For those of us in insurance, the journey to digital transformation has felt slow, challenged by regulations, legacy systems and complex business functions that require sophisticated solutions.

The pandemic has been a wakeup call: Digital is no longer an accessory but a necessity for any business. Effective digital technology is essential to meeting our customer needs and providing them with protection, security and peace of mind. We are at a pivotal moment, where we must overcome the barriers to digitization. 

No-code technology can play a key role. For decades, enterprises have relied on code to build and maintain software. But coding is extremely complex. It takes a long time to learn and master, and it’s time-consuming to write, update and maintain code. At the enterprise level, a reliance on code creates a system in which a select few who are responsible for building and maintaining software for the entire enterprise. This typically leads to high costs, slow timelines and sub-par outcomes. 

We’ve all seen this in action. A team comes up with a software idea or identifies a process that needs updating. The team brings the idea to developers (aka “coders”), who are already underwater with requests. The scope of the project is reduced, then takes 12 to 18 months to get off the ground. If requirements change, funding shifts or people change jobs, the project can fail entirely. 

No-code fundamentally changes this. No-code is exactly what it sounds like -- a way to build software without using any code. No-code users build software using a visual interface that houses a library of configurable pre-built components. This approach expands the pool of people who can build software beyond those who can write code and frees developers to focus on truly complex problems. No-code allows companies to build complex, mission-critical applications faster, at a fraction of the cost and with fewer bugs.

No-code is a perfect fit for an industry like insurance, where a reliance on code has held us back from building and scaling the software we need to meet the moment. The potential use cases are vast. We already have great examples of how enterprise no-code is being used.

Digitizing business origination in life insurance

Traditionally, business origination processes have relied on paper processes or solutions built via coding. Multiple points of intake (e.g., paper, e-apps, digital) contribute to data inconsistencies, low adviser productivity and a sub-par customer experience. 

A top 10 life insurance company used Unqork's no-code platform to digitize the business acquisition journey from end to end. Through a unified digital interface for advisers, customers and operations, the company streamlined policy administration and underwriting. Turnaround time for new business fell from over two months to less than 20 days on average. The company also reduced costs by 30% and enhanced the customer and adviser experience. 

See also: Digitally Challenged Miss Opportunities

Digitizing onboarding of the plan sponsor and adviser

For most insurers, client onboarding is incredibly time-consuming and costly. High-touch and heavily reliant on pen and paper, traditional processes yield sub-par results and are often rife with data inconsistencies. 

No-code can be used to create end-to-end, self-service solutions that automate sponsor, plan, servicing, pricing and adviser and third-party administrator (TPA) data capture. This digitized process allows for direct client outreach, integration with third-party data providers, due diligence assessment and seamless coordination across functions. 

A top five insurer used Unqork’s platform to digitize plan sponsor and adviser onboarding, accelerating client onboarding times from four weeks to three hours, decreasing the cost of operations and technology ownership while increasing revenue potential and improving client relationship management. 

Streamlining rate-quote-bind and policy administration

The policy administration process is notoriously inefficient. Insurers often rely on a number of different channels -- phone, web, agent, self-service -- and intake varies widely across channels. Agents often depend on the back office to receive an indicated rate and issue a policy, restricting agent productivity and delaying the rate-quote-bind process. Inefficient processes contribute to a significant administrative load and hurt the customer experience. 

Enterprise grade no-code can be used to automate the intake, quote, bind and issue processes for no-touch and underwriter workflows. These systems are user-friendly and optimized for mobile, to ensure a positive customer, agent and underwriter experience.   

A top insurer developed a policy administration system that allows agents to independently perform submission, quote, bind and issue processes. The paperless system was built in just six months, and the insurer experienced huge efficiency gains: more than 70% in quoting and more than 80% for binding and issuance. 

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We’re just starting to scratch the surface of what no-code can do for insurance. There are endless use cases across the industry -- with digital solutions for common, inefficient processes and bespoke applications for niche challenges. The potential is revolutionary: The industry can provide a better experience for carriers, agents and customers alike.

In the first full week of spring, green shoots are starting to poke through the metaphorical ground in the U.S. economy, as well. It may be time to start planning for a robust rebound late this summer or in the fall, both in terms of what needs to happen as insurance employees increasingly return to the office and in terms of what will happen for clients' and prospective clients' businesses.

My optimism hinges, in particular, on a survey of chief financial officers that Deloitte released last week. While straws have been in the wind for weeks now as the vaccine rollout has accelerated in the U.S., I was struck that only 13% of CFOs considered the North American economy to be bad in the first quarter, down from 26% in the fourth quarter and 60% in the third. 29% said current conditions are good, up from 18% in the fourth quarter. (Only 7% consider the European economy good; 48% view it as bad, and 1% as very bad.)

We could still take a hit if capital markets reset -- 83% of CFOs consider equity markets overvalued. But 57% said they feel somewhat more optimistic about their company’s financial prospects, and 10% are significantly more optimistic. Only 3% are somewhat or significantly less optimistic.

In terms of when companies will return to normal operations -- whatever "normal" turns out to be -- 37% of CFOs say their company is already at or above its operating level before the pandemic. 16% of CFOs expect to hit that mark in the third quarter, and another 16% predict their companies will get there in the fourth quarter.

The new normal will likely include less travel: 73% expect travel expenses post-pandemic to be between 50% and 80% of where they were before. Just 12% see travel at 81% to 100% of pre-pandemic levels, and only 2% project an increase.

While the CFOs weren't asked about the likely working environment for their companies, in general, they provided some feedback on their function that may be instructive for others. Only 31% expect the majority of their finance staff to work four or more days on site post-pandemic; 45% expect the on-site work week to be three days.

When you step back and look at the implications for the insurance industry, I'd say that most clients, outside of those involved in business travel, will snap back -- as long as a company has managed to stay in business. The hunger is there -- literally -- for meals at restaurants and for other social outings. (The first thing I'm going to do when I get vaccinated is hop on a plane and fly to Pittsburgh to give my nearly 91-year-old mother a hug, having not seen her except on Zoom in 14 months.) Schools will reopen, and, while the lost year in the classroom will cause problems for a long time, the rhythms of life will return for parents with school-age kids.

But I'd guess that the office environment, both for the insurance industry and for clients, will take time to sort out. There were clearly lots of advantages to working from home -- I fill up my car about every six weeks -- but I miss the camaraderie, and academics argue that creativity drops when people and ideas don't bump into each other.

I'd guess that most businesses will more or less follow what the CFOs predicted, that people will come to the office three or four days a week -- perhaps coordinating so that members of a group are likely to see each other -- but will have much more freedom to keep doing those Zoom meetings. Perhaps keep an eye on Microsoft, which said this week that it is starting to call employees back to the office as it rolls out a hybrid model of work in the office and at home. A recent essay in Fortune offers advice on testing hybrid models -- mostly on mistakes to avoid. The author reports that employee time spent on collaboration declined to 27% in 2020 from 43% pre-pandemic and says that trend needs to be reversed for a host of reasons.

In any case, having to sort out a hybrid work environment is a nice problem to have after a year hunkered down. I'm just delighted to be finally feeling optimistic. See you soon, Mom.

Stay safe.

Paul

P.S. I was also struck by an article over the weekend in the Wall Street Journal about how Blackstone has shifted its investment focus from value-based investments to growth companies. If even Blackstone sees more opportunity in growth than in spotting undervalued companies and wringing inefficiencies out of them, that has to be a good sign, right?

I'd actually argue that it's a good sign for the economy but not for Blackstone. If it's switching from a tried-and-true formula that has the firm with more than $600 billion under management, then the firm is running out of opportunities to work its formula. You just don't stop minting money unless you have to.

Expertise in hyper-efficiency and in the sort of sophisticated financial tools that private equity uses don't relate much to success in spotting and nurturing high-growth companies, so I'll bet anybody a nickel that within a couple of years we'll see Blackstone retrench. But I don't have a stake in Blackstone, so I'm simply pleased that it and its hundreds of billions of investment dollars will chase growth and encourage everyone to innovate, at least for now.

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

Transforming Auto Claims Appraisals

While the benefits of claims automation are indisputable, delivering a truly “touchless” experience will require a technological evolution.

Straight-Through Processing in 2021

Straight-through processing of claims is likely to become more common, especially in personal lines and individual life.

Analytics That Lower Spending on Claims

The secret is to unlock the potential of the large quantities of unstructured data streaming through the claims function.

Premium Leakage Due to Legacy Systems

A recent study shows that 5% to 10% of insurance premiums vanish every year due to the inefficiencies caused by legacy systems.

Geomagnetic Storm for Insurance?

A geomagnetic solar storm could create havoc; the recent freeze in the Deep South showed how disruptive a failure of the electric grid can be.

Lessons on Reaching Customers Remotely

Tech companies have mastered digital communication because they have always sold products and services to customers remotely.

The pace of digital transformation is accelerating in many industries due to COVID-19, and nowhere is this more evident than in automotive insurance. At the start of the pandemic, carriers and collision repairers had to find new ways to minimize in-person interaction between employees and customers. This resulted in the rapid adoption of virtual, or photo-based, estimating and served as a tipping point for claims automation.

Virtualization supports the need for social distancing, accelerates the claims-handling process, improves efficiency and increases customer satisfaction. According to LexisNexis Risk Solutions, 95% of auto insurance carriers are embracing virtual claims handling, with many setting their sights on touchless estimates. By 2025, the global data and analytics company predicts that more than 80% of claims processed will be virtual, and up to half of non-injury claims fully automated.

So how does this affect auto insurers? Although the pandemic has reinforced the benefits of virtualization, truly automated estimates — or touchless estimates — remain the ultimate goal. Achieving that goal, however, requires a technological evolution. Despite catalysts including business incentives, customer expectations and a global pandemic, the transition from onsite inspections to full automation will take time. 

Common Misperceptions

To understand the progression of claims automation, it’s important to first address misperceptions about the current state of touchless estimates. The belief that, today, fully automated appraisals can be accurately produced without human intervention is fiction. In fact, it’s comparable to recent exaggerated assertions about the prowess of self-driving vehicles. While advancements in technology have led to increased automation, the need for human oversight and intervention remains critical. Additionally, the regulation and infrastructure required to support an automated end-to-end system are still evolving.

The Pursuit of Touchless Estimates

Insurance carriers are on a quest for touchless estimates to stay competitive and meet increasing consumer demands for better response times and self-service capabilities. After all, an automated appraisal process is expected to deliver:

• Improved efficiency and appraiser productivity
• Greater estimate consistency
• Better cycle times over traditional methods
• Higher customer satisfaction

For this automated process to be successful, though, insurers must consider their unique workflow requirements. Unlike field estimating — where a one=size-fits-all approach may work — a scalable, automated appraisal solution requires an open, flexible and cloud-based ecosystem that can integrate with other business applications. Open ecosystems let carriers streamline operations and leverage best-in-class technologies that reduce the reliance on human effort while they build out an automated claims experience.   

See also: Digitally Challenged Miss Opportunities

Automation Trends Enhancing Efficiency

Three trends — or levels of automation — have marked the evolution from onsite inspections to touchless claims. These levels are not sequential; rather, they are being developed and deployed in parallel as the artificial intelligence (AI) used to automate estimates becomes more mature.

Virtual (Photo-Based) Estimating

Virtual estimating demonstrates the power of using photo capture to produce accurate assessments. Images and videos are put at the center of the appraiser’s workflow. Despite its efficiency, virtual estimating is primarily driven by humans, not machines. 

• Vehicle owners start the claims process on their mobile devices and are guided through how to capture and share photos and video of damage.
• AI is leveraged to organize and categorize the imported images as well as to detect and highlight the damaged sections of the vehicle. 
• Appraisers rely on an application with a 360-degree view of the damage to write an initial estimate as if they were physically at the vehicle instead of a remote location.

Before the pandemic began, virtual estimating was used for low-severity claims. However, it accounted for just 6% of all estimates written in the U.S. and 4% in Canada at the start of last year, according to Mitchell data. By April 2020, those percentages more than doubled.

Field appraisers can typically complete three to four onsite inspections per day when factoring in administrative tasks and travel time. Working from images, however, allows an appraiser to finish approximately 15 to 20 estimates per day. 

Guided Estimating

Human-machine collaboration is the next step in the progression from handwritten to machine-written estimates. Appraisers are guided by the AI through each decision. The goal, of course, is to empower the appraiser while leveraging the AI for useful recommendations. 

At this level of automation, the machine is becoming much more involved in the process. While appraisers ultimately remain in control, the information and decisions presented to them are delivered by AI with each sequential line of the estimate suggested for their consideration. Guided estimating extends beyond virtual estimating by:

• Driving a set of AI predictions that recognize the damage to components
• Transforming these predictions into repair line recommendations
• Surfacing supporting evidence and empowering appraisers to make changes based on their own expertise
• Delivering a continuous feedback loop that relies on appraisers’ decisions to educate the AI

Automated Estimating

Touchless estimating is the final level of automation. This fully automated process is powered by AI using vehicle and claims data to generate all operations, parts selections and pricing. Predominantly machine-driven, the process works by:

• First capturing claim details and vehicle content, like virtual and guided estimating 
• Analyzing the information using computer vision and other machine-learning algorithms to translate it into component-level estimate lines
• Pre-populating the entire estimate for review and approval by the appraiser

Additional data integration will help carriers further streamline the claims process beyond automating appraisals. For example, claims could be settled even faster by incorporating telematics incident reports, loan payoff amounts, titled/registered owner information and taxes and fees into the workflow. And LexisNexis Risk Solutions predicts that “by 2025, at least 40% of total loss claims will be settled within a couple of days instead of weeks.”

See also: 5 Keys to Transforming Underwriting

Where to Start

The transformation from field appraisals to touchless claims isn’t done in a vacuum or entirely by a machine. Appraisers are critical to developing and improving the process. If automation is introduced slowly, they can build their confidence in the AI while perfecting the results through continuing feedback. Creating an experience where the guidance is clear, actionable and transparent helps create trust between humans and machines.

Processes driven by human-machine collaboration take time, but they can lead to vast improvements in speed and accuracy. For auto insurance carriers, the time to act is now. After all, when it comes to meeting policyholder needs and staying competitive, the question isn’t whether to automate appraisals. It’s which partner has the experience and expertise to help you achieve your goals and support the evolution of your organization’s claims process.

The threat of a cyber-attack is far more dangerous now than it has been in the past, yet knowledge of the threat prevention systems necessary to protect oneself remain widely unknown. 

Ransomware, in particular, has exploded as a problem. The frequency of such attacks is up almost 200% in the past two years. Severity is up, too — the average ransom demand has surged from roughly $10,000 to well north of $100,000. Combine those two issues, and ransomware is many times as big a problem for clients and insurers as it was two years ago. 

Unless companies create more sophisticated protection systems, the problem will become even worse. Hackers are more astute, increasingly have access to inexpensive tools and have greatly expanded how and what they attack. There are even ransomware developers who sell or lease their ransomware, offering Ransomware-as-a-Service (RaaS).

In the past, attacks were relatively limited. When an employee clicked on an attachment that included a virus, the attack would encrypt the computer. There was minimal ability to spread to other computers, and individual computers were oftentimes backed up. This meant ransomware was frequently seen as just an inconvenience for a company and wasn’t as significant an issue for insurers as it is today.

Now, attackers use their initial entry into a computer as the starting point to work their way into a potentially huge network. The hackers lay traps and can generally find how and where the system’s sensitive information and backup server are located. With this information, the hacker can ensure that paying the ransom is the only way for a company to recover. An attack is often so devastating that the hackers can — and will — ask for exorbitant ransoms.

Tools for hackers are now inexpensive on the dark web, and hacker groups often coordinate. Perhaps one individual finds some credentials that allow a path into a system but isn’t sure how to exploit it. The person might sell the credentials on the dark web or hire some hacker known to be especially good at exploring and exploiting that kind of system; this is RaaS.

While some industries were considered to be relatively low-risk, that’s no longer the case. For instance, a few years ago, manufacturers were considered a target class for cyber insurance carriers because they were unlikely to store personal information, like credit card records. But now, they’re getting hit the hardest: Manufacturers are typically large companies with underdeveloped cyber security capabilities. Hackers would use this to their advantage and exploit these companies, which weren’t prepared for the onslaught of ransomware attacks. 

Within the Tokio Marine HCC – Cyber & Professional Lines Group, we’ve been working with thousands of policyholders to better prepare them for attacks, and people understand the problem conceptually. Cyber is a serious consideration at the executive level and mandatory for business continuity and disaster recovery planning. The recent SolarWinds attack has reminded us all that even the best-protected government and business systems are vulnerable. 

Based on simulations of attacks, we know that approximately 30% of those who receive a phishing email will click on a link that infects their system. Thorough training of staff on awareness and best practices reduces the number who fall for a phishing attack. With proper training, we've seen a reduction in exposure, whereby only 10% of employees fall for the trick when a hacker attacks; but that can still be enough for a catastrophe to happen, like the SolarWinds incident.  

Training should be mandatory, but it shouldn’t be the only layer of defense for the network. Perimeter defense, secure backups and patch management are all critical. At present, Tokio Marine HCC provides a vulnerability scanning service for policyholders, which provides insights on vulnerable points of entry for hackers, including security vulnerabilities in policyholders' perimeter and out-of-date software, to help the insured avoid becoming a victim. 

To combat weak passwords, many companies are starting to require multi-factor authentication to safeguard access to their system. A person must use an alternate means to authenticate themselves through a code texted to a smartphone, provide biometric evidence of their identity through something such as an iris scan or verify their identity via another secondary means. This dramatically reduces the risk that a compromised password leads to a devastating attack.

Companies are moving toward a “zero trust” model to protect their systems. The idea behind this emerging model is to have virtual “hall monitors” to challenge every actor in the system and force that actor to revalidate itself before going into an additional "room." In the past, companies would use a firewall to keep hackers out, but once hackers get past the wall they virtually have access to any "hall" in the network. 

Companies should also be thinking about their outsourcing arrangements. Outsourcing can be cost-efficient, but if you have a 1,000-person company and only have three full-time people in IT, you’re likely to be using outside contractors. Issues may arise with disagreements regarding who is responsible patching systems or monitoring the network for suspicious activity. Furthermore, Managed Service Providers (MSPs) are being targeted by hackers and, if the hackers gain unauthorized access, are being used to launch ransomware attacks against their clients.

At Tokio Marine HCC – Cyber & Professional Lines Group, we apply our expertise and use our scale to make deals on behalf of clients to create a package of security services from leading providers. These packages involve, for instance, CrowdStrike, which provides endpoint detection security; Cisco’s Duo, a leading service provider of multi-factor authentication; and many others. We provide the bundling of these services at a discount off the market price, as well as with a discount on premiums, because, based on our data, we’re confident that our clients are less vulnerable with solutions such as these. 

However achieved, reducing vulnerability helps both our company and our clients. We view this as a mutual relationship. If we can keep our claims costs as low as possible, our premiums can be as low as possible. However, it is critical for our insureds to focus on cyber security, so they are not an easy target for hackers. Whether a company has insurance or not, an attack is hugely disruptive, and, although we can transfer some of the financial costs, we can’t transfer everything. For instance, companies oftentimes still have to deal with being shut down for a stretch of time, while they hopefully recover their data and ramp back up.

Minimizing exposure to an attack is possible, but a company must invest in layers of network defenses, training and maintenance to stay ahead. Having the right insurance policy can protect you from the financial burden, but the reputational harm or missed opportunities that result from a cyber-attack can be very costly.  

If you are unable to reduce your vulnerability, the problem could spiral out of control. Insurers will need to keep raising rates rapidly or will simply drop out of the market — supply is already dwindling. Clients may find rates so high that they will self-insure — at great risk.  

At Tokio Marine HCC – Cyber & Professional Lines Group, we’re committed to the market, and demand for the insurance has never been greater. Our focus is staying on top of loss trends so we can help our clients continue to reduce risks and keep the problem manageable for all.

For more information about the Cyber & Professional Lines Group, please visit www.tmhcc.com/pro

Although insurers have readily adopted technologies to serve their customers, they’ve been less enthusiastic about using the same technologies to support their employees. Perhaps that’s one reason only 4% of millennials in 2018 showed an interest in working in insurance and 28% of financial services employees expected to leave their employers within five years.

To remedy this talent problem, there’s been a call for insurance companies to adjust their organizational structures, give young talent greater flexibility and improve their work cultures. If collective calls for change were the push, then the pandemic was the shove. Practically overnight, insurance companies had to adopt tech solutions for their employees and agents to maintain business continuity without being in the office or visiting prospects and clients. One recent survey reports that 60% of insurance professionals who responded have been working from home 100% of the time during the pandemic.

It’s clear that the insurance industry may not return to “normal” for the foreseeable future. When the first wave of the pandemic hit, companies learned to use tech to facilitate business. Now, the challenge will be adopting tools and practices that balance the best of technology without losing the one-to-one connectivity that’s the industry’s lifeblood.

Social Media and the Future of Work for Insurance Companies

The insurance industry’s evolution may have been slow until recently, but the industry hasn’t been stagnant. Most companies have shifted toward providing more customer-centric experiences.

Some have leveraged artificial intelligence to deploy more personalized services, such as using chatbots to answer inquiries or process claims. These solutions can serve as a framework for using even more advanced technologies. For instance, casualty companies are using IoT-connected sensors, real-time satellite information and unmanned aerial vehicles to assess accidents and natural disasters with unprecedented speed and efficiency.

No matter how useful these solutions may be, however, they cannot replace the human connection, an essential element in insurance. In my view, success with technology starts with taking the authenticity of relationships to digital channels, social media being chief among them. Here’s why:

1. Social media helps maintain smooth, consistent communication.

Communication skills have always separated the underperformers from the superstars, and, in insurance, effective and proactive customer communication is king. In fact, a survey from Collinson showed that two-thirds of customers want further communication from their insurance providers, and three-quarters would like to receive product and benefits recommendations. Yet most insurance companies reach out only for transactional matters like policy updates (67%) and renewal notices (79%).

The tech industry has mastered digital communication because tech companies have always sold products and services to customers remotely. Now, it’s time for the insurance industry to adopt a similar communication style, and social media is the medium of choice. This is especially true now that American adults are using social media more frequently. Insurance companies must prioritize consistent, engaging social media communication with prospects and customers to future-proof their businesses.

See also: Insurance Tips for the Remote Workforce

2. Social media allows agents to connect with customers from anywhere.

Many tech companies were already experimenting with remote work before COVID-19. Twitter, for example, was testing ways to create a decentralized digital workforce. Now, more are pledging to embrace remote work permanently. 

While a permanently digital workforce might not suit insurance companies as well, there is still a lesson to be learned: The impacts of the pandemic have launched us into a lasting transition to the future of work. As agents turn to social media as a new way to connect with their customer base without the opportunity to meet face-to-face, they’re discovering that no other marketing channel can come close to replicating the two-way dialogue of face-to-face conversations. The benefit of connecting with customers from anywhere at any time won’t be lost once agents can meet with clients in person again. Social media outreach and engagement should continue alongside traditional communication tactics as an efficient way to form connections.

3. Social media amplifies the voice of your best brand ambassadors.

Tech companies have understood for years that people trust other humans over brands and companies. It’s no wonder tech influencers on social media can gain millions of followers. Insurance companies should take note and put real people behind the face of the brand to build trust.

An insurance carrier’s agents have, arguably, the most intimate knowledge of the company’s culture, service offerings and customer needs, so the marketing team would be wise to tap this organic source of advocacy. Empower agents to use social media on behalf of the brand, whether that means posting branded content to humanize the brand, sharing educational articles for customers and prospects or simply answering questions and concerns directly.

Don’t forget to arm them with the right tools and content to represent your brand properly. As digital natives enter the industry, they’ll want access to resources to help them succeed and organizations that will offer egalitarian structures. Social selling gives each agent a voice and flattens the organizational structure. However, as agents have greater geographic flexibility, it’s important to manage social media activity for compliance and brand continuity.

Insurance companies rely on genuine connections and risk management expertise daily, but the workforce won’t be back in the office anytime soon. With digital transformation already underway in the industry and the astronomical growth of social media use among adults, it’ll be easier for them to find their footing in the future of work.

When there’s a leak under your sink, do you let it keep dripping or call a plumber? Sounds like a simple question with an obvious answer. But what if you don’t know you have a leak? You’ve gotten used to a high water bill and less water pressure without even realizing how much you could be saving if you found the leak and fixed it. 

This scenario isn’t unlike an issue many of today’s insurance carriers are experiencing called “premium leakage.” Inefficiencies, inaccuracies and risky processes due to the use of legacy systems cause carriers to unknowingly “leak” premium they should be collecting. Fortunately, eliminating premium leakage is simply a matter of looking under the kitchen sink to find the source and taking the necessary steps to stop it. 

Where Legacy Systems Fall Short

The systems we now consider to be “legacy” (i.e. Excel, COBOL or VB6) have been relied on by insurance carriers for decades. For many carriers, these systems are seen as tried and true. Having accepted legacy systems as a way of life, carriers can have trouble noticing their shortcomings. 

But as we look beneath the surface, we can see that legacy systems are causing some of the major pain points insurance carriers face:

• Multi-entry 
• Siloed workflows 
• Inaccurate data 
• Manual errors 
• Slow turnaround times 
• Redundant processes 

These pain points are due to legacy systems’ inability to share data seamlessly across the organization, integrate both internally and with ecosystem solutions and automate rules and regulations. 

The Real Cost of Legacy Systems 

Legacy systems aren’t just painful, they’re costly. A recent FINEOS study shows that an estimated 5% to 10% of insurance premiums vanish every year due to the inefficiencies caused by legacy systems. Premium leakage comes from multiple areas within an insurance carrier’s operations. However, a few spots are notorious for leaking valuable premium: 

Case Setup Inaccuracies

A top culprit for premium leakage occurs when setting up and installing a new employer group on multiple systems that are not integrated. This process requires massive amounts of work-arounds and inevitably results in data inaccuracies across systems. Roughly 5% of annual premium can be lost just in this one area.

See also: Pressure to Innovate Shifts Priorities

Enrollment and Eligibility Management

This notorious source of premium leakage can make or break a carrier’s year. Whether the carrier or the employer is responsible for managing eligibility and enrollment, relying on legacy systems or repurposed solutions (i.e. using a P&C system for anything in the life, accident and health market and vice versa) means the carrier is ill-equipped to properly manage enrollment and claims eligibility. This results in millions of dollars lost that otherwise could fund additional staff, capital investments or strategic initiatives.  

What Carriers Can Do to Fight Premium Leakage 

The solution to eliminating premium leakage is the same as the solution to better mobility and flexibility: strengthening your core. Because legacy systems and custom solutions are inherently prone to premium leakage, carriers must rethink their core system solutions to combat it. 

So, what do these stronger core systems look like? They’re modern and integrated and allow data to flow freely between the carrier and the employer. They’re also purpose-built for the market they serve, enabling the insurance carrier to be a reliable source of truth for current plan and policy information, as well as member data for the employer. 

With stronger core systems in place, the premium calculations for both the employer and the carrier are based on the same source of truth. Further, when an employee is enrolling for coverage the benefits and provisions are accurate and truly reflect what is eligible. This turns into accurate premium being billed to the insured and, most importantly, the right benefits being paid when they are needed. The result is zero premium leakage, and money back toward the insurance carrier’s bottom line.

The Customer Experience Goes Beyond the Monetary Benefits

While monetary recoupment is an exciting reason to tackle premium leakage, there are also customer satisfaction benefits of upgrading from legacy systems. Modern core systems make processes more efficient and yield faster turnaround times on claims for the employee. As most claims are filed in times of serious illness/injury or bereavement, a quickly processed claim can significantly improve a customer’s experience during a difficult time. 

Additionally, the insurance carrier must meet the insured or enrollee where they are. To accomplish that objective, the digital experience offered must come with the same accessibility and ease experienced in most apps available to the insured. Carriers can’t offer a superior customer experience digitally when their technology backbone is made up of older legacy systems that are unable to support APIs or integration. They need modern systems that come equipped with APIs and the data structure to support the insured at all points of the policy lifecycle. 

See also: Insurance Outlook for 2021

Transformation Pays Off

Premium leakage can be eliminated when carriers decide it’s time to look under the kitchen sink, see the source of the leak for themselves and call in the plumber. In this case, the plumber comes in the form of a modern, SaaS-based core system. By addressing the costly inefficiencies caused by legacy systems, insurance carriers can keep the full measure of their projected premiums in their pocket while also providing a superior customer experience.

Straight-through processing (STP) is becoming more common in insurance underwriting and claims, especially in personal lines, individual life and small commercial. Adoption rates in more complex lines and in claims processes remain relatively low, so STP is by no means universal across the industry. However, it’s likely to remain a priority for insurers seeking to improve the ease of doing business for their distribution partners and create more convenient customer experiences for their policyholders.

Generally speaking, STP refers to the ability for insurer systems to automatically process transactions without manual intervention or input. The system ingests data digitally and completes the transaction based on decisions governed by algorithms, including predictive models and simple business rules. STP offers insurers benefits in speed, consistency, productivity and application throughput while making the customer experience quicker and more convenient.

Technological Factors

Technological improvements over the past two decades have been a major factor in the rise of STP. The most fundamental of these has been the internet, which has both enabled the connectivity underlying STP as well as shaped consumer expectations for user experience and speed.

More recently, modern insurance core systems with the ability to automatically adjudicate applications based on configured business rules, combined with modeling capabilities that can capture underwriting factors and predict outcomes, have made it possible to process applications without human oversight.

Insurers also now have access to a wealth of high-quality, third-party data, which can enable pre-fill, eliminate unnecessary questions or inform insurers of potential risk factors. AI and machine learning capabilities to refine algorithms and flag potential fraud have also contributed to insurers’ confidence in STP.

STP in Underwriting

STP in underwriting is most common in personal lines and individual life—lines that are under cost pressures and, increasingly, sold online. More than 80% of insurers selling these lines have at least some level of automated underwriting, and many personal lines insurers process straight through more than three-quarters of the time.

Large commercial and specialty lines typically don’t have high rates of STP, because these lines are generally sold through agents and brokers. Even where insurers have supported some level of automation (for example, via portals with rating components), most policies aren’t written straight through. Instead, insurers are focusing on distribution connectivity, which is itself a prerequisite for effective STP.

See also: The Digital Journey in Commercial Lines

Small commercial and workers’ compensation lines occupy a middle point. Many of these products still require manual underwriting, but they’re also seeing increasing direct sales activity, often directed at niche market segments. Carefully defining sales targets in this way allows insurers to facilitate STP for these lines, as they can design tailored products governed by specific business rules that rule out more complex risk scenarios.

STP in Claims and Digital Claims Payments

For most insurers, though, STP in claims is fairly uncommon. Nearly 60% of insurers have no STP in this area. On average, fewer than 10% of claims are processed straight through in any line. It’s most common in personal lines and (for payouts) in annuities.

Claims STP is likely to become more common, especially in personal lines and individual life, as insurers continue to improve their core system capabilities and as the availability and quality of third-party data improves. Where coverage limits are relatively low, insurers can increase their levels of automation to create faster and more convenient claims processes. 

Insurers have achieved more substantial automation in digital claims payments. A third to half of insurers process and deliver claims payments digitally (depending on the line of business), and 10% to 20% of insurers do so most of the time. Digital payments are likely to be a priority area for insurers. Since COVID-19 forced many insurers to send some workers into the office to print and mail checks, manual and paper processes of all kinds are under intense scrutiny.

The STP “Sweet Spot”

Generally, STP is most effective when four factors apply to a particular line of business or transaction:

• Risks are well understood, which makes modeling easier
• Data is easily accessible and generally reliable
• Speed is at a premium to be competitive
• Margins are thin, so productivity and throughput drive profitability

Figuring out where to enable STP isn’t always a question of looking at specific lines or products and determining whether these factors apply. Insurers can also use these principles to design new products, especially for direct distribution—for example, by defining the allowable risk profile for a particular product more narrowly so it’s limited to the cases that are most likely to be profitable.

The Future of STP

While the industry as a whole is trending toward greater automation, most insurance will never be completely straight through; there will always be some complex claims scenarios or unusual risks that will require human intervention and review. That itself is part of STP’s value, though: When technology handles the easy processes, humans have more capacity to focus on higher-value work.

See also: Insurance Outlook for 2021

Enabling STP has an upside for those human actors, as well. Investing in better data creates resources human underwriters can use, and better connectivity eases integration and improves ease of doing business for distribution partners.

Even just the process of implementing STP can have benefits. Creating the business rule framework or algorithm to adjudicate an application—or even figuring out if a particular process can be done straight through—requires insurers to examine their workflows, understand what really matters and justify what is done and why. That can lead to process and product improvements that wouldn’t have surfaced otherwise, as legacy mindsets can hide in all kinds of places.

For more on STP, please see Novarica’s recent report, Straight-Through Processing in Underwriting and Claims.

As part of a talk given at the Verisk Elevate Virtual conference, I want to highlight why a solar storm might be a major concern for the insurance industry. The large losses that will likely occur in the Deep South are just a small taste of what could happen.

This link includes a summary of the 30-minute talk. To watch the entire recording free simply register and stream.

More on this subject is below:

2020 or 2021 for that matter showed the insurance industry that it should 100% expect the unexpected. Multiple hurricane landfalls in Louisiana and the large uncertainty with COVID-19 losses going forward were just a few examples. The year was also big for out-of-this-world events: two solar eclipses, comet NEOWISE, Jupiter's and Saturn’s great conjunction, Japan’s asteroid sample returning to Earth and, most importantly for the insurance industry, the sun's awakening with solar storms. If strong enough, the storms could lead to a large amount of uncertainty for the insurance industry.

Solar storms (sometimes referred to as coronal mass ejections (CME), solar flares, geomagnetic storms or cyclic plasma eruptions) release a torrent of charged particles arriving in just hours at the outer limits of Earth's ionosphere, where they interact with Earth's magnetic field, causing a geomagnetic storm and creating spectacular auroras for days. As beautiful as these displays are, they could also be a substantial risk. To make it more complicated, the risk is increasing as the world develops more reliance on electronic communications and satellite-powered location technologies such as GPS and a more complex energy distribution network. Even more concerning is that we have very few historical events to understand what might happen when a large solar storm hits with little notice.

Current Sunspot Cycle:

The sunspot data shown below suggests that the current sunspot cycle, widely known as solar cycle 25, is just now starting to ramp up. With the end of solar cycle 24, the sun has gone quiet. Solar cycles 23 and 24 had fewer sunspots observed compared with past cycles. The overall solar cycle is suggesting fewer sunspots, which would correlate with fewer solar storms, but it only takes one geomagnetic event to be disruptive to the insurance industry.

Let's use the example of a hurricane season: In an active hurricane season, one might expect a higher chance of named storm landfalls, and, in an inactive hurricane season, one might expect fewer landfalls. But we know that in a season like 1992, which only had seven named storms, it only took Hurricane Andrew to have a substantial impact on the insurance industry. It only takes one event.

Over the next few years, the solar cycle 25 will approach its peak, and the number of solar storms will increase, which also increases the chances of a disruptive event to the insurance industry.

See also: What the Recent Deep Freeze Portends

The Day the Sun Brought Darkness

According to NASA, five different categories of solar flares depend on their brightness in the X-ray wavelengths. For example, M-class flares can cause brief radio blackouts in the polar regions and provide occasional issues for satellites. The events that need to be watched are X-class flares. These are the most severe and can trigger radio blackouts around the whole world and long-lasting radiation storms in the upper atmosphere. On average, solar flares of this magnitude occur about 10 times a year and are more common during the solar maximum than the solar minimum. An X-class flare could produce enormous geomagnetic distortions, not only to all satellites in space but also to electrical grid networks -- especially high-voltage substations and transformers, which are very sensitive to this overload of geomagnetic energy from the sun.

In fact, the only well-known impact on our modern society came from the March9, 1989, solar storm. It caused some satellites in polar orbits to lose control for several hours. They experienced short-wave radio interference, including the jamming of radio signals. The most significant impact was related to power outages; circuit breakers tripped on the Hydro-Quebec power grid, all within 90 seconds. Millions suddenly found themselves in dark office buildings and underground pedestrian tunnels, as well as in stalled elevators. People woke up to cold homes. The blackout also closed schools and businesses.

The March 1989 event was relatively weak, but much larger events have been known to come from the sun. They are just rare, or the Earth has not been in the direct path of the most intense part of the storm. For example, while an event on July 23, 2012, did not receive much media attention, it likely could have been twice as bad as the March 1989 event and could have had similar results as the 1859 Carrington event, but it missed Earth with a margin of approximately nine days. The sun rotates around its own axis with a period of 25 days, and the section where the event occurred faced mostly away from the Earth at the time.

At some point, the Earth will be in the direct path. In 2013, Lloyd’s estimated the return interval of a Quebec event to be 50 years, with a reasonable range of 35 to 70 years. A stronger event like the Carrington event of 1859 has an estimated reasonable range of 100 to 250 years. This is similar to other extreme hazard scenarios, such as large earthquakes and explosive volcanic eruptions. However, because we do not have a model of impacts, the industry might just be surprised one day.

Since the 1989 Quebec event, a lot has changed, and this needs to be considered. The U.S. electrical grid has grown and become more complex in distribution, which is an essential part of our technology‐dependent society. The freeze in Texas showed just how complex the U.S. electrical grid can be and all the different dependences that can quickly cascade into failure. The complexities can lead to a large uncertainty about what impacts an extreme geomagnetic storm would have on modern power distribution systems.

Also since 1989, the forecast of solar storms has gotten better, and grid system operators are more aware of the problems based on forecast models. On the other hand, the evolution of open access on the transmission system has fostered the transport of large amounts of energy across the power system to maximize the economic benefit of delivering the lowest-cost energy to demand centers. This has increased the risk of potential power failures. The power disruption occurring in the Deep South also shows the dependencies on models and the fact that the only way of knowing of impacts without an event is based on models, which of course can be wrong. Therefore, given the large uncertainties in the modeling of impacts along with the complex distribution network, it is still possible to have power disruptions that may likely result in a global catastrophe that could lead to large losses to the world economies as well as unspecified insured losses.

Insurance Implications

A major solar storm that would result in the loss of power would cause a physical damage trigger. Even in a case of pure voltage collapse without equipment damage, the incapacity of the grid itself could be deemed physical damage, because it is unable to perform its essential function. Business interruption is likely to be only one aspect of potential insurance exposure. Winter property loss of power could lead to frozen pipes and heat loss to buildings that could be substantial over a much larger area. Similarly, in the summer during a heavy rain event back-up, sump/sewer issues might be compromised, leading to large claims. There would likely be a disruption to supply chains that might trigger contingent business interruption covers. Major disruption to the power network could also lead to wide-scale cancellation of events. It is conceivable that major power outages could result in liability claims. And how about companies/organizations viewed as not taking appropriate preventative action; they could be susceptible to D&O claims.

Many of the aspects listed above are similar to the lessons that we have learned from COVID-19, which were largely known but unknown risks. The same could be true for a potential solar storm impact on the insurance industry.

See also: 2021, We Can’t Wait to Get Going!

Conclusion

Economic and insured losses are on the rise, and our world economies rely more and more on satellite, GPS and electricity. Because we have limited solar storms to learn from in the recent past, the future impact is unknown and difficult to quantify. There is no model to understand the type of losses that could be likely.

If you were following solar forecasts over the last decade, you would realize there has been an over-hyping and misunderstanding of solar cycles 23 and 24. A severe solar storm is likely less probable, but at any given time a large solar flare could hit Earth regardless of the current state of the solar cycle. The solar cycle simply allows us to understand periods of increased activity. Given that we are approaching the peak of the current solar cycle, there is an increased concern for geomagnetic storms that could affect Earth’s communications, logistics and power systems, including an unspecified amount of insured loss.

An Odd ‘New’ Retronym Paul Carroll, Editor-in-Chief of ITL Retronyms have always intrigued me: those new formulations for long-used terms that arise because of some advance, usually related to technology. My beautiful old wristwatches are now “analog watches” because so many of you sport digital watches. A war used to be a war, but then the Cold War came along; now, when people shoot at each other, we call that a “hot war.” (A friend who consults with the military recently used the euphemism, “sending kinetic energy downrange,” which I love but somehow doubt will replace “hot war.”) A century ago, cars just had transmissions; now, those that require the driver to change gears are “manual transmissions.” And so on. I’m now starting to see a lot of uses of a sort of retronym that I never expected: “human.” The actual retronym is “human employee,” which is increasingly being used to distinguish those of us with flesh and blood from the artificial intelligences that are being employed in business settings. But the term almost always gets shortened to “human,” which makes the implication even starker: We’re at an interesting spot in our deployment of AI, maybe even at a tipping point.... continue reading > STRATEGIC PRIORITIES 2021 REPORT Majesco research examines the gap between Leaders and Laggards and the critical changes Leaders made to stay on top Read More SIX THINGS What Future Will We Choose? by Francis Bouchard The industry needs to stop wishing others could see the critical role we can play in preparing for climate change and just start playing that role. Read More Are Solutions in Tune With Today’s Needs? by Bernhard Klein Wassink Developing products around new customer priorities, and reaching new demographics in need, are key to keeping the industry relevant. Read More ‘An AI Walks Into an Electronics Store…’ by Marty Ellingsworth Customers may prefer interacting with a smart-bot--no judging, no fatigue, no bad days. There is empathy in any process that respects our time. Read More The Insurer’s Customer Acquisition Playbook sponsored by Data Axle The right approach to data analytics can cut wasteful spending in customer-acquisition programs while attracting high-value clients. Read More Digitally Challenged Miss Opportunities by Paul Ford Cloud-based AI can compare thousands of variables in a few hours, enhancing pricing, risk assessments and customer acquisition. Read More To Post or Not to Post? Choose Wisely by Maria Grimm Here are six tips on how agencies should use social media, to join important conversations while protecting against reputation damage. Read More Leaders Rise From a Year Like No Other by Denise Garth In the first six months of 2020, e-commerce in North America as a percentage of overall commerce increased more than in the entire previous decade. Read More MORE FROM ITL A Conversation on Corporate Strategy with Amy Radin In-depth with ITL's Thought Leaders Join ITL's editor-in-chief Paul Carroll as he sits down to discuss corporate strategy with director, advisor, author and thought leader Amy Radin. Watch Now March's Topic: Strategic Innovation   Strategy is what you don’t do. 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. Take Me There GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started Partner with Us We’d love to talk to you about how we can improve your marketing ROI. Learn More SPREAD THE WORD Share Share Tweet SUBSCRIBE TO SIX THINGS

By finding opportunities for digital transformation within the claims function, insurers may reduce costs and increase performance.

The reduction in profitability due to rising claims rates is creating pressure. In 2019, gross claims payments in the U.S. alone accounted for around $1.57 trillion, 5.5% more than the gross claims payment in 2018. However, price competition has made insurers reluctant to increase premiums. Insurers must instead look for opportunities to reduce indemnity spending by going after fraud cases, leakage, supplier costs and recovery performance. 

Traditionally, claims processing requires a significant amount of manual labor, complicated workflows and incomplete and disorganized data. The secret is to unlock the potential of the large quantities of unstructured data streaming through the claims function. By closely analyzing internal procedures, in-house and third-party data sources and turning raw data into usable information, insurers can produce insights that improve both claims quality and efficacy.

The approach to reducing indemnity spending can be divided into four strategic pillars focusing on data, processes, people and technology.  

Sourcing the Right Data

Claims organizations must assess the quality, accuracy and availability of their data. Through sharing the correct datasets across functions, ensuring that data definitions are consistent and resolving any specific privacy issues, organizations can create useful insights from these data.

Insurers have large volumes of internal data, including reports on customers, quotes and prices, policy specifics, claim details and past examples of fraud. This can be used to make informed, easier decisions and streamline the claims workflow. For internal data that is unstructured and resides in the form of PDFs, conversation recordings or emails, insurers need intelligent programs that leverage algorithms such as natural language processing (NLP) or optical character recognition (OCR) to convert them into usable formats. 

External data -- such as public domain information on demographics and weather -- can be sourced and linked to the claims dataset, enriching the available information and increasing decision accuracy. Third-party proprietary data sources, such as ISO ClaimSearch by Verisk, also offer specific data for sale in areas including claim analysis and fraud detection.

See also: Claims Development for COVID (Part 1)

Application of the Correct Process

Traditional claims systems focused primarily on the experience of claims handlers, with minimal use of data and analytics. With improved availability of better evidence, machine learning and AI, three types of templates can help handlers make better decisions.

• Estimation models forecast maintenance costs, treatment costs, legal costs and other fields. Insurers may use these forecasts to help track success and focus their efforts. 
• Classification models provide binary or multi-class decision flags to group similar claims. Insurers can then devise strategies for these specific groups of claims. 
• Propensity models predict the probability of an event occurring. These models typically provide a probability percentage that can be used for preparing to take the appropriate action for likely future events.

Apart from these three types of models, some improvements within the recovery process could also boost efficiency and cycle times. An optimized chase policy can be accomplished by bilateral agreements with third party insurers. In addition, changes should be made to the fraud detection process. Through applying analytics, insurers can detect subtle or non-intuitive trends, increasing accuracy and coverage and maximizing referral rates.

Engaging the Right People

The insurers with lower claims indemnity are the ones with the right resources and adequate data training infrastructure. Even if the insurers have to pay a premium, they get the best data engineers, modelers and business analysts. These insurers also have robust upskilling, cross-training and retention programs to create a multi-skilled talent pool that fuels the carrier’s data and analytics capabilities.

Technology enablement

Using the right technology enables the claims process to operate at maximum potential and generate valuable data.

• Analytical tools can improve areas including data management, model development, business intelligence, reporting and visualization. 
• Claim-specific tools can bring built-in advanced analytical models trained on proprietary third-party data, but will often lack insurer-specific information. 
• IOT devices for loss prevention and claim avoidance can reduce claims frequency and severity using real-time monitoring, through smart devices such as water damage sensors, home exterior sensors and connected cars. 

How to Optimize Indemnity Spending  

Insurers should use a project prioritization framework that accounts for competing factors when transforming claims processes. This would measure the efficiency of an initiative across several areas. For each project, a detailed analysis should be performed on the potential ROI. The model and analysis should be clear, and the ease of implementation can be calculated on the basis of complexity, the need for data assets and other variables.

See also: Surging Costs of Cyber Claims

Other considerations include the length of time it would take an intervention to deliver the desired outcome. It is also necessary to examine the scalability of an intervention, with special consideration given to the achievement of long-term objectives while accounting for short-term goals. Synergy with existing initiatives also needs to be analyzed.

Conclusion

The transformation of the claims process requires factoring in the different decision metrics, dependencies and process flows. This analysis helps to ensure that the transformation process does not harm existing claims processes. With the right data and analytical strategy in place, insurers can achieve significant compensation savings.