenced by COVID-related restrictions, experienced changes in needs for goods (increased consumption of food eaten at home), services (demand for high speed broadband bandwidth) and experiences ( an increase in outdoor leisure events). Businesses had to deal with volatility of their inventory, changing consumer demand patterns, the need for a complete move to online ordering and changes in their product mix (restaurants, for instance, have changed menus to accommodate a better pickup/delivery experience).

What we can now say for a fact after dealing with 1.5 years of COVID is this:

• All consumers, including previous nay-sayers, have become more comfortable shopping online.
• Using e-commerce platforms such as Shopify, every business can spin up a virtual store in no time.
• Consumers want relevant offers to be made where they shop. 
• There is consumer resistance to generic ad-tech offers. 
• Consumers expect higher levels of service. They look for higher certainty and flexibility from the businesses they buy from. 

Reality for every person is now changing much faster. One moment you may be planning to leave for Hawaii for a few weeks, and the next you are quarantined at home because your kid has a runny nose. 

There’s an old Yiddish saying, “Mann Tracht, Un Gott Lacht” -- Man makes plans, and God laughs. 

See also: Achieving Digital Balance in an Agency

Business in uncertain times

How can businesses succeed in an environment where everything is possible but nothing is certain? Many businesses have found the answer is to give consumers enough certainty that they reach a conviction that allows them to purchase -- create a sense of security around their ability to make changes, to cancel or to return the goods. 

Into this gap comes embedded insurance. When done right, it allows insurance products to meet consumers when and where it makes the most sense for them and to deliver highly sensible protections that they really want.

What makes embedded insurance so exciting is that it changes an insurance model that is centuries old.

If you are thinking to yourself, how does this all relate to changing consumer behavior and to the need to increase consumer conviction, consider this: A family is researching the option to go on a vacation via an online travel agent. They are interested in a beach resort in the Maldives. They will not book until they have strong conviction that there’s little or no risk to their travel plan or their experience. Risk means different things to different people at different times. In normal, non-pandemic times, a family like that might care mostly that the weather is nice, that the water is free of jellyfish or that there are no air quality issues. Nowadays, they may care more about having medical coverage, getting infection rates and screening procedure updates or simply having the flexibility to cancel if something goes wrong or doesn’t feel right.

Embedding insurance to create trust

Undoubtedly, a merchant selling goods is the one who knows his or her consumers and their purchasing behavior the best in the world. This kind of business oversees the customer journey and can recognize demand, conversions and trending concerns. The challenge the business has in these uncertain times is that consumers hesitate due to perceived risks. Embedded Insurance can be inserted into the online buyer path to create reassurance around the associated risk. Using AI, embedded insurance can allow for additional value-added protections to be customized and tailored to the needs of each consumer. This is a seamless experience as the consumers have already supplied all of their relevant details to the supplier. To complete a positive online experience, bundling, pricing and drafting of the policy needs to be done in near real time. 

See also: 7 ‘Laws of Zero’ Will Shape Future

In a sea of protection and service providers, insurance companies, technology platform providers and more, how would a business go about selecting the best insurance solution for its customers? In my mind, a business selling embedded insurance needs an insurance partner that:

• Understands the complexities of how businesses sell to their customers, 
• Is up to date on what consumers expect, 
• Has a wide portfolio of protections and coverages either in-house or from third-party providers, 
• Bases decisions on data, 
• Can seamlessly integrate with the merchant
• Can offer insurance streamlined into the core product or service sale.

Including an embedded insurance or service offering in the product offering can boost customer engagement and overall customer lifetime value. These protection policies can be auto-renewed or set as a subscription service to ensure customers keep coming back. Embedded insurance is the way forward for many online businesses to offer confidence to consumers, so they buy products and services in what are undoubtedly uncertain times.

Search “climate change and insurance” on the internet, and there will be no lack of information on the intersection between global warming and property insurance. It is also not hard to learn about the impact climate change is having on the D&O line of business. However, one area that is overlooked, in relation to climate change, is the product liability insurance space. That is slowly changing, and interest will most likely accelerate in the coming years. 

Wrapped up in broader social policy conversations like environmental justice, social equity and social inflation, climate change risk is emerging within the product liability discipline in a pattern seen previously with mass tort litigation.

An emerging risk in the context of product liability insurance usually follows a course starting with the publication of scientific or academic reports indicating a causal link between a particular condition (i.e. climate change) and property damage or bodily injury to a third party. As these works attract attention, litigation begins to accelerate. There is a period of fits and starts, but, as more scholarly studies are conducted by reputable sources, the causation argument becomes stronger.

The history of mass torts in the U.S. demonstrates that increasing amounts of scientific evidence precede allegations of liability and an advance of litigation that can be materially damaging economically. And the industry is entering a period of affirming causal linkage between climate change and product liability.

Insurance companies’ underwriting and claims communities should be examining the trend.

Businesses and organizations have a duty of care. When they sell a product or provide a service, it is expected that it will perform as intended and not cause harm or damage. In the instances where there are aspects of the goods that could be harmful, there is a duty to warn -- hence the plethora of warning labels, disclaimers and safety pamphlets we see when we purchase a product. Climate change will enter through the doors of these corporate responsibilities affect the product liability insurance market.

In 2007, David Hunter and James Salzman, in their University of Pennsylvania Law Review article, “Negligence in the Air: The Duty of Care in Climate Change Litigation,” anticipated that more tort actions would be brought against companies for breach of their duty of care as more scientific evidence was produced demonstrating that these companies contributed to greenhouse gas emissions, which caused physical harm to others, either through the products they sold or the production methods used. The authors also predicted that other legal avenues could be pursued, such as design defect, failure to warn or public nuisance claims.

Considering “Negligence in the Air” was published in 2007, a review of more recent circumstances should elevate Hunter and Saltzman to oracle status. In 2019, Neil Beresford, an expert in complex product liability claims at Clyde & Co., wrote, “The past several years have seen a surge in climate change litigation, and these lawsuits are providing a wider body of case law and attribution science that will enable courts to draw on decisions from around the world to influence their thinking.” This author posits that a wide range of industries, such as energy, heavy manufacturing and financial institutions, will all be drawn into climate change litigation. 

One location where suits might occur is California. In August, Cal/OSHA released a circular reminding employers of their obligation to protect workers from the harmful effects of wildfire smoke. While Cal/OSHA regulates employee safety, the California Office of Environmental Health Hazard Assessment (OEHHA) focuses on citizens at large and oversees enforcement of the state’s Safe Drinking Water and Toxic Enforcement Act of 1986, well known as Proposition 65. The purpose of Prop 65 is to enforce a duty to warn by requiring labeling of consumer products sold within the state that may contain chemicals that cause cancer or birth defects. While Prop 65 itself is not directly related to climate change, the OEHHA has more recently participated in studies linking higher temperatures to an “increased occurrence of death and illness, including hospital visits, emergency room visits and birth defects.” With Cal/OSHA’s concern for wildfire health hazards and many carbon-based chemicals on the Prop 65 list, it is easy to envision future developments that could bring actions against manufacturers for the harmful health effects of global warming due to the carbon-based goods they produce. 

See also: A Price Tag on Climate Change

In fact, published just this year, the UN cited over 30 current cases in their “Insuring the Climate Transition” report that involve climate change litigation, falling into the following categories:

1. Fossil fuel production, emissions of greenhouse gases or misleading climate altruism known as greenwashing
2. Litigation related to physical harm due to climate change
3. Cases related to environmental regulatory breaches                       

The UN selected these examples because they involve novel theories of law, because they could have material financial impact should plaintiffs prevail or because the discussion of climate change overall has been aided by the decisions the particular judges have issued.

Another possible catalyst for future product liability litigation related to climate change is with the rise of litigation funding in the U.S. If there is an increase in the amount of scientific studies linking manufactured goods to the harmful effects of climate change, there will also most likely be an increased interest in the legal financing of suits brought on this basis. 

To date, the solution for the product liability underwriter has been to add exclusions to policies preventing them from responding to nascent climate- and carbon-related risks they cannot fully anticipate nor model such as MTBE, BPA or wildfire; or risks where there is a concern of dramatically, socially inflated jury verdicts. Even those insureds that purchase environmental liability policies should not assume a claim brought against a policyholder for the emission of CO2 would be covered under their policy. At present, it does not appear that there is contract-certain coverage for climate change risks in the casualty and liability arena. Existing policy forms either exclude the bodily injury or property damage risk through pollution exclusions. Even the failure-to-warn risk is usually uninsured due to limitations written within the advertising liability coverage part. On top of that, affirmative coverage has not been explicitly offered because there has not been a successful liability case based on a plaintiff’s contribution to global warming -- yet. 

The smart underwriters, however, will recognize the pace at which social policy is changing rapidly and should be bold in their deployment of capital as a means of supporting change. Some actions to consider:

1. Embrace the newer forms of third-party modeling platforms for emerging casualty risks that do not have historical loss patterns. Instead of avoidance of risk, underwriters can use these models to responsibly provide capacity.     
2. So as to offer a sustainable insurance program, upgrade the risk analysis process using insurtech tools to gather more data around insureds’ production methods and raw materials, as well as the biomedical science that may inform an underwriter about long-term risks related to those substances and their fabrication.  
3. Study policyholder ESG metrics and loss experience, and if correlations emerge incorporate those insights into the underwriting process as regulation allows.   
4. Develop coverage enhancements like reputation cover, legal expense annuities or regulatory enforcement coverage that could protect customers facing false claims of greenwashing or climate change legal liability suits.

See also: How Insurers Can Step Up on Climate Change

My favorite recommendation, however, is to be part of the climate solution by capitalizing on an underwriter’s innate inquisitiveness. Many new companies and organizations are forming to address the challenges of climate change, like developers of CO2 capture and sequestration facilities, designers of urban green roofs, inventors of sustainable water-management IoT devices and entrepreneurs offering services related to ESG scoring and reporting. With their launch, climate-related companies will need liability insurance, making them attractive new opportunities for an underwriter.

As these enterprises use untested technologies with no historical loss experience, the casualty underwriter’s enthusiasm may suffer. However, underwriters and sustainability-focused companies have a common characteristic: They similarly provide a social good through their products. Through collaboration and study, underwriters can understand the technologies these start-ups apply and provide access to the abundant risk mitigation resources insurance carriers can offer. With reasonably priced insurance coverage and capacity, businesses oriented toward solving the effects of climate change would have the protection needed to innovate and expand confidently. Insurance often looks to the past to predict the future, but it is also an industry that has the ability to facilitate a better world.

The full FDA approval of the Pfizer vaccine is an enormous development in the fight against the COVID-19 global pandemic. Already, there has been a steady increase in the rate of daily vaccinations, though still way below what is needed to stop the surge of the Delta variant. I have been trying my best to educate the public and state and federal officials for years now about the dangers of the anti-vaccination movement. Anti-vaxxers challenge the science they don’t understand or have been lied to about it. Let’s try the math.

Back in April, the incidence rate for the Delta variant was 0.1% among COVID cases. The little children in my math classes can tell you that means one tenth of one percent. Today, the Delta variant accounts for 86% of all cases and 95% of the hospitalizations and 99.5% of the deaths. Intensive care units in the Deep South are overwhelmed and turning away non-COVID patients, including cardiac arrests. Is it a coincidence that Alabama and Mississippi have the lowest vaccination rates in the country? Florida now has more COVID-19 cases than any state since the beginning of this pandemic. 

The FDA approval process was based on a 91% effectiveness rate in preventing the disease from spreading person to person. The Delta variant is spread like the common cold and is more contagious than smallpox. The Centers for Disease Control and Prevention (CDC) declared the Delta variant one of the most infectious respiratory viruses in history. The protection rate for non-vaccinated people is 0%. 

This full approval comes just days after the FDA approval for the third shot or booster shot. The reason for the booster shot after eight months is the math. The COVID vaccine was found to hold at 92% effective against serious illness and hospitalization from initial COVID-19 cases but only 64% effective against the Delta variant. I, too, was delighted when the COVID-19 restrictions were lifted after being in lockdown in New Jersey for over a year, an early epicenter with more deaths per capita than any other state. I have been going out to dinner virtually every day at a NJ diner. But the war turned out not to be over. What happened? The disease mutated right out of a horror movie. 

A recent Kaiser study found that two-thirds of the non-vaccinated people in the country believe in myths and hoaxes about the safety of vaccinations. (See my ITL articles on vaccinations.) The UN and the World Health Organization have called this problem an "infodemic." The U.S. Surgeon General has added that this health misinformation is now a serious public health threat. 

I am thrilled with the movement now by both public and private institutions, employers, hospitals, nursing homes, colleges, sports teams, restaurants, etc.  requiring proof of vaccinations or at minimum a recent negative COVID test. However, a negative test on Monday means nothing on Tuesday. 

See also: Long-Haul COVID-19 Claims and WC

What is needed is a huge public campaign to educate four core groups of unvaccinated people in this country. Black and Hispanic populations, young adults between 18 and 26 years of age and the Deep South. Where is the Concert for COVID Vaccines? Where are the sports stars whom people idolize coming out for vaccinations instead of trying to sell me stuff on TV?  Want to see Billy Joel at Madison Square Garden? Get vaccinated at the show! Where are the country music stars? Hispanic music stars? Black music stars? 

There are now 60,000 new cases a day reported of the Delta variant, up from 24,000 cases per day from a few weeks ago. Do the math: 24,000 cases a day is 1,000 new cases an hour. Now it is 2,500 new cases an hour and getting worse. We have already lost over 600,000 people to this horrible pandemic. We went to war when we lost 3,000 Americans at Pearl Harbor, and 60 years later we went to war when we lost another 3,000 on 9/11. 

I don’t want to hear another word about “freedom” from anti-vaccination folks. You are not free to spread a horrible disease to other Americans and their families any more than you are free to be drunk on our highways. Unfortunately, it has now also been reported that the rate of normally routine childhood vaccinations for polio, measles, whooping cough and tetanus is way behind schedule for the re-opening of schools and is now also a major concern. All the political rhetoric and misinformation on vaccines is having a terrible ripple effect.   

We can do this America. Do the math. How do you think polio, smallpox, malaria and childhood diseases like the measles were eliminated? By the scientific development and widespread use of vaccines. Why are these diseases making a comeback? The anti-vaccination movement.

I'll see you at the concert for COVID vaccinations. Can I get my booster shot there?