Financial institutions and their directors have to navigate a rapidly changing world, marked by new and emerging risks driven by cyber exposures based on the sector’s reliance on technology, a growing burden of compliance and the turbulence of Covid-19. At the same time, the behavior and culture of financial institutions is under growing scrutiny from a wide range of stakeholders in areas such as sustainability, employment practices, diversity and inclusion and executive pay. 

A new AGCS report highlights some of the most significant risk trends for banks, asset managers, private equity funds, insurers and other players in the financial services sector, as ranked in the Allianz Risk Barometer 2021, which surveyed over 900 industry respondents: Cyber incidents, pandemic outbreak and business interruption are the top three risks, followed by changes in legislation and regulation – driven by environment, society and governance (ESG) and climate change concerns, in particular. Macroeconomic developments, such as rising credit risk and low interest rates, ranked fifth.

The Allianz Risk Barometer findings are mirrored by an AGCS analysis of 7,654 insurance claims for the financial services segment over the past five years, worth approximately €870 million ($1.05 billion). Cyber incidents, including crime, rank as the top cause of loss by value, with other top loss drivers including negligence and shareholder derivative actions.

COVID-19 impact
Financial institutions are alive to the potential ramifications of government and central bank responses to the pandemic, such as low interest rates, rising government debt and the winding down of support and grants and loans to businesses. Large corrections or adjustments in markets – such as in equities, bonds or credit – could result in litigation from investors and shareholders, while an increase in insolvencies could also put some institutions’ own balance sheets under additional strain. 

Cyber – highly exposed despite high level of security spending

The COVID-19 environment is also providing fertile ground for criminals seeking to exploit the crisis as the pandemic led to a rapid and largely unplanned increase in working from home, electronic trading and digitalization. Despite significant cyber security spending, financial services companies are an attractive target and face a wide range of cyber threats, including business email compromise attacks, ransomware campaigns, ATM “jackpotting” – where criminals take control of cash machines through network servers – or supply chain attacks. The recent SolarWinds incident targeted banks and regulatory agencies, demonstrating the vulnerabilities of the sector to outages via their reliance on third-party service providers. Most financial institutions are now making use of software run on cloud services, which comes with a growing reliance on a relatively small number of providers. Institutions face sizable business interruption exposures, as well as third-party liabilities, when things go wrong. 

Compliance challenges around cyber, cryptocurrencies and climate change

Compliance is one of the biggest challenges for the financial services industry, with legislation and regulation around cyber, new technologies and climate change and ESG factors constantly evolving and increasing. There has been a seismic shift in the regulatory view of privacy and cyber security in recent years, with firms facing a growing bank of requirements. The consequences of data breaches are far-reaching, with more aggressive enforcement, higher fines and regulatory costs and growing third-party liability, followed by litigation. Regulators are increasingly focusing on business continuity, operational resilience and the management of third-party risk following a number of major outages at banks and payment processing companies. Companies need to operationalize their response to regulation and privacy rights, not just look at cyber security.

Applications of new technologies such as artificial intelligence (AI), biometrics and virtual currencies will likely raise new risks and liabilities, in large part from compliance and regulation, as well. With AI, there have already been regulatory investigations in the U.S. related to the use of unconscious bias in algorithms for credit scoring. There have also been a number of lawsuits related to the collection and use of biometric data. The growing acceptance of digital or cryptocurrencies as an asset class will ultimately present operational and regulatory risks for financial institutions with uncertainty around potential asset bubbles and concerns about money laundering, ransomware attacks, the prospect of third-party liabilities and even ESG issues as “mining,” or creating cryptocurrencies, uses large amounts of energy. Finally, the growth in stock market investment, guided by social media raises mis-selling concerns – already one of the top causes of insurance claims.

See also: Insurance and Financial Protection

ESG factors taking center stage 

Financial institutions and capital markets are seen as an important facilitator of the change needed to tackle climate change and encourage sustainability. Again, regulation is setting the pace. There have been over 170 ESG regulatory measures introduced globally since 2018, with Europe leading the way. The surge in regulation, in combination with inconsistent approaches across jurisdictions and a lack of data availability, represents significant operational and compliance challenges for financial service providers. 

At the same time, activist shareholders or stakeholders increasingly focus on ESG topics. Climate change litigation, in particular, is beginning to include financial institutions. Cases have previously tended to focus on the nature of investments, although there has been a growing use of litigation seeking to drive behavioral shifts and force disclosure debate. Besides climate change, broader social responsibilities are coming under scrutiny, with board remuneration and diversity being particular hot topics, and regulatory issues. 

Claims trends and the impact on the insurance market 

The fact that compliance risk is growing is concerning, as compliance issues are already one of the biggest drivers of claims. Cyber incidents already result in the most expensive claims, and insurers are seeing a rising number of technology-related losses, including claims made against directors following major privacy breaches. 

Other examples include sizable claims related to fraudulent payment instructions and “fake president” scams. Such payments can be in the millions of dollars. AGCS has also handled a number of liability claims arising from technical problems with exchanges and electronic processing systems where systems have gone down and clients have not been able to execute trades, and have made claims against policyholders for loss of opportunity. There have also been claims where a system failure has caused damages to a third party; one financial institution suffered a significant loss after a trading system crashed, causing processing failures for customers.

Recent loss activity, compounded by COVID-19 uncertainty, has contributed to a recasting of the insurance market for financial institutions, characterized by adjusted pricing and enhanced focus on risk selection by insurers, but also a growing interest for alternative risk transfer solutions, in addition to traditional insurance. Insurance is increasingly an important part of the capital stack of financial institutions and a growing number are partnering with insurers to manage risk and regulatory capital requirements or using captive insurers to compensate for changes in the insurance markets or to finance difficult-to-place risks. 

You can read the full report here: Financial Services Risk Trends: An Insurer’s Perspective

Apple is known for great design, but it sells consumer electronics -- not life insurance. Surely, there is more to user-experience design for complex industries such as insurance, right? The answer is yes. And no.

Yes, digital experiences in life insurance need to be different from the digital experience of buying a pair of shoes or some new AirPods. But not as different as one might think; in many ways, the mechanics are the same.

The main goal of digital commerce conversion is to get the user from point A to B, where B is some level of engagement. For a site devoted to selling shoes, the ultimate engagement is a transaction. We recognize this as e-commerce.

For a platform devoted to life insurance, there is more to the experience than the transaction (e.g. awareness, education, needs assessment, etc.), but the ultimate goal is still commerce -- the sale of life insurance policies. While most life insurance carriers do not consider themselves to be engaged in e-commerce, the online experience plays a critical role in getting the user from point A to point B and ultimately to the transaction, even if it takes place offline.

Simply stated, everything we’ve learned about e-commerce experience and conversion also applies to the life insurance consumer -- no matter where or how a policy is purchased.

Simplicity and Magic: Not Just for Consumer Products

Anyone who has purchased goods online with a single click -- Amazon’s "Buy Now" button comes to mind -- understands the power of "simplicity and magic." All the complexity involved in the transaction is hidden in exchange for billing, shipping and payment information. With one click, a product you want is en route to your doorstep, often within 24 hours.

When you think about buying life insurance, “simple” and “magic” are not words that come to mind. Life insurance policies are serious products, so the buying experience needs to be serious, too. Life insurance marketers often assume that consumers want to see lots of hundred-dollar words and legalese in the fine print (even though it will never get read). They believe every page should have busy images that scream financial security and leave consumers overwhelmed and feeling out of their league.

Of course, this is not the experience any marketer is trying to create, but it’s not uncommon.

Complexity makes it hard to figure out where to start, whereas simplicity makes it easy to figure out what the next step is.

Imagine an insurance adviser who needs to generate qualified leads. She creates a Facebook ad with a needs analysis calculator to help consumers self-educate. Every time a potential client clicks on that calculator, a lead is created, and basic information is automatically captured.

As the prospect moves through the process, pages and forms update dynamically so information is only entered once and the questionnaire automatically updates based on answers previously provided. This may not sound very magical, but don’t you appreciate it when you don’t have to answer the same questions over and over to get the information you are looking for?

See also: Designing a New Employee Experience

More serious magic happens as the lead continues to click though the process. More information is captured, the lead is self-qualifying, and the adviser can access everything in real time through a simple dashboard that lets her know exactly what the next step is for each prospect. Moreover, the carrier is gaining valuable consumer insights and behavioral data to drive future decision-making. And all the adviser did was put a lure in the water; she didn’t need to do anything else - all the complexity happens on the back end, behind the scenes away from the customer and the adviser.

Good News | Bad News

The good news for insurers is that decades of prior design and customer-engagement learnings and best practices are available to us despite our not being in the business of selling consumer electronics. When it comes to moving a user from point A to point B, the best practices are proven, so we don’t have to start from scratch.

The bad news is that most teams don’t have a stable of customer-experience experts to draw from as design decisions are made. In fact, many times decisions affecting the customer experience are made without any concept of design principles, and, over time, this can result in a very messy experience... a button added here and there, opening a window here and there and so on.

Not a pretty picture.

This problem also extends to consumers of enterprise software and platforms. In the age of Netflix and Amazon, software that comes with a thick user manual is doomed before it’s been deployed. Today’s business users have high expectations for modern software based on their own consumer experiences, so you may want to think twice before designing two-days worth of training on your next new system.

Above All Else, Trust

Delivering simplicity and magic is the holy grail of great design, but there is another, equally important design consideration that must remain front and center, especially when designing for more complex industries: building trust.

Trust is built through consistent experiences, so one of the fastest ways to lose trust is to offer a confusing flow with new experiences at every stage. We know this from our own experiences with some e-commerce sites:

You find a product you want to purchase, and you click the “buy” button, only to land on another page that doesn’t look anything like the site you started on. You decide that you want the product enough to overlook the change in experience, until you go to pay and end up on yet another page that doesn’t look anything like the page you were on before that.

Instead of a straightforward purchase of a product you want, you are now faced with the choice to proceed or not...because an inconsistent experience erased your trust in the process.

As the e-commerce example outlines, first impressions are important, but consistency builds trust -- and trust enables engagement/conversion. It’s much harder to get users to move from point A to point B if they don’t trust you. Moreover, if they don’t trust you, they are less likely to buy from you or recommend your products and services to others.

See also: Designing a Digital Insurance Ecosystem

Likewise, with B2B platforms and enterprise software, users are more productive when they know what to expect from an application and its UI. For example, office productivity tools such as Google Suites or Microsoft Office have many design elements that are consistent between tools. Once you understand how to do something in Google Docs, you can typically also do it in Google Sheets, for example. And when users master these tools, those skills are transferable from employer to employer.

This is also a great example of how consistency is often more important than differentiation. When building new user experiences, the urge to differentiate is strong, but consistency is critical. If you know how to search and play video on one streaming service, you can probably do it on a rival service. Imagine if you had to re-train every time you wanted to use a new service. And yet we typically expect enterprise users to do just this when we introduce new software.

Designing for trust is an integral part of my job: It’s top of mind as I make design decisions as a chief product officer developing technology solutions for life insurance. Sometimes, I find it useful to start with the understanding that my decision might be wrong, flawed in some way I haven’t figured out yet. It’s not that I don’t trust my design instincts. I do. But the process of proving that my decision was the right one often results in a better understanding of what we’re trying to accomplish.

In April of last year, as COVID-19 cases were rising around the world, I made a number of observations on the pandemic’s potential impact on reinstatement costs for asset owners, insurers and reinsurers, financiers and brokers.

One year on, the time feels right to look back to that moment when the world entered the first wave of lockdowns and travel restrictions — and consider what appears to have happened in a turbulent year.

The key case I would make from all of this is the need more than ever for asset owners across sectors to ensure their valuations are up to date.

The volatility over the last 12 months and the future uncertainties on global supply chains is likely to increase the chance of disagreements with insurers in the event of a claim, where current reinstatement costs are higher than those stated in insurance policies (under-insurance).

But a careful review will also help asset owners avoid overpaying insurance premiums (over-insurance) in the situations where costs have fallen since COVID-19 struck.

Oil, construction, stocks, travel

On oil prices: They stayed low, at around $40 a barrel, throughout 2020, only rising to around $60 a barrel in early 2021. 

The low cost of oil benefitted a number of sectors, but in reality this does not appear to have translated into significantly lower costs of raw materials or equipment.

On construction, activity slowed drastically across many markets as movement of people and goods was constrained. 

This has translated into different cost changes around the world, with some countries experiencing significant falls in tender prices while others have seen material increases over the same period.

Most material and equipment suppliers were affected equally by COVID, and as a consequence there was not the imbalance that could have driven down expected margins.

I wrote at the time that “companies may have stockpiled in advance of the major impact on supply chains and could flood the market with products once business picks up.”

In practice, the opposite appears to have happened — with governments early on in Q2 2020 ordering the shutdown of non-essential businesses, stocks have been at record lows across many industries.

With many industries experiencing low stock levels, firms have not been under pressure to drop prices.

With travel restrictions and huge variations between countries, it appears that, as at early 2021, most firms continue to be cautious on travel generally. 

See also: Optimizing Insurance’s Role in the Pandemic

Government support, materials, rates

In terms of governments stepping in with support, it appears that most governments prioritized job protection in their policies, and there was no sign of the financial support for businesses causing widespread lowering of prices.

While the cost of materials and equipment appears to have held up during 2020, there was downward pressure on the cost of services, as firms and suppliers in these sectors tried to maintain activity.

The latest commentary from central banks around the world indicates that they foresee continued challenges to economies throughout 2021, and accordingly they see continued low inflation for the remainder of the year. 

This supports the idea that prices should be under downward pressure, but in practice the cut in capacity/production from suppliers has ensured that costs have remained stable.

Supply chains, commodities, manufacturing

A year ago today, I suggested the possibility that “increased costs in the supply chain due to delays, reduced capacity and increased border checks could drive up costs.”

This certainly seems to have occurred, with shipping costs alone appearing to have rocketed in the last six to nine months. 

Firms in Europe have been talking about the cost of shipping from Asia going up by tenfold since early 2020. 

In terms of goods and commodities, while oil prices remained low, steel and other commodity prices have shot up through 2020. 

This has been driven by increased activity in places such as China matched to the reductions in capacity due to shutdowns, and historically low inventory levels. 

Steel mills for example were quick to idle blast furnaces but were slow to bring this idle capacity back online in many locations.

For manufacturing, there are few indications that manufacturers have materially shifted more production to domestic (more expensive) markets to maintain consistency in supply chains.

While this is mainly because of the widespread impact of COVID-19, it still remains a possible outcome of the disruption that has occurred.

As mentioned, some commodity prices have increased significantly in recent months, and there is no questions this will have a knock-on effect on construction and "factory gate" prices for goods if this supply imbalance continues. 

Inflation, furloughs, tariffs

So far, inflation remains low, and with capacity coming back online perhaps the recent surge in prices will be short-lived.

On furloughs, many countries are seeing unemployment levels rise, keeping downward pressure on wages generally. This could be exacerbated once current staff retention schemes are withdrawn.

However, COVID-19 has created a new focus on digitization and analytics for many firms, and people with those skills are likely to be well sought after.

One consequence of the widespread application of government support across many industries is that many firms have been able to manage the impact of COVID-19. 

However, as with any recession, the real impact usually hits as the economy starts to recover, and we could still see insolvencies become a factor toward the end of 2021 and into 2022.

During the last year, there was no obvious sign of increased application of tariffs and barriers. 

The change in the U.S. administration at the start of 2021 may herald a new approach to international trade, reducing the prospect of further protectionism and tariffs.

With continuing travel restrictions and huge variations between countries, it appears that, as at early 2021, most firms continue to be cautious. 

See also: Insurance CEOs Spec Out a Post-COVID World

Concluding thoughts

So, what has stood out when considering what I thought might happen back in April 2020?

I suppose the speed and depth of the impact of COVID-19, both on local industries as well as on global supply chains, took most people by surprise.

The stop-start approach to lockdowns and restrictions continues to make it hard to decipher the systemic changes in industries and markets. 

The uneven rollout of vaccines (and "passports") is unlikely to make that issue easier, either.

Certainly, the rapid price increases over the past year in the cost of transportation and commodities have caught many out. 

With U.S. steel (hot-rolled band) costs up 90%, aluminum up 10%, copper up 2% and U.S. concrete prices up over 400% from a low in March 2020, the potential impact on reinstatement costs for major facilities should not be underestimated.

Insurers, asset owners, brokers and financiers would do well to keep these issues top of mind as the rest of 2021 plays out.

An increasing number of articles on the topic would have you believe so, and it is a question we’ve long pondered as one of the larger providers of cyber insurance in North America.  

The Wall Street Journal just published an article, “As Ransomware Proliferates, Insuring for It Becomes Costly and Questioned,” highlighting a surge in the cost of cyber insurance amid mounting claims from ransomware and speculating that insurance payouts may only be encouraging ransomware attacks.

A spokesperson for Tenable stated it plainly: “[T]he insurance company pays the ransom, the criminals make more money, so they make more ransomware, which leads to more insurance, which leads to more payment, and so we get into this vicious cycle.”

Logical. Or is it?

What causes ransomware?

Ransomware is not just a type of malware. It is a criminal business model in which the perpetrator seeks to obtain benefit by taking hostage a victim’s data, infrastructure, economic output, intellectual property or even privacy. It is extortion in its purest form, and it won’t go away for so long as organizations allow assets of value to be taken hostage. Whether an organization purchases insurance or not has no bearing on the value of the underlying assets taken hostage. Nor in the vast, vast majority of cases are organizations targeted because they have an insurance policy – this simply isn’t information that an attacker has prior to an initial compromise.

Organizations are targeted by threat actors because they have made poor technological choices, oftentimes exposed to the public internet, that make them targets. They are targets of opportunity. Phishing, internet-exposed remote network access, and unpatched internet-facing software and devices account for the vast majority of ransomware targeting and initial compromise. Unfortunately, there are more opportunities (i.e. vulnerable targets) than there are criminals to exploit them, and, as a result, most ransomware actors prioritize targets based on their size and financial resources, which is used as a proxy for the value of assets taken hostage and the victim’s ability to pay. We have seen first-hand communication between threat actors in which an organization gets a “pass” because it isn't large enough.

The role of insurance in paying ransoms

Nearly all cyber insurance policies cover ransomware, including ransom amounts, but also digital forensics and incident response (DFIR) costs to respond to the ransomware event, costs to restore and recover lost assets, as well as resulting business interruption losses (i.e. lost income). From our experience, no one wants to pay a ransom. Certainly not the insurance company and almost never the client. Both have the same amount of hostility as if you’d kidnapped their children and won’t agree to pay a ransom unless it is a last resort. Often, assets can be restored without doing so, and with the insurance policy covering the other costs and lost income – exactly as intended.

However, occasionally assets cannot be restored. No backups and no recourse. Pay the ransom or face existential ruin. This is the unenviable position some organizations find themselves in, and the majority do not have insurance. For those that do, there is coverage if the policyholder elects to pay. Because it is impossible to ever be 100% secure, 100% of the time, insurance is literally the only thing that can provide protection against the possible eventuality of a ransomware attack in which an organization has no other means to recover. Moreover, because insurance policies cover the costs of experienced DFIR vendors, or also provide such services directly, as in our case, insured organizations are able to negotiate ransom demands down (nearly 100% of the time, in our experience) –something a victim would have a considerably more difficult time doing on its own.

See also: Cyber Risk Impact of Working From Home

While some insurers are pulling back on coverage, and even eliminating it, and while there is chatter of public policy efforts to render extortion uninsurable or otherwise prevent extortion payments from being made, it would be a tremendous disservice to the organizations affected by these attacks to prevent the insurance industry from continuing to innovate to fight cybercrime. It is impossible to imagine how much worse the world would be without insurance. 

Not only do insurance companies provide a tremendously valuable service, they have a unique ability to encourage – even enforce – the basic cybersecurity hygiene that is so desperately needed. They can also do so at a considerably lower cost than organizations can by themselves.

The role of insurance in fighting cyber crime

There is literally no industry better positioned to fight cybercrime than the insurance industry. Insurers have one thing in common that others (including cybersecurity companies) do not: a direct financial incentive to protect insured clients and prevent financial loss.

To have an impact commensurate with our position, we must act to:

• Improve underwriting standards across the board. In today’s market, an organization should struggle to get coverage if it has not implemented multi-factor authentication (MFA), disabled remote network access on the internet or implemented any number of other highly effective security controls. The insurance industry can and is serving as one of the single most effective enforcers of cybersecurity hygiene at scale. We've written about how we do this in another post, "Underwriting ransomware: Our unique approach and what it means for our customers".
• Provide risk engineering services to customers at little to no cost. Many insurance providers, like Coalition, are now continuously collecting data on insureds and following claims and using this information to alert other customers to imminent risks. In our case, we do this automatically and at no additional cost to the policy premium. We did this to dramatic effect following the recently disclosed zero-day vulnerabilities in Microsoft Exchange. As we published in our blog, within 48 hours of the disclosure we identified nearly 1,000 potentially affected policyholders. Today, we have only six vulnerable policyholders (!).
• Maintain effective ransomware coverage for those that need it most. This will mean balancing public policy objectives while avoiding actions that disenfranchise businesses (particularly small businesses). Moreover, any move to make ransomware “uninsurable” would likely (and ironically) hinder, not foster, innovation in the cyber insurance market. Many, although not all, insurers have made dramatic progress in protecting clients from ransomware. Coalition customers report 1/20th the frequency of ransomware claims vs. the broader market, by our own estimates, because we help each achieve a threshold of cybersecurity hygiene that dramatically lowers the likelihood of a successful ransomware attack.

It is in the collective interest of all that, as an industry, we tackle this problem with innovation rather than merely regulation.

With vaccination programs rolling out across the globe, and cases beginning to fall exponentially, there is finally hope that the worst of COVID-19 may be drawing to a close. But while this may signal the imminent end of the pandemic itself, it is surely only the end of the beginning with regard to its long-term impact. In almost every area of life, from the political through to the economic, the transformative consequences will be felt for some time.

The world of life insurance is no exception. But while the impact of COVID-19 on many industries remains uncertain, to say the least, the big picture for the life insurance industry is a lot clearer.

Prior to the pandemic, the so-called generation gap when it comes to life insurance was a constant point of consternation for the industry. Back in the mid-20^th century, life insurance policies were as common and ubiquitous as mortgages or car ownership – a standard rite of passage for younger households embarking on their journey into adulthood. This culture has almost entirely evaporated. Younger cohorts, especially the millennial generation – under new financial constraints and not necessarily catered to by traditional sales channels – had little awareness of or inclination to take out life insurance policies, and sales withered. 

Remarkably, though, the last year and a half has seen a dramatic reversal of this long-term trend. Despite a period of volatility around March and April 2020, coinciding with the initial swath of lockdowns, the MIB Life Index ended 2020 up 4% year-on-year, the highest annual growth rate on record. What’s more, this growth was driven predominantly by younger cohorts, with activity increasing in the 0-59 age range rather than 60+, in stark contrast to recent years, where any growth has been almost entirely driven by the latter group. Recent sentiment research underlines this turnaround; members of Generation Z are now significantly more likely to increase life insurance spending than other generations, with millennials following close behind.

Intriguingly, this shift started slightly before the pandemic came to America’s shores, in January 2020. Kobe Bryant’s death from a helicopter accident appears to have triggered a sharp uptick in demand for financial protection in the case of unpredictable tragedy. Then the pandemic understandably heightened awareness of mortality in generations previously unaccustomed to such perspectives. The economic hit also contributed – with many facing the prospect of losing employer group coverage.

This uptick of interest alone, however, will not be enough to bridge the generation gap in life insurance for the long haul. Consumer demand for life insurance has only ever been one piece in a larger puzzle. For some time now, the industry has been aware that re-engaging with younger market segments, while also continuing to serve its traditional customer base efficiently, will require a wholesale adaptation to more advanced technologies and digital forms of distribution. Technology and digitization – and taking full advantage of the new opportunities and business models they enable – will be key to taking long-term advantage of this renewed interest in life insurance.

It’s good news, then, that on the insurer side the pandemic has dramatically accelerated existing trends. As with many other industries, the chilling effect of lockdowns and other emergency measures on physical, face-to-face interactions has forced life insurers to dive headfirst into technology-driven approaches in underwriting and distribution methods. The transition to digital marketing, digital distribution and automated underwriting and digital policy insurance leveraging new forms of data was already inevitable before anyone had heard of COVID-19. But from early 2020, what was once a priority for future growth has become an immediate non-negotiable. New approaches to underwriting, business processes and distribution models made commercially viable by automation technology are higher up the insurance industry’s agenda than ever.

See also: 6 Megatrends Shaping Life Insurance

While nearly half of agents have reported a collapse in in-person business since the onset of the pandemic, life insurance companies across the industry have leapt headfirst into new digital technologies, tools and channels to compensate for the sharp drop in traditional methods of doing business. For example, embracing new technologies enabling real-time access to medical records and other forms of advanced data allow insurers to underwrite policies accurately even without face-to-face assessments or interactions. These advancements in the underwriting and distribution process are pivotal in future-proofing the industry, and in creating massive efficiencies at the same time.

The life insurance industry has always, by nature, been cautious in embracing technological change. But the pandemic has entirely removed the luxury of time from the equation. New technologies, new data sources and new approaches to automated underwriting that may have spent long periods in planning and testing are already live and gathering momentum. A transition to digital technology that prior to the pandemic could have spanned the next decade will now likely be complete in just a year or two.

This is no bad thing. If the industry is to take advantage of the new interest in life insurance among the young, as well as continue to service its traditional customer base in a more efficient and sustainable way, the sooner the better. The sector was already facing a challenge of modernization; COVID-19 is unlikely to change the future shape of life insurance.

What it does mean, though, is that the future is going to be here much earlier than expected. For those carriers keen to acquire first-mover advantage, the window of opportunity just became even narrower. The time to embrace new technology is now.

Between advertising insurance policies and adopting policies in support of a specific group of people, between issuing life insurance for diabetics and rewarding people for lowering their risk of developing complications from diabetes, between high premiums with few benefits and affordable premiums with good benefits, what insurers say influences what people do.

If insurers move people to get moving, if insurers inspire diabetics to take action—to live more active lives—chance and choice can come together. That is to say, diabetics should not only have an opportunity to buy life insurance but also a range of opportunities when buying life insurance. 

In a nation with 34 million diabetics, of which I am one, the insurance industry has a duty to dispel confusion with clarity. In speaking to two groups with separate conditions, in delivering separate messages for people with type 1 versus type 2 diabetes, the insurance industry can reverse years of doubt with a statement for the ages; offering hope for people in either group of a certain minimum age, so a tenth of all Americans can know the truth: that diabetes is not a point of permanent or temporary disqualification.

While a minority of diabetics have life insurance, the majority of diabetics believe they are uninsurable. This fact persists despite all facts to the contrary, not because of people’s refusal to accept the truth, but because of insurers’ failure to make the truth understandable. 

The fact that failure to communicate is communicable, that what a person believes affects how a person feels, that silence among insurers serves to sanction self-destructive behavior among diabetics—until this fact ends, more lives will end before threescore years and ten; spreading sorrow as the lost fly away.

Insurers can lessen the magnitude of this tragedy, increasing financial security for diabetics and strengthening health care for all. The answer requires an economy of words and a wealth of repetition, so as to turn a message about insurability—that diabetics can and should buy life insurance—into an inevitability. 

The answer is a requirement for the survival and the success of America, too, because we can ill afford illness to consume the life of our economy. We cannot allow 88 million American adults with prediabetes to further sicken or suffer, to go blind before they go limp, to lose their limbs before they lose their lives.

See also: Solving Life Insurance Coverage Gap

We cannot afford to be unclear. Not when diabetics work to live longer, and long to retire with nontaxable income. Not when diabetics want to buy life insurance, and want to better the lives of their loved ones. Not when insurers need to help diabetics, and diabetics welcome help from insurers.

Aware of the power of messaging, and able to promote awareness among the recipients of a particular message, the insurance industry can enrich the lives of diabetics.

Whether insurers save a hundred lives or a thousand lives, whether they save more lives in a month than in a year, they will save the lives of diabetics.

Insurance organizations striving to maximize revenue and streamline processes may choose to implement modern billing systems. Billing has traditionally been seen as a back-office function; that assessment is no longer true in today’s digital world. Billing is one of the most frequent and important customer touch points. However small or simple an implementation may look, it’s critical to get the implementation right to ensure that the overall cost of operation is reduced and that customers and agents are happy

This paper is focused on carriers that have selected a billing application from one of the product vendors like Duck Creek, Guidewire, Majesco or Insurity and initiated their transformation journey

Here are the top 11 things to keep in mind for a successful billing implementation:

1. Requirement Management — Billing traditionally is managed by the finance team, but looking at billing only as a finance function will not yield the right benefits. Sales needs to be involved because billing plans sometimes play a key role in selecting a policy. The agency management team should be involved because billing and commission management influence the choice of carrier by independent agents. Underwriting and the actuarial team should be involved to understand the kinds of fees and costs that will affect the overall revenue collected under the policy. We recommend an internal survey before starting the implementation of billing changes. 

2. Billing Configuration — Modern billing systems provide flexibility of configuration. However, carriers must understand the complexity that comes with configuring an application with too many payment plans. They also need to understand the downstream problems of defining too many receivables. Carriers should plan for all transactions, like endorsements (and the impact of these endorsements on future revenue) and reinstatement (ensuring that invoices are restored and past premium collected).   

3. Exceptions and Customization — Every insurance company wants to customize the business rules and functionality to maintain its unique characteristics. Depending on the application, some business rules can be configured for easy exception (by line of business, state, agent, etc.). Some may require customization in code. It is important that insurance companies take appropriate decisions related to the benefits of customization vs the cost of maintaining those changes. The more they customize the code, the harder it will be to upgrade the system. 

4. Accounting and Reconciliation — The billing system receives premium from the policy administration and servicing (PAS). The premium is subsequently broken down to receivables and installments. The payments received by the customers are used to settle bills. All these transactions are posted as double entry in the accounting module. Carriers should invest time to understand the various transactions and tie the account back to invoicing and payments. Carriers should also work with partners to create a good reconciliation application to ensure that all financial transactions tie back and have an audit trail.

5. Reports — Billing manages the receivables and payments from the point when the policy is sold, but multiple activities can happen during the lifecycle, like delayed payments, write-offs or suspense money. So, management needs to design reports on top of the billing system, which can help reduce financial leakage.

6. Integration — Billing implementation involves limited but very important and complex integration points. While most applications are within the control of the carrier, it is important to involve external parties like payment gateways and banks right from the beginning of the implementation.

7. Payments Options and Notification — Customers today are looking for multiple payment options from insurance companies. While traditional options like direct debit and check/lockbox are still quite popular, customer preference is changing toward quick online payment options through payment gateways via web/mobile. 

See also: What Makes Insurance Invoicing Different

Customers' satisfaction soars when they are promptly notified about payments in advance and also when they have missed the payments. Defining the right delinquency process reduces the lapsing of policies.

8. Commissions — If agents are not happy, the insurance company suffers, and many complaints relate to commissions. While implementing a billing system, carriers should ensure that commission statements are generated on time and that commissions are paid promptly for direct bills. Carriers should also ensure that they provide for prompt resolution of discrepancies. 

9. Testing — Billing is a series of transactions that happen over time, but most insurance billing applications do not cover enough scenarios, which can lead to bugs in the production environment. Testing should be one of the most important pieces of your billing system implementation. 

10. Migration — Migrations of billing data can become tricky depending on the quality of data in the historical system. Carriers can adopt a strategy of: a) rollover runoff on renewal, b) open book migration or c) full migration. Carriers should decide early so they can estimate cost and implementation time accurately.

11. Change Management — Many organizational transformations fail because management doesn't get enough buy-in from stakeholders. Insurance companies should develop a comprehensive change management plan, involving internal teams like operations, sales, call center and finance, as well as the vendors of the IT systems that will interface with the billing system. Carriers should also set up a plan for communicating with agents and customers about the changes they will encounter.  

Conclusion: Billing applications are transaction-heavy and should be carefully discussed and analyzed. Implementation should include in-depth analysis of all scenarios. An up-front investment in detailing requirements can reduce production support challenges. 

Our Big Problem With ‘Noise’ Paul Carroll, Editor-in-Chief of ITL A new book co-written by behavioral economist extraordinaire Daniel Kahneman points out a major problem that numerous industries, including insurance, only sort of know they have and is surely worse than they recognize. He calls the problem “noise.” He says insurers are very aware of potential bias based on age, race, gender, etc., especially as they evaluate algorithms driven by artificial intelligence — insurers know to look for consistent favoritism toward, say, white men. But, he says, insurers tend to gloss over the problem of inconsistency, or “noise” — the fact that people come to very different conclusions based on the same set of facts, even when bias is removed from the equation. Kahneman, who won the Nobel Prize in Economics in 2002 and who has driven so much of the progress on behavioral economics for decades, cites a study he did in 2015 that presented a series of cases to 48 underwriters at a large insurance company. Executives predicted that there would be roughly a 10% variance between the high and low prices that the underwriters provided after assessing the risks — but the typical variance was 55%. Many variances were even more extreme. One underwriter might set an annual premium at $9,500 and another at $16,700... continue reading > Capgemini and Majesco Roundtable Seth Rachlin and Denise Garth bring together a powerful panel of insurance industry leaders to discuss the evolving opportunities in the commercial and specialty insurance segment.   Watch Now SIX THINGS Why Open Insurance Is the Future by Gil Maletski More are turning to "open insurance" solutions, under which insurers leverage open APIs to share data and services with third parties. Read More It’s Time for Next Phase of Innovation by Veer Gidwaney It’s time to break through the first phase of technology adoption and move into a new phase of tech-enabled innovation. Read More The Alarming Surge in Ransomware Attacks sponsored by Tokio Marine HCC - Cyber & Professional Lines Group Join Michael Palotay, Chief Underwriting Officer for Tokio Marine HCC - Cyber & Professional Lines, and Paul Carroll as they continue their discussion on ransomware, cyber attacks, and how businesses can protect themselves. Watch Now Intersection of AI and Cyber Insurance by Ben Branda While AI is sure to benefit society when wielded properly, cyber carriers remain conscious that AI’s proliferation is a double-edged sword. Read More Achieving a ‘Logical Data Fabric’ by Saptarshi Sengupta A logical data fabric has the capacity to knit together disparate data sources in insurers' broad, hybrid universe of data platforms. Read More Managing Risks for Hydrogen Industry by Chris Van Gend There is, rightly, enthusiasm around hydrogen solutions for a low-carbon economy, but projects involve complex industrial and energy risks. Read More The Broad Reality of Diversity by Laura Beckmann As people return to the workforce, candidates with the potential to revolutionize our industry may present themselves. Read More MORE FROM ITL May's Topic: Cyber In high school, a friend of mine had a poster on his wall that read, “Just because you’re paranoid doesn’t mean they aren’t out to get you.” That pretty well summarizes how the world of cybersecurity and insurance works. Companies may feel paranoid for looking over their shoulder all the time, expecting something bad to happen, but we all know that there are plenty of bad guys out to find all the victims they can. Take Me There Webinar Series: The Future of Blockchain Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities – and a key benefit of the technology, providing a single source of truth kept up to date in real time and accessible through permissions by all stakeholders, has huge implications for the insurance and risk management industries. Watch Now Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

While every business uses invoices to handle customer payments, in the insurance industry they can be a serious matter. 

Unlike other businesses, insurance agencies are bound by state and federal laws that restrict how they can cancel policies, which can have an effect on invoicing at every stage. 

Insurance laws in every state require that a written notice of cancellation be presented to the policy holder by the U.S. Postal Service a certain number of days before the policy is canceled. (The number of days varies by line of business and by state.) 

If the reason for cancellation is non-payment, and the insurance carrier or agent or carrier accepts any payment on this policy before the cancellation date, then, by law, the entire cancellation process has to start from scratch. 

This is important because, when the policy is being canceled for non-payment of a premium, the insurance carrier is still required to show the amount of premium that is due as revenue. The amount due minus the amount received is money that is never received and will be written off as an expense. This is a real cash loss to the carrier, because the agent’s commissions for unpaid premiums are also withdrawn from the agent’s commissions earnings by the carrier. Therefore, it is a real cash loss to the agency, as well. 

Additionally, if a claim-and-loss occurs during this newly reset cancellation period, the carrier is required to pay the loss — regardless of the outstanding premium that is due. Most states cannot deduct the past-due premium from the loss payment. The only exception to this is if the insured fails to pay the renewal premium. In this instance, no notice is required. The insurance policy simply cancels as “not accepted” on the renewal date. 

Cancellation laws make insurance invoicing more complicated than a typical business invoice. It is important to control the time in which the payment will be accepted, the amount of payment accepted and the specific policy to which the payment is being applied. 

These complex laws can be tricky for insurance agencies, but one way to make them easier is to use software that is designed to meet those needs. 

When setting up an invoicing system for your agency, make sure that it addresses these problems.

Your system should allow you to set the date after which the payment in your link invoice will not allow a payment to be processed. In practice, this means you should set this date as the cancellation date for the policy, which will keep your customer from paying any amount after the cancellation date. 

You should also be able to set the exact amount of the payment that can be made. This should be the correct amount due to pay for either the rest of the policy period or, at a minimum, the amount due before the next scheduled policy installment payments. This amount should also include any and all appropriate late charges and other fees. 

See also: Designing a Digital Insurance Ecosystem

Make sure your system allows you to set the amount due as a range rather than a fixed dollar amount, allowing the customer to pay any amount above the minimum amount due. 

If your system allows people to pay multiple policies on the same invoice, make sure it properly separates out payments to be applied to specific policies. 

If you do not apply specific premiums to specific policies, you cannot use non-payment of premium to cancel any of these specific policies. 

By following the advice laid out in this article, you can protect your agency and your insurance carrier from resetting cancellation notices; incurring increased unpaid premiums and commissions; and paying claims during the longer time required for cancellation during the time when a partial payment resets the cancellation notice cycle. 

Invoices are trickier in the insurance industry, but that doesn’t mean they have to be more work. 

Discussions around the impact of mental health and well-being in the workplace are frequent Out Front Ideas with Kimberly and Mark topics. May is Mental Health Awareness Month, so we are offering our thoughts on the current state of mental health in the workplace.

Even before the pandemic, benefits managers were adapting employee benefits to better equip employees and plan members with mental health resources. However, as the work from home assignments continued and social isolation set in, employers became even more aware of the impact of mental health and well-being on productivity, absence and performance. With a greater emphasis on employee well-being, we hope programs initiated during the pandemic will continue to support improved access to care and will break down the stigma related to mental health.

Employers took advantage of employee resource groups (ERGs), either existing or newly implemented, to foster peer interaction, open conversation and joint problem-solving related to issues that have an impact on their personal and professional lives because of the pandemic. Group collaborations focused on important topics at that time with employees, such as home school successes, caring for an ill family member, loneliness and depression, challenges with family and positivity sharing, to name a few. Many found the sessions to be an excellent way to bring positivity and support into their life and provide a break from the hectic pace of working at home. As companies create back-to-office and hybrid workforce models, ERGs continue to be a priority to ensure all who want to can participate.

Access to care has been a long-standing challenge for those seeking mental health care. Reimbursement rates, timely appointments and limited provider options are some of the issues the industry is working to solve. Previously, while telehealth visits were growing for triage of minor medical and follow-up appointments, there was slow adoption for teletherapy and telepsychiatry. Fortunately, telemedicine was a saving grace for many aspects of healthcare during the pandemic, and mental health care saw a boon. Employers and network partners are now offering multiple options for telemedicine and improved coordination between employee assistance programs (EAPs) and online therapy platforms for mental health care. Phone calls, video conferencing and texting are becoming an integral part of the therapist-patient relationship. With less social connection, this has found success for many in the workforce — and their families. Organizations are now offering various programs, including adult, family and teen counseling.

The Center for Workplace Mental Health is an important resource for all employers. The entirety of its work focuses on helping employers create a more supportive work environment and advance health policies at their organization. They have created a mental health toolkit for Mental Health Awareness Month, which includes topics such as promoting resiliency for people and the organization; promoting self-care; and addressing isolation and loneliness. These programs (and others) can be easily integrated into your company culture to reduce stigma, promote well-being and provide an environment where employees and leaders both care and thrive.

See also: The Long Haul for Mental Health at Work

From a workers’ compensation claims perspective, mental health has always been a complication lurking in the background. The industry tended to ignore the issue because of a combination of stigma and outright resistance. Claims where the injured workers never fully recovered probably had a significant untreated mental health component. Thankfully, that is changing; it is now widely recognized that all chronic pain has a significant mental health component, and, if you fail to address this, it will increase claims cost and lead to poorer outcomes. Multidisciplinary pain management programs now spend as much time on mental health as they do physical health. 

Laws are also changing to make it easier to pursue psychological injuries under workers’ compensation. More states are allowing “mental-mental” claims, which are psychological injuries with no physical injuries. In addition, one of the leading workers’ compensation legislative initiatives for several years has been the expansion of first responder presumption laws, which are primarily focused on post-traumatic stress. In the past, the threshold for a mental health injury was a “usual and extraordinary” experience. That threshold was used to deny very real traumatic situations that first responders encounter because the situations were “usual” aspects of their job. While these traumatic situations may have been expected, there is nothing ordinary about responding to severe accident scenes, seeing your partner shot or having someone die in your arms. In certain ways, public entities created the path to these presumption laws by denying such claims rather than focusing on getting the injured worker the treatment they needed. Public entity employers are now reporting that they are seeing an increasing number of PTSD claims with no corresponding physical injuries being filed under workers’ compensation.