We posed six questions to Tony Caldwell, a mentor to independent agencies who has written a number of articles for us on how agencies must adapt.

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Let's start with a general question that has puzzled me. The need for change by agents seems to be well-established by now, but many aren't adapting. Why is that? 

Business owners, in general, who have historically successful business models are typically reluctant to change. They may hope change won’t be necessary and, in some cases, plan to escape the need to change by retiring. With that said, however, I think the biggest reason agents are not adapting is because they don’t know how to do it, and so are overwhelmed by what they perceive as a difficult process. This isn’t unusual, but can be fatal.   

The biggest change facing agency owners is increased customer expectations for speed, timeliness and improved experience.  As they seek to meet customer expectations, agencies are now competing with innovators in every industry -- though many do not realize this.  As customers increasingly expect more, and others use technology to deliver services at lower cost, the danger for those who are late, or never adapt, may be that they have become boiled frogs. 

Once an agency decides it needs to adapt to the more digital world, and all the new dynamics that come with that, what's the first thing the agency should do? 

Find out the capabilities of the agency management system (AMS) and maximize those. AMS are very powerful and capable, and most agencies use only a fraction of their capabilities to analyze, manipulate and use data to improve retention and conduct account rounding and new business acquisition. There is no point in acquiring new technology or technical capability without maximizing what the agency is already investing in. Maximizing AMS capabilities will show the agency where their strengths, weaknesses and opportunities for improvement lie, and help them make better investment decisions on the next set of capabilities.    

What's the second? 

Invest in 24/7/365 capabilities for customer self-service. It’s indisputably clear that consumers want to be able to serve themselves when possible. Agencies are compared with every other business -- inside and outside insurance -- that gives consumers the ability to that. Consumers clearly want to have their needs and wants satisfied in real time, so agents need to provide those capabilities whether through technology, expanded agency personnel availability, carrier service centers or other third-party providers. Agents should consider the ideal customer experience from the customer’s perspective and then upgrade their capabilities to meet them.   

In articles you've written for us, you've mentioned some specific digital tools that agents should investigate, including RiskMatch. Could you offer agents a few starting points? 

In terms of customer service technology, AMS vendors like EZLynx offer the capability to put limited customer self-service on agency websites at low or no cost. Companies like Tarmika use new technology to make it easier for agents to rapidly market small business insurance. New industry entrants like Aureus Analytics are making it increasingly easy to unlock data to help agents improve retention, cross marketing and new business using artificial intelligence. Companies like Hubspot make it easy for agency websites to automate marketing, track and follow website visitors and accomplish other tasks to improve new business flow, hit rates, account rounding and retention. And technology like that provided by RiskMatch enables agencies to make better coverage placement decisions and maximize carrier contract opportunities, among other things.   

But let’s walk before we run. Agency owners have an opportunity to dramatically increase agency revenue by using their existing AMS to improve staff management; make better, more profitable, placement decisions; improve revenue through retention; and hit agency account size targets, among other things. Using a disciplined investment approach to acquiring and maximizing technology one capability at a time allows agencies to improve top and bottom lines along with value in a relatively short (12- to 24-month) period.  

You've also mentioned that agents aren't taking enough advantage of the tools provided by carriers. What, in particular, do you see agents missing out on? What happens when they don't adapt to what carriers are pushing them to do? 

One of the biggest is compensation. Carriers are increasingly offering agents incentives for specialized new business and providing retention bonuses. Yet agency owners allow employees to make placement and new business marketing decisions without regard to maximizing agency revenue. Worse, owners often fail to maximize traditional compensation like profit sharing because line staff, instead of management, are making placement decisions. Carriers often offer an amazing, and bewildering, array of training and marketing resources that aren’t taken advantage of by agencies. Yet, by analyzing their opportunities and weaknesses, agencies can easily develop plans to put these resources to work.   

Agencies should recognize that carriers face increasing cost challenges and that many are improving automation of their new business submission and underwriting. Carriers will be increasingly less tolerant of, and pay less to, agencies that don’t cooperate with their systems to improve hit rates. Agencies will be increasingly rewarded for giving carriers what they want without forcing them to weed through mindless submissions of what they don’t.  

What other threats are out there for agencies that don't adapt? You've written about private equity; could you explain that threat and list any others? 

The first threat agencies need to understand is that the market is shrinking. Direct sellers, virtual agencies, affinity marketers and non-traditional providers like Lemonade are all taking market share from traditional agents. Agencies must realize they cannot compete with algorithms on price and, instead, must focus their efforts and investment on improving the customer experience and relationship. In smaller agencies (under $500,000 in annual revenue), private passenger auto represents as much as 60% of agency revenues. It’s beyond obvious that this market will ultimately shrink, with technology reducing both physical damage and liability risks.   

Private equity-backed insurance agencies will also take market share from traditional agencies as they aggregate capability – human and technological – as well as make the necessary management and investment decisions to raise the bar in marketing, sales, operations and carrier management.   

In summary, the biggest threat is complacency. All threats have answers, including retreat, defeat, joining others and, most importantly, increasing competitive capability. As technology gets cheaper (which it always does) and easier to use, smaller agencies have increasingly capable competitive tools at their disposal. With a relentless drive for improvement in operations and management, agencies can adapt and continue to thrive.   

For insurance companies, there’s a constant influx of data from almost everywhere: customers, marketing teams, sales representatives, underwriting departments, HR and more. These massive amounts of data can be used to make your company better, or so you’ve been told. But harnessing business value from this data isn’t as easy as it might seem. It takes more than collecting data and building models for AI to help a business.

In the last few years, a technology has emerged that can harness AI across all departments of a business like never before, enabling massive, company-wide returns. However, the technology alone isn’t enough; there must be the right combination of technology, people and process.

Feature Stores for Machine Learning

Data scientists love to dive deep into different algorithm alternatives, but the most effective way to get better predictive signals is to get the right data. For example, in media personalization, companies often used the fact that a particular user visited a particular site (like a luxury shoe brand) as an important data point. But this is deceptive. Recency also matters. If a visit to a particular site has been within, say, the last 48 hours, you get significantly better conversion on ads. You have to get the right data points represented to get a model to perform!

Data points that inform models are known as features. These are usually transformed data attributes, which together form the feature vectors that are the input to machine learning algorithms. The process of turning raw data into features is called feature engineering, and is — in my opinion — the critical success factor for practical ML projects that deal with corporate structured data.

Not only is feature engineering essential for model accuracy, it’s also incredibly time-intensive for data scientists. Data preparation takes 80% of data scientists' time, which means they only have 20% left to actually build, test and implement models. This makes it incredibly difficult and expensive to build models at the volume that would be necessary to provide value for every department of an insurance company.

Technology leaders like Uber, Google and Airbnb have spent years and millions of dollars designing infrastructure that makes it possible to unleash the power of AI throughout a company. The solution they have all converged on is a feature store.

A feature store is a central repository that stores features, data lineage and metadata associated with all the machine learning models in a company. In essence, it is a single source of truth for all of the data science work within one organization. Being able to share and re-use features boosts data science productivity by cutting down duplicate work and making it easy for data engineers, data scientists and ML engineers to collaborate. Each machine learning model becomes cheaper and easier to produce. (If you want to learn more about why that is, there’s a more in-depth resource here.)

See also: 6 Implications of Big Data for Insurance

Integrate Diverse Skill Sets in Data Science Teams

Even though feature stores are incredibly powerful tools, they are ultimately still tools, which means how they’re used will influence how helpful they are. Even with a feature store bridging the gaps inside a company, a “siloed” data science structure makes it hard to truly integrate AI into the enterprise.

Traditionally, the people who can manage large volumes of data and “do the math” of machine learning are sitting in their silos. They are away from the action — where the application interacts with customers, suppliers and employees. They are one step removed from the business. 

But the AI or data science team is not equipped to get the job done independently. They simply do not have enough knowledge about the business or the applications that will deploy the models to lead to production applications that deliver business outcomes. The secret sauce to a successful AI implementation is diversity. Data scientists need to work side by side with people who know the business and the application from inception to completion. 

Culture of ML Experimentation

Machine learning projects need to include more than just subject matter experts and application developers as part of the data science and data engineering teams. To do ML well, you have to create a culture of experimentation within your data science team. 

Markets change, bad actors innovate, the climate changes, the competitors change and so much more. What was the perfect feature vector on go-live might produce noise two months later, or worse — tomorrow. You must realize that an ML project will not thrive with a hands-off approach; it is a process of continuous experimentation and continuous improvement. So the secret is to keep the diverse team intact, frequently evaluating the deployed models, and able to experiment with new features.

See also: Insurance Outlook for 2021

Conclusion

The technologies and organizational silos of the past weren’t made to embed AI into the fabric of organizations, and as a result, companies that aren’t innovating aren’t benefiting from the full power of AI.
To inject AI throughout a company, the goal needs to be the continuous improvement of business outcomes.

You can achieve this by optimizing the two bottlenecks of the operational process:. First, overcome the feature bottleneck of the ML lifecycle with a feature store. Second, overcome the organizational bottleneck of the technology lifecycle by distributing data experts in every department of your company. Your teams will finally be able to demonstrate a significant ROI from your AI.

As the largest generation in North America, millennials are a critical demographic for insurance carriers. Not only because this is a group with significant purchasing power, but also because their expectations around customer service and customer experience are changing the way many carriers operate. 

Millennial policyholders expect exemplary customer experiences and want digital ways to interact and pay bills. Many digital native insurance carriers are making it easier than ever to select and purchase a policy directly from a mobile device. But, for carriers that have been slower to innovate, gaining and retaining customers in this age group is becoming a challenge.

It's important for insurance carriers to realize, though, that technology can be an opportunity rather than a threat. Technology lets organizations personalize policyholder experiences, improve engagement levels and elevate the customer experience.

To help insurance organizations better understand how to leverage millennial policyholder preferences, Invoice Cloud recently conducted an online survey asking this age group questions about the types of policies they own, how they prefer to make payments and more. You can download the full report here, but here are three major takeaways from our research.

1) The needs of millennial policyholders are evolving

In 2019, millennials surpassed Baby Boomers as the largest living adult generation. Millennials spend trillions of dollars a year on goods and services – and insurance is no exception. 

According to the survey results, the most common policy among millennials is personal auto insurance (78%), followed by health insurance (76%). 

In total, 85% of survey respondents anticipate buying at least one new policy in the next five years. This means that the money spent on insurance by this already influential demographic will inevitably increase, and rapidly. 

The millennial generation spans individuals in their mid-20s to late 30s (with the eldest in this group turning 40 in 2021). This represents a sizeable range when it comes to consumer needs and life experiences. On the one hand, some millennials are starting at their first jobs, are striking out in the renter’s market and are no longer covered by their family’s insurance plans. On the other side of the age bracket, older millennials are buying property, starting families and purchasing more policies as their insurance needs grow. 

As the data shows, the gap between single millennials (whose insurance policies only cover themselves) and millennials who are starting families (whose insurance policies cover their partners and dependents) is gradually closing.

What this means for your organization: It’s clear that millennials are increasingly making up a large proportion of policyholders. They represent a group with a vast array of policy needs, and many are going through life transitions: moving from renter’s to homeowner’s insurance, or upgrading policies from covering an individual to covering a family. Carriers have to take millennial purchasing, payment and interaction preferences into consideration when deciding how to leverage technology and improve the overall customer experience. 

See also: 4 Firms That Understand Millennials

2) Millennials will switch carriers for a better experience, and have a history of doing so

When it comes to insurer loyalty, the survey results show that millennials will not hesitate to switch carriers if their current insurer isn’t providing a satisfactory customer experience. Forty-one percent of the millennial policyholders surveyed have switched insurance carriers within the last six to 12 months, and 76% have switched in the past five years.

We asked respondents to pinpoint why they left their former insurance provider. 

While 48% of respondents cited price as a primary driver, what’s more informative for insurers is that 22% switched for a better customer experience or expanded digital offerings and payment methods. 

What this means for your organization: Competitive pricing will always exist in the insurance space, and no carrier can accommodate the changing needs of every insured – it’s much more attainable for your organization to improve the policyholder experience and expand digital payment options. Try auditing your policyholder experience and payment offerings, taking time to evaluate what it’s like to pay premiums with your organization. This will give your organization the opportunity to address these issues and avoid spikes in customer churn. 

3) Digital experiences affect the purchase decision

When asked how they purchased their latest insurance policy, 41% of millennial respondents said they bought the policy on their mobile device, directly from the insurer. 

Purchasing policies and paying premiums aren’t where mobile preferences stop, either: 64% of respondents would rather communicate with an insurance carrier through a digital or mobile channel.

Even payment method preferences are evolving as millennials take up more of the insurance space. While credit cards and ACH are still common methods for making premium payments, 25% of millennials who said online or mobile payment options were “very” or “somewhat important” would rather pay their premiums via PayPal/Venmo or Apple Pay/Google Pay. This is another huge shift that’s unique to this rising demographic. 

What this means for your organization: Insurance organizations can no longer afford to ignore mobile payment channels and methods. Insurers must provide mobile channels for purchasing policies, communicating with insurers, paying premiums and more. Insurers must also ensure that these mobile channels are fully optimized by offering digital wallet options, pay-by-text functionality and a well-designed mobile interface for an outstanding user experience. 

See also: Six Things Newsletter | April 6, 2021

Start leveraging this data today

Clearly, millennial policyholders are an important market for every insurance organization, particularly as the needs of this generation continue to grow and evolve.

To learn more about important millennial insurance preferences, including how they choose insurance carriers, payment preferences and the most important factor when it comes to a great customer experience, download your free copy of Invoice Cloud’s research report, Keeping up with Millennial Policyholders.

The digital revolution in insurance, which began in distribution and then spread to claims, has now reached underwriting in a big way.

There are two consistent themes: 1) Advanced AI and ML technologies, paired with big data and sophisticated risk models, are fundamentally shifting the way underwriting is done. 2) Insurers are leveraging low-cost, cloud platforms that are built for scale and agility with new business models.

In this article, we will explore those two themes and show how digitization streamlines the underwriting process for a more efficient and sophisticated outcome. In our next article, we will explore how carriers are making the shift to next-generation underwriting, changes to user journeys and experience, and measuring ROI in these AI journeys. 

A New Burst for Augmented Reality Paul Carroll, Editor-in-Chief of ITL Augmented reality and I go way back, to when it burst on the scene in the early 1990s. As a technology reporter for the Wall Street Journal, I was a skeptic especially about virtual reality (where a headset provides an immersive experience unrelated to the physical world around the wearer) but also about augmented reality (where goggles add images or other information to what the wearer sees through the glasses). In fact, while the VR/AR concept was clearly powerful, the technology wasn’t close to good enough yet to provide even a useful experience — the computing power in the devices was about one-millionth of what is available today, thanks to the exponential improvements in electronics. In the last decade, enthusiasm returned. Facebook bought Oculus for $3 billion in 2014, when the VR company still barely even had a product. Pokemon Go had hundreds of millions of people in 2016 trying to “catch” Pokemon projected onto the real world via an AR app downloaded onto their phones. But interest faded again. VR/AR made only modest inroads, primarily in some video games. Just in the past week, though, an announcement suggests that augmented reality may be close to becoming very real. There could be significant changes in how clients operate and, eventually, in how insurers themselves do business.... continue reading > Majesco Webinar Hear how Majesco and KPMG are helping insurers on their digital transformation journey through rapid integration models and low code technology. Watch Now SIX THINGS Want Some Insurance With That? by Seth Rachlin Insurance is becoming the French fries in a meal deal--offered as part of another transaction at a moment of need. The change is profound. Read More The Digital Journey in Personal Lines by Mark Breading Personal lines insurers are focusing on self-service capabilities for policyholders, especially for policy service and claims. Read More How to Combat the Surge in Ransomware sponsored by Tokio Marine HCC - Cyber & Professional Lines Group Insurers can help clients protect themselves -- but preventive approaches aren't yet widely implemented. Read More Post-Pandemic: 4 Tips for Independent Agents by Doug Mohr There is an opportunity to improve on objectives like paperless processes, remote relationship building and digital communications. Read More Rational Ignorance and the Protection Gap by Ronald Poon-Affat Insurers need to acknowledge rational ignorance as a major sales obstacle; that could be a first step in a recovery for life insurance. Read More In Search of the Digital X-Factor by Dave Ovenden How commercial insurers capture, clean and use data across their distribution channels will become their competitive lifeblood. Read More The Cost of Uncivil Discourse by Bjoern Reusswig The successful rollout of vaccines worldwide will calm many but will not, alone, decrease the risk of civil disturbances and riots. Read More The Insurer’s Customer Acquisition Playbook sponsored by Data Axle In a competitive insurance space, an effective customer acquisition program is the key to success. This playbook will help savvy insurers develop and implement a data-driven acquisition strategy through real-world examples from John Hancock, Lemonade, Northwestern Mutual, and more. Read More MORE FROM ITL April's Topic: Agents & Brokers Mark Twain reportedly once responded to a rumor of a serious illness by saying, "Rumors of my death have been greatly exaggerated."  Insurance agents and brokers could have said the same thing over the past decade and will likely be parrying those rumors for years to come. There’s no doubt that agents & brokers inhabit a world going digital and not every agent will migrate easily into the ever-more-digital world, but those who do will find the work more rewarding, both for themselves and for their ever-more-loyal clients. Take Me There The Future of Blockchain Series Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities – and a key benefit of the technology, providing a single source of truth kept up to date in real time and accessible through permissions by all stakeholders, has huge implications for the insurance and risk management industries. Watch this 3-part series to understand the implications in personal lines, commercial lines, and life & annuities. Watch Now ITL is a leading platform for thought leaders in the insurance and risk management industries. Partner with ITL to create expert thought leadership content and promote it to our expert audience. Sponsored Content Custom Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet SUBSCRIBE TO SIX THINGS

The insurance industry relies heavily on actuarial models and benchmarks to analyze performance and predict future exposures. One of the core assumptions is that most components of the analysis mirror conditions similar to the past. However, the pandemic introduced several variables into the analysis that question the validity of those models in the future. 

The latest Out Front Ideas with Kimberly and Mark webinar brought together a panel of industry experts discussing how models have been affected and how risk managers need to adjust their future expectations to account for the pandemic’s impact. Our guests included:

• Tamika Burgos Puckett – risk manager corporate security, Zoom
• Richard Frese – principal and consulting actuary, Milliman
• Ron Schuler – head actuary, property and casualty broking, North America, head of collateral solution, Willis Towers Watson
• David Stills – senior vice president, carrier and risk practice, Sedgwick

Benchmarking Goals

Benchmarking is essential for any risk management program. Using threat and opportunity assessments and identifying key risk indicators help an organization assess any new risks. Organizations that have incorporated enterprise risk management programs use these identifiers in a holistic approach to establish business objectives.

Months before the first claim of the year, risk managers working with actuaries will need to make predictions about ultimate costs for the entire year. Significant business and financial decisions are made based on these predictions, including budgeting, service pricing and how much risk to take in other areas of the company. Predictability is critical for year-over-year improvement in these metrics.

While there are many vital aspects of benchmarking in casualty claims management, it is crucial to recognize the direct correlation between employees’ care and financial management metrics. With regard to workplace injuries, ensuring the delivery of timely and appropriate care and returning your employees to a pre-injury condition should remain at the top of the list. Staying focused on advocacy and timely care results in better outcomes for everyone. 

Benchmarking Challenges

The amount of data currently available seems endless, but is everyone interpreting it correctly? Are the risk managers’ goals aligned with executive goals or even the legal team’s metrics? Does everyone know what they are trying to achieve with their data collection? While collaboration is key to understanding benchmarks, making sure that everyone has similar goals is critical to exposing areas of opportunity. 

See also: Investment Mania: Understanding Why

Additionally, finding a good data source can be a primary challenge. Comparing similar risk profiles based on claims performance, including reporting, case reserves, severity and frequency, is critical to data accuracy. Other benchmarks like deductibles, premiums and collateral amounts can provide increasingly specific data to an organization. 

Regardless of how much and what type of data is gathered, be sure to make an action plan. If the effort is put into gathering all of this data, get interpretations from other experts and plan for making improvements.

COVID’s Impact

COVID-19 has made a considerable impact on analytics, but one of the most significant has been caused by presumption laws. These laws shifted the burden of proof, which completely changed the perspective in workers’ compensation. Employers, both insured and self-funded, anticipated more of a financial burden, resulting in duplication of benefits for some employees.

The pandemic also forced employers to focus on leading risk indicators like safety and preparedness, creating a more positive impact on benchmarks. As far as major disruptors, remote work had not been considered by many employers before COVID-19. New considerations like hardware, internet access, productivity expectations and, of course, cyber risk had to be made a priority to minimize business interruption.

While there are some similarities in overall impact, the effect of COVID-19 on benchmarks depends on the nature of the business and the physical location of employees. For example, retail will not be affected the same way that healthcare has been affected. Some states also had a greater impact than others because of differences in government shut-down orders. With claims consideration, pay close attention to the types of claims because exposures have shifted. While retail has seen a shift to online shopping, creating less foot traffic and reducing in-store exposures, increased distribution center activity could result in claims associated with overexertion or driver activity. Considerations also need to be made for the following:

• Unemployment rates causing difficulties with the return to work and potential for fraudulent claims due to financial strain.
• Potential surge in cases due to businesses reopening and restrictions being lifted.
• Comorbidities with COVID-19 long-haulers.
• Changes made to presumption laws. 
• Backlog of litigation cases.
• Prolonged hard market due to uncertainty in underwriting new policies.

While many risk profiles have changed because of workers’ compensation resources being reallocated and exposures moving to other jurisdictions, recognizing the difference in those jurisdictions and their influence on those risk profiles is critical in terms of cost and performance. 

Advice for Risk Managers

First and foremost, define your narrative. Be aware that every business is unique and has been affected differently by the pandemic. Risk managers should focus on claims frequency and how it has been affected by COVID-19 but understand that it could be starkly different from historical workers’ compensation claims. If possible, isolate the variable of COVID-19 claims, increase the frequency of analysis on metrics and test scenarios and assumptions. The finer the data can be stratified, the better. 

See also: 11 Keys to Predictive Analytics in 2021

Uncertainty is a risk manager’s worst nightmare, but properly using critical resources can lessen the fear. Lean on peers and colleagues for different perspectives and use subject matter experts, like brokers, insurers and actuaries, to prepare. Also, get senior-level management and the executive team involved to understand the full scope of the risks. Make sure financial leadership understands the uncertainty around the range of estimates on policy costs and read full policies and understand potential gaps in coverage. Remember to stay focused on the people — advocate for the injured workers and focus on getting them back to work.

To listen to the archive of our complete COVID Analytics & Benchmarks webinar, please visit https://www.outfrontideas.com/. Follow @outfrontideas on Twitter and Out Front Ideas with Kimberly and Mark on LinkedIn for more information about coming events and webinars.

For the past few decades, mobility innovation has trended in one direction: empowering the individual consumer. Google Maps and GPS have made navigation simple and paper maps obsolete, while rideshare apps offer options that traditional taxi services could not. Autonomous vehicles aren’t yet commonplace on the street, but experiments have logged millions of crashless miles. We’re living through the greatest change in general mobility since the invention of the jet engine. 

Insurance has a traditionalist reputation; insurers often reassure customers by advertising that they’ve been in business for several decades or even for whole centuries. The industry’s emphasis on past practice and proven traditions is admirable and necessary. But so is innovation, and we see insurers from every corner of the globe excited to build smart new products and programs based on new technologies. 

Telematics, the practice of analyzing mobility data for special insights, can help solve some of insurance’s oldest problems. Conventional actuarial models struggled to differentiate between individuals and types. If twin brothers live at the same address, work jobs with comparable salaries and share the same red sports car, they’re going to look equally high-risk to an insurer. One brother may be a thrill-happy daredevil, while the other shuns speeding and is conscientious about his turn signals, but the insurance company has few ways to recognize this. The responsible brother and the irresponsible one will pay the same fees despite their wildly different risk profiles. Telematics can make a huge difference here – it personalizes an insurance policy to each driver, providing the most equitable way to price premiums possible.

This is good for drivers, because it encourages good driving, and for insurers, because they’re much better able to predict costly car crashes. 

See also: How Tactile Sensors Can Help in Auto

The uses for telematics in insurance are obvious, and dozens of companies have partnered with telematics providers or founded in-house telematics operations. The customer’s phone is the central infrastructure element for telematics, but much remains to be built.

First, there’s the matter of what you might call social or trust infrastructure: Although most of us transmit huge amounts of data to Apple, Google and Facebook every day, potential telematics customers need to know that they are not being spied on. Explaining why telematics doesn’t compromise privacy is essential.

Second, telematics needs to be as simple and unobtrusive as possible. If a driver must open an app every time they step into a car, that’s an issue.

Finally, customers must be able to easily track the benefits of their participation. If, for example, a customer learns that their adherence to speed limits has earned them a 10% reduction in their premium, they’ll feel persuaded they’ve made the right choice. 

The insurance industry is evolving, but it doesn’t do it as noisily or quickly as the tech, automotive or mobility industries. We can see the changes happening, and the infrastructure necessary for the transformation grows firmer every day. As the insurance market becomes ever more competitive, telematics and related innovations offer the prospect of a more efficient industry that works better for everyone, giving insurance consumers better choice, service and prices.

Augmented reality and I go way back, to when it burst on the scene in the early 1990s. As a technology reporter for the Wall Street Journal, I was a skeptic especially about virtual reality (where a headset provides an immersive experience unrelated to the physical world around the wearer) but also about augmented reality (where goggles add images or other information to what the wearer sees through the glasses).

In fact, while the VR/AR concept was clearly powerful, the technology wasn't close to good enough yet to provide even a useful experience -- the computing power in the devices was about one-millionth of what is available today, thanks to the exponential improvements in electronics.

In the last decade, enthusiasm returned. Facebook bought Oculus for $3 billion in 2014, when the VR company still barely even had a product. Pokemon Go had hundreds of millions of people in 2016 trying to "catch" Pokemon projected onto the real world via an AR app downloaded onto their phones. But interest faded again. VR/AR made only modest inroads, primarily in some video games.

Just in the past week, though, an announcement suggests that augmented reality may be close to becoming very real. There could be significant changes in how clients operate and, eventually, in how insurers themselves do business.

The announcement came from the U.S. Army, which said it is buying $21 billion of AR headsets from Microsoft "to help soldiers map the battlefield, select targets and stay aware of possible threats by overlaying intelligence information directly onto their field of vision." Even beyond the Army's hefty endorsement of the technology, the contract for AR headsets will give Microsoft a lot of real-world experience with AR and will finance a great deal of continued research and development. Microsoft might initially focus on providing AR for its growing video game franchises but will surely look for ways to bring AR to its bread-and-butter corporate customers, too.

I suspect that early uses in the business world will be at the fringes, rather than in routine work, where augmentation would help far less, if at all. For instance, AR could allow measurable improvement in certain types of inspections.

Perhaps someone repairing equipment that he doesn't see often, or that may even be decades old, will have his AR glasses project schematics on the device, with information from the manual projected just off to the side. Perhaps someone conducting an inspection could look at a valve or pipe and, right next to it, have an image projected showing what it should look like. There could even be some interplay: An artificial intelligence or a centrally located expert person could be viewing the same scene through the AR's "eyes" and offer guidance.

There has long been optimism about AR applications in medicine, especially surgery, given that the surgeon doesn't know exactly what she'll find inside until she cuts into a person -- amalgamating all the pre-surgery scans into an image that could be projected onto the patient could provide some initial guidance. I think of Sam, my closest friend growing up, who is wonderfully educated and trained (Harvard undergrad, Yale med school, surgical residency at Massachusetts General), but who petrified his mother when he became the chief resident in the cardiac unit and was the one using a jigsaw to cut through patients' sternums at the beginning of heart surgery. "Do those doctors know he flunked wood shop?" Sam's mother once asked me.

In time, AR could work from edge cases into the mainstream. For instance, workers in industrial settings might start wearing goggles that are designed to provide technical information, as summoned by the user, but could also then head off accidents -- maybe a flashing stop sign is projected onto an intersection in a factory because an overhead camera has spotted a forklift speeding toward it right as you're about to get in the way. Once AR glasses earn their way onto the bridges of people's noses, all sorts of workplaces can become not only more efficient but safer.

The same sorts of warnings could be provided for cars, where AR glasses could give drivers the sort of heads-up display that fighter pilots have on their windshields. I don't imagine a reprise of Google Glass, which tried to do too much, hoping to provide a new way of looking at the whole world. But I can see the value of glasses that would warn the driver of an accident ahead or even of a blind intersection known to be dangerous. People could use some combination of voice and head movements to control the car environment so they wouldn't have to take their eyes off the road. As so-called connected cars begin communicating with each other and with "smart" infrastructure, the AR could also deliver warnings of a car that you can't see but that is braking hard on a crowded freeway just ahead of you. Or the AR could alert you that a car recently skidded on some black ice on a stretch of road you're about to reach.

Once AR becomes widely adopted, adjusters could well use the glasses to not only help assess damage on site but to have estimates of repair costs and timeframes appear right next to what they're seeing.

And, as always, clever people will come up with a far broader list of potential uses as the technology takes hold, both among clients and in the insurance industry itself.

As history shows, AR will take time to spread -- but I'm more optimistic than I've been in 30 years.

Stay safe.

Paul

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

Want Some Insurance With That?

Insurance is becoming the French fries in a meal deal--offered as part of another transaction at a moment of need. The change is profound.

The Digital Journey in Personal Lines

Personal lines insurers are focusing on self-service capabilities for policyholders, especially for policy service and claims.

Post-Pandemic: 4 Tips for Independent Agents

There is an opportunity to improve on objectives like paperless processes, remote relationship building and digital communications.

Rational Ignorance and the Protection Gap

Insurers need to acknowledge rational ignorance as a major sales obstacle; that could be a first step in a recovery for life insurance.

In Search of the Digital X-Factor

How commercial insurers capture, clean and use data across their distribution channels will become their competitive lifeblood.

The Cost of Uncivil Discourse

The successful rollout of vaccines worldwide will calm many but will not, alone, decrease the risk of civil disturbances and riots.

With national flags flying among banners and placards promoting conspiracy theories, the mob quickly overwhelmed police barriers and stormed the steps of the legislative building. Hundreds were arrested.

This wasn’t the 2021 insurrection at the U.S. Capitol, but a demonstration that drew 40,000 people to protest Germany’s coronavirus lockdown.

The German riot echoed protests in Hong Kong a year earlier, when hundreds broke into the Legislative Council, spray-painting messages on walls and breaking glass.

Around the world, citizens are protesting more – and increasingly such protests are turning violent.

Data from the Global Peace Index 2020 show civil unrest has doubled around the world over the last decade, with the numbers of both non-violent and violent demonstrations rising sharply. Riots nearly quadrupled in the last decade, and violent protests occurred in 58% of countries during 2019 – a development that reflects a longer-term trend. On the positive side, the death toll from terrorism continued to fall, with just over 8,000 total deaths recorded in 2019, down from a peak of 33,555 in 2015.

Civil unrest incidents are becoming the main political risk exposure for companies, as reflected in the findings of the Allianz Risk Barometer 2021, in which "political risks and violence" returned to the top 10 risks for the first time since 2018. The number, scale and duration of such incidents in the last two years is staggering, with the extreme aspects of the French “yellow jackets” protest movement inspiring other groups.

Throughout 2019, “yellow jacket” demonstrations drew some 300,000 people, constructing barricades and blocking roads, and turned increasingly violent, with 2,000 protestors and more than 1,000 police reportedly injured. Meanwhile, demonstrations throughout the U.S. in 2020 are estimated to have caused $1 billion in damages, although the final cost could reach $2 billion, according to Property Claim Services (PCS), a company that has tracked insurance claims relating to civil disorder.

A Shorter Fuse

Unfortunately, the risk of riots and violence is likely to become more acute, thanks to the Covid-19 pandemic. The measures governments have used to combat the coronavirus have had a significant socioeconomic impact, and frustration is growing in large population segments.

The International Labor Organization (ILO) estimates that 8.8% more global working hours were lost in 2020 than in 2019 – the equivalent of 255 million full-time jobs. According to a Pew Research study, 15% of U.S. adults interviewed had lost their work because of Covid-19, and one in four had trouble paying bills since the outbreak.

Covid-19 has both magnified underlying long-standing grievances and given them a focal point. The pandemic has also hurt political stability, increasing polarization and bringing into sharp relief issues surrounding equality, worsening labor conditions and civil rights.

With no end to the pandemic-induced economic downturn in sight, protests are likely to continue climbing. Verisk Maplecroft, a leading research firm specializing in global risk analytics, expects 75 countries to experience an increase in protests by late 2022. Of these, more than 30 – largely in Europe and the Americas – will likely see significant activity. And when emergency spending by governments ends in the post-pandemic period, the economic fallout is likely to reverberate for years, ensuring a tumultuous decade ahead.

Business in a Time of Unrest

Conducting business in a time of civil unrest can be hazardous. Revenues can suffer if the surrounding area is cordoned off for a prolonged time or while infrastructure is repaired to allow reentry of customers, vendors and suppliers. For example, during the “yellow jacket” demonstrations, shops along the Champs-Élysées were looted and heavily damaged, which drove customers away. After only three weeks of demonstrations, the French retail federation reported that retailers nationally had lost $1.1 billion in revenue. Bruno La Maire, the French Finance Minister, described it as a “catastrophe for our economy.”

See also: Crisis Invigorates Insurance Innovation

One of the most important steps businesses can take in preparing for civil unrest is to check insurance policies. In addition to losses incurred by civil disturbances, standard policies cover income loss caused by a riot or civil commotion. This includes if a business is forced to suspend operations or limit hours due to rioting. However, some policies are only triggered if the premises are physically damaged.

Why Property Insurance Is Not Enough

The scale and extent of civil unrest is blurring the lines between when the general riot cover of property policies becomes political in nature. This can place such events outside the scope of standard insurance and may lead to damages caused, for example, as a result of a political protest being rejected. Specialist political violence insurance (PVI) covers the impact of civil commotion, strikes, riots and terrorism plus physical damage incurred during a process of mass social uprising, revolt or military coup. It is in increasing demand after the events of the last two years.

No Putting the Genie Back

Businesses should review their business continuity plans. Typically, these only focus on national catastrophes, but there is a need for BCP plans to address political disturbances and other types of business disruption like cyber.

While the successful rollout of vaccines may help calm the situation worldwide, we do not believe this alone will see the risk of civil disturbances and riots decline again. The pandemic has enabled conspiracy theories to flourish in large parts of the population, which has prepared the ground for future turbulence.

Insurers are working to understand the dynamics of such situations. At the moment, we can’t predict when a demonstration will turn into a riot, but we need to gain a better understanding of what the triggers are. If we can answer this, there are huge implications for the insurance industry in terms of the impact of the magnitude of losses.

Digital trading of personal lines insurance products is well-established around the world. With cost and market pressures pushing commercial insurance down a similar path, companies will need to overcome the challenges associated with the complexity inherent in many commercial risks.

Insurers have been sharpening their digital teeth in personal lines markets in many countries for some time, aided by the relative homogeneity of products, particularly in the car and home markets. Technological connectivity and distribution (either direct or through aggregators), combined with a supportive regulatory environment, have allowed many insurers to make great strides over the last 10 to 20 years, while paving the way for new market entrants. Strong digital capability and service have clearly helped some insurers deal with customers better than others during the COVID-19 crisis. 

The challenge of commercial

The commercial market, however, is a different proposition. Resolving the complexity of products and exposures with such a wide variety of potential terms and triggers -- or including multiple, geographically spread risks -- makes the commercial market far more challenging.

This largely explains why progress to date, either through direct channels or broker hubs, has focused on commercial risks in the SME market sharing relatively homogeneous features, such as packaged covers for dental practices or construction sole traders. 

Where things become more difficult is when you add in configured and bespoke coverages. The ability to trade these complex risks digitally requires several components, from overlaying risk appetite and capturing bespoke wordings to collating detailed exposure information, such as locations of factories and offices. These components also determine an insurer’s ability to track every element that goes into accepting and pricing a risk as part of placement negotiations and renewal processes.

From an internal processing perspective, a key issue will be to break down the barriers created by legacy platforms. Many commercial products today are tightly linked to the platform on which they run, often to the point of being hard-coded in to mainframes. Dynamic, tradeable commercial products will need to break those links, because an efficient, flexible and connected data reservoir is the basis from which everything digital flows.

See also: What’s Wrong With Commercial Auto?

Window of opportunity

Evidently, then, there are plenty of challenges for commercial insurers to think about when it comes to digital trading -- but also plenty of opportunities. Yet the time for thinking about them, rather than doing something concrete, may be diminishing.

A key catalyst for many commercial insurers is likely to be the plan for an electronic trading hub and the creation of a digital follow/lead trading exchange as part of the Future@Lloyd’s initiative. Equally, insurers also need to work out how they plan to approach and deal with other electronic trading platforms, including the creation of the bilateral insurer to broker capability that we would expect to take up the majority of digital business in the future. At the same time, we anticipate that existing broker hubs will expand their footprint into more complex products. Another area to bear in mind is the increasing trend for insurers to white label their products for non-insurers. In the commercial space, motor fleets and yellow plant hire are already areas where there is some activity, with others expected to follow.

What timeframes are we talking about? Well, there are already companies taking the challenges involved very seriously and setting out their store for a more digital future. Given the market-wide attention on expense ratios and doggedly persistent low interest rates, others are hot on their heels, and it seems natural that others will follow. Those that get left behind are likely to end up with a disadvantageous cost base and coping with the impact that other organizations’ abilities to react with pace and agility to opportunities will have on cycle times.

Data – the real X-factor

This explains why digital capability is likely, in relatively short order, to become the "X-factor’ in shaping a broker’s traditional insurer preferences – price, expertise and relationships. And in tomorrow’s digital world, how commercial insurers capture, clean and use data across their distribution channels will, above all else, become their competitive lifeblood.