Drought spells disaster for farmers across the developing world. Most lack insurance because conventional crop insurance is too expensive (where it is available at all). No rain means no income, no food and not enough resources to replant next year. With many countries from sub-Saharan Africa to Southeast Asia already facing an abnormal recurrence of climate risks, natural disasters around the world caused $232 billion of economic losses last year. Only a small fraction of this was covered by insurance.

Many developing economies depend on improving the productivity and resilience of sectors, including agriculture and tourism, that are vulnerable to climate hazards such as cyclones, heat waves, droughts and flooding. With economic losses from catastrophes growing faster than insured losses, adapting individuals and economies to climate-related impacts has become a major societal priority, outranking other risks like aging populations, terror attacks and social unrest. New insurance products designed to create disaster-risk-financing mechanisms, where no other risk-transfer tool is available, are increasingly being seen as part of the solution in closing this protection gap.

Many of these products are parametric, as opposed to indemnity, otherwise referred to as traditional, insurance. Increasingly recognized as a valuable form of transfer for climate and other natural disaster risks, parametric insurance contracts are based on objective and transparent indices, such as cyclone wind speed, earthquake shaking intensity or amount of rainfall, and payments start to be made as soon as the index reaches a preset threshold. As no costly visits are required to assess the losses, payouts can be made quickly to hard-to-reach insureds in remote locations. Crucially, protection against unpredictable but potentially devastating risks -- previously unthinkable with traditional insurance -- is now possible.

Rapid relief 

For the insured, ease of use, speed, certainty of amount of payout (without dispute) and the resulting ability to plan ahead ensure more rapid relief when disaster strikes, which in turn increases financial resilience. 

For the insurer, parametric insurance allows for a more scientific pricing of products that respond to specific isolated parameters, rather than the physical losses that might result from any number of a wide range of occurrences. Together with lower claims management costs, this scientific approach makes lines of business commercially viable that were not previously.

Contrast this with a complex insurance claim on a traditional policy, which may take a long time to adjust and be paid, due to the need to develop claim details and financial components as well as address issues like valuation and other conditions.

A hard sell

This does not solve the issue of how to persuade people in Africa, who are generally somewhat insurance-averse, to buy insurance. This form of risk management requires a certain level of prosperity, as it means spending money on something you hope you will never need. 

However, this challenge can be surmounted. African governments and policymakers understand the cost-benefit analysis, combined with the experience from developed countries showing that insurance can play a cost-effective role in a country’s efforts to increase disaster resilience. 

The African Risk Capacity (ARC), launched by the African Union in 2013, demonstrates what is possible. Set up as a mutual (known as ARC Ltd.), and designed to provide rapid payouts to covered nation state members, initially for droughts but planned to include floods, tropical cyclones and epidemics, the insurance pool started with four countries and now has a dozen or so policyholders and 34 member states. ARC has become highly efficient in pooling risks and their transfer at very low marginal cost to the global reinsurance markets and now protects tens of millions of people. 

This is a remarkable achievement when you consider that until recently the concept of selling droughts in Africa to the global reinsurance market would have been unthinkable.

Insuring the ‘uninsurable’ 

Parametric insurance solutions have mostly been used in the reinsurance space around catastrophe risks, but the boundaries defining what is "uninsurable" are being increasingly pushed to new limits. A policy covering hurricane-related damages to coral reefs was purchased in 2018 to cover a part of the vast Mesoamerican Reef along Mexico’s Yucatán Peninsula. Once verified, the agreed policy would be paid within one week. Such a rapid disbursement of funds is crucial as much of the initial reef repair following a severe storm needs to be done very quickly to avoid further damage and set up a successful recovery.

See also: Increasing Regulation on Climate Change

Not just for developing countries

These same innovative parametric applications being adopted in emerging economies also have significant potential in developed markets. In contrast to emerging economies, where the problem is more likely due to cover being unavailable, businesses in developed countries are increasingly seeking protection against losses for which traditional insurance is not best-suited. 

Emerging climate risks are a key driver behind this growing demand for more innovative insurance products in both the public and private sectors. The impact from a crop loss following a major weather event or supply chain delays is smaller in developed markets, but still significant. The Bank of England, for example, downgraded its expected first quarter GDP growth from 0.4% to 0.3%, following the impact on businesses from the "Beast from the East" – the cold weather snap that hit the U.K. in the winter of 2018.

Whether it’s reducing the protection gap, financing resilient infrastructure or improving risk management and return optimization across the financial sector, insurance technology and innovation has a decisive role to play in responding to climate risk and smoothing the world’s transition. While protection gaps remain an issue as greater costs are borne by the uninsured, these gaps are closing slowly. Innovative risk transfer structures and new products based on parametric triggers have a key role to play and will continue to help increase resilience of households and companies to growing climate risks.

A trio of COVID-19-related risks heads up the Allianz Risk Barometer 2021, reflecting potential disruption and loss scenarios that companies are facing in the wake of the pandemic. Business interruption (with 41% of respondents citing it as a risk) and pandemic outbreak (at 40%) are this year’s top business risks, with cyber incidents (40%) ranking a close third. The 10th annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,769 experts in 92 countries and territories, including CEOs, risk managers, brokers and insurance experts. 

The COVID-19 crisis continues to represent an immediate threat to both individual safety and businesses, reflecting why pandemic outbreak has rocketed 15 positions up to #2 in the rankings at the expense of other risks. Prior to 2021, it had never finished higher than #16, a clearly underestimated risk. However, in 2021, it’s the #1 risk in 16 countries and among the three biggest risks across all continents and in 35 out of the 38 countries that qualify for a top 10 risks analysis. Japan, South Korea and Ghana are the only exceptions. 

Market developments (#4, at 19%) also climbs, reflecting the risk of rising insolvency rates following the pandemic. According to Euler Hermes, the bulk of insolvencies will come in 2021. The trade credit insurer’s global insolvency index is expected to hit a record for bankruptcies, up 35% by the end of 2021, with top increases expected in the U.S., Brazil, China and core European countries. 

Further, COVID-19 will likely spark a period of innovation and market disruption, accelerating the adoption of technology, hastening the demise of incumbents and traditional sectors and giving rise to new competitors. Other risers include macroeconomic developments (#8, at 13%) and political risks and violence (#10, with 11%), which are, in large part, a consequence of the coronavirus outbreak, too. Fallers in this year’s survey include changes in legislation and regulation (#5, with 19%), natural catastrophes (#6, with 17%), fire/explosion (#7, with 16%) and climate change (#9, with 13%), all clearly superseded by pandemic concerns.

Pandemic drives disruption — now and in the future

Prior to the COVID-19 outbreak, business interruption (BI) had already finished at the top of the Allianz Risk Barometer seven times, and it returns to the top spot after being replaced by cyber incidents in 2020. The pandemic shows that extreme, global-scale BI events are not just theoretical but a real possibility, causing loss of revenue and disruption to production, operations and supply chains. 59% of respondents highlight the pandemic as the main cause of BI in 2021, followed by cyber incidents (46%) and natural catastrophes and fire and explosion (around 30% each).

In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains. According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62%), followed by developing alternative or multiple suppliers (45%), investing in digital supply chains (32%) and improving supplier selection and auditing (31%). According to AGCS experts, many companies found their plans were quickly overwhelmed by the pace of the pandemic. Business continuity planning needs to become more holistic, cross-functional and dynamic; monitor and measure emerging or extreme loss scenarios; and be constantly updated and tested and embedded into an organization’s strategy. 

Cyber perils intensify

Cyber incidents may have slipped to #3 but remain a key peril, with more respondents citing it than in 2020 and still ranking as a top three risk in many countries, including Brazil, France, Germany, India, Italy, Japan, South Africa, Spain, the U.K. and the U.S. The acceleration toward greater digitalization and remote working driven by the pandemic is also intensifying IT vulnerabilities. At the peak of the first wave of lockdowns, in April, the FBI reported a 300% increase in incidents alone, while cybercrime is now estimated to cost the global economy over $1 trillion, up 50% from two years ago. Already high in frequency, ransomware incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands, as highlighted in the recent AGCS cyber risk trends report. 

See also: 3-Step Framework to Manage COVID Risk

Risers and fallers 

Macroeconomic developments is up to #8, and political risks and violence (#10) returns to the top 10 for the first time since 2018, reflecting the fact that civil unrest, protests and riots now challenge terrorism as the main exposure for companies. The number, scale and duration of many recent events, including Black Lives Matter protests, anti-lockdown demonstrations and unrest around the U.S. presidential election, have been exceptional. As the socioeconomic fallout from COVID-19 mounts, further political and social unrest is likely, with many countries expected to experience an increase in activity in 2021 and beyond, particularly in Europe and the Americas.

Changes in legislation and regulation drops from #3 to #5 year-on-year. Natural catastrophes falls to #6 from #4, reflecting the fact that, although aggregated losses from multiple smaller events such as wildfires or tornadoes still led to widespread devastation and considerable insured losses in 2020, it was also the third consecutive year without a single large event, such as Hurricane Harvey in 2017. Climate change also falls to #9. However, the need to combat climate change remains as high as ever, given that 2020 was the hottest year ever recorded. 

To learn more about this year’s findings, please visit Allianz Risk Barometer 2021.

A primary goal of insurtech is to simplify and automate the insurance lifecycle — reducing time-consuming manual tasks, improving the agent experience and addressing potential client risks. One of the best ways is to increase the free flow of information at all points in the distribution channel.

2020 was the catalyst for huge advances in connectivity, largely due to the shift to work-from-home. In 2021, four particular areas will experience accelerated growth:

Real automation of commercial submissions will arrive.

The process of quoting and binding commercial lines has a lot of catching up to do in terms of workflow efficiencies compared with personal lines. Commercial insurance continues to suffer from outdated manual data entry procedures and an abundance of unnecessary paperwork. One-to-one quoting with individual carriers is a labor-intensive process, and high-volume, low-revenue risks typically require the same amount of time and effort as larger, more profitable opportunities. 

But there’s good news on the horizon in 2021. This year, the industry can expect general availability of robust, comprehensive insurtech platforms that truly automate commercial submissions. These platforms speed up the process for both agents and clients by pulling end-insured information directly from the AMS and filling as much as 80% of most submission forms without a single click. In turn, these solutions deliver structured, more error-free data to the carrier for accurate, bindable quoting.

Commercial submission automation also allows agents to generate quotes from multiple carriers in near-real time. Consumers have long appreciated quote comparisons as a way to make more informed decisions. By bringing that capability to the commercial side, customers and agents can collaborate on coverage options and reach purchase decisions far more quickly.

Carriers will facilitate better data exchanges.

Look for carriers to expand their data sharing initiatives in 2021. With a more seamless connection among carrier, agency and insured, service will become more immediate, more personal and more competitive.

As connections go deeper into core business platforms, actionable insights grow. For example, if an end-insured makes a change in a policy (like adding a vehicle or a driver), an alert from the carrier could immediately be pushed to the AMS. This alert would not only offer the agent the opportunity to touch base with the customer, but it also eliminates the need for agents to reach out frequently to the carrier for updates.

Integration of third-party data will accelerate, as well, though the industry is in the early stages in the commercial space. The aim is for third-party data to facilitate collaboration across multiple activities such as identifying class codes and linking those to risk, streamlining the underwriting process and optimizing submission flows. The goal is to improve quoting speed and accuracy for commercial lines through third-party data integrations and, eventually, a single application programming interface (API), similar to what is already in place for personal lines.

See also: How COVID Alters Consumer Demands

Single sign-on will make carrier credentialing easier.

For independent agencies, usernames and passwords for carrier websites can be a major concern. The problem is evident when the number of employees is multiplied by the number of carriers; every username and password must be tracked and accounted for. 

When an employee leaves, credentials must be removed or changed — a time-consuming process that can also pose security risks if credentials are overlooked. Onboarding new employees requires provisioning dozens of credentials — also a time-consuming task. Over a year’s time, hundreds of hours can be wasted agency-wide simply due to carrier sign-ons.

Single sign-on (SSO) technology is beginning to solve the problem. SSO creates a single, secure agent identity that is acceptable to all carriers. Some AMS and rating systems already offer SSO, but, where the solution isn’t available in an existing platform, users can look to the non-profit organization ID Federation for an alternative. Expect to see SSO gain wider adoption in 2021 as it produces fewer username/password resets, reduces hassle for agents and increases operational efficiencies. 

We’ll see an improvement in straight-through processing.

Lastly, this year we expect the independent agency channel for both personal lines and commercial lines to see more functionality on straight-through processing with carrier partners. 

In other words, while we’ve been involved over the years with Rate Call 1 and Rate Call 2 (rating and quoting), some carriers are beginning to provide more functionality in their APIs to allow direct binding in the agency’s quoting applications. The benefit to the agency is a single workflow for rate-quote-bind. Carriers benefit from being seen as easy to do business with while providing a major competitive differentiator in the channel. This capability won’t be pervasive through the industry, but there appears to be more acceptance of the process from the carrier side than in the past. As a result, we hope we’ll see more carriers start to think about how they’re approaching this as a potential competitive advantage in the channel as well as the captive and direct markets.

The result: a better-connected insurance distribution channel.

SSO, automated commercial submissions, carrier data-sharing and better straight-through processing will be the most visible connectivity developments in 2021, but not the only ones. In a business defined by personal relationships, connecting well on a virtual basis will be more than a change — it will be a requirement for long-term success. And in a world where connectivity is constantly widening and deepening across industries, insurance workflows, both commercial and personal, have a major opportunity to benefit from modernization and in turn help carriers and agencies increase profitability and better serve their clients.

During a podcast I recorded last week with Capgemini's global insurance lead, Seth Rachlin, we went on at some length about a pet peeve of mine: the insurance industry's archaic and often downright unfriendly language.

While I've hit this topic before (most notably here), I haven't exactly seen much change in the past several years, so I'll keep harping on the problem. I realize that not everyone focuses on language as much as I do -- coming from a family with half a century as copy editors at the Wall Street Journal will shape your perspective -- but I believe that insurance's insular language limits our ability to entertain outside perspectives.

As the saying goes, "We shape our tools, and then our tools shape us."

The particular issue that set Seth and me off is the notion of the "customer." That's hardly an archaic or unfriendly term -- in normal use. But insurers often refer to brokers and agents as their customers. I love brokers and agents, but, sorry, they aren't the customers. The people who pay the premiums, who face the risks, who file the claims -- those are the customers.

At a time when we're all supposedly focusing on the customer experience, how can we even begin to get it right if our language steers us toward serving those who sell rather than those who actually use our products?

Almost as bad: In just about every industry, interactions are handled by "customer service representatives." Why can't insurance use that term? Why send me an "adjuster," whose title suggests that either the insurer doesn't think I'm bright enough to get the claim right on my own or that I'm downright dishonest and need to be checked out? The adjuster can do exactly the same job as always. Let's just give customers a friendlier term.

Or: Why are payments to customers referred to as "losses"? When a bank or mutual fund sends me money I've earned, it's paying me interest or capital gains. Corporations pay me dividends. None of these firms talk about losses just because money has moved from them to me. So, why does the insurance industry refer to a payment on my behalf to a doctor as a "medical loss"? Why is a payment to help me recover from property damage in a storm a "catastrophe loss"? Why isn't a "loss" called a "payment to a cherished customer to help the person/business recover in a time of need"?

Yeah, that's a bit long, but surely "claims" or "paid claims" could replace "losses."

Just changing three terms -- "customer," "adjuster" and "loss" -- would go a long way toward reorienting the industry's thinking and lead to a friendlier experience for customers, but let's not stop there. Here are some other changes that the insurance industry should make immediately to its language to make it more accessible to customers:

• Binder → temporary insurance
• Rider → addition or supplement
• Endorsement → amendment
• Underwriting → pricing risk
• Excess lines, surplus lines, subrogation, capitation, inland marine (inland marine!) → something that is meaningful to the customer....
• What else? (I'd welcome thoughts in the comments section here or on LinkedIn, where this will also be posted.)

I realize that jargon can make us seem like we have inside knowledge. When my closest childhood friend went to medical school, he told me that running straight down the middle of our torsos is a narrow bit of fibrous tissue that looks like a white line. "It's called the linea alba," he said. "You know what that means in English? The direction translation is, 'white line.' But you sound smarter when you say it in Latin."

I also realize that those in the industry understand all the terms and thus feel no need to change. But if we're really to get outside our own heads and see the world from the customer point of view, then fixing our language would be a great place to start.

Stay safe.

Paul

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

The Next Wave of Insurtech

With automated claims processing, the turnaround time for settlement will be measured in minutes rather than days or weeks.

Insurance 2030: Implications for Today

How employees will be recruited, trained and retained will be quite different – and organizations need to start on that journey today.

Rise of ‘Product-ism,’ Fall of ‘Project-ism’

Firms struggle because they view AI initiatives as small projects rather than a product requiring continuing maintenance and investment.

2020 Catastrophes; Preview for 2021

If this spring La Nina holds together, the central plains could get back to seeing severe weather that was lacking last year.

Life Insurance Is Ripe for Change in 2021

Under the incoming administration, the focus on consumer protection regulation will rise for financial services, including insurance.

Increasing Regulation on Climate Change

In 2021, climate-change actions by U.S. regulators will create both challenges and opportunities for insurers.

Blockchain is providing a solution for the insurance industry to share information easily and slash operating costs.

Having explored the possibilities for blockchain in personal lines and commercial lines in P&C, we conclude our webinar series on the technology (for now) by taking a look at two use cases in life and annuities that are close to moving into production. One, the Mortality Monitor, encourages insurers to share information when someone dies, so heirs can receive their benefits faster and insurers can avoid compliance issues, including fines, for moving too slowly. The second provides an accessible public record on licenses and appointments. Those two use cases, alone, could save the industry more than $850 million a year.

Watch to Learn:

• Where blockchain is about to make a big impact in life and annuities
• The road map for the future of blockchain
• The status of active use cases and their testing schedule
• How to start preparing to reap the benefits

Register for this free on demand panel discussion.

Speakers

Eric Henderson

President, Nationwide Annuity
Nationwide

Eric Henderson is President of Nationwide Financial’s Annuity business segment. He was elected to this position in October 2019, making him accountable for the financial health and strategic direction of Nationwide’s individual annuity business representing approximately $100 billion in assets.

In this position, Eric oversees all aspects of the company’s individual annuity segment, including product innovation, sales and distribution, executing strategic initiatives, driving strategic positioning and product development, managing profitability, and overseeing business operations.

Prior to his current role, Eric was Senior Vice President of Individual Products and Solutions, representing both individual life and annuity segments. He began his career at Nationwide as an Actuarial Assistant in 1985 and spent much of his career as an actuary in Individual Annuities. Since that time, Eric has held positions of increasing responsibility, including Senior Vice President of the Individual Investments (Annuity) Group, Senior Actuarial Officer for both Retail Sales Support and Individual Variable Annuities, Vice President and Product Manager for Individual Variable Annuities and Income Products, and Vice President and Chief Financial Officer of the Individual Investments Group.

Eric earned both his master’s and bachelor’s degrees in mathematics from The Ohio State University and is a Fellow of the Society of Actuaries.

Eric serves as a board member on the Insured Retirement Institute (IRI), The Institutes RiskStream Collaborative™ Life & Annuity Advisory Board and the BalletMet Board of Trustees.

Patrick Schmid, PhD

Vice President
The Institutes RiskStream Collaborative

Patrick G. Schmid is vice president of The Institutes RiskStream Collaborative. In this role, he oversees products, operations and technology; coordinates efforts among RiskStream Collaborative insurers, brokers and reinsurers; and provides thought leadership for The Institutes.

An economist with a passion for blockchain, Dr. Schmid has worked in risk management and insurance for over a decade, researching trends on important market issues. Working as an economist for Moody’s Analytics before joining The Institutes, he has also taught economics and related subjects at a number of Philadelphia-area colleges and universities.

Schmid formerly served as the director of research for the Insurance Research Council (IRC), a division of The Institutes. As the IRC’s research director, he was responsible for providing timely and reliable information based on extensive data collection and analyses. His research examined public policy matters that affect insurers, consumers and the general public.

Dr. Schmid has published research in a variety of property-casualty insurance areas. He frequently presents research findings to industry executives, industry associations and company management. He has testified before regulatory and legislative bodies. Dr. Schmid is often quoted in insurance periodicals, and his research has been reprinted in various industry-related academic journals.

Prior to working in the Insurance industry, Dr. Schmid was an economist for Moody’s Analytics.

Dr. Schmid has a PhD in economics from Temple University. He has taught economics or related subjects at a number of Philadelphia-area institutions, including the Wharton School, Albright College, Temple University and St. Joseph’s University.

Paul Carroll

Editor-in-Chief
Insurance Thought Leadership

Paul is the co-author of “The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups” and “Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years” and the author of “Big Blues: The Unmaking of IBM”, a major best-seller published in 1993. Paul spent 17 years at the Wall Street Journal as an editor and reporter. The paper nominated him twice for Pulitzer Prizes. In 1996, he founded Context, a thought-leadership magazine on the strategic importance of information technology that was a finalist for the National Magazine Award for General Excellence. He is a co-founder of the Devil’s Advocate Group consulting firm.

The insurance industry has historically thrived on face-to-face interactions. A year ago, U.S. life insurance brokers told McKinsey that 90% of their sales conversations and even 70% of their customer follow-ups happened in person. Of course, those numbers plummeted during the pandemic: By May 2020, a follow-up McKinsey survey revealed that in-person interactions had dropped to less than 5%.

To maintain regular interactions with prospects that feel as meaningful and personal as formerly in-person conversations, insurance companies must turn to social media to meet audiences where they're socializing during the pandemic.

Over the last few years, however, the algorithms that govern organic content's performance on social media have shifted to make breaking through more difficult for brands. After all, social media platforms exist to make money, and their primary revenue stream is advertising dollars. Insurance companies that used to see engagement simply by posting on their business pages must now begin investing in paid advertising campaigns if they hope to achieve anything resembling earlier organic results.

Unfortunately, this trend is solidifying at a time when most insurance associates — indeed, most people in general — are stretched thin. Life insurance companies are busy handling a significant increase in demand for their services, and property and casualty areas are busy helping customers navigate changes in policies such as low mileage rebates.

Agents simply don't have the time to focus on marketing themselves right now. In this environment, insurance companies must support them by focusing on social media marketing efforts and examining ways to help agents cut through the noise and foster real, human connections online. These three strategies are excellent places to start.

1. First, equip agents with social selling.

To maximize a paid social strategy, agents need to be engaging with prospects and clients organically on social media first. Enable your agents to practice social selling — which means sharing branded content from their own profiles to their own networks.

A company's social accounts might offer some brand visibility, but associates have a far greater reach than your brand, and their followers trust their content much more than your company's content. When agents share helpful information that highlights their expertise, their networks will already begin to see them as trusted resources. This lays a solid foundation for launching a paid campaign with individual agents.

Of course, the last thing any insurance company wants to do is add more demands to their agents' already full plates. If you want employees to build their social presence organically, you have to make it as easy as possible. Marketing teams can build clear, comprehensive social media policies and train agents on them. Then, they can provide agents with a steady stream of engaging, curated content that aligns with the brand and interests agents' followers.

See also: Want to See Social Media Genius?

2. Then, tailor social selling with paid advertising.

Paid social should absolutely be a part of your 2021 advertising plans, but you should still incorporate elements of your organic social selling strategy — namely, the agents. Put your individual agents front and center in the ads targeted to the audiences in their respective geographic regions.

Consumers today expect this level of personalization. One report found that 72% of consumers will engage only with marketing messaging that's tailored to their interests, and Accenture confirmed that most are willing to share the data necessary for a more customized experience.

Ultimately, it's human nature to seek out person-to-person connections. People trust other people more than companies and brand names. Insurance companies should take every step possible to build, maintain and reinforce the human relationships that were the cornerstone of the industry pre-COVID-19, and getting individual agents in front of the right people on social media is a great way to highlight the human element.

3. Use software to control and expand your efforts.

Insurance companies can no longer rely on mass channels and one-size-fits-all campaigns to establish trust and convert clients. Personalized marketing efforts are increasingly complex, and they're best handled by marketers with central authority.

As agents deal with the same changes that are rocking the broader industry, they're relying on marketers to implement complex paid campaigns at the brand, branch and agent levels. That's a lot for one marketing team to handle, but social media management software exists to make it easier. The right tool can streamline and automate workflows, making sure no ad ever publishes without the correct approvals. This helps ensure each post is compliant and in line with your brand's style and voice. Software can also allow marketing teams to reach more people on more platforms with simultaneous multiplatform features, allowing campaigns to scale with ease.

With the operational details of executing a social strategy taken care of, marketers can focus more on arming agents with everything they need to create the types of meaningful, human connections that will foster trust and set the stage for strong relationships to come. 

See also: How Social Selling Can Boost Results

The insurance industry upheaval brought on by COVID-19 has necessitated a stark shift in the industry's approach to advertising. Organizations must strive to build personal relationships and connections from a distance, but a branded organic strategy won't meet social advertising needs as algorithms evolve. Instead, the insurance companies that pivot to social selling, human content and solutions at scale will rise to the top of the news feed in the coming year.

Many could not wait for 2020 to end, and numerous summaries highlighting the many different catastrophes and their impact on the insurance industry have been published. However, there is a need to put things into perspective at times, and this article looks to highlight a few unique aspects of 2020 and the catastrophes that have not been widely reported that have helped the insurance industry.

There is no escaping all the news about all the catastrophes in 2020 that have totaled $83 billion according to Swiss Re and $82 billion according to Munich Re. However, what is not widely mentioned in all of the various discussions is how normal these losses are. According to AIR Worldwide (AIR) and its 2020 Global Modeled Catastrophe Losses report, the average annual loss (AAL) is modeled at $99.6 billion. The 1% aggregate exceedance probability insured loss (or the 100-year return period loss) is nearly $301 billion. This is not a complete apples-to-apples analysis, as there are catastrophic events that occurred in 2020 that could not be modeled; however, the broader point is that, overall, losses appear to be what the insurance industry should expect in any given year.

The numbers are a good reminder not to put much weight on trends in economic or insured losses and to measure catastrophic trends in the perils that cause the loss; there are just so many moving parts. Roger Pielke Jr., a professor at the University of Colorado, continues to lead this area of analysis by putting losses into perspective. Along with the comments from the Intergovernmental Panel on Climate Change, which mentions that “increasing exposure of people and economic assets has been the major cause of long-term increases in economic losses from weather- and climate-related disasters (high confidence)," Pielke for over a decade has analyzed global disasters as a proportion of global GDP data provided by Munich Re and the World Bank. The latest research continues to headline a long-term downward trend; even with global GDP declining due to COVID-19, his analysis shows that, while there are loss complexities due to social-economic issues, overall the losses could have been worse. The following three sections are highlights as to some of the reasons that have not been mentioned in a lot of these annual reports.

Severe Weather-Related Observations

Various reports show that most of the largest and costliest natural disasters in 2020 occurred in the U.S. Severe weather in the U.S. led to over $30 billion in insured loss across 40 separate industry-wide events, according to Property Claims Services (PCS). But when you look at the severe weather data from 2020, it was not a record year. There is a disconnect between the observations of the peril of severe weather and the large amount of insured loss that occurred. For example, hail occurrences were the lowest since 2005, and, considering that an estimated 60% of annual storm losses in the U.S. result from hail, it would follow that most losses could have been driven from non-tornadic wind activity.

The Nashville tornado on March 2 once again proved that cities and expansive metropolitan areas are not shielded from large tornado impacts. However, as with hail, total tornado counts were observed just below the annual mean count. The U.S. currently is in the second-longest period between observations of EF5 tornadoes. The last EF5 tornado observed in the U.S. was on May 20, 2013. The other unusual aspect of the severe weather season was that Florida and Illinois each saw more tornadoes than Kansas and Oklahoma combined in 2020. Because tornadoes are correlated with outbreaks of other severe weather perils, maybe it was severe weather in the more populated Southeast that also contributed to the higher amounts in insurance loss this past year.

Not all severe thunderstorm wind impacts result from tornadoes. The Midwest derecho was by far the most significant event of 2020. It has been dubbed the equivalent to a major hurricane. Based on reports of high winds and wind damage, 2020 was on par with 2019 and overall the third-highest year of wind local storm reports since 2005. Therefore, maybe a higher percentage of insured losses are coming from severe wind events.

Few Major Earthquakes

2020 started with the most powerful earthquake to hit Puerto Rico since 1918, when a large Mw 6.4 earthquake struck just 5 miles off the southern coast on Jan. 7. Another rare earthquake struck about nine miles west of Salt Lake City as an Mw 5.7. Although the highest earthquake hazard in the continental U.S. is largely associated with California, which still awaits the big one, earthquakes in the past have been devastating. However, the 2020 global earthquake catalog was quite kind to the insurance industry, with the second year in a row with a relatively low number of Mw 7.0 or greater earthquakes from around the world.

Named Storm Activity

Many of the 2020 reviews have highlighted how active and devastating the 2020 Atlantic hurricane season was, in particular on the central Gulf Coast. This active landfall season had an impact on the total insured losses in the U.S., which currently accounts for just under $20 billion and should continue to develop as claims are still being processed. In the season-ending tropical update, it was noted that the clustering of storms was very evident this year. However, the insurance industry needs to understand that the hurricane magnet Florida was relatively unscathed during the active season and this is the 28^th year that the very populated southeast Florida coastal city of Miami has not been hit by a major hurricane directly. Although Isaias had its impact widely felt in New England as it became an extratropical storm, this part of the U.S has not had any direct impacts from a hurricane since Bob in 1991. It has also been 31 years since the last major hurricane made landfall in South Carolina. The U.S. went 12 years without a major hurricane impact, and the landfall activity we are seeing over the last three years may just be nature's way of reverting landfall statistics to a Poisson distribution. Unfortunately, some areas are long overdue for a major hurricane landfall.

Spring 2021 Early Look Ahead

With half of the meteorological winter behind us, the early trends for spring show La Nina, which is known to cause stronger severe weather seasons in the U.S. La Nina is a cold phase of a large oscillation in the central Pacific Ocean, called ENSO, (El Nino Southern Oscillation). Preliminary data shows that the ENSO has already reached the peak of its cold phase. While it was not the strongest of all time, this La Nina was indeed quite strong, which increases the likelihood of its impact reaching into spring 2021.

One of the main influences of La Nina (or any other ENSO phase) can be seen in the changing jet stream. The image below shows the average position of the jet stream during the La Nina seasons and the corresponding weather development over North America. The twisted jet stream brings colder air and storms down from Canada into northern and the north-western U.S., and warmer and drier weather to the southern parts.

The image below shows a comparison of hailstorm and tornado frequency during the spring season in the U.S., between El Nino and La Nina years. In a La Nina spring season, there is a substantially higher frequency of hailstorms and especially tornadoes in the “Tornado Alley” south-central plains.

As La Nina promotes a high-pressure system in the North Pacific, there is usually a pressure drop over western Canada and the north-western U.S. Cold fronts often then move from western Canada down toward the south-central U.S., where they meet warm moist air coming from the Gulf of Mexico. With the jet stream altered by La Nina, the combination of conditions can create storms that become severe and tornadic.

See also: How to Minimize Flood Losses

Below is the season forecast from the European Centre for Medium-Range Weather Forecasting (ECMWF) model. The forecast suggests the pressure forecast will be lower in western Canada, as well as in southern and southwestern U.S. This low-pressure zone means a stronger warm and moist southerly flow from the Gulf of Mexico into the south-central U.S., as a low-pressure system spins counterclockwise.

Below is a graph that shows annual tornado (EF1+) numbers in the U.S. from 1950 to 2020. We can see that many of the most active tornado years were La Nina years. If this spring La Nina holds together, given that it is the most active part of the year for tornadoes, and the occurrence of tornadoes is correlated with other forms of severe weather, there is a good chance the central plains could get back to seeing severe weather that was lacking last year. This is clearly something the BMS Analytics team will be watching and helping clients with, through tools like BMS IVision.

It can be difficult to think about the future when the demands of the day are so pressing. The pandemic and events of 2020 have caused seismic shifts in society, affecting everyday patterns, lifestyles and business operations. Adapting strategies and plans to the pandemic’s evolving realities has been at the top of many insurers’ priority lists. Yet, in the midst of this turmoil, many P&C companies have been engaging in long-term strategic planning exercises. And some of the emerging themes are surprising.

SMA has conducted a number of scenario-planning workshops with insurers and MGAs – starting before the pandemic but continuing through 2020 and into 2021. These sessions, envisioning scenarios for 2030 and their implications for the company, are sometimes conducted at a company-wide level, sometimes for a single line of business and at other times for a specific area like distribution. These sessions are always educational and enlightening, revealing strategic options and exposing company gaps. The most surprising aspect of scenario planning is often how this type of thinking can actually drive near-term operational priorities. One of the most interesting themes that typically emerges revolves around people – especially the workforce.  

Many dimensions can be explored when contemplating longer-term strategies to compete in the world of 2030 ... or 2025 … or 2022, for that matter. Business models, products, distribution, underwriting, claims, participating in new ecosystems, combatting new competitors and many other areas can be considered. There are important developments and strategic options for all of these areas. However, we have observed that, in virtually every session, the evolving workforce becomes a central theme – even for those that did not explicitly intend to take the workforce into consideration.

Often, projections on AI and connected-world technologies dominate the conversations. The potential for insurers to gain access to real-time data about every physical thing they insure is compelling – and leads to a vision of how the industry can leverage expertise on risk to help customers significantly reduce accidents and incidents while responding rapidly with new capabilities when something bad does occur. This creates a ripple effect in actuarial, underwriting, policy service, claims – and essentially every other area of the business. Yet, in the midst of exploring the opportunities and gaps related to advanced technologies, the role of industry professionals and the evolving workforce rises as a critical success factor.

Strategies related to the future workforce take on several dimensions.

Roles

Central to the roles of agents, underwriters, adjusters and other industry professionals is interaction with technology. Higher levels of automation and AI tools for insight shift the roles of these individuals in significant ways, even generating the need for brand new roles.

Retirements

Before the pandemic, the industry was already in the early stages of a wave of retiring seasoned professionals. The pandemic has changed the retirement trajectory, and more are seeking early retirement. The rise of the millennial generation continues and must be a significant factor in workforce planning.

Worksite Flexibility

The rapid shift to work-from-home has forever altered work patterns and employee desires. P&C insurers did remarkably well in adapting, practically overnight, to a remote workforce. While some are eager to be back in the office, there are just as many or more who are now expecting the flexibility of choosing to work either at home or in the office.

See also: Insurtech 2021: Reset vs. Resume

Recruiting, Training, Retaining

The combination of role evolution, retirements and worksite flexibility change the game for the HR community. There is a growing recognition that the competition for talent will be different because location becomes less of a concern for many companies that are adapting to remote workers. In addition, the skills needed in a digital/AI world will be different than those required today. This is not to discount the value of deep insurance expertise – that will be more valued than ever. It is also important to value personal relationships and attributes such as empathy in the claims arena. But the big picture is that the way that employees will be recruited, trained and retained will be quite different – and organizations need to be starting on that journey today.

Companies are finding that these types of scenario-planning approaches can be a great way to spur innovation and get individuals out of old patterns of thinking. In addition to the workforce discussions, there are always very important implications and ideas related to many other dimensions of the business. Often, the most valuable outcome is to bring together individuals from across the business to build new internal relationships and share ideas across silos. The mix of people involved can be intended to advance cultural change but can also result in the sharing of practical ideas that improve the business in the short term.

According to Chubb’s 2020 Homeowners Risk Survey, American homeowners have been inescapably affected by the COVID-19 pandemic. This fourth annual survey, which measures homeowners’ attitudes and behavior toward property protection, not only looked at such topics as renovations and water damage, it also adopted a COVID-19 lens to understand what risks and challenges have affected homeowners. 

One-third of all homeowners have put off home maintenance due to COVID-19 concerns, and 45% say that COVID-19 has reduced contractors’ ability to address maintenance needs. Postponing necessary home maintenance can be a critical mistake, as letting small problems fester can lead to expensive repairs. Even so, despite not wanting contractors in their home, homeowners are not willing to tackle some important home protection matters themselves, including such measures as checking appliances hoses, inspecting home heating systems and conducting water heater maintenance.

In addition to understanding home maintenance concerns, the 2020 Chubb Homeowners’ Risk Survey also found that COVID-19 has challenged city-dwellers to consider moving to more suburban areas, along with an influx in interest of rental homes. 

For a copy of the full executive summary, click here. Key findings from the survey are identified below.

Property Risk During Quarantine

As we all continue to feel the pressures of COVID-19 while trying to stay safe and healthy, it’s possible that quieter home risks have taken a back seat. According to the 2020 survey, the top three risks that homeowners are most concerned about are the day-to-day upkeep of their homes (60%), maintaining their home value (45%) and weather-related water damage (38%). With just 38% of homeowners showing concern about external or weather-related water damage in 2020, the survey shows a significant dip from the 2019 survey – which reported 75% of homeowners concerned about external or weather-related water damage. 

Homeowner awareness of weather-related water damage is important, as they will likely be better prepared to protect their property from increasingly aggressive and frequent storms. However, it remains equally important for homeowners to remain vigilant against interior water leaks. In fact, interior water damage is more common and costly than homeowners may think. And during a time where individuals are spending their time indoors, homeowners may lose sight of the hidden threats of leaking pipes. Since the beginning of quarantine, 20% of homeowners have experienced some form of water damage; according to Chubb claims data, a single internal water leak now averages in excess of $50,000 in damage. Homeowners must remain keenly aware of potential water damage risks in their homes. 

See also: Accelerating Into 2021

Maintaining Home Improvement During COVID-19

Although COVID-19 has raised homeowners’ concern about contractors entering their homes, they are still not taking proper home protection measures into their own hands. According to the 2020 survey, no more than a third of homeowners employ home protection behaviors such as: periodically checking appliance hoses (19%), inspecting home heating systems (19%), conducting water heater maintenance (16%), shutting off water supply while on vacation (15%) and installing pipe insulation (12%). 

Additionally, less than half of homeowners (43%) have conducted home improvement projects, with only 17% of respondents bringing in a contractor and 26% relying on their own home improvement DIY skills. Furthermore, 12% of homeowners saw an issue, but with COVID-19 concerns did not bring a contractor inside their homes to address the problem. 

For homeowners who lack home repair skills or have home repairs that require a contractor, here are steps they can take to reduce risks in hiring home contractors during COVID-19:

1. Ask your contractor if they have been experiencing any COVID-19 symptoms, if they’ve been in contact with anyone who has tested positive and what daily precautions they take when interacting with other customers.
2. Request that the contractor wear a mask inside your home and ensure that everyone else within the home wears one, as well. While inside, open doors and turn on all lights to reduce the number of surfaces the contractor may touch.
3. Consider using digital payment options. 
4. Maintain at least six feet of social distancing when the contractor is working in your home.
5. Fully disinfect any area in which the contractor has worked.

Finally, while not specific to COVID-19, it’s always important to request a certificate of insurance from your contractor prior to starting work in your home. 

Relocating Due to COVID-19

One of the trends that the U.S. has seen during the pandemic is a suburban flight at record numbers – perhaps as a result of prolonged time spent indoors. In the Chubb 2020 survey, results showed that 32% of homeowners in urban areas nationwide are considering moving out of their city.  

Homeowners under the age of 45 are most interested in relocating, as this age group is more likely to have younger children and may benefit from having extra square feet to balance remote work, learning and day-to-day life. 

As city-dwellers rush to relocate, property risks can be overlooked when making a purchase. For example, new suburban homeowners must be mindful of maintenance that may not have applied to their city home – such as the installation of sump pumps and the care of a septic tanks in areas outside of large cities.

Not only have home sales increased in suburban areas, outside of New York City, for example, but there has also been an influx in interest in rental homes. Whether it be a short- or long-term rental, people have been looking for an escape from the long quarantine inside their homes or apartments. However, along with any other aspect of homeownership, renting out one’s secondary home can come with risks. 

See also: COVID-19’s Once-in-a-Lifetime Opportunity

According to the study, 74% of respondents have not installed a water shut-off device, with a majority of the group reporting they have never even considered this device before. And many renters may not be familiar with the home’s plumbing systems and may not know where to turn off the water supply if a leak occurs. 

Although life may be on hold in many ways due to COVID-19, it’s important to remember that home protection is a constant challenge.