The digital disruption to the U.S. home insurance buying process has been on the horizon. However, the fallout from the pandemic has rapidly shifted the industry, as consumer expectations are evolving and carriers look for solutions to streamline customer interactions. Consumers continue to purchase more goods and services online and expect companies to provide them with seamless experiences. For home insurance carriers, that means digital engagement is no longer just a communication channel. It is now a way of doing business. Carriers using digital business models and leveraging the right data will be better-positioned to make informed decisions and deliver a superior customer experience. 

To better understand how home insurance carriers are transforming the customer experience and underwriting process to meet these expectations, LexisNexis Risk Solutions commissioned a third-party survey of the top 50 U.S. property insurance carriers in 2020. Findings from the study were compiled in the Innovations Transforming the Home Insurance Buying Process report and reveal how disruption, innovation and the pandemic are affecting the industry. To stay competitive, carriers may need to invest in automation to improve their buying processes. 

Results showed that carriers are prioritizing automation as the impact of COVID-19 continues on claims activities and other areas of the policy lifecycle. Carriers that have not invested in automation can act now to keep up with market leaders. Carriers have an opening to improve the customer experience at bind, renewal and claims by using the intelligence available at their fingertips to help reduce time and expenses, maximize efficiencies and better understand their customers’ risks and returns. 

Additionally, carriers see other challenges looming in the next three to five years. Survey respondents listed their major concerns as: losing customers with higher expectations; a growing use of comparative rates; targeting customers with competitive premiums; answering insurtech threats; and charging adequately for changing weather patterns. Carriers need to be ready to implement digital solutions and automation built on a wider dataset.

Enhancing the customer experience

To keep up with the increase in claims activity and consumer demand for a digital insurance experience, most U.S. home insurance carriers are relying more heavily on available data sources to reduce the questions asked during the policy purchasing process and decrease in-person inspections.

The study revealed 67% of carriers are in the process of making changes to their investments in the home insurance buying process, while 43% have already made significant adjustments within the past two years. Key goals of carriers’ home insurance investments include improving the customer experience (77%), improving profitability (60%) and reducing underwriting expenses (53%). 

All carriers surveyed placed the most importance on minimizing customer friction. Relying on consumers to supply information slows the process, increasing the opportunity for mistakes and customer frustration. For carriers, that means gaining access to other sources of data they can trust to be more accurate and up to date.

See also: How to Exceed Customer Expectations

Responding to digital and market disruptors

Digital technologies are having a large effect on the business. New disruptors to the home insurance industry include self-service apps for consumer-led inspections, third-party aerial imagery, digital-only carriers like insurtechs, Internet of Things (IoT) smart home appliances and the gig economy. 

Almost all (93%) carriers reported that self-service apps do not eliminate manual claims processes completely, but do help to reduce costs. The evolving gig economy also offers new opportunities, and many (75%) carriers have responded by offering specialized coverage products.

As the use of data prefill capabilities, advanced analytics and aerial imagery are increasing, carriers are mindful that these new market entrants are filling current gaps in the home insurance product set. As a result, 93% of carriers surveyed are investing in digital and mobile capabilities, product innovations that settle claims faster and ways to enhance the customer experience. 

Data is a key enabler for carriers wanting to remain competitive with changes throughout the customer lifecycle. It can assist agents to identify and recommend the best products and services to customers. This is an important path to improve the customer experience and potentially boost carrier profitability.

See also: Pressure to Innovate Shifts Priorities

Looking ahead for growth 

As home insurance automation continues to evolve, the carriers that use quality data to optimize their customer experience will likely be able to offer a more consultative and trusted customer experience, while positioning themselves for better segmentation and helping them make decisions faster. They will do this by both confirming data versus collecting it from the consumer, and by leveraging prior policy information to guide them to the right coverages for that consumer. 

Now more than ever, home insurance carriers need to evaluate their processes to see where enhancements are needed. Those that have a future-ready, digital business model will be in a better position to answer consumer needs and anticipate buying trends. Carriers having access to the right data at the right time will reduce customer friction throughout the policy lifecycle and address pain points, helping position them for rapid, competitive growth.

Wealth is the product—the work product—of work itself. Whether the product is a wealth of money, especially if wealth refers to a specific amount of money, or a wealth of deeds for which money advances good deeds, protecting wealth from excess taxation is essential. 

Private placement life insurance (PPLI) is the protection accredited investors with a minimum net worth of $1 million (excluding their primary residence), or income of at least $200,000 in each of the preceding two years, should have; that accredited investors, including married couples with income of $300,000 in each of the preceding two years, must have. 

Requirements differ among foreign-based PPLI carriers, while modified endowment contract (MEC) regulations ensure that policies have the same tax advantages as U.S.-based life insurance contracts.

Without the protection PPLI offers, and based on the Biden administration’s plan to raise the estate tax, the wealth of generations—born of one and borne by many over the course of decades or centuries—will go to the government. With the protection PPLI offers, an accredited investor can buy a variable universal life insurance policy to safeguard or increase his wealth. 

So long as the domestic investor can pay at least $1 million in annual premiums for four years, in addition to maintaining enough cash value to cover the cost of insurance, PPLI offers an investor a wealth of options, such as: tax-free death benefits to an heir(s), tax-deferred growth of cash value, and the possibility of tax-free growth of dividends. 

Also, the insured often has the ability to remove funds, tax-free, through policy loans and withdrawals.

Because the insured assigns the ownership to another individual or to an individual life insurance trust (ILIT), the policy is not part of the taxable estate."

Provided the cash value is not zero, thus causing the policy to lapse, PPLI is a convenient and customizable source of protection for an accredited investor.

These advantages more than offset any administrative costs, because the insured can create a diversified portfolio of insurance dedicated funds (IDFs) charged with managing the assets of the policy. 

For example, the cash value in a contract may be invested in an IDF that only manages money for life insurance policy cash accounts; while other IDFs offer private equity funds, commodity funds, funds of hedge funds, real estate investment trusts (REITs), and venture capital investments. The PPLI must, however, meet IRS rules pertaining to investor control, insurance, and diversification.

Working with an insurance adviser, the insured can have select money managers oversee individual investments within a portfolio. Choosing multiple managers can mitigate risk, just as having a diversified portfolio can reduce volatility.

See also: Innovation in Fraud-Detection Systems

Choice is the foundation of PPLI investing, because accredited investors want to maintain their financial freedom: giving them the means to perpetuate a legacy, promote a cause or preserve a lifetime of service; to do as they please, in accord with their ideals, on behalf of a universal ideal—that freedom is true and righteous altogether.

Protecting wealth protects the freedom of one to help many. 

Protecting the few who are wealthy increases opportunities for the many to build wealth.

Protecting what wealth makes possible protects what the wealthy can make probable: charity for those who need it, education for those who crave it, culture for those who cherish it.

PPLI is the protection the wealthy deserve, so they can strengthen what they can give.

When notorious criminal John Dillinger was asked during the Depression why he robbed banks, he famously replied: "Because that's where the money is." That simple observation may offer an answer to the surge of ransomware.

Even as companies struggle to strengthen their protections against hackers, we can target ransomware payments in some quite straightforward ways -- and, if the criminals can't get their money, what's the point in hacking?

As this essay in the New York Times argues, "The United States does not have a ransomware problem so much as it has an anonymous ransom problem. If we can change the payment system to make the kidnapping [of businesses] less profitable, we will go a long way toward a solution."

The author, Paul Rosenzweig, a former senior official in the Department of Homeland Security, says 95% to 98% of criminals involved in kidnaping people for ransom are caught and convicted, partly because they can be identified when the transfer of money occurs. By contrast, hackers demand ransomware in cryptocurrency, which, as of now, is extremely hard to trace.

Rosenzweig argues that the U.S. government could simply "adopt and enforce regulations for the cryptocurrency industry that are equivalent to those that govern the traditional banking industry. Cryptocurrency exchanges, 'kiosks' and trading 'desks' are not complying with laws that target money laundering, financing of terrorism and suspicious-activity reporting....

"For example, some cryptocurrency services offer a 'tumbler' feature. Tumblers take cryptocurrencies from many sources, mix them up and then redistribute them, making financial transactions harder to trace. This practice looks like money laundering and would be illegal in the nonvirtual world."

Even though countries like Russia will probably continue to offer safe havens for ransomware thieves, the U.S. can take unilateral action and "refuse access to [the U.S. banking system] by cryptocurrency exchanges unless they demonstrate that they are equipped and prepared to prevent ransomware payoffs.... To be fully valuable, digital currency must also be convertible to cash, so the exchanges would have a strong incentive to comply."

The U.S. could also require foreign banks to "impose stricter regulations on cryptocurrency. Because access to the American financial market is vitally important to foreign banks, they, too, would have a strong incentive to comply."

There has been at least a bit of precedent for tracking and recovering the cryptocurrency used to pay corporate ransoms -- after hackers shut down Colonial Pipeline in early May and were paid a ransom in Bitcoin that was valued at $4.4 million at the time, authorities recovered 85% of the Bitcoins.

There is also precedent for blocking illegal activities by cutting off access to the banking system. I saw an instance up close and personal in the mid-2000s when I was working on a book project with one of the world's top poker players. He was involved in one of a series of high-profile efforts to take the popularity of poker on cable-TV and leverage it to build a massive online gambling site. While online gambling was illegal in the U.S., plenty of jurisdictions in the Caribbean were willing to host the site. Then the U.S. enacted a law that imposed major penalties on any U.S. bank that handled transactions for online gambling sites. And that was that. All the attempts at building national online poker sites shriveled up and died.

I suspect that companies and their insurers will still bear the brunt of ransomware for some time to come. Companies will need to shore up their defenses, with advice that insurers have developed by working with many clients across multiple industries and with technology companies that are working to stay one step ahead of the hackers. But aggressive action by the federal government could reduce ransomware significantly by going after the flows of money.

I look forward to the day when someone writes an article declaring the end of this scourge. I even have a headline in mind:

"Ransomware: Where the Money Isn't."

Cheers,

Paul

Traditionally, success in the middle-market and large commercial segments relied on deep expertise regarding customer risks and deep relationships with a network of distributors with access to those markets. Those capabilities are still fundamental to success, but lately the carriers’ digital capabilities have become increasingly essential in these markets.

Distribution partners – whether retail agencies, brokers, wholesalers or MGAs – want to do business with carriers that reduce the friction, shorten the quote-to-bind time and provide a good appetite match for the business they want to submit. Naturally, distributors are also interested in product fit and commission structure, but business tends to gravitate to carriers that feature ease of doing business. And all of these things are taken into account as carriers’ channel strategies evolve in the mid/large commercial segment.

See also: Tomorrow’s Insurance Is Connected

A recent SMA Research report, “Channel Strategies and Plans for P&C Commercial Lines: A View of Small and Mid/Large Commercial Segments,” highlights the aggressive stance that many carriers are taking in expanding their distribution networks over the next few years. To gain a deeper understanding of the digital technology capabilities that will support the existing and expanding channel strategies, SMA recently surveyed carriers focused on the mid/large commercial market. The research assessed the current state of digital capabilities offered to distribution partners, barriers to implementation and adoption and plans for enhancing or delivering new digital capabilities in the future.

SMA’s research tracked 14 digital sales-oriented capabilities and 17 servicing capabilities, starting with a carrier’s satisfaction with the state of their tech offerings to their distribution partners. In terms of digital sales capabilities, the overarching theme is that anything that improves the ease of doing business and provides more self-service capabilities is a focus. On the servicing side, both agent and policyholder self-service portals top the list of digital projects. New or enhanced capabilities related to policy, billing and claims are also in the mix.

It is important to note that there are both business and technology roadblocks to success with distribution technology. For example, few will be surprised to learn that limited IT resources are the #1 barrier on the technology side. However, from a business viewpoint, understanding customer needs and creating the right value propositions can prove to be a challenge.

All the new channel strategies and digital project activities reinforce the notion that there is a real revolution going on in the distribution space. For most insurers, standing still will not be an option. Winning strategies will include strengthening capabilities and relationships with current partners and extending distribution networks into new spaces.

For more information on commercial lines distribution expansion strategies, see our recent research report, “Distribution Technologies for Mid/Large Commercial: Carrier Progress and Plans.” SMA is also introducing a new research series with perspectives from the distributor’s point of view. A regular series of research reports will be published based on surveys and interviews withs agencies, brokers, MGAs and others in the distribution channel, including insights from ReSource Pro’s large footprint of distribution clients.

In a world of straight-through-processing and “touchless” claims, customers are demanding faster pay-outs on their insurance claims through smarter, more intuitive digital interactions and customer-centric support models.

Until fairly recently, standard industry processes have allowed time for loss adjustors, claims handlers and expert SIU investigators to appropriately assess customer claims. This approach has been a largely effective, but resource-intensive control on fraud. However, with the introduction of increasing automation, there is far less time available now for human review.

Insurers want to keep customers happy with smooth and rapid processes, but they also want to be confident that they are paying the right people, in the right circumstances, and limiting the opportunity for fraud. To achieve both of these objectives, real-time risk detection technology has a crucial role to play.

The far-reaching impacts of fraud

Insurance fraud has too often been regarded as a victimless crime. The reality is very different. Fraud has an immense impact on society, seriously damaging trust as well as creating material financial implications. According to the Coalition Against Insurance Fraud, criminals steal at least $80 billion every year from American consumers. Premiums rise to manage this additional risk, affecting all customers. Fraud also hurts loss ratios, disrupts daily operations, distorts pricing and affects reserves calculations.

And it’s not just insurance companies that pay when criminals carry out fraud—innocent people, often customers, get caught up in these crimes more often than most would like to think. Arson, murder-for-hire, crash-for-cash, staged accidents and medical malpractice are all examples where organized crime groups have targeted innocent citizens and exposed them to physical harm.

With insurance processes digitizing at an increased rate, the opportunity for fraud has expanded significantly, and it is vital that appropriate responses to those threats are available.

See also: It’s Time for Next Phase of Innovation

Demand more from technology 

Anti-fraud technology has already evolved at an exceptional rate in the last five years, which has included the creation of better investigation tools and experimentation with data science or machine learning techniques  But insurers should not accept yesterday’s technology when they can be pushing for tomorrow's:

• Scoring and alerting should be available in real time to keep pace with the demands from automated claims management workflows.
• Analytics should be transparent and explainable so that the work and decisions of investigators are defensible.
• Technology should be built on open architecture, should be capable of integration with core claims management or underwriting systems in real time and should offer flexibility for deployment in the cloud or on-premise.
• Expert investigators and skilled data scientists should be able to focus on the highest-value cases rather than being frustrated by mundane data tasks.
• Software and systems should support processes where appropriate, but insurers should be able to independently own and manage their own analytics without relying on external services.

Many companies find themselves working with siloed data, attempting to catch irregularities across unconnected data sets. Instead, insurers should demand a single view of all parties—policyholders, claimants, suppliers, brokers—to work within a single data set.

Insurers should also be able to use fraud management technology to easily detect and manage instances of identity manipulation—the slightest change between a name, date of birth, ID or address should be easily spotted and flagged, even if it’s across multiple data sets, to root out fraud without delay. Detection should also consider the relationships between parties, which is often as crucial to understand as the circumstances of each individual claim.

Data privacy regulation has changed significantly in the last decade with the introduction of new laws such as the California Consumer Privacy Act or GDPR in the EU. To ensure compliance. security models must be sufficiently granular and be able to support different user types in accessing different levels of data according to their specific permissions.

Finally, rather than opting for point detection solutions, analytics capabilities should be applied to deliver value across the enterprise. For example, intelligence that can be gained from a claims fraud detection solution can be highly valuable for detecting and preventing underwriting fraud. The same intelligence can equally be helpful in identifying churn risk or upselling opportunities. The technologies being deployed for fraud should also be sufficiently scalable and robust to service multiple use cases to maximize value and achieve a far lower overall cost of ownership.

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

Customers want to associate their insurers with stability, trust, competence and airtight operations. With so much innovation happening globally, now is the moment for insurers to think big and evolve their enterprise fraud capabilities. Fraud is not a victimless crime, it is not the cost of doing business and we do not have to accept the status quo.

With cloud computing, insurers can most effectively use big data and predictive analytics to personalize insurance offerings, accelerate the underwriting and claims processes, catch fraudsters more easily and reduce their IT spending.

In August 2008, a service outage changed how a streaming service would do business in the future. Netflix had a database corruption incident in one of its private data centers. The issue meant Netflix could not ship DVDs for three days, which translated to millions of dollars in lost revenue. That wasn’t the first time the company had struggled. 

As Netflix would reveal years later, its on-premise data center systems were struggling to scale quickly enough to meet demand. Instead of taking the short-term route and fixing only the local data center, Netflix went all out and migrated to an instantly scalable cloud infrastructure. Along with streaming "House of Cards," moving to the cloud was probably one of the best business decisions Netflix has ever made. 

Do Insurance Companies Need to Migrate to the Cloud?

Growth-minded insurers should consider why motivated companies like Netflix chose cloud migration over a decade ago. 

Dave Hahn, a senior engineer in cloud operations at Netflix, said the company would have had to spend billions of dollars to create world-class data centers in multiple, global locations if it wanted to continue using on-premises systems. Netflix also knew it would suffer future outages in separate data centers if it didn’t move its operations to the cloud.  

Future proofing infrastructure and existing business offerings was only half of the issue. The cloud brings with it the potential for new offerings and the ability to optimize the customer’s experience. One of the most profitable benefits of cloud migration is how it supports Netflix’s use of big data, artificial intelligence and machine learning at speed and scale to make personalized program recommendations based on what a person has watched. 

How It Works

For insurance companies, a custom cloud setup can help them harvest insightful data on policy holders in real time. This data can help organizations determine an individual’s likely risk and to personalize and price insurance products based on each customer’s behavior. The cloud also supports the collection and analysis of real time data provided by IoT devices, such as black boxes in cars or wearable tech that monitors health and physical activity, to moderate customer behavior and to reduce the risk of a claim and offer reduced premiums.   

See also: How to Mitigate Cloud Computing Risks

What Cloud Computing Applications Exist for Insurers?

Cloud computing for the insurance industry comes in several powerful forms.  

1. Personalized Insurance Products and Improved Customer Experience 

Cloud computing can help businesses harness the power of artificial intelligence (AI) and machine learning (ML). Here are some examples.

• Insurers can collect more data about customers in one place and over a long period. Querying such data would help them understand their customers better for claims and fraud detection.  
• A company can run big data analytics against all of its claims’ databases, as well as databases now being shared across multiple organizations, to discover individual patterns or group customers’ behaviors. This big data sharing can accelerate the claims process, enhance the customer experience and greatly increase fraud detection. As early as 2016, Lemonade Insurance stated that its AI chatbot “Jim,” supported by real-time big data analytics, settled a claim within three seconds. Perhaps this is exceptional, but insurance wait times and process duration and costs can be significantly reduced.
• IoT devices can be linked to cloud databases and machine learning applications to collect and analyze customer information in real time to encourage positive behavior and reduce risk/claims.
• Insurers can also employ data mining techniques to better predict customer profitability and policy risk. This would inform the company about whether it needed to raise its policy pricing or offer new products for specific individuals or groups. 

Cloud computing is the foundation for boosting customer attraction/retention, improving fraud mitigation and increasing ROI on insurance IT spending.  

2. Room to Grow at Your Own Pace 

One significant benefit cloud computing has over on-premises systems is that insurers can scale operations and infrastructure on-demand to adjust to market changes, including accommodating spikes in demand for products and services.

Conversely, a business can scale down to save costs when capacity is not required. For example, an insurer can limit the amount of bandwidth used on off-peak days, months or seasons; they can even stand up and tear down test environments automatically. 

3. Remote Agents

The insurance industry had distributed field teams way before the pandemic forced other sectors to consider working remotely. However, cybersecurity attacks have increased 800% since the start of the COVID-19 pandemic. Most cyber threats target employees who are working outside their company’s premises via the internet. 

Some 36% of participants in a PWC study said they had not conducted risk assessments on their connected devices. About half of the ones who did said they did not know how to address the issues they uncovered. Insurers using legacy applications may be risking their valuable data and reputations.

Using a cloud platform maximizes security for remote insurance workers, allowing them to focus on signing up more clients. Insurers can worry less about data breaches, adverse publicity and potential lawsuits that may damage their brand.

See also: Cloud Takes a Starring Role

4. Reduced IT Spending and Operational Costs

Moving to the cloud greatly reduces the need to buy and maintain physical IT components such as networking equipment and servers. Migrating the company infrastructure from on premise will also remove significant maintenance and upgrade effort and costs.

Like Netflix, an insurer no longer has to spend a fortune on building and maintaining world-class data centers. It only needs to migrate its data and upgrade some of its core insurance software solutions to be able to capitalize on the competitive advantages of working in a cloud environment.

Artificial intelligence (AI) holds a lot of promise for the insurance industry, particularly for reducing premium leakage, accelerating claims and making underwriting more accurate. AI can identify patterns and indicators of risk that would otherwise go unnoticed by human eyes. 

Unfortunately, AI has often been a black box: Data goes in, results come out and no one — not even the creators of the AI — has any idea how the AI came to its conclusions. That’s because pure machine learning (ML) analyzes the data in an iterative fashion to develop a model, and that process is simply not available or understandable. 

For example, when DeepMind, an AI developed by a Google subsidiary, became the first artificial intelligence to beat a high-level professional Go player, it made moves that were bewildering to other professional players who observed the game. Move 37 in game two of the match was particularly strange, though, after the fact, it certainly appeared to be strong — after all, DeepMind went on the win. But there was no way to ask DeepMind why it had chosen the move that it did. Professional Go players had to puzzle it out for themselves. 

That's a problem. Without transparency into the processes AI uses to arrive at its conclusions, insurers leave themselves open to accusations of bias. These concerns of bias are not unfounded. If the data itself is biased, then the model created will reflect it. There are many examples; one of the most infamous is an AI recruiting system that Amazon had been developing. The goal was to have the AI screen resumes to identify the best-qualified candidates, but it became clear that the algorithm had taught itself that men were preferable to women, and rejected candidates on the basis of their gender. Instead of eliminating biases in existing recruiting systems, Amazon’s AI had automated them. The project was canceled.

Insurance is a highly regulated industry, and those regulations are clearly moving toward a world in which carriers will not be allowed to make decisions that affect their customers based on black-box AI. The EU has proposed AI regulations that, among other requirements, would mandate that AI used for high-risk applications be “sufficiently transparent to enable users to understand and control how the high-risk AI system produces its output.” What qualifies as high-risk? Anything that could damage fundamental rights guaranteed in the Charter of Fundamental Rights of the European Union, which includes discrimination on the basis of sex, race, ethnicity and other traits. 

Simply put, insurers will need to demonstrate that the AI they use does not include racial, gender or other biases. 

But beyond the legal requirements for AI transparency, there are also strong market forces pushing insurers in that direction. Insurers need explainable AI to build trust with their customers, who are very wary of its use. For instance, after fast-growing, AI-powered insurer Lemonade tweeted that it had collected 1,600 data points on customers and used nonverbal clues in video to determine how to decide on claims, the public backlash was swift. The company issued an apology and explained that it does not use AI to deny claims, but the brand certainly suffered as a result.

Insurers don’t need to abandon the use of AI or even “black-box” AI. There are forms of AI that are transparent and explainable, such as symbolic AI. Unlike pure ML, symbolic AI is rule-based, with codes describing what the technology has to do. Variables are used to reach conclusions. When the two are used together, it’s called hybrid AI, and it has the advantage of leveraging the strengths of each while remaining explainable. ML can target pieces of a given problem where explainability isn’t necessary.

For instance, let’s say an insurer has a large number of medical claims, and it wants AI to understand the body parts involved in the accident. The first step is to make sure that the system is using up-to-date terminology, because there may be terms used in the claims that are not part of the lexicon the AI needs to understand. ML can automate the detection of concepts to create a map of the sequences used. It doesn’t need to be explainable because there’s a reference point, a dictionary, that can determine whether the output is correct. 

See also: The Intersection of IoT and Ecosystems

The system could then capture the data in claims and normalize it. If the right shoulder is injured in an accident, symbolic AI can detect all synonyms, understand the context and come back with a code of the body part involved. It’s transparent because we can see where it’s coded with a snippet from the original report. There’s a massive efficiency gain, but, ultimately, humans are still making the final decision on the claim.

AI holds a lot of promise for insurers, but no insurer wants to introduce additional risk into the business with a system that produces unexplainable results. Through the appropriate use of hybrid AI, carriers can build trust with their customers and ensure they are compliant with regulations while still enjoying the massive benefits that AI can provide.

Some topics are sure-fire conversation-killers at cocktail parties—your juice cleanse, recent dental procedures and your bottle cap collection, for example. Document management systems may fall into that category.  While industry professionals may find shop talk engrossing, the eyes of the average person almost certainly will glaze over after only a few minutes of imaging and versioning chatter.

Efficiently managing documents may not be sexy, but it is vitally important to organizations. Knowledge workers often feel overwhelmed by the amount of information they must process daily: CIOInsight reported that 83% of professionals believe that today's "accelerated pace and connectivity of business" require them to produce, share, manage and distribute more documents than before. Inadequate systems and overwhelmed employees result in process inefficiencies, suboptimal decision-making and heightened business risks. 

Certificates of insurance (COIs) present a particularly vexing document management challenge for risk management professionals. Tracking COIs—documents that confirm that adequate amounts of the right kinds of insurance from satisfactory insurers are in place—is essential to ensure that organizations are protected against losses resulting from contractors, vendors, tenants and others. But the sheer volume of COIs to be cataloged and reviewed, and the time and resources required to analyze and respond to them properly, can be overwhelming. Document management tools and processes are essential to effective COI administration.

Document management is mundane – but don’t fall asleep at the wheel

Document management enables organizations to effectively capture, distribute, track, store and retrieve electronic documents, ensuring that everyone in an organization has access to reliable, up-to-date information when and where it is needed. 

Risk and insurance management has always been a document-intensive process, and diligently handling the information has long been an essential skill for every risk management organization. Over the lifecycle of a typical commercial insurance relationship, hundreds, or even thousands, of documents are generated by internal stakeholders, the broker, the insurer and service providers such as claims administrators. For companies that rely significantly on contractors, vendors or tenants, managing certificates of insurance can be a full-time role. It certainly won’t be the “chest-beating” part of the business, but not giving it the appropriate attention can lead to disastrous consequences, including failed risk transfer, leaving undeserving companies (and their insurers) with a claim.

See also: Documents: The Future Is Automated

Companies now have an array of options for improving their document management practices. Off-the-shelf and customized document management software solutions can help tame the blooming, buzzing document jungle in which many risk managers find themselves. They make creating, sharing, storing, retrieving, securing and reviewing documents easier. They also can enhance productivity, reduce the risk of document misuse, augment data security and improve compliance with regulatory requirements.  

Managing certificates of insurance

Organizations routinely transfer certain types of risk through contracts with vendors, contractors, tenants and others. COIs—which capture all the essential details of an insurance policy in an easy-to-read, standardized format—assure an organization that its vendors, contractors or tenants can meet their liability obligations under these various contracts. 

For many organizations, COIs are the largest category of documents managed by a risk management department. Big companies—especially large contractors—may track tens of thousands of COIs, insurance forms and often complete policies. Making sure that insurance coverage is adequate, appropriate, current and from acceptable insurance carriers is complex and time-intensive. Industry experts estimate that one full-time person is required to track every 1,500 COIs properly. In many cases, risk management departments cannot afford the staffing to do the job adequately.

Properly managing COIs requires more than simply verifying the existence of insurance policies. Ensuring that the policies provide adequate coverage that complies with contractual terms requires specialists in insurance policy wording who can determine whether insurance coverage is appropriate for the risks assumed by a vendor, contractor or tenant. Maintaining this level of expertise in-house may be beyond the means and budget of many risk management departments. An outsourced solution is often the most cost-effective way to ensure that COIs are properly managed.

Achieving superior document management

The typical risk management department has enormous responsibilities and limited resources. Efficiency is essential, but so is accuracy—mistakes can have damaging and far-reaching consequences. Effective document management can help to simplify routine activities, accelerate processes and ensure that all stakeholders have access to up-to-date, accurate information as it is needed. Risk managers often struggle to justify new expenditures in the competition for budget allocations, but an effective document management system should be seen as a long-term cost-reduction exercise with the potential to lower the overall cost of risk.

Effectively administering COIs and related insurance documentation is one of the most substantial benefits of a disciplined approach to document management in a risk management department—but also one of the biggest challenges. Some organizations manage thousands of COIs, and a single mistake can cost millions of dollars. COIs demand constant attention from contracts and insurance coverage experts. Risk management departments should consider outsourcing this function to specialists who can cost-effectively provide both process efficiency and domain expertise.

See also: Pressure to Innovate Shifts Priorities

If history is a guide, the needs of risk management departments will only increase as risk managers are called on to do more without a corresponding increase in budget or resources. They cannot squander precious time by chasing after documents or questioning whether they are working with the most up-to-date information. They also cannot afford to make avoidable mistakes caused by inadequate, incomplete or out-of-date information. Document management may not make for sparking conversation at a cocktail party, but it can make all the difference in the world in improving the efficiency, effectiveness and accuracy of risk management processes.

Digital transformation initiatives are accelerating because of the pandemic and the mandate to “go digital.” Even more important are the changing expectations of insureds, particularly millennials, who have grown accustomed to receiving products when, where and how they want them. Even boomers have these very same expectations. 

Given that digital technology is driving nearly every major industry, it is a wonder that it has taken so long to garner a foothold in insurance. The simple reason is that the insurance industry didn’t have to. Everyone was on the same page. There was no risk of falling behind.

But that was then, and this is now.

Today, insurers must continuously align with where consumer interest and appetite are tracking, modifying organizations and resources to the quest without losing sight of ease and simplicity. As the insurance sector frantically tries to make up for lost time, those insurers that will win the future will be those that deliver an Amazon-like experience for the customer. 

This goal may prove difficult, however, as many incumbent carriers are NOT focused on the customer. Ironically, many multi-line carriers operate as multiple single-line carriers because they do not look at the customer as a channel. A number of industry upstarts, however, have stepped in to fill this void. Lemonade, for example, has been able to expand its portfolio quickly and bundle different policies using modern technology.

By packaging up a suite of insurance products in a simple, comprehensible way, insurers will find themselves in sync with what customers really want: simpler, one-stop shopping, with easy, omnichannel buying journeys. Customers are difficult and expensive to acquire, so retention is all too important. Our research shows that the greater the number of policies a policyholder has with a single insurer, the greater the loyalty and the lower the churn. The more an insurer can meet a consumer’s diverse needs in a simpler way, the more recurring revenue the insurer will derive from each customer – even to the point of becoming their sole insurance provider. 

There is a huge opportunity for insurers to design products and solutions that not only protect health, wealth and risks but work with people’s lifestyles to prevent injury or loss and the subsequent claim. For insurance providers to be able to make the most of these opportunities, they must adopt more customer-centric business models – and that means addressing issues with their legacy infrastructures, which were designed for a product-centric approach. The insurance industry of tomorrow will be more than just a product; it will be an experience. 

See also: Tomorrow’s Insurance Is Connected

With the technology that has been used by insurers for decades, and even with many modern legacy core systems deployed just a few years ago, it is impossible to add a usage-based or episodic insurance product. It is equally difficult to sell a bundle of different types of insurance products in one go or bundle insurance and non-insurance products to add unique value. Those modern legacy systems were designed for a more traditional era of insurance. They served their purpose for yesterday, but tomorrow will be quite different.

To be competitive in the modern market, insurers must adopt cloud-native, microservices and API-rich insurance platforms. These new technology platforms for the future of insurance, called coretech, bring together the core operational and digital insurance capabilities needed to support emerging business models and leverage insurtech innovation and data for growth in emerging B2B and B2C ecosystems.

At EIS, we have embraced the ecosystem-enabling fundamentals of coretech to help some of the top carriers in the industry, including a 100 year-old bastion looking to transform their antiquated technologies and modernize their processes.  

Key decision-makers contemplating a coretech solution must first take a look at their existing business architecture and ask themselves some hard questions, such as: Is it product- or customer-centered? Are we limited by closed-in architecture, lack of application programming interfaces (APIs), or an inability to participate in ecosystems? Can we only sell products that our modern legacy system will allow us to sell?  

Upstarts to the industry are the manifestation that change is needed and validation that many carriers are currently failing. A mindset change is what’s needed, and insurtechs, focused entirely on the customer experience, are quickly stepping in to fill the void. All of this disruption is causing insurance companies to quickly reevaluate their infrastructures. Carriers can be fast followers when change can quickly take their business away. 

It’s no accident that so many of the businesses we interact with on a daily basis already embody this customer-centric notion, adapting what they do and how they do it to customers' needs and preferences on a real-time basis. It’s all driven by data, and the massive expansion of our ability to collect, interpret and apply it. Bringing this potential into the heart of the business will align insurers to consumers’ true north – as the obvious choice in a crowded market.

See also: Achieving Digital Balance in an Agency

The insurers of the future will be those that enable digital ecosystems that place the customer at the center, and view the customer as the channel so that insurers can offer the products and services that the customer wants, not what a legacy system allows them to sell. Incumbent players have a powerful opportunity to drive the industry forward and bring customers with them.

SEPTEMBER 2021 FOCUS OF THE MONTH
Life Insurance

FROM THE EDITOR

Not long after I got involved with ITL, going on eight years ago, I spoke at a conference where I heard an extraordinary question about life insurance. Following a presentation that highlighted the industry's desultory sales, an audience member stood up and said, "States require drivers to buy auto insurance. Banks require people to carry homeowners insurance if they have a mortgage. Do you think there's any way to have people be required to purchase life insurance?"

"Wow," I thought. "How bad off must the industry be if someone's best hope for increasing sales is to force people to buy the product?"

A lot has changed since then, as you can see from the six articles we're highlighting as part of this month's ITL Focus. The purchasing process has in many cases been sped up considerably, partly because of policies that no longer require medical exams or blood and urine tests. A better understanding of behavioral economics has helped carriers and agents get past some of the mental hurdles that have limited purchases. Some carriers are moving beyond the emphasis on the death benefit and providing what might be thought of as life benefits -- e.g., finding ways to encourage healthy behavior.

I suspect we're not even close to done with the progress. It seems to me that the lines will increasingly blur between life insurance and financial management, given that life insurance is an important financial asset; people often think about their finances, and life insurance can become a natural part of that focus. I could also see the trend toward embedded insurance expanding the life insurance market -- why couldn't a term life policy be, for instance, embedded in a mortgage when someone buys a building, to make sure the purchase is secure even if something happens to the buyer?

Over the years, I've had people tell me life insurance is boring. I don't see it that way at all.

- Paul Carroll, ITL's Editor-in-Chief

WHAT TO WATCH

The Future of Blockchain: Usage in Life and Annuities Blockchain is providing a solution for the insurance industry to share information easily and slash operating costs. Having explored the possibilities for blockchain in personal lines and commercial lines in P&C, we conclude our webinar series on the technology (for now) by taking a look at two use cases in life and annuities that are close to moving into production. Watch Now

WHAT TO READ

	What Is Happening to Life Insurance? IIS expert Ronnie Klein explores why so many are exiting individual life insurance, then explores a new model. Read More
	How Life Insurers Can Reach Millennials Millennials already understand the need for car and home insurance. The pandemic has given life insurers an opportunity. Read More
	Behavioral Science and Life Insurance Carriers must fully grasp human biases and behaviors and harness technologies to improve health. Read More
	Where Does Life Insurance Go Now? Between the shift to a remote workforce, and the pandemic itself, life insurance had no choice but to evolve -- and there's no going back. Read More
	Simplicity, Magic in Life Insurance Sales Everything we’ve learned about e-commerce design can be applied to the life insurance consumer--no matter where or how a policy is purchased. Read More
	Solving Life Insurance Coverage Gap We are now seeing the fruits of our labors materialized into a genuine straight-through process for term life. Read More

WHO TO KNOW

Get to know this month's FOCUS article authors:

Samantha Chow	Emmanuel Djengue	Eric Gaubert
International Insurance Society	Sébastien Malherbe	Christopher Snyder
Mark Tattersall

Learn More about ITL Focus

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