Steve Jobs gets a lot of credit for re-imagining computing, for making us mobile and for putting technology in our hands that has changed the way we communicate, do business, purchase products — and so much more. But he had some help from things like the availability of increasingly powerful data storage options and more widespread internet connectivity. Jobs’ leaps and bounds are often the outlier. In general, adversity is more often the catalyst for dramatic change.

Prior to the ongoing COVID-19 pandemic, the insurance industry was working hard to overcome the perception of being antiquated and out-of-touch. Now, the challenges presented by a global health and economic crisis have insurance organizations scrambling to fully support a monumental shift in customer risk needs, demands and expectations. 

But, remember: Out of adversity comes innovation and invention. For insurers willing to adopt a new mindset and leverage the latest technologies as a way of adapting to market changes, the global recovery that is underway is an opportunity. Insurers can come out of the pandemic stronger and more able to meet new customer expectations and global demands, and ultimately, to accelerate growth. 

Unfortunately, change is rarely easy.

At a foundational level, there are operational and technology changes needed to enable insurers to match the pace of future business and succeed in this new era of insurance. And, as the insurance industry continues to evolve, it is important that leaders have the courage to embrace the opportunity that comes with disruption in terms of product innovation, distribution redefinition and new technology foundation.

Product innovation

The last decade has seen shifts in lifestyles, workplace trends and entrepreneurship. New businesses driven by technology — such as online groceries, drone-based businesses and services businesses underpinned by IoT — have cropped up. We have also seen new economies emerge, such as the gig and sharing economies.

Today, there are more small businesses than ever before, more women starting businesses and more people working from home. Expectations are also different. Policyholders demand more transparency into premium calculation or risk assessment; self-service options for bill payment, policy documents and claim status; and an ability to affect premiums through behavior modifications. These changes mean both individuals and businesses are carrying new or existing risk in different ways. Subsequently, true product innovation can no longer wait. The move toward more personalized, on-demand, usage-based insurance (UBI) products is happening across all lines of business, but especially in property and casualty (P&C) insurance, as a way of accommodating and supporting the evolving business landscape.

Distribution redefinition

While many commercial policyholders will still purchase coverage from an insurance agent or broker, the next generation of policyholders expects channel options. In addition to the agent/broker option, insurers today must offer: viable online or direct functionality via a dedicated portal; partnerships with managing general agencies (MGAs) that can cover new geographies quickly; and point-of-purchase, embedded or ecosystem plays through integration opportunities. It’s no longer just about convenience. It’s about awareness and matching the right coverage to the right policyholder, through the right channel, at the right time. Finding the mix of distribution channels that allows for speed-to-market, producer profitability and a greater degree of self-service is key for insurance executives redefining the distribution diagram.

See also: The Intersection of IoT and Ecosystems

New technology foundation

Investments in cloud and next-generation core systems, as well as emerging technologies will support new greenfield business models and insurance products and will accelerate innovation and growth in weeks versus months or years. New commercial coverages — such as those for cyber, cannabis and on-demand or UBI commercial auto — are born digital and are inherently flexible thanks to the nimble technology platforms on which they are built. As confidence in emerging technologies grows, enthusiasm for immediate adoption must be tempered by industry expertise that does not compromise regulatory compliance, privacy or the security of personally-identifiable information (PII).

Throughout history, there has been a strong relationship between disruption and opportunity — driven by innovation in business and technology. The COVID-19 pandemic, among other cultural, demographic and global pressures, is changing customer behaviors and business models and is creating demand for product innovation, distribution redefinition and new technology foundation. It follows that these demands create opportunities to make insurance better and more relevant through the innovative application of technology. But insurance leaders and organizations must be willing to think differently in order to make the most of this open window.

The working world is changing. Even before the COVID-19 pandemic, remote work was gaining popularity as employees sought greater flexibility and as advances in telecommuting removed barriers. Some employers even offered work-from-home options as an incentive to attract and retain top talent, save money and sharpen their competitive edge. 

Since the pandemic, remote work has become a fact of life, and, like it or not, it’s here to stay. Even with vaccinations on the rise and many watching the horizon for a return to “normal” — or to the office — many workers will never return to a physical worksite. Employers who acknowledge the shift are developing and implementing plans to provide continued work-from-home options.

But what does this change mean for your organization when a worker gets hurt on the job?

It may seem that working from home would provide employees with a safe environment and low risk of injury, but, in truth, employers won’t always know what specific hazards exist in every worker’s home. The reality is that injuries occur all the time in any environment, at home just as they do in a conventional workplace.  

Evaluate

Workers’ compensation claims for injuries sustained in the home can and should be evaluated the same as any other industrial claim — but they still present their own unique challenges. While every state has its own laws and interpretations, compensable claims generally have these things in common: the injury must be work-related; it must have occurred in the course and scope of employment; and the injury or accident must arise out of job-related activities. A proper investigation can provide the details needed to make an accurate determination and ensure the appropriate benefits are administered.

There is no requirement that an injury must occur at a place of employment outside the home — such as a worksite, factory, warehouse or office — for a workers’ compensation claim to be compensable. What is required is to establish whether it arose out of employment (AOE) or the course of employment (COE). The goal of a compensability investigation is to establish if the reported injury occurred, if it occurred in the course and scope of employment or if it was non-industrial.

See also: Pressure to Innovate Shifts Priorities

AOE/COE Compensability Determination

To be eligible to receive workers’ compensation benefits — including medical treatments, disability benefits, vocational rehabilitation and death benefits — an injury or illness must have arisen out of employment (AOE) and occurred during the course of employment (COE).  

As a general rule, if an employee deviates from work activities benefiting their employer to activities for a personal benefit, any injury occurring during such deviation is generally not considered within the course and scope of employment and is therefore not covered. But once the employee returns from the deviation to work-related tasks for the benefit of the business, any injury that occurs after that point is typically covered. 

However, there are nuances when considering the work-from-home environment. Take lunch, for example. When an employee leaves the office for lunch, compensability is typically more straightforward for injuries sustained while away from the workplace. But when an at-home employee trips and falls while walking to the refrigerator for lunch, the question may be somewhat less clear-cut. 

Investigative Solutions

It is crucial to conduct an investigation early on in any claim to document the facts, gather/secure any potential evidence and identify any potential third-party liability. The investigation will seek to determine if an accident or incident occurred, if an injury was sustained, whether anything unusual or unexpected occurred and whether the incident caused or aggravated a medical condition. 

While an accident at a job site or office may benefit from reliable witnesses or security footage, at-home employees are often working alone and unsupervised. This means injury incidents often occur without reliable witnesses to corroborate accounts. 

Recorded Statement

Obtaining recorded statements is a key technique for thorough remote injury investigations. At-home injuries are often unwitnessed (or potential witnesses are likely family members), so investigators will assess the credibility of the claimant and any witnesses and secure their recorded statements. Investigations must rely heavily on claimant and witness statements bolstered by medical records, scene inspections and other investigative solutions.

Here are some critical details an investigator will verify:

• The time and date of the incident
• Whether the incident occurred within the employee’s routine working hours
• The activity that preceded the injury
• Exactly what work was being done at the time of the injury
• The mechanism and nature of the injury 
• Medical history and claim history

Confirming when the in-home worker took breaks and other corresponding details about their daily routine are also important pieces. In addition to determining whether the employee was legitimately working for the employer at the time of the injury, investigators will inquire further to ascertain if the employee was solely engaged in work-related activities or if there were any other activity or distractions involved. If a reported injury arose from playing with the dog between calls or consuming alcohol while listening to a training, these may be valid reasons to deny the claim. 

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

Subrogation Investigation

Subrogation potential can also be complicated with a remote employee injury. What if your employee’s injury was caused by a roommate or landlord negligence? Or, imagine that a claimant reports she sustained an injury at her home workstation as a result of a broken chair. It’s then essential to obtain all needed information about the chair, any prior complaints or defects, litigation involving the manufacturer and other facts required for a potential subrogation claim.

Make a Plan

Create policies and procedures specific to your telecommuting employees. Work-from-home agreements can help ensure everyone understands expectations around creating a safe environment and guidelines for the reporting of an injury and the investigation of a claim.

MAY 2021 FOCUS OF THE MONTH
Cyber

FROM THE EDITOR

When I was 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 back to happen, but we all know that there are plenty of bad guys out to find all the victims they can.

Ransomware, in particular, has become an enormous problem. A few years ago, hackers would make limited strikes and hit a few computers at a company, then demand $10,000 or maybe $20,000 to unlock them. Now, though, hackers have figured out ways to combine their specialized skills and make a much broader attack that includes finding and locking up the backup servers -- which means the hackers have pretty much shut a company down and can make any ransom demand they want. Demands of $500,000 or more are common, and some reach into the many millions of dollars.

Insurance is surely part of the solution for most companies, but paranoia plays a role, too. Companies need to spend much more time focusing on how to prevent the cyber attacks in the first place, and the best insurance companies are using their expertise to help clients with that effort. New tools and techniques offer considerable hope.

Within that effort at prevention, there is room for an awful lot more cooperation. Law enforcement can work with insurers and company clients to educate them on trends and offer advice, and insurers and their clients can work together to share information on vulnerabilities and on potential solutions. As long as the bad guys are working together, the good guys need to, too.

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

WHAT TO WATCH

The Alarming Surge in Ransomware Attacks Insurers can help clients protect themselves – but preventive approaches aren’t yet widely implemented, leaving the door open for unscrupulous hackers. 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

WHAT TO READ

	CISOs, Risk Managers: Better Together In most large firms, risk managers buy cyber insurance--but are rarely expert in network security and may not fully understand the risk profile. Read More
	Ransomware Grows More Pernicious The emergence of the Maze variant creates a new threat, that stolen information will be released to the public on the internet. Read More
	How to Fight Rise in Cyber Criminals IT security standards have sometimes been lowered or suspended for work at home in the pandemic, resulting in cyber security exposures. Read More
	New Enhancements for Cyber Coverage Cyber insurance is probably the most rapidly evolving product on the market. Here are some of the newer enhancements. Read More
	How CAT Models Are Extending to Cyber The approach to models used for natural catastrophes is being applied to cyber, leading to a quick maturation in understanding the risks. Read More
	How Machine Learning Halts Data Breaches There are four main types of data breaches that advances in machine learning can help thwart. Read More

WHO TO KNOW

Get to know this month's FOCUS article authors:

Evan Bundschuh	Kelly Castriotta	Laurel Di Silvestro
Mark Greisiger	Charles Pruzinsky	Erica Sunarjo

Learn More about ITL Focus

Interested in sponsoring ITL Focus or learning about other promotional opportunities? Contact us

Now, more than at any time in history, customers, insurance carriers and their distribution need nonstandard auto protection for drivers.

Although, in the past, some carriers have declined to cover higher-risk drivers, that could change, partly as a result of economic turmoil caused by the COVID-19 pandemic. Early in 2020, both the consulting firm McKinsey & Co. and the reinsurance broker BMS Group predicted the United States could see a surge in the market for nonstandard auto insurance.

In July 2020, Allstate Corp. announced it would buy nonstandard auto insurer National General Holdings Corp. for about $4 billion in cash, a deal that is set to be completed early this year. With National General reporting about $5.6 billion in gross written premiums in 2019 (with nonstandard auto policies accounting for 44% of that), Allstate is scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims. In September 2020, State Farm, America’s largest property and casualty insurance provider, announced it would buy nonstandard insurance provider Gainsco for about $400 million in cash, another deal expected to be completed early this year. It’s State Farm’s first acquisition of another insurance company in its 98-year history.

So why is a renewed focus on this type of insurance is important? Well, let's start with the most important part of the equation first: the customer.

The Customer

According to IBISWorld, the market size of the U.S. automobile insurance industry is estimated to be $311 billion in 2021. Estimates vary regarding the prevalence of nonstandard coverage; some experts say it makes up 20% of premiums for personal auto insurance, while others estimate it to be 30-40% of the auto insurance market.

Customers need nonstandard coverage availability and premiums to protect their families. One family member having driving issues (a DUI, multiple accidents, SR-22, being recently nonrenewed from a preferred policy and poor credit) shouldn’t knock out the entire family unit from getting the type of protection they need and from qualifying for a preferred policy/rate.

Today, the average household has multiple vehicles and multiple drivers. More than ever, people want a carrier and an advisor/firm to represent them on everything. They expect and demand a one-stop shop for all their insurance and financial needs. This includes, but is not limited to, providing protection even when the household account is not 100% a preferred risk.

See also: How to Engage Better on Auto Insurance

Now let’s look at how a focus on the nonstandard market can benefit carriers.

The Carrier

Until recently, most of the largest carriers focused on the “preferred market.” A few of the leading carriers have had affiliate companies/brands to provide a nonstandard solution for their customers. Other preferred carriers dabbled in or tried to provide a “near-standard“ option, only to get clobbered in many instances.

Progressive and Geico are examples of companies embracing the nonstandard market with expertise pricing and are models of how to provide customers with a protection solution that is sustainable. However, most carriers are currently looking at strategic alliances or are purchasing existing nonstandard carriers as partners. The bottom line is that the customer has spoken, and companies need to provide a one-stop shopping experience going forward. Not providing such a solution opens the door to the competition.

Finally, let's look at how increasing the focus on nonstandard coverage can benefit distribution’s ability to provide unrivaled service.

Distribution

Whether advisors are employee-led or contractor-led, are brokers, firms, agents or team members, providing unrivaled service, advice and product solutions is the way forward. While there will always be an element of transactional sales, providing a meaningful and consistent customer experience is the winning strategy.

Most practitioners would not want to try to make a living on nonstandard auto only. But ignoring it altogether means a significant missed opportunity. The firm owners, brokers and agencies that have a laser focus on the economics business realize they must provide real solutions for all their clients, even in situations that are complex, difficult and risky.

Providing nonstandard service and solutions not only wins new business, it sustains relationships. And we all know great relationships lead to referrals and additional opportunities. Providing unrivaled service requires focus on factors other than just price. Offering nonstandard coverage when your competition does not is one way to leap ahead.

The nonstandard auto market has never been more important. It’s no longer a one-off. As our industry retools, nonstandard auto needs to be at the top of the list as we serve our customers.

There is little doubt that the risk landscape has changed in the past few years. Natural catastrophes are increasing in number and severity, low probability risks are coming to fruition, higher probability risks (such as cyber) are looming larger and new risks are emerging. Here are some of the ways insurers can address the changing risk landscape.

From single-event scenarios to multiple-simultaneous-event scenarios

It has been common for insurers to test their solvency by creating several scenarios and estimating what each would do to capital levels. Typically, each scenario tested one variable at a time; for example, what would a 1-in-250-year event or an-XX basis point interest rate drop do to capital strength in a given year? However, as the risk landscape intensifies, single variable scenarios are no longer sufficient.

More robust and multi-event scenarios need to become the norm if the potential risk to capital is to be evaluated effectively. For example, what would the result be if 1-in-250-year event happened while equities plunged 35% in value? Or what would the effect be if two 1-in-250-year events occurred at the same time inflation rose by 40%? What would happen if three 1-in-150-year events happened in the same year? The macro-economic environment constantly changes, and individual company conditions are unique, so scenarios need to be tailored and updated as appropriate.

From virtually ignoring low probable risks to paying more attention to low probability risks 

Scoring risks is done on the basis of both their potential impact (dollar impact to profits, revenues, expenses) and their probability of occurring (high medium, low). Other things may come into play, too, such as how imminent the risks are (one year away, three years away, more than three years away). This kind of scoring makes it possible for companies to decide which risks should get the most focus and resources in an effort to mitigate their impact. The problem has been that the impact of low probability risks is hard to quantify and is often underestimated. Additionally, the very fact that their likelihood is not high means these risks tend to be taken less seriously than perhaps they should be.

The current pandemic — with all its ripple effects — has shown that low probability/high impact risks can and do happen. Some insurers realized the loss potential if a virus became widespread and incorporated virus exclusions in various policies. This has served them well, because those with such exclusions are better protected against claims for coverage that was never intended. 

Some low probability/high impact risks emanate from the broader environment and some come from a particular company’s business model or operations. In either case, the risks need to be properly vetted and commensurate mitigation plans need to be implemented. 

From focusing on current risks to focusing on both current and emerging risk

That there are so many current risks insurers must attend to leads to emerging risks not being identified or being pushed to the back burner.  Even though emerging risks can be hard to identify and assess and may not seem imminent, they should not be marginalized. Given the speed of change, these risks can emerge as full-blown risks sooner than might be anticipated. Significant ones can quickly cause serious consequences.  

Any insurer ignoring emerging risk identification and mitigation is opening itself up to potential loss or impairment that could have been minimized or avoided. Some emerging risk categories are: AI; cyber; environmental, social and governance (ESG) developments; and new energy sources.

See also: Building an Effective Risk Culture

From reality to perception 

Insurers’ perception of themselves can be quite different from the way they are perceived by stakeholders outside the industry. And it is the external perception that forms the basis of an insurers’ reputation. Any one insurer may have a better or worse reputation than the universe of insurers, but all are affected to some extent by the umbrella perception.  

Some of these negative aspects of insurers’ reputations stem from many retail buyers not always understanding the insurance mechanism and from thinking insurers make greater profits than they actually do. Some retail buyers would rather not buy insurance at all but are forced to by laws or lenders. Commercial buyers can find insurers slow, cumbersome and not very transparent.

In reality, insurers tend to be ethical in honoring their contractual obligations and are price competitive while also trying to improve processes and customer experience. This is largely true because insurers are heavily regulated, have publicly available ratings by rating agencies and exist in a competitive marketplace.   

Despite this reality, a poor reputation contributes to low customer loyalty, fraudulent claims, extra scrutiny by third parties and other risks or threats.  Now, insurers face more reputational risk than ever before as things like example, the legitimate, but unfortunate, denial of COVID-19 related business interruption claims has dented insurer reputations. How this will play out in the long run is unknown.

What this means in terms of insurers’ enterprise risk management (ERM) is that, when they look at their reputational risk picture, they need to assess the risks to their reputation from the outside in. They need to see how they appear in the eyes of customers, regulators and the community at large. Improvement can take the form of improved communication starting with clearer policy language but can move well beyond that to more frequent communication with customers, greater transparency and more responsible advertising.

All in all, insurers of all sizes need to take note of changes in the risk landscape and must continuously improve their ERM practices.

The words “platform” and “ecosystem” are trending and in danger of becoming overused and losing their true meaning, but when used in the proper context they are powerful and highly relevant. The insurance claims management process is a perfect use case for just how critical these structures can be in achieving transformation. And my latest endeavor with Claim Central Consolidated is an excellent example of a platform and ecosystem that enables carriers to make that happen.   

The property claims process has historically been stubbornly long, complex and more costly than necessary. The factors contributing to these conditions include a disjointed overall workflow, which is a result of the many manual tasks, different staff and third-party skills required and the disparate, non-integrated systems needed to fully adjudicate and resolve the claim.    

In simple terms, a platform is a group of technologies that are used as a base upon which other applications, processes or technologies are developed. The word "ecosystem" derives from the Greek words oikos meaning "home," and systema, or “system.” In the early 1990s (go, class of 1990),  James F. Moore originated the strategic planning concept of a business ecosystem, now widely adopted in the insurtech community. 

Using biological ecology as a metaphor, Moore revealed how today's business environment parallels the natural world and how, just like organisms in nature, companies must coexist and coevolve within their own business ecosystems. He identified radically new cooperative and competitive relationships and provided a comprehensive framework that businesses can use to enhance their own collaborations with their customers, suppliers, investors and communities. Who knew we would be applying this type of thinking to technology? 

Platforms and Ecosystems for Insurance Claims

Powerful and exciting insurance industry ecosystems have emerged – made possible by digitization – and continue to evolve like living organisms, as connected sets and cluster ecosystems within the larger and broader ecosystem of services in a single integrated experience. Platforms enable and support ecosystems in that they connect offerings from cross-industry and inter-industry players in P&C, Life, Health and Accident.

Platforms and the ecosystems they support will increasingly enable insurers to turn strategic visions into realities. Today, insurers succeed by offering products. In the future, insurers will win by providing access to risk prevention and assistance services—and by offering the right product to the right customer at the right time.

Claim Central Consolidated

Many people have asked what I’ve been working on since exiting WeGoLook.  I am thrilled to be spearheading the perfect example of the power and potential of a platform-based ecosystem within Claim Central Consolidated, a global leader in property and auto insurance claims technology, services , data and insights, and pioneers of digital claims fulfilment. Our market-leading technology solutions are completely transparent, simplifying the claims process and significantly improving policyholder service satisfaction on behalf of leading insurers across the globe. 

See also: Insurance Ecosystems: Opportunity Knocks

Developed and proven in Australia, Claim Central recently expanded to the U.S. market, initially focusing on the property claims market with the successful rollout of TradesPlus – a network of over 40 trades types which are easily accessed within our Exchange. The Claim Central platform comprises three basic components offering a number of solutions and choices within many evolving cluster ecosystems embedded in our broader platform:

• ClaimLogik Plus end-to-end claims lifecycle management platform, built with the vision of providing a single platform that connects all parties involved in resolving a claim, available in three purpose-built versions;
  • Growth Edition – best suited to smaller businesses such as 1099’s
  • Business Edition – best suited to SME scale insurers, IA firms or TPA’s;
  • Enterprise Edition – best suited to higher volume claims handling such as larger TPAs or carriers
• TradesPlus+ Managed Repair
  • cloud-based platform connecting insurers directly with a pre-screened, on-demand marketplace of suppliers to carry out claim-related services and property repairs.
  • Insurers have direct access to suppliers including:
    • Contractors
    • Emergency Services
    • Inspectors
    • Adjusters
    • Experts
    • Housing
  • Virtual Inspections as a Service (VIaaS)
    • connects remote desktop assessors directly with policyholders to inspect and assess their claims using our live video streaming and collaboration platform LiveLogik 
    • enables insurers to secure inspections and damage assessments without the risk, cost and time associated with deploying traditional field adjusting resources during the COVID-19 crisis.

The Power and Potential of Ecosystems

McKinsey research found that ecosystems will generate $60 trillion by 2025 which will constitute 30 percent of global sales in that year. Consequently, many insurance executives are looking beyond industry borders to understand the growing opportunities and threats that come from new partners and competitors in the ecosystems relevant to them, from mobility to healthcare and beyond.

Platform businesses are the most efficient value creators, compared to other types of businesses, because they harness the power of distributed supply and network effects. The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a product or service.

Purpose-Built Insurance Ecosystems

The P&C insurance industry has already developed ecosystems to support specific business functions, and continues to do so. Some of the earlier examples date back to 1980 when information providers developed platforms linking auto insurers to collision repair facilities for the purpose of streamlining the accident repair process. These ecosystems quickly expanded to include independent appraisers and adjusters, autoglass and car rental vendors, salvage pool and towing operators, parts providers and others. Today they are beginning to include telematics service providers and auto manufacturers and dealers.

New property claims ecosystems such as Claim Central have emerged to include a full suite of segment specific cluster ecosystems including contractors, inspection technology, digital payments and other service providers which enable insurers to resolve claims in hours instead of days or weeks. According to Paul Carroll, editor-in-chief of Insurance Thought Leadership, "Innovation will focus less on bells and whistles and more on improvements across entire processes and organizations. But incumbents must start preparing."

See also: The Word of the Year Is…’Ecosystems’

Ecosystems: Not if but When

Look no further for a brilliant and powerful new ecosystem extension than the recent announcement that Credit Karma, a unit of Intuit, has partnered with Progressive Insurance to offer usage-based auto insurance to Credit Karma’s millions of financial service smartphone app members using its integration with DMVs to obtain instant driver and vehicle information.

“It is not a matter of if, but when the insurance industry will have to adopt an ecosystem approach. The industry is not immune to the changing demands of the market” - Dr. Geoffrey Parker, Professor of Engineering at Dartmouth College and a visiting scholar and Fellow at the MIT Initiative on the Digital Economy.

I feel blessed and excited to be a tiny part of it!

Commercial lines insurers have many options for distribution partners. The world of intermediaries is continuing to expand, with many new platforms to connect distributors to carriers. We are frequently being asked by insurers how many distribution platform partners an insurer should have and how to identify the ones that best align to their strategies. Often, the questions are framed as comparative raters, especially because the concept of comparative rating migrated from personal lines over into commercial. Most of the intermediary platforms provide rate-quote-bind capabilities along with the capability to compare rates and coverages across multiple carriers. But many of the platforms provide a richer set of capabilities to improve the entire process for the benefit of agencies, brokers, MGAs, carriers and others in the ecosystem.

In total, we count around 30 companies that focus on simple or moderate commercial lines risk, ranging from small commercial to mid/market and specialty lines. Prominent names include CoverHound, CoverWallet, Bold Penguin, Tarmika and Talage, plus incumbents like IVANS, Bolt and Appulate. (The world of placement and trading platforms for very complex risk is a whole different animal, but there are also a number of new players in that space.)

SMA’s recent research report, “Commercial Lines Distribution Platforms: Rapidly Evolving Options for Carriers,” provides insights into the growing stable of distribution platforms with significant capabilities for commercial lines. A companion report profiling each of the companies identified in this report is scheduled for release in May.

Let me now answer two of the most common questions we have been getting from insurers working on distribution strategies:

Question #1. How many distribution platform partners should we connect to?

Answer #1. It depends, but the answer is probably not just one.

Question #2. How should we select the best partners?

Answer #2. This should be based on a number of factors, including the lines covered, robustness of specific functional capabilities, platforms your agents are already connected to and the business model, among other factors.

See also: The Digital Journey in Commercial Lines

Of course, there are many other considerations related to distribution strategies. Should we pursue a digital brand or direct strategy to move into new markets? Or even to compete in markets where we already have a presence? What enhanced tech capabilities should we be providing to our distributor community to attract more submissions that match our appetite? What are the best approaches to managing channel conflict? What are the best options to enable a true omni-channel environment?

The list could go on, but the main point is that distribution strategies in commercial lines are in play. Many companies are updating or rethinking their strategies to reach preferred segments and drive more profitable business.

As the U.S. steadily emerges from the pandemic -- and we all hold out hope for India -- the temptation is to dismiss it as a one-off, a once-in-a-century health disaster, a black swan. But the pandemic is actually what's coming to be known as a grey swan -- something that, while rare, relates to a known problem and that can be planned for, if we come to grips with the cognitive biases that blur our ability to see them.

As we've learned the hard way over the past 20 years, there are a lot of grew swans out there, so we as an industry need to learn to prepare better for them, both for our own sakes and for those of our many clients.

This report from Aon on dealing with grey swans' effect on corporate reputations includes a daunting list of those that have been broadly ignored over the past two decades, starting with the 9/11 terrorist attacks -- which somehow caught the world by surprise even though Islamic terrorists were known to want to strike in the U.S., even though plots had been uncovered to hijack and crash planes into high-profile targets or blow them up and even though terrorists had attacked the World Trade Center itself and tried to make it collapse eight years earlier (right across the street from my office at the time).

The dangers that a hurricane posed to the levees in New Orleans were well-known long before Hurricane Katrina devastated them. So were the perils of subprime mortgages -- a member of the Fed's board of governors saw the crisis coming so far ahead of time that he published an alarmist book in 2007 yet was largely ignored until after the Great Recession of 2008-9 began. The tsunami that caused the disaster at the Fukushima nuclear plant in 2011 was eminently foreseeable. And, of course, many had been predicting a pandemic for years before COVID-19 pretty much shut the world down starting last spring and killed millions -- Bill Gates even got most of the particulars of COVID right in a dire TED talk in 2015.

Why do we keep missing these grey swans?

Drawing on the seminal work of behavioral economist Daniel Kahneman, the Aon report lists six cognitive biases that cloud our judgment on risks more complicated than "white swans" -- which are common enough that we have clear data on them and routinely incorporate them in our risk management.

The biases are: the ambiguity effect (our minds don't like options with unknown probabilities); normalcy bias (we underestimate the likelihood and severity of disasters); optimism bias (we underestimate the probability of being affected directly); the ostrich effect (we ignore negative information to avoid the anxiety that comes with decision-making); herd instinct (we align with the behavior of a group to avoid conflict); and status quo bias (we prefer to keep doing what we're doing).

As the report explains, the ambiguity effect, normalcy bias and optimism bias "relate to our limitations as natural statisticians. We gravitate toward information that we can process and organize [while avoiding]... uncertain, ambiguous data.... To help us navigate through the storms of life, we tend to be optimistic about our chances. Despite knowing the health risks associated with smoking or obesity, for example, we believe that 'it won’t happen to me,' yet we buy lottery tickets equally believing that, 'it might be me!'"

The ostrich effect, herd instinct and status quo bias "relate to managing our emotional state. Evidence that conflicts with our rosy view of the world is uncomfortable and unpleasant.... It is easier to go along with the majority than stand one’s ground and cause waves."

So, how can we do better?

The report's conclusion: "Effective risk management strategies will acknowledge these flaws openly and institute measures to combat their most harmful effects."

It suggests considering, in particular, the possibility of "a large-scale cyber attack with physical consequences. Cyber physical risk is not new, but its threat is growing rapidly, as adoption of the Internet of Things (IoT) accelerates and increases the 'attack surface': the number of connected systems and devices through which an attacker can enter or extract data."

That kind of attack certainly seems plausible -- as the SolarWinds attack by Russia showed, nation-states have the ability to sabotage each others' infrastructure, such as electric grids, pretty much whenever they want.

The report adds: "We could turn our minds also to the 'green swan,' the term coined by the Bank for International Settlements to describe black swan events related to climate change." It's always hard to trace a disaster to climate change -- some will say the recent Texas freeze may stem from climate change's tendency to cause more extreme weather; some won't -- but the likelihood of green swans is certainly increasing.

One caution: I think the evaluation of disasters after the fact is often Monday morning quarterbacking: "It's obvious that we should have punted/shouldn't have punted," "should have passed/should have run," "should have seen that that player would be a star/a bust," etc. You can't just prepare for one grey swan and hope that's the one you should have headed off. You have to prepare for all the grey swans you can imagine -- you don't just fix the levees in New Orleans; you prepare for what hurricanes might do up and down the Gulf Coast.

That can be expensive. So, there has to be some real calculation involved based on the odds of an event, the likely cost of a disaster and the expense associated with avoiding all such problems -- and the nature of grey swans is that none of these figures are easily quantified.

All we really know for sure is that grey swans are occurring faster than we've expected and have been far costlier -- COVID-19 has cost trillions of dollars in the U.S. alone, and the devastation in terms of lives lost has been even greater. So, we'd do well to confront our biases and keep trying to make ever-more-realistic evaluations of the risks we're facing.

Stay safe.

Paul

P.S. Here are the six articles I'd like to highlight from the past week:

How Social Inflation Affects Liability Costs

The industry is probably looking at several more years of accident year combined ratios above 100%.

The Future Isn’t What It Used to Be

Customers, risks, operations and the workforce all have been transformed over the last year. This makes strategic planning a challenge.

How Geospatial Data Lowers Traffic Risk

The cadence and granularity of data about travel behavior need to be enhanced. Geospatial analytics can be the engine.

A New Environment for Insurers

Environmental, social and governance (ESG) is a chance for the insurance industry to do well by doing good.

The B2B Digital Payment Opportunity

As trends point to rapid adoption of alternative payment methods, insurers must determine how to meet B2B needs.

Long-Haul COVID-19 Claims and WC

Employers and workers' comp carriers must tread lightly; accepting a COVID claim can have a big impact, beyond the initial care and recovery.

Knowledge is power. With the information now available at the fingertips of planners, traffic engineers and public safety professionals, more powerful methods are on the horizon to keep drivers, passengers, pedestrians, bicyclists and others safe.

If the insurance industry exploits this new trove of knowledge, the result can be fewer accidents, further declines in injuries and fatalities and a reduction in liability for everyone.

This new era in data-driven solutions can’t come fast enough. Globally, approximately 1.4 million people die in road crashes every year, or more than 3,700 each day, according to the Association for Safe International Road Travel. The Insurance Information Institute reports that speed-related crashes cost Americans $40.4 billion every year. Meanwhile, distracted driving continues to be a growing issue; in the latest Traffic Safety Culture Index report from AAA’s Foundation for Traffic Safety, more than half of drivers (52%) admitted driving while talking on a handheld cellphone at least once within the prior 30 days. 

Traffic modeling used by departments of transportation is brittle and in need of updating. COVID-19 has contributed to this issue by forcing driving habits that will likely remain permanent. Commuting patterns and volumes have changed—and, with fewer cars, higher traffic speeds occur. On the urban planning side, concepts like parklets and bicycle lanes are taking hold; yet planners often work with 30-year-old data, along with parameters that are woefully behind the times.

A New Era in Data Analytics

Using data to increase vehicular and pedestrian safety is nothing new—but historically it’s had limitations. Traditionally, roadway data has been heavily aggregated from a limited number of sources. Road counters, for example, would give professionals traffic counts that amounted to a snapshot in time.

Geospatial data, by contrast, adds multiple dimensions to the art of ensuring safer roads, safer pedestrians and safer drivers. The most important change is that experts are now able to do analytics on disaggregated, granular data. Geospatial researchers are able to collect billions of records every month—not only traffic data but road conditions, event activity, accidents, weather, even what happens to vehicles as they move across networks. The science provides continuous, systematic visibility of factors over time and space.

By isolating, combining and cross-analyzing such massive datasets over time, researchers can investigate factors that play important roles. Police officers, for example, write reports hours after an accident has occurred, making accounts of road conditions at the time of the accident subjective. Through the use of continuous weather tracking, it’s now possible to roll back the data and pinpoint the impact of precipitation, fog, etc. to the very moment of collision.

See also: Free Insurance Data You’ll Need

Technology is making it possible to improve traffic safety in ways unimaginable just a few short years ago. Accelerated geospatial analytics allows analysts and planners to ask questions, and draw conclusions, from billions of lines of data, receiving those answers in milliseconds. This transformative capability lets professionals plot and visualize results, even for small or isolated areas.

Today, it’s practical to see how traffic is not only behaving in a single area, but also at the impact of different modes. Planners can investigate pedestrian activity, weather and other variables. If accident data causes engineers to look at a particular intersection, they can see the activity patterns around that intersection by time of day, day of week, holidays, commuting periods, even after a football game or other surge event.

The real-time component of geospatial analytics can be a game changer. Instant data, viewable nearly as soon as it’s collected, helps public safety departments plan their responses. In Austin, Texas, police, safety and repair crews were pre-positioned before a recent major rainstorm; the real-time analysis of changing flood patterns based on elevations, storm mitigation infrastructure, etc., was intersected with roadway maps to minimize accidents and damage. When public safety departments have knowledge of the street-to-street impact on traffic during sporting events, concerts, even public demonstrations or protests, the benefits to pedestrian and traveler safety can be remarkable.

Accelerated analytics also helps with forecasting. Trends in bike sharing is one way to gain a better understanding of how to redo a street. This kind of insight into shifting transportation modes, particularly in urban areas, can be a major help to planners who have to think not in terms of months or even years, but decades.

New analytics platforms with accelerated processing capabilities make it possible to achieve all these benefits, all within the same tool. Moreover, there are few barriers to adoption. Advanced geospatial platforms are based on GIS (graphic information system) standards, making it easy for conventionally-trained GIS pros to quickly get up to speed. On the hardware side, advanced processing capabilities may be needed, but that can be acquired as a cloud-based service at reasonable cost.

Cooperation Is Increasing

Scores of organizations and industry partners are working together to make the most of the revolution in geospatial data. The Safe Streets Initiative, among others, is helping to change the way professionals understand the human behavioral aspects of traffic management.

It used to be taken for granted that the safest way to plan roadways was to make everything straight, with wide rights-of-way and huge clearances. Today, planners know that such approaches cause people to race through an area, making travel more dangerous instead of safer. Street design, too, takes into account a great deal of contextual information about street surfaces, pedestrian movement, retail density and patterns, as well as alternative modes such as electric scooters. What works on one block may be counterproductive two blocks away — something that the human element often makes clear.

Another issue is the evolving nature of transportation. The rise of ride-sharing is causing planners to look for ways to support stops to pick up passengers without affecting safety. Electric cars, scooters and bikes are affecting design guidelines, as well, making standards from just a few years ago obsolete.

Perhaps most important to geospatial analytics is the way data partners are coming together. Participation varies widely and often involves negotiation, but many partners are stepping up their game. Electric scooter data, for instance, is widely available, and electric bike sharing businesses usually include data sharing in their agreements with municipalities.

A key benefit — yet in some respects, a drawback — of all this granular data is the massive datasets. Uber releases Transportation Analysis Zone (TAZ) data from its operations, which is immensely useful for broad-scale transportation planning, but the benefits of TAZ are less useful for design work because there can be a huge diversity of conditions within one TAZ. As a result, there is opportunity for new methods of identifying analysis units; real-time GPS telemetry might reveal large numbers of pedestrians and cars mixing in an area along with electric scooters, indicating the need for specific planning solutions.

Need for Carrier Involvement

There is a role for the insurance industry in advancing geospatial analytics. Carriers should consider doing some active data-sharing pilot projects that allow experts to not only get hands-on experience but also evaluate how systems work together. Best practices are still emerging, including how insurance data can integrate with other sources. Determining how those combinations can be analyzed in real time is something new for practitioners to consider.

Many concepts can be applied to these integrated datasets. Cohort analysis, a common technique that allows data about specific groups to be tracked through time, is nonetheless rarely used in transportation planning. This is a huge opportunity, as is the use of machine learning and artificial intelligence to identify present and future trends in cross-referenced data.

Pilot projects can be done in an agile manner, flexibly and at low-cost. Insurance companies should find ways to empower internal teams and departments to investigate and find new solutions that will benefit policyholders, safety professionals, transportation providers and the general public.

See also: The End of Auto Insurance

The Future Is Happening

When public and private entities combine forces to improve society, good things typically result — and transportation safety is no exception. From improving traffic safety in an urban corridor and accommodating new forms of travel, to lowering instances of distracted driving and reducing fatalities, data sharing is a pathway to new insights and better solutions.

There is a fundamental need to update the cadence and the granularity of the most basic data about travel behavior, in all its forms. Geospatial analytics can be the engine that drives this new capability. Knowledge is power — and with the power of geospatial capabilities behind their design, our streets and highways can be safer and more intelligently designed than ever before.