For the past few decades, mobility innovation has trended in one direction: empowering the individual consumer. Google Maps and GPS have made navigation simple and paper maps obsolete, while rideshare apps offer options that traditional taxi services could not. Autonomous vehicles aren’t yet commonplace on the street, but experiments have logged millions of crashless miles. We’re living through the greatest change in general mobility since the invention of the jet engine.
Insurance has a traditionalist reputation; insurers often reassure customers by advertising that they’ve been in business for several decades or even for whole centuries. The industry’s emphasis on past practice and proven traditions is admirable and necessary. But so is innovation, and we see insurers from every corner of the globe excited to build smart new products and programs based on new technologies.
Telematics, the practice of analyzing mobility data for special insights, can help solve some of insurance’s oldest problems. Conventional actuarial models struggled to differentiate between individuals and types. If twin brothers live at the same address, work jobs with comparable salaries and share the same red sports car, they’re going to look equally high-risk to an insurer. One brother may be a thrill-happy daredevil, while the other shuns speeding and is conscientious about his turn signals, but the insurance company has few ways to recognize this. The responsible brother and the irresponsible one will pay the same fees despite their wildly different risk profiles. Telematics can make a huge difference here – it personalizes an insurance policy to each driver, providing the most equitable way to price premiums possible.
This is good for drivers, because it encourages good driving, and for insurers, because they’re much better able to predict costly car crashes.
The uses for telematics in insurance are obvious, and dozens of companies have partnered with telematics providers or founded in-house telematics operations. The customer’s phone is the central infrastructure element for telematics, but much remains to be built.
First, there’s the matter of what you might call social or trust infrastructure: Although most of us transmit huge amounts of data to Apple, Google and Facebook every day, potential telematics customers need to know that they are not being spied on. Explaining why telematics doesn’t compromise privacy is essential.
Second, telematics needs to be as simple and unobtrusive as possible. If a driver must open an app every time they step into a car, that’s an issue.
Finally, customers must be able to easily track the benefits of their participation. If, for example, a customer learns that their adherence to speed limits has earned them a 10% reduction in their premium, they’ll feel persuaded they’ve made the right choice.
The insurance industry is evolving, but it doesn’t do it as noisily or quickly as the tech, automotive or mobility industries. We can see the changes happening, and the infrastructure necessary for the transformation grows firmer every day. As the insurance market becomes ever more competitive, telematics and related innovations offer the prospect of a more efficient industry that works better for everyone, giving insurance consumers better choice, service and prices.
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Augmented reality and I go way back, to when it burst on the scene in the early 1990s. As a technology reporter for the Wall Street Journal, I was a skeptic especially about virtual reality (where a headset provides an immersive experience unrelated to the physical world around the wearer) but also about augmented reality (where goggles add images or other information to what the wearer sees through the glasses).
In fact, while the VR/AR concept was clearly powerful, the technology wasn't close to good enough yet to provide even a useful experience -- the computing power in the devices was about one-millionth of what is available today, thanks to the exponential improvements in electronics.
In the last decade, enthusiasm returned. Facebook bought Oculus for $3 billion in 2014, when the VR company still barely even had a product. Pokemon Go had hundreds of millions of people in 2016 trying to "catch" Pokemon projected onto the real world via an AR app downloaded onto their phones. But interest faded again. VR/AR made only modest inroads, primarily in some video games.
Just in the past week, though, an announcement suggests that augmented reality may be close to becoming very real. There could be significant changes in how clients operate and, eventually, in how insurers themselves do business.
The announcement came from the U.S. Army, which said it is buying $21 billion of AR headsets from Microsoft "to help soldiers map the battlefield, select targets and stay aware of possible threats by overlaying intelligence information directly onto their field of vision." Even beyond the Army's hefty endorsement of the technology, the contract for AR headsets will give Microsoft a lot of real-world experience with AR and will finance a great deal of continued research and development. Microsoft might initially focus on providing AR for its growing video game franchises but will surely look for ways to bring AR to its bread-and-butter corporate customers, too.
I suspect that early uses in the business world will be at the fringes, rather than in routine work, where augmentation would help far less, if at all. For instance, AR could allow measurable improvement in certain types of inspections.
Perhaps someone repairing equipment that he doesn't see often, or that may even be decades old, will have his AR glasses project schematics on the device, with information from the manual projected just off to the side. Perhaps someone conducting an inspection could look at a valve or pipe and, right next to it, have an image projected showing what it should look like. There could even be some interplay: An artificial intelligence or a centrally located expert person could be viewing the same scene through the AR's "eyes" and offer guidance.
There has long been optimism about AR applications in medicine, especially surgery, given that the surgeon doesn't know exactly what she'll find inside until she cuts into a person -- amalgamating all the pre-surgery scans into an image that could be projected onto the patient could provide some initial guidance. I think of Sam, my closest friend growing up, who is wonderfully educated and trained (Harvard undergrad, Yale med school, surgical residency at Massachusetts General), but who petrified his mother when he became the chief resident in the cardiac unit and was the one using a jigsaw to cut through patients' sternums at the beginning of heart surgery. "Do those doctors know he flunked wood shop?" Sam's mother once asked me.
In time, AR could work from edge cases into the mainstream. For instance, workers in industrial settings might start wearing goggles that are designed to provide technical information, as summoned by the user, but could also then head off accidents -- maybe a flashing stop sign is projected onto an intersection in a factory because an overhead camera has spotted a forklift speeding toward it right as you're about to get in the way. Once AR glasses earn their way onto the bridges of people's noses, all sorts of workplaces can become not only more efficient but safer.
The same sorts of warnings could be provided for cars, where AR glasses could give drivers the sort of heads-up display that fighter pilots have on their windshields. I don't imagine a reprise of Google Glass, which tried to do too much, hoping to provide a new way of looking at the whole world. But I can see the value of glasses that would warn the driver of an accident ahead or even of a blind intersection known to be dangerous. People could use some combination of voice and head movements to control the car environment so they wouldn't have to take their eyes off the road. As so-called connected cars begin communicating with each other and with "smart" infrastructure, the AR could also deliver warnings of a car that you can't see but that is braking hard on a crowded freeway just ahead of you. Or the AR could alert you that a car recently skidded on some black ice on a stretch of road you're about to reach.
Once AR becomes widely adopted, adjusters could well use the glasses to not only help assess damage on site but to have estimates of repair costs and timeframes appear right next to what they're seeing.
And, as always, clever people will come up with a far broader list of potential uses as the technology takes hold, both among clients and in the insurance industry itself.
As history shows, AR will take time to spread -- but I'm more optimistic than I've been in 30 years.
Stay safe.
Paul
P.S. These are the six articles I'd like to highlight from the past week:
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.
With national flags flying among banners and placards promoting conspiracy theories, the mob quickly overwhelmed police barriers and stormed the steps of the legislative building. Hundreds were arrested.
This wasn’t the 2021 insurrection at the U.S. Capitol, but a demonstration that drew 40,000 people to protest Germany’s coronavirus lockdown.
The German riot echoed protests in Hong Kong a year earlier, when hundreds broke into the Legislative Council, spray-painting messages on walls and breaking glass.
Around the world, citizens are protesting more – and increasingly such protests are turning violent.
Data from the Global Peace Index 2020 show civil unrest has doubled around the world over the last decade, with the numbers of both non-violent and violent demonstrations rising sharply. Riots nearly quadrupled in the last decade, and violent protests occurred in 58% of countries during 2019 – a development that reflects a longer-term trend. On the positive side, the death toll from terrorism continued to fall, with just over 8,000 total deaths recorded in 2019, down from a peak of 33,555 in 2015.
Civil unrest incidents are becoming the main political risk exposure for companies, as reflected in the findings of the Allianz Risk Barometer 2021, in which "political risks and violence" returned to the top 10 risks for the first time since 2018. The number, scale and duration of such incidents in the last two years is staggering, with the extreme aspects of the French “yellow jackets” protest movement inspiring other groups.
Throughout 2019, “yellow jacket” demonstrations drew some 300,000 people, constructing barricades and blocking roads, and turned increasingly violent, with 2,000 protestors and more than 1,000 police reportedly injured. Meanwhile, demonstrations throughout the U.S. in 2020 are estimated to have caused $1 billion in damages, although the final cost could reach $2 billion, according to Property Claim Services (PCS), a company that has tracked insurance claims relating to civil disorder.
A Shorter Fuse
Unfortunately, the risk of riots and violence is likely to become more acute, thanks to the Covid-19 pandemic. The measures governments have used to combat the coronavirus have had a significant socioeconomic impact, and frustration is growing in large population segments.
The International Labor Organization (ILO) estimates that 8.8% more global working hours were lost in 2020 than in 2019 – the equivalent of 255 million full-time jobs. According to a Pew Research study, 15% of U.S. adults interviewed had lost their work because of Covid-19, and one in four had trouble paying bills since the outbreak.
Covid-19 has both magnified underlying long-standing grievances and given them a focal point. The pandemic has also hurt political stability, increasing polarization and bringing into sharp relief issues surrounding equality, worsening labor conditions and civil rights.
With no end to the pandemic-induced economic downturn in sight, protests are likely to continue climbing. Verisk Maplecroft, a leading research firm specializing in global risk analytics, expects 75 countries to experience an increase in protests by late 2022. Of these, more than 30 – largely in Europe and the Americas – will likely see significant activity. And when emergency spending by governments ends in the post-pandemic period, the economic fallout is likely to reverberate for years, ensuring a tumultuous decade ahead.
Business in a Time of Unrest
Conducting business in a time of civil unrest can be hazardous. Revenues can suffer if the surrounding area is cordoned off for a prolonged time or while infrastructure is repaired to allow reentry of customers, vendors and suppliers. For example, during the “yellow jacket” demonstrations, shops along the Champs-Élysées were looted and heavily damaged, which drove customers away. After only three weeks of demonstrations, the French retail federation reported that retailers nationally had lost $1.1 billion in revenue. Bruno La Maire, the French Finance Minister, described it as a “catastrophe for our economy.”
One of the most important steps businesses can take in preparing for civil unrest is to check insurance policies. In addition to losses incurred by civil disturbances, standard policies cover income loss caused by a riot or civil commotion. This includes if a business is forced to suspend operations or limit hours due to rioting. However, some policies are only triggered if the premises are physically damaged.
Why Property Insurance Is Not Enough
The scale and extent of civil unrest is blurring the lines between when the general riot cover of property policies becomes political in nature. This can place such events outside the scope of standard insurance and may lead to damages caused, for example, as a result of a political protest being rejected. Specialist political violence insurance (PVI) covers the impact of civil commotion, strikes, riots and terrorism plus physical damage incurred during a process of mass social uprising, revolt or military coup. It is in increasing demand after the events of the last two years.
No Putting the Genie Back
Businesses should review their business continuity plans. Typically, these only focus on national catastrophes, but there is a need for BCP plans to address political disturbances and other types of business disruption like cyber.
While the successful rollout of vaccines may help calm the situation worldwide, we do not believe this alone will see the risk of civil disturbances and riots decline again. The pandemic has enabled conspiracy theories to flourish in large parts of the population, which has prepared the ground for future turbulence.
Insurers are working to understand the dynamics of such situations. At the moment, we can’t predict when a demonstration will turn into a riot, but we need to gain a better understanding of what the triggers are. If we can answer this, there are huge implications for the insurance industry in terms of the impact of the magnitude of losses.
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Digital trading of personal lines insurance products is well-established around the world. With cost and market pressures pushing commercial insurance down a similar path, companies will need to overcome the challenges associated with the complexity inherent in many commercial risks.
Insurers have been sharpening their digital teeth in personal lines markets in many countries for some time, aided by the relative homogeneity of products, particularly in the car and home markets. Technological connectivity and distribution (either direct or through aggregators), combined with a supportive regulatory environment, have allowed many insurers to make great strides over the last 10 to 20 years, while paving the way for new market entrants. Strong digital capability and service have clearly helped some insurers deal with customers better than others during the COVID-19 crisis.
The challenge of commercial
The commercial market, however, is a different proposition. Resolving the complexity of products and exposures with such a wide variety of potential terms and triggers -- or including multiple, geographically spread risks -- makes the commercial market far more challenging.
This largely explains why progress to date, either through direct channels or broker hubs, has focused on commercial risks in the SME market sharing relatively homogeneous features, such as packaged covers for dental practices or construction sole traders.
Where things become more difficult is when you add in configured and bespoke coverages. The ability to trade these complex risks digitally requires several components, from overlaying risk appetite and capturing bespoke wordings to collating detailed exposure information, such as locations of factories and offices. These components also determine an insurer’s ability to track every element that goes into accepting and pricing a risk as part of placement negotiations and renewal processes.
From an internal processing perspective, a key issue will be to break down the barriers created by legacy platforms. Many commercial products today are tightly linked to the platform on which they run, often to the point of being hard-coded in to mainframes. Dynamic, tradeable commercial products will need to break those links, because an efficient, flexible and connected data reservoir is the basis from which everything digital flows.
Evidently, then, there are plenty of challenges for commercial insurers to think about when it comes to digital trading -- but also plenty of opportunities. Yet the time for thinking about them, rather than doing something concrete, may be diminishing.
A key catalyst for many commercial insurers is likely to be the plan for an electronic trading hub and the creation of a digital follow/lead trading exchange as part of the Future@Lloyd’s initiative. Equally, insurers also need to work out how they plan to approach and deal with other electronic trading platforms, including the creation of the bilateral insurer to broker capability that we would expect to take up the majority of digital business in the future. At the same time, we anticipate that existing broker hubs will expand their footprint into more complex products. Another area to bear in mind is the increasing trend for insurers to white label their products for non-insurers. In the commercial space, motor fleets and yellow plant hire are already areas where there is some activity, with others expected to follow.
What timeframes are we talking about? Well, there are already companies taking the challenges involved very seriously and setting out their store for a more digital future. Given the market-wide attention on expense ratios and doggedly persistent low interest rates, others are hot on their heels, and it seems natural that others will follow. Those that get left behind are likely to end up with a disadvantageous cost base and coping with the impact that other organizations’ abilities to react with pace and agility to opportunities will have on cycle times.
Data – the real X-factor
This explains why digital capability is likely, in relatively short order, to become the "X-factor’ in shaping a broker’s traditional insurer preferences – price, expertise and relationships. And in tomorrow’s digital world, how commercial insurers capture, clean and use data across their distribution channels will, above all else, become their competitive lifeblood.
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It was March 24, 1971. I was on a Greyhound bus headed to the Customs House in New Orleans. I was being drafted. I was a dumb, fat (6'2", 240 pounds, 40-plus-inch waist), shy and happy boy. I was in deplorable physical condition. In the previous years, I had had serious health issues. I prayed I was still “disabled/sick” enough that I would fail the physical. I didn’t!
When the doctor told me, “you’ll do,” I was still dumb and fat but was rapidly moving from happy to scared to death. The potential of going to Vietnam was a real and terrifying possibility.
As I write this 50 years later, I thank God for my “unanswered prayers.” I am now 73 years old and much healthier than I was as a college graduate soon to be drafted. I am now a man – confident in myself and with some success in business.
Had I not been drafted, I’m sure my life would not have been nearly as good as it is. On the most basic level, I’d bet that without my transformation in physique and confidence I’d have died or be seriously limited by health problems because of my obesity. My shyness and insecurities would have limited my employment and personal growth opportunities. I would have settled for a lesser life than I have had.
On the day of my physical, I was ordered to be back at the Customs House by 4:00 that afternoon for the bus ride to Ft. Polk. I called Bob, a friend and anti-war activist, who offered to fly me to Canada. (Thank God, I declined his offer).
Here’s the great news: 10 weeks after my arrival at Ft. Polk, I finished boot camp. I weighed 180 pounds, had a 34” waist and was in the best shape I’ve ever been in in my life. I had confidence and courage, two gifts I did not have previously.
In basic training, I learned that “souls don’t grow in the sunshine.” I believe our greatest growth comes through adversity – we gain scar tissue. We become stronger than our environment and are ready for the new risks inevitably on the horizon.
What does this personal story have to do with our lives?
The coronavirus has been at least as disruptive, challenging and oftentimes painful in each of our lives as the army was for me. That’s our reality. Let's not be tempted to turn back to the “good old days.” Let's move forward into the new world that is evolving where we are. Don’t bemoan the suffering you’ve endured. Celebrate the strength, wisdom and courage you’ve gained. Step confidently into tomorrow. Don’t look back. Plan your future in this new post-pandemic world and move forward with your plans.
Regardless of your age, income, education or circumstances, your life is still yours to use or abuse as you see fit. If you are tempted to feel that you've been a victim, I’d encourage you to look at Christopher Reeve, the Special Olympics, the St. Jude and Shriners hospitals for children, the millions of cancer survivors, Nick Vujicic (the limbless preacher) and other victors over adversity.
On the first morning of boot camp, Drill Sergeant Gay got in my face and screamed, “Boy, how long did it take you to get this fat?” I responded, “23 years, sir.” It took him and others like him only eight weeks to make me a man – a very fit and confident man! It wasn’t me – it was him and others who had perfected a process of human transformation. I could not have gotten to where I needed to be by myself. Can you help others transform themselves into the best they can be? Are you willing to transform yourself?
The draft was my moment. It forced me to become something I wasn’t – a real man. I believe that the coronavirus can now be the catalyst for most, if not all, of us to transform our lives for the better. In less than one year, all of our worlds have changed significantly. Now, each of us can decide for ourselves if where we are is where we want to be.
If it is, let's move forward with enthusiasm. If it is not, we can change.
We have been at war with a virus and the panic and chaos it has created. At last, we are winning. Let's continue to march.
In basic training, we’d march to a cadence to create a shared rhythm and a distraction from the tedium and challenge of a forced march. My favorite marching song:
"Ain’t no sense in looking down, ain’t no discharge on the ground!
"Ain’t no sense in looking back, Jody’s got your Cadillac!
"Ain’t no sense in feeling blue, Jody’s got your girlfriend, too!"
March on. We’re winning this war!
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Mike Manes was branded by Jack Burke as a “Cajun Philosopher.” He self-defines as a storyteller – “a guy with some brain tissue and much more scar tissue.” His organizational and life mantra is Carpe Mañana.
It’s like a scene from an action-packed Marvel thriller! The threatened hero is being chased down the street but sees a route for escape. It’s an alley. (We all know not to go down the alley, but the hero doesn’t listen to us.) At the end of the alley, there is a brick wall. (We all knew there would be a wall or a fence or an iron gate.) There’s no way around the wall. Our hero is going to have to get innovative in a hurry, find and use their superhero capabilities! They save the day. Save people. Save the world.
That’s what COVID has done to nearly every industry. It chased companies into corners. It threatened their markets. It even built brick walls in perfectly good alleyways, separating unprepared companies from the customers they need.
Sometimes, however, it is the crisis that makes the necessity become real. Think about it. The pandemic has obliterated any lingering doubts about the necessity of insurance digital transformation. With rare exceptions, operating digitally is the only way to do and to stay in business. It’s "go digital" or stare at that wall until the unthinkable happens.
And this is where superhero capabilities come into play for insurers!
Some insurers are leveraging their superhero capabilities. They are the Leaders. When COVID rewarded the insurance industry with the ultimate teachable moment, they took the lesson to heart. When something built a brick wall between them and their customers, they made the wall irrelevant. They are focused on today’s business while also creating tomorrow’s business – operating at speed with a multi-focus, unlike others.
Some insurers are trying to keep pace or catch up. These are the Followers. Determined not to let the Leaders get too far ahead, Followers are listening to the lessons of COVID and are launching initiatives and making changes to ensure their success. They are solidly focused on modernizing and optimizing today’s business; however, they are less focused on creating the future business. But they are continuing to gradually fall behind.
Some insurers are in a tight spot. They face dilemmas. These are the Laggards. Laggards generally understand the market dynamics but are clearly stuck in the past and have failed to rapidly move to planning and execution across the array of strategic areas – even for their business today. They are not moving to new cloud platform solutions or incorporating platform and emerging technologies. They are keeping their business focused on the past, rather than the future. If not already in one, they are approaching a downward spiral of relevance that will be nearly impossible to reverse.
Majesco’s 2021 Strategic Priorities first report, based on post-COVID insurer survey results, shows a dramatically widening gap between Leaders and Laggards – 64%, a year-over-year increase of 20% – when looking at their focus on key strategic initiatives in the past year. Followers were “treading water” to keep even with the previous year – with a 12% gap to Leaders.
To explore in more detail the widening gaps, the 2021 Strategic Priorities second report, just published, assesses how insurers are dealing with necessary transformation in the midst of increasing challenges. In today’s blog, we look at the details of this gap. What is it that Leaders and Followers and Laggards are doing differently? What can insurers do to make sure they are positioned to become or remain Leaders?
Despite COVID Challenges, Leaders Are Widening the Gaps
The COVID crisis seemed to come out of nowhere, blindsiding the world with the force of a tsunami. Suddenly, the “usual” way of doing things no longer worked. Adaptability is the new innovator. For example, COVID-19 reduced or eliminated “in person” time for agents, adding a layer of difficulty to distribution. Those who were prepared to digitally shift for everything from communications to support lead generation through alternate channels and launch products in spite of quarantines were in a better position to turn plans into actions.
What Did Leaders Do Differently?
A key to reducing the drastic impact is the ability to rapidly adapt planning – both the plans themselves and the process for creating and altering them. Throughout history, we often see that the difference between success and failure is related directly to the ability to evaluate, reinvent and adapt to the current environment. While COVID forced all companies to adapt, Leaders took advantage of the situation. Leaders exercised their adaptability to a much greater degree than Followers (25% gap) or Laggards (34% gap), as seen in Figure 1.
Figure 1: Impact of COVID-19 on annual planning
Leaders are also more in touch with COVID’s potential internal and external impacts on their companies. Externally, their awareness of the impact to their customers was 26% higher than Followers and 33% higher than Laggards (Figure 2), a crucial insight and strategic difference between Leaders and those trailing them.
Leaders know they can’t assume the customers they serve today will need or want the same products and services tomorrow… or that the same customers will even be there tomorrow. Leaders constantly monitor the changing demographics and dynamics and make short- and long-term adjustments to adapt and thrive in an ever-evolving market. If their current target markets are diminished by COVID, they know they need to adjust their product and service offerings, develop new channels, seek new markets and more.
The State of Insurers Last Year
COVID was a gut punch for all three segments in 2020. Leaders, Followers and Laggards all had setbacks in their companies’ growth and strategic activities compared with 2019. On an aggregate basis, Leaders (-12%) and Followers (-10%) saw similar declines, but Laggards’ (-24%) was twice the decline of Leaders, highlighting their lack of preparedness for the crisis (Figure 2). In contrast, Leaders’ response was to counterpunch and adapt with new approaches to planning underpinned by a greater awareness of the business implications.
Awareness and adaptability matter when responding to change.
Figure 2: COVID-19’s impact on growth and strategic activities last year
Despite the setbacks of the last year, Leaders continue to dominate with a 12% lead over Followers and a striking 64% lead over Laggards, as seen in Figure 3.
Leaders and Followers were nearly identical in their views of company growth during the previous year, but Leaders averaged a 15% gap over Followers on all the other factors. The largest gap (21%) was in Maintaining/Replacing core systems, and the smallest (12%) was in a new factor added this year: Allocating resources to business as usual/change how we do business.
Figure 3: Gaps between Leaders, Followers and Laggards in assessments of company growth and strategic activities last year
Digital Disparity
However, the huge gap between Leaders and Laggards was due to four key factors reflected in Figure 3 — all of which are linked to digital transformation and creating the business for the future:
Channel expansion: 103%
New business models: 97%
New products/services: 74%
Reallocating resources: 70%
These gaps reflect a vastly different strategic mindset between Leaders and Laggards, one that is squarely focused on the future and adapting to market challenges while the other is stuck in the past, trying to survive but falling further behind.
The gap between Leaders and Laggards this year is the largest we have ever seen, more than doublingin size since we started tracking these segments in 2018-19. In contrast, the gaps between Leaders and Followers have been steady or slowly shrinking when looking at these in terms of the last year. But that gap is deceiving because it portends challenges when looking out three years. The gap between Laggards and both Leaders and Followers reflects a stark reality that Laggards’ lack of awareness, planning and execution are putting their survival and relevance at increasingly greater risk – something they understand the implications of well.
This scenario aligns with a December 2018 Boston Consulting Group (BCG) article on how some companies successfully navigated disruption and created value, earning the title, “thrivers.” The article states that successful reinvention requires making a large bet—one that can overcome the drag of the old way of doing things. Making that big bet requires leadership, confidence and expertise to eliminate the “knowing – doing” gap. Those who wait – the Laggards – will need to make bigger and potentially riskier bets to gain parity with the “early responders” (the Leaders). As Leaders gain growth momentum, the “knowing – doing” gap grows, leaving Laggards with dwindling options and relevancy in fast-changing market.
The 2018 article seems prophetic in our current pandemic-dominated environment, as illustrated by this quote:
“In a time of technological revolution, shifting regulatory priorities, and fast-changing consumer expectations, most companies will face some form of disruption in their industries or core markets. Some management teams anticipate the coming changes and respond promptly. Others, slow to react, must eventually address a more mature threat. The speed of response matters. Early movers can experiment with new businesses and models. Those that wait have dwindling options and, as our new research shows, must make far larger, more concentrated bets to navigate the disruption.”
Speed matters, particularly during disruptive change.
Has the COVID crisis invigorated your organization or has it backed your planning into a corner and trapped your transformation list under a pile of priority revisions? Are you using your superhero capabilities or continuing down the same path?
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Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation in support of Majesco's client-centric strategy.
There is a stretch of road yet to travel—but at long last the post-pandemic world is coming into view. As vaccine distribution accelerates and case counts drop, independent agents are contemplating what the future will look like. While it surely won’t be identical to the pre-pandemic business environment, there is room for optimism.
Technology will be a key to a fast recovery. In 2020, many independent agents were able to leverage technology to maintain relationships and even grow their businesses. But there is an opportunity to improve on objectives like paperless processes, remote relationship building and digital communications.
Technology can help independent agencies exit the pandemic era strong and ready for the future. Here are four smart ways agents can use technology in this new landscape and thrive in the years ahead:
Self-Service Tools
Some agents fear that clients will feel ignored or make decisions that diminish revenue if they can manage their own policies digitally.
In reality, clients appreciate and even demand the ability to do some policy maintenance on their own, when they wish. No one wants to wait until 9am to call or visit their bank, and insurance is no different. The ability to get a quote on a new auto policy or request an endorsement through a mobile app is not only considered highly efficient, but also respectful of the client’s time. Moreover, providing the capability creates a strong audit trail for the agency, saving staff from the tedium of compiling emails into a record.
Many clients (and especially millennials and Gen Z) expect to be able to transact routine business on their devices, without assistance. While they want the ability to email or text their agent for advice (and most also appreciate timely outreach from their agent), self-service is fast becoming essential for agency success.
United Western Insurance Brokers (UWIB), a Seattle-based agency, discovered firsthand the value of self-service in 2020. After the pandemic hit, UWIB braced for a severe drop in business, thinking that clients would either ignore or actively cut back on their policies. Instead, the agency wrote more new premiums in the spring of 2020 than it did over the same period in 2019. Why?
UWIB’s online customer portal, which offered self-service and other convenient digital options, enabled remote, contactless business transactions. Even when clients were in lockdown, they could manage their policies—and the agency was able to write new business.
Automated Client Engagement
We’ve all received “personalized” communications where the personalization ends after the “Dear (NAME)” opening. And in an industry where relationships are key, that tactic has been a big turnoff for independent agents who have considered automated client communications solutions in the past.
The good news is that technology-backed client engagement has evolved lightyears from this kind of fill-in-the-blank approach. When integrated with an agency management system, marketing automation platforms—the lingo for mass digital communications—intelligently and intuitively identify important reasons for outreach. Automated communications share actionable, relevant information with clients to help them make better insurance decisions. In short, advances in artificial intelligence (AI) and machine learning (ML) mean that technology can deliver the right message to the right client at the right time to create a truly personalized client experience.
These advances are a boon for agencies looking for a way to set themselves apart from their competition. Intelligently prepared communications produce open rates and click rates far above insurance industry averages (which, according to MailChimp, are 21% and 2.1%, respectively.)
In addition, automation can remove the labor and expense required when sending renewal reminders, soliciting reviews and feedback, and seizing on life events or other triggers for new accounts and policies. Automated client engagement can even keep track of how often clients want to receive emails and create segmented lists that ensure clients receive content based on their particular lines of business or locale. These tools are helping agencies do more while still keeping the personal touch in their business.
From mortgages to contracts to transferring money at the click of a button, consumers have gotten used to being able to transact business remotely. When it comes to covering their risks, clients expect their insurance to move at the same speed as everything else in their lives—which is why e-signatures and electronic payments are a necessity for independent agents.
The benefits to clients are clear, but there are strong business advantages for agents, as well. Clients are more responsive and timelier in returning signed digital documents, and they are more likely to pay premiums on time when they can use a credit card or ACH from their bank account. It’s true that some credit cards, mobile wallets (e.g., PayPal and Apple Pay) and pay-by-text services impose higher fees than checks or ACH, but the improvement in customer experience is more than worth it.
CB Insights, a technology analyst firm, reports that in 2019 paper checks accounted for 52% of disbursements in the insurance industry, compared with just 22% on average in other industries. The firm further states that ACH (Automated Clearing House) payments, which made up less than a quarter of insurance disbursements that same year, are a tenth as expensive as cutting a check.
Automated Policy Checking
The next big thing this year for independent insurance agents may be automated policy checking. Currently, most policy checks are outsourced and performed manually in batches. Using the traditional outsourcing approach of conducting the policy check and returning it to the agent, the process can take up to two weeks.
This can all change through automation. Some insurtech providers are offering solutions that use machine learning to check policies in a matter of minutes, with upwards of 90% accuracy and lower costs. Agents who pioneer automated policy checking in 2021 may gain a cost advantage and an edge in closing time-sensitive deals. The technology is worth testing.
Rather than separating agents from their clients, technology—when properly used—can actually build closer relationships and enhance customer loyalty.
In the past year, we’ve seen agencies adopt technology at a rate never seen before. This is no time to stop—in fact, agencies should double down on their investments. Technology has been proven to increase books of business and retention rates. As agencies look to their post-pandemic future, it’s time to see technology for what it is: a tool to not only accelerate business but to better adapt to the road ahead.
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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.
Exaggeration about death is actually quite common in a world going digital. Look back at the 1970s, when ATMs were being introduced and see the predictions of the demise of bank branches -- then go to your nearest city corner or strip mall and have a chuckle with the bank tellers there. Look at all the predictions in the 1990s and 2000s about the demise of travel agents, whose job requires a small fraction of the advice that insurance agents provide. Then realize that there are still 80,000 travel agents in the U.S.
History shows that jobs tend to evolve, rather than disappear. In the case of insurance agents, much of the administrative work will, in fact, go away. AI will allow for auto-fill in forms; clients will enter information directly into computer systems; chatbots will handle routine inquiries about the status of claims and payments; etc.
But the change does mean that agents must move up the food chain, taking on more important advisory roles now that they're freed from much of the drudgery. Digitization also increasingly means that agents must deliver the kind of smooth, easy interactions that Amazon and other Big Techs provide. ("I have to fax you a form? What's a fax?")
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.
- Paul Carroll, ITL's Editor-in-Chief
6 QUESTIONS FOR TONY CALDWELL
We posed six questions to Tony Caldwell, a mentor to independent agencies who has written a number of articles for us on how agencies must adapt.
Let’s start with a general question that has puzzled me. The need for change by agents seems to be well-established by now, but many aren’t adapting. Why is that?
Business owners, in general, who have historically successful business models are typically reluctant to change. They may hope change won’t be necessary and, in some cases, plan to escape the need to change by retiring. With that said, however, I think the biggest reason agents are not adapting is because they don’t know how to do it, and so are overwhelmed by what they perceive as a difficult process. This isn’t unusual, but can be fatal.
The biggest change facing agency owners is increased customer expectations for speed, timeliness and improved experience. As they seek to meet customer expectations, agencies are now competing with innovators in every industry — though many do not realize this. As customers increasingly expect more, and others use technology to deliver services at lower cost, the danger for those who are late, or never adapt, may be that they have become boiled frogs.
WHAT TO WATCH
3 Tips for Increasing Customer Engagement
Customers are rushing to embrace the digital space. Is your business prepared?
Even before the pandemic, insurance customers were moving to digital channels and demanding the kind of smooth experience they get with Google and Amazon. With customers demanding new types of interactions and agencies and companies needing to increase leads in a world that’s gone from face-to-face to zoom, technology doesn’t have to be intimidating. Watch this complimentary webinar and learn more about your customers' expectations, digital communication channels and how you can expand the way you connect.
WHAT TO READ
Does Pandemic Signal the End of Agents?
There will always be a need for intermediaries who deeply understand customer needs and can create that right combination of coverages.
The New Mantra for Agencies
Insurance agencies will need to innovate over the next decade to be nimbler and more cost-efficient than ever before.
Trusted Adviser? No, Be a Go-To Adviser
Is earning trust brag-worthy? Isn't trust the minimum for an adviser-client relationship? The real goal should be achieving "go-to" status.
What 2020 Taught Us on Selling Insurance
Insurance policies that are sold online need to be packaged and priced differently than those that rely on face-to-face sales.
Of Independent Agents, Heirloom Tomatoes
Direct vs agency is a silly fight. Neither channel maps cleanly to customer preferences. Both have advantages and disadvantages.
For Agents, COVID Means Digital or Bust
Survival in the era of COVID-19 will be determined by the independent agent’s ability to implement digitization.
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.
But for insurers to take their services to the next level and develop accurate, personalized risk assessment models, insurers must shift to in-vehicle software solutions that provide granular data on the complete road-vehicle-driver ecosystem.
From insurers to OEMs, the future of in-vehicle collection technology lies in embedded software – including tactile sensors, which can provide the rich, relevant data needed to offer a more accurate picture of risk.
Here’s why current business models are coming up short and how tactile sensing capabilities can take auto insurers where they need to go:
A Flawed Status Quo
While the usage-based policies (UBPs) that many insurers have been offering are a step up from the normal flat-fee approach, they’re hardly foolproof, as UBPs rely heavily on data collected by static in-vehicle hardware solutions.
These solutions – including the OBD II Telematics, Black Box Telematics and Smartphone/SDK products that many auto insurers rely on – come with notable drawbacks. While they provide basic data based on the vehicles’ outputs (i.e., speed, breaking, windshield wiper speed, etc.) to determine the driving environment, they don’t take into account alerts, physical and functional road conditions, vehicle dynamics and health and how driving styles differ according to conditions.
Moreover, hardware-based solutions can be too sensitive – punishing drivers, for instance, if they slam on their brakes even to avoid hitting a jaywalking pedestrian or a car that has suddenly pulled out in front. Finally, these telematics systems can be complex to deploy and implement.
Auto insurers need better technology for measuring risk. And consumers want more personalized auto insurance policies – indeed, an Accenture survey finds that 64% are interested in policies with premiums tied to their individual behavior, and a PwC survey reveals that 41% are actually willing to switch to a more digital-forward insurance company to enjoy a better customer experience. Bridging the gap between auto insurers’ current offerings and consumers’ expectations will require technology that provides a greater understanding of the road, driver behavior, the vehicle and the environment.
In-vehicle software can enable this more comprehensive understanding of risk. Tactile sensors collect data not only on vehicle characteristics but also on road and vehicle-road characteristics – taking existing auto insurance data to the next level. Tactile sensors take into account factors such as tire tread depth, wheel balance, grip and much more. These factors, combined with insights on vehicle, speed, braking harshness and road roughness (to name a few), provide a much more holistic snapshot than existing hardware solutions can offer.
Embedded software can sit on the vehicle’s existing sensors to collect data and generate unique insights that insurers can use to assess the state of the road and vehicle before, during and after an accident, the vehicle’s overall health, the driver's behavior during an accident and more. This information can enable auto insurers to create personalized risk profiling and detailed accident reports. The insights can even predict road risks as well as identify and alert drivers to risks in real time by correlating road and vehicle conditions. The more comprehensive the data collection, the more personalized and dynamic the insurance policy.
A Win-Win
Insurers and policyholders both stand to gain from the deployment of in-vehicle software.
By using embedded software, auto insurers can reduce the risk of loss, tampering or damage to a telematics box. Armed with more granular data and insights, insurers can assess risk and set premiums with greater confidence – reducing payouts and fostering more long-term customer relationships. Additionally, tactile sensors and data can allow for next-generation accident reconstruction, a significant boon to insurers in the claims assessment process.
Drivers, meanwhile, will benefit from richer data on road conditions and risks, more personalized policies (with more accurate technology for measuring good driving behavior and lowering premiums), and real-time insights that can help them prevent a potential accident – such as early alerts that their tires should be replaced, for example.
Amid technological advances and mounting consumer expectations, the insurance industry is undergoing a transformation. Insurers that adapt to this paradigm shift by embracing technology and delivering on expectations for personalized policies will drive innovation, propelling themselves to a competitive edge in the new insurance landscape.
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A recent study by Tali Sharot, a professor in the Department of Experimental Psychology, University College London (UCL), asked the following: “Would you want to know if your colleagues view you as incompetent?” She found that 55% of respondents would want to know. When the same group was asked the opposite question—“Would you want to know if your colleagues view you as competent?”—the answer was a whopping 80% yes.
Intuitively, that more people prefer to know if they are judged as competent rather than incompetent is not surprising, but it is somewhat illogical. That your colleagues think you are competent might put a temporary spring in your step, but it is not very useful. However, knowing you are viewed as less than competent is potentially much more useful. It could lead to productive long-term changes in attitude and behavior that might save your career.
The results of Dr. Sharot’s survey also provide a classic example of the natural human propensity to turn a blind eye to truly useful information, especially if the information is cloaked in bad news. Dan Ariely, professor of psychology and behavioral economics at Duke University, coined the term “predictably irrational” to describe this tendency.
Rational Ignorance Is All Around
The phrase “rational ignorance” was coined by American economist Anthony Downs in his 1957 book, "An Economic Theory of Democracy," an early treatise on rational choice theory (and, incidentally, the first to use the left-right axis to political thought). Dr. Downs defined rational ignorance as “refraining from acquiring knowledge when the supposed cost of educating oneself on an issue exceeds the expected potential benefit that the knowledge would provide.”
This concept is particularly associated with politics. One illustration can be seen in the recent municipal elections in Sao Paulo, Brazil. Brazil is one of the few countries in the world where voting in government elections is mandatory. The Brazilian political landscape is also truly byzantine, with representatives coming from 33 different political parties, and the president currently having no party affiliation.
It is not surprising that many Brazilian citizens (myself included) do not have the time to devote to researching every aspect of every candidate’s policies. Indeed, several people wind up using social media posts from political pundits, who are seen as more versed in the issues, for their information, or relying on politically astute friends for suggestions. This relative apathy, however, does not mean that the voters are making poor or biased decisions. Still, such reliance on secondary sources can be seen as “rational ignorance,” as the cost of acquiring direct knowledge about the candidates, the issues and their positions might seem much higher than leveraging someone else’s knowledge and might produce the same decision either way.
Now we come to heuristics. The definition of a heuristic is a rule, method or concept that helps people solve problems faster than they could if they did all the necessary research or performed the necessary calculations to do so. Behavioral economics views heuristics as a driving force behind the human decision-making processes.
Let’s consider a simple example: How does the human brain react when shown pictures of i) a long multiplication problem or ii) an angry man? A person might take a couple of minutes to solve the former, but the latter will immediately trigger a subconscious fight-or-flight reaction. Human brains have, over time, evolved heuristics that instantly recognize an angry face as dangerous.
Have people come to treat social media as a heuristic, believing that posts from pundits and the like can help them navigate complicated political, economic and scientific issues? Two documentaries released in 2020 on Netflix, The Social Dilemma and The Great Hack, go into depth on how social media can manipulate news and politics and stoke conspiracy theories, leaving people less informed, misinformed and irrationally biased.
If people have a tendency to use rational ignorance regarding politics, I have no doubt rational ignorance is also a factor in the superficial understanding most have of personal taxes and investments, diet and exercise, health issues (including reducing the risk of COVID-19) and life insurance.
Insurance Product Offerings and Contract Wording: Mind the gap …
The phrase “coverage gap,” heard often from life insurance company executives, is defined as “the shortfall in the amount of life insurance cover necessary to maintain the current living standards of dependents.” Life insurance companies devote extraordinary amounts of time, effort and expense trying to educate underinsured individuals about the need to protect themselves and their families from this gap by buying more cover. Could our industry not be addressing one of the key issues leading to the lack of consumer enthusiasm for our products?
Here’s the issue: Insurance products and contracts are not consumer-friendly. To the average person, life and living benefits products are at least as byzantine as Brazil’s political system, and the language of insurance contracts could almost be considered an actual dialect. Insurance is thus fertile ground for the manifestation of rational ignorance among potential customers, who are already known to be more likely to pay attention to information about insurance if it comes from friends and social media posts. (I pity the buyer researching concepts and options such as pure protection, accumulation, critical illness, disability income or long-term care.)
Financial education could be one key to lowering this barrier. The good news is that there are plenty of options for obtaining information, from traditional media such as TV, radio and newspapers, to new media such as podcasts, YouTube videos and blogs. The bad news, however, is that there are plenty of options. Too much information frequently leads to even more confusion.
Many insurtech startups address obstacles by offering quick transactions, clear policy language and highly expedient claims processing. A possible downside, however, is that these startups generally offer only limited coverages. However, the rethinking by insurtechs can be considered tiny steps in the right direction.
One might think COVID-19 would have placed life insurance ahead of toilet paper or disinfectant wipes on the “most desired items to buy during a pandemic” list. I am sure life insurers are still scratching their heads, wondering why the sales tsunami they expected turned out to be only a ripple. Rational ignorance may have squelched any uptick in propensity to buy life insurance.
I would argue that the insurance industry needs to acknowledge rational ignorance as a major sales obstacle. Doing so could be a first step in recovering from the industry’s addiction to complex and layman-unfriendly policy language. Focus will be the key to a successful recovery. The first mover advantage, however, is still up for grabs.
This article first appeared in the March 2021 issue of Society of Actuaries` Reinsurance News.
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