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. 

See also: 4 Predictions for Independent Agents

E-Signatures and Electronic Payments

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.

APRIL 2021 FOCUS OF THE MONTH
Agents and Brokers

 

 

 

FROM THE EDITOR

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.

Read the Full Interview

 

---

---

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. Watch Now

---

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. Read More
	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. Read More
	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. Read More
	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. Read More
	Of Independent Agents, Heirloom Tomatoes Direct vs agency is a silly fight. Neither channel maps cleanly to customer preferences. Both have advantages and disadvantages. Read More
	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. Read More

---

---

WHO TO KNOW

Get to know this month's FOCUS article authors:

Mark Breading	Tony Caldwell	Tal Daskal
Bill Suneson	Kate Terry	Kevin Trokey

---

Learn More about ITL Focus

---

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

---

Auto insurance is ripe for a change.

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. 

See also: What’s Wrong With Commercial Auto?

A New Generation of Auto Insurance

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.

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.

See also: Closing the Protection Gap

Heuristics

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.

See also: When Will Gender Equality Become Real?

Toilet Paper vs. Life Insurance?

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.

Heading Off Surprises Paul Carroll, Editor-in-Chief of ITL 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 > Deloitte and Majesco Podcast   Tune in to industry experts as they discuss how insurers are adapting to the impacts of Covid-19 on business operating models.   Listen Now SIX THINGS Pioneering Use Cases for IoT in Insurance by Matteo Carbone Several early adopters of the IoT have already concretely demonstrated the potential of using this technology in the insurance sector. Read More Insurance Ecosystems: Opportunity Knocks by Marie Carr Insurers must apply unfamiliar skills – customer intelligence, speed and coordination – but can achieve benefits of scale without asset intensity. Read More How to Combat the Surge in Ransomware sponsored by Tokio Marine HCC - Cyber & Professional Lines Group Insurers can help clients protect themselves -- but preventive approaches aren't yet widely implemented. Read More COVID-19 Is NOT an Occupational Disease by Mark Walls If workers’ comp becomes responsible for common conditions that affect millions every year, it is no longer meeting its designed purpose. Read More Unlocking the Power of ‘No-Code’ by Farooq Sheikh We've all seen how complex and costly enterprise software can be. "No-code" tools let non-experts quickly build the systems they need. Read More Key to Better CX: Think Like NTSB by Jon Picoult Airlines are rarely held up as exemplars of customer experience, but in one important respect the industry deserves such recognition. Read More Tip the Sales Scale in Your Favor by Kevin Trokey Yes, relationships matter, but they're only a tiebreaker. The key lies elsewhere. And, no, it shouldn't take two to three years to develop a client. Read More MORE FROM ITL 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 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 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

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

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. Amazon invested 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.

See also: Pioneering Use Cases for IoT in Insurance

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.

See also: o You Know What You Don’t Know?D

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.

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.

See also: The Digital Journey in Commercial Lines

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.

 

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:

Pioneering Use Cases for IoT in Insurance

Several early adopters of the IoT have already concretely demonstrated the potential of using this technology in the insurance sector.

Insurance Ecosystems: Opportunity Knocks

nsurers must apply unfamiliar skills – customer intelligence, speed and coordination – but can achieve benefits of scale without asset intensity.

COVID-19 Is NOT an Occupational Disease

If workers’ comp becomes responsible for common conditions that affect millions every year, it is no longer meeting its designed purpose.

Unlocking the Power of ‘No-Code’

We've all seen how complex and costly enterprise software can be. "No-code" tools let non-experts quickly build the systems they need.

Key to Better CX: Think Like NTSB

Airlines are rarely held up as exemplars of customer experience, but in one important respect the industry deserves such recognition.

Tip the Sales Scale in Your Favor

Yes, relationships matter, but they're only a tiebreaker. The key lies elsewhere. And, no, it shouldn't take two to three years to develop a client.

We are living in a hyperconnected world, and the presence of IoT devices has already been more pervasive than many of us have realized. Mobile phones in our pockets are full of sensors. Their software is updated over the air. And, when we lose them, we can remotely track their position. Meanwhile, restaurants are using simple QR-codes to comply with COVID safety measures, warehouses are employing robots to automate certain manual activities, etc. The spread of the IOT continues.

Although IoT has not yet been systematically addressed by the large majority of insurers, several early adopters have already concretely demonstrated the potential of using this technology. I have had the privilege to directly support many of these players through the activity of the IoT Insurance Observatory, an insurance think tank that has aggregated almost 60 insurers, reinsurers and tech players between North America and Europe.

Today, there are international insurance companies with millions of policies priced with telematics in their auto portfolios, millions of customers using an IoT-enabled wellbeing reward systems in their life insurance portfolios and thousands of workers protected with real-time risk mitigation solutions in their workers’ compensation portfolios. The level of maturity is higher on insurance personal lines; however, a new wave of IoT-based initiatives is occurring in commercial lines.   

These successful player journeys show IoT’s extraordinary potential to generate value for insurers, policyholders and even the entire society. Indeed, IoT allows an insurer to connect with its clients and their risks, providing benefits on four axes:

1. Improving customer experience by enhancing proximity and frequency of interaction with them, therefore moving beyond the traditional risk transfer. Many players are selling additional services for a monthly fee; others have found new ways to sell insurance coverages thanks to IoT; 
2. Enhancing core insurance activities (assessing, managing and transferring risks) by using IoT solutions for continuous underwriting, claims management and risk reduction. Using the insight generated by the analysis of the flow of IoT data has promoted less risky behaviors in real time; 
3. Generating knowledge about policyholders and their risks, to insure them in a different way, to enable up- and cross-selling and to insure new risks;
4. Providing positive externalities to society.

Unfortunately, many players in different markets have not understood the strategic nature of this innovation. They have considered IoT adoption as an IT project or the creation of a product. Instead, best practices show that IoT adoption is a strategic choice that requires a multi-year commitment to develop needed, specialized IoT competencies and leadership competencies. 

Each of the successful pioneers has designed its vision and strategy for IoT usage within its business processes.

A common mistake is to focus on the “thing,” such as a smart device. However, IoT is about data, not things. Even a focus on data is a mistake. What really matters is the usage of the data. The transformation of the business processes – through data usage – has been the secret sauce of any successful IoT insurance program. 

Some international success stories – from auto telematics to property insurance for smart commercial buildings – have already shown robust ROI. However, there is not much low-hanging fruit where a single use case generates enough value to cover all the emerging IoT costs. Typically, IoT insurance programs need deep functional competencies and a multi-functional approach to have multiple use cases that contribute to the return on the technology investment.

The opportunities for using IoT data in the insurance sector are summarized by the following framework, which has been developed within the IoT Insurance Observatory over the last five years.  

See also: 4 Connectivity Trends to Watch in 2021

Each of these use cases has been successfully implemented by tens of pioneers in different international markets and in different insurance business lines. 

These use cases don’t change the nature of the insurance business, but they allow insurers to do their job better. However, this paradigm requires moving beyond the traditional insurance economics (premiums, claim costs, administrative costs) integrating service fees, partners contributions, benefits generated by the usage of IoT data, IoT costs and value-sharing with policyholders (cashback, discounts, etc.). 

Insurance IoT is a new way of thinking about the activity of assessing, managing and transferring risks that fits with a world that is going to be more and more hyperconnected, a trend that insurers can neither stop or ignore.  

This article was originally published by Technology Magazine - IoT Edition

When the coronavirus really started to bite at the start of 2020 and businesses and individuals were forced into lockdown, there was a collective holding of breath in the U.K. as we waited to see if the insurance industry could respond effectively.

On the whole, the industry did a superb job of shifting its call center operations from centralized offices to thousands of homes up and down the U.K. A few early hiccups aside, the industry's tech stood up to the test and proved that we can work differently.

But what we have been doing for a year now is a temporary patch. The systems and business structures weren’t designed to operate like this on a permanent basis.

Negotiating the turn to digitization

Our current reliance on individual internet connections, the ambiance of various home environments and unreliable access to the policy, billing and claims systems mean that consistency and efficiency are a hope rather than a guaranteed deliverable for interactions with customers.

While remote working should result in vastly reduced real estate costs for most businesses, that shift has to be done in a way that doesn’t compromise on the customer experience or quality of conversation.

There is really only one way to provide a personal experience, delivered at scale but in a decentralized way: through the use of conversation process automation or, as it is commonly known, employing expert chatbots.

By using intelligent, effective and responsive chatbots, insurers can deliver the necessary consistency of service to an increasingly digital-first customer base while easing the pressure on remote (or office-based) call handlers. That will allow them to focus on the more complex or higher-value customer interactions that require less immediacy and less efficiency but a high-value human touch.     

Customer-facing process digitization requires automation

Of course, digitally triaging incoming customers is nothing new. It’s why webforms exist. They were designed to capture basic information, which is then fed automatically into the insurance system, creating an event for the call handler to progress.

But webforms lack one key element necessary to support call handlers in recreating the call center experience in a remote working world. They lack the ability to converse in real time with the user, to exchange valuable pieces of information.

Customers still want to have productive conversations, even in a digital-first world, and that is a want insurers will have to provide remotely. They could simply hire more call handlers, but it is logistically complicated while not being viable for the business -- with every addition of a remote call handler, the insurer moves further and further away from the guarantee of a consistent customer experience. And more call handlers, of course, mean more cost.

See also: Lessons on Reaching Customers Remotely

With expert chatbots, the consistency of experience can be delivered on a consistent basis without necessarily recruiting more call handlers.

And rather than replace the human call handler, expert chatbots assist in a way that webforms can’t by creating a natural, unseen bridge between the digital and the human touch. Anything that frees call handlers for productive conversations has to be embraced. Using their time to gather basic, repetitive data is a waste of their expertise and a waste of the customer’s time. Call handlers will always be required to solve complex problems and queries that automation can’t solve.

Often, the leap of faith is a small step in the right direction

What we are talking about here is taking another leap of faith, the same leap of faith that insurers were forced to take in response to the coronavirus. But the opportunity facing insurers now is to take that leap before they are compelled to by market forces or consumer demand.

The industry has taken the first, bold step toward an entirely new way of working and servicing customers, and it deserves a huge amount of credit for that. But we are entering another breath-holding moment as we wait to see if insurance has learned the lessons of lockdown and is willing to take the next, natural step in this digital and automation revolution to secure the productivity that has escaped them for so long.