In this week's Six Things, Paul Carroll looks at Budweiser's intriguing stunt. Plus, aggressive response to ransomware; how insurtech thrived in the pandemic; insurers turn to automation; and more.
In this week's Six Things, Paul Carroll looks at Budweiser's intriguing stunt. Plus, aggressive response to ransomware; how insurtech thrived in the pandemic; insurers turn to automation; and more.
Budweiser Canada garnered attention in recent days by teasing the possibility that it was entering the insurance market. How would that even work for the brewing company? What kind of insurance? How would Budweiser underwrite it? How would it process claims?
A few days later, Budweiser said it was really just setting up a raffle, with “barbeque insurance” as the prize. If something happens to cancel your barbeque — even if you messed up and ran out of propane — you can file a “claim” with Budweiser. The company will then randomly select winners, who will receive as much as $2,500 in “insurance.”
But, even once it was unmasked as a publicity stunt, the Budweiser announcement raises intriguing possibilities for “embedded insurance” and for the use of application programming interfaces (APIs) to build whole ecosystems.
You won’t want to miss this webinar which underscores the perceived barriers and benefits to cloud adoption and why digital transformation requires a cloud platform.
As the world starts to emerge from the pandemic, ITL Editor-in-Chief Paul Carroll sat down to discuss the new normal for workers’ comp with two of ITL’s most widely read contributors: Mark Walls, VP of communications and strategic analysis at Safety National, and Kimberly George, global head of innovation and product development at Sedgwick.
The world of work turned upside-down and inside-out beginning 15 months ago, as the pandemic shut down offices and forced so very many of us to work from home.
Now that we're beginning to reverse this process, insurers will have to sort through all sorts of new issues. Here's one: When is the place where a worker works a "workplace," and when is it not?
Insurance Thought Leadership (ITL) delivers engaging, informative articles from our global network of thought leaders and decision makers. Their insights are transforming the insurance and risk management marketplace through knowledge sharing, big ideas on a wide variety of topics, and lessons learned through real-life applications of innovative technology.
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It’s impossible to deny the profound impact that the pandemic has had on every person and every business, and the U.S. automotive insurance industry was no exception. Previously mundane errands such as a trip to the grocery store became a battle for survival -- and toilet paper -- and once-gridlocked highways were replaced with barren stretches of asphalt.
On a more serious level, the global health crisis sent shockwaves of financial uncertainty across the nation that was also addressing considerable emergencies on both the civil and environmental fronts. 2020 quickly cemented itself as a year for the record books, and not for good reasons.
However, as tough as COVID-19 has been, there are hidden lessons in connecting and analyzing what would otherwise have been viewed as dissociated events. And when compared with years past, the auto insurance industry can turn these pandemic-led transformations into actionable insights for the industry to evolve and adapt to meet future disruptive events. Our recent Auto Insurance Trends Report focused on analyzing the “new normal” of consumer behavior, which has a direct correlation to critical carrier-related factors such as underwriting, claims and those actively participating in telematics exchanges or usage-based insurance programs.
Here’s what we found:
Empty Roadways Bring Out Lead-Footed Drivers
When looking at the initial timeline of the pandemic, the sweeping stay-at-home mandates and shutdown orders across the country created a drop in miles driven of over 40% from March to April 2020. Even normalized mileage hovered between 83% and 88% of 2019 levels for the second half of the 2020 calendar year.
The empty roadways, particularly at the beginning of the pandemic, enticed many lead foot drivers, who took the opportunity to turn highways into personal drag strips. The first spike in elevated speeding rates occurred around mid-March of 2020 and remained 110% of 2019 data recordings for much of the remainder of the year. With those open roadways, drivers favored their accelerators over their brakes, resulting in a drop in hard braking instances during that same observed period.
As part of our generational data insights, where we examined driving behavior across multiple age brackets, we discovered a particularly troublesome trend among our nation’s youngest drivers, Gen Z.
Classified as ages 22 and under, Gen Z drivers ranked the highest when observing violation data across DUI infractions, overtaking those in the Traditionalist age group (ages 76-plus) who were the highest offender the year prior. While restaurant and bar closures led to a potential overall reduction in total figures, the months of April and May 2020 indicated an approximate 50% increase of DUIs among Gen Z drivers.
Collisions and Claims Down, Severity on the Rise
When looking at the onset of the pandemic in 2020, much like the reduction in total miles driven, the volume of collisions and subsequent claims experienced considerable drops. With a 19% drop compared with 2019, one of the emerging trends throughout the entire year and particularly heightened in October was the inverse relationship between lowered claims figures and increased bodily injury. Comparing the months year-over-year, 2019 saw 7.1% growth in severity, while, in 2020, that figure rose to 12.7% despite the fewer miles driven.
Naturally, the onset and continuation of a global pandemic will profoundly influence consumer behavior, including driving patterns, creating new challenges for the businesses that are so closely related to such behavior. However, from those challenges, pandemic-led transformations such as enhancing virtual claims capabilities have shown how the industry can adapt and improve.
Adapting to Tackle Future Disruption
While telematics has been around for years, 2020 and the pandemic brought a new sense of urgency to better understanding driving behavior. For insurance carriers, leveraging telematics and deploying usage-based insurance programs provides an incredible solution to accommodate changing driving behaviors. By way of stronger analytics and timely data reporting capabilities, telematics programs assist in taking the guesswork out of how to accurately calculate the risk propensity of an individual.
As drivers continue to show interest in pay-per-mile programs as part of fluctuating driving patterns, telematics and usage-based insurance (UBI) programs give consenting consumers the opportunity to be priced more accurately than a traditional risk pool would dictate. This can increase customer satisfaction and allow an insurance carrier to be a competitive differentiator with a way to stay ahead of the curve of future disruptive events.
The same can be said for almost all data or analysis during this strange but insight-full period of history. Understanding the motivations and connections between such events and human behavior will highlight both vulnerabilities and opportunities to grow. The pandemic will continue to affect virtually every market imaginable, not just now but for months and potentially years to come. The important aspect to consider is how to best adapt and evolve for the road ahead.
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Natural catastrophe risk models have revolutionized the property/casualty re/insurance business over the past 30 years. They have allowed more efficient deployment of capital by providing a rigorous way of estimating potential losses, better quantifying the tail and increasing trust in the probabilities assigned to natural disasters and the damage and losses they produce.
All of these models have been developed from common assumptions: An event happens and produces impacts on a known (although somewhat uncertain) exposure (property or other fixed asset), which has a known (although, again, somewhat uncertain) vulnerability to the consequences (hazard) of the originating event. Using an intricate mix of physics (through natural science and engineering lenses) and statistics, such models produce insurance loss estimates that are, generally, robust and defensible.
As new systemic and non-natural risks have emerged, establishing the potential future loss range of perils, such as terrorism and cyber, has required the introduction of social science disciplines (and greater levels of uncertainty) but did not greatly disrupt the established logic of the cat model; the components and controls remained familiar.
Not so infectious disease models. First introduced to the insurance sector to capture excess mortality from global pandemics in the life insurance business, they began as a combination of stochastic elements of natural catastrophe models with a well-established form of epidemiological model, the Susceptible – Infectious – Recovered compartmental model (and its many and varied siblings).
Unknowns
From a traditional cat modeling perspective, there remained a lot of unknowns. For example, the two components of “hazard” – location and intensity – were both poorly understood, thanks to a very sparse and poorly documented experiential history and only a rudimentary understanding of the zoonotic viruses that are the dominant cause of epidemics and pandemics.
And the model architecture required was more Gaudí than Brutalism. There is no fixed exposure or vulnerability; both are dynamic and feed directly back into the model in its next time step. And exposure and vulnerability are not controlled by engineering equations, they are assumed impacts of political decisions and human behavior, of travel webs and social networks.
The Sars-CoV-2 virus has brought epidemiological modeling to our living rooms (many doubling as home offices). Previously obscure epidemiological modelers have become household names, and the concepts of reproduction numbers, non-pharmaceutical control measures and even herd immunity have become all too familiar. Covid-19 is by far the best-documented pandemic ever, but even after many months of live information being available (although to widely varying degrees and with a broad quality range) to calibrate forward-looking models of case counts and mortality, inconsistencies and uncertainties abound.
Epidemic forecasting, by nature, is a tall order. In some cases, these model inconsistencies are due to different assumptions that necessarily change as new information becomes available. Another reason model outputs may not reflect future outcomes is because there is a feedback loop dynamic – models affect reality. If a model predicts a dire outcome, it may in fact prompt decision makers and even the general public to change their behaviors, thereby changing the final outcome.
Further challenges are found in the conversion of pandemic model outputs to the short-term economic impacts of interest to P&C re/insurers. The literature on the economic impacts of pandemics is extremely sparse (although this will change) and dominated by economic simulations that sit on top of epidemic simulations, rather than empirical data. The consequences of government policy responses (like lockdowns) and sociological dynamics (fear, social distancing) are generally not economic outputs from models but input assumptions driving the direction of the reproduction number and, ultimately, the outcome of the epidemiological event.
As one moves from modeling a single event to the full probabilistic modeling familiar to the re/insurance industry, additional challenges must be addressed.
We think near misses are frequent in real life and must be captured via counterfactuals in the modeling domain; two coronaviruses with very similar characteristics emerging in very similar locations can lead to very different global outcomes, at the whim of individual actions – by patient zero, a head of state or many people in between – impossible to fully capture stochastically. Big challenges remain in quantifying public policy and behavioral elements that shape the nature of risk; these, too, need to be mapped out as they evolve over time and then linked to biological and epidemiological modeling frameworks.
Lessons to learn
Progress is being made, however, and Covid-19 learnings will help, although the temptation to model to the last big event has to be closely managed. The next pandemic will most certainly be different in character.
There have been significant advances in our understanding of the nature and spatial distribution of zoonotic viruses that pose the greatest risk of spilling into human populations and igniting pandemics. Improvements in biosurveillance have also shed new light on the rate of spillover, which is critical to characterizing high-frequency events, as well as the tail.
There are also continuing advances in modeling methodology, ranging from the incorporation of socio-political factors to capturing population movements. And there is still work to be done. The assumptions required to construct a probabilistic pandemic model are hugely influential on outcomes but are now based on expert judgments that are art as much as science and vary (often in ways that are not readily quantifiable) from modeler to modeler. The use of structured expert judgment to quantify and constrain uncertainties in such assumptions – and thus in model outcomes – is an area of development that carries promise from successful deployment in other contexts and, alongside other innovations, will help to build a level of trust in pandemic models that approaches that found in nat cat models.
Despite present and future scientific and modeling advances, the full benefits will not be realized if there is a failure among decision makers to effectively use data and analytical tools as part of their decision-making process, whether it be to inform preparedness or guide response activities.
In the context of the global re/insurance market, it must be recognized that while modeling infectious disease risk is challenging and will take time and resources to build the level of trust found in nat cat models, there are already pathways to gain an understanding of the risk. This present understanding is sufficient to support tangible innovation – policy experiments, insurance structures, refinements to preparedness and mitigation strategies – within both public and private sectors. Ultimately, further innovation will be necessary (and is entirely within our grasp) if we hope to better manage the financial and social consequences of future epidemics and pandemics.
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Budweiser Canada garnered attention in recent days by teasing the possibility that it was entering the insurance market. How would that even work for the brewing company? What kind of insurance? How would Budweiser underwrite it? How would it process claims?
A few days later, Budweiser said it was really just setting up a raffle, with "barbeque insurance" as the prize. If something happens to cancel your barbeque -- even if you messed up and ran out of propane -- you can file a "claim" with Budweiser. The company will then randomly select winners, who will receive as much as $2,500 in "insurance."
But, even once it was unmasked as a publicity stunt, the Budweiser announcement raises intriguing possibilities for "embedded insurance" and for the use of application programming interfaces (APIs) to build whole ecosystems.
I suppose the first takeaway is simply that the insurance industry should be flattered. Lots of companies engage customers with raffles of iPhones or other sleek electronics; here, a major consumer brand is enticing customers with ... insurance. Who says insurance can't be sexy?
The broader point is one I've been making for years now, that the best form of cross-selling known to man is, "Do you want fries with that?" In this case, Budweiser's offer boils down to, "Do you want some insurance with your beer?" Travel insurance already embeds itself into the purchase of airplane tickets, hotel reservations, etc. -- with the website scolding you for putting yourself in danger if you don't pony up that 10% or so on top of the basic price. Warranty offers have long been embedded in product sales, and some other cross-selling possibilities are also obvious -- buy a car, and be offered car insurance; buy a home and be offered homeowners insurance; etc.
And, if beer and insurance go together, then the possibilities for embedding insurance into other products are really just limited by our collective creativity. If Budweiser can offer a sort of insurance against cancellations of barbeques, why couldn't Hallmark or some other company do something similar for family gatherings? Why couldn't a sports team offer "insurance" for season ticket holders by raffling off some free season passes for the following year if the team has a losing record? And so on. (I'm from Pittsburgh, and I considered bragging that I wouldn't need losing-season insurance, because my Steelers have only had one since the leagues merged in 1970, but my Pirates once had 20 straight losing seasons, so....)
APIs make this sort of cross-selling far easier, because they allow for exchanges of data in a clearly defined way between different businesses -- the travel insurer and the airline, the car dealer and the car insurer, etc.
APIs also allow for opportunities well beyond simple cross-selling. Look at Budweiser. To apply for its "barbeque insurance," you have to fill out a form on the company's website and provide some information about yourself, including a way to contact you. (At least that's the theory; after several minutes at the URL provided in the Budweiser announcement, I couldn't even find a reference to insurance, let alone a way to sign up for it. As I write this, the site is just straightforward marketing.) Once Budweiser has a way to contact you, it can continue to try to sell you beer from time to time. But it can also connect into an ecosystem that might sell you even more. You need some chips and dip to go with that beer, of course. How about some hot dogs and hamburger meat, too? Wine? Don't forget the ice. Maybe you don't want to have to run around and get all the supplies at the last minute, so how about if we connect you to a delivery service? Maybe even a caterer?
Once you establish a software interface with another company or set of companies, you can develop any number of relationships. Homeowners insurance could become part of a whole ecosystem involving maintenance, security, warranties on appliances and more. The same with car insurance, with small-business coverage and with most other types of insurance -- none live in a vacuum, even though we in the insurance industry often approach them as though they do.
Figuring out your role in an ecosystem can be tricky. The tendency is to think of yourself as the main player, controlling the relationship with the customer, a la Amazon. But there are actually lots of types of ecosystems and plenty of potential ways to participate, including by plugging into an ecosystem that some other company has already taken the time and energy to organize.
That's a long discussion that I'll save for another day. In the meantime, I hope I've given you a little food for thought as you drink your beer at that barbeque this weekend.
Cheers,
Paul
P.S. My Budweiser story:
When I was with the Wall Street Journal in Brussels in the mid-1980s, we ran a front-page story about a fight over trademarks between the U.S. Budweiser and a Czech beer with the same name. The Czech brewery certainly won on precedent: It was founded in 1265. The American version had even plagiarized the Czech slogan: Czech Budweiser was established by a king of Bohemia and had for centuries called itself the "beer of kings," while American Budweiser labeled itself the "king of beers." But the American company was claiming that it, not the Czech brewery, somehow had rights to the name.
I vowed that some day I would have a Budweiser in Prague.
I never made it while living in Brussels, but the idea kept rattling around in my head. So, following a talk I gave in Zurich three years ago, I drove the 425 miles to Prague to have a beer.
It actually took me a bit to find a Budweiser. To my surprise, pubs in Prague only serve one kind of beer, so I couldn't go into any old bar: I had to find one dedicated to Budweiser. But after waiting more than three decades for that beer, I wasn't going to give up easily, and soon enough I found a patio festooned with Budweiser umbrellas. The beer was glorious.
It came in a beautiful mug with "Budweiser" etched into the glass, and I just had to have it. I wasn't going to pocket it, but I had to have it. I had zero idea how to proceed, but I have a friend who manages to get chefs and maitre d's to give him the most remarkable souvenirs, so I texted him and asked for advice. "Ask the waiter if you can buy a mug," he responded. "90% of the time, he'll just give it to you." Sure enough. I left the waiter a $5 tip for a $3 beer, and I have a lovely Budweiser mug on my book case. I'm looking at it as I type this.
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Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.
Insurers that are heavily dependent on traditional business models have struggled over the past year with financial strain. But automation presents an opportunity to establish short-term successes to speed up recovery and long-term results that can stimulate growth by accelerating digital transformation.
Here are the ways automation can help create resiliency in insurance organizations, ensuring that operations run smoothly and effectively:
Improving Customer Service and Employee Experience
Customer expectations are at an all-time high as digital-native brands like Amazon continue to dominate and set standards that are difficult for other companies to copy. These standards don't only appear in business-to-consumer transactions but also in business-to-business transactions that include promoting product innovation and mix. Insurers strive to deliver high-quality customer experience, but there is still a gap between what customers expect and what insurers are delivering – especially when it comes to being available at all hours and on all channels.
Typically, at an insurance enterprise, when a customer calls into the support line with a question about billing, the inquiry goes straight to a call center agent. The agent must spend time asking a myriad of repetitive follow-up questions to confirm a customer’s identity and understand the situation, then spend more time searching for a customer’s account information across multiple systems just to identify the issue. With automation, as soon as the call comes in, a software robot begins aggregating the relevant customer data for the agent. Through a combination of customer sentiment and behavior analytics, the robot then pulls actionable information into a streamlined application with quick access to next steps for the agent.
This seamless interaction means a customer has a much quicker, more personalized, positive experience, and the agent is ready with the right information to do the job efficiently and bring to the customer request to an appropriate resolution.
It is essential that insurers invest in technology that drives a seamless digital experience at every communication channel – whether it be a chatbot, a mobile app or an interaction by phone. When an insurer is available in this capacity, it can provide customers with an easier experience and provide servicing or resolve claims at a lower operational cost. Intelligent automation links the ecosystem of traditional insurance systems with technology capabilities.
Streamlining Business Operations
In addition to the front-end benefits to the customer, automation is key to optimizing internal, time-consuming manual processes. Automation means insurance organizations can react more quickly to increasing demands from policyholders, agents and partners with innovative, customized and transparent products and pricing.
Insurance is a long-established business with tons of existing systems, including spreadsheets, PDFs, scanned documents, applications like Duck Creek and Guidewire and data from third parties such as LexisNexis. According to Celent in 2018, 45% of insurance CIOs identified heavy, disconnected and duplicative legacy systems as a key inhibitor to digital transformation. And this reality hasn’t drastically changed. According to KPMG’s 2020 CIO Survey, insurance CIOs have “improving operational efficiency” as their #1 business issue that needs to be addressed. The primary reason for lagging operational efficiency is being disconnected and multi-tech systems with non-standardized data.
Automation can be created on top of existing systems, meaning these systems can be integrated so that data and underlying processes can be much more streamlined, enabling an easier digital transformation. Once the legacy systems are integrated with automation, it’s easy to create hands-on and hands-off robots that automate repetitive tasks, reduce process costs and cycle times and free time to focus on higher-value work like pursuing new business.
Processing claims end-to-end is one high-value example of how automation can streamline operations. To begin processing a claim, an agent must collect customer information from a variety of sources, including policy administration systems, documents, third-party systems and claims processing systems. Manually looking for the right information across multiple locations – virtual or not – can be time-consuming. Once the information is collected, entering it manually into the system is a frequent source of mistakes.
The consequences of redundant and incorrect data entry range from delays and harming the customer experience, to errors and omissions in claims information, to potential fraud and leakages – all of which are damaging to the business. Hybrid automation – the process of using a combination of unattended robots, which send cases to humans for decision making, and attended robots that sit on an employee’s workstation and trigger the employee to take a specific action to start a workflow – can take care of the entire process start to finish, eliminating many of the unnecessary mistakes while saving time and resources.
Navigating Future Disruption
This past year of unprecedented changes and hardships has CIOs and CEOs preparing for expanded digital change. Some insurers are already using automation to accelerate digital transformation and see results in their core operations, including claims, customer service and new business intake.
The typical response to new customer needs are large, long-term investments, ranging from core system modernization to multi-channel integration, that are slow to get off the ground and drag on the time-to-value. When automation is a core technology, digital transformation can be delivered at speed, meaning faster service and faster return on investment. Modernized, automated solutions mean CIOs and senior business leaders can build the flexibility to adapt to market demands more quickly, deliver improved customer experiences and advance the business digitally transforming the legacy environment.
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Sathya Sethuraman is an insurance industry strategist and thought leader with over 20 years of experience. He is a trusted advisor to Fortune 100 global insurance and financial services enterprises and has led large-scale digital transformation initiatives.
If all labor has dignity, employers must recognize that what furthers the soul does not feed the body, that spiritual recompense is not a dispensation from the laws governing labor: that worker retention is every employer’s job; that this job is just; that just compensation is an achievable end through the available means of life insurance. If employers want assurances from workers, if employers want to ensure workers do not leave their jobs, life insurance is a solution for management and labor.
Life insurance levels the scales of competition, allowing employers to retain talent without bankrupting themselves in the process. Because of the flexibility that life insurance offers, employers can write and underwriters can issue policies that appeal to workers. The benefits are as diverse as any policy of workplace diversity, addressing the needs of specific workers—exceeding the needs of individual workers—by honoring workers through a combination of words and actions.
If, for example, an employer wants to introduce a deferred compensation plan and retain workers, awarding tax-free bonuses that mature within a set timeframe, life insurance expedites this plan. Life insurance makes this plan possible.
To make this plan probable, to increase the probability that employers will introduce such a plan—that takes communication. The onus is on insurers to tell employers the facts about life insurance. The onus is not expensive, though any such expense is defensible, because the price of success is responsibility. The responsibility to inform is a price insurers should acknowledge. The responsibility to lead is a price insurers should accept.
Communication works to answer the concerns of employers, whose questions include: Why invest in recruiting and training workers when someone else can profit from this investment? Why hire anyone when there is no way to stop everyone from joining another employer?
Both questions speak to matters of risk. Both questions speak to that which is containable but unavoidable. Both questions are reducible to a single question: What should employers do about uncertainty? In so many words, deal with it.
If employers want to lower risk, they should present workers with the certainty life insurance provides. If insurers want to expand their influence, they should present employers with the clarity workers deserve. If workers want to maximize their worth, they should be party to this presentation.
Because work is fluid and workers are mobile, the nature of work is as dynamic as the seasons and as unpredictable as the weather. What is predictable is what a life insurance policy does, when it takes effect, how much it pays and to whom it applies.
What is also predictable is the need among employers to retain their most valuable workers.
By this standard, the face value of a life insurance policy is not the total value of a life insurance policy. Not when a policy yields dividends by boosting loyalty and improving morale.
By any standard, life insurance works to the benefit of employers and workers.
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Jason G. Mandel has spent over 25 years at the intersection of Wall Street and the insurance industry. Mandel founded ESG Insurance Solutions (www.esginsurancesolutions.com) in 2020 to help better integrate these two, often conflicting worlds Having a strong belief in ESG concepts (Environmental, Social and Governance), Mandel found a way of incorporating his beliefs in his business.
Representing only insurance carriers and products that he believes offer compelling risk management solutions and maintaining business practices that he can support, Mandel has led the industry in this ESG initiative. ESG Insurance Solutions serves some of the wealthiest families internationally, and their business entities, by providing asset protection, advanced tax minimization vehicles, principal protected tax-free income structures, employee retention strategies, key person coverage and tax-free enhanced retirement plans for their essential employees.
Property/casualty commercial lines carriers have ambitious plans to expand their distribution channels. Much of the change is centered on traditional channels and agents, brokers, MGAs and wholesalers. Because of that, my original title idea was, “The More Things Change, the More They Stay the Same.” However, our new SMA research shows that there is much more going on here than just upgrading relationships with existing partners. So, I settled on the tagline, “The Times, They Are A-Changin’,” even though I doubt that Bob Dylan was thinking about insurance when he penned that tune in 1964.
Our recent survey of commercial lines executives revealed that four in five carriers have new plans underway for distribution, with less than 20% standing still. This is true for carriers focused on the small commercial segment as well as those serving mid-market and large accounts.
Part of what’s driving these changes are the expectations of how distribution will change over the next five years. Nearly everyone expects significant consolidation and the growing influence of larger platform agencies, brokers and financial institutions – which just continues the trend and is not much of a surprise.
But there are also significant numbers of executives who believe the entry by big tech, insurtechs and direct competitors will be a major force. This would be the expected response if the topic was personal lines distribution. But carriers now anticipate these entries in the small commercial segment and even for mid/large markets.
There are important plans to add channels, expand business with other channels and, in some cases, even scale back the use of certain channel partners. Insurtech partnerships already abound and will continue to grow, but the use of independent agents, brokers, wholesalers, affinity relationships and direct channels are all slated for increased use.
Let’s face it – there are two trends that are pulling commercial lines insurers in opposite directions. The first trend is in simplifying insurance for small business, especially the micro-businesses. Digital, easy-to-understand, rapid quote-bind-issue are the direction that many carriers are headed. On the other end of the spectrum, commercial lines, in general, are moving toward more and more specialization. Carriers are building deep expertise in specific industry segments and creating the right set of coverages to address the unique risks of those customers.
The trend to simplify in the small commercial space draws carriers to partner with insurtech platforms, establish more affinity relationships and consider direct models. The focus on specialization drives companies to seek distribution partners that have expertise in those spaces and relationships with customers in those segments.
The complexity and evolution of the commercial lines marketplace favors many of the traditional players. In fact, much of the carrier investment in tech is aimed at providing advanced digital capabilities to their distribution partners.
But it is also important to recognize that we live in a diverse world where the expectations of customers have continued to evolve, and in many ways have been reshaped by the pandemic. Thus, there is plenty of room for the more modern, digital channel alternatives to flourish, as well.
Factor in the expanding size of the market, the potential to reach the uninsured and underinsured and the emergence of new risks – and the result is opportunity for distribution through many channel options.
The final consideration is that channels should not be thought of as silos or a binary choice to reach customers. There are many opportunities for hybrid channel solutions combining two or more types of channel partners to effectively reach customers.
It is a time of much experimentation by both carriers and distributors. My advice to companies concerned about all the change comes from another Dylan song, “Don’t Think Twice, It’s Alright.”
Mark Breading is a partner at Strategy Meets Action, a Resource Pro company that helps insurers develop and validate their IT strategies and plans, better understand how their investments measure up in today's highly competitive environment and gain clarity on solution options and vendor selection.
Six Things Newsletter | June 15, 2021
In this week's Six Things, Paul Carroll highlights Best Buy as an unlikely icon for insurers. Plus, new picture of total digital health; future of AI and ID management; why Gen Z should go into insurance; and more.
In this week's Six Things, Paul Carroll highlights Best Buy as an unlikely icon for insurers. Plus, new picture of total digital health; future of AI and ID management; why Gen Z should go into insurance; and more.
As I continue to think about how the insurance industry can focus on — and brag about — its noble purpose, I’ve come across an unlikely model: Best Buy.
The company was given up for dead in 2012. But a new CEO rallied the company around a clear, worthwhile purpose — to enhance people’s lives through electronics — and got away from the emphasis on just moving as much product as possible out the door (preferably items on which Best Buy received incentive payments from manufacturers).
Best Buy not only served its customers better but won over employees, whose knowledge and passion about electronics could now shine through. Best Buy became a growth story again — as profits soared, so did the stock price, from $12 in 2012 to $114 today. The CEO who effected the turnaround recently published a book that is getting considerable attention, and Best Buy is getting great publicity in business books and other publications as an exemplar of the power of purpose.
Purpose, profit and publicity: Doesn’t that sound like a model that insurers should try to emulate?
Hear from Chris Cheatham, VP of Insurance Intelligence at Bold Penguin and Denise Garth, Chief Strategy Officer at Majesco as they discuss changes in the insurance industry and opportunities to supercharge your data analysis efforts.
With cyber risk increasing with every data breach, phishing scam and identity threat, it’s time digital health is taken as seriously as physical health.
As the world starts to emerge from the pandemic, ITL Editor-in-Chief Paul Carroll sat down to discuss the new normal for workers’ comp with two of ITL’s most widely read contributors: Mark Walls, VP of communications and strategic analysis at Safety National, and Kimberly George, global head of innovation and product development at Sedgwick.
The world of work turned upside-down and inside-out beginning 15 months ago, as the pandemic shut down offices and forced so very many of us to work from home.
Now that we're beginning to reverse this process, insurers will have to sort through all sorts of new issues. Here's one: When is the place where a worker works a "workplace," and when is it not?
Insurance Thought Leadership (ITL) delivers engaging, informative articles from our global network of thought leaders and decision makers. Their insights are transforming the insurance and risk management marketplace through knowledge sharing, big ideas on a wide variety of topics, and lessons learned through real-life applications of innovative technology.
We also connect our network of authors and readers in ways that help them uncover opportunities and that lead to innovation and strategic advantage.
Better data means better leads for any business. But for insurance businesses, the right data can illuminate consumer behavior patterns that mean the difference between sinking and swimming. Rather than selling commodities, insurance companies must reach prospects who are on a unique shopping journey related to a major purchase or decision: a home, a vehicle, a life insurance policy. These big decisions require more scrutiny, so customer expectation is high.
To provide that personalized experience, customer data is the fuel for converting leads into sales. To save time and costs while increasing conversion rates, insurance companies benefit from working with a trusted lead seller to know the quality of their leads. Insurers are also enhancing their first-party data with behavioral data to get know more about their customers and prospects. Doing both can have a number of benefits to the overall health of the business, including better leads, better sales and a higher ROI on marketing costs. Let’s explore why.
Improving lead qualification
For many industries, any lead will do. The purchase of a new pair of shoes, for example, isn’t exclusive to any one demographic. Everyone wears shoes, and there are thousands of different kinds, so an algorithm can take an educated guess at which ones to target. Purchase history also is incredibly helpful for industries such as this, because they can leverage past purchases to inform future possibilities.
For insurance companies working in silos, comprehensive consumer data is difficult to come by. First-party data from a proprietary website can only provide limited insights. With data limited, many companies cast a wide net, targeting consumers who are low-quality prospects—wasting both time and money.
But there is an alternative. Insurance carriers that buy leads from comparison shopping sites—also known as lead sellers, aggregators or lead generators—can gain a significant competitive advantage. These leads need to be high-quality, qualified leads.
Unfortunately, a number of factors can lead to low-quality leads, so it’s essential to create a trusted relationship with a lead seller with a strong focus on lead quality and compliance. For example, if it isn’t properly filtered out, non-human web traffic creates low-quality leads, which waste time and resources for the buyer. Similarly, lead sellers that fail to ensure TCPA compliance and set expectations with the consumer about how they will be contacted can cause significant reputation risks and legal concerns for your company. This underscores the importance of building a trusted relationship with a lead seller to provide quality leads that will improve conversion rates.
Choosing a compliant partner
For a real-life example, consider Policybind, which specializes in consumer acquisition for the insurance industry. Policybind leveraged the V!A Directory, a comprehensive directory for the lead generation and performance marketing community, to connect with new partners and better match the consumer to the agent who can best address their current need.
To create a successful partnership with a lead buyer, it’s crucial to be discerning. Compliance with data regulations and privacy laws is paramount in dealing with consumer data, and working with a partner that keeps these elements top of mind is a must. When creating a partnership, understanding how the lead partner secures consent to be contacted from customers and maintains compliance with current regulations is essential for protecting your business. Policybind was able to gain evidence of TCPA compliance on every lead through the Publisher Partner Program.
Knowing more about your customers and prospects
Knowing your audience shortens the marketing funnel and greatly increases the chance of converting a lead. The possibilities for segmenting audiences according to different needs allows for marketing efforts to be more focused, increasing conversions and creating a greater return on marketing investment. This type of segmentation can be performed using demographic data, such as location, age, etc., or the much more valuable, behavioral data.
Unlike demographics, behavioral data changes all the time. Leveraging it, therefore, allows marketers to target consumers based on their current needs because it provides an understanding of where they are in their shopping journey, as well as their pain points and actions. This also creates room to respond at an individual level or through micro-targeting, rather than at a group or demographic level. This personalization delivers better customer experiences and increases marketing performance.
For insurance carriers, the pathway to faster sales and high return on marketing investment is tied to effectively leveraging behavioral data. Instead of asking what kind of audience you’re speaking to—the age, income levels, location—get all the answers that you need to meet your targets where they are by acquiring more informative insights. By enhancing first-party data and working with trusted lead sellers, you can make conversions more quickly, ensure compliance and power ROI for your marketing dollar.
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Louis Cipriano is a strategic partnerships manager at Jornaya, where he oversees a publisher and partner network with more than 1,000 companies. In previous roles, Cipriano helped Jornaya clients improve customer acquisition, customer retention and compliance efforts.
Insurers, brokers and all businesses, for that matter, already know there will be people issues to deal with during and post any merger or acquisition. These issues pose real risks for companies, yet they are not always identified or addressed. With an uptick in M&A in the industry, it is timely to consider some of the most common of these risks.
Who Leaves; Who Stays – Turnover Risk
Even before a deal is completed, some staff members may decide that they do not want to live through the turmoil and change involved in combining companies or they may fear they will not fare well in the combined company. Such staff members begin looking for opportunities elsewhere. Among the staff who decide not to be part of the new entity, there may be some whose leaving would be detrimental for the entity, for example:
High performers,
Staff with specialized expertise,
Staff who have ties that will enable them to bring customers with them to the new employer,
Staff who have a strong internal following that will enable them to bring other staff with them to the new employer.
In some cases, these individuals may have non-compete agreements with the one or the other company in the deal, which could lessen the potential impact of their leaving. However, these agreements are not always enforceable. This may be especially true in cases involving a change in corporate ownership or structure.
One way to minimize undesirable turnover in M&A situations is to talk directly with the individuals who will be vital to the new entity. However, seek advice from legal counsel about how any discussions should be handled. There are multiple potential pitfalls in discussing the future with staff, such as: 1) saying something that can be construed as a promise when it might not be possible to keep such a promise, 2) saying something that might be construed as a threat, 3) saying something that is contractually prohibited by terms in the deal. These are just a few examples among many.
Reductions in Force – HR Administration Risk
Most M&As come with expectation that they will create economies of scale and that overall headcount will be reduced in the new entity. For that to happen, whatever reduction in force voluntary turnover does not produce will have to be made up for by management deciding who to retain and who to let go.
The first risk in this regard is legal. Decisions about terminations need to be made in keeping with all laws and regulations involved. From starting with adherence to the Warn Act (notification requirements applicable for a certain number of terminations in a given location) through to adherence with the numerous laws and regulations regarding individual termination decisions and their combined impact on various protected classes, there are many things to keep track of. Risk certainly exists in terms of inadvertently (or intentionally) failing to comply with any one or a number of such laws and regulations.
The second set of risks are not legal but rather assessment risks in doing staff reductions. For example, there is always the risk of mistakenly selecting better performers for termination while retaining the less good performers. There is also the risk of terminating too many staff, only to have to incur the cost of recruiting for positions that were recently vacated. Conversely, there is the risk of not reducing enough staff at the beginning, only to have to keep up a steady stream of terminations, which hurts momentum and morale in the new entity.
The ways to avoid some of these risks is to identify them early, address them with ample mitigations and monitor the status of planned mitigations. To do this well requires knowledgeable and skilled HR and other professionals to be involved.
Culture Wars – Culture Risk
In combining companies, the question of which company and its staff is the “winner” becomes divisive, despite efforts made to avoid the appearance of “winners” and “losers” from the deal. After years of building team spirit and using motivational language about beating the competition, among other actions, companies think they can flip a switch and have staff from two different companies embrace each other. It is not so easy.
Generally, an all-out culture war ensues after a merger or acquisition. The risks that emanate from a culture war include:
lack of co-operation among staff, which leads to errors, lost opportunities and extra expense,
delays in getting things accomplished as “sides” bicker and negotiate,
reputational damage as internal strife leaks into external interactions.
Among the mitigations for this are:
the senior team models cooperation and camaraderie for the rest of the organization,
expectations about culture are clearly communicated,
mixed teams are formed to tackle projects with an objective third party, an HR staffer or consultant included to intervene or point out unproductive behavior,
cooperation is positively reinforced.
Employment-Related Litigation – Litigation Risk
As part of due diligence, any existing employment-related lawsuits or regulatory complaints should be disclosed. What these open cases will ultimately result in is an uncertainty. Risk is definitionally uncertainty. There is always the risk that one or more of these, if they exist, will create a loss for the new entity, whether reserved for or not, unless they are contractually transferred elsewhere.
Perhaps more importantly, new lawsuits or regulatory complaints could arise from the nature of actions taken as part of the merger or acquisition. They could emanate from the way staff terminations are handled or from the way benefits, such as pensions, are treated.
Both old and new litigation or complaints to governmental agencies need to be identified as risks and accounted for within the totality of the deal construction and implementation.
EPLI and transaction insurance are available to help manage this risk.
Summary
M&A can add value yet carries a good deal of risk. Shareholders have begun to better understand those risks and to look at how well boards and management teams handle them. Companies must recognize all the manifestations of people risks and be proactive in addressing them.
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She has written three books on ERM: Enterprise Risk Management – Straight To The Point,Enterprise Risk Management – Straight To The Value and Enterprise Risk Management – Straight Talk For Nonprofits, with co-author Al Decker. She is an active contributor to the Insurance Thought Leadership website and other industry publications. In addition, she has given presentations at RIMS, CPCU, PCI (now APCIA) and university events.
Currently, she is an independent consultant on ERM, ESG and strategic planning. She was recently a senior adviser at Hanover Stone Solutions. She served as the chairwoman of the Spencer Educational Foundation from 2006-2010. From 1989 to 2006, she was with Zurich Insurance Group, where she held many positions both in the U.S. and in Switzerland, including: EVP corporate development, global head of investor relations, EVP compliance and governance and regional manager for North America. Her last position at Zurich was executive vice president and chief administrative officer for Zurich’s world-wide general insurance business ($36 Billion GWP), with responsibility for strategic planning and other areas. She began her insurance career at Crum & Forster Insurance.
She has served on numerous industry and academic boards. Among these are: NC State’s Poole School of Business’ Enterprise Risk Management’s Advisory Board, Illinois State University’s Katie School of Insurance, Spencer Educational Foundation. She won “The Editor’s Choice Award” from the Society of Financial Examiners in 2017 for her co-written articles on KRIs/KPIs and related subjects. She was named among the “Top 100 Insurance Women” by Business Insurance in 2000.
