Open insurance continues to be the next game changer in insurance. The second edition of the INNOPAY Open Insurance Monitor, which keeps track of how the global Open Insurance landscape is evolving, reveals a rise in the number of insurtech players that are providing access by connecting insurers with digital ecosystems. Meanwhile, one application programming interface (API) marketplace has become the first in incorporating Open Insurance services in its digital offering. Based on our analysis of the findings, we can conclude that the traditional industry players – incumbent insurers and banks – still seem in no rush to strengthen their currently weaker position to capture the value from Open Insurance. 

The Global Open Insurance Trend Is Expanding, Albeit Slowly

The updated edition of the Open Insurance Monitor includes several new players with insurance API propositions, both insurtechs and Open Insurance marketplaces. We can draw the following three key insights from the latest Open Insurance Monitor:

1. Insurtechs are entering the game

Most of the new entrants in this edition of the Open Insurance Monitor are insurtech players. They all offer "insurance as a service" that facilitates integration between insurers and third-party sales channels, with the developer portal environment as part of the offering. However, there is significant variation in the amount of functionality they offer, the level of developer experience and how they position themselves.

Boost and Ancileo, both located on the left of the spectrum, have a relatively small API scope focused on quotation, purchase and insurance policy modification. Although their developer experience is also relatively limited, they make up for it with clear API documentation that contains the necessary components for adequate interpretation and usage of the APIs. Meanwhile, Plansource offers benefits APIs as part of its complete HR solution to provide employing organizations a direct connection with insurance carriers for employees to have a seamless benefits shopping experience. The APIs include services for plan subscription and retrieval of relevant coverage data.

Another notable insurtech is Dutch-based CCS, which positions itself solidly on both axes. CCS has a wide API scope that covers multiple components of the insurance value chain, plus it acts as an API marketplace for its customers. Its developer experience is more advanced than its insurtech peers. For example, CCS offers proper developer usability features such as automatic onboarding, software development kits (SDKs) and app management and analytics functionality.

2. API marketplaces as a one-stop shop for insurance services

API marketplaces offer a variety of different API services from different providers, thus functioning as a one-stop shop for organizations that are looking to strengthen their capabilities through external APIs. The marketplace serves as a single integration layer, thereby reducing the implementation hassle.   

LUXHUB is the first to integrate insurance services into its marketplace environment. It recently announced a new partnership with Baloise to provide mortgage insurance quotations directly to banks. As part of this new partnership, LUXHUB now publishes quotation and subscription request APIs on its portal. Although Baloise already had its own developer portal in place aimed at retail insurance, this partnership enables Baloise to directly integrate with core banking systems via the LUXHUB marketplace.

3. Existing players are not yet shifting focus

As highlighted in the first edition of the Open Insurance Monitor, insurers appear to be focused mostly on establishing their API portfolio, with their top priority being API documentation to allow developers to understand and use their APIs properly. There is little to suggest that insurers are shifting their focus toward other developer portal capabilities, while some extension of the API portfolio can be witnessed. For example, Nationwide has added several new API functionalities, including within its life domain, thereby moving closer to AXA as a functional innovator.

The same holds true for banks, whose superior developer experience is a result of their earlier Open Banking efforts. Their insurance-related API scope remains limited, but a few of them are improving their developer experience. For instance, Citibank has strengthened its developer usability with analytics and group role functionalities within app management and has enhanced community development by showcasing partner projects for inspiration. Meanwhile, Standard Chartered has launched an academy via its developer portal, where developers can improve their knowledge and skills on topics such as cloud transformation, APIs and emerging technologies. This feature is unique in both the Open Banking and Open Insurance space.

See also: Why Open Insurance Is the Future

Insurers Need to Start Deciding how to Compete Against or Benefit From Tech Players

The INNOPAY Open Insurance Monitor demonstrates that Open Insurance has been progressing slowly, but the presence of insurtech and API marketplaces in the Open Insurance space seems to suggest that the pace is accelerating. This presents incumbents with a choice: Fight the competition, team up with these tech-savvy new entrants or attempt a combination of the two. The "no regrets" move for insurers (and banks) would be to extend their own API portfolio and develop the necessary Open Insurance capabilities themselves. This would pave the way for an innovation platform that enables partnerships to be leveraged at scale. Insurtechs can play a role, for instance by providing direct access to a vast amount of different digital ecosystems for (white-label) product distribution. Because a wait-and-see approach is clearly no option, insurers need to carefully weigh up their choices and make the right decisions to safeguard their future position.

 

Digitizing the claims process has been one of the shining examples of innovation in insurance -- or so it seemed. But J.D. Power threw some cold water on that notion in a report released last week.

"The industry is lagging far behind financial services and utilities providers when it comes to the digital customer experience," according to the J.D. Power 2021 U.S. Claims Digital Experience Study. "Adoption remains stubbornly low. During the course of this year, just 40% of claimants interacted with an estimator via digital channels and only 47% made a claim via a website."

Martin Ellingsworth, executive managing director of P&C insurance intelligence at the market research firm (and a longtime contributor to ITL), said that "the insurance claims process has not really evolved beyond the launch of digital photo estimation three years ago.”

He said the heavy investments that insurers are making in straight-through processing will enable more adoption of digital claims management, "but, right now, there is still a great deal of room for improvement."

For me, the key finding of the U.S. Claims Digital Experience Study, now in its second year, was that telephone calls still dominate in the estimator phase and lower customer satisfaction.

"Just 40% of claimants interact with their claim estimator via digital channels, while 49% interact with their claim estimator via phone," the report said. "The average overall customer satisfaction score among those claimants who use the phone is 861 (on a 1,000-point scale), lower than in any other interaction channel. Use of video chat with an estimator is associated with the highest level of overall satisfaction (882), yet it is experienced by just 26% of claimants."

The report also found that "digital claims management tools are hitting their key performance indicators for the estimation process just 35% of the time" and that, not surprisingly, Boomers use digital claims tools less than Gen Y and Gen Z do and are, thus, less satisfied with the claims process.

You can certainly take a glass-half-full approach to the J.D. Power report and argue that having 40% of claimants interacting digitally with an estimator marks a sharp improvement over, say, five years ago, and I'm inclined to sympathize with insurers trying to make the transition.

But I share the J.D. Power report because it's worth reminding ourselves from time to time just how far we still have to go. We can't be congratulating ourselves just yet, especially when other industries keep driving digital adoption and setting an example that insurance customers demand that we follow.

Cheers,

Paul

Generation Z, or “Zoomers,” the cohort born between the late '90s and early 2010s, is widely known as the first “digital native” generation. They are also the least likely to purchase any form of insurance. Insurers should understand the unique coverage needs of Zoomers and how they interact with corporate brands to maximize long-term revenue growth and customer retention. 

Zoomers don’t buy a lot of insurance. They typically do not own homes, have dependents or own vehicles, and they are generally in good health. Many already have some coverage from a family member’s policy anyway.

Same Products, New Value Proposition

Nevertheless, older Zoomers in or entering adulthood do need various types of insurance -- it may just look a little different. It’s the industry’s job to help these young people understand the benefits of coverage. Their appetite for personalized, digital-first experiences can unlock new revenue opportunities, both now and in the future.

Let’s take life insurance as an example. Most Zoomers skip life insurance because they don’t have dependents, making it difficult to justify the cost of the policy. But what if we presented an alternative value proposition? 

Life insurance marketing often focuses on financial protection for a traditional family structure. A socially conscious twenty-year-old is far more likely to purchase a life insurance policy if it is marketed as an inexpensive and customizable way to support a particular cause and leave a legacy. 

Some innovative carriers are even marketing life insurance as a way to buy a tattoo for a friend, pay for an environmentally conscious funeral or send a friend or family member on a trip to Europe. In this way, life insurance is positioned as an act of love. Most importantly, the customer feels like he is in control. 

Personalized messaging, at different points of life, is key to filling generational gaps in coverage. By crafting an alternative value proposition, insurers can turn Generation Z into their most valued customers.

Generation Z’s Unique Characteristics Spell Opportunities to Deliver Personalized Experiences

Between growing up amid the Great Recession and experiencing the COVID-19 pandemic in late childhood or early adulthood, Generation Z’s confidence in life planning and financial security has been shaken. Indeed, workers under age 25 were 93% more likely than workers over 35 to be laid off during the pandemic, contributing to lost insurance coverage. 

As a result of these experiences and their ability to easily find information online, Generation Z is highly price-sensitive. 60% of Zoomers said price was the biggest factor when choosing which brand to buy from. Young people today are savvy consumers -- comparing prices, identifying discounts and reading reviews. 

“They don’t want to pay full price for anything,” says Jason Dorsey, a Gen Z consultant and researcher. 

The implications for insurance are clear: Insurers that offer both lower prices and price transparency will attract post-millennials. 

“Offer lower prices” is easier said than done and has been a priority long before Generation Z. Instead, where insurers can really shine is in offering the right product at the right time to the right user. 

For example, Generation Z is the most likely to celebrate their pets’ birthdays (81% do, according to a recent survey!) and treat them like a member of the family. How likely might they be to purchase pet insurance from an insurer that offers discounts and rewards on their furry friend’s birthday?

With the recent turmoil in the job market, many Zoomers are turning to gig work full-time. The growth of the gig economy means health, dental and life coverage traditionally offered through employer plans must be provided differently. Gig workers often seek untraditional terms for the insurance products they purchase, in some cases day-to-day or gig-to-gig.

While Gen Z is highly price-sensitive, this is balanced by their increased comfort with sharing personal data in exchange for discounts and personalized policies. This opens up a massive window of opportunity for insurers to deliver personalized experiences to this demographic.

Insurers that can provide on-demand, flexible coverage of key products, with simple self-service options and real-time quoting will find great success serving this underserved market. 

Nudging the Health-Conscious Generation

Generation Z is the perfect consumer for life and health insurers. According to a UNiDAYS survey:

• 87% of Gen Z exercise three or more times per week
• 65% use fitness apps
• 28% use wearable technology to track workouts.

Insurers that leverage health and activity data to offer rewards and discounts can expect a high level of engagement from Generation Z. This generation embraces relevant technology and prioritizes their physical and mental health. 

Wearables, like the popular Fitbit or Apple Watch, can help customers track various health indicators such as physical activity, heart health, sleep and nutrition. Insurers can then leverage this data to send coaching triggers via a digital assistant to encourage healthy behavior based on customer goals through personalized multichannel notifications via mobile, web, email, etc.

This technique is called nudging. Nudging is a behavioral science approach that uses subtle interventions to help users make better decisions while respecting their freedom of choice.

Using the same platform, insurers can offer timely discounts, recommend additional coverage and suggest more personalized policies based on the customer’s unique characteristics identified through health and behavior tracking.

Sun Life’s digital assistant, Ella, gave clients 15 million nudges in 2020, leading to an 83% increase in additional coverage purchased. Carriers that adopt nudging and behavioral analytics will maximize customer engagement and increase revenue.

Maximizing Digital Engagement Among Gen Z Consumers

Gen Z is known to be less likely to display brand loyalty, meaning they will happily switch from one insurer to another that offers lower prices. However, Gen Z is more likely than previous generations to be enthusiastic about a brand, engaging via digital channels and providing valuable insight into the marketplace. 

Recent research from IBM shows that, if given the opportunity, 44% of Gen Z would submit ideas for product design and 36% would create digital content for the brand. When they share opinions online, they offer 2X more positive feedback than complaints. Gen Z, due to their digital literacy and shopping habits, are also highly influential in family spending. 

While the benefits are clear, they come with high expectations. Post-millennials will switch insurance providers in a heartbeat if they are not provided with an always-on customer experience on their preferred platform.

See also: How to Market to Different Generations

When shopping for insurance online, Zoomers will compare multiple options by “parallel browsing” (having multiple tabs open at once). Insurers must adapt to this behavior by encouraging the user to remain on their website or app. Aside from the price itself, Zoomers reward clarity of information (i.e., “apples to apples”) and instant quoting that simplifies their research.    

A recent Gen Re survey of Zoomers in Germany found that most respondents found insurance to generally be “non-transparent, difficult to comprehend and untrustworthy.” This generation is not easily swayed by polished marketing campaigns. Instead, they seek authenticity and integrity.

Insurers should also structure their digital presence to “coach” users through the insurance purchasing process, articulating why each step is necessary. One recent survey shows that many Zoomers do not have life insurance because it seems too complicated. Trends such as accelerated underwriting (AUW) and digital assistants can drastically improve the customer experience and speed the purchasing process. 

Of course, a great mobile-first experience is essential. Zoomers are on their phones day and night!

The Window of Opportunity Is Open

There is no one-size-fits-all solution to engaging Generation Z. It’s actually the opposite: Post-millennials expect an always-on, personalized digital experience from the brands they interact with.

To be successful, insurers should be prepared to engage with Gen Z across multiple digital channels, offer more flexible policies and articulate a value proposition that is aligned with this generation’s appetite for risk, their increased social consciousness and their hunger for transparency and authenticity. 

As Gen Z matures, they will establish their tastes and preferences as consumers. Insurers that prioritize the needs of this generation will not only establish themselves as trusted insurers to an aging Gen Z in the future but will be even more influential to older generations today.

 

The sky is the limit for conversational AI.

Companies worldwide will spend more than $400 billion on call centers in 2022, and insurance companies will be among the big spenders – all to deliver an experience to customers that no one would consider optimal.

Customers are frustrated at all the forms they need to fill out as they deal with insurers and all the paper they need to shuttle around. They bristle when they deal with one part of the company and then find they have to start over when dealing with another, or when they get one sort of communication from, say, an agent that feels and sounds very different from what they hear and receive from a rep in a call center.

Fortunately, a form of artificial intelligence known as conversational AI is allowing companies to greatly improve the customer experience while slashing costs.

 

 

COVID-19 changed how we sell insurance and rewrote the role of the independent agent forever.

Many agencies took significant time to adapt to the pandemic and ran into challenges from communication to management -- especially because many weren't built to support remote work. The challenges manifested in many ways, such as not having a web-based phone system (which makes remote work more accessible) and feeling the agency needed to have employees in the office for customers paying with checks and cash. The challenges resulted in lost production, leading to lost revenue -- and sometimes lost jobs.

The solution was clear. It was time to embrace disruption and innovate. Clearcover surveyed about 500 independent insurance agents and brokers in 2021, and 89% said they made significant changes to their businesses to weather the pandemic.

Insurance agencies that embraced digital innovation and those that reevaluated how to work with independent agents are seeing success. Agencies that had already embraced digital processes, such as customer e-signatures and customer text messaging capabilities, described being forced out of their offices as a "natural transition they had accidentally been preparing for."

The agencies that weren't so prepared brought determination and flexibility to the table. Several start-up agencies told us the pandemic accelerated their business. Because they were new, their systems and book of business were, too. They could easily pick up digital processes and take advantage of a fresh group of prospects that were now looking for a digital agency to help them with their insurance needs during the pandemic. Many had not yet established a physical location and decided to permanently work as a virtual agency instead of incurring the cost of rent for office space. Funds could instead be used to purchase digital leads, boost website and social media presence or hire additional staff.

See also: When Captive Agents Go Independent

Moving forward

Overall, agents reported that the pandemic doubled down on insurance customers' demand for more digital tools, which means independent agents can continue to navigate the disruption successfully by partnering with a digital-first carrier like Clearcover. Those that are successful are also requesting digital marketing solutions (e-flyers, social media content, etc.) to help support customer acquisition.

The most successful agents will be the ones thinking about "what's next." They're the ones who share an exciting new initiative they are launching in their agency when we check in with them. For some, it's a social media play, hiring additional staff or finding new ways to engage with traditional lead channels in a more digital manner -- for example, creating a digital referral program with mortgage lenders or maintaining networking relationships via virtual coffee meetups.

The most successful agents stay engaged. They continue engaging with our sales managers digitally, whether on the phone or through our virtual consultations or our agent chat support team. They use digital resources to understand their business results and stay updated on product enhancements. As COVID-19 continues to shape our industry, these two things are clear: Innovation is driving success, and the agents who innovate to create exceptional service are invaluable.

Third-party insurance verification ensures a vendor or a business partner’s insurer can actually pay for losses or damages. Contracts obligate business partners to maintain some level of coverage, but enterprises have to verify that third parties carry at least enough to protect them from exposure.

Verification is a slow, painful, complicated back-and-forth process that mostly produces marginal results, and some of the enterprises we've talked to say it's just not worth the hassle of chasing down every single one of their partners to verify their insurance.

Here are three common mistakes that enterprises make that cause unnecessary friction and frustration with their third-party insurance verification program.

1. You’re Setting the Bar Too High

From a compliance standpoint, enterprises feel more protected when their legal or risk management team(s) set third-party insurance requirements, but these professionals often err on the side of extreme caution. In doing so, they end up making it nearly impossible for most third parties to comply with their standards.

A research report by Evident found that, for the average enterprise, 75% of third parties -- including vendors, suppliers, franchisees and other partners -- fail to meet contractual insurance requirements. Our data shows that 4% of the third parties that were non-compliant had decided they no longer wanted to meet the company’s insurance requirements for one reason or another. More often than not, compliance would have cost more than they’d actually make from doing business.

There should, ideally, be a trade-off between compliance and coverage. If an enterprise is experiencing lower-than-average compliance rates and losing interest from desirable third-party partners, the enterprise needs to take a long, hard look at their requirements.

Businesses need to strike the right balance between adequate coverage and ability to demonstrate compliance to develop criteria that incorporate not only legal and insurance needs but also business operations. The goal for most risk managers or GRC program operators is to achieve close to 100% compliance, but if the actual figure is closer to 25% (as our data suggests) then there needs to be a right-sizing of insurance requirements.

Start by assessing your partner portfolio and their respective coverages to identify the highest risks, then review any rules or coverage amounts that usually result in an exception request, as these are good indicators of areas where third party partners get stuck in the verification process.

2. You’re Taking a 'One-Size-Fits-All' Approach

Businesses have different expectations for third-party partners, so supplier risk profiles will naturally vary. There’s a strong need to accommodate this variance by instituting a unique set of insurance requirements for each supplier category, but, in most cases, risk managers avoid going this route because they’re worried about adding more manual tasks to their daily operations.

Most corporate risk managers have just one or two blanketed sets of insurance requirements for all of their third parties, which means they’re already using excessive manual intervention because they’re constantly making exceptions and overrides so that their preferred suppliers can continue to participate in their network.

Evident’s average customer has roughly 23 sets of third-party insurance compliance criteria, but some of our customers, like grocery store chains and supply chain businesses, have more than 50 sets of compliance criteria. And it makes sense – you wouldn’t want your IT firm to prove they meet the same set of insurance requirements as your office snack vendor.

A recent study indicated that 42% of businesses are still assessing their third parties using spreadsheet-based questionnaires, and 65% of these respondents are either unsatisfied with this approach or neutral about it. Automated technology solutions offer a robust alternative to accommodating third-party risk variants that’s both safer and easier than using spreadsheets.

See also: Navigating the Future of Risk Management

3. You’re Doing Too Much Manual Work

The burden of tracking down certificates of insurance (COIs) from vendors, suppliers, business applicants, franchisees and other third-party partners typically falls on the risk management team, and, while the goal is a 100% response rate on COI requests, the actual response rate is more like 30% to 40%. Of those who do respond to requests, the ones that are able to demonstrate compliance with the company’s insurance requirements make up an even smaller percentage.

Even if a risk management team obtains a COI, they’re either manually reviewing it themselves or hiring someone else to do it. Either way, it’s an error-prone and inefficient process. It’s also only half the battle, because simply having the COIs on file is not enough to avoid liability. Risk, legal and compliance teams also need to continuously verify that the COIs they’ve collected are valid, up to date and authoritative.

Enterprises are spending too much time and money on manual processes to verify third-party insurance. The insurance industry isn't well-known for its quick adoption of cutting-edge technology, but COIs aren’t going away anytime soon, and we need to have a combination of processes that aren’t clunky and outdated so they can meet today's business needs. Risk managers that let COI tracking technology do the heavy lifting have a lot more time to spend examining and improving the insurance programs that they’ve been hired to manage.

Insurers have offered some level of digital capabilities for sales and service for years, but customers’ and distributors’ adoption has been slow. When the COVID-19 pandemic emerged, carriers had to evolve their digital offerings seemingly overnight. While this shift to digital improved customer experience, sped up service and policy issuance and cut costs, it also opened up opportunities for bad actors to commit financial and identity fraud. 

Strong digital capabilities mean insurers also need strong identity verification and fraud mitigation capabilities. The best way to keep the security up to date is to think of it as a continuous process, with regular evaluation of the defenses and enhancements or deployment of new solutions when necessary. 

The Rise of Digital Interactions

Insurance customers, like those in other financial areas, are at risk of identity theft. In most cases, this happens through a large-scale data breach, but it may also occur when a family member fraudulently purchases a policy, for example. As more interactions occur digitally, the number of fraud instances rises. 

Aite-Novarica Group research shows that more than 75% of carriers across life, personal and small commercial lines of business saw more digital activity from customers for both underwriting and claims in 2020. Underwriting data submission is seeing online activity grow significantly. For half of insurers, the rate of digital data submission grew by 50% or more from the year before. 

Other drivers of higher digital activity for life insurers include the adoption of electronic health records for use in underwriting, changing the way agents and customers interact. In personal lines, inspections can be conducted virtually, and artificial intelligence can help assess property or vehicle damage and move the claims process along independently. 

This higher rate of digital transactions is expected to continue, bringing in a new era for insurance carriers. While this shift is largely due to the pandemic, it’s also related to consumer preferences. Younger purchasers are increasingly buying goods and services across industries online, and older customers have familiarized themselves with these methods more during the pandemic. 

See also: Innovation in Fraud-Detection Systems

Emerging Risks

While digital interactions improve the customer experience, they also make carriers and policyholders vulnerable to a new level of risk. Sixty-seven percent of insurers noted that they have seen a higher level of fraudulent activity as a result of their increased digital traffic. Fraud has increased nearly evenly in three main areas: the point of application, the point of account access and the point of payment. 

Account takeover is of high concern for life insurers; the lack of advanced identity security available at call centers serves as an opportunity for those looking to commit fraud. They might call saying they forgot their policy number, then answer security questions with stolen personal data and reset the account password to take over the account fully. Property/casualty insurers have noted a rise in claims fraud through illegally obtained policies. 

Multilayered Approach to Minimize Customer Friction

Insurers should ensure their fraud mitigation and identify verification processes provide a smooth customer experience while also protecting all stakeholders from advanced fraud tactics like synthetic identities and stolen personal information. This should involve a multilayered approach that spans both functional areas and capabilities, assessing gaps and strengths. A multilayered approach requires merging data from all available sources, combining fraud solutions and increasing security controls based on specific user information. Multifactor authentication, digital fraud risk scores and link analysis can all help insurers address fraud risk. No single technology will detect and prevent all fraud, but, rather, a combination of solutions and coordination across functional areas will bolster defense throughout the policy life cycle.

To learn more about how insurers are combatting the increased fraud activity emerging with digital capabilities, read Aite-Novarica Group’s full report Insurance Fraud: Rethinking Approaches in the Digital Age.

IoT Comes Into Focus Paul Carroll, Editor-in-Chief of ITL Now that we've been talking about the Internet of Things for a decade-plus and have been deploying it for several years, reality and fantasy are separating out. A new report from McKinsey offers some sharp insights both into how the IoT will develop from here and into how companies -- including many insurers -- should adjust as they try to use the IoT in products and services. continue reading > PwC and Majesco Podcast  Join Denise Garth with PwC's Manager Derek Gale and Director Bonnie Majumdar, as they discuss how carriers must have the right mixture of technology and flexibility in their operating models to adapt to change and meet the needs of their customers. Listen Now SIX THINGS How AI Can Solve Prior Authorization by Mark Scott Physicians spend nearly two full business days per week on prior authorization requests as part of an antiquated, manual process. Read More Dramatic Shift in Underwriting Ahead by  Denise Garth With the world changing, commercial underwriting is going to be called on to minimize the impact of complex risk on an ever-riskier world. Read More After Finding Success in Ohio, Beam Dental is All Smiles Sponsored by JobsOhio Beam Dental, an innovative insurtech business, was growing. With the help of JobsOhio, Beam Dental moved to Ohio and found the perfect market for a growing startup. Watch Now Are MGAs Ready for Next Wave? by Mark Breading Without strategies focused on innovation and investment, MGAs could face business roadblocks as a distribution revolution unfolds. Read More Premature Failure in CPVC Pipes by Dan Robles "Quats" solved the toxic mold problem in real estate, but CPVC pipes exposed to quats are now beginning to fail – sometimes catastrophically. Read More Simulator Gamifies Underwriter Training by Huw Newton-Hill An “underwriter simulator” program of gamified learning and 3D interactive scenarios redefines what's possible for workforce training. Read More 5 Trends to Watch in Commercial Auto by  Steve McOrmond “We believe underwriting profits for commercial auto insurers will likely remain elusive as the economy opens back up,” S&P says. Read More Creating Room for Innovation  Sponsored by Rimini Street  What if it’s possible to spend less time and money on legacy systems, freeing resources to focus on developing systems that will really move the needle for the business? Read More MORE FROM ITL December Focus: Smart Home "Even before a commercial version of the internet browser was invented in the early 1990s, the rich, geeky types I dealt with in my travels at the Wall Street Journal were figuring out ways to wire their homes to ward off possible intruders." Read More Global Insurance Forum Experts Series   Sponsored by International Insurance Society  Over this six-part series, hear from industry leaders about building an innovation culture, leveraging data for success, and more. Watch Now Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

 

Employers are adjusting their workplaces to accommodate evolving expectations of the workforce and regulatory requirements. How have human resources leaders aligned benefit and HR programs to support new or changing business needs? How are employers addressing the return to the office? With an increasingly competitive landscape for recruiting talented employees, how are organizations attracting and retaining talent? And how are employers pivoting to advance diversity, equity and inclusion initiatives?

The recent virtual conference, Elevate, presented by Out Front Ideas with Kimberly and Mark, hosted a panel of human resources leaders to answer these questions and more. The guests were:

• Paul Garrier — vice president, global total rewards operations, PepsiCo
• Misty Hambright — senior manager, benefits strategy, American Airlines
• Michelle Hay — global chief people officer, Sedgwick

Adapting to the Vaccine Mandate Requirements

As employers await a ruling by the Sixth Circuit Court of Appeals on the vaccine mandate, many have already invested significant time and energy to encourage workers to get vaccinated. PepsiCo has provided incentives for those choosing to get vaccinated and has made it easier for employees to receive a vaccine. Yet, there is hesitation to require vaccination within an ever-tightening labor market because it could alienate some groups. Employers are focused on keeping workers safe but are also trying to balance their messaging on requirements.

Other employers have shifted to a fully remote work environment and have not yet had to approach mandating the vaccine. To keep their employees safe, Sedgwick pushed back their return to the office to 2022. The company is also focusing on recruitment and retention efforts, leading to further hesitation to require vaccination. 

Reassessing Worker Needs in the 'Great Resignation'

The term “Great Resignation” has come to describe the phenomenon of employees quitting their job after reevaluating their employers throughout the pandemic. The record loss of workers meant employers were faced with reassessing the needs of their workforce, with a particular focus on benefits and flexibility. While this has been a dynamic issue, employers must view it through their employees’ lens.

While PepsiCo has not seen a mass exodus, the company has been keenly aware of the additional stresses on their workers, such as the pandemic and social unrest. The company has focused on providing support and changing the employee value proposition while also digitizing the benefits experience to engage their workforce.

When evaluating attrition trends, Sedgwick has found a higher loss of workers employed less than a year. These employees may feel less connected to their colleagues or managers without an in-person connection and find it easier to leave the job. Sedgwick has counteracted those losses by redesigning onboarding, accounting for the virtual nature of the work, with an emphasis on building new employees’ contributions and confidence in the first few months. The company is also equipping people managers to check in more frequently with employees. Empowering employees to know what benefits are available to them and how to take advantage of those benefits has also proven critical. 

Airlines were hit particularly hard throughout the pandemic when travel was restricted or discouraged. American Airlines saw 40% to 50% lower capacity, forcing severance packages or extended leave. Now, with a return to travel, American has felt the effects of the labor shortage. Where free travel on standby used to be enough to recruit individuals, the company has had to expand benefits significantly. A redesigned web experience, extensive maternity and disability leave, gender dysphoria benefits and the expansion of gender reassignment benefits have all been vital in recruiting efforts. The company has also kept these benefits public as a recruiting tool and educational tool for both employees and executives.

Supporting the Underrepresented 

People of color (POC), LGBTQ+ and women represent those hit the hardest by the pandemic. Fears around health and safety in the workplace, career progression, isolation and mental health have been driving concerns for these minority groups. Interactions with different colleagues have been critical in reducing biases, which has not proven easy with work happening remotely. Women also faced increased household responsibilities, reducing their representation in the workforce. 

While visibility and influence within organizations have increased for minority groups, employers should still focus on their representation. PepsiCo has looked to expand representation within the organization’s managerial roles while also strengthening efforts through the support of minority-owned businesses and community impacts. The company has encouraged business partners to follow suit. 

Social capital -- a set of shared values that allow individuals to work together to achieve a goal effectively -- is essential in an inclusive work environment, and employers should equip managers to understand how the issue affects minority groups. Managers should also have resources and mentors available for individuals in those groups. 

See also: How Workplace Has Changed for Women

Managing Social Media Brands

All organizations have a brand to represent, and the proliferation of social media has made protecting that brand more challenging than ever. Organizations should have a plan to directly respond to their mentions across social media. That plan should include reframing how they connect with their audience and creating a different mindset to anticipate potential issues. 

Social media may have its pitfalls, but it is instrumental when bridging the divide between commercial and employment branding. Glassdoor recently stated that 79% of job seekers use social media when conducting a job search, with over 84% of organizations recruiting through the platforms. In the current labor shortage, social media can prove especially important in recruiting and retaining.

Evolving Benefits

Thinking outside the traditional benefits strategy has become a necessity with increased employee demands. American Airlines rose to the challenge through expanded retail health benefits, recently pivoting its pharmacy benefits manager to CVS. With this integration, employees had minimal disruption to their pharmacy program and were given a more holistic approach to their health. 

American Airlines also sought to ease concerns around healthcare costs post-retirement. When forced to reduce staff at the height of the pandemic, American offered offered retiree health reimbursement arrangements as part of the early-out packages. The company has built the offering into the 2022 health plan, enabling employees to receive account credits from the company over the years by using preventative health measures. 

The Future of Work

If the pandemic has proven the need for anything, it is flexible and hybrid work environments. Some employers will shift from employee-managed schedules to a minimum requirement of in-office workdays. Getting back to an in-office setting is critical to dynamic collaboration and mentor development, but balancing it with remote work is just as crucial for recruiting and retaining.

View the archived recording of this session here.

The COVID-19 pandemic has solidified the prospect of "lower for even longer" interest rates. Insurers and reinsurers already familiar with the challenges of reduced investment returns, effective asset and liability matching and optimizing capital face more of the same – but with some differences in the economic backdrop. 

In the spring of 2020, when vaccines started to offer some light at the end of the long COVID-19 tunnel, attention turned to ensuring economies were able to achieve sustainable and self-reinforcing recoveries. Pre-global financial crisis, the stock response of the previous 40 or so years to any future economic slowdown or shock would have been to cut interest rates significantly. But with interest rates already so low and the effectiveness of central bank quantitative easing policies weakened, the emphasis has been to shift to a longer-term trend of capital investment from governments in, for example, infrastructure, to support economic growth. 

What does this potentially mean for insurers’ and reinsurers’ investment and capital management strategies to 2030 and beyond? 

Pluses and minuses

From an investment point of view, it’s likely to create a good environment for growth-related assets over the next 12 to 24 months despite returns on government bonds remaining weak. 

Longer-term, though, the policy shift may create higher economic volatility. It raises the possibility of higher inflation – a pernicious enemy of P&C insurers, in particular, and something the market has virtually forgotten about. While higher inflation is unlikely to be a big problem for advanced economies, it’s certainly a plausible risk that insurers will need to consider in modeling and stress testing both the resilience of investment portfolios and as a driver of liabilities and asset/liability matching. 

Strategic asset allocations that balance resilience and returns are likely to come to the fore; some companies may want to take more risk when credit is cheap.

Indeed, as government spending becomes a more important economic policy tool, there should be good investment opportunities in real assets, including green infrastructure and other areas of innovation. Such opportunities will also play well to (re)insurers’ expanding ESG (environment, social and governance) agendas and potentially add to the ESG credentials that a lot of investors, including those in the insurance-linked securities (ILS) space, are increasingly drawn to.

Of course, changes in governments’ fiscal policies won’t be taking place in isolation. Insurers will also have to contemplate how to allow for and adapt to significant structural economic trends that are likely to characterize the first half of the century and will therefore interact with and influence the policy agenda. 

See also: Navigating the Future of Risk Management

Four structural trends that will matter for (re)insurers in the first half of the 21^st century:

1. Shifts underway to a lower-carbon economy -- e.g., transition to electric cars from internal combustion engines. The shift will affect how and where insurers and reinsurers invest premium income, both from an ESG and returns perspective, and may have an impact on how they allocate capital to the business lines they write. In aiding and helping to steward climate transition efforts, insurers have an opportunity to be a force for good.

2. Technology – enough said, really. Technology is changing the way we live and work, from where and how work is done and the new investment opportunities it fosters, to the type and scale of risks that insurance is needed to cover. The global pandemic is only likely to accelerate this trend, bringing with it particular issues for insurers around capital efficiency and things such as access to technology and cybersecurity for business and governments collectively.

3. The societal lens — society is increasingly demanding and expecting to see proof of sustainability, inclusiveness and diversity. For (re)insurers, that demand speaks to issues such as reputational risk, the insurance gaps that exist around the world and the potential need for public/private cooperation to fill those gaps.

4. The shift of wealth and capital from West to East — as seen in the rise of China and emerging markets and where the largest opportunities for growth in financial services will exist. Notably, from an investment perspective, while some insurers might have historically placed China government bonds in an emerging market bucket, they are increasingly offering the high quality, policy certainty, low credit risk and higher liquidity attributes that typically appeal.

Capital choices

The changing economic backdrop will inevitably put further onus on strong financial and capital modeling and management.

Insurers weathered the initial COVID-19 capital storm well for the most part, but its legacy is lots of uncertainty. One area of capital management that has already come in for closer scrutiny from regulators, for example (notably as part of the Solvency II review), is recovery and resolution plans. 

Another factor in allocating and managing capital longer-term that is firmly on regulators’ and rating agencies’ radars, as well as that of wider stakeholder groups, is climate risk. As climate risks – and opportunities – have become ever more financially material, the need for an enterprise-wide perspective, taking in both the asset and liability sides of the balance sheet, is being further reinforced.

Taking risk and capital management as a whole, the shifts occurring suggest there will be a case for challenging implicit assumptions in models and reassessing mid- and longer-term views of risk and risk appetite. One area we highlighted in a recent article focusing on life companies, for example, is the potential benefit of value of new business (VNB) metrics in helping companies decide where they concentrate business acquisition efforts. 

Modeling and capital optimization will be an important part of guiding the efficient use and resilience of capital, taking into account options such as reinsurance structures, business domiciles and mergers, acquisitions and divestments. Appetite and capacity of reinsurance and ILS markets for a broad range of risks remains strong, and better understanding of exposures will lead to better negotiating positions. Equally, there should be continuing opportunities for acquisitions and divestments given the relative cost of capital. These could certainly be routes for companies to focus capital in their core and most profitable business areas, to take advantage of diversification benefits and to maintain a watchful eye on regulatory capital requirements. 

With these kinds of goals in mind, there are opportunities for companies to make more use of capital models with customized inputs to really gain insights into their business; to ask the right questions based on the market and economic outlook and their key performance indicators. One area where many companies appear to have struggled to date, and where such analysis would have an application, for example, is to align capital projections with business planning forecasts – as required for the Solvency II ORSA (Own Risk Solvency Assessment).

See also: 7 ‘Laws of Zero’ Will Shape Future

In search of clarity

While there is almost certainly more that companies will be able to do with their existing models over the coming years to adapt and deal with the economic and market changes taking place, what about "the perils of the unmodeled"?

Without taking steps to keep up with the measurement of developing risks, be they pandemic, cyber or climate-related, insurers could have a problem despite all the modeling advances made in the last 10 to 15 years. This potential problem is all the more important when you consider that many insurers will really need to drive combined ratios down into the low 90s to produce an acceptable return on capital in light of the expected level of investment yields. That will need a whole balance sheet approach.

After all, consistent returns underpin why a lot of investors are attracted to insurance stocks and provide their capital in the first place. Often, interest boils down to one thing: dividends. During the pandemic, many regulators put a brake on that investment thesis by basically telling insurers they couldn’t pay dividends, and the situation has been complicated by the uneven playing field created by the different approaches taken by different national regulators. But, as things return to normal, the industry will have to demonstrate that future dividends aren’t at risk. 

Investment and capital strategies that balance growth with resilience, recognize structural economic trends and drivers and smooth out potential volatility in the post-COVID economy will play an important part.