Two weeks ago, during an on-stage conversation in Las Vegas with Munich Re board member Lisa Pollina, Chubb CEO Evan Greenberg commented that insurtech's promises of transformation are "just hype." With that, Greenberg put a spotlight on a debate that has been percolating since the term “insurtech” was coined around 2010, when Germany-based Friendsurance created a peer-to-peer insurance community.

There is no way to know whether Greenberg’s comments were meant to provoke and engage the audience – made up mostly of entrepreneurs, insurtechs, investors and insurance industry leaders  – or whether he meant exactly what he said as dismissively as it sounded.

Either way, he was mostly wrong – and a bit right. 

Insurtech Confusion

Not only does our industry use the word "insurtech" inconsistently, but we can’t even agree on how to spell it – “insurtech” or “insuretech” and whether to capitalize it. (Regardless, let us agree that insurtech refers to the use of technology innovations designed to significantly reduce cost, increase efficiency and improve customer experience in legacy insurance industry models.) 

"Insurtech" is a combination of the words “insurance” and “technology” and was inspired by the earlier term “fintech,” which has now spawned an entire generation of “____tech” abbreviations, including in our own industry: ClaimTech, PropTech, MarTech and more. 

Entire global ecosystems have emerged to finance, support and service the global insurtech industry, from accelerators, incubators, college programs, conference and networking events and dedicated media sites and publications to new investment funds and models.    

Evidence That Insurtech Is Real

Saying something is hyped implies a misleading exaggeration of something’s importance or benefits. The insurtech phenomenon is many things but definitely not hype. Insurtech is a movement, and it is very real and highly transformative. One good measure of its importance is the success of the very event where Mr. Greenberg offered his comments: InsureTech Connect. Over 6,000 of the faithful braved the lingering risks of a pandemic to make the pilgrimage to Las Vegas to attend ITC. 

The underlying conviction driving founders and backers of insurtechs is that the insurance industry is ripe for innovation and disruption. Insurtechs explore opportunities that large conventional insurance firms are less interested in or equipped to exploit, such as offering hyper-personalized insurance policies, usage-based insurance and parametric insurance and using the new volume of data streaming from IoT-enabled sensors and devices to price premiums more dynamically and contextually.

Included in the ITC audience were a healthy number of current and potential insurtech investors whose industry is wagering tens of billions of dollars of capital on the prospects of insurtechs. 

In fact, according to a July 2021 McKinsey report titled “Insurtechs are increasingly ripe for insurer investments and partnerships,” the analysis of 2,000 global insurtechs reveals rapid growth, evolving product focus and a growing crop of innovative opportunities. The report also describes how rapidly insurtech funding has grown, identifying 1,719 deals from 2010-2021 totaling almost $25 billion globally.

Insurtech Categories

In a March 2021 Gartner report titled "Top Trends in Insurtechs for 2025," analyst Kimberly Harris-Ferrante identified two distinct categories of insurtechs – challenger insurers and emerging solution providers – and predicted that both “will continue to gain traction and reshape the insurance industry through 2025.”  

One might argue that the challenger insurer category includes some insurtechs that do not yet pose a real threat to conventional insurers; Root, Lemonade, Metromile and even Hippo come to mind. To date, their stock market performance has been disappointing, and this could well be the category of insurtechs for which Mr. Greenberg’s comments were intended.

However, the insurtech category of emerging solutions providers has not for the most part disappointed. Many of these companies have provided attractive exits to their founders and private equity and venture capital investors as they have taken themselves public, merged with competitors or been acquired by conventional insurers. 

See also: Boosting Cyber Hygiene With Insurtech

Greenberg Was Right, But Only in Part and Only for Now

If Greenberg meant that technology and hype do not change the fundamental fact that insurance is at its core the art and science of taking risk, then perhaps he was right – in part. It’s hard to argue that a company formed in the past 10 years or less could have the depth and breadth of experience of one that has been in the business for a century, or that it can meaningfully compete with one of the largest and best-capitalized competitors in the industry.

Consider that only days after Greenberg’s comments, Chubb announced the acquisition of Cigna’s Asia business to increase their A&H market reach for $5.75 billion in cash. Conventional insurers are certainly best at the “art” aspect of risk taking.   

But as far as the value of experience in the “science” part of risk taking, legacy approaches and models could actually become the Achilles heel of incumbent carriers. New technology-enabled information sources such as connected cars, homes and people coupled with artificial intelligence and machine learning are replacing previously retrospective underwriting and pricing models with real-time, contextual and dynamic data models that enable insurers to price risk more accurately, fairly and ultimately more competitively and profitably. 

The insurtech movement is real and important and exciting and valuable and is quickly evolving. It can be described in many ways – but not as mere hype.

Insurance companies must be more emphatic in battling fraud and exploring new approaches and technology. Not all technologies, however, will deliver the results insurers need and/or expect. This eBook looks at how insurance fraud is evolving, the best ways to identify emerging typologies, align your teams and operations, and the tools and techniques used to combat fraud.

Download Whitepaper

I remember when I first heard about El Nino, the warming of the Pacific Ocean off the coast of South America that influences weather patterns around the world. It was almost 40 years ago, when I was a young pup of an editor in the Wall Street Journal's Chicago bureau, and a fellow who covered the commodities markets for us learned that some were starting to trade based on educated guesses about how this phenomenon would affect crops of corn, wheat and so on the following year.

El Nino seemed to be news to everybody, not just me, so I had Tom write a story about it, and it's stuck with me ever since: this pattern named because it appears around Christmas, marking the birth of El Nino, or, The Boy. I later learned about the flip side, a cooling of the Pacific known as La Nina, or, The Girl, just to distinguish it from The Boy.

Far more is known about the phenomena now than in the early 1980s -- sensors, satellites and sophisticated computer modeling will do that -- and the forecasts for the coming winter are looking rough, especially because they build on the tough weather we've already seen this year.

I am surely sensitive because I live in Northern California, where we are experiencing the worst drought in half a century and where 2021 is the third-driest in the past 100 years -- the water level in Lake Tahoe has dropped below the rim of the lake, meaning it can't deliver water into the Truckee River at its origin in Tahoe City. And early predictions of La Nina suggest the problems will worsen over the next year, not only threatening water supplies for the entire state but making us even more vulnerable to the devastating wildfires that have hit the state in recent years.

But the effects reach far beyond my little corner of the world. La Nina typically extends the hurricane season in the Atlantic, increases the likelihood of tornados in the Plains and South, spawns major storms across the northern part of the U.S. and much of Canada and suppresses rainfall from Northern California across much of the American South.

The Colorado River already can't supply all the water needed by those along its course -- Lake Mead, supplied by the river and held back by the Hoover Dam near Las Vegas, has dropped 150 feet in the last 20 years -- and no relief is in sight.

La Nina typically also means lower rainfall in East Africa, which has also been devastated by drought.

Living in what seems to have become the wildfire capital of the world, I keep hoping for relief, but it seems I'll have to buckle up for another rough stretch, as will much of the rest of the U.S. and some other parts of the world -- and as will those that insure all of us.

Stay safe.

Paul

The specialty insurance market is on the rise. In fact, Market.US projects that the global market, which was valued at $229.6 million in 2018, will increase at a compound annual growth rate of 5.7% from 2019 to 2028. This steady, upward trajectory is driven by demand for customized solutions to help combat increasingly unusual risks across industries, from the young ride-share industry to the mature commercial property market. And this growth has the potential to touch all players in the insurance continuum – from MGAs and MGUs to brokers and agents – who are looking to the specialty market to solve very specific challenges for industries and organizations across the country. 

According to Chad Levine, executive vice president and chief strategy officer for Aon Affinity, “There is an intense craving for customization and for partners who truly know what they’re doing. For agents, being able to zero in on a specific client risk and provide coverage for it is a serious leg up. In fact, consumers no longer hope you have what they want – they expect it. Specialization is driving every facet of our lives – including what coverage we choose to protect our most important investments.”

Built for speed and innovation

Specialty insurance companies are typically among the first to bring a solution to market when an insurance need emerges. Designed to be nimble and forward-thinking, specialty companies aren’t looking at 50 industries and trying to understand the impact of an event. They’re often laser-focused in one area, and that enables faster evolution and innovation. 

The internal structure of a specialty provider differs from a more traditional insurance company in a way that supports bringing a product to market quickly. While a traditional company might need to own every part of the policy lifecycle – from the sales and marketing to the product launch to claims management – specialty companies often assemble a team of experts from different organizations to design and deliver a product that’s in line with unique or emerging client needs in a shorter time.

You can see this process playing out in real time as insurance experts work together to address early questions in the fine art world about the potential for coverage to help protect non-fungible tokens (NFTs), which are digital assets designed to show one has unique ownership of a virtual item. This conversation really started to gain momentum in March 2021 when digital artist Beeple sold an NFT of his work for $69 million during a first-of-its-kind auction at Christie’s. It was a moment that demonstrated what collectors are willing to invest in digital art and the need to make sure that investment is adequately protected. And while the specialty insurance world hasn’t arrived at an answer to NFT coverage, it is exploring a range of options – from how it might adapt traditional fine art coverage for the digital world to how coverage from the financial institutions market might work – to meet the needs of this emerging group of clients. 

See also: State of the Insurance Marketplace

Four industries leading the specialty charge

While there are many drivers moving the needle in the world of specialty insurance, there are four industries that are really driving demand for unique products:

Healthcare

Beyond the daily risks involved with delivering patient care, the COVID-19 pandemic created risks and has accelerated the maturity of those once simply deemed as "emerging." As a result, as providers and practices navigate a more complex risk landscape, it is essential that they work with insurance specialists who understand these complexities and can deliver contemporary solutions for their clients. 

There are many forces that will continue to shape and reshape healthcare’s risk environment in the coming years, but four in particular stand out because of their projected scope and impact: changes in the delivery of care, particularly telehealth; the growth of the home healthcare industry; a rebound in the senior living industry; and the rise in demand for mental wellness services.

Mortgage Banking

Originally predicted to be a challenging year as consumers grappled with a spike in unemployment and an economic crash, 2020 saw a boom in the mortgage banking industry, which “had everything to do with low interest rates,” said Tom Delaney, president of Bankers Insurance Services (BIS), an Aon Programs solution. Across the board, Delaney notes a few key trends that will continue to propel insurance solutions for the industry forward, including the hot selling market, continued interest in refinancing and a new level of demand for mortgage impairment. 

Catastrophes

There’s a “great awakening” happening in catastrophe coverage. Commercial property owners are coming to understand their increased threat of flooding no matter where their property is located. Property owners typically arrive at this awakening because of increased access to data about the property’s true flood risk as well as personal experiences with flooding, a moment that usually brings about the understanding that flooding is the costliest catastrophe exposure for property owners, yet isn’t covered under a standard commercial property policy. 

And the awakening is in an early stage. “We’re beginning to see an increase of flood insurance policy purchases that aren’t lender-required, and this shift is introducing entirely new underwriting elements, such as using analytics to assess the risk of each individual property, to accommodate the request for higher limits and broader coverage,” said Casey Castagna, client service executive at Insurmark, a managing general underwriter that provides innovative property and casualty insurance products, an Aon Programs’ solution.

Nonprofit 

The pandemic intensified the need for the critical resources nonprofits provide as more people deal with serious issues like food insecurity, lack of access to educational resources and insufficient housing. Yet the pandemic also tested nonprofits, pushing them to their limits and exposing them to new risks as they seek to serve greater numbers with less funding, increased expenses and fewer volunteers.  

Beyond the myriad of risks, the rising price of insurance will continue to be a pain point for nonprofits – presenting insurance professionals with an opportunity to serve as a true counselor to their clients in this industry. These organizations are looking for protection options in the middle of a very fluid risk landscape and often don’t have the expertise to choose on their own. As risks continue to converge and press against each other, insurance agents will play a major role in serving as advisers to help their clients find alternate coverage solutions that can serve as an umbrella of protection. 

See also: 6 Cybersecurity Threats for Insurers

Conclusion 

The specialty insurance market shows no signs of letting up, providing tremendous opportunity for insurance professionals looking to expand or evolve their books of business. “There is – and will continue to be – a significant appetite for specialty products,” Levine said. “The last year certainly showed how important it is to be able to rely on expertise in the face of new challenges.”

Cyber breaches are more common than ever. Almost half of all global organizations will experience a data breach. The repercussions go beyond financial, as organizations suffering breaches can suffer reputational damage in the eyes of clients, donors, business partners and the general public.

For nonprofits, such repercussions can cause irreparable harm. Nonprofits tend to underestimate the cybercrime threat, believing they’re less attractive targets than major for-profit enterprises or external service providers performing IT-related functions.

Yet critical aspects of nonprofit business operations expose them to cyber risk, while often lacking the technology resources, infrastructure or staffing to manage it.

Consider the following:

• Since the onset of the COVID-19 pandemic, many employees are working remotely with home networks, creating greater risk as these networks may be unsecure
• Nonprofits have embraced cloud computing, software-as-a-service (SaaS) and warehousing data
• Criminals routinely hijack online payment systems like those used for nonprofit donations
• Third-party software used to manage and store donor CRM information can be hacked

The stakes have risen on PII

Nonprofit organizations solicit donations throughout the year, with the heaviest activity generally in the fourth quarter. They may store donor data containing personally identifiable information (PII), which are a tempting target for criminal elements. Even if an external party handles the data, the nonprofit is considered the owner and is liable for its safekeeping.

As many as 80% of all data breaches compromise personal identifiable information (PII), with the average cost of a breach $150 per record. These costs include civil liability, defense costs, regulatory fines and penalties and the cost of business interruption. A breach also raises immediate expenses, including the costs of investigation, consumer notification, credit monitoring and public relations.

Be a responsible, prudent steward in three steps

Nonprofit leaders are responsible for organizational assets entrusted to their care and are expected to exercise diligence and informed decision making. The following three steps will help a nonprofit organization start improving cybersecurity and reduce risk.

Step one: Assess exposure. Determine the approximate number of records the organization owns that contain protected information, and identify vulnerabilities in technology infrastructure, people and processes. Defenses include firewalls, antivirus protection, encryption and multifactor authentication, background screening, access restrictions, regular equipment inventories and physical security.

Step two: Build a team. Create a comprehensive information risk program, designating an employee or committee to champion cyber security. This team will help train employees and find ways to recognize, report and resolve vulnerabilities.

Step three: Determine insurance options. Explore the availability and cost of commercial risk transfer. Specialty insurance products have proliferated, offering coverage to address multiple risk exposures, from traditional information risk to media liability. Carriers will reward organizations with superior data risk management with better-than-average cyber insurance rates.

See also: COVID-19 Boosts Cyber Risks in U.S.

Transferring risk to cyber insurance

Traditional forms of insurance such as property, general liability, management liability and crime policies only provide fragmented protection against data breaches. In fact, mainstream underwriters are continually introducing new exclusions to shift the burden away from their policies and into specialty cyber solutions.

Cyber insurance is not one-size-fits all: Each policy must be tailored to the buyer’s needs, based on its unique risks and exposures. A robust cyber policy should cover the following:

• The services of a privacy attorney to help navigate legal responsibilities after a breach
• A forensic investigation to pinpoint the cause of a data breach
• Coverage of the cost to notify potentially affected parties and provide credit monitoring services, as well as the cost of hiring a public relations firm to minimize reputational damage
• Liability defense costs, claim settlements, judgments, regulatory fines and penalties
• Damage to the policyholder’s own IT network and digital assets, including ensuing business interruption

Cyber risk management starts with quantifying an organization’s risk and the costs to address it and continues through adopting a thoughtful, holistic strategy that includes transferring risk to insurance coverage when possible. It’s a process that will pay major dividends — even if a nonprofit may not seem like much of a target for cybercriminals.

Successful portfolio management is enabled by the breadth, reliability and granularity of data used. In our research to establish the portfolio management capabilities of top-performing underwriters, we found that the granularity of data drove the gap between top-quartile performance (outperformers) and bottom-quartile performance (emerging performers). 

The role of the underwriter is becoming ever more sophisticated, whether considering case-level, augmented underwriting or portfolio-traded, algorithmic underwriting. There are many challenges facing underwriters as they embark on building their portfolio management capabilities, but the journey starts with an appreciation of data assets. Of course, it is not just underwriters on this journey – but also brokers, cover holders, claims professionals, reinsurers, other capital providers and investors. To gain the greatest competitive advantage, the portfolio underwriter finds like-minded individuals in the value chain.

The level of sophistication will increase in line with the degree of atomization of the risk data. The more it can be broken down, the more opportunities for differentiation will present themselves. A topical example is how we as an industry support climate change transition. The ability to identify the various risk features as they pertain to transition risk enables underwriters to make more nuanced decisions, as well as assessing the impact of each decision on the wider portfolio. This also helps them demonstrate how their aggregate underwriting decisions are delivering their organization’s environment, social and governance (ESG) goals.

Fine-tuning the data machine

Insurers have often found it challenging to create a single data repository that brings together the various sources of internal data; Historical focus was mostly on quotes, policies and claims. These data are now routinely being supplemented with other sources – such as operational data and routing identifiers, as well as client or market data.

However, for the most data-savvy, the data universe is being expanded further with application programming interfaces (APIs), which provide access to multiple software and data sets. This allows organizations to access the huge amounts of additional data available, such as flood areas and other weather data, distance from emergency services and crime statistics. These all provide additional insights.

Although the range of data sources is important, there are other dimensions to consider. One is the length of an insurer’s data record, which can help provide robust and relevant historical perspectives. For example, examining World Trade Center data from 2001 and subsequent years could help an insurer understand the possible market reaction following a similarly large economic event. Likewise, harnessing data from previous natural catastrophes allows an insurer to see which classes were affected by certain types of events and the extent to which these classes were affected.

As found in our benchmarking research, organizations that achieved high levels of granularity in their portfolios went on to become outperformers. In fact, every single organization that was top quartile in terms of performance was also top quartile in terms of the granularity of data. This shows that if an insurer is able to get an appropriate grip on the granularity of their data assets, this facilitates outperformance in other areas.

In the future, we expect the quality of calculation and decision engines to become an important factor in performance. In much the same way that the expertise of commercial underwriters is recognized today as a market differentiator, we suggest the way underwriters interact with the calculation or decision engine will set organizations apart in years to come. 

A granular data asset inside the calculation engine allows the insurer to extrapolate performance at contract level, as well as run simulations at contract level to determine the optimum composition of the portfolio. The decision engine itself will also be important: Outperformance will depend on the combination of data assets with an appropriate algorithm and the skill with which this is deployed by underwriters in their trading models.

See also: Underwriting in the Digital Age

Delivering these portfolio insights to the “point of writing” sets each underwriting decision in context and determines whether it is accretive to the portfolio strategy.

The contract-level granularity can also be used to optimize capital, looking for correlations and diversification between contracts in a fast, easy way. This extends current approaches to capital optimization to add to the performance advantage on capital returns. Although common in classes that are currently considered data rich, extending the data asset makes these approaches applicable more broadly.

In this environment, an effective underwriter blends the ability to be data-driven, entrepreneurial and technology-proficient with the ability to build relationships and construct deals to drive profit.

Bridging the gap: underwriting and claims 

There is a lot to think about when contemplating a data approach for active portfolio management. It is useful to understand how far you can analyze your exposures – to what level of detail – and assess the loss history for similar exposure types across the portfolio. 

According to our benchmarking research, the ability of an organization to understand how its portfolios can be segmented (into geography, line of business, new business/renewal, etc.) was very different between the top and bottom performance quartiles in the study. This suggests that the successful atomization of the risk data can enhance performance across a wide range of portfolio management capabilities. 

The extent to which exposure and claims data are still not effectively combined and matched is surprising. It is striking how often, for example, cause codes are not collected to a sufficiently granular or consistent level to gain the most benefit from this asset. 

Closing the feedback loop between underwriting and claims, and how the claims team works with reserving and underwriting to help set the underwriting strategy, is another area of performance advantage. Often, these processes work well at a superficially high level, but a persistent feature of the emerging performer category is how often these communities were not aligned below that very high level.

Outperformers in our benchmarking survey further refined their portfolio optimization by rigorously including reserving data and pricing data, as well as quote data, to improve risk selection. By making available a credible, single data source for all functional areas to interrogate and use, outperformers can create a coherent portfolio management process, while maintaining a level of granularity appropriate for all users. This results in better decisions.

An organization must also be agile and versatile enough to adapt to the changing rating environment as the relative market importance of certain rating factors shifts. This agility could lead to an insurer being able to capitalize on their more advanced understanding of the market, either to carve out new opportunities by recognizing the changing needs of their insureds or to price the business more accurately to the underlying risk. 

Reports of the underwriter’s demise greatly exaggerated

We see underwriters remaining core, but their role developing to take account of a wider set of inputs. Central to that role will be more high-quality data points to inform the underwriting decision-making process and the need to continue to interpret, challenge and, critically, integrate them. The best underwriters are able to anticipate to changes in the market and by good data models will help to detect change quickly and calibrate a response.

Collection of high-quality data throughout the organization enables the underwriting decision to be traced through its stages, particularly the stages at which prices/terms are adjusted. This clear focus will either improve competitiveness or present opportunities for learning.

See also: Pressure to Innovate Shifts Priorities

The good news is that the collection of data, and their subsequent analysis, are becoming easier, quicker and available at lower cost. In turn, the asset and analyses become ever more valuable as our understanding of the data-rich world, and the tools available to infiltrate and unlock it, becomes more advanced.

An enlightened view on data will be the bedrock for insurers in achieving actionable and active portfolio management. The wave of innovation we are experiencing in the London Market reinforces our conviction that portfolio management will not just be used for its own sake, but also as a gateway capability as businesses evolve to an increasingly digital operating level. Given that good data granularity is already associated with outperformance, we expect the importance of data-driven actionable portfolio management to continue to grow.

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

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

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

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

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

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

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

Administrative Policy Errors

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

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

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

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

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

See also: A Heyday for Independent Agents

Chronic Backlog

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

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

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

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

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

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

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

Enter Technology

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

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

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

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

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

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

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

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

The Age of ‘Augmented Insurance'

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

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

The AI Imperative for Insurers

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

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

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

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

See also: A New Burst for Augmented Reality

Solving for Various Personas

1. Maximize Productivity

2. Reduce Costs 

3. Optimize Business Processes  

Checklist for Augmented Intelligence Implementation

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

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

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

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

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

See also: Untapped Potential of Artificial Intelligence

Conclusion 

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

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

There’s a problem with this mindset. 

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

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

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

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

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

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

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

Safety Leadership Begins With Management 

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

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

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

Everyone Should Participate in the Safety Conversation 

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

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

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

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

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

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

Reducing Turnover by Making Safety a Priority 

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

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

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

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

See also: The 7 New Business Models

Redefining Safety Culture and Conversation 

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

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