“Culture is the soul of the organization — the beliefs and values, and how they are manifested. I think of the structure as the skeleton, and the process as the flesh and blood. And culture is the soul that holds the thing together and gives it life force.” - Henry Mintzberg

The prevailing risk culture within an organization can make it significantly better or worse at managing these risks. It also significantly affects the organizational capability to take strategic risk decisions and deliver on performance promises. Risk culture arises from the repeated behaviors of the employees of the organization. These behaviors are shaped by the underlying values, beliefs and attitudes of individuals, which are partly inherent; and by the existing corporate culture in the organization.

Now that risk practitioners are finally catching on to risk culture and risk culture building; way after my first article on people risk in GARP Risk review back in 2004, we suddenly find a whole bunch of risk culture “experts” talking absolute garbage when it comes to the doing this thing.

Let us thus get the basics right:

Basics No 1: Governance Structure:

Firstly, the reporting line for the head of risk/chief risk officer is directly to the board. If you run your business by committees, that would be the chairperson of the board risk committee; if not, it should be a non-executive director who knows something about the management of risk. 

Secondly, do not appoint your risk champions; select them from volunteers. 

Basics No 2: The Definitions:

Before you formulate your own understanding, use these definitions:

• “Risk culture is the system of values and behaviors present in an organization that shapes risk decisions of management and employees. One element of risk culture is a common understanding of an organization and its business purpose” --NC State ERM Initiative
• “Risk culture is a term describing the values, beliefs, knowledge, attitudes and understanding about risk shared by a group of people with a common purpose” --Institute of Risk Management
• Risk culture building is the training of mind, of heart and of personal character to respond effectively to any situation of risk and take the right decision to mitigate, control or optimize risk to the advantage of the organization.

Basics No 3: The Levels of Maturity: 

• Level 1: In a bad risk culture, people do not care and will not do the right things regardless of risk policies, procedures and controls. Generally reflecting an environment of risks managed in silos, people are always “firefighting” with no clear risk owners, no real communication and weak accountability.
• Level 2: In a typical risk culture, people tend to care more and will do the right things when risk policies, procedures and controls are in place. Risk owners are clearly defined and roles and commitments are understood, but effective awareness is still lacking.
• Level 3: In a good risk culture, people care and will do the right things even when risk policies, procedures and controls are not in place. At this level, there are integrated risk management teams with standardized roles and clear accountabilities, normally controlled by a central function that coordinates all activities.
• Level 4: In an effective risk culture, people care enough to think about the risks associated with their jobs before they make decisions on a daily basis. Strong cross-functional teamwork and employees who apply sound judgment in the management of risk. A small central risk management advisory team that understands the enterprise fully supports the business at all levels. Organizations at this level are well-prepared for crisis management.
• Level 5: In the ultimate risk culture, every person acts as a risk manager and will constantly evaluate, control and optimize risks to make informed decisions and build sustainable competitive advantage for the organization. At this level, organizational and individual performance measures are fully aligned and risk-sensitive. Every employee is a risk manager, and knowledge and skills are upgraded continuously. Such an organization is agile and designed to adapt to changes.

See also: Perspectives on Risk Culture Building

Basics No 4: Assessing the Current Level of Maturity and Building Action Plans:

To start risk culture building, an organization first needs to get an accurate picture of the current level of risk culture maturity in the organization. Various attempts have been made to do this, and most revert to some kind of questionnaire or checklist approach linked to a scoring sheet that is eventually tabulated to quantify an overall score, which is linked to a perceived level of maturity. 

In some instances, organizations call in consultants who also conduct interviews. The outcomes are then debated and agreed upon by consensus with the client. These processes can easily be manipulated to support the perception of those in charge and also fail to identify specific weaknesses to support targeted action plans.

A full risk culture maturity assessment must cover the following operational areas associated with the effective management of risk: 

1. Policies
2. Processes
3. People and Organizational Design
4. Reporting
5. Management and Control

You have two options:

1. A manual process: (offered as part of the formal Risk Culture Workshop training) 
2. An on-line assessment tool: In an attempt to improve the accuracy of these kinds of assessments, a leading U.K. consultancy developed and launched an on-line assessment tool that is now commercially available. 

* (Contact chungarisk@yahoo.co.uk for details of either)

Basics No 5: What to Do Next: 

Building an effective risk culture requires aligning the structured approach in the innovation framework and the four-pillar risk culture building approach with the organization’s vision and purpose to be the most trusted and inspiring connector of positive change. This must be done within the context of the existing corporate culture, driven by the organization’s strategic objectives, with the outcome to realize the key benefits of risk culture building and create sustainable competitive advantage through the optimization of the management of risk within the organization.

Building an effective risk culture is much more than changing your organizational culture in line with your vision, mission, corporate values and risk appetite—you must factor in the interests of competing national cultures, sub-cultures, Maslow’s theory on individual self-actualization and the informal groups in the company. The interactions among these are not predictable, and variables cannot accurately be isolated.

An effective risk culture is not a matter of risk assessment or level of compliance; it is a matter of individual ownership of risk and personal “conviction” -- a state of mind where human beings own the risks and the process of managing those risks through making well-informed risk decisions because they want to, not because they have to. Companies drive value through optimizing risk management rather than a culture of compliance where people will do only what is required.

Basics No 6: The Four Pillars

1. Think differently
2. Get the whole picture
3. Build a risk nervous system 
4. Make every employee a risk manager

Each of these pillars represents a structured approach to address the underlying mindsets and behavioral aspects of organization and individuals to influence their attitudes and responses to risk in the context of the organizational demographics and their education, experiences, circumstances, attitudes, beliefs, emotions, social status and other factors and filters.

See also: 5 Risk Management Mistakes to Avoid

Basics No 7:  The “Do Not Even Think About It” List:

• You can NEVER build an effective risk culture if you use the old Three Lines of Defense model or the (even worse) new Three Lines model
• If you are promoting a “culture of compliance,” do not waste money attempting to build an effective risk culture 
• Building an effective risk culture is not a “project"; the work never stops
• Even a bad risk culture can be strong, so stop talking about a strong risk culture as a good thing
• If you are not going to link risk culture to the performance management of each employee, at all levels, forget about it
• You can follow any risk management framework or standard to the last letter and still be useless at the actual management of risk... just because of culture
• You can be a brilliant chief risk officer in one company and a total failure in the next... just because of culture.

Ensight has surpassed one million digital sales presentations for life and annuity wholesalers, financial advisers and agents. What have we learned?

Our learnings fall into five broad areas. Whether you are an insurance carrier, BGA, FMO, insurance agency or producer, these lessons are key for the decade ahead.

Millennials are starving for life and annuity digital sales

Millennials are using Robinhood, Acorns, Betterment and other fintech apps daily and are conditioned to expect a similar digital experience in the workplace, including an advanced digital sales toolset for life, long-term care and annuities. 

A consistent refrain that we hear from advisers is: “I am tired of trying to explain life and annuity products using PowerPoints and PDF brochures. Every other financial services experience is application-based. Even my 401K experience is interactive now.”

Millennials demand that there be a more visual, interactive and intuitive way to sell life and annuity products that matches their every-day fintech experiences. 

Financial advisers expect a “digital experience,” and greater life and annuity adoption depends on it

Financial advisers today have already completed the shift to digital financial planning platforms. Whether it is EnvestNet Money Guide Pro (MGP), eMoney, RightCapital, AssetMap or RetireUp, the financial planning experience today is managed through a fintech platform. These platforms have simplified the discussion and engagement between the financial adviser and the client, making it easier to understand financial options and their benefits for the overall financial plan.

This is the expectation – digital, visual, interactive and easy to understand.

See also: In Search of the Digital X-Factor

If life and annuity carriers and distributors want to return to growth – and increase sales within advisory channels – they will have to “speak the language” of the market, selling and servicing products through modern digital delivery.

Experience is everything

The adage, “Experience is everything,” has become, “Digital experience is everything.”

We increasingly talk about the paramount importance of the customer experience (CX) and the user experience (UX). Each sits at the forefront of organizational strategy and service delivery. And nearly every financial services product class has already shifted onto this agenda. Even cars are now designed and ordered through an online digital experience.

Unfortunately for the life and annuity sector, the sales experience remains entrenched in a legacy model – static, 45-page PDF illustrations; long PowerPoint decks; and traditional, print-oriented “brochureware.”

Without modernizing the pre-sale to in-force digital customer engagement (for a world where “experience is everything”), the life and annuity sector stands little hope of returning to sustainable long-term growth.

The chief learning from over a million digital sales presentations? 

A legacy sales experience today undercuts the sales effectiveness of wholesalers, advisers and agents and ultimately reduces closing rate and top-line sales numbers across the P&L.

RIAs, BGAs, financial advisers and insurance producers are “de-localizing”

One little-noted potential long-term outcome of COVID-19 and the transformation shift to remote work is the “de-localization” of RIAs, BGAs, financial services firms and financial professionals.

Historically, financial services firms have focused their services on a local market or region, so they could meet and serve their clients, face to face, at the office or in the home. COVID-19, however, broke this model. 

First, the permanent shift to virtual client engagement (e.g. via Zoom or Microsoft Teams) has proven that the face-to-face relationship can be retained even when in-person meetings cannot. 

Second, the growing relocation of individuals over the past year has meant that many financial professionals are having to virtually follow clients to retain them. Finally, as firms have gotten smarter about lead and client acquisition driven by data, the opportunity of digitally targeting new clients -- at a micro-individual level -- in new cities or regions has become a reality.

What might this trend lead to over the long term? 

It is possible that the trend may spark a new era of innovation in the advisory space, as “niche specialists” are able to digitally scale their service proposition.

Transformation of the wholesaler model is well underway

Wholesaler demand for digital sales enablement and marketing tools is growing by the day.  

What digital sales enablement capabilities are wholesalers crying out for? 

In our experience, this has been concentrated around three critical areas:  

• Digital, interactive product analysis tools that support virtual sales engagements
• Modern platform-based product training, education and marketing experiences
• Real-time data insight to drive case and account follow-up

See also: False Dilemma Facing Life Insurers

While the digital hybridization of the adviser-client discussion has already been underway for several years, the wholesaling shift is just now taking off.

If you are a life and annuity carrier or distributor, start now. Not only will your GenX (age up to 55) and millennial (age up to 40) wholesalers double their sales effectiveness, they will also personally thank you, as will the advisers you serve.

Let’s start with a warm-up exercise. Here are phrases you might find in any project meeting. Insert the missing words.

“The easiest way to start this project is to pick the [insert adjective] fruit.”

“That process is too convoluted. The shortest distance between Point A and Point B is a [insert adjective][insert noun].”

“We need to modernize, but the metrics don’t support a complete platform change. We’re stuck between a [insert noun] and a [insert adjective][insert noun].

“Our competitors are going digital, and they’re using it for [insert anything here]. They just partnered with [insert company], and now they are serving the [insert market] with their new [insert product].”

It might be an oversimplification, but insurance company growth lately is more about filling in gaps and blanks — capturing new or open opportunities with new products, partners and channels. Because risk management is the core of insurance, most insurers are adept at managing risk to ensure underwriting profitability and customer satisfaction. Digital technologies and greater real-time data access are both steadily advancing risk management expertise, while also helping customers reduce or mitigate risk.

It’s what’s missing in the technology/market mix that counts. Some organizations need to extend their expertise in filling market gaps and in using new technologies and partnerships to jump forward into new, open opportunities.

Majesco’s research found: When insurance Leaders realize that they are missing a key component of their strategy, the blank gets filled in quickly. They shift seamlessly from knowing and planning into doing. They fill competitive gaps and, when opportunity creates an opening, they jump into it. This ability to jump in defines the difference between Leaders, Followers and Laggards in this report, Strategic Priorities 2021: Despite Challenges, Leaders Widen the Gap.

Monitoring Gaps Highlights Competitive Discrepancies

Insurers’ competitive positioning used to be a brand and distribution focus. Now, distribution and the business are looking to technology, platforms and partnerships to give them a competitive edge. That edge, however, is shifting. Leaders are widening the gap with Followers and Laggards in several key areas.

When it comes to incorporating specific marketplace trends, technologies or capabilities into their business models or offerings, Laggards continue to fall further behind both Leaders and Followers. Their focus is on a very limited set of opportunities that do not even keep pace with the rest of the industry. 

The Majesco survey asked companies to indicate their level of response, from “No focus on this” to “Already implemented,” for specific items within these categories:

• ecosystems
• regulatory developments

While companies cannot act on all of these issues at once, the inability to move from understanding to planning and execution is of increasing concern given the pace of change in the marketplace. Companies that fail to incorporate these categories into their plans and execute on them are intensifying their operational and business risk.  

See also: In Search of the Digital X-Factor

Responding to New Market Opportunities

Continuous changes in technology-driven capabilities, customer behaviors and expectations and blurring market boundaries have created numerous opportunities for insurers to grow by creating products and services and reaching new markets. Followers and Leaders are fairly well aligned on their cumulative responses to the market opportunities created by these trends.

However, there is a sizable overall gap (35%) between Leaders and Laggards, led by enormous gaps in acting on Microinsurance (92%) and the Sharing/Gig Economy (86%), and developing New Insurance Business Models (59%). These topics were not covered in the 2018-19 survey, but in the 2019-20 survey the gap between Leaders and Laggards was 22% and 7% for Leaders vs. Followers – reflecting a large increase in the Leader-Laggard gap. Again, this supports the observation that Followers are doing their best to keep close to Leaders, but Laggards falling further behind.

Figure 1: Gaps between Leaders, Followers and Laggards in responses to market trends

Leveraging Platform Technologies

The most unexpected finding in this year’s survey was that Followers beat the Leaders in their cumulative levels of incorporating 16 different technologies into their offerings or capabilities. Although a small gap, just 5%, it represents a 17-point swing from last year, when Leaders held a 12% advantage. We hope this continues into next year, putting Followers in a much better position to compete! 

The gap between Leaders and Laggards remained relatively the same, at 15% last year and 17% this year.

Figure 2: Gaps between Leaders, Followers and Laggards in responses to technology trends

When we split these 16 technologies into three cohesive groups and compared the aggregate averages, you see that the Leader-Follower gap is driven by Technologies for Products and Services (11%) and Customer Experience Technologies (9%). While not large, these topics are top-of-mind for leading, innovative insurers that are focused on the next generation of customers who demand different products and experiences.

Leaders and Followers are dead even in their overall levels of activity and response to Platform Technologies, improving from a 15% gap in favor of the Leaders last year. Even more encouraging, Laggards nearly halved their gap with Leaders, from 22% last year to 12% this year. Leaders and Followers separate themselves from Laggards on two of the technologies: Digital Experience Platform (26%, 33%) and AI/Machine Learning (29%, 38%) while Leaders stand out from both on Microservices (30%).

The tightening of the gaps between all three is encouraging, particularly for Followers and Laggards, giving a ray of hope. Reality appears to be sinking in that we are shifting to a new era of platform technologies.  

Figure 3: Gaps between Leaders, Followers and Laggards in responses to platform technology trends

Implementing Digital Capabilities

This year's area of specific focus was around digital capabilities, and the results definitively highlight that this is the era and year of digital! All three segments are implementing digital self-service options like chat and digital payments. While these tools have been around for some time, COVID made them table stakes. 

These tools – while helpful and used by many “out of the box” portals as functional apps, like a claims app – do not in themselves meet the shift and customer expectation of personalized, holistic experiences. This is where digital insurance platforms, a combination of digital experience and low code/no code platforms, transform these older approaches from siloed, separate transactions into next-gen, satisfying, holistic experiences for customers, channel partners and employees, as we noted in our life and auto customer research.

Neither is it sufficient to simply add common, disparate digital capabilities like portals and think you can “check the digital box.” Becoming a digital insurer requires a cultural change and mind shift to a new way of thinking, planning and doing. Leaders know this. They are using digital everywhere it counts.

Digital leaders are leveraging digital technologies to enhance customer and employee experiences and to improve their strategic and operational capabilities, as seen in Figure 4, with leads over the Laggards in Digital employee benefits onboarding and engagement (28%), Intelligent digital claims intake (22%) Innovative, personalized products (43%), Intelligent digital marketing (48%) and segmentation (61%) and Digital assets for reporting, modeling or compliance (35%).

Today’s customers are increasingly digitally adept, with higher expectations, different needs and a demand for better experiences that are not met with the “traditional” insurance approach, creating a fault line between customers’ expectations and insurers’ ability to deliver. These digital gaps will become the new competitive differentiators.

Figure 4: Leaders, Followers and Laggards responses to developing/implementing digital capabilities

Partnerships and Ecosystems

The gap between Leaders and Laggards was the greatest for Partnerships and Ecosystems, at 71%. The largest drivers of this disappointing and concerning gap are Setting up product(s) on a partner platform with revenue sharing (129%), White-labeling product(s) to be sold by another company (86%) and Establishing an ecosystem of partners using APIs (81%).

Insurers must increase their “doing” in this area to avoid lost opportunities to reach new or underserved markets and to be at the forefront in establishing partnerships before others. We highlighted this opportunity in our joint research with PIMA last year. Laggards’ failure to recognize the criticality of partnerships and ecosystems is a major blind spot.

Our research, as well as numerous other studies, have shown strong customer interest in buying insurance through other partnerships and channels. Furthermore, the development and access to APIs to connect to new partnerships and ecosystems is increasingly important.

In this new era of insurance, nearly every insurance process is rapidly becoming frictionless, including buying. If distribution channels are easy to use with products that are easy to understand, then insurance has the opportunity to grow through a friction-free, multi-channel distribution system. The benefit of adapting to these channel dynamics is that we move from needing to “sell” people on purchasing insurance, to introducing insurance that is ready to be “bought” seamlessly at the point of need, creating a scaleable, sustainable business model.

Figure 5: Gaps between Leaders, Followers and Laggards in responses to partnerships & ecosystems

While both Laggards and Followers closed the gap with the Leaders last year, each saw those advantages disappear this year. The Leader-Laggard gap was a staggering 4x increase over last year’s gap of 18%, and the Leader-Follower gap increased 3x. This does not bode well for both Followers and Laggards – limiting their market reach and growth.

Market boundaries are no longer clear. They are shifting and, in some cases, evaporating. The combination of technology and customer expectations is directly affecting insurance by altering the traditional ecosystem of agents and brokers – who, yes, are still relevant – to have insurance embedded or sold differently across a broader ecosystem, including automotive, transportation businesses, Big Tech and more. 

By doing so, these partners are breaking down business and market boundaries to make the ecosystems operate fluidly, based on the customer’s needs and expectations for both the risk product and other value-added services. This, in turn, creates greater value for these insurers due to new revenue streams and access to a broader market through the multiplier effect. 

Given the rapid development of ecosystems, shift to a platform economy and increased focus on a broader customer experience dependent on partnerships, these gaps offer Leaders, who are working with ecosystems and partnerships, the opportunity to accelerate and tie down relationships while Laggards and Followers get left behind.

See also: Digital Revolution Reaches Underwriting

Using Regulatory Scoring to Push Transformation Agendas Forward

Within every insurer, there are those who wish to move faster than the company traditionally moves. It’s a frustrating position to be in. For transformation-minded executives who find themselves in the Follower or Laggard categories, it might be helpful to document all of the potential value and incentives that your organization stands to gain. One of the incentives on the list must be to improve their ratings standing with AM Best.

Compared with the other Doing categories, responding to the AM Best innovation rating criteria and participating in a state-sponsored innovation sandbox have among the lowest levels of activity by all three segments. The 24% Leader-Laggard gap increased slightly from last year’s 17% gap, while the Leader-Follower gap remained flat compared with last year’s 7% gap.

Innovation initiatives are increasingly laser-focused on creating competitive advantages that respond to the rapidly shifting marketplace and adoption of digital technology. As a result, innovation has moved from an operational to a strategic imperative to solidify market leadership by outpacing competitors, and by challenging disruptors to ensure long-term survival and success. From this viewpoint, it is surprising that insurers are not more actively planning or executing strategies that take advantage of these regulatory changes to accelerate their innovation initiatives. 

We believe the “knowing-doing” gap and the paths an insurer takes for the future, including leveraging the sandbox opportunities, will have a direct relationship with their innovation capacity and ability, two crucial elements of the new AM Best innovation score. Forward-focused insurers should use this pressure to their advantage.

Figure 6: Gaps between Leaders, Followers and Laggards in responses to regulatory innovation developments

When it comes to opportunities, insurers, even Laggards, should remain optimistic. It isn’t too late to take advantage of the technologies, platforms, partnerships and regulatory stimulants that can move your organization into the future.

COVID-19 has been a global crisis, but it has also given insurers opportunities for the post-pandemic market. Is your organization using this time of crisis as a wake-up call to position your company for the future? How would you fill in the gap and space? 

Through creative destruction, weak businesses shrink and stronger ones expand. The ripple effect of all that disruption often washes ashore at group long-term disability (LTD) insurers, where disability claim costs tend to increase during recessions -- new claim submissions rise while claim recoveries fall.

Sadly, studying the effect of past downturns on group LTD isn't entirely straightforward. Every economic decline comes with a unique context -- a tangle of related causes and effects, all of which can affect LTD claims in different ways. And because the economic shock of 2020 was created by a global pandemic and not a financial crash or inflation scare, COVID-19's implications are especially difficult to unwind.

Disability carriers still need to try.

Understanding the Three R's...

The three R's are a good place to start. I'm not referring to reading, writing and 'rithmetic but to the three rates that drive LTD experience: incidence rates (new claims), termination rates (closed claims) and interest rates. When it comes to these R's, carriers should avoid the temptation to look too intently at the past for clues to the future.

To understand why, consider the lessons of the Great Recession of 2008. This decline was caused by a financial contagion -- a liquidity crisis brought on by subprime lending. This led to a contraction in most sectors while the typically recession-resistant "HUGE" sectors (healthcare, utilities, government and education), in fact, grew. New claim submissions initially dipped as employees deferred claims in a bid to cling to employment or lost jobs too abruptly to file claims.

Eventually, however, new LTD claims rose and remained elevated for years before returning to pre-recession levels. Claim termination rates, too, deteriorated during the recession but rebounded quickly during the recovery. Lastly, an increase in asset defaults and lower portfolio yields strained the income statement of LTD insurers.

... and a K

But this is not 2008. Fast forward to today, and it's clear that, as former U.S. Federal Reserve Governor Kevin Warsh put it, "If you've seen one financial crisis, you've seen one financial crisis." Every recession is unique, and the pandemic-driven decline is particularly unprecedented. In fact, the form this recession may be taking has joined a growing alphabet soup of economic terms. Readers may be familiar with the optimistic V-shaped recovery pattern as well as the pessimistic L-shaped, with U- , W- , and Z-shapes falling somewhere in between. Economists are now introducing the notion that the post-pandemic recovery could look more K-shaped. Think of the vertical line of the K as the starting point from which different parts of the economy diverge: Some sectors grow while others decline. The market has been bullish on companies that support the "quarantine lifestyle" but was less kind to smaller companies as well as those situated in the travel and hospitality industries.

Given a K-shaped recovery scenario, group LTD carriers may ask themselves how much of the business mix is in the upper versus the lower arm of the K. If most of a block is focused on high technology and well-capitalized firms, it makes little sense to adopt overly conservative underwriting or pricing adjustments. But it may be prudent to keep a more watchful eye on business blocks with significant exposure to "lower arm" economic sectors.

See also: 9 Months on: COVID and Workers’ Comp

Recession-resistant sectors are not necessarily pandemic-resistant.

This new K shape is already challenging long-held expectations about which industries represent good disability risks. The previous notion that certain industries are resilient in recessions is now being turned on its head. That's because recession-resistant sectors are not necessarily pandemic-resistant. For example, unemployment rates during the 2020 COVID-19 pandemic followed a pattern never seen before, sharply spiking during spring lockdowns -- and causing job losses in every single sector of the economy.

Morbidity Bersus Mortality

It is easy to see the effects of this pandemic on group life insurance: COVID-19 has a direct and immediate impact on mortality rates. However, the effects on group LTD are much more opaque, as the morbidity impact is largely indirect and delayed. Mortality risk and morbidity risk may have polar-opposite reactions to COVID-19, both in terms of timing and direct linkage, but that is not to say that the financial impact will be wildly different. There are many "pandemic headwinds" facing group LTD carriers, and it's just a matter of time before these trends crystallize.

For example, the pandemic has strained hospital systems worldwide, leading to deferred preventative care and interrupted treatments that could result not only in a wave of deferred claims, but also sicker insured individuals. Prolonged lockdowns, reports of rising burnout levels among essential workers, particularly in healthcare, and the long-term loss of employment will likely contribute to additional mental and nervous claims. In addition, some survivors of COVID-19 -- even those who had mild versions of the disease -- continue to report a debilitating constellation of symptoms long after their initial recovery. Called post-COVID-19 syndrome or "long COVID-19," this condition has generated growing concern among public health providers and disability insurers and is being researched. In RGA-led industry surveys, many disability carrier participants report significant concern over the pandemic's potential to reduce recovery and return-to-work rates among the long-term disabled.

And while much about the first pandemic recession is new, one fact remains the same in every downturn: The longer economic problems persist, the greater the risk that long-term disability claims experience will worsen.

Keeping Perspective

While these headwinds are troubling, it is important to keep risks in perspective. For example, not all deferred healthcare signals an increased risk of short- or long-term disability claims. Also, mental health is fluid, and sources such as the mental health index Total Brain show that if the conditions contributing to symptoms of depression and anxiety are relieved -- such as through the end of a pandemic or recession -- the additional likelihood of psychiatric disability claims is mitigated. This is good news in light of the current thinking from economists that the recession may technically already be over and the recovery begun. If so, the recession would be the shortest in U.S. history.

Similarly, elimination periods (EP) should mitigate much of the direct effect of the pandemic on disability claims as a 90-180 EP usually lasts longer than a coronavirus case. Even a diagnosis of long-COVID-19 may not necessarily result in long-term disability. The "long" in long-COVID-19 is in comparison with a typical flu duration of three to four weeks, not the "long" that we infer with long-term disability claims. While most long-COVID-19 cases at present have durations measured in months, it is also too early to truly understand the long-term health consequences of this disease. Said differently, a tidal wave of COVID-19 LTD claims does not appear to be on the horizon, but continuing research points to a few ripples headed our way.

Pressures brought by the pandemic also have led to some unexpected positive developments. Recovery from some disabilities may be made easier by work-from-home measures, just as lockdowns led to faster consumer acceptance of wellness and digital health technologies. Telehealth, for example, has proven to be a very viable and cost-effective alternative to in-person doctor visits. Public health mandates like social distancing and mask-wearing also appear to be suppressing the spread of other infectious diseases such as the seasonal flu. The blisteringly fast pace of COVID-19 vaccine development has opened our eyes to what is possible in virology and paved the way for faster advances in vaccine science.

See also: What Digital Can Do for Disability Claims

The discovery and rollout of vaccines offer hope that an end to the pandemic portion of the crisis is near, but the effects of this recession on disability claims may linger.

The problem child of the life insurance industry is no longer a youngster. You could even say the problem child is now officially an adult. This problem child is "The Middle Market Coverage Gap." It has been with us for such a long time, I decided to give it proper noun status.

For many years now, industry trade publications and conferences have featured articles and presentations about the tens of millions of average American heads of households, parents and spouses who have little or no life insurance. 

Ten years ago, everyone (including yours truly) who predicted that the life insurance industry would put a major dent in the coverage gap by 2020 was wrong. Not only wrong but super wrong.

LIMRA's recent "2021 Barometer Presentation on Perceived Need Gap" tells us that ownership of life insurance has decreased from 63% in 2010 to 52% in 2020. The presentation also tells us that there are about 258 million adults in the U.S. So, over 28 million fewer people have life insurance compared with just 10 years ago. 

How is this even possible?

Writing policies on the lives of our middle market friends was supposed to become so much easier, faster and more cost-effective. We have been hearing about the increasing use of e-application forms, accelerated underwriting and digital signatures. We have heard how agents just need to "drop a ticket" and the carrier would take it from there. 

But the fact remains: There were 28 million more adults with life insurance 10 years ago than there are today.

One of the explanations is that the life insurance industry is slow to change. It is guarded and staid. And I wouldn't change that for the world. The life insurance industry has long been one of the underpinnings of our economy, and it needs to stay that way. 

The other important explanation is that the promised "straight-through process" has remained elusive.

I am fortunate to work with the biggest and the best life insurance sales and marketing organizations on a national scale, and they have told me:

"We've seen pieces of the total package necessary to do a fully automated and digital term life sale. But we don't have the whole nine yards yet. Our agents need to get from 'hello' to 'here's your in-force policy' in one conversation.

"It's not good enough to do an electronic quote, complete the e-application and then see everything go offline for medical exams, blood testing, urine testing and even sometimes sending out for an attending physician statement. This turns what could have been a 20- or 30-minute sale into 20 to 30 days or longer."

Twenty to 30 days or longer? Is that right? Unfortunately, it is. I've seen many times an attending physician statement take more than three months to obtain.

I'm celebrating my 40th anniversary in the life insurance industry this year. I can tell you that the life insurance buying process that has evolved into an expensive, tedious and time-consuming proposition for agents and customers alike is one of the primary reasons for the coverage gap.

See also: Life Insurance Is Ripe for Change in 2021

As the policy buying process and underwriting requirements became more tedious, the agent community backed away from calling on the middle market. Consumers, when they caught a glimpse of what was required to obtain a policy, backed away, as well. All that backing away resulted in our very own multitrillion-dollar coverage gap.

Keep in mind that the typical sale in the middle market is relatively small. The brokerage commission does not cover the processing of underwriting requirements, the scheduling and re-scheduling of medical exams or the sales calls that are often needed to "make the sale twice" because the customer became lost in the underwriting maze and wanted out.

With a true straight-through process, the small case size can make economic sense for the agent. Such a process also solves an enormous problem for the customers of the middle market. The average consumer is intimidated and confused by the typical life insurance buying process. But they need the coverage. We have learned from the COVID-19 pandemic that most families cannot weather a financial emergency very well. COVID-19 relief legislation has helped. But Congress doesn't provide life insurance. We do. And a 100% digital, big data solution that gets from "Hello" to "Here's your in-force policy" in 20 minutes is what we need.

In November 2016, I wrote an article for Insurance Thought Leadership titled, "This is Not Your Father's Life Insurance." The article not only spelled out what the real straight-through process for buying life insurance should look like, it also kinda sorta said that we would get there.

And now for the age-old question: Are we there yet?

Yes.

We are now seeing the fruits of our labors materialized into a genuine straight-through process for term life. Here is a look at what an agent can now accomplish in about 15 minutes with a term life applicant between the ages of 18 and 70 for up to $500,000 of coverage.

• First, we do an electronic term life quote. Easy. 
• Next comes the e-application. Thorough yet concise.
• Then, the applicant provides a payment method, which will only be used if the policy is approved.
• From there we move into the digital signature for the application and necessary authorizations. 
• At the moment the digital signature is complete, the proprietary underwriting rules engine queries six third-party big data providers. They are: Medical Information Bureau, Department of Motor Vehicles, Rx, criminal history, credit score and ID verification.
• The system combines the information that the proposed insured provided to the agent on the application form with the data retrieved from the third-party data bases. The system renders a real-time underwriting decision in about 60 seconds.
• The qualified applicant's policy is immediately issued, and the new policyholder receives an in-force policy via e-policy delivery.
• This is all accomplished without any person-to-person contact. A huge plus in the age of COVID.

Pieces of the process have been around for a while. But as the big insurance distributors have told us, the total package is what we need. All these capabilities working together seamlessly produce synergy that will be a vital force in bringing the Middle Market Coverage Gap under control.

On a stand-alone basis, none of the features of the straight-through process are really all that impressive. But when welded together into the whole? They are all that.

Microsoft Just Raised the Bar Paul Carroll, Editor-in-Chief of ITL While insurance has been steadily improving communications with customers through gradual adoption of chatbots, Microsoft just put another big item on the industry’s technology to-do list: speech recognition. Microsoft’s announcement on Monday that it is buying speech-recognition firm Nuance for $16 billion means that insurers will have to confront the technology — likely sooner than they had expected. Big Tech has already been getting consumers accustomed to having their speech understood by devices, mostly via Siri and Alexa, and the Microsoft purchase of Nuance will push speech recognition into many business transactions. All industries, including insurance, will have to react as Big Tech again raises the bar for what constitutes a reasonable customer experience. So, it’s worth spending a minute thinking about what speech recognition will — and won’t — change in insurance... continue reading > Majesco Webinar The pace of change has accelerated to hyper-speed, making digital insurance business models more important than ever. Learn what the Leaders are doing.   Watch Now SIX THINGS The Future of AI in Insurance by Karin Golde Organizations hoping to deploy artificial intelligence have to know what problems they’re solving — no vague questions allowed. Read More 10 Ways to Prepare for the Hard Market by Jeff Arnold In soft markets, differentiation can be challenging. But hard markets present an opportunity for the best insurance professionals to stand apart. Read More Digital Revolution Reaches Underwriting sponsored by Intellect SEEC The digital revolution in insurance, which began in distribution and then spread to claims, has now reached underwriting in a big way. Read More How to Deliver the ROI From AI by Monte Zweben A technology has emerged that can harness AI across all departments of a business like never before. It's called a feature store. Read More Benchmarks, Analytics Post-COVID by Kimberly George and Mark Walls The pandemic introduced several variables that question the validity of actuarial models and benchmarks. Read More The Key to the Future of Mobility by Bill Powers Telematics can help solve some of the insurance industry's oldest problems, but, first, insurers must win the client's trust. Read More Time to Start Over on Secondary Towing by Rochelle Thielen The current system for secondary towing is excruciating. The only reasonable solution is to start over from scratch. Read More Webinar : The Alarming Surge in Ransomware Attacks sponsored by Tokio Marine HCC - Cyber & Professional Lines Group Join Michael Palotay, Chief Underwriting Officer for Tokio Marine HCC - Cyber & Professional Lines, and Paul Carroll as they continue their discussion on ransomware, cyber attacks, and how businesses can protect themselves. Watch Now MORE FROM ITL April's Topic: Agents & Brokers Mark Twain reportedly once responded to a rumor of a serious illness by saying, "Rumors of my death have been greatly exaggerated."  Insurance agents and brokers could have said the same thing over the past decade and will likely be parrying those rumors for years to come. There’s no doubt that agents & brokers inhabit a world going digital and not every agent will migrate easily into the ever-more-digital world, but those who do will find the work more rewarding, both for themselves and for their ever-more-loyal clients. Take Me There The Alarming Surge in Ransomware Attacks 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 ITL is a leading platform for thought leaders in the insurance and risk management industries. Partner with ITL to create expert thought leadership content and promote it to our expert audience. Sponsored Content Custom Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet SUBSCRIBE TO SIX THINGS

Insurance sector communities have invaluable expertise and resources to address society’s climate challenges, but that experience is not fully understood or harnessed into the mainstream climate, sustainable development and finance agenda. The United Nations' 26th conference on climate change, known as COP26, is a strategic opportunity to finally and comprehensively bridge this gap.

With COP26 drawing ever nearer, the insurance industry has a gilt-edged opportunity to recapture its historic role as a key commercial shepherd of social transition and gain a seat at the main table in Glasgow.

Not since the age of industrialization has global society faced a challenge on the scale of climate change, and the insurance sector is uniquely placed to play a leading role in forging a workable solution; in fact, it is a challenge we are duty-bound to accept. 

When the Paris accord was adopted by 196 nations in 2015, the annual COP meetings instantly became the focal point of global efforts to tackle climate change. While some of the signatory nations have since made progress in building economic resilience against the physical and financial impacts of climate change, the urgency to do more is escalating; the demand for risk mitigation and adaptation strategies is accelerating in parallel.

Like few others, the actuarial sciences have a track record of providing support for strategic social transition at scale; the role as an architect of the social insurance systems that have underpinned many national reconstructions is well-documented.

More modern insurance tools, such as national catastrophe modeling, also have obvious applications to the climate challenge and reinforce our industry’s unique ability to accurately price risk over the longer term.

It shouldn’t be surprising that an industry built on the mathematical and philosophical foundations of the Scottish and wider 18^th century Enlightenment is now well-placed to provide assistance in the quantification of climate-related risks and the evaluation of the related choices and trade-offs.

Since the early 1990s, the insurance industry has revolutionized its mainstream assessment of climate-related risks and integrated this into its core pricing, risk controls, regulatory disclosure and capital management. A decade ago, led by Munich Re and in concert with public and academic partners, the industry created a global facility to assess the seismic risks to properties, infrastructure and wider assets.

In creating the Global Earthquake Model Foundation, the aim was to support better planning, building codes, investment, insurance and disaster response to help save the millions of lives, livelihoods and assets that were at risk. We now have the opportunity to emulate that ambition and provide a program for building a global resilience model to support physical climate risk scenarios, stress testing and analysis for the communities, markets and assets that are exposed.

Because building climate resilience is the product of many factors, insurance is not a silver-bullet solution. But it is a necessary component because, when disaster strikes, the ability to rebuild lost homes, businesses, jobs and lives is central to any economic recovery.

Through insurance, communal risks can be shared across public, private and mutual systems, via premiums, taxation and hybrid systems. With sound scientific principles, economic sustainability and transparency as the foundations, costs, payouts and incentives can be designed to support affordability, risk signaling, resilience and wider solidarity.

By November, we should have set an objective to make access to basic climate-related insurance protection systems an essential component of a climate-resilient lifestyle. In conjunction with wider financial reforms and processes, we also need to ensure that companies and local and national governments have enough support to evaluate and formally manage their contingent climate risks and liabilities. 

Society’s history with physical, industrial and social transition has shown that changes need to occur at speed and across all economies. They will require the provision of public, private and mutual insurance (including hybrid approaches) to enable a financially, socially and politically viable process. This is not just about commercial insurance products and public services; it is about the adoption of "insurance thinking" with regard to risk assessment and the creation of economically sustainable risk pricing and risk-sharing mechanisms.

See also: Increasing Regulation on Climate Change

It is a mammoth task, but we don’t have to start from ground zero for insurance to play a role in achieving Net Zero. There are organizational vehicles already in place to help speed us along this journey.

For example, the Insurance Development Forum (IDF), launched at COP21 in Paris, was created in recognition of the critical role that risk management plays in the response to climate change. The Forum is a unique international institution that brings together private and public sectors to help countries to build the resilience they need to limit the physical, social and financial impacts of climate change.

The global challenge of closing the risk protection gap brought by climate change is at the heart of the IDF’s mandate, and the forum has already found success using its Tripartite Agreement project to support major sovereign and sub-sovereign programs.

This model of shared success, augmented by inclusive insurance and mainstream market expansion across many territories, provides the ideas and facilities to support the countries looking to protect their people and assets from the dangers of climate change.

If we seize the opportunity, society may look back on COP 26 in Glasgow as the pivotal moment in climate-financial history in the same way we now refer to COP 21 in Paris for its influence on climate politics. November also may be remembered as the month the insurance sector, a sleeping giant, awakened to fulfill its potential to help quell today’s climate emergency.

As the providers of risk transfer solutions, we have always been "in the room" for discussions on climate change, but we have yet to fully take a seat at the main table where the historic solutions will be forged. 

Insurance sector communities have invaluable expertise and resources to address society’s climate challenges, but that experience is not fully understood or harnessed into the mainstream climate, sustainable development and finance agenda. COP26 is a strategic opportunity to finally and comprehensively bridge this gap.

While artificial intelligence can improve almost all of the insurance value chain, most insurers are still not leveraging AI at its full capacity.

Adopting AI and implementing hyper-automated systems can help insurance distribution, in particular, become more efficient, accurate and secure — a benefit that both companies and the end consumer will see. From improving risk analysis and fraud detection to providing more sophisticated pricing and better customer insights for faster, more personalized customer advice and services, there are many ways in which AI helps move insurance distribution forward.

Improving operational efficiency

With today’s low interest rates, insurers can no longer depend on the financial earnings of their assets and need to find new margins in their operating models. They have more pressure to increase revenues while cutting overall operational costs. 

Deploying AI to everyday back-office processes can reduce the number of manual tasks insurers face, freeing them to spend more time on tasks that support their bottom line. Insurers are able to get more done in less time and often with improved accuracy.

Enhancing insurance distribution

According to McKinsey, 80% of value driven by advanced AI in insurance will come from marketing and sales alone (versus only 10% from better risk management and 3% from gains in operational efficiency). Today, insurers face several distribution challenges — moving from physical to remote and hybrid sales networks, learning how to strike the balance between technology and human sales, adjusting multi-channel and omnichannel sales, etc.

AI can enable a more fluid and personalized experience for customers from initial lead prioritization through needs analysis and advice, to automated underwriting. Additionally, integrated computer vision technology automates the underwriting process while detecting fraudulent documents, which drastically reduces the policy underwriting time for the policyholder and the operation costs for the carrier — a benefit for both parties.

See also: Stop Being Scared of Artificial Intelligence

Providing a better customer experience

By creating consumer-specific predictive models, AI helps policy providers enrich their recommendations to both potential and current policyholders, resulting in better synchronization between needs and offers, and superior service across the entire sales chain. 

For example, speech recognition combined with natural language understanding can interpret essential information from customer inquiries in real time. The AI can then provide contextualized and transparent recommendations for both advisers and agents. The result? Advisers and agents can act faster and more accurately, increasing the number of cross-sell opportunities and the win ratio of quotes.

A look ahead

AI will play into several trends that the industry will start to see unfold in the next five years.

Insurance products and service offerings will become more and more complex

As consumers’ needs continue to develop, so will the products and services required to address them. Five years from now, insurers will offer more complex services and, in turn, will need to be able to better explain these offerings to policyholders. This is where AI technology will be vital. AI will help guide advisers, agents or self-care portals in recommending the most relevant products for each individual. We will also see more embedded insurance offerings, with AI helping to pick and pair the consumer’s best options.

Insurance companies will feel the threat of Big Tech

In five years, the insurance business will be even more intermediated through digital platforms and marketplaces. The list of examples is already growing — Airbnb offers renter insurance, Amazon is offering delivery guarantees, Booking.com proposes travelers’ insurance. 

As insurers continue to compete with Big Tech, they need to match the competition’s standards by offering immediate, simple and adaptive policies with AI. Without full process automation on key distribution activities, traditional insurers will struggle to exist in this tech-focused ecosystem and will be challenged by full-digital players.

The industries where the competition is stronger and the insurers are more primed for innovation include personal lines of insurance such as auto, property and casualty and health insurance. In the future, we will need to see these industries take off with artificial intelligence to stay in the game.

See also: Pressure to Innovate Shifts Priorities

At Zelros, we believe that AI-enabled solutions will empower insurance players to keep up with the rising expectations of their customers. AI will give them the acceleration needed to have the real-time experience that everyone now expects when engaging with a brand.

While insurance has been steadily improving communications with customers through gradual adoption of chatbots, Microsoft just put another big item on the industry's technology to-do list: speech recognition.

Microsoft's announcement on Monday that it is buying speech-recognition firm Nuance for $16 billion means that insurers will have to confront the technology -- likely sooner than they had expected. Big Tech has already been getting consumers accustomed to having their speech understood by devices, mostly via Siri and Alexa, and the Microsoft purchase of Nuance will push speech recognition into many business transactions. All industries, including insurance, will have to react as Big Tech again raises the bar for what constitutes a reasonable customer experience.

So, it's worth spending a minute thinking about what speech recognition will -- and won't -- change in insurance.

My bet, having followed the development of a host of fundamental changes in technology for decades now, is that speech recognition mostly will mean the end of the sorts of decision trees that customers now have to go through to get to the right spot in a call center or a corporation.

At the moment, such automated answering systems generally ask callers to respond to a series of options by saying a number or pressing a key. The systems may then ask callers to repeat the process, maybe even multiple times, as a decision tree gradually narrows down the options and determines where to direct the call.

With a system based on speech recognition, customers will simply begin a conversation by saying something like, "I'm calling to check on a payment," or, "I'd like to check on the status of my claim." The artificial intelligence may be able to respond immediately, if it can match the caller's phone number with the appropriate records. If not, the AI can then ask a question or two and respond to simple questions on its own or transfer the call to the right human representative for a more extended conversation.

If a caller wants to speak Spanish, he'll just start talking in Spanish rather than having to oprima numero dos.

Doing away with these automated menus won't materially change any caller's life, but they are enough of an annoyance that insurers and big agencies will need to get rid of them as soon as speech recognition allows. As the world continues to move toward self-service, the industry will need to keep expanding the capabilities of the speech-recognition systems to handle more complex queries and more extended conversations -- along the lines of the progression occurring with chatbots.

The change to speech recognition will be a heavy lift. It not only requires mastering the speech recognition technology but tying it into back-end computer systems and integrating voice queries with customer interactions via text message and via the website or app. Training and staffing of agents will need to change, too.

The shift won't have to happen right away. Nuance (which developed the initial speech-recognition technology for Siri) has a heavy focus on healthcare, so Microsoft won't immediately be raising customer expectations across all industries. But the change to speech recognition will take long enough and be disruptive enough that insurance companies should develop road maps soon.

Now, I've seen some project even more sweeping changes because of speech recognition, but the claims are overwrought. Yes, speaking is often more convenient than typing, but speech has its limitations. If I'm traveling alone and looking for a hotel or a place to eat, I might ask Siri to give me some options, but I'm going to pull off to the side of the road to scroll through them and investigate. And if I'm going to need to read about such relatively simple options, imagine how much more important reading is for all but the simplest queries related to insurance.

Speech won't become the primary interface for the internet any time soon, despite what some have written and despite great improvement in the technology.

But speech recognition still marks a significant change, and Big Tech is once again setting rules for customer experience that the rest of us will have to abide by.

Stay safe.

Paul

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

The Future of AI in Insurance

Organizations hoping to deploy artificial intelligence have to know what problems they’re solving — no vague questions allowed.

10 Ways to Prepare for the Hard Market

In soft markets, differentiation can be challenging. But hard markets present an opportunity for the best insurance professionals to stand apart.

How to Deliver the ROI From AI

A technology has emerged that can harness AI across all departments of a business like never before. It's called a feature store.

Benchmarks, Analytics Post-COVID

The pandemic introduced several variables that question the validity of actuarial models and benchmarks.

The Key to the Future of Mobility

Telematics can help solve some of the insurance industry's oldest problems, but, first, insurers must win the client's trust.

Time to Start Over on Secondary Towing

The current system for secondary towing is excruciating. The only reasonable solution is to start over from scratch.

Immediately following an accident, undrivable cars are typically towed away from the scene to temporary holding locations such as an impound lot or storage facility. There they remain until an insurance adjuster evaluates the vehicle and declares it a total loss or requests to have it towed to another facility to be repaired. This process could take several days, and, each day, storage costs are adding up. Moving the vehicle to a repair facility — whether a DRP (direct repair program) facility or somewhere else — is referred to as a "secondary tow," and, as any claims adjuster in the auto insurance business will tell you, the secondary tow process is ugly. The current system is outdated, chaotic and excruciatingly inefficient. In fact, it’s so awful that the only reasonable solution is to rethink the secondary tow process altogether and start over from scratch. 

Let’s take a look at the process as it stands today. Following the accident, the claims adjuster often has no idea where the damaged vehicle is for several days. The tow was likely called for by local authorities on the scene, and the tow operator may bring it to any local lot. Sometimes, the carrier has to rely on the motorist to learn of the vehicle’s location.

Because there’s no standard procedure once the location is identified, the adjuster must determine how to get the vehicle released. Every lot is different, and, with adjusters working hundreds of simultaneous claims, it takes quite a bit of time to determine what signatures are required, what information is needed for forms, how to transfer money and so on for each one. Each claim requires a lot of phone calls and extensive paperwork to resolve.

The adjuster then has to order a tow to transport the vehicle to a repair facility or a salvage location, if it’s totaled. By and large, tow providers don’t like doing secondary tows, so finding a willing provider may take some time, and, even then, the provider is not likely to prioritize the job, which will cause additional delays. 

Tow Operators — Caught in the Middle

It’s hard to blame tow providers for their reluctance to perform secondary tows. They often find themselves completing a lot of paperwork and have to pay for fees out of pocket. Reimbursement for the fees and payment for the job can take 30 days or more, and, even worse, the provider often doesn’t know how much the network will pay until the check arrives.

Typically, it takes about three days to get a vehicle released from a tow yard, and, throughout the entire process, the adjuster has zero visibility into the status of the vehicle. Most of the time, an adjuster will only know where a vehicle is when the repair facility notifies the adjuster that they’ve received it. All the while, the insurer is racking up storage fees and rental car costs. If the motorist calls for an update on the claim and the vehicle, the insurer has no information to provide.

Requirements for a New Secondary Tow Process

The industry needs a new, transparent system for secondary tows, because the current one benefits no one, including the impound facilities. After all, they want to move vehicles through their lot and get paid for storage services. The longer that vehicles remain in the lot, on average, the harder it is to identify vehicles that will never be picked up, which is a poor return for the business. Certainly, the impound facility can send abandoned vehicles for salvage, but the facility rarely recoups costs.

Here’s what a new, more efficient and transparent secondary tow process needs to do:

• Ensure tow providers are paid fairly and quickly for the secondary tow: If tow providers know they’ll be paid a reasonable rate within 24 hours after the job is done, they’ll take these jobs and complete them quickly. 
• Provide adjusters the transparency they need: Adjusters need regular updates on the status of the vehicle to optimize their workflow and to provide the vehicle owner with updates. Receiving real-time updates from an online dashboard is preferred.
• Create a more standardized process for vehicle release: This is a longer-term goal, as this industry is highly fragmented, with many “mom and pop” operations. Nevertheless, the industry needs to organize around some standard procedures for vehicle release to speed the process and reduce confusion. Yard owners will get paid faster if adjusters know in advance the information required and the basic outline of the process they’ll need to follow. And motorists will get their vehicles back faster if it takes less time to release it from the yard and transport it to a repair facility. Everyone benefits.

See also: Transforming Auto Claims Appraisals

Much of this new process can be accomplished through digital technologies. By automating the process of authorizing and paying for a vehicle’s release, tow operators can focus on the task they do best: transporting vehicles. Mobile technologies can make it simple for tow operators to keep adjusters informed, often without having to do anything beyond their regular transport tasks. Systems exist today that can send alerts when the tow operator picks up and drops off the vehicle. GPS can even track the vehicle as it’s towed to the repair yard.

Secondary towing is broken, but it can be fixed. With the application of new technologies and the will for all the players to benefit together, it is possible for the industry to build a secondary tow process that works for insurers, tow companies, yard owners and motorists alike.