One year after the start of the COVID-19 pandemic, Mitchell International conducted its annual survey of about 100 workers’ compensation professionals to determine how technology use changed in the industry during the pandemic and how those changes will continue. The survey found:

Technology use is increasing in the workers’ compensation industry  

• Predictive analytics and telemedicine stood out, showing that the industry rapidly increased the pace of adoption - or the desire to adopt - those technologies during the pandemic.
• More than half of organizations report implementing telemedicine since the pandemic began, and respondents ranked telemedicine (35%) and predictive analytics (35%) as the technologies that will have the largest influence on the industry in the next five to 10 years. 
• Claims providers are facing pandemic-related challenges and are using technology to help overcome them. Almost one-quarter (22%) of respondents ranked adapting to pandemic-related challenges as the top obstacle their organization faces today, and 40% said they believe the pandemic is the leading driver of technology adoption.
• Despite the technology changes in 2020, the workers’ compensation industry still has an opportunity to introduce automation into the claims process. Only 23% of respondents said that their organization uses straight-through processing for 50% or more of the medical bills they manage.

Telemedicine had the most substantial impact (35%) of all technologies implemented in 2020

• As expected, most respondents reported that telemedicine had the most substantial impact (35%) of the technologies they implemented in 2020.
• Survey respondents also indicated that they believe both telemedicine (35%) and predictive analytics (35%) are the technologies that will have the most significant influence in the workers’ compensation industry in the next five to 10 years, compared with other listed technologies. 
• The majority of respondents said the best application of telemedicine is or will be for provider visits (54%), followed by nurse case management (26%) and triage (21%)
• Mobile placed at a distant third (8.5%). 

These findings aren’t too surprising, as telemedicine, predictive analytics and mobile technologies have been key focus areas in workers’ compensation for years. Prior to the pandemic, 32% of people who responded to a similar survey in February 2020 said they thought telemedicine would have the biggest impact on the industry in the future and ranked artificial intelligence and predictive analytics as the next most potentially effective technologies.

See also: Covering for a Gap in Workers Comp Data

It’s clear that telemedicine has been crucial in helping to deliver care to injured employees during the pandemic. With innovation and the addition of other technologies, such as wearables, telemedicine has the potential for broader uses in the industry and could serve a more vital purpose in helping improve claim outcomes for injured employees.

The workers’ compensation industry will see increased demand for predictive analytics 

• Respondents list claim triage as the most popular future application of predictive analytics (35%,) followed by severity or reserving (35%), intelligent decisioning and adjuster guidance (24%) and claim automation (22%)

Indeed, these applications of predictive analytics and more will be vital for efficient and effective workers’ compensation claims processing in the years to come. From triage to automation, predictive analytics can help claims organizations get the right information at the right time to make informed and intelligent claim decisions.

Changes and pressures from the COVID-19 pandemic are the primary driver of new technology adoption

• While 40% of respondents noted the pandemic as the top driver for change, claims organizations are still looking to solve challenges that existed before the pandemic began
• Respondents rated efficiency (22%) as the second top driver of technology adoption, followed closely by cost containment (20%)

The workers’ compensation industry still has a significant opportunity for automation

• Despite the rapid rate of technology adoption in the past year, less than a quarter of respondents (23%) said they automate 50% or more of workers’ compensation medical bills using straight-through processing.
• 22% of respondents said they process 25% or fewer of their bills automatically. 
• Even fewer respondents said their organization processes workers’ compensation claims automatically, with only 16% saying they use straight-through process automation for 10% or more of their claims, and about a quarter (24%) said they only automatically process 0-5% of claims.

Typically, an efficient workflow passes 60% to 70% of medical bills through without human intervention, and it is clear the industry still has much opportunity to reach this level of automation. Straight-through processing offers many benefits, including removing repeatable tasks from adjusters’ workloads, boosting consistency and freeing employees up to have more time to focus on complex claims that need extra scrutiny and care to help achieve better outcomes. 

While we may never achieve full automation of all workers’ compensation claims—unlike other lines of insurance, some workers’ compensation claims will always require a level of human touch. There are plenty of opportunities to boost automation now and in the future using rules engines, artificial intelligence like predictive analytics and more. As technologies become more advanced in the years to come, claims organizations will need to think about how they can strike the right balance and implement the appropriate level of automation that allows them to spend their time focusing on the claims that need special attention.  

See also: Optimizing Care with AI in Workers Comp Claims

Survey demographics

Mitchell surveyed nearly 100 workers’ compensation professionals at a range of companies, including insurance carriers, third-party administrators, public entities, managed care and risk management organizations, and brokers. The majority of respondents (75%) had 10 or more years of experience in the workers’ compensation industry.

You can find the full report based on Mitchell’s 2021 survey here.

If insurance is a matter of predictive analysis, the most accurate prediction requires no analysis. The prediction is a sentence of pith and precision, economizing words while encompassing phenomena throughout the world. The prediction is a law, Stein’s law, whose namesake, Herbert Stein, was an adviser to presidents and the father of a speechwriter, Ben Stein, to a succession of presidents. The prediction says, “If something cannot go on forever, it will stop.”

What will stop is the obvious: a runaway stock market in which distance is infinite, speed limitless, direction ascendant and principal impenetrable. That people believe this trajectory is not only real but sustainable, that they believe this trajectory transcends Stein’s law as well as the laws of economics and common sense is reason for insurers to act.

What insurers must do is save the many, so people may protect their savings. Failure to act will result in a stoppage of incalculable stress and immeasurable loss, where tomorrow’s retirees have no way to retire save expiring en masse, save death in lieu of destitution.

Without life insurance, those who need a safe and tax-free source of retirement income will not have one. Without life insurance, those unable to work will be unable to live. Not without assistance from the government. Not without a concomitant rise in prices and collapse in dignity. Not without a recession in the economy and a sense of fear among the people.

Avoiding this scenario starts with alerting the public to the imminence of this threat.

The alert must be clear, thanks to the simplicity of the message and the frequency by which it repeats itself. The writing and delivery of the message is a charge the insurance industry must assume and a role it must accept. The costs are minimal, in comparison to the consequences of inaction.

To sound the alarm is to admonish the public, telling the many what to do and where to go.

To sound the alarm is not to sound like an alarmist, because the crisis we face is too extreme to exaggerate.

If the crisis is hard to understand, we must make it easy to comprehend. If the crisis is hard to define, we must make it easy to describe. If the crisis is hard to divert, we must make it easier to diminish.

See also: Insurance Outlook for 2021

The insurance industry must lead us through this crisis. 

Steadfast in its dedication, the industry can secure its place in history; strong in its devotion, the industry can make history. 

Saving a generation from financial ruin is a moral duty. The duty insures lives, providing for the defense of liberty and the pursuit of happiness. The duty demands exemplary counsel, by people of excellent character, for people in exigent circumstances.

The duty belongs to the insurance industry, allowing it to earn what no amount of advertising can buy: trust.

Honoring this trust enriches the lives of millions, exceeding the combined wealth of a thousand billionaires, because safety is a treasure of inestimable worth.

The COVID-19 pandemic has uncovered latent demand for insurance protection of all kinds as people grapple with how to protect their families from unexpected shocks. LIMRA's research shows strong direct-to-consumer growth over the past year for certain types of life insurance, for example. This surge in interest comes even though life insurance ownership rates have fallen nine points over the last decade to 54%.

Consumers have always understood the importance of insurance coverage. Financial Health Network's research found, for instance, that over 50% of people without life insurance knew they needed it. (Cost was the main barrier.) It appears that a global pandemic has forced even more urgency for protection and that people are finding a way to make it a priority. As consumers begin to seek more coverage, the industry needs to step up to meet their evolving needs.

Here are four ways that insurtechs have begun to do that.

1. Diversifying distribution channels.

There is a lot of chatter about how the traditional insurance agent is disappearing. But, at least in the medium term, agents aren't going anywhere. 89% of individual life insurance products were distributed by independent and affiliated agents in 2019. P&C numbers are similar, although auto insurance relies heavily on direct outreach. A more helpful perspective is to think about how to diversify the distribution channels to meet and serve a larger swath of consumers in many different ways. For example, group insurance distributed largely through employers represented 43% of all life insurance policies in 2018. As I've written elsewhere, there are limitations to employment-linked insurance, but it is still an important tool for distribution. How else can the industry diversify? Agents, employers, banks, and direct-to-consumer channels all have a role to play in getting insurance into the hands of the consumers who need it most.

We see insurtechs stepping out in new ways to reach customers. Some are going direct-to-consumer through AI-enabled chatbots that replace agents, like life insurers Bestow, Ladder and Ethos, and disability insurer Breeze. Other insurtechs are leveraging partnerships with financial institutions, like life insurer Everyday Life and disability insurer Simple Disability. Some of these companies have dual strategies relying on agents in certain cases and going direct-to-consumer in others.

See also: COVID: Agents’ Chance to Rethink Insurance

2. Increasing flexibility.

People's protection needs change over time, but pricing and policy terms are often static. More insurtechs are introducing flexibility into how they price and provide coverage. Metromile and Hugo were innovators in offering pay-as-you-go auto insurance, adjusting coverage to people's driving habits and resulting in reduced costs. Everyday Life and Ladder allow customers to adjust their life insurance coverage, which can make policies more affordable for those with limited incomes.

3. Rewarding good behavior.

Behavioral incentives are getting increased traction with carriers of all kinds. Life insurers like Haven Life reward policyholders for healthy lifestyles. Lots of auto insurers are relying on telematic apps to reward good driving behavior. The auto insurtech Sigo has developed the first Spanish-language telematics app for the Latinx market. And startup Marble is building the industry's only rewards program, increasing engagement and loyalty between policyholders and their carriers.

4. Reaching the mass market.

Because insurance companies are in the financial resilience business, they can offer struggling customers the peace of mind and protection that only insurance products can provide. People themselves understand better than anyone else the risks in their lives, and they're looking for protection now more than ever. Sigo is reaching the Latinx mass market with affordable car insurance based on a fully digital experience and fairer underwriting. Harmonic is helping people build their financial safety net starting with a free $10,000 accidental death policy. Now is the time to embrace the mass market, listen to what they're telling us about their risks, and provide them with the protection and resilience they deserve.

This is a unique moment that presents a huge opportunity for the insurance industry. Consumers recognize now more than ever the importance of adequate insurance coverage to protect their families. They are looking for flexible, responsive, and personalized policies to fit their needs, their risks, and their budgets. Now is the time to seize on this opportunity to strengthen the financial well-being of all consumers.

When I checked the weather for my town in Northern California over the weekend, I saw a "red alert." What? Sure, it was windy and a bit warm, but a red alert? For what? It turns out that we're already in fire season: Low humidity, high temperatures and strong winds meant severe danger for wildfires. At the beginning of May.

At the same time, all forecasts seem to be for an unusually active hurricane season in the Atlantic this summer. So, buckle up. As bad as the past few years have been, there's no reason to think this summer will bring any relief from natural disasters in the U.S.

This forecast on hurricanes calls for not only the sixth consecutive year of more hurricanes than average -- following a year when there were so many tropical storms that they ran through the entire alphabet of designated names and made it deep into the Greek alphabet -- but also for more that will make landfall in the Caribbean and along the U.S. coast. The reasons for concern are that the La Nina weather pattern is expected to last into the early summer and that sea temperatures are well above average in the Caribbean and Gulf of Mexico.

While wildfires are harder to predict, this Washington Post article reports that structural changes in the weather are making California more vulnerable. The big issue is that the dry season, which lasts roughly from late spring to late fall, is expanding, according to analysis from weather stations around the state from the past 60 years. For instance, Sacramento, near where I live, has seen the onset of its rainy season delayed by three weeks just since 1979. San Francisco has had its dry season expand by 14 days.

About 4.2 million acres burned in the state last year, an area larger than Connecticut and twice as extensive as the previous worst season on record. (In a bizarre story, authorities allege that one of the major fires was set by someone who had killed a woman and wanted to hide the evidence of how she died; the fire killed two men whose homes lay in its path.)

It's been a dry winter, so who knows how bad this year will be?

Technology is finally being deployed that uses sensors to track the progress of fires and help with deployment of resources -- firefighting has been described as "100 years of tradition, unimpeded by progress" -- but that seems to be a few years away from making a major difference.

For now, we seem to need to brace for a wet, stormy summer in the Caribbean and along the Atlantic coast and a long, hot summer in my neck of the woods.

Keep your fingers crossed.

Cheers,

Paul

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

Gateway to Claims Transformation

Claims management is a perfect use case for just how critical platforms and ecosystems can be in achieving transformation.

Nonstandard Auto Insurance’s Key Role

Customers, insurance carriers and their distribution need nonstandard auto protection for drivers now more than at any time in history.

Transformation of the Risk Landscape

Insurers of all sizes need to take note of changes in the risk landscape and continuously improve their ERM practices.

Bring Certainty to Remote Injury Claims

The reality is that injuries occur all the time in any environment, at home just as they do in a conventional workplace.

Way Beyond Comparative Raters

Distribution in commercial lines is in play. Companies are rethinking strategies to reach preferred segments and drive more profitable business.

How Well Did Agents Cope With COVID?

Both brokers and carriers give themselves high marks on retaining and servicing existing policyholders. But new business is a different story.

How well have insurance-industry sales teams coped with Covid-19? In a complex industry, where brokers and carriers each have client relationships, have sales and service teams been able to maintain and expand relationships? We set out to explore those questions with a focused survey of brokers and carriers, conducted in March 2021. The full report, Insurance Relationships: Obstacles and Action Areas, written by AchieveNEXT’s Ed Wallace and Jennifer DeMello-Johnson, VP of agency services at Amerisure Insurance, can be downloaded here. 

Some headlines:

• Both brokers and carriers give themselves high marks for the ability to retain and service existing policyholders, despite the disruptions of the pandemic year. 
• A third say they are fully confident in this area, and a negligible 2.5% say they lack confidence.
• Writing new business has not been as easy. One in 10 lack confidence, and just over a quarter describe themselves as fully confident of their capabilities. 

What accounts for the difference? Processes play a role. Much of the business of servicing existing clients is organized, automated and buttoned down. Selling is more often ad hoc and individualized and, respondents say, often inconsistently handled — a problem when work moves online. Technology also matters, especially when brokers and carriers use different systems that do not communicate with each other. Incentives are a problem. Nearly one in five -- 17.5% -- believe that sales compensation plans are actually misaligned with company goals, and there can be clear tensions between brokers and carriers. 

Compounding these challenges is the difficulty of establishing new relationships in a hybrid environment. That hypothesis resonates with what we have seen at AchieveNEXT, where we offer sales and business relationship training as part of a suite of human-capital services. My colleague Ed Wallace, co-author of the study and author of The Relationship Engine, says, “Across industries — and insurance is no exception — we see people who are superb at one-on-one selling or at working the room but are fish out of water when it comes to hybrid selling. At the same time, a lot of people who are great at selling online and on the phone need help turning transactions into relationships.” 

In fact, according to Jennifer DeMello-Johnson, “We are recommending that our agency partners adopt a 50/50 balance between one-on-one and virtual for the balance of 2021.” 

See also: ITL FOCUS: Agents & Brokers

One thing for sure is that legacy sales models will need to evolve in a way that works on technology, processes, and skills together, and that crosses broker-carrier borderlines.  

Click here for a copy of Insurance Relationships: Obstacles and Action Areas

Steve Jobs gets a lot of credit for re-imagining computing, for making us mobile and for putting technology in our hands that has changed the way we communicate, do business, purchase products — and so much more. But he had some help from things like the availability of increasingly powerful data storage options and more widespread internet connectivity. Jobs’ leaps and bounds are often the outlier. In general, adversity is more often the catalyst for dramatic change.

Prior to the ongoing COVID-19 pandemic, the insurance industry was working hard to overcome the perception of being antiquated and out-of-touch. Now, the challenges presented by a global health and economic crisis have insurance organizations scrambling to fully support a monumental shift in customer risk needs, demands and expectations. 

But, remember: Out of adversity comes innovation and invention. For insurers willing to adopt a new mindset and leverage the latest technologies as a way of adapting to market changes, the global recovery that is underway is an opportunity. Insurers can come out of the pandemic stronger and more able to meet new customer expectations and global demands, and ultimately, to accelerate growth. 

Unfortunately, change is rarely easy.

At a foundational level, there are operational and technology changes needed to enable insurers to match the pace of future business and succeed in this new era of insurance. And, as the insurance industry continues to evolve, it is important that leaders have the courage to embrace the opportunity that comes with disruption in terms of product innovation, distribution redefinition and new technology foundation.

Product innovation

The last decade has seen shifts in lifestyles, workplace trends and entrepreneurship. New businesses driven by technology — such as online groceries, drone-based businesses and services businesses underpinned by IoT — have cropped up. We have also seen new economies emerge, such as the gig and sharing economies.

Today, there are more small businesses than ever before, more women starting businesses and more people working from home. Expectations are also different. Policyholders demand more transparency into premium calculation or risk assessment; self-service options for bill payment, policy documents and claim status; and an ability to affect premiums through behavior modifications. These changes mean both individuals and businesses are carrying new or existing risk in different ways. Subsequently, true product innovation can no longer wait. The move toward more personalized, on-demand, usage-based insurance (UBI) products is happening across all lines of business, but especially in property and casualty (P&C) insurance, as a way of accommodating and supporting the evolving business landscape.

Distribution redefinition

While many commercial policyholders will still purchase coverage from an insurance agent or broker, the next generation of policyholders expects channel options. In addition to the agent/broker option, insurers today must offer: viable online or direct functionality via a dedicated portal; partnerships with managing general agencies (MGAs) that can cover new geographies quickly; and point-of-purchase, embedded or ecosystem plays through integration opportunities. It’s no longer just about convenience. It’s about awareness and matching the right coverage to the right policyholder, through the right channel, at the right time. Finding the mix of distribution channels that allows for speed-to-market, producer profitability and a greater degree of self-service is key for insurance executives redefining the distribution diagram.

See also: The Intersection of IoT and Ecosystems

New technology foundation

Investments in cloud and next-generation core systems, as well as emerging technologies will support new greenfield business models and insurance products and will accelerate innovation and growth in weeks versus months or years. New commercial coverages — such as those for cyber, cannabis and on-demand or UBI commercial auto — are born digital and are inherently flexible thanks to the nimble technology platforms on which they are built. As confidence in emerging technologies grows, enthusiasm for immediate adoption must be tempered by industry expertise that does not compromise regulatory compliance, privacy or the security of personally-identifiable information (PII).

Throughout history, there has been a strong relationship between disruption and opportunity — driven by innovation in business and technology. The COVID-19 pandemic, among other cultural, demographic and global pressures, is changing customer behaviors and business models and is creating demand for product innovation, distribution redefinition and new technology foundation. It follows that these demands create opportunities to make insurance better and more relevant through the innovative application of technology. But insurance leaders and organizations must be willing to think differently in order to make the most of this open window.

The working world is changing. Even before the COVID-19 pandemic, remote work was gaining popularity as employees sought greater flexibility and as advances in telecommuting removed barriers. Some employers even offered work-from-home options as an incentive to attract and retain top talent, save money and sharpen their competitive edge. 

Since the pandemic, remote work has become a fact of life, and, like it or not, it’s here to stay. Even with vaccinations on the rise and many watching the horizon for a return to “normal” — or to the office — many workers will never return to a physical worksite. Employers who acknowledge the shift are developing and implementing plans to provide continued work-from-home options.

But what does this change mean for your organization when a worker gets hurt on the job?

It may seem that working from home would provide employees with a safe environment and low risk of injury, but, in truth, employers won’t always know what specific hazards exist in every worker’s home. The reality is that injuries occur all the time in any environment, at home just as they do in a conventional workplace.  

Evaluate

Workers’ compensation claims for injuries sustained in the home can and should be evaluated the same as any other industrial claim — but they still present their own unique challenges. While every state has its own laws and interpretations, compensable claims generally have these things in common: the injury must be work-related; it must have occurred in the course and scope of employment; and the injury or accident must arise out of job-related activities. A proper investigation can provide the details needed to make an accurate determination and ensure the appropriate benefits are administered.

There is no requirement that an injury must occur at a place of employment outside the home — such as a worksite, factory, warehouse or office — for a workers’ compensation claim to be compensable. What is required is to establish whether it arose out of employment (AOE) or the course of employment (COE). The goal of a compensability investigation is to establish if the reported injury occurred, if it occurred in the course and scope of employment or if it was non-industrial.

See also: Pressure to Innovate Shifts Priorities

AOE/COE Compensability Determination

To be eligible to receive workers’ compensation benefits — including medical treatments, disability benefits, vocational rehabilitation and death benefits — an injury or illness must have arisen out of employment (AOE) and occurred during the course of employment (COE).  

As a general rule, if an employee deviates from work activities benefiting their employer to activities for a personal benefit, any injury occurring during such deviation is generally not considered within the course and scope of employment and is therefore not covered. But once the employee returns from the deviation to work-related tasks for the benefit of the business, any injury that occurs after that point is typically covered. 

However, there are nuances when considering the work-from-home environment. Take lunch, for example. When an employee leaves the office for lunch, compensability is typically more straightforward for injuries sustained while away from the workplace. But when an at-home employee trips and falls while walking to the refrigerator for lunch, the question may be somewhat less clear-cut. 

Investigative Solutions

It is crucial to conduct an investigation early on in any claim to document the facts, gather/secure any potential evidence and identify any potential third-party liability. The investigation will seek to determine if an accident or incident occurred, if an injury was sustained, whether anything unusual or unexpected occurred and whether the incident caused or aggravated a medical condition. 

While an accident at a job site or office may benefit from reliable witnesses or security footage, at-home employees are often working alone and unsupervised. This means injury incidents often occur without reliable witnesses to corroborate accounts. 

Recorded Statement

Obtaining recorded statements is a key technique for thorough remote injury investigations. At-home injuries are often unwitnessed (or potential witnesses are likely family members), so investigators will assess the credibility of the claimant and any witnesses and secure their recorded statements. Investigations must rely heavily on claimant and witness statements bolstered by medical records, scene inspections and other investigative solutions.

Here are some critical details an investigator will verify:

• The time and date of the incident
• Whether the incident occurred within the employee’s routine working hours
• The activity that preceded the injury
• Exactly what work was being done at the time of the injury
• The mechanism and nature of the injury 
• Medical history and claim history

Confirming when the in-home worker took breaks and other corresponding details about their daily routine are also important pieces. In addition to determining whether the employee was legitimately working for the employer at the time of the injury, investigators will inquire further to ascertain if the employee was solely engaged in work-related activities or if there were any other activity or distractions involved. If a reported injury arose from playing with the dog between calls or consuming alcohol while listening to a training, these may be valid reasons to deny the claim. 

See also: Long-Haul COVID-19 Claims and WC

Subrogation Investigation

Subrogation potential can also be complicated with a remote employee injury. What if your employee’s injury was caused by a roommate or landlord negligence? Or, imagine that a claimant reports she sustained an injury at her home workstation as a result of a broken chair. It’s then essential to obtain all needed information about the chair, any prior complaints or defects, litigation involving the manufacturer and other facts required for a potential subrogation claim.

Make a Plan

Create policies and procedures specific to your telecommuting employees. Work-from-home agreements can help ensure everyone understands expectations around creating a safe environment and guidelines for the reporting of an injury and the investigation of a claim.

MAY 2021 FOCUS OF THE MONTH
Cyber

FROM THE EDITOR

When I was 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 back to happen, but we all know that there are plenty of bad guys out to find all the victims they can.

Ransomware, in particular, has become an enormous problem. A few years ago, hackers would make limited strikes and hit a few computers at a company, then demand $10,000 or maybe $20,000 to unlock them. Now, though, hackers have figured out ways to combine their specialized skills and make a much broader attack that includes finding and locking up the backup servers -- which means the hackers have pretty much shut a company down and can make any ransom demand they want. Demands of $500,000 or more are common, and some reach into the many millions of dollars.

Insurance is surely part of the solution for most companies, but paranoia plays a role, too. Companies need to spend much more time focusing on how to prevent the cyber attacks in the first place, and the best insurance companies are using their expertise to help clients with that effort. New tools and techniques offer considerable hope.

Within that effort at prevention, there is room for an awful lot more cooperation. Law enforcement can work with insurers and company clients to educate them on trends and offer advice, and insurers and their clients can work together to share information on vulnerabilities and on potential solutions. As long as the bad guys are working together, the good guys need to, too.

- Paul Carroll, ITL's Editor-in-Chief

WHAT TO WATCH

The Alarming Surge in Ransomware Attacks Insurers can help clients protect themselves – but preventive approaches aren’t yet widely implemented, leaving the door open for unscrupulous hackers. 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

WHAT TO READ

	CISOs, Risk Managers: Better Together In most large firms, risk managers buy cyber insurance--but are rarely expert in network security and may not fully understand the risk profile. Read More
	Ransomware Grows More Pernicious The emergence of the Maze variant creates a new threat, that stolen information will be released to the public on the internet. Read More
	How to Fight Rise in Cyber Criminals IT security standards have sometimes been lowered or suspended for work at home in the pandemic, resulting in cyber security exposures. Read More
	New Enhancements for Cyber Coverage Cyber insurance is probably the most rapidly evolving product on the market. Here are some of the newer enhancements. Read More
	How CAT Models Are Extending to Cyber The approach to models used for natural catastrophes is being applied to cyber, leading to a quick maturation in understanding the risks. Read More
	How Machine Learning Halts Data Breaches There are four main types of data breaches that advances in machine learning can help thwart. Read More

WHO TO KNOW

Get to know this month's FOCUS article authors:

Evan Bundschuh	Kelly Castriotta	Laurel Di Silvestro
Mark Greisiger	Charles Pruzinsky	Erica Sunarjo

Learn More about ITL Focus

Interested in sponsoring ITL Focus or learning about other promotional opportunities? Contact us

Now, more than at any time in history, customers, insurance carriers and their distribution need nonstandard auto protection for drivers.

Although, in the past, some carriers have declined to cover higher-risk drivers, that could change, partly as a result of economic turmoil caused by the COVID-19 pandemic. Early in 2020, both the consulting firm McKinsey & Co. and the reinsurance broker BMS Group predicted the United States could see a surge in the market for nonstandard auto insurance.

In July 2020, Allstate Corp. announced it would buy nonstandard auto insurer National General Holdings Corp. for about $4 billion in cash, a deal that is set to be completed early this year. With National General reporting about $5.6 billion in gross written premiums in 2019 (with nonstandard auto policies accounting for 44% of that), Allstate is scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims. In September 2020, State Farm, America’s largest property and casualty insurance provider, announced it would buy nonstandard insurance provider Gainsco for about $400 million in cash, another deal expected to be completed early this year. It’s State Farm’s first acquisition of another insurance company in its 98-year history.

So why is a renewed focus on this type of insurance is important? Well, let's start with the most important part of the equation first: the customer.

The Customer

According to IBISWorld, the market size of the U.S. automobile insurance industry is estimated to be $311 billion in 2021. Estimates vary regarding the prevalence of nonstandard coverage; some experts say it makes up 20% of premiums for personal auto insurance, while others estimate it to be 30-40% of the auto insurance market.

Customers need nonstandard coverage availability and premiums to protect their families. One family member having driving issues (a DUI, multiple accidents, SR-22, being recently nonrenewed from a preferred policy and poor credit) shouldn’t knock out the entire family unit from getting the type of protection they need and from qualifying for a preferred policy/rate.

Today, the average household has multiple vehicles and multiple drivers. More than ever, people want a carrier and an advisor/firm to represent them on everything. They expect and demand a one-stop shop for all their insurance and financial needs. This includes, but is not limited to, providing protection even when the household account is not 100% a preferred risk.

See also: How to Engage Better on Auto Insurance

Now let’s look at how a focus on the nonstandard market can benefit carriers.

The Carrier

Until recently, most of the largest carriers focused on the “preferred market.” A few of the leading carriers have had affiliate companies/brands to provide a nonstandard solution for their customers. Other preferred carriers dabbled in or tried to provide a “near-standard“ option, only to get clobbered in many instances.

Progressive and Geico are examples of companies embracing the nonstandard market with expertise pricing and are models of how to provide customers with a protection solution that is sustainable. However, most carriers are currently looking at strategic alliances or are purchasing existing nonstandard carriers as partners. The bottom line is that the customer has spoken, and companies need to provide a one-stop shopping experience going forward. Not providing such a solution opens the door to the competition.

Finally, let's look at how increasing the focus on nonstandard coverage can benefit distribution’s ability to provide unrivaled service.

Distribution

Whether advisors are employee-led or contractor-led, are brokers, firms, agents or team members, providing unrivaled service, advice and product solutions is the way forward. While there will always be an element of transactional sales, providing a meaningful and consistent customer experience is the winning strategy.

Most practitioners would not want to try to make a living on nonstandard auto only. But ignoring it altogether means a significant missed opportunity. The firm owners, brokers and agencies that have a laser focus on the economics business realize they must provide real solutions for all their clients, even in situations that are complex, difficult and risky.

Providing nonstandard service and solutions not only wins new business, it sustains relationships. And we all know great relationships lead to referrals and additional opportunities. Providing unrivaled service requires focus on factors other than just price. Offering nonstandard coverage when your competition does not is one way to leap ahead.

The nonstandard auto market has never been more important. It’s no longer a one-off. As our industry retools, nonstandard auto needs to be at the top of the list as we serve our customers.