The past year has provided unexpected challenges and opportunities across all areas of the insurance industry because of the COVID-19 pandemic. As businesses were forced into lockdown, many carriers wondered how they would fare, because collaborative office environments and in-person meetings are crucial to delivering quality insurance service. However, through the adoption of insurtech solutions over the course of the year, insurance companies learned to adapt to remote work without sacrificing efficiency, productivity and collaboration.

By using virtual platforms that incorporate the kinds of features and tools demanded by the reality of working remotely during a pandemic, the insurance industry has learned to benefit from increased global access and collaboration. The normalization of digital platforms and tools has increased the interest of digitizing the entire insurance industry, accelerating efforts. Having seen their effectiveness in action over the past year, carriers are seeking out more insurtech partnerships than they would have previously. 

Similarly, technology companies are increasingly developing insurtech solutions that improve the customer experience while also introducing new advantages. “The tech community has had time in last couple of years to understand what insurtech is and is now starting to approach [the insurance industry] with ideas that aren't about customer engagement; they're about new risk spaces or entirely new verticals, or they're about reducing risk in the first place,” said Stephen Brittain, director and co-founder of Insurtech Gateway, at Insurance Innovators USA. The current environment brought about by COVID-19 has served as a catalyst for insurtech innovation. The insurance industry is likely to focus on insurtech strategy and partnerships well beyond the pandemic.

Digital claims management

Previously, insurance carriers looked to partner with technology providers to help streamline internal business processes. However, there has been a growing focus on how technology can help insurers deliver customer-centricity. In many cases, the accelerated adoption of new technology by insurance carriers has facilitated remote processes for both insurance adjusters and customers. Due to the pandemic, 90% of insurance claims are now processed virtually. Insurtech software simplifies this process, allowing customers to upload relevant information and photos of their property or auto claim and providing adjudicators with augmented reality (AR) and virtual reality (VR) tools to corroborate claims and increase accuracy and efficiency when analyzing damage off-site. 

Additionally, the digitization of claims management allows carriers to use artificial intelligence (AI) capabilities to identify and prevent fraud. With more customer and claims data available, insurers can leverage AI algorithms to compare similar losses for discrepancies and develop systematic business practices that save time and money. 

Customer-centricity

While digitization can help carriers automate processes, it also primes customer’s high expectations of immediate service. The insurance industry is hyper-focused on the customer experience and delivering consistent service. Insurtech solutions enable transparent customer communication and user-friendly platforms, including comprehensive consumer portals and touchless claims capabilities. Insurance carriers that expand collaborations with insurtech providers are more likely to produce exceptional customer engagement and are better suited for growth as the legacy industry adopts the digital platforms found at the foundation of these new insurtech systems. 

See also: Role of Underwriter in Age of Insurtech

The digitization of the industry allows insurers to craft an end-to-end experience for the customer, tailoring seamless digital and virtual processes to their personal needs through integrated insurtech platforms. Carriers can provide real-time status updates and improve productivity of field adjusters through mobile applications and optimized scheduling features, completely automating processes for increased efficiency. 

The future of insurtech

This past year has been a time of impressive innovation throughout many business sectors. While many argue that insurance is becoming less visible to its consumers, insurtech providers are imagining new ways to rebrand the industry and reinvent the market. The integration of insurtech tools provides a positive spin on the industry as it progresses with technology and the user experience in mind. Big insurance companies and brokers often look to gain efficiency from new partnerships, seeking collaborators who can bring about new distribution, enhanced customer experience and novel insurance solutions.

Today, technology innovators outside of the insurance ecosystem are providing valuable insight and producing structural changes with tools crafted to drive insurance goals through data-driven insights that inform evolving business practices. Insurance carriers play a big role in helping insurtech startups thrive after this past turbulent year. These companies are building a road map for a new view of insurance.

“It is really difficult for carriers to reimagine the industry,” says Peggy Klingel, director of startup engagement for Allstate Insurance. “It is important that we support startups because we need the insurtech ecosystem to bring their invaluable perspective on the industry and where it can be improved.”

Providers can benefit from the insurtech ecosystem by investing time, providing feedback and professional mentorship, as well as capital so that innovation can thrive. In return, well-supported technology startups can craft comprehensive solutions that align with insurance carriers’ policy and claims processes to deliver a valuable, fully integrated system to the end user.

Ransomware attacks are increasing at an alarming rate -- Colonial Pipeline, JBS and now McDonald's, where cybercriminals stole some data. And those are just a few of the growing number of cybersecurity breaches being reported.

According to the Institute of Security and Technology, victims paid $350 million in ransom in 2020, more than four times the amount in 2019. Around 2,400 government organizations, healthcare facilities and schools in the U.S. were reportedly attacked.

The economic impacts from these evolving cybercrimes are massive. Apart from the loss of money paid in ransom, companies and governments have to go through several additional challenges, such as service downtime, loss of private data and recovery cost. 

This surge in ransomware attacks highlights the urgency in dealing with the national security threat before it gets out of control. Businesses should carefully evaluate every potential alternative available before paying the ransom. When hackers succeed in extortions, these kinds of crimes become more attractive. And there is no guarantee that the hackers would give the decryption keys even if a ransom is paid.

The government organizations and the private sector should work hand in hand to deal with cyberattacks and ensure data is recovered without paying a ransom. Companies should keep law enforcement agencies in the loop when tackling a ransomware attack and support the administration in disrupting the hackers’ network. There should be an aggressive, joint strategy and an unbreakable security network to combat these cybersecurity challenges.

Meanwhile, a collaborative global effort involving governments and security agencies is crucial in the fight against cybercrimes. Nations should aggressively investigate and prosecute cybercriminals operating from their land. Governments should use strategies, such as sanctions, to pressure countries refusing to act against cybercriminals.

See also: What’s Next for Ransomware

The increasing number of cybercrimes could also be exposing the security loopholes in the companies' network with employees working away from the office. Most businesses are operating remotely these days. It is important to note that not all business has the right security system in place, as they were unprepared for a sudden work-from-home migration when coronavirus struck. Organizations should implement security protocols, such as multifactor authentication, endpoint detection and response and data encryption, as well as prepare a plan to deal with these kinds of security threats before it strikes.

Another aspect to note in the recent cyberattacks is that the criminals seem to prefer cryptocurrency, which makes it difficult for law enforcement agencies to track criminals behind transactions. It is high time that the government enforces strict guidelines to ensure that the crypto exchanges follow processes such as Know Your Customer.

I started out in the industry in the dawn of Black Monday. Fast forward 30 plus years, and we’re now in the aftermath of the biggest event to shake the industry in decades.

This last pandemic year has brought into focus the digital constraints of the insurance sector, but more so the importance of being able to identify and adapt rapidly to changing customer needs. 

For the U.K., there are new pricing rules looming, too, which will make understanding the complexities and behaviors of customer segments more important. It means traditional insurance models are feeling the test of time again, and insurance providers can no longer fixate on price alone as a differentiator for new customers.

Price is right?

The regulator is clamping down on the practice of ‘price walking’ in the U.K., which has been prevalent in motor and home insurance market. Under the smog of a lack of transparency, the market adopted a practice of quietly creeping prices up, year after year. If there had been clearer communication about introductory pricing for new customers, the story might be different, but change will now be forced on parts of the industry from 2022. The change is set to affect the way insurance companies attract and retain their customers, as well as the role of price comparison websites.

Across the sector, the balance of power in the 4Ps of marketing (product, place, price, promotion) is already shifting, and the skill of building long-term relationships with customers is in demand. Price is still important, but simply being the cheapest is a potential pitfall. If you don’t understand why you are the cheapest and how your price aligns with your customer landscape, you run the risk of creating something that is commercially unviable.

Data-rich companies have the vantage point here, and the role for data analysts and data scientists is growing rapidly as the industry gears up for future models that will rely more on machine-led pricing and optimization and less on human interventions.

Getting closer to the customer

Today, we need to have in-depth understanding of our customers and design products to deliver what they need, at an attractive price – quickly. 

The late '80s -- during the start of my career -- were very different than today, but the sector hasn’t kept up with the pace of change. Back then, it would be common for prospective customers to wade through pages of confusing paper proposal forms -- filled with jargon that even insurance executives struggled to understand. While this complexity has largely (but not completely) been eradicated, insurance is still known to breed poorly designed products with difficult, one-size-fits-all questions. 

Behavior of consumers is constantly changing, and as an industry we need to keep up. Treating the market like a homogeneous mass doesn’t work anymore. Think, for instance, about small business insurance. Asking a hairdresser about their work at height or a personal trainer about whether they need tools cover, can leave these customers feeling unrecognized and unengaged by an insurance brand.

People want to be able to find and buy what they need quickly, and being reliant on an endless series of profiling questions immediately diverts from the fast digital purchasing journey that people crave. Whether people are buying the latest fashions or a financial services product, they expect a slick, tailored online journey, delivered in the minimum time possible.

The pandemic heightened the pressure for the insurance industry to respond faster. Following Boris Johnson’s announcement of the U.K.’s first nationwide lockdown in March 2020, for example, we saw bike sales rocket, an overnight switch to virtual fitness sessions and a move toward more domestic caravan holidays. Help for customers needed to immediately follow.

It was testing for an industry still hugely reliant on legacy technology and restrictive processes of the past – where product development can take months and changes to existing products are entrenched by digital limitations. 

See also: The Intersection of IoT and Ecosystems

The digital tide

There are signs of the digital tides turning. The latest briefing from CB Insights and Willis Towers Watson suggests investment in insurtech reached an all-time high in Q1 2021, with $2.55 billion across 146 deals. 

Despite the drive for change, poor-quality data can hinder digital initiatives for organizations. For the insurance sector, rapid visibility and interpretation of data is needed to understand why a product is performing as it does – so we can respond to what it is telling us. 

The success of insurance deployment is at a virtual crossroads. AI and machine learning will play an important role in getting the price and positioning right – and getting into the mind of the customer or ‘community’ you service has become more crucial.

The science of our industry is changing, and we need to move with it.

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?

Back in 2012, Best Buy was reeling from the pricing pressure that Amazon was placing on all big-box retailers and was reacting so poorly that a much-read Forbes article began, "Best Buy is headed for the exits.... It's only a matter of time." While acknowledging the competitive pressures, the article said the problem was more basic: "Best Buy just doesn’t understand its customers’ point of view."

Enter Hubert Joly, who became CEO in August 2012 after his predecessor resigned under pressure. Joly had no experience in retail but had been CEO of Carlson, a large hotel, travel and restaurant franchise business, and he set about understanding the customers' point of view from day one -- as he describes in this lively excerpt from his book, "The Heart of Business: Leadership Principles for the Next Era of Capitalism."

He soon learned that customers hated Best Buy's markups on products that they could buy for far less on Amazon. (I gave up on Best Buy during this era because a cord that would have cost me $4 on Amazon cost me $30 at Best Buy. I couldn't wait for Amazon to ship the cord, because my dog had chewed through the old one, and I needed to print something that day. As I shared my experience, I learned that loads of friends had similar stories.) Joly quickly pledged to match Amazon on prices.

He then turned to the notion of purpose and saw that, as much as we all love our electronics, we find them confusing and welcome help. I have my brilliant daughters to handle my technology needs, but lots of people need professionals. Best Buy had already moved into the services space by buying the Geek Squad in 2002; Joly expanded services in a host of directions, providing installation, consultations, even in-home visits.

Customers loved the help, as this Washington Post article describes in detail.

Now, I don't want to oversimplify the success at Best Buy and say it's entirely due to a clearly stated and worthwhile purpose. While there has been a lot of (justified) focus in recent years on environmental, social and governance (ESG), "stakeholder capitalism," and other ideas that focus on the broader role of business in our society, I don't think businesses can just find a purpose and then sit back and wait for the profits to pour in. Emmanuel Faber tried that as CEO of Danone, where he was a strong advocate for social responsibility, but investors pushed him out when they didn't see the returns they expected.

If you read Joly's book, you see that, beyond purpose, he devoted loads of attention to operational detail. For instance, he cut the space in stores devoted to physical media, like CDs and DVDs, which were losing out to streaming, and increased the space devoted to mobile phones (and small appliances like juicers, which I certainly wouldn't have pegged as big sellers for Best Buy, but which were). He also tested extensively before rolling out big changes. For instance, before promising to match Amazon's prices, he knew from pilot projects that increased volume would make up for the drop in prices.

In all, though, I think Best Buy is a model that insurance can follow. The industry certainly has a noble purpose and can build on it by using advances in technology and data to help people avoid risks and by helping tackle big societal issues, including climate change. The industry will still have to spend lots of time in customers' heads to understand their point of view, just as Joly did, and will have to pay attention to all sorts of operational detail. But the result should be more focus on advice (and less on pushing product), faster service, fewer gotchas, friendlier language in policies, etc. -- addressing all the stuff that makes perfect sense from an industry viewpoint but little to none if we, like Joly, adopt the customer's viewpoint.

If Best Buy can do it, why not us? We're even starting from a much better position: No one is writing that "it's only a matter of time" before insurance "is headed for the exits."

Cheers,

Paul

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

New Picture of Total Digital Health

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.

Future of AI and ID Management

There is no doubt that it won't be long before nearly all identity management systems are powered by AI and machine learning technologies.

Top Problems That AI, ML Help Solve

As insurance carriers get better at leveraging data and predictive analytics, the focus will shift from product-led to customer-centric models.

Why Gen Z Should Go Into Insurance

During an uncertain time for employment, the insurance field may be that sure thing Gen Z job seekers are looking for.

The Perils of the Purchasing Process

Risk managers and service providers are often challenged to demonstrate the value of centralized purchasing.

Foreclosing Danger by Ending Foreclosures

We can eliminate the fear of foreclosure by deputizing real estate agents, making them advocates of life insurance or insurance agents outright.

While data analytics has become increasingly important in the insurance industry in recent years, misclassification and missed opportunities continue to be major issues for many MGAs, brokers, carriers and vendors. Limited information is one of the most important factors, and more comprehensive access to better third-party data can improve decisions at all stages of an insurance policy lifecycle, from point of sale to policy maintenance and renewal.

It is important to identify some of the major roadblocks to securing valuable, accurate data. Antiquated data collection systems (with many systems built 30 years ago and not pertinent in today’s market) can have a significant negative impact. Other identified limitations of existing data analytics products include that “non-claims” are not differentiated from “not founds,” that policy and claims data are not linked, that carrier contributions are not vetted for accuracy (with up to 30% material errors or omissions) and that, perhaps most significantly, carriers and their agents often know little about the consumer at the initial point of contact.  

In addition, insurance professionals had to access multiple applications and field separate calls for each of the data sources and types of information, a time-consuming and cumbersome process.

See also: Achieving a ‘Logical Data Fabric’

But innovative technology can provide instantaneous access to better, more comprehensive data. It is now possible -- as we are showing -- to use application programming interfaces (APIs) to integrate data on a single platform and provide carriers, MGAs and brokers with immediate access to the prescriptive scores and comprehensive data they need, at the time needed, to allow for better decisions surrounding the sale, and growth, of policies. What we call a “single source” point of entry for all information, regardless of the source or type, provides a high-confidence hit rate to the prescriptive analytics and the pre-arranged knockout logic that facilitates rapid decisions based on extensive data into consumer behavior and insight.  

In addition, by harnessing the power of more accurate and complete information through prescriptive analytics earlier in the customer acquisition process and providing more opportunity for expansion and customer retention, today’s technology can help insurance industry professionals avoid the missed opportunities throughout the insurance lifecycle that have limited their potential.

The summer is shaping up to be one of the most uncertain hiring seasons in years. Many companies are hedging their bets, waiting for consumer confidence to recover more fully before adding employees.

One industry, however, is not only intensely interested in Gen Z talent but also relatively immune to the ravages of economic downturns and even pandemics: the insurance field.

Many young people might opt for occupations considered more high-profile. Yet, perhaps surprisingly, insurance offers many of the things most Gen Z candidates seek most: work flexibility, good pay, rewarding work and job security. Insurance is embracing the kinds of technologies that Gen Z “digital natives” are comfortable with.

Insurance is known for its ability to support work/life balance and diverse lifestyle needs. For young people, the ability to work from home, either by preference or for present/future family reasons, is a major plus. As a result, insurance agencies are increasingly adopting a variety of remote and onsite alternatives that allow employees to design a work environment to fit their situations and wishes.

Few fields offer newcomers the kind of job satisfaction and stability that insurance does. Compared with many sectors that had to lay off employees during the pandemic, insurance job losses were small over the past year. The industry also matches many of the values Gen Z workers embrace. In a recent Vertafore survey of over 1,000 insurance professionals, respondents said their favorite part of working in the field is “the ability to work directly with my community.” Informal one-on-one chats, catching up on events in a client’s life and helping customers tailor plans to reduce risk are some of the ways that insurance work provides authentic personal benefits.

Increasingly Digital

As an occupation, insurance is ideal for Gen Z candidates who grew up with technology. The old pen-and-paper methods were on their way out even before COVID-19 hit; since then, the process has only accelerated and the industry is modernizing like never before.

Most Gen Zers would be surprised to see the extent to which technology has overtaken the insurance field. Digital tools are eliminating repetitive tasks and enabling employees to use their higher skills to analyze and interpret client needs. Technology has reached nearly every corner of agency operations. Cloud-enabled agency management systems, digital communications tools, e-signatures and digital payments have accelerated workflows and automated routine tasks. Data analytics, marketing platforms and other cutting-edge technologies are used every day, particularly at carriers and larger agencies. Mobile apps and mobile-responsive websites are also being used to improve customer experience through convenient self-service offerings.

The latest technology to enter the insurance field is artificial intelligence. AI-driven predictive tools are able to accurately determine coverage recommendations, automate personalized client communications and even flag which policies or clients are at risk for cancellation. Candidates with data analytics backgrounds will be increasingly valuable to manage such systems and will acquire marketable skills in the process.

See also: How Well Did Agents Cope With COVID?

For insurance workers, perhaps the greatest benefit from the introduction of technology is the personal and career flexibility it can provide. In the same Vertafore study, 70% of agency respondents agreed that their workplaces already have tools in place to allow employees to work effectively from home. The extent to which the industry will adopt flexible working conditions post-COVID is yet to be determined and will not be a one-size-fits-all solution. Each company will have to achieve a balance between business needs and the needs of the employees, and each company’s balance will look a little different. But, overall, the industry has seen a significant shift in what is possible for employees in terms of flexibility, and the potential for a new way of doing business will attract a younger employee demographic.

The industry is also embracing diversity and inclusion practices. Insurance is a field that recognizes the need to not only reflect the changing composition of its customer base but also to broaden its hiring practices. As a result, the field is creating more options to accommodate more people, more lifestyles and more life stages in more ways than ever before.

Demand Is Strong

According to the Bureau of Labor Statistics, demand for insurance agents will grow through 2029 at a faster rate than the occupational average. As agency principals retire, the need for skilled candidates is rapidly increasing.

Insurance also offers career-long opportunities for personal and professional development. New lines of business, new forms of analytics and risk assessment and continual upgrades in systems and technologies will be part of the business for years to come. Many insurance professionals expand their skills by branching out into financial planning and advisory services. 

For entrepreneurs, starting an agency or growing an established one can be lucrative. In an alternate career path, insurance brokers specialize in risk management and represent the customer in obtaining the best insurance coverage. 

See also: Intersection of AI and Cyber Insurance

High Satisfaction

Tallo, a firm focused on the Gen Z talent field, reports in its April 2021 industry rankings that the insurance business is securely in the middle for favorability among Gen Z candidates—above more seemingly progressive industries like renewable energy, real estate and consulting services. U.S. News & World Report puts insurance agents at #2 in its list of Best Sales and Marketing Jobs. 

Vertafore found that 90% of insurance professionals over the age of 40 would recommend a career in insurance. There aren’t many industries that can boast such a vote of confidence from longtime employees. It may be an uncertain time for employment, but the insurance field may be that sure thing Gen Z job seekers are hoping for.

The modern insurance industry isn’t just about processing damage claims—it’s about helping clients avoid them altogether. The Internet of Things (IoT) is reshaping the way insurance companies operate, with huge possibilities for the future, arming insurers with a smarter set of tools to better serve their customers.

In this article, I’ll diving into a few cutting-edge examples of IoT in action within an insurance organization and where I see the industry going.

Usage-based and parametric insurance

Usage-based insurance is already benefiting from the IoT by helping insurtechs offer more accurate and individualized policies based on customers' behavior and use of the insured object. In the motor industry, Discovery Insure’s innovative Vitality Drive sensor is an example of such use-based insurance. With an integrated, low-power, non-intrusive wireless device attached to the windscreen, connected to a mobile phone app and able to transmit core driving metrics, Vitality Drive tracks driving behavior and allows Discovery Insure to offer incentives and rewards for better driving.

Unsurprisingly, the system has detected a strong correlation between better driving habits and fewer accidents and less severe insurance claims. By encouraging better driving by aligning insurance premiums with the lower probability of accident claims, this type of use-based insurance helps both insurer and customer and improves road safety in general.

Parametric insurance is described by the Center for Insurance Policy and Research as “a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of losses in a traditional indemnity policy.” In other words, a parametric insurance policy insures against an event, rather than against loss or damage of assets. This helps to bypass – or at least greatly simplify – the process of calculating potential losses and making policy adjustments after a claim; meaning that parametric insurance claims are processed and compensated much faster than indemnity claims.

The advent and growth of parametric insurance has close links to the IoT, with more sophisticated devices and better connectivity allowing providers to both calculate and compensate more effectively. This is especially true in the case of natural disasters, which have long been notoriously tricky for insurers.

Wakam (former La Parisienne Assurances), another insurtech, makes full use of the IoT to improve customization and automation. Both tailoring parametric policies to their customers’ needs and automating the claims process benefit from the capabilities of these smart devices. Wakam has gone further and has introduced a private blockchain platform to process and manage parametric claims. The combination of IoT and blockchain technology allows parametric policies to be generated and managed intelligently, based on global, connected event data, rather than isolated public or private events.

See also: Despite COVID, Tech Investment Continues

Avoid damage claims with IoT

Today’s insurance industry isn’t just about processing damage claims. It’s about helping clients avoid them altogether. Insurers can use the power of data to create a more secure, connected world. The next generation of IoT-based smart security solutions overcomes the shortfalls of earlier technology to provide connectivity at a cost-efficient price.

The potential of modern IoT is almost limitless: protect homes and businesses with security alarms that aren’t susceptible to jamming; recover stolen vehicles with powerful, reliable tracking systems; and react quickly to emergencies in the home or business with connected smoke detectors and real-time water leak detection. The overlap with insurance is obvious – IoT data provides a smarter set of tools for the modern insurance landscape.

Discovery Insure, for example, uses IoT to tackle a major problem in South Africa, where 48,306 vehicles were stolen in 2019. Only one in five stolen vehicles were recovered. The process was usually slow enough that thieves had time to dismantle stolen cars or ship them to the other side of the world. Even if the car was found, insurers might refuse to compensate the victim if there was no physical evidence of a break-in. But IoT sensors allow cars to be found even when they are hidden in enclosed or underground locations.

The future of IoT in insurance

From 2019 to 2024, the IoT insurance market is expected to grow 60%. The number of use cases for IoT devices within insurance will grow along with it, with more electronic devices entering the consumer and business marketplaces year on year. Traditional insurers are looking to the future and working on digitizing their offerings to move forward faster and with greater agility. According to the Global Insurtech Market report published in 2020, the pandemic has accelerated the digital transformation of industry, a driving force in the commercial introduction of IoT. Thanks to this IoT, insurance companies are being given more opportunities to revolutionize and grow than ever – but taking advantage of them will require forward thinking and adaptability.

The global life insurance and retirement industry is facing an inflection point due to the convergence of challenging economic, technological, competitive and societal headwinds. Product-driven business models of the past will not be sustainable because insurers cannot adapt quickly enough to changing customer needs. This problem is on top of mature markets, strict regulatory requirements, low interest rates and tight margins. The COVID-19 pandemic has made it even more urgent for life insurers to redefine their role, take bold measures and address these changes.

The good news is that many global insurance leaders are already making large investments in digitization, innovation and cultural change. Going digital has been a top priority, as it helps reduce cost and enhances customer experiences, leading to the increasing adoption of predictive analytics, artificial intelligence (AI) and automation in various business functions in the industry. According to McKinsey estimates, the potential total value of AI and analytics across the insurance vertical is approximately $1.1 trillion.

Soon, AI will be deeply embedded into the insurance value chain, providing unmatched power to insurers: automating manual processes in underwriting, eliminating errors and inefficiencies in claims processing and enabling predictive insights to deliver superior outcomes. Below are the top challenges that AI and machine learning (ML) will help solve in the insurance industry. 

1. Underwriting and Pricing — While pricing personal auto policies is mostly automated today, the underwriting process is still manual for commercial property. For commercial property insurance, the underwriter needs a lot of information, such as occupancy, data on adjacent buildings, loss estimates and typical hazards. Some of the data may be available online but may be outdated and might require onsite verification. This is why human judgment is critical. A PwC report on top insurance issues noted that carriers are devoting considerable attention to helping underwriters use models and AI-driven tools to supplement their knowledge. Underwriters are becoming increasingly comfortable marrying what they’ve learned from personal experience with insight from models to make the most informed decisions possible. Soon, underwriting will be fully automated, supported by machine learning models that ingest vast amounts of data through an ecosystem of vendors. 

2. Claims Processing — In the future, machine learning algorithms will manage claims routing, increasing efficiency and accuracy dramatically. According to a McKinsey report, claims for personal lines and small-business insurance will be fully automated, enabling carriers to achieve straight-through-processing rates of more than 90% and dramatically reducing processing times from days to hours or minutes. Unlike with the traditional practice, involving manual methods of first notice of loss, the burden will no longer be on the customer to inform the insurance carrier about an event. The process will now be automated, relying on  IoT sensors and real-time monitoring to prevent incidents from happening and sending notifications for critical events requiring immediate attention. An app on a smartphone will handle all interactions, with the capability to trigger claims automatically upon loss. Other technologies will support claims processing, such as natural language processing, deep learning and text analytics. 

See also: Wake-Up Call on Ransomware

3. Fraud Detection — Insurance fraud can cost companies millions to billions of dollars, as there are thousands of claims filed every day. Assigning insurance agents to investigate each case will be time-consuming and expensive. Using AI, insurers can evaluate millions of documents and data points in record time. They can cross-reference several databases and incorporate multiple external data sources, which would be impossible without automation. Anomaly detection models can identify deviations and flag cases for review. Leveraging learnings from previous fraud cases and using real-time data, AI and ML models can identify threat signals before they might become a more substantial problem. 

4. Other Use Cases — A common use case is using predictive analytics for estimating policy cancellations. Customer churn is one of the most problematic aspects of customer management for insurance companies. When high-value customers churn, insurance companies often replace existing businesses with new, more costly customers that lower profitability. Creating AI and ML models that can accurately forecast churn behavior can boost profitability and revenues. 

As insurance carriers get better at leveraging data and implementing predictive analytics, the focus will shift from product-led to customer-centric models. The insurance industry’s adoption and investment in digital capabilities to unify data, advanced analytics and people will ultimately make the industry more agile, efficient and transparent. The winners that go above and beyond will start to offer personalized products based on individual customers’ unique needs and enhanced customer experience.

Most public entities and many private companies have switched to a procurement model for all contracts and purchasing. This model means a centralized department is responsible for all these decisions, ranging from office furniture and supplies to purchasing insurance and risk management services. Risk managers and service providers are often challenged to demonstrate the value of such services beyond simply price, and pricing alone is not the best comparative measure of such services.

The latest Out Front Ideas with Kimberly and Mark webinar brought together two risk management and procurement teams to discuss how they work together to achieve the overall goals of their entities and how vendors seeking contracts can best differentiate themselves from their competition. Our guests were:

• Amber Feldman – purchasing agent and contracts administrator, state of Colorado
• Chelsea Gilbertson – contracts and procurement director, state of Colorado
• Rick Graham – chief risk officer, Southeastern Pennsylvania Transportation Authority
• Julie Mileham – director, State Office of Risk Management, state of Colorado
• Cristal Swift – risk management administrator, Southeastern Pennsylvania Transportation Authority

Framing the Issues

Public entities are often scrutinized over vendor choices because of procurement guidelines they need to adhere to and federal and state oversight. If government partners believe funds are being used inappropriately, consequences can result in reduced funding. Additional funding sources, like pass-throughs and grants, can be added to one project, making adherence to statutory requirements even more complicated, with multiple sources to track. These inherent challenges are precisely why the vendor selection process is extensive and thorough. 

Transparency throughout the process is also vital to maintaining public trust, especially when taxpayer dollars are involved. When the solicitation process begins, the process must remain competitive and fair, as to even the playing field for all vendors, including those currently contracted with the entity. 

Evaluating Third-Party Vendors

From the beginning, program needs should be extremely comprehensible to vendors, making the language in the request for proposal (RFP) critical. Transparent language also clarifies what is being asked of vendors and will ultimately help develop the final contract. RFPs should also include all mandatory minimum requirements and the scope of work, so expectations are unambiguous. Including the evaluation criteria and the entire selection process in the RFPs will further clarify the entity’s needs and allow vendors to know what they’re getting into. Additionally, consider a debriefing process after contracts are awarded so that vendors are aware of what they can improve on the next time, regardless of whether they were chosen or not. 

See also: State of Mental Health in the Workplace

Risk Management Purchasing

When seeking risk contracts, procurement teams should consult with their risk managers to appropriately develop the RFP. This allows risk managers to manage vendor risks and identify what can be transferred appropriately between parties within a project. Risk managers should also independently evaluate all bids, which is critical to identifying exposures and understanding coverage. One project may require pollution liability coverage while others may not, so it’s essential not to use a one-size-fits-all approach. With projects differing in size and scope, using scalable solutions can help ease the process.

Communicating early and often with the procurement team will also ensure that they consult with their risk management team for all future projects. Inviting all parties to a roundtable discussion can assist in keeping the lines of communication open and concrete relationships while verbalizing any concerns. Timeliness is critical in contract decisions to properly coordinate with vendors and keep the project goals on track. Remember that, throughout the vendor selection process, it is crucial to choose what’s best for the entity and not just easiest for the transition.

Advancing Your Purchasing Processes

Many entities expect vendors to be intuitive about their needs, but expectations should be made clear to make program goals a reality. And while there are a multitude of ways to make the procurement and purchasing process less painful, our guests offered a few critical elements to pay attention to. 

Start the RFP Process Early. The earlier this process begins, the better. Applications should be submitted early, and the underwriting data should be flawless. Take the time to understand the process and ask concise questions when writing a submission. Establishing the program needs early will help vendors better understand the scope of work and requirements. 

Look Beyond Cost. Often the price is viewed as the most crucial factor when choosing a vendor, when the actual value can be found elsewhere. This methodology can also prevent growth within a program. Consider the other values that a vendor may bring to elevating a program, looking at cost last. Additionally, examine preemptive challenges, like if a vendor comes back with several changes to a contract, this could be an early indicator of how they’ll work within the project.

Avoid Silos. Collaboration and communication in the planning stages can be crucial to your program goals, and bringing in additional departments to review RFPs can bring a fresh perspective to your evaluation process. Considering department input, like budgeting and accounting, can clarify implications around the solicitation process. Also, speaking with risk managers early can help identify associated risks that can be communicated to vendors.

Know Your Risks. Risk implications are involved with everything regardless of if it’s directly related to risk management. Discuss your concerns regarding coverage with brokers and ensure that complex issues are addressed. Use them to review coverage language and ensure that coverage in contracts and bids is appropriate for the risks your organization is willing to accept. If you’re unsure of risks, ask yourself what taxpayers should really be liable for. 

See also: Why Open Insurance Is the Future

To listen to the archive of our complete Perils of Purchasing for Public & Private Entities webinar, please visit https://www.outfrontideas.com/. Follow @outfrontideas on Twitter and Out Front Ideas with Kimberly and Mark on LinkedIn for more information about upcoming events and webinars.

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. Together, Kimberly and Mark co-host the "Out Front Ideas" educational series.

This webinar will discuss:

• How legal interpretations related to coverage for COVID cases may expand the scope of workers' comp, making carriers responsible for other infectious diseases, PTSD and more.


• How telemedicine took on a much broader role during the pandemic, and why its use will continue to grow.


• How carriers, accustomed to conducting rigorous analysis of massive amounts of historical data, are adapting to a world where so many issues don't have a history, because almost everything is new.

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Speakers:

Together, they co-host Out Front Ideas with Kimberly and Mark