Many in the insurance industry are excited about the potential for embedded insurance, and it’s easy to see why. A recent InsTech London report forecasts that the market could be $722 billion in gross written premium globally by 2030. 

While embedded insurance is already established in the consumer space, the industry has only begun to scratch the surface of its potential. At MAPFRE, we believe it is inevitable that this market will continue to grow. Customers love the ease of it, and it offers significant opportunities for insurers to launch products, attract customers and save on distribution costs. 

What is embedded insurance?

We’re all familiar with embedded insurance in practice. Concert venues offer us cancellation insurance, and airlines offer us travel insurance when we buy tickets. Amazon even offers insurance on higher-value products when we check out. 

Selling add-on insurance at the point of sale is just one piece of this puzzle, however. InsTech London defines embedded insurance as “abstracting insurance functionality into technology in a way that enables any third-party distributor (usually product or service providers in other sectors) to seamlessly integrate insurance products and solutions into their own customer propositions and journeys.”

Looking at the bigger picture, at MAPFRE we see embedded insurance as part of a broader evolution toward offering policies that leverage data to offer real-time pricing in line with the needs of today’s customers – and that includes business customers in the commercial lines space.

Why is it growing so fast?

Today, consumers demand convenience. For certain products, they expect to buy the right protection for specific needs with a couple of clicks on their smartphone. 

Embedded insurance is the natural evolution of other trends that we have been observing in the sector for years, such as micro, on-demand, pay-as-you-drive, pay-how-you-drive and so on. Many clients no longer perceive value in traditional long-term policies, where the price stays fixed regardless of when or how they use it. For customers like these, embedded insurance seems much fairer because it is targeting the customization they are looking for.

See also: Embedded Insurance — Both Old and New

For distributors such as banks, retailers, landlords and car manufacturers, offering insurance as part of a transaction generates extra revenue and increases the perceived value or convenience of their services. With digital ecosystems fast becoming the norm, it is natural for distributors to build on existing insurance partnerships – or seek new ones – to expand the range of insurance products they can offer. 

For insurers, embedded insurance has the potential to reduce distribution costs by integrating products directly into sellers’ platforms. It also offers the chance to win new customers with more flexible, easy-to-buy policies suited to modern lifestyles. 

Smartphones, wearables, IoT sensors, vehicles and countless other sources now generate new sources of data – much of it available in real time – to enable the industry to embed new products. At the same time, cloud-based digital platforms that are mobile and API-enabled make it possible to configure products and services around customer journeys, so firms can offer the right products to customers at the right times. 

The impact of this can be seen in the plethora of insurtechs now offering variations on the theme of embedded insurance. RentSpree is a tenant verification platform that just announced a partnership with Sure to offer renters insurance, for example.  

Insurance distribution opportunities

One way embedded insurance is gaining traction is by offering the opportunity for more companies to become insurance distributors. 

In the home insurance space, the insurance comparison website Young Alfred allows mortgage providers, real estate firms and asset managers to partner with them to sell embedded insurance as part of their propositions. 

When it comes to fleet insurance, U.K.-based MGA and SaaS platform Flock recently announced a partnership with Jaguar’s rental service, THE OUT, to provide usage-based policies for its fleet. In the U.S., Turo has partnered with Liberty Mutual to provide its own insurance product, Rivian has announced embedded products for their recreational vehicles and Outdoorsy works with Assurant to insure its RV rentals.

This shows the market opportunity for such start-ups that enable embedded insurance, as well as for the incumbent insurers that partner with them. 

Yet we see even more potential in the commercial insurance space for insurers and start-ups that are willing to make the leap. According to Swiss Re, the protection gap between the amount of insurance deemed socially and economically beneficial for households and businesses has doubled between 2000 and 2020. As an example, only 0.2% of U.K. SMEs bought business protection insurance in 2019 and 2020. 

According to Swiss Re, this gap has been driven by global trends in digitization, urbanization, climate change and a lack of effective innovation. Another factor for SMEs is that they find existing insurance products hard to understand and time-consuming to buy. Embedding appropriate policies would make the buying process easier and more convenient, helping to bridge this gap, while massively increasing revenues for insurers.

In the commercial lines space, we at MAPFRE see a particular opportunity with cyber insurance, where risks to firms are increasing rapidly but existing policies remain inflexible, hard to understand and potentially incorrectly priced.

In the wake of COVID, commercial buildings cover is likely to be another area of opportunity. With the rise of hybrid working, many businesses may no longer want to insure their premises in the same way, preferring to insure specific key assets instead. 

See also: Designing a Digital Insurance Ecosystem

The potential rewards are great

In short, the potential to leverage businesses as distributors while also offering more bespoke insurance products could unlock huge untapped potential. Where changing consumer needs are driving rapid adoption of embedded insurance in the B2C space, we see the potential for this to happen in the B2B space, too, albeit early days for this.

The more we become used to embedded insurance as consumers, the more business owners and business leaders will come to expect the same convenience and flexibility for their firms. The rewards for those insurers that take the leap will be immense, and, from our perspective, it is not a question of “if” this will happen, but “when.”

In 1975, the Argentina grain exporter Bunge & Born paid $60 million to free a kidnapped executive. That ransom payment remains the largest ever paid for a single person, but his case marked the beginning of the end for high-profile hostage events. The reason? Insurers began offering kidnap and ransom insurance. The policies not only promised to reimburse ransoms but helped corporations with needed resources such as crisis managers and negotiators to get hostages to safety and to keep ransom costs in check.

Today, major multinational corporations stare down a similar, if less physically tangible, threat. Ransomware is not just a form of cybercrime but a malevolent industry unto itself. With malware deployed to infiltrate networks and encrypt files, bad actors can essentially immobilize operations, create reputational damage and even physically harm people. More concerning, the bar has been lowered for entry with ransomware-as-a-service (RaaS). It no longer takes a skilled operator to carry out the attack—just bad intentions and access to a licensed service. 

Just as in the 1970s, criminals have seized an opportunity to exploit corporate wealth, and it will be up to the insurance industry to help modulate a situation that is spiraling out of control. In this new, digital version of the hostage crisis, the insurance industry is uniquely positioned to play a leadership role, de-escalate the panic, and again help global corporations rise above terrorism and fear.

An Evolving Threat Requires an Evolving Defense

Experts predict that a ransomware attack will occur every 11 seconds in 2021, with global damages from ransomware to hit $6 trillion. No sector is immune, which is why leading corporations joined to create The Ransomware Task Force, with Resilience serving as co-chair to help develop policy solutions for this growing scourge.

While public policy certainly has a role to play, cyber insurance can be more instrumental in effecting change on the ground. Cyber insurers have already become one of the most important drivers for cyber security, requiring policy holders to meet standards of care and providing resources that can help both guard against ransomware attacks and respond to them in a timely manner that saves money, protects data and avoids costly regulatory violations and other liabilities.

See also: Premiums Climb as Ransomware Bites

An Unfair Rap

Yet, some want to blame the escalating ransomware crisis on cyber insurance. Last year, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) stated in an official advisory that “companies that facilitate ransomware payments to cyber actors on behalf of victims...encourage future ransomware payment demands.” They included cyber insurance companies in their list of these facilitators and warned that ransom payments may “embolden cyber actors to engage in future attacks.” Instead of buying cyber insurance to manage and transfer the risk of ransomware, OFAC recommended that institutions wait to contact the relevant government agencies in the event of an attack. 

The focus on ransom payment facilitators distracts from the sources of cybercrime, how targets are chosen—rarely targeted for who they are but for their vulnerability—and the reasons these schemes are increasingly profitable. The rise of cryptocurrency, the mounting consequences of data leaks and last year’s sudden shift to work-from-home are all contributing to ransomware’s growth.

There is no evidence that insured firms are more likely to pay out ransoms—and it’s not up to the insurer to make that decision. In fact, victims with good cyber insurance may be less likely to pay ransoms, because insurers provide technical and legal experts to help identify the best method of recovery. And because firms must often prove their security bona fides as a precondition of insurance, a hardening cyber insurance market is slowly raising the bar for cybersecurity across industries. 

Simple Solutions

While making ransomware payments fully illegal sounds great in theory, like most simple solutions it falls apart in practice. It places an outsized amount of blame on the victim and does nothing to protect victims of future attacks. Insurance can put the economic incentives in place to encourage, if not compel, better security practices while providing a safety net in times of need. 

While there are cases where options like secondary data restoration are viable, some ransoms do ultimately need to be paid. Ransomware actors are experts at applying pressure on their victims, including by threatening to release stolen confidential data to the public. Often, the victim doesn’t have the resources to make this judgment call—the victim needs practiced experts to help it through the process and the economic and technological resources to handle the fallout. In other words, the victim needs insurance.

Mitigating Risk—for Everyone

On the micro level, responsible cyber insurance can both insure and secure, transferring and mitigating risk through incentives that keep insureds up to date on an ever-changing threat landscape. 

For enterprise clients, there may be effective in-house cyber security but challenges in budget justification. For SMEs, the resources an insurer can provide are invaluable. For victims of a ransomware attack, those resources can include forensic services, incident response, legal expertise, repairs and recovery cost. Insurance would also cover business interruption loss and other losses that could otherwise be financially devastating. It may also include the ransom payment, but not always.

On a bigger scale, cyber insurers can collect and share data on all cyber events—continuing to insure against ransomware and collectively pool and spread this risk. As we’ve all seen with catastrophic ransomware events in the past year, such as the Colonial Pipeline fuel shutdown, such events can have massive ripple effects. 

See also: What’s Next for Ransomware

Ransomware is not going away on its own, just as the hostage takers in the 1970s were not going to give up on a lucrative criminal opportunity until it became less desirable. It’s up to the cyber insurance industry to give us the key to a decrypted future.

Here’s a radical idea: Life insurance should be about, well, life.

For too many years, life insurance has effectively been death insurance, focused primarily on paying out lump sums on a policyholder’s passing. Reimagining this long-standing approach – and putting the life back into life insurance – starts with harnessing insurance as a tool to enhance policyholders’ physical, mental and financial wellbeing.

How can the industry meet this challenge? 

Well, at YuLife, we’re transforming group life insurance into a suite of wellbeing and insurance products – a paradigm shift toward a model that simultaneously supports members, insurers and employers. Members benefit from improved wellbeing, while insurers gain from an approach that de-risks policyholders via healthy activities and employers gain the esteem of their employees by offering a product that offers tangible value to their lives – making for a happier, healthier, more productive workforce.

At YuLife, which recently completed a £50 million Series B round, policies come with the standard features of group life but add critical illness, income protection, virtual general practitioner (GP) services and employment assistance such as counseling and coaching. Based on the latest behavioral science, artificial intelligence and game mechanics, policyholders are offered discounts and vouchers from leading brands, including Amazon, ASOS and Avios, in exchange for completing everyday wellness activities like walking, cycling, meditation and mindfulness exercises. Many policyholders lead healthier lives while safeguarding their loved ones’ financial future. None of it would be possible without the intelligent, efficient and purposeful use of technology.

See also: Where Does Life Insurance Go Now?

Among the key principles underpinning the transition to a new model of life insurance is gamification, which allows policyholders to reap tangible rewards and “level up” upon completing a given set of tasks. These enjoyable, engaging experiences enable lower premium costs and better physical and mental health while also playing into policyholders’ competitive instincts and our natural love for quests and challenges with our friends and colleagues.

Additionally, AI-driven insights empower employers to tailor their offerings toward individual employees’ needs and identify gaps and opportunities in their wellbeing strategies. The fusion of gamification, app development and data science creates a whole greater than the sum of its parts, with more touchpoints between the insurer and policyholder – making it likelier that policyholders will keep their policies.

Where Technology and Insurance Meet

The last major innovation in life insurance was arguably the introduction of higher premiums for smokers in the 1960s. A lot has changed in the past half century – and for life insurance to meet the needs of modern consumers, the industry must build products that are accessible, user-friendly and valuable to users’ everyday lives.

Insurtech opens a world of exciting possibilities – pointing toward a future where life insurance is actually conducive to a better life.

After more than a year of watching the world change radically, consumers need three things: security, comfort and support. In other words, they need empathy and understanding from brands they trust — and from their insurance providers most of all.

In fact, your insurance brand’s overall empathy matters more than ever to customers who’ve undergone what can only be called an emotional roller coaster. They want to feel that you’re sitting on the same side of the table as they are. And that might require you to change the way you approach your client relationships.

Fueling Customer Loyalty Through Empathy

As McKinsey’s 2020 research shows, customers are looking for incredibly personalized solutions. They want to know how working with your insurance company will help them stay grounded and secure. Consequently, you can’t rely on standard marketing appeals to force bonds with prospects and clients. Instead, you have to lean fully into empathy.

For instance, your agents and service representatives might need to become more active problem solvers for customers. This would require them to listen to clients’ pain points, pay attention to what’s important to the people they serve and learn to connect with grace and transparency.

Although transforming your workplace into a people-driven, empathetic culture will take time, it will also provide you with advantages. According to reporting by Insurance Journal, more than half of all consumers would patronize a different business if it offered an exceptional customer experience. That was before the COVID-19 pandemic. Today, those numbers would likely be higher.

Another benefit of corporate empathy is that it can boost profits. McKinsey determined that insurance providers offering world-class customer service enjoyed higher revenue margins of about 30%. Accordingly, by being laser-focused on your customers’ needs, fears and wants above all else, you can both hit your quarterly numbers and reap public goodwill.

By driving up your empathy, you can drive up retention rates — and maybe snag competitors’ customers in the process. As I’ve written before, I’ve seen how a terrific and empathetic insurance brand reputation can cause customers to migrate from one insurer to another, regardless of price.

See also: 2021: The Great Reset in Insurance

So how do you inch your customer experience protocol toward empathy and away from “business as usual?” Try adopting these measures:

1. Give customers your full attention.

Insurance agents are sometimes surprised when clients leave. Upon reflection, many realize they haven’t spoken with those customers in a long time or weren’t giving each customer their undivided attention during the last interaction. 

Being present can be tough — especially when your days are busy and your workload is heavy. Nevertheless, when you start to see your clients as individuals and not numbers, you open the door to making real connections.

Pull out your calendar. Based on your availability and schedule, design a plan to stay in regular contact with all customers. EY reporting suggests 44% of insurance clients haven’t had any communication with their provider or agent in the past 18 months. Be the insurance agent who gets in touch every few months just to make sure everything’s OK. You’ll set yourself apart instantly and show your empathy.

2. Make clients feel special.

Your customers might assume that you see them as just a record in your CRM system. Prove them wrong by making them feel unique and important through life-event marketing. For example, why not send out birthday cards or emails? The process takes only a little bit of time, but it makes a powerful impact.

Alternatively, you could send out a card reminding customers of their “anniversary” with your insurance company. Or you could call to thank them on that anniversary and use the call to find out if they’ve had any life changes that could affect their insurance needs. 

You’d be amazed at how far a little delight can go toward creating emotional inroads with customers. So, gather your team and brainstorm ways to initiate personal touchpoints throughout the year — not just during the typical year-end holidays.

3. Show your human side.

Establishing real relationships with your customers requires you to enter into a give-and-take relationship. In other words, you need to let them know about you. Don’t worry — you aren’t obligated to become best buddies with your clients. However, you should be willing to take the tone of a friend and share a bit about yourself.

Make no mistake about it: People are craving basic interactions. The more you can drop the veil of the arm's-length salesperson and foster a human touch, the tighter your client bond will be.

Need suggestions? Talk about your kids. Or your awful golf swing. Or even how insurance helped you. If you’re not totally comfortable talking about yourself, you can always coordinate volunteer events and invite clients to participate. That way, you can spend time with customers and make similar memories.

Just two years ago, you could get away with sales efforts focused on standardization and data. Not any more. To hold on to great customers, you need to lead with a dose of old-fashioned empathy. 

With more than 90,000 public entities in the U.S., the Association of Governmental Risk Pools (AGRiP) estimates that at least 80% participate in one or more pools. By pooling their risk—and accountability-- these not-for-profit organizations can economically provide risk management and loss control, underwriting, claims management and a comprehensive package of insurance coverages that typically includes property, casualty and workers’ compensation. This effort supports a pool’s #1 priority: the co-owners of the pool—its members. These members hail from local and state municipalities, including entire fleets of first responders (fire, police), public utilities, school districts, etc., government-run hospitals, public libraries, community colleges, support staff and more. Accordingly, the typical pool must ensure its technology systems can reliably support the needs of its members.

Ensuring uptime is paramount. During COVID, pools — like most private or corporate sector organizations — were forced to adjust how they worked, many prioritizing their IT wish list to maintain operational performance and resiliency. But, unlike most organizations, pools are restrained by outdated legacy systems and a limited, fixed budget. As a result, that wish list remains a wish, not a reality. 

Undoubtedly, budget concerns are one of many issues facing pools: Often, these organizations don’t have a large IT staff and are forced to maintain operations “the way it’s always been done,” cobbling along in the hopes that risks will be minimal. In actuality, the risks facing these organizations are at an all-time maximum.  

This conundrum is complicated by the fact that most pools rely on antiquated databases and Microsoft Office products for the bulk of their day-to-day operations. At a minimum, this reliance opens the door to Outlook phishing, making the pool more vulnerable to cyber criminals. Many may use Excel or other inexpensive spreadsheet programs that make it difficult to access data and almost impossible to regroup on errors. Imagine the time required to backtrack, inspect various versions of the spreadsheet’s values, calculations, source data and file history to correct the error, wreaking havoc with routine financial or regulatory reporting. Some pools use insurance core system software that, with the exception of claims, includes workflows that don’t necessarily match with the pool’s own protocols.  

If all this doesn’t spur you to think differently about how technology is managed, consider the largest, most recent risk affecting pools:  ransomware. Public entities are one of the most targeted sectors yet often have the fewest resources and capabilities to prepare for and respond to ransomware attacks. Consider that 2,400 U.S.-based governments, health-care facilities and schools were victims of ransomware in 2020, according to Council on Foreign Relations blogger Michael Garcia. In 2020, cyberattacks cost government organizations in the U.S. approximately $18.88 billion in downtime and recovery costs, according to a report from consumer tech information company Comparitech. And local governments continue to experience the greatest number of ransomware attacks, according to security company Blackfog.  

SH:  Foundation a Critical Asset

Yes, ransomware is a network issue, and, with ever-evolving ransomware keys and infiltration methods, there’s no way to prevent an attack with 100% certainty. But the rise in cybercrime is spurring pools across the country to wake up to the fact that it’s the pool’s technology foundation that enables them to best respond to their individual public entity members, which makes that foundation more valuable than ever. Without a unifying approach to IT management that includes modernization, pools will continue to struggle to operate efficiently, much less deter, disrupt, prepare for and respond to ransomware events.

See also: Why Open Insurance Is the Future

Let’s revisit the statement about pools and their fixed budgets. As pools work with members on their annual loss control programs, they ask: What is the cost of not modernizing systems that are used to make city payroll, keep utilities up and running, communicate with first responders and even save lives?  If nothing else, the latest wave of ransomware is a learning moment for pools that have been trying to define a path to digital maturity.

That path, which can be undertaken by pools of all sizes, begins by conducting a basic technology assessment, which can be used to identify both known and unknown risks, issues that affect data access, workflow, operational performance and resiliency, network and systems’ vulnerabilities, mobility and, of course, security. 

The good news is that pools that have undertaken tech assessments are finding that their legacy systems can stay put—there are inexpensive ways to modernize and drive immediate front-end results without an overwhelming rip/replace approach. And, there are solutions available that can facilitate a stepped approach to evaluating protocols, optimizing processes, enhancing workflows and improving services. 

Let’s face it: Whether in it for a profit or not, pools want to reduce operational costs, increase policyholder/member satisfaction, offer systems that are attractive to younger IT workers and form a solid and secure foundation for the future. 

Recent events tell us that it’s no longer an option to “just get by” or “wait and see.” The choice pools face today is a calculated one, and it’s important to recognize that their goal—to attain effective integrated risk management--is only as powerful as the technology foundation that supports it.

Blockchain innovation is gradually taking hold in the insurance sector in an unprecedented way. Insurance giants and startups worldwide are attempting to use blockchain-based solutions to deal with operational inefficiencies of the insurance industry.

While digitization and technology have always existed in the insurance sector, blockchain innovation has emerged as rocket fuel for transformative change. In fact, behavioral shifts induced by COVID-19 have unfurled a promising opportunity for the insurance industry to upskill and adopt digital technologies like blockchain.

Blockchain technology has a lot to offer to both insurers and their insureds in different segments, from claims management and fraud detection to reinsurance and peer-to-peer insurance. Acting as a digital hub for all corporate transactions and data streams, blockchain innovation can reduce a lot of paperwork that worsens the customer experience.

Meanwhile, the decentralized nature of blockchain technology allows customers to share data securely and on a confidential basis. This further enables insurers to offer customer-centric insurance products and efficient services that are more streamlined and deliver greater value to clients.

Although there is limitless potential of blockchain technology in the insurance sector, the widespread adoption requires insurers to overcome significant legal and regulatory hurdles.

See also: The Future of Blockchain Series Episode 3

Moreover, the limitations of this technology in terms of standardization, scalability and security need to be addressed by insurers before taking any concrete action.

All in all, the industry-wide implementation of blockchain requires facilitating collaboration between insurers and technology leaders and shaping an encouraging regulatory environment. It is also crucial for industry players to closely follow the breakthroughs in blockchain technology and evaluate where the most promising blockchain application areas exist.

Artificial intelligence (AI) has an immediate potential to make the insurance industry more profitable. It can cut down on inaccurate claims, reduce operating costs, help to underwrite more accurately and improve the customer experience. Yet, there are legitimate concerns about how the technology may affect the industry. This blog explores some of the most common and how an ethical AI framework will help.

People are scared they will lose their jobs

As with all major digital transformations over the last 20 to 30 years, employees fear that the technology will replace them. In insurance, employees often spend 80% of their time doing administrative tasks like manual data entry and reviewing documents. Allowing AI systems to automate low-value administrative work frees employees to be far more productive and valuable. This in turn reduces operating costs, increases profit, delivers better customer engagement and increases the value of the employees themselves.

And that’s just the tip of the iceberg when it comes to the added value of AI. In the commercial property sector, using satellite- and IoT-enabled AI technology to build near real-time digital twins of risks from over 300 datasets helps insurers and customers measure, manage and mitigate risks. They can reduce claims and losses, reduce business interruption and write more profitable business.

When I talk to insurers and show them how AI platforms can work, they understand its potential right away. So do their employees. While many people in the industry may worry that AI could take away their job, the reality is almost exactly the opposite. 

In the U.K., from 2016-2020, the insurance sector underwrote over £50 billion of commercial insurance policies and yet lost £4.7 billion on this underwriting. AI and digital twins can help insurers to deliver profitable underwriting.

Inaccurate or outdated training data leads to ethical concern

But today’s AI models and algorithms are built using training data that is often old and inaccurate. For instance, more densely populated areas often report more crime due to the number of people in the area. Therefore, AI models could predict these areas to have more crimes in the future, even though the crime per capita is often no higher in densely populated areas than in less populated ones.

In addition, most reported crime does not have an exact location of the incident, so the police station where it was reported is often put down as the crime location. If you live close to a police station, your home may be seen as being at higher risk of crime even though properties close to a police station are actually far less likely to be burgled.

In both of these cases, AI models built on this data could discriminate and say a property is at higher risk of crime than it is in reality, unfairly boosting insurance costs.

These examples show how important it is that data providers and insurers understand the existing bias in data. That way we can ensure we do not accentuate these biases in future AI models.

See also: Designing a Digital Insurance Ecosystem

Lack of transparency

Some people don’t trust AI because it’s new and they don’t understand it. AI is seen, to some degree, as Big Brother. When I attend conferences on ethics in AI, people invariably talk about how social media is using AI in potentially harmful ways.

However, when I work with insurers, local government and businesses, they see that, as long as they start with an ethical framework, AI can help them to much better serve the wider community and customers as well as doing right by their employees. 

Communication is key here, about what an ethical framework entails as well as how decisions are made. Citizens must be able to understand the AI-enabled decisions that affect them, and the industry must stand ready to give them access to that information. The more people understand, the better for all of us.  

The building blocks of a new ethical AI framework

An ethical AI framework benefits us all, from customers to insurers to data providers. That’s why Intelligent AI has been working for the last year with the U.K. government’s Digital Catapult to develop an ethical AI framework specifically for our insurance platform. 

With proper education, acknowledgment of the potential flaws in existing data and a transparent way for customers and communities to request details of how AI decisions are made that affect them, AI will be understood and embraced far more quickly. 

The sooner customers accept AI, the sooner they and the insurance industry can reap the rewards of the far more accurate data, pricing and claims information that AI brings. 

Insurance should be about helping customer to manage and mitigate risk. However, today, too much time is spent on administration and not enough time is left to reduce risk and help clients with business continuity (especially as we recover from the COVID pandemic). AI has huge potential in lowering costs and increasing customer service as long as we implement it with an ethical framework.

The traditionally stable P&C personal lines insurance industry has been shaken up due to the pandemic. Insurers have been used to adjusting to economic swings and catastrophes that affect volumes and financials, but the dramatic changes in customer behaviors and patterns fomented by the pandemic and related lockdowns are new experiences for the industry. Driving miles, personal travel, work-from-home mandates and online ordering and delivery of food and goods combined to create new challenges for carriers. Companies have had to rethink their technology plans because of seismic shifts in claims volumes, support for agents and employees working remotely and customer demands and expectations for digital interactions.

SMA has conducted a series of market pulse polls throughout the pandemic, starting in April 2020, as the initial economic lockdowns and work-from-home mandates began to take hold. Our latest survey, conducted this May, assessed how plans are changing and being reshaped as personal lines insurers move forward in the second half of 2021 and formulate strategies for early 2022. Whether we are moving toward a post-pandemic era in the U.S. is debatable, but tech-related plans are moving ahead full steam.

We have observed that after the initial tactical responses in the early stages of the pandemic, there was a great deal of rethinking, reprioritization and new activity related to technology plans. The initial wave in the spring of 2020 focused on enabling a remote workforce and providing critical digital capabilities to agents and policyholders, not to mention the significant rebates provided to policyholders. But when the fall arrived, the technology road map became the subject of major review. Many carriers stayed the course – continuing some of the shifts they initiated in the second quarter. However, some also stopped or paused projects (about one in eight insurers), and some of the more innovation-related activities were pushed out to 2022. But gaps were exposed in areas like first-notice-of-loss and payments, and the need to make these areas digital pushed them to the top of the list. Personal lines companies have been busily implementing or enhancing these capabilities, as well as the general self-service capabilities.

See also: Personal Lines Channel Plans

Fast forward to the middle of 2021. What are insurers planning for the second half and into 2022? SMA's most recent survey shows that virtually no companies plan to retrench or pause project activity in the second half. But there is a significant amount of rethinking for road maps and project reprioritizations, with almost 60% saying they are reshaping or accelerating plans. The flurry of activity signals an acceleration in digital transformation. And it is also a signal that the next couple of years are likely to see a further leap forward in the industry's overall transformation. So, fasten your seatbelts and get ready for the road ahead.

For more information on commercial lines plans for technology, see our recent research report, "Personal Lines Digital Plans and the Post-Pandemic World: SMA Market Pulse Insights." The report also includes a view of insurers' expectations for the workforce come January 2022.

This will be a quick note this week because I've been on vacation with family and then moved my younger daughter out of her apartment now that she's finished law school and taken the bar exam, but I still hope to leave you with something to ponder.

That would be the quarterly Willis Towers Watson report on insurtech, which is always interesting but which I think is especially important now because insurtech seems to be moving into a new phase.

As you can see in detail in the report, the winners and losers of the first big wave of insurtech seem to have become clear. Nearly 200 insurtechs have gone out of business, while a few big winners such as Lemonade have emerged.

The maturing of the sector has pushed startups to go beyond a focus just on a technology -- "We're powered by AI... or blockchain ... or whatever" -- and to zero in on solving a real, specific problem for established companies. That switch to pragmatism is a good thing.

And much more is coming: Insurtechs raised more money in the first half of 2021 than they did in all of 2020.

The money flooding into startups has raised concerns that valuations may be too high and that much of the money will be wasted. I've certainly seen that happen before. During the first internet boom, in the late 1990s, I saw lots of smart investor friends convince themselves that they should avoid selling their startups for just a few months more, because prices kept soaring -- only to lose big when the bubble burst. The one friend who really made out saw the trouble coming and liquidated his fund ahead of it.

I'm not predicting that insurtech will suffer the sort of cataclysm that affected internet stocks in 2000, but I do think this is a time to be thoughtful. There are certainly loads of opportunities, but they'll look different than the first round did, and there may well need to be a resetting of expectations and valuations. So, if you're at all interested in the insurtech phenomenon, I'd suggest curling up with the Willis Towers Watson report for a while.

More next week.

Cheers,

Paul