With vaccination programs rolling out across the globe, and cases beginning to fall exponentially, there is finally hope that the worst of COVID-19 may be drawing to a close. But while this may signal the imminent end of the pandemic itself, it is surely only the end of the beginning with regard to its long-term impact. In almost every area of life, from the political through to the economic, the transformative consequences will be felt for some time.

The world of life insurance is no exception. But while the impact of COVID-19 on many industries remains uncertain, to say the least, the big picture for the life insurance industry is a lot clearer.

Prior to the pandemic, the so-called generation gap when it comes to life insurance was a constant point of consternation for the industry. Back in the mid-20^th century, life insurance policies were as common and ubiquitous as mortgages or car ownership – a standard rite of passage for younger households embarking on their journey into adulthood. This culture has almost entirely evaporated. Younger cohorts, especially the millennial generation – under new financial constraints and not necessarily catered to by traditional sales channels – had little awareness of or inclination to take out life insurance policies, and sales withered. 

Remarkably, though, the last year and a half has seen a dramatic reversal of this long-term trend. Despite a period of volatility around March and April 2020, coinciding with the initial swath of lockdowns, the MIB Life Index ended 2020 up 4% year-on-year, the highest annual growth rate on record. What’s more, this growth was driven predominantly by younger cohorts, with activity increasing in the 0-59 age range rather than 60+, in stark contrast to recent years, where any growth has been almost entirely driven by the latter group. Recent sentiment research underlines this turnaround; members of Generation Z are now significantly more likely to increase life insurance spending than other generations, with millennials following close behind.

Intriguingly, this shift started slightly before the pandemic came to America’s shores, in January 2020. Kobe Bryant’s death from a helicopter accident appears to have triggered a sharp uptick in demand for financial protection in the case of unpredictable tragedy. Then the pandemic understandably heightened awareness of mortality in generations previously unaccustomed to such perspectives. The economic hit also contributed – with many facing the prospect of losing employer group coverage.

This uptick of interest alone, however, will not be enough to bridge the generation gap in life insurance for the long haul. Consumer demand for life insurance has only ever been one piece in a larger puzzle. For some time now, the industry has been aware that re-engaging with younger market segments, while also continuing to serve its traditional customer base efficiently, will require a wholesale adaptation to more advanced technologies and digital forms of distribution. Technology and digitization – and taking full advantage of the new opportunities and business models they enable – will be key to taking long-term advantage of this renewed interest in life insurance.

It’s good news, then, that on the insurer side the pandemic has dramatically accelerated existing trends. As with many other industries, the chilling effect of lockdowns and other emergency measures on physical, face-to-face interactions has forced life insurers to dive headfirst into technology-driven approaches in underwriting and distribution methods. The transition to digital marketing, digital distribution and automated underwriting and digital policy insurance leveraging new forms of data was already inevitable before anyone had heard of COVID-19. But from early 2020, what was once a priority for future growth has become an immediate non-negotiable. New approaches to underwriting, business processes and distribution models made commercially viable by automation technology are higher up the insurance industry’s agenda than ever.

See also: 6 Megatrends Shaping Life Insurance

While nearly half of agents have reported a collapse in in-person business since the onset of the pandemic, life insurance companies across the industry have leapt headfirst into new digital technologies, tools and channels to compensate for the sharp drop in traditional methods of doing business. For example, embracing new technologies enabling real-time access to medical records and other forms of advanced data allow insurers to underwrite policies accurately even without face-to-face assessments or interactions. These advancements in the underwriting and distribution process are pivotal in future-proofing the industry, and in creating massive efficiencies at the same time.

The life insurance industry has always, by nature, been cautious in embracing technological change. But the pandemic has entirely removed the luxury of time from the equation. New technologies, new data sources and new approaches to automated underwriting that may have spent long periods in planning and testing are already live and gathering momentum. A transition to digital technology that prior to the pandemic could have spanned the next decade will now likely be complete in just a year or two.

This is no bad thing. If the industry is to take advantage of the new interest in life insurance among the young, as well as continue to service its traditional customer base in a more efficient and sustainable way, the sooner the better. The sector was already facing a challenge of modernization; COVID-19 is unlikely to change the future shape of life insurance.

What it does mean, though, is that the future is going to be here much earlier than expected. For those carriers keen to acquire first-mover advantage, the window of opportunity just became even narrower. The time to embrace new technology is now.

Between advertising insurance policies and adopting policies in support of a specific group of people, between issuing life insurance for diabetics and rewarding people for lowering their risk of developing complications from diabetes, between high premiums with few benefits and affordable premiums with good benefits, what insurers say influences what people do.

If insurers move people to get moving, if insurers inspire diabetics to take action—to live more active lives—chance and choice can come together. That is to say, diabetics should not only have an opportunity to buy life insurance but also a range of opportunities when buying life insurance. 

In a nation with 34 million diabetics, of which I am one, the insurance industry has a duty to dispel confusion with clarity. In speaking to two groups with separate conditions, in delivering separate messages for people with type 1 versus type 2 diabetes, the insurance industry can reverse years of doubt with a statement for the ages; offering hope for people in either group of a certain minimum age, so a tenth of all Americans can know the truth: that diabetes is not a point of permanent or temporary disqualification.

While a minority of diabetics have life insurance, the majority of diabetics believe they are uninsurable. This fact persists despite all facts to the contrary, not because of people’s refusal to accept the truth, but because of insurers’ failure to make the truth understandable. 

The fact that failure to communicate is communicable, that what a person believes affects how a person feels, that silence among insurers serves to sanction self-destructive behavior among diabetics—until this fact ends, more lives will end before threescore years and ten; spreading sorrow as the lost fly away.

Insurers can lessen the magnitude of this tragedy, increasing financial security for diabetics and strengthening health care for all. The answer requires an economy of words and a wealth of repetition, so as to turn a message about insurability—that diabetics can and should buy life insurance—into an inevitability. 

The answer is a requirement for the survival and the success of America, too, because we can ill afford illness to consume the life of our economy. We cannot allow 88 million American adults with prediabetes to further sicken or suffer, to go blind before they go limp, to lose their limbs before they lose their lives.

See also: Solving Life Insurance Coverage Gap

We cannot afford to be unclear. Not when diabetics work to live longer, and long to retire with nontaxable income. Not when diabetics want to buy life insurance, and want to better the lives of their loved ones. Not when insurers need to help diabetics, and diabetics welcome help from insurers.

Aware of the power of messaging, and able to promote awareness among the recipients of a particular message, the insurance industry can enrich the lives of diabetics.

Whether insurers save a hundred lives or a thousand lives, whether they save more lives in a month than in a year, they will save the lives of diabetics.

Insurance organizations striving to maximize revenue and streamline processes may choose to implement modern billing systems. Billing has traditionally been seen as a back-office function; that assessment is no longer true in today’s digital world. Billing is one of the most frequent and important customer touch points. However small or simple an implementation may look, it’s critical to get the implementation right to ensure that the overall cost of operation is reduced and that customers and agents are happy

This paper is focused on carriers that have selected a billing application from one of the product vendors like Duck Creek, Guidewire, Majesco or Insurity and initiated their transformation journey

Here are the top 11 things to keep in mind for a successful billing implementation:

1. Requirement Management — Billing traditionally is managed by the finance team, but looking at billing only as a finance function will not yield the right benefits. Sales needs to be involved because billing plans sometimes play a key role in selecting a policy. The agency management team should be involved because billing and commission management influence the choice of carrier by independent agents. Underwriting and the actuarial team should be involved to understand the kinds of fees and costs that will affect the overall revenue collected under the policy. We recommend an internal survey before starting the implementation of billing changes. 

2. Billing Configuration — Modern billing systems provide flexibility of configuration. However, carriers must understand the complexity that comes with configuring an application with too many payment plans. They also need to understand the downstream problems of defining too many receivables. Carriers should plan for all transactions, like endorsements (and the impact of these endorsements on future revenue) and reinstatement (ensuring that invoices are restored and past premium collected).   

3. Exceptions and Customization — Every insurance company wants to customize the business rules and functionality to maintain its unique characteristics. Depending on the application, some business rules can be configured for easy exception (by line of business, state, agent, etc.). Some may require customization in code. It is important that insurance companies take appropriate decisions related to the benefits of customization vs the cost of maintaining those changes. The more they customize the code, the harder it will be to upgrade the system. 

4. Accounting and Reconciliation — The billing system receives premium from the policy administration and servicing (PAS). The premium is subsequently broken down to receivables and installments. The payments received by the customers are used to settle bills. All these transactions are posted as double entry in the accounting module. Carriers should invest time to understand the various transactions and tie the account back to invoicing and payments. Carriers should also work with partners to create a good reconciliation application to ensure that all financial transactions tie back and have an audit trail.

5. Reports — Billing manages the receivables and payments from the point when the policy is sold, but multiple activities can happen during the lifecycle, like delayed payments, write-offs or suspense money. So, management needs to design reports on top of the billing system, which can help reduce financial leakage.

6. Integration — Billing implementation involves limited but very important and complex integration points. While most applications are within the control of the carrier, it is important to involve external parties like payment gateways and banks right from the beginning of the implementation.

7. Payments Options and Notification — Customers today are looking for multiple payment options from insurance companies. While traditional options like direct debit and check/lockbox are still quite popular, customer preference is changing toward quick online payment options through payment gateways via web/mobile. 

See also: What Makes Insurance Invoicing Different

Customers' satisfaction soars when they are promptly notified about payments in advance and also when they have missed the payments. Defining the right delinquency process reduces the lapsing of policies.

8. Commissions — If agents are not happy, the insurance company suffers, and many complaints relate to commissions. While implementing a billing system, carriers should ensure that commission statements are generated on time and that commissions are paid promptly for direct bills. Carriers should also ensure that they provide for prompt resolution of discrepancies. 

9. Testing — Billing is a series of transactions that happen over time, but most insurance billing applications do not cover enough scenarios, which can lead to bugs in the production environment. Testing should be one of the most important pieces of your billing system implementation. 

10. Migration — Migrations of billing data can become tricky depending on the quality of data in the historical system. Carriers can adopt a strategy of: a) rollover runoff on renewal, b) open book migration or c) full migration. Carriers should decide early so they can estimate cost and implementation time accurately.

11. Change Management — Many organizational transformations fail because management doesn't get enough buy-in from stakeholders. Insurance companies should develop a comprehensive change management plan, involving internal teams like operations, sales, call center and finance, as well as the vendors of the IT systems that will interface with the billing system. Carriers should also set up a plan for communicating with agents and customers about the changes they will encounter.  

Conclusion: Billing applications are transaction-heavy and should be carefully discussed and analyzed. Implementation should include in-depth analysis of all scenarios. An up-front investment in detailing requirements can reduce production support challenges. 

Our Big Problem With ‘Noise’ Paul Carroll, Editor-in-Chief of ITL A new book co-written by behavioral economist extraordinaire Daniel Kahneman points out a major problem that numerous industries, including insurance, only sort of know they have and is surely worse than they recognize. He calls the problem “noise.” He says insurers are very aware of potential bias based on age, race, gender, etc., especially as they evaluate algorithms driven by artificial intelligence — insurers know to look for consistent favoritism toward, say, white men. But, he says, insurers tend to gloss over the problem of inconsistency, or “noise” — the fact that people come to very different conclusions based on the same set of facts, even when bias is removed from the equation. Kahneman, who won the Nobel Prize in Economics in 2002 and who has driven so much of the progress on behavioral economics for decades, cites a study he did in 2015 that presented a series of cases to 48 underwriters at a large insurance company. Executives predicted that there would be roughly a 10% variance between the high and low prices that the underwriters provided after assessing the risks — but the typical variance was 55%. Many variances were even more extreme. One underwriter might set an annual premium at $9,500 and another at $16,700... continue reading > Capgemini and Majesco Roundtable Seth Rachlin and Denise Garth bring together a powerful panel of insurance industry leaders to discuss the evolving opportunities in the commercial and specialty insurance segment.   Watch Now SIX THINGS Why Open Insurance Is the Future by Gil Maletski More are turning to "open insurance" solutions, under which insurers leverage open APIs to share data and services with third parties. Read More It’s Time for Next Phase of Innovation by Veer Gidwaney It’s time to break through the first phase of technology adoption and move into a new phase of tech-enabled innovation. Read More The Alarming Surge in Ransomware Attacks sponsored by Tokio Marine HCC - Cyber & Professional Lines Group Join Michael Palotay, Chief Underwriting Officer for Tokio Marine HCC - Cyber & Professional Lines, and Paul Carroll as they continue their discussion on ransomware, cyber attacks, and how businesses can protect themselves. Watch Now Intersection of AI and Cyber Insurance by Ben Branda While AI is sure to benefit society when wielded properly, cyber carriers remain conscious that AI’s proliferation is a double-edged sword. Read More Achieving a ‘Logical Data Fabric’ by Saptarshi Sengupta A logical data fabric has the capacity to knit together disparate data sources in insurers' broad, hybrid universe of data platforms. Read More Managing Risks for Hydrogen Industry by Chris Van Gend There is, rightly, enthusiasm around hydrogen solutions for a low-carbon economy, but projects involve complex industrial and energy risks. Read More The Broad Reality of Diversity by Laura Beckmann As people return to the workforce, candidates with the potential to revolutionize our industry may present themselves. Read More MORE FROM ITL May's Topic: Cyber In high school, a friend of mine had a poster on his wall that read, “Just because you’re paranoid doesn’t mean they aren’t out to get you.” That pretty well summarizes how the world of cybersecurity and insurance works. Companies may feel paranoid for looking over their shoulder all the time, expecting something bad to happen, but we all know that there are plenty of bad guys out to find all the victims they can. Take Me There Webinar Series: The Future of Blockchain Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities – and a key benefit of the technology, providing a single source of truth kept up to date in real time and accessible through permissions by all stakeholders, has huge implications for the insurance and risk management industries. Watch Now Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

While every business uses invoices to handle customer payments, in the insurance industry they can be a serious matter. 

Unlike other businesses, insurance agencies are bound by state and federal laws that restrict how they can cancel policies, which can have an effect on invoicing at every stage. 

Insurance laws in every state require that a written notice of cancellation be presented to the policy holder by the U.S. Postal Service a certain number of days before the policy is canceled. (The number of days varies by line of business and by state.) 

If the reason for cancellation is non-payment, and the insurance carrier or agent or carrier accepts any payment on this policy before the cancellation date, then, by law, the entire cancellation process has to start from scratch. 

This is important because, when the policy is being canceled for non-payment of a premium, the insurance carrier is still required to show the amount of premium that is due as revenue. The amount due minus the amount received is money that is never received and will be written off as an expense. This is a real cash loss to the carrier, because the agent’s commissions for unpaid premiums are also withdrawn from the agent’s commissions earnings by the carrier. Therefore, it is a real cash loss to the agency, as well. 

Additionally, if a claim-and-loss occurs during this newly reset cancellation period, the carrier is required to pay the loss — regardless of the outstanding premium that is due. Most states cannot deduct the past-due premium from the loss payment. The only exception to this is if the insured fails to pay the renewal premium. In this instance, no notice is required. The insurance policy simply cancels as “not accepted” on the renewal date. 

Cancellation laws make insurance invoicing more complicated than a typical business invoice. It is important to control the time in which the payment will be accepted, the amount of payment accepted and the specific policy to which the payment is being applied. 

These complex laws can be tricky for insurance agencies, but one way to make them easier is to use software that is designed to meet those needs. 

When setting up an invoicing system for your agency, make sure that it addresses these problems.

Your system should allow you to set the date after which the payment in your link invoice will not allow a payment to be processed. In practice, this means you should set this date as the cancellation date for the policy, which will keep your customer from paying any amount after the cancellation date. 

You should also be able to set the exact amount of the payment that can be made. This should be the correct amount due to pay for either the rest of the policy period or, at a minimum, the amount due before the next scheduled policy installment payments. This amount should also include any and all appropriate late charges and other fees. 

See also: Designing a Digital Insurance Ecosystem

Make sure your system allows you to set the amount due as a range rather than a fixed dollar amount, allowing the customer to pay any amount above the minimum amount due. 

If your system allows people to pay multiple policies on the same invoice, make sure it properly separates out payments to be applied to specific policies. 

If you do not apply specific premiums to specific policies, you cannot use non-payment of premium to cancel any of these specific policies. 

By following the advice laid out in this article, you can protect your agency and your insurance carrier from resetting cancellation notices; incurring increased unpaid premiums and commissions; and paying claims during the longer time required for cancellation during the time when a partial payment resets the cancellation notice cycle. 

Invoices are trickier in the insurance industry, but that doesn’t mean they have to be more work. 

Discussions around the impact of mental health and well-being in the workplace are frequent Out Front Ideas with Kimberly and Mark topics. May is Mental Health Awareness Month, so we are offering our thoughts on the current state of mental health in the workplace.

Even before the pandemic, benefits managers were adapting employee benefits to better equip employees and plan members with mental health resources. However, as the work from home assignments continued and social isolation set in, employers became even more aware of the impact of mental health and well-being on productivity, absence and performance. With a greater emphasis on employee well-being, we hope programs initiated during the pandemic will continue to support improved access to care and will break down the stigma related to mental health.

Employers took advantage of employee resource groups (ERGs), either existing or newly implemented, to foster peer interaction, open conversation and joint problem-solving related to issues that have an impact on their personal and professional lives because of the pandemic. Group collaborations focused on important topics at that time with employees, such as home school successes, caring for an ill family member, loneliness and depression, challenges with family and positivity sharing, to name a few. Many found the sessions to be an excellent way to bring positivity and support into their life and provide a break from the hectic pace of working at home. As companies create back-to-office and hybrid workforce models, ERGs continue to be a priority to ensure all who want to can participate.

Access to care has been a long-standing challenge for those seeking mental health care. Reimbursement rates, timely appointments and limited provider options are some of the issues the industry is working to solve. Previously, while telehealth visits were growing for triage of minor medical and follow-up appointments, there was slow adoption for teletherapy and telepsychiatry. Fortunately, telemedicine was a saving grace for many aspects of healthcare during the pandemic, and mental health care saw a boon. Employers and network partners are now offering multiple options for telemedicine and improved coordination between employee assistance programs (EAPs) and online therapy platforms for mental health care. Phone calls, video conferencing and texting are becoming an integral part of the therapist-patient relationship. With less social connection, this has found success for many in the workforce — and their families. Organizations are now offering various programs, including adult, family and teen counseling.

The Center for Workplace Mental Health is an important resource for all employers. The entirety of its work focuses on helping employers create a more supportive work environment and advance health policies at their organization. They have created a mental health toolkit for Mental Health Awareness Month, which includes topics such as promoting resiliency for people and the organization; promoting self-care; and addressing isolation and loneliness. These programs (and others) can be easily integrated into your company culture to reduce stigma, promote well-being and provide an environment where employees and leaders both care and thrive.

See also: The Long Haul for Mental Health at Work

From a workers’ compensation claims perspective, mental health has always been a complication lurking in the background. The industry tended to ignore the issue because of a combination of stigma and outright resistance. Claims where the injured workers never fully recovered probably had a significant untreated mental health component. Thankfully, that is changing; it is now widely recognized that all chronic pain has a significant mental health component, and, if you fail to address this, it will increase claims cost and lead to poorer outcomes. Multidisciplinary pain management programs now spend as much time on mental health as they do physical health. 

Laws are also changing to make it easier to pursue psychological injuries under workers’ compensation. More states are allowing “mental-mental” claims, which are psychological injuries with no physical injuries. In addition, one of the leading workers’ compensation legislative initiatives for several years has been the expansion of first responder presumption laws, which are primarily focused on post-traumatic stress. In the past, the threshold for a mental health injury was a “usual and extraordinary” experience. That threshold was used to deny very real traumatic situations that first responders encounter because the situations were “usual” aspects of their job. While these traumatic situations may have been expected, there is nothing ordinary about responding to severe accident scenes, seeing your partner shot or having someone die in your arms. In certain ways, public entities created the path to these presumption laws by denying such claims rather than focusing on getting the injured worker the treatment they needed. Public entity employers are now reporting that they are seeing an increasing number of PTSD claims with no corresponding physical injuries being filed under workers’ compensation.

A new book co-written by behavioral economist extraordinaire Daniel Kahneman points out a major problem that numerous industries, including insurance, only sort of know they have and is surely worse than they recognize. He calls the problem "noise."

He says insurers are very aware of potential bias based on age, race, gender, etc., especially as they evaluate algorithms driven by artificial intelligence -- insurers know to look for consistent favoritism toward, say, white men. But, he says, insurers tend to gloss over the problem of inconsistency, or "noise" -- the fact that people come to very different conclusions based on the same set of facts, even when bias is removed from the equation.

Kahneman, who won the Nobel Prize in Economics in 2002 and who has driven so much of the progress on behavioral economics for decades, cites a study he did in 2015 that presented a series of cases to 48 underwriters at a large insurance company. Executives predicted that there would be roughly a 10% variance between the high and low prices that the underwriters provided after assessing the risks -- but the typical variance was 55%. Many variances were even more extreme. One underwriter might set an annual premium at $9,500 and another at $16,700.

The tendency is to think that the decisions balance out, but Kahneman says such wide variance suggests that the insurer is actually making two mistakes. The $9,500 quote was likely underpricing and was either leaving money on the table or was winning unprofitable business. The $16,700 might be overpricing that costs the carrier business because competitors will offer better rates.

"Wherever there is judgment, there is noise, and more of it than you think," according to the book, "Noise: A Flaw in Human Judgment," which Kahneman wrote with Olivier Sibony and Cass R. Sunstein and which is being released today.

The book focuses heavily on judges' decisions on prison sentences, both because they are so consequential and because they clearly illustrate the difference between consistent bias (which many companies are becoming good at assessing) and noise (which companies tend to underestimate and thus gloss over).

A study found that a certain set of facts led judges, on average, to impose seven-year sentences. But there was an average variance of 3 1/2 years -- a long time. Some of the variance relates to bias: Conservative judges tend to consistently impose longer sentences. But some is just noise. Perhaps the judge has a personal story that makes him identify more with the defendant. Perhaps the judge has had a series of cases that made her more fed up based on the crime committed. Kahneman says variance even happens based on time of day, the day of the week, the mood of the person making the decision, etc.

While he doesn't try to quantify how much noise reduces profitability for insurers, the sheer size of the numbers involved in underwriting, designing policies, assessing claims, etc. suggests that the potential gains are enormous if decisions can be made more consistently.

Kahneman and his co-authors argue that the starting point for combatting the problem is to conduct a "noise audit." Insurers could do the sort of test that the authors did to assess how wide the variance is among their underwriters, adjusters, agents and perhaps others, decide what the effects on profitability likely are and determine how much effort should go into reducing the noise.

The book argues that algorithms will be a big piece of the solution -- while acknowledging the need to watch out for systemic bias, largely by being super careful about the reliability of the data being fed into the algorithms. Algorithms are nearly free of noise: An algorithm faced with the same information will almost always make the same decision. And, while algorithms can make bad decisions, they can always be learning, meaning that bad decisions can be gradually corrected and turned into good ones.

There will be pushback. Judges largely hated the mandatory guidelines that were established following a major study in the mid-1970s that found huge variance in sentences. Doctors object to being ordered to treat patients a certain way, even when the mandates are based on evidence.

But the evolving state of medicine could provide a solution for insurers: In the same way that AI can now offer suggestions to doctors on diagnoses and treatment -- while leaving the final decision to the humans -- insurers could use algorithms to generate a suggested range of actions for underwriters, adjusters and agents. The algorithms would provide some guardrails that would at least reduce the unprofitable outliers at insurance companies and would keep learning, continually narrowing the recommended range and moving the choices toward profitability

Although I rarely recommend books -- even ones I've written -- I think this book provides a road map for a relatively straightforward way to improve the accuracy of insurers' decisions. And, once you've become acquainted with Kahneman's work, you can go back and read his ground-breaking work, "Thinking, Fast and Slow," published in 2013.

While economists long based their work on the assumption of rational consumers who maximize their utility, we all know that assumption is silly -- people are far from completely rational. And Kahneman has led the way in helping us understand how people actually behave, as opposed to how we might imagine they behave or hope they behave.

Cheers,

Paul

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

Why Open Insurance Is the Future

More are turning to "open insurance" solutions, under which insurers leverage open APIs to share data and services with third parties.

It’s Time for Next Phase of Innovation

It’s time to break through the first phase of technology adoption and move into a new phase of tech-enabled innovation.

Intersection of AI and Cyber Insurance

While AI is sure to benefit society when wielded properly, cyber carriers remain conscious that AI’s proliferation is a double-edged sword.

Achieving a ‘Logical Data Fabric’

A logical data fabric has the capacity to knit together disparate data sources in insurers' broad, hybrid universe of data platforms.

Managing Risks for Hydrogen Industry

There is, rightly, enthusiasm around hydrogen solutions for a low-carbon economy, but projects involve complex industrial and energy risks.

The Broad Reality of Diversity

As people return to the workforce, candidates with the potential to revolutionize our industry may present themselves.

In their quest to deliver customers the personalized experiences they crave, insurers have invested heavily in ramping up the digital capabilities needed to deliver tailored policies. But they may not be doing enough to break out of the outdated paradigms that have held back the customer experience.

To be sure, insurers have dramatically stepped up their innovation game since the arrival of the COVID-19 pandemic. In a recent survey of insurance CEOs conducted by KPMG, 85% said that the pandemic has accelerated their digitization initiatives, with 78% saying that the crisis has intensified their focus on crafting a “seamless digital customer experience.” 

The problem? With billions across the globe having spent the better part of the past year using digital technologies to work, learn and shop, the baseline expectations for what constitutes a quality digital experience have only been raised – making it challenging for many insurers to keep up.

That’s why more and more are turning to "open insurance" solutions, under which insurers leverage open APIs to share and access data and services with third parties – including insurtechs, financial institutions and organizations that possess useful data points that can help insurers more accurately gauge risk and develop personalized coverage. 

For legacy insurers facing mounting competition from digital-forward insurtechs, open insurance offers a promising pathway to shoring up their competitive posture over the long run. Here’s what insurers should know about the benefits of this model and how to go about pursuing it.

The Freedom and Flexibility to Evolve

Open APIs are hardly a novel concept. Open banking, for instance, increasingly uses the common practice to develop new apps and financial services through third-party applications, offering conventional banks the chance to work with fintechs rather than compete with them. 

What will open APIs mean for insurers? Here are just a few examples: By tapping into a rich variety of data, insurers can obtain a much more granular view of risk, paving the way to more accurate, tailored pricing for each individual policyholder. Armed with data-driven insights into their customers, insurers will be able to identify and pursue new revenue opportunities and product offerings, with open APIs facilitating a much faster time to market for new products and services. 

For instance, insurers can take individual software components and seamlessly incorporate them into their offerings, thereby shortening the customer journey, improving customer experience and even adjusting to offer to the customers they are targeting. Some components allow insurers to meet specific organizational needs and minimize the overhead associated with "inventing the wheel." This provides insurers the freedom and flexibility they need not only to adapt, but to position themselves ahead of the curve.

See also: Insurance Leaders Use Digital for…

How to Get Started

While insurers have long been hesitant to share data, embracing the open insurance model will require them to shed that reluctance and operate with a partnership mindset. In this digitized climate, success demands forging partnerships with relevant organizations both within and beyond the traditional insurance industry.  By combining their offerings with those of business partners outside the insurance industry, insurers can generate new value while achieving stronger and more diverse coverage. 

Incorporating open APIs allows access to insurtech products and technological capabilities, as well as more granular customer information, while still adhering to relevant privacy laws and regulations. Simply put, these APIs make it possible for insurers to significantly increase their technological prowess without having to start from scratch or make massive investments in recruitment or R&D.

Cloud computing serves as a vital enabler for this model of collaboration, allowing for quick deployment, rapid scale and easy access to third-party data and resources that insurers can leverage to develop new offerings. 

Insurers don’t have to face this transition alone. Technology partners can provide insurers with the know-how and capabilities they need to extract the most value from open APIs, roll out new offerings and dynamically evolve in response to changing market conditions and customer expectations.

Preparing for the Future

As the COVID-19 pandemic proves, disruption isn’t always predictable. And in a world that often seems to be moving faster than ever, more seismic shifts may be on the way. 

But while not everything is foreseeable, this much is: Insurers’ ability to survive and thrive in the ‘next normal’ will hinge on their ability to deploy innovative models of open collaboration. As insurers plot their digital strategies, they can’t afford to ignore the promise of open insurance.

The insurance industry has slowly embraced digital and mobile technology (strong emphasis on slowly) over the past 10 years. It’s time to break through the first phase of technology adoption and move into a new phase of tech-enabled innovation.

The early phase of technology adoption usually sees incumbent businesses apply technology to existing products and modes of thinking. So, with the first wave of digital adoption in health insurance, we saw plans launch member portals and mobile apps where users could view their explanation of benefits and chat with customer service representatives online. However, nothing about the underlying insurance plan changed.

When it comes to plan design, insurance companies too often think within existing platform limitations. They most often ask: “What can we design that will work on our existing platform?” Then they design the plan and move on to implementation. This is invariably the sequence when developing insurance products and bringing them to market.

The process makes sense at first, because the development of new platforms takes time and costs a lot of money. But these platform limitations are holding us back from designing new tech-enabled insurance products that can truly change the market and better serve customers.

Tech-Enabled Insurance Innovation Will Guide the Future

Starting from scratch is a startup’s advantage, which incumbent insurance companies don’t have.

Oscar Health Insurance is a great example of a startup making heavy investments in new technology and innovative plan designs to create a better member experience. Its telemedicine service and digital provider directories aim to improve access to free or low-cost care for members with high deductibles.

Major medical health insurance is far more regulated in its plan designs than other forms of insurance. If you could start another ancillary insurance product from scratch, however, what kind of plans would you design? If you follow the old way of thinking, you will design the plan first and then think about how to platform it next.

Granted, there are some advantages to this approach. You can create a better version of existing products, like, for example, critical illness insurance policies. Another advantage to tweaking a known insurance product is that you can often rent an existing technology platform to get to market quickly. But if you do that, you risk designing a product that’s not differentiated enough from existing solutions to entice employers and brokers to switch. You also miss an opportunity to create a better solution for your members that actually improves their health.

When we started Brella, for example, we knew we wanted to make a real difference in the health and financial wellness of our members. We saw that as the only reason to go through the trouble of developing a new insurance product — but we needed to build everything from scratch.

See also: Crisis Invigorates Insurance Innovation

The next phase of insurance product innovation is tech-enabled thinking. When you design a new insurance product, think of it in the context of its tech platform. That means you must have both insurance experts and technologists at the table. This is really powerful; it is what enabled us to come up with the concept of a supplemental health insurance plan that pays benefits on diagnosis.

An example of this is Beam Dental’s dental coverage insurance, which uses a connected toothbrush to reward groups with good brushing habits with rates better aligned to their lower-risk profile. Eden Health is also making strides with its primary care solutions that weave together healthcare navigation services with direct primary care. Its tech platform was nimble enough to quickly help employer customers with COVID-19 screening and testing to keep their teams healthy and working through the coronavirus pandemic.

At Brella, we learned from our customer research that out-of-pocket costs caused by rising health plan cost-sharing are a major pain point for families. Existing supplemental plans were not designed to cover that gap. In addition, those plans were rarely used, and, when they were, customers were far from satisfied with their claims experience and the complex rules associated with the plans.

As we thought about building a supplemental insurance plan to address this need, we asked ourselves: “What does a plan design that pays benefits on diagnosis allow technology to do?” and “What does technology allow us to do with the plan design?”

Our tech-enabled plan design lets us pay benefits sooner because the diagnosis happens early in the care journey. This approach also dramatically simplifies the claims and adjudications processes, so it’s easy for customers to file claims in minutes online and through our mobile app. What’s more, it opens opportunities for automation that didn’t exist in past supplemental insurance plans — which were stuck in the first phase of technology adoption.

These are the kinds of differentiated benefits that help customers and their families. That kind of value is worth the price of change for employers to embrace innovative insurance solutions.

Essentially, tech-enabled insurance plan design asks: “What can you do with the plan that unlocks new technical capabilities?” and “What can you do with technology that makes new plan features possible?”

In the next phase of insurtech innovation, more partnerships between insurance experts and technologists are necessary. We need more tables surrounded by actuaries and engineers to create solutions that will realize the world we all want — one where health hardships don’t become financial burdens.

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