It was March 24, 1971. I was on a Greyhound bus headed to the Customs House in New Orleans. I was being drafted. I was a dumb, fat (6'2", 240 pounds, 40-plus-inch waist), shy and happy boy. I was in deplorable physical condition. In the previous years, I had had serious health issues. I prayed I was still “disabled/sick” enough that I would fail the physical. I didn’t!
When the doctor told me, “you’ll do,” I was still dumb and fat but was rapidly moving from happy to scared to death. The potential of going to Vietnam was a real and terrifying possibility.
As I write this 50 years later, I thank God for my “unanswered prayers.” I am now 73 years old and much healthier than I was as a college graduate soon to be drafted. I am now a man – confident in myself and with some success in business.
Had I not been drafted, I’m sure my life would not have been nearly as good as it is. On the most basic level, I’d bet that without my transformation in physique and confidence I’d have died or be seriously limited by health problems because of my obesity. My shyness and insecurities would have limited my employment and personal growth opportunities. I would have settled for a lesser life than I have had.
On the day of my physical, I was ordered to be back at the Customs House by 4:00 that afternoon for the bus ride to Ft. Polk. I called Bob, a friend and anti-war activist, who offered to fly me to Canada. (Thank God, I declined his offer).
Here’s the great news: 10 weeks after my arrival at Ft. Polk, I finished boot camp. I weighed 180 pounds, had a 34” waist and was in the best shape I’ve ever been in in my life. I had confidence and courage, two gifts I did not have previously.
In basic training, I learned that “souls don’t grow in the sunshine.” I believe our greatest growth comes through adversity – we gain scar tissue. We become stronger than our environment and are ready for the new risks inevitably on the horizon.
What does this personal story have to do with our lives?
The coronavirus has been at least as disruptive, challenging and oftentimes painful in each of our lives as the army was for me. That’s our reality. Let's not be tempted to turn back to the “good old days.” Let's move forward into the new world that is evolving where we are. Don’t bemoan the suffering you’ve endured. Celebrate the strength, wisdom and courage you’ve gained. Step confidently into tomorrow. Don’t look back. Plan your future in this new post-pandemic world and move forward with your plans.
Regardless of your age, income, education or circumstances, your life is still yours to use or abuse as you see fit. If you are tempted to feel that you've been a victim, I’d encourage you to look at Christopher Reeve, the Special Olympics, the St. Jude and Shriners hospitals for children, the millions of cancer survivors, Nick Vujicic (the limbless preacher) and other victors over adversity.
On the first morning of boot camp, Drill Sergeant Gay got in my face and screamed, “Boy, how long did it take you to get this fat?” I responded, “23 years, sir.” It took him and others like him only eight weeks to make me a man – a very fit and confident man! It wasn’t me – it was him and others who had perfected a process of human transformation. I could not have gotten to where I needed to be by myself. Can you help others transform themselves into the best they can be? Are you willing to transform yourself?
The draft was my moment. It forced me to become something I wasn’t – a real man. I believe that the coronavirus can now be the catalyst for most, if not all, of us to transform our lives for the better. In less than one year, all of our worlds have changed significantly. Now, each of us can decide for ourselves if where we are is where we want to be.
If it is, let's move forward with enthusiasm. If it is not, we can change.
We have been at war with a virus and the panic and chaos it has created. At last, we are winning. Let's continue to march.
In basic training, we’d march to a cadence to create a shared rhythm and a distraction from the tedium and challenge of a forced march. My favorite marching song:
"Ain’t no sense in looking down, ain’t no discharge on the ground!
"Ain’t no sense in looking back, Jody’s got your Cadillac!
"Ain’t no sense in feeling blue, Jody’s got your girlfriend, too!"
March on. We’re winning this war!
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Mike Manes was branded by Jack Burke as a “Cajun Philosopher.” He self-defines as a storyteller – “a guy with some brain tissue and much more scar tissue.” His organizational and life mantra is Carpe Mañana.
It’s like a scene from an action-packed Marvel thriller! The threatened hero is being chased down the street but sees a route for escape. It’s an alley. (We all know not to go down the alley, but the hero doesn’t listen to us.) At the end of the alley, there is a brick wall. (We all knew there would be a wall or a fence or an iron gate.) There’s no way around the wall. Our hero is going to have to get innovative in a hurry, find and use their superhero capabilities! They save the day. Save people. Save the world.
That’s what COVID has done to nearly every industry. It chased companies into corners. It threatened their markets. It even built brick walls in perfectly good alleyways, separating unprepared companies from the customers they need.
Sometimes, however, it is the crisis that makes the necessity become real. Think about it. The pandemic has obliterated any lingering doubts about the necessity of insurance digital transformation. With rare exceptions, operating digitally is the only way to do and to stay in business. It’s "go digital" or stare at that wall until the unthinkable happens.
And this is where superhero capabilities come into play for insurers!
Some insurers are leveraging their superhero capabilities. They are the Leaders. When COVID rewarded the insurance industry with the ultimate teachable moment, they took the lesson to heart. When something built a brick wall between them and their customers, they made the wall irrelevant. They are focused on today’s business while also creating tomorrow’s business – operating at speed with a multi-focus, unlike others.
Some insurers are trying to keep pace or catch up. These are the Followers. Determined not to let the Leaders get too far ahead, Followers are listening to the lessons of COVID and are launching initiatives and making changes to ensure their success. They are solidly focused on modernizing and optimizing today’s business; however, they are less focused on creating the future business. But they are continuing to gradually fall behind.
Some insurers are in a tight spot. They face dilemmas. These are the Laggards. Laggards generally understand the market dynamics but are clearly stuck in the past and have failed to rapidly move to planning and execution across the array of strategic areas – even for their business today. They are not moving to new cloud platform solutions or incorporating platform and emerging technologies. They are keeping their business focused on the past, rather than the future. If not already in one, they are approaching a downward spiral of relevance that will be nearly impossible to reverse.
Majesco’s 2021 Strategic Priorities first report, based on post-COVID insurer survey results, shows a dramatically widening gap between Leaders and Laggards – 64%, a year-over-year increase of 20% – when looking at their focus on key strategic initiatives in the past year. Followers were “treading water” to keep even with the previous year – with a 12% gap to Leaders.
To explore in more detail the widening gaps, the 2021 Strategic Priorities second report, just published, assesses how insurers are dealing with necessary transformation in the midst of increasing challenges. In today’s blog, we look at the details of this gap. What is it that Leaders and Followers and Laggards are doing differently? What can insurers do to make sure they are positioned to become or remain Leaders?
Despite COVID Challenges, Leaders Are Widening the Gaps
The COVID crisis seemed to come out of nowhere, blindsiding the world with the force of a tsunami. Suddenly, the “usual” way of doing things no longer worked. Adaptability is the new innovator. For example, COVID-19 reduced or eliminated “in person” time for agents, adding a layer of difficulty to distribution. Those who were prepared to digitally shift for everything from communications to support lead generation through alternate channels and launch products in spite of quarantines were in a better position to turn plans into actions.
What Did Leaders Do Differently?
A key to reducing the drastic impact is the ability to rapidly adapt planning – both the plans themselves and the process for creating and altering them. Throughout history, we often see that the difference between success and failure is related directly to the ability to evaluate, reinvent and adapt to the current environment. While COVID forced all companies to adapt, Leaders took advantage of the situation. Leaders exercised their adaptability to a much greater degree than Followers (25% gap) or Laggards (34% gap), as seen in Figure 1.
Figure 1: Impact of COVID-19 on annual planning
Leaders are also more in touch with COVID’s potential internal and external impacts on their companies. Externally, their awareness of the impact to their customers was 26% higher than Followers and 33% higher than Laggards (Figure 2), a crucial insight and strategic difference between Leaders and those trailing them.
Leaders know they can’t assume the customers they serve today will need or want the same products and services tomorrow… or that the same customers will even be there tomorrow. Leaders constantly monitor the changing demographics and dynamics and make short- and long-term adjustments to adapt and thrive in an ever-evolving market. If their current target markets are diminished by COVID, they know they need to adjust their product and service offerings, develop new channels, seek new markets and more.
The State of Insurers Last Year
COVID was a gut punch for all three segments in 2020. Leaders, Followers and Laggards all had setbacks in their companies’ growth and strategic activities compared with 2019. On an aggregate basis, Leaders (-12%) and Followers (-10%) saw similar declines, but Laggards’ (-24%) was twice the decline of Leaders, highlighting their lack of preparedness for the crisis (Figure 2). In contrast, Leaders’ response was to counterpunch and adapt with new approaches to planning underpinned by a greater awareness of the business implications.
Awareness and adaptability matter when responding to change.
Figure 2: COVID-19’s impact on growth and strategic activities last year
Despite the setbacks of the last year, Leaders continue to dominate with a 12% lead over Followers and a striking 64% lead over Laggards, as seen in Figure 3.
Leaders and Followers were nearly identical in their views of company growth during the previous year, but Leaders averaged a 15% gap over Followers on all the other factors. The largest gap (21%) was in Maintaining/Replacing core systems, and the smallest (12%) was in a new factor added this year: Allocating resources to business as usual/change how we do business.
Figure 3: Gaps between Leaders, Followers and Laggards in assessments of company growth and strategic activities last year
Digital Disparity
However, the huge gap between Leaders and Laggards was due to four key factors reflected in Figure 3 — all of which are linked to digital transformation and creating the business for the future:
Channel expansion: 103%
New business models: 97%
New products/services: 74%
Reallocating resources: 70%
These gaps reflect a vastly different strategic mindset between Leaders and Laggards, one that is squarely focused on the future and adapting to market challenges while the other is stuck in the past, trying to survive but falling further behind.
The gap between Leaders and Laggards this year is the largest we have ever seen, more than doublingin size since we started tracking these segments in 2018-19. In contrast, the gaps between Leaders and Followers have been steady or slowly shrinking when looking at these in terms of the last year. But that gap is deceiving because it portends challenges when looking out three years. The gap between Laggards and both Leaders and Followers reflects a stark reality that Laggards’ lack of awareness, planning and execution are putting their survival and relevance at increasingly greater risk – something they understand the implications of well.
This scenario aligns with a December 2018 Boston Consulting Group (BCG) article on how some companies successfully navigated disruption and created value, earning the title, “thrivers.” The article states that successful reinvention requires making a large bet—one that can overcome the drag of the old way of doing things. Making that big bet requires leadership, confidence and expertise to eliminate the “knowing – doing” gap. Those who wait – the Laggards – will need to make bigger and potentially riskier bets to gain parity with the “early responders” (the Leaders). As Leaders gain growth momentum, the “knowing – doing” gap grows, leaving Laggards with dwindling options and relevancy in fast-changing market.
The 2018 article seems prophetic in our current pandemic-dominated environment, as illustrated by this quote:
“In a time of technological revolution, shifting regulatory priorities, and fast-changing consumer expectations, most companies will face some form of disruption in their industries or core markets. Some management teams anticipate the coming changes and respond promptly. Others, slow to react, must eventually address a more mature threat. The speed of response matters. Early movers can experiment with new businesses and models. Those that wait have dwindling options and, as our new research shows, must make far larger, more concentrated bets to navigate the disruption.”
Speed matters, particularly during disruptive change.
Has the COVID crisis invigorated your organization or has it backed your planning into a corner and trapped your transformation list under a pile of priority revisions? Are you using your superhero capabilities or continuing down the same path?
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Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation in support of Majesco's client-centric strategy.
There is a stretch of road yet to travel—but at long last the post-pandemic world is coming into view. As vaccine distribution accelerates and case counts drop, independent agents are contemplating what the future will look like. While it surely won’t be identical to the pre-pandemic business environment, there is room for optimism.
Technology will be a key to a fast recovery. In 2020, many independent agents were able to leverage technology to maintain relationships and even grow their businesses. But there is an opportunity to improve on objectives like paperless processes, remote relationship building and digital communications.
Technology can help independent agencies exit the pandemic era strong and ready for the future. Here are four smart ways agents can use technology in this new landscape and thrive in the years ahead:
Self-Service Tools
Some agents fear that clients will feel ignored or make decisions that diminish revenue if they can manage their own policies digitally.
In reality, clients appreciate and even demand the ability to do some policy maintenance on their own, when they wish. No one wants to wait until 9am to call or visit their bank, and insurance is no different. The ability to get a quote on a new auto policy or request an endorsement through a mobile app is not only considered highly efficient, but also respectful of the client’s time. Moreover, providing the capability creates a strong audit trail for the agency, saving staff from the tedium of compiling emails into a record.
Many clients (and especially millennials and Gen Z) expect to be able to transact routine business on their devices, without assistance. While they want the ability to email or text their agent for advice (and most also appreciate timely outreach from their agent), self-service is fast becoming essential for agency success.
United Western Insurance Brokers (UWIB), a Seattle-based agency, discovered firsthand the value of self-service in 2020. After the pandemic hit, UWIB braced for a severe drop in business, thinking that clients would either ignore or actively cut back on their policies. Instead, the agency wrote more new premiums in the spring of 2020 than it did over the same period in 2019. Why?
UWIB’s online customer portal, which offered self-service and other convenient digital options, enabled remote, contactless business transactions. Even when clients were in lockdown, they could manage their policies—and the agency was able to write new business.
Automated Client Engagement
We’ve all received “personalized” communications where the personalization ends after the “Dear (NAME)” opening. And in an industry where relationships are key, that tactic has been a big turnoff for independent agents who have considered automated client communications solutions in the past.
The good news is that technology-backed client engagement has evolved lightyears from this kind of fill-in-the-blank approach. When integrated with an agency management system, marketing automation platforms—the lingo for mass digital communications—intelligently and intuitively identify important reasons for outreach. Automated communications share actionable, relevant information with clients to help them make better insurance decisions. In short, advances in artificial intelligence (AI) and machine learning (ML) mean that technology can deliver the right message to the right client at the right time to create a truly personalized client experience.
These advances are a boon for agencies looking for a way to set themselves apart from their competition. Intelligently prepared communications produce open rates and click rates far above insurance industry averages (which, according to MailChimp, are 21% and 2.1%, respectively.)
In addition, automation can remove the labor and expense required when sending renewal reminders, soliciting reviews and feedback, and seizing on life events or other triggers for new accounts and policies. Automated client engagement can even keep track of how often clients want to receive emails and create segmented lists that ensure clients receive content based on their particular lines of business or locale. These tools are helping agencies do more while still keeping the personal touch in their business.
From mortgages to contracts to transferring money at the click of a button, consumers have gotten used to being able to transact business remotely. When it comes to covering their risks, clients expect their insurance to move at the same speed as everything else in their lives—which is why e-signatures and electronic payments are a necessity for independent agents.
The benefits to clients are clear, but there are strong business advantages for agents, as well. Clients are more responsive and timelier in returning signed digital documents, and they are more likely to pay premiums on time when they can use a credit card or ACH from their bank account. It’s true that some credit cards, mobile wallets (e.g., PayPal and Apple Pay) and pay-by-text services impose higher fees than checks or ACH, but the improvement in customer experience is more than worth it.
CB Insights, a technology analyst firm, reports that in 2019 paper checks accounted for 52% of disbursements in the insurance industry, compared with just 22% on average in other industries. The firm further states that ACH (Automated Clearing House) payments, which made up less than a quarter of insurance disbursements that same year, are a tenth as expensive as cutting a check.
Automated Policy Checking
The next big thing this year for independent insurance agents may be automated policy checking. Currently, most policy checks are outsourced and performed manually in batches. Using the traditional outsourcing approach of conducting the policy check and returning it to the agent, the process can take up to two weeks.
This can all change through automation. Some insurtech providers are offering solutions that use machine learning to check policies in a matter of minutes, with upwards of 90% accuracy and lower costs. Agents who pioneer automated policy checking in 2021 may gain a cost advantage and an edge in closing time-sensitive deals. The technology is worth testing.
Rather than separating agents from their clients, technology—when properly used—can actually build closer relationships and enhance customer loyalty.
In the past year, we’ve seen agencies adopt technology at a rate never seen before. This is no time to stop—in fact, agencies should double down on their investments. Technology has been proven to increase books of business and retention rates. As agencies look to their post-pandemic future, it’s time to see technology for what it is: a tool to not only accelerate business but to better adapt to the road ahead.
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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.
Exaggeration about death is actually quite common in a world going digital. Look back at the 1970s, when ATMs were being introduced and see the predictions of the demise of bank branches -- then go to your nearest city corner or strip mall and have a chuckle with the bank tellers there. Look at all the predictions in the 1990s and 2000s about the demise of travel agents, whose job requires a small fraction of the advice that insurance agents provide. Then realize that there are still 80,000 travel agents in the U.S.
History shows that jobs tend to evolve, rather than disappear. In the case of insurance agents, much of the administrative work will, in fact, go away. AI will allow for auto-fill in forms; clients will enter information directly into computer systems; chatbots will handle routine inquiries about the status of claims and payments; etc.
But the change does mean that agents must move up the food chain, taking on more important advisory roles now that they're freed from much of the drudgery. Digitization also increasingly means that agents must deliver the kind of smooth, easy interactions that Amazon and other Big Techs provide. ("I have to fax you a form? What's a fax?")
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.
- Paul Carroll, ITL's Editor-in-Chief
6 QUESTIONS FOR TONY CALDWELL
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.
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.
WHAT TO WATCH
3 Tips for Increasing Customer Engagement
Customers are rushing to embrace the digital space. Is your business prepared?
Even before the pandemic, insurance customers were moving to digital channels and demanding the kind of smooth experience they get with Google and Amazon. With customers demanding new types of interactions and agencies and companies needing to increase leads in a world that’s gone from face-to-face to zoom, technology doesn’t have to be intimidating. Watch this complimentary webinar and learn more about your customers' expectations, digital communication channels and how you can expand the way you connect.
WHAT TO READ
Does Pandemic Signal the End of Agents?
There will always be a need for intermediaries who deeply understand customer needs and can create that right combination of coverages.
The New Mantra for Agencies
Insurance agencies will need to innovate over the next decade to be nimbler and more cost-efficient than ever before.
Trusted Adviser? No, Be a Go-To Adviser
Is earning trust brag-worthy? Isn't trust the minimum for an adviser-client relationship? The real goal should be achieving "go-to" status.
What 2020 Taught Us on Selling Insurance
Insurance policies that are sold online need to be packaged and priced differently than those that rely on face-to-face sales.
Of Independent Agents, Heirloom Tomatoes
Direct vs agency is a silly fight. Neither channel maps cleanly to customer preferences. Both have advantages and disadvantages.
For Agents, COVID Means Digital or Bust
Survival in the era of COVID-19 will be determined by the independent agent’s ability to implement digitization.
Insurance Thought Leadership (ITL) delivers engaging, informative articles from our global network of thought leaders and decision makers. Their insights are transforming the insurance and risk management marketplace through knowledge sharing, big ideas on a wide variety of topics, and lessons learned through real-life applications of innovative technology.
We also connect our network of authors and readers in ways that help them uncover opportunities and that lead to innovation and strategic advantage.
But for insurers to take their services to the next level and develop accurate, personalized risk assessment models, insurers must shift to in-vehicle software solutions that provide granular data on the complete road-vehicle-driver ecosystem.
From insurers to OEMs, the future of in-vehicle collection technology lies in embedded software – including tactile sensors, which can provide the rich, relevant data needed to offer a more accurate picture of risk.
Here’s why current business models are coming up short and how tactile sensing capabilities can take auto insurers where they need to go:
A Flawed Status Quo
While the usage-based policies (UBPs) that many insurers have been offering are a step up from the normal flat-fee approach, they’re hardly foolproof, as UBPs rely heavily on data collected by static in-vehicle hardware solutions.
These solutions – including the OBD II Telematics, Black Box Telematics and Smartphone/SDK products that many auto insurers rely on – come with notable drawbacks. While they provide basic data based on the vehicles’ outputs (i.e., speed, breaking, windshield wiper speed, etc.) to determine the driving environment, they don’t take into account alerts, physical and functional road conditions, vehicle dynamics and health and how driving styles differ according to conditions.
Moreover, hardware-based solutions can be too sensitive – punishing drivers, for instance, if they slam on their brakes even to avoid hitting a jaywalking pedestrian or a car that has suddenly pulled out in front. Finally, these telematics systems can be complex to deploy and implement.
Auto insurers need better technology for measuring risk. And consumers want more personalized auto insurance policies – indeed, an Accenture survey finds that 64% are interested in policies with premiums tied to their individual behavior, and a PwC survey reveals that 41% are actually willing to switch to a more digital-forward insurance company to enjoy a better customer experience. Bridging the gap between auto insurers’ current offerings and consumers’ expectations will require technology that provides a greater understanding of the road, driver behavior, the vehicle and the environment.
In-vehicle software can enable this more comprehensive understanding of risk. Tactile sensors collect data not only on vehicle characteristics but also on road and vehicle-road characteristics – taking existing auto insurance data to the next level. Tactile sensors take into account factors such as tire tread depth, wheel balance, grip and much more. These factors, combined with insights on vehicle, speed, braking harshness and road roughness (to name a few), provide a much more holistic snapshot than existing hardware solutions can offer.
Embedded software can sit on the vehicle’s existing sensors to collect data and generate unique insights that insurers can use to assess the state of the road and vehicle before, during and after an accident, the vehicle’s overall health, the driver's behavior during an accident and more. This information can enable auto insurers to create personalized risk profiling and detailed accident reports. The insights can even predict road risks as well as identify and alert drivers to risks in real time by correlating road and vehicle conditions. The more comprehensive the data collection, the more personalized and dynamic the insurance policy.
A Win-Win
Insurers and policyholders both stand to gain from the deployment of in-vehicle software.
By using embedded software, auto insurers can reduce the risk of loss, tampering or damage to a telematics box. Armed with more granular data and insights, insurers can assess risk and set premiums with greater confidence – reducing payouts and fostering more long-term customer relationships. Additionally, tactile sensors and data can allow for next-generation accident reconstruction, a significant boon to insurers in the claims assessment process.
Drivers, meanwhile, will benefit from richer data on road conditions and risks, more personalized policies (with more accurate technology for measuring good driving behavior and lowering premiums), and real-time insights that can help them prevent a potential accident – such as early alerts that their tires should be replaced, for example.
Amid technological advances and mounting consumer expectations, the insurance industry is undergoing a transformation. Insurers that adapt to this paradigm shift by embracing technology and delivering on expectations for personalized policies will drive innovation, propelling themselves to a competitive edge in the new insurance landscape.
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A recent study by Tali Sharot, a professor in the Department of Experimental Psychology, University College London (UCL), asked the following: “Would you want to know if your colleagues view you as incompetent?” She found that 55% of respondents would want to know. When the same group was asked the opposite question—“Would you want to know if your colleagues view you as competent?”—the answer was a whopping 80% yes.
Intuitively, that more people prefer to know if they are judged as competent rather than incompetent is not surprising, but it is somewhat illogical. That your colleagues think you are competent might put a temporary spring in your step, but it is not very useful. However, knowing you are viewed as less than competent is potentially much more useful. It could lead to productive long-term changes in attitude and behavior that might save your career.
The results of Dr. Sharot’s survey also provide a classic example of the natural human propensity to turn a blind eye to truly useful information, especially if the information is cloaked in bad news. Dan Ariely, professor of psychology and behavioral economics at Duke University, coined the term “predictably irrational” to describe this tendency.
Rational Ignorance Is All Around
The phrase “rational ignorance” was coined by American economist Anthony Downs in his 1957 book, "An Economic Theory of Democracy," an early treatise on rational choice theory (and, incidentally, the first to use the left-right axis to political thought). Dr. Downs defined rational ignorance as “refraining from acquiring knowledge when the supposed cost of educating oneself on an issue exceeds the expected potential benefit that the knowledge would provide.”
This concept is particularly associated with politics. One illustration can be seen in the recent municipal elections in Sao Paulo, Brazil. Brazil is one of the few countries in the world where voting in government elections is mandatory. The Brazilian political landscape is also truly byzantine, with representatives coming from 33 different political parties, and the president currently having no party affiliation.
It is not surprising that many Brazilian citizens (myself included) do not have the time to devote to researching every aspect of every candidate’s policies. Indeed, several people wind up using social media posts from political pundits, who are seen as more versed in the issues, for their information, or relying on politically astute friends for suggestions. This relative apathy, however, does not mean that the voters are making poor or biased decisions. Still, such reliance on secondary sources can be seen as “rational ignorance,” as the cost of acquiring direct knowledge about the candidates, the issues and their positions might seem much higher than leveraging someone else’s knowledge and might produce the same decision either way.
Now we come to heuristics. The definition of a heuristic is a rule, method or concept that helps people solve problems faster than they could if they did all the necessary research or performed the necessary calculations to do so. Behavioral economics views heuristics as a driving force behind the human decision-making processes.
Let’s consider a simple example: How does the human brain react when shown pictures of i) a long multiplication problem or ii) an angry man? A person might take a couple of minutes to solve the former, but the latter will immediately trigger a subconscious fight-or-flight reaction. Human brains have, over time, evolved heuristics that instantly recognize an angry face as dangerous.
Have people come to treat social media as a heuristic, believing that posts from pundits and the like can help them navigate complicated political, economic and scientific issues? Two documentaries released in 2020 on Netflix, The Social Dilemma and The Great Hack, go into depth on how social media can manipulate news and politics and stoke conspiracy theories, leaving people less informed, misinformed and irrationally biased.
If people have a tendency to use rational ignorance regarding politics, I have no doubt rational ignorance is also a factor in the superficial understanding most have of personal taxes and investments, diet and exercise, health issues (including reducing the risk of COVID-19) and life insurance.
Insurance Product Offerings and Contract Wording: Mind the gap …
The phrase “coverage gap,” heard often from life insurance company executives, is defined as “the shortfall in the amount of life insurance cover necessary to maintain the current living standards of dependents.” Life insurance companies devote extraordinary amounts of time, effort and expense trying to educate underinsured individuals about the need to protect themselves and their families from this gap by buying more cover. Could our industry not be addressing one of the key issues leading to the lack of consumer enthusiasm for our products?
Here’s the issue: Insurance products and contracts are not consumer-friendly. To the average person, life and living benefits products are at least as byzantine as Brazil’s political system, and the language of insurance contracts could almost be considered an actual dialect. Insurance is thus fertile ground for the manifestation of rational ignorance among potential customers, who are already known to be more likely to pay attention to information about insurance if it comes from friends and social media posts. (I pity the buyer researching concepts and options such as pure protection, accumulation, critical illness, disability income or long-term care.)
Financial education could be one key to lowering this barrier. The good news is that there are plenty of options for obtaining information, from traditional media such as TV, radio and newspapers, to new media such as podcasts, YouTube videos and blogs. The bad news, however, is that there are plenty of options. Too much information frequently leads to even more confusion.
Many insurtech startups address obstacles by offering quick transactions, clear policy language and highly expedient claims processing. A possible downside, however, is that these startups generally offer only limited coverages. However, the rethinking by insurtechs can be considered tiny steps in the right direction.
One might think COVID-19 would have placed life insurance ahead of toilet paper or disinfectant wipes on the “most desired items to buy during a pandemic” list. I am sure life insurers are still scratching their heads, wondering why the sales tsunami they expected turned out to be only a ripple. Rational ignorance may have squelched any uptick in propensity to buy life insurance.
I would argue that the insurance industry needs to acknowledge rational ignorance as a major sales obstacle. Doing so could be a first step in recovering from the industry’s addiction to complex and layman-unfriendly policy language. Focus will be the key to a successful recovery. The first mover advantage, however, is still up for grabs.
This article first appeared in the March 2021 issue of Society of Actuaries` Reinsurance News.
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In this week's Six Things, Paul Carroll argues for a return to the too-often-neglected discipline of scenario planning. Plus, pioneering use cases for IoT in insurance; insurance ecosystems: opportunity knocks; unlocking the power of 'no-code'; and more.
In this week's Six Things, Paul Carroll argues for a return to the too-often-neglected discipline of scenario planning. Plus, pioneering use cases for IoT in insurance; insurance ecosystems: opportunity knocks; unlocking the power of 'no-code'; and more.
Who had “giant cargo ship” on their bingo card for possible disasters at the start of 2021? What about “derecho in Iowa” in 2020? “Global pandemic” at the outset of 2020?
Few of us foresaw any of those specific disasters. I certainly didn’t. I didn’t even know what a derecho was until the massive wind storm whacked Iowa, causing $7.5 billion of damages and some $5 billion of claims against insurers — more damage than in most hurricanes.
But some at least entertained such possibilities. And it’s time that we all broadened our thinking by returning to the too-often-neglected discipline of scenario planning... continue reading >
That was the dictum of the late, great Mel Bergstein, who way back in 1994 founded the pioneering digital strategy firm Diamond Management & Technology Consultants. (It became part of PwC in 2010.) I heard Mel’s line a lot, as a partner with Diamond from 1996 through 2003, and I think his are words to live by in the insurance industry these days.
Everyone seems to have gotten the memo about the need to digitize insurance and to explore innovative ideas, but the present typically creates a real drag that slows movement toward the future.
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Some 25 years after the publication of Nicholas Negroponte’s seminal "Being Digital," it feels trite to write about how digital capabilities and the expectations they create among customers have transformed even traditionally sleepy industries like insurance. Yet, the digital transformation of insurance is not a narrative of progressive evolution but rather a story of successive and disruptive waves. And we are on the cusp of a third one.
The first wave saw insurers learn to exploit digital tools to sell directly to customers. Established players as well as a plethora of tech-first startups proved it was possible to sell insurance online to customers without the benefit of an agent.
The second wave, still in flight, focuses on customer experience, bringing better and easier ways for insurers to process applications, serve customers and pay claims. These efforts have brought new efficiencies to an industry hyper-focused on cost while at the same time addressing the needs of consumers who expect immersive and contextualized digital interactions with all the businesses they patronize.
The third wave, in its infancy, focuses on ecosystems, that is the embedding of insurance within the value chains of other industries. An online world, dedicated to selling us cars, homes, travel experiences and financial services is now discovering the opportunity to bundle insurance with the goods and services they provide. Such bundling addresses customers at the moment of need, at the life event – a new home or car purchase, for example – which triggers the need for insurance protection. Insurance in such a model is, as the title and summary of this article suggest, like French fries, a digital side dish suggested as an add-on to the main course. In the years ahead, we will increasingly see more and more businesses ask the question, “Do you want insurance with that?”
Whose brand is it anyway?
Big Tech has done the spade work for this third wave of transformation. Well before COVID-19, customers were becoming increasingly receptive to the idea of buying insurance from Big Tech firms. And around 44% of the consumers we interviewed as part of Capgemini’s World Insurtech Report 2020 said they would consider coverage offered by Big Tech.
Policyholder willingness to purchase Big Tech coverage is on the rise
Sources: Capgemini Financial Services Analysis, 2020; Capgemini Voice of the Customer Survey ‒ 2016, 2018, and 2020; Capgemini Research Institute, Consumer Behavior Survey 2020.
The fact that Big Tech has earned and retained customers' trust during various lifestyle interactions is the catalyst behind their increasing willingness to buy insurance, too. Customers say they can count on tech giants for stellar digital experience, intuitive services and real-time response.
So far, Big Tech has been making slow, yet deliberate, inroads into the insurance space. Google subsidiary Verily announced plans in August 2020 for its own insurance company (backed by the commercial insurance unit of Swiss Re Group) to provide tech-driven employer health insurance plans. Verily has also made a health-tracking smartwatch for research use. Amazoninvested in Acko Insurance to offer auto coverage via the India-based startup’s platform. Big Tech firms are also integrating existing products (Apple Watch or Amazon Alexa) into the insurance value chain or developing convenient and time- and money-saving offerings that appeal to a broad range of policyholders.
These findings with respect to Big Tech are consistent, of course, across industries. The erosion of traditional brands in favor of new digital ones has occurred in every sector.
Equally important is the extent to which the willingness to buy from Big Tech extends to a broader ecosystem of digital-first businesses. Disruptive industry-specific players, most notably in automotive, are as big a change agent as Big Tech. Buying car insurance from Carvana, home insurance from Zillow or small business insurance from Quickbooks makes all the sense in the world, particularly when these digital behemoths demonstrate the power to use data to make the right offer at the right time at the right price.
The challenge to the industry to adapt is profound.
What’s an insurer to do?
As Big Tech and other online powerhouses look to turn insurance into the new French fry, insurers must consider the implications of this digital third wave and choose strategies through which they both embrace and differentiate in the new world of embedded insurance.
Most obvious and relevant is the ability to embrace the new channels. Insurers have always relied on third parties for distribution. A shift in mindset to see e-businesses as the agents of the future requires cultural change and paradigm realignment but is not revolutionary from a business model perspective.
The bigger challenge in many respects is on the technology-side. The constraints of legacy systems and brittle enterprise architectures, which shockingly persist 25 years after Negroponte, limit the ability of insurers to plug and play seamlessly in the new ecosystem. Developing an API framework that enables insurers to connect safely and securely with a broad array of distribution partners – what we at Capgemini call Open Insurance – is a prerequisite to being part of the coming disruption and not a victim of it.
Along with the API-ification of insurance technology comes significant requirements to up the game with respect to data. Succeeding in the new ecosystem, as noted above, requires being there at the right time with the right product at the right price. Doing so requires real-time customer insight, which comes from data mastery. We have been slow to get there. Less than 40% of insurers say they have access to IoT devices and natural language processing (NLP) support systems to enable real-time insights. Producing and leveraging analytics at scale will be the battlefield for this third wave of digital.
Not all French fries are created equal
It will, of course, take more to succeed in the new ecosystem than technological advances.
Competitive differentiation among insurers will need to come from the insurance product itself. In a world where traditional brands have ever-diminishing salience, product and price are the only bases for competition. The standardized products the industry currently offers will force an inexorable race to the bottom, where the cheapest wins. Look for product innovation to be the true benefit of the third digital wave.
The demand is already there. Only some insurers see it.
Incumbent insurance executives interviewed as part of the World Insurance Report 2020 were behind customer expectations regarding new products. Only half of the executives we talked with said they had rolled out usage-based insurance (UBI), such as pay-as-you-drive (PAYD) offerings. Conversely, customers’ year-over-year interest in UBI climbed from 35% in 2019 to more than 50% in 2020. Less than half of the insurers we interviewed said they effectively target promotions at critical life-phase moments, and fewer than 25% said they use artificial intelligence systems to track external data.
The challenges to insurance product innovation are not trivial. Complex regulatory regimes create significant hurdles, making almost impossible the “fail fast” mindset that drives innovation in other sectors. But the challenge for insurers is indeed existential. As the aficionados of one or another fast-food empire will attest, the fries may be a side dish, but they are often the best part of the meal. Insurance should learn from this example.
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Most personal lines insurers were already pursuing digital transformation before the pandemic, but the tumultuous events of last year caused many to reprioritize digital projects and change the shape of their journeys.
Generally, the industry fared well despite the lockdowns, economic volatility and work-from-home imperative. As activity and behavior patterns shifted dramatically in many ways, the industry benefitted – so much so that large rebates were offered by many personal lines carriers. However, insurers also had to deal with the increasing severities in personal auto, an uncertain financial market and reduced demand in some areas due to layoffs and an economic downturn.
From a digital journey standpoint, it was not so much about pausing the effort to become a digital enterprise as it was about reprioritizing projects to address urgent needs revealed as a result of the pandemic.
A new SMA research report, Digital Transformation in Personal Lines: Project Priorities for 2021, identifies specific plans for carriers related to a variety of digital projects. A big theme is the focus on self-service capabilities for policyholders, especially for policy service and claims. While some insurers already had robust solutions in these areas for digital capture and workflows, most found that their capabilities needed upgrades to support remote, virtual operations.
At the same time, the evolution of core systems continued unabated. Modern core systems for policy, billing and claims are the foundation for digital transformation.
The move to simply digitize more assets and automate workflows also accelerated. Although the core, digitization and workflow projects may not, by themselves, drive transformation, they are enablers for a whole range of digital projects. More information must be in digital formats, and the systems of record that manage key transaction flows and data must be built on modern architectures that provide the flexibility and adaptability needed in the digital age.
Although one would think that all the focus would be on customers, the reality is more complicated. There are certainly digital projects that focus on addressing the digital gaps related to customers, such as self-service portal projects. However, there is just as much or more activity focused on operationally driven transformation. In some ways, this is the typical response to a crisis – focus on operational efficiencies and position the company to weather difficult times. But, in other ways, this focus just reflects the opportunities to reduce complexities, decrease paper and manual handoffs and increase digital data to feed digital workflows and analytics.
SMA predicts that there will be an acceleration of the digital journey as 2021 progresses, continuing into 2022. As we move toward the post-pandemic world, there is an even greater appreciation for the power of digital transformation.
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Mark Breading is a partner at Strategy Meets Action, a Resource Pro company that helps insurers develop and validate their IT strategies and plans, better understand how their investments measure up in today's highly competitive environment and gain clarity on solution options and vendor selection.
Heading Off Surprises
In a world where a single ship accident can disrupt global trade, it's time we return to the too-often-neglected discipline of scenario planning.
Who had "giant cargo ship" on their bingo card for possible disasters at the start of 2021? What about "derecho in Iowa" in 2020? "Global pandemic" at the outset of 2020?
Few of us foresaw any of those specific disasters. I certainly didn't. I didn't even know what a derecho was until the massive wind storm whacked Iowa, causing $7.5 billion of damages and some $5 billion of claims against insurers -- more damage than in most hurricanes.
But some at least entertained such possibilities. And it's time that we all broadened our thinking by returning to the too-often-neglected discipline of scenario planning.
Bill Gates warned us of the possibilities of a pandemic during a TED Talk in 2015, based on thinking akin to scenario planning -- which involves developing stories about possible futures that, while not necessarily probable, are at least plausible and would require drastic action. Gates even got the contours of COVID-19 right, warning of a virus that could be spread through the air and that would have people infecting others before they knew they had contracted the disease. Gates said the world was woefully unprepared and recommended what he called "germ games," the medical equivalent of war games, in which governments would simulate responses to a hypothetical virus and spot their vulnerabilities (in this case, their very many vulnerabilities).
Others have worried about potential disruptions to supply chains as trade has become more global, which makes something like the Suez Canal a choke point. Still others have raised concerns about the effects of climate change, such as may have contributed to the derecho.
But we keep getting caught flat-footed, with serious implications for both clients and insurers.
Now, I'm not suggesting that anyone should have predicted that a ship as long as the Empire State Building is tall would wedge itself athwart the Suez Canal for six days, holding up $10 billion of cargo a day and causing many ships to be rerouted around the Cape of Good Hope, adding weeks to their journeys.
Still, scenario planning has shown itself to be an effective tool for gaming out problems, stemming back to the pioneering work that Royal Dutch/Shell did beginning in the 1970s. According to a 2003 article in Strategy + Business, "Scenario planning alerted Shell’s managing directors (its committee of CEO equivalents) in advance about some of the most confounding events of their times: the 1973 energy crisis, the more severe price shock of 1979, the collapse of the oil market in 1986, the fall of the Soviet Union, the rise of [Islamic extremism] and the increasing pressure on companies to address environmental and social problems."
That's a pretty good set of warnings.
The article adds: "The method has since become widely popular outside Shell, not just in corporations but in some governments. In South Africa, for example, scenario planning played a major role in the peaceful transition from a system of apartheid to a stable multiracial government."
I'm no expert on scenario planning, but I'll try to seed the discussion with some classic articles on the topic.
Here is a Harvard Business Review article from 2013, which explains the history of the work at Royal Dutch/Shell and argues that, even when scenarios don't play out as imagined, "a sustained scenario practice can make leaders comfortable with the ambiguity of an open future. It can counter hubris, expose assumptions that would otherwise remain implicit, contribute to shared and systemic sense-making, and foster quick adaptation in times of crisis."
Here is a 1995 article from the MIT Sloan Management Review that lays out the methodology in detail. The article says that scenario planning doesn't just lay out lots of data about how the future might play out but "goes one step further. It simplifies the avalanche of data into a limited number of possible states. Each scenario tells a story of how various elements might interact under certain conditions.... A detailed and realistic narrative can direct your attention to aspects you would otherwise overlook. Thus [in a scenario developed for mountain climbers] a vivid snowdrift scenario (with low visibility) may highlight the need for skin protection, goggles, food supplies, radio, shelter, and so on."
It seems that we should at least be laying out scenarios related to the possible effects of climate change -- hurricanes, wildfires, derechos and other wind storms, surprising freezes like the one that shut down the electric grid in Texas, etc. (I encourage you to read this recent article from Francis Bouchard on other ways that we as an industry should respond.) The potential for civil unrest seems to be rising worldwide. Solar storms that could fry the grid? Weapons of mass destruction? A crisis with a natural resource -- perhaps water?
There's a lot to do. I'm hoping that we as an industry can both prepare better ourselves and can help clients at least be ready to adapt when the next bit of craziness happens.
In the meantime, we can celebrate that a whole lot of hard work, plus a "supermoon" full moon and high tide on Monday, freed the 220,000-ton ship blocking the Suez Canal.
Stay safe.
Paul
P.S. Here are the six articles I'd like to highlight from the past week:
Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.
