There is an ever-growing push for the insurance industry to modernize, and today’s carriers are looking to find more innovative ways to do business. As an insurtech founder, you are the innovator. The products that insurtech startups offer are becoming highly sought-after by carriers, private equity firms, investors and incumbents alike. So how can you take advantage of this unique position and move your company toward an acquisition opportunity? 

As co-founder and CEO of Limelight Health, an insurtech startup offering core system sales, rating and underwriting SaaS solutions for group insurance carriers, I grew our company to eventually be acquired by FINEOS, the global market leader in core systems for life, accident and health insurance. If you’re looking to do the same, here are three key lessons I learned along the way to help increase your company’s chances of being acquired.

1. Know Where You’re Going but Remain Flexible

Early on, I wish we’d had more clarity on the Limelight Health strategy and the goals we were working toward. In hindsight, I would have spent more time building out our strategy and developing a clear vision before we did anything else. But what we did well was pivot and adjust as we learned. As Mike Tyson said, "Everybody has a plan until they get punched in the mouth."

Your journey toward acquisition will be much smoother if you know where you’re headed from the beginning. But even with this goal in mind, you shouldn’t necessarily grow your company simply for the purpose of being acquired. You should aim to grow your company to be a strong, solid business regardless of what may happen in the future. 

Focus on increasing your revenue, developing your tech stack and bringing on a stellar team to help build your company for the long term. This way, your company will thrive whether you get acquired, go public or continue as a growing and sustainable business. 

2. Build Relationships

Taking the time to make sure you’re aware of what’s going on in the market, and meeting other players in the space can be a game changer for your company. And this should include your competitors.

Oftentimes people shy away from knowing their competitors, connecting or partnering with them. But the majority of the time, it will be a competitor that eventually acquires you. If you don’t know who they are (and vice versa) and haven’t built a relationship there, you could miss out on a great opportunity. 

See also: How AI Powers Customer Contacts

By constantly building relationships in your market, you will greatly increase your chances of being acquired. You never know where a new connection could lead you, so start reaching out and working on those relationships early on. If you look back to the late '90s, when Steve Jobs came back to take over Apple and the company was in big trouble, it was Microsoft, Apple's biggest competitor, that sent the company a $150 million lifeline.

3. Identify Strengths and Weaknesses

The earlier you can begin to identify which areas your company excels in and which may need some extra attention, the better off you’ll be. By playing to your strengths and improving weak areas, you’ll build a more solid company all around, making you a more appealing candidate for acquisition. 

Have conversations with analyst firms,  M&A banks, investors, partners and competitors early on, and ask for their feedback on what your company’s strengths and weaknesses may be. Get their input on how you can strategically move your business forward with this knowledge, and strengthen your position in the market. 

Just as important as knowing your own strengths and weaknesses is knowing those of your competitors. Remember when I said you need to know your competitors? This is a big part of the reason why. If your company has a strong point in an area of weakness for a competitor, you can use this to leverage your business as the most appealing option in your space for M&A opportunities. Or, if a competitor is acquiring you, knowing their weak points will help you make a solid case for why they need your company to strengthen their own. 

See also: Innovation Comes to Risk Engineering

A Few Tips for Approaching the Acquisition Phase 

So you’ve worked through all of the points above and have built a strong and profitable business. You’re about to begin the early phases of having your business acquired by a solid prospect. Now what? 

As you move toward closing the acquisition deal, here are a few tips on how to lead your company through the process.

1. Don’t underestimate the amount of work and distraction the acquisition process will bring to focusing on business operations. 
2. Only bring appropriate staff into the acquisition conversation as needed until you’re certain you have a deal.
3. Once you know the deal is done, develop a clear transition plan with your team and take the time to listen to how your employees are feeling. At Limelight Health, one effort we are doing along these lines is hosting a virtual benefit concert to “sunset” our brand and commemorate what we’ve built together.

The COVID-19 pandemic has been with us for over nine months now, with no end in sight. During this time, we conducted several Out Front Ideas COVID-19 Briefing webinars and The Path Forward virtual conference. These educational events were designed to provide risk managers and others in the industry with a better understanding of how COVID-19 was hitting our industry. As more time passes, the impact on workers’ compensation is becoming more evident. However, we are still in the early stages of developing claims, and it will be some time before we have clarity on the full impact.

What has changed? Frankly, everything—how the industry handles claims, the types of claims submitted, how medical treatment is provided, staffing models, and the list goes on. Today’s workers’ compensation is different from what it was before the pandemic started, and it is not likely to revert to the exact model we had before March 2020. 

Defining Workers’ Compensation

First and foremost, the definition of a workers’ compensation claim has been fundamentally changed. When workers’ compensation started over 100 years ago, it was to cover traumatic workplace accidents, things that happened at a specific date, time and place. 

Over time, workers’ compensation expanded to cover occupational diseases. These diseases could be traced to exposures that were particular to the workplace and associated risks — a chronic disorder caused by work activities or environmental conditions in the workplace. In many states, workers’ compensation expanded to cover injuries occurring gradually. As a result, repetitive trauma/continuous trauma claims are now a significant cause of injuries and workers’ compensation claims in some states. 

Front and center today are infectious diseases. Workers’ compensation was not designed to cover a global pandemic. But claims for an infectious disease could be covered under workers’ compensation if there was an increased risk due to employment, and there was documentation of exposure and a diagnosis. Tens of thousands of workers’ compensation claims for COVID-19 have been covered nationally under this standard. And now we have states enacting presumptions that COVID-19 is work-related for specific occupations. These presumptions fundamentally change one of the basic tenets of workers’ compensation, the burden of proof. Typically, the affected employee would be responsible for proving that exposure happened in the workplace and that the employee is at higher risk for exposure than the public. With presumptions, employers are left responsible for proving that exposure did not occur in the workplace, which can be extremely difficult.

With these changes, one of the more frequently asked questions in the industry is, does COVID open the door for future infectious disease coverage under workers’ compensation? We participated in a Southern Association of Workers’ Compensation Association (SAWCA) regulatory roundtable discussion earlier this year, and the consensus from the panel was, yes, that door is now open.

Reinsurance

Workers’ compensation is a statutory coverage. Carriers cannot exclude specific causes of loss like other insurance coverages can. After the 9/11 terrorist attacks, the reinsurance market responded by excluding terrorism from workers’ compensation treaties. Now we see reinsurers exclude infectious disease and pandemic from coverage. Because the carriers writing the coverage cannot exclude that risk, carriers are left exposed to unlimited liabilities. There has been talk of a federal pandemic reinsurance program, similar to the Terrorism Risk Insurance Act (TRIA) with terrorism. But those talks are very preliminary. 

See also: Companies’ Biggest Unrecognized Risk

Payroll

Tied closely to the workers’ compensation industry is employer payroll. Fewer people working means fewer premiums, and the payroll in certain sectors is down significantly. The question is, when will this bounce back? Recently, the CEO of one of the largest hotel chains in the world said it would be at least 2023 before the company returned to 2019 occupancy levels. Major airlines are predicting decreased demand through at least 2022. 

But the impact is going beyond the travel industry. As many office buildings around the nation remain mostly unoccupied, all the ancillary businesses around those buildings are affected — restaurants, retailers, dry cleaners, parking garages, etc. Brick and mortar retailers that were already struggling are facing an increasing challenge. Thousands of businesses will ultimately close forever. 

When will the economy bounce back? When will we see 2019 employment levels again? Those are two huge unknowns facing the workers’ compensation industry. 

Claims Volume

Because fewer people are working in some industries, there are fewer claims. In April 2020, third-party administrators (TPAs) reported that their claims volume was down close to 50%. While that volume is bouncing back, it remains below 2019 levels. 

This decrease in claims hurts all workers’ compensation industry vendors that depend on volume, including TPAs, medical networks, medical providers, case managers and even defense attorneys. This reduced revenue may eventually lead to more industry consolidation. 

Not all claim volume is down. First responder claims are increasing more than ever before, with both the pandemic and civil unrest resulting in thousands of new injuries. Healthcare industry claims are up, as well. Some retailers, including supermarkets and big box stores, have expanded their payroll to keep up with demand. Trucking, shipping and delivery businesses have also expanded payrolls. 

Catastrophic injury claims have not decreased during the pandemic because the types of industries where there are higher incidences of such claims have kept working, such as construction, trucking and public entities. Violent attacks against first responders have also increased with the civil unrest around the nation. 

Data Accuracy

The foundation of the insurance industry is the law of large numbers and predictability. Years of accumulated data is analyzed by actuaries to determine the expected claims for the future. How has COVID-19 changed this? Unquestionably, there has been delayed medical treatment and extended disability on existing claims. The big question is, to what degree? It will take years for this change to flow through actuarial development triangles.

The pandemic has likely affected the benchmarks you used to measure your workers’ compensation programs. Employers need to reset their starting point when evaluating the effectiveness of their loss prevention and claims handling programs. 

COVID-19 Claims

As time passes, we are starting to understand better the types of claims the industry is seeing from COVID-19.

Safety National’s data shows the most affected industry group, as expected, is healthcare. However, closely behind healthcare is first responders, with police officers, firefighters and paramedics. According to the National Fraternal Order of Police, 247 law enforcement officers have died from COVID-19 through the end of October. The public entity piece is missing from the bureaus’ analysis because most of these entities are self-insured.

At this time, Safety National’s data also shows that the total number of death claims reported for employees below age 55 is almost the same as for employees over age 65. However, there are 48 times as many claims in the under-55 age group.

Sedgwick has handled over 45,000 COVID-19 workers’ compensation claims for clients. 78% of those are closed, with an average paid of $1,050. 54% of the claims had no payments made. 

Healthcare accounted for 57% of Sedgwick’s COVID-19 claims, with public entity, retail, services and food/beverage rounding out the top industry groups. 

Sedgwick claims show almost an equal distribution of claims by age group between 30 and 40 years old, up to over 60 years old. However, the average incurred in the over-60 age group is close to double any other age group. Over 71% of the death claims were for employees 51 or older. 

Overall, most of the COVID-19 claims by the workers’ compensation industry are relatively minor. However, death claims and claims with extended ICU hospital stays can have total incurred values over $1 million. 

One big question is, how will these claims develop? Will we see continued medical complications develop? Will we see permanent partial and permanent total disability claims?

See also: 4 Post-COVID-19 Trends for Insurers

The Path Forward

One way in which the workers’ compensation industry has adapted to the pandemic environment is with the increased use of telemedicine. Sedgwick still sees telemedicine on over 10% of claims. Before COVID-19, telemedicine utilization was on less than 1% of claims. 

Return to work has been a more significant challenge with business restrictions, which could increase costs on existing claims. Sedgwick data showed a 21% increase in TTD paid on active claims from March-September compared with 2019. 

Finally, carriers have to develop new models to estimate their potential exposure to future pandemics. Without question, COVID-19 will continue to affect the workers’ compensation industry significantly into 2021 and beyond.

Kimberly George with Sedgwick and Mark Walls with Safety National host the “Out Front Ideas” educational series. You can view their archived sessions here.

Since COVID-19 made its way into the U.S., insurers have been hyper-focused on customer retention.  

But priorities have shifted since the beginning of the year. A Celent survey released in January revealed that most companies were confidently readying for a year that would focus on innovation and be characterized by investments in digital claim offerings, client satisfaction strategies and process optimization. Fast forward to April, when a follow-up survey found that innovation took a back seat to customer retention, process optimization and cost-reduction measures as insurers responded to the 2020 pandemic dynamic.

One strategy remained high on the list: the need for digital transformation, especially in the area of claim payment.

A recent Metabank survey found that 42% of consumers would be more likely to stay with an insurance provider that pays approved claims within minutes. Findings from a VPay report revealed that the majority of policyholders — especially across younger generations — would change carriers to gain access to real-time payment. 

Consequently, groups that are still dealing primarily in paper for claim payment processing must act as their future competitiveness hinges on getting money into policyholders’ hands quicker. And those insurers that have already taken some action on the digital payment front — such as implementing automated clearinghouse (ACH) — can no longer rest on their laurels. Next-generation claim payment will be characterized by an expanded portfolio that considers a wide range of offerings, from ACH and virtual cards to push-to-debit and mobile e-payment. 

See also: Transforming the Claims Space

In the near term, insurers would be wise to consider how to make claim payment as convenient as possible through the provision of more payment options. For example, web-enabled solutions that enable the policyholder to quickly approve payments and opt for e-payments will become key differentiators. The lag time associated with ACH payments will not suffice any longer as the industry moves closer to real-time payment.

Consumers are also increasingly looking for personalized experiences. Options that allow policyholders to select their preferred form of payment, whether a digital offering or paper-based check, improve customer satisfaction across a wide array of generations.  

As insurers speed process reengineering strategies, many are finding that the business case for outsourcing digital payment is easy to make, according to the most recent Celent report. Findings suggested that many groups were considering pushing out non-strategic activities, such as payment, to third parties, as they lacked the infrastructure and expertise to implement and oversee a digital strategy that complies with regulatory requirements and protects security. 

A Growth Strategy for 2020 and Beyond

The introduction of COVID-19 has undoubtably left a lasting mark on the insurance sector, uncovering areas that left many companies exposed in terms of process optimization. These shortfalls only further underscore the need for digital adoption — especially as it pertains to claim payment. Insurers that embrace the digital age during COVID-19 recovery and beyond will be better positioned for future success and sustainability.

Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities

A key benefit of the technology, providing a single source of truth kept up to date in real time and accessible through permissions by all stakeholders, has huge implications for the insurance and risk management industries. This webinar begins by exploring blockchain’s promise, then dives into the technology’s use in personal lines, highlighting two production-ready use cases. The adoption of this technology could save the industry $1 billion a year.

Watch to learn:

• Where blockchain is about to make a big impact  
  
• The road map for the future of blockchain
  
• The status of active use cases and their testing schedule
  
• How to start preparing to reap the benefits

Don't miss this free on demand panel discussion.

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Presenters:

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Additional Information

Blockchain has long been seen as having great promise, but somehow just over the horizon. The benefits have now become tangible and are about to start rolling out across the insurance industry. This webinar lays out the broad promise, then dives into personal lines, where blockchain will soon go into production -- and where just the two use cases covered here could save the industry as much as $1 billion a year.

Who should watch:

• Executives at P&C companies, especially in personal lines, or any executive involved in innovation
• Technologists
• Operations executives focused on driving down costs

A great deal of activity is underway by insurers investigating or implementing new distribution channels. For every line of business across P&C, there are compelling reasons to expand distribution beyond the tried and true channels. This is not to say that agent/broker channels or the direct distribution models are less important or going away. It is more about reaching new segments, addressing new customer expectations and meeting customers at their point of need.

There are two important dimensions to the strategies: 1) determining the right mix of channels for each company, and 2) managing those channels, including any related channel conflict. SMA addresses these two dimensions in a new research report, P&C Distribution R(evolution): Blending Old and New Models. 

Determining the Right Mix of Channels

Depending on how you count, there are at least eight different models for distribution in P&C, and variations within each of those. There are the models most in use today – captive agents, independent agents and brokers, MGAs and, in some segments, the direct model (call center/web). Then there are those that have been around for a while but are experiencing a surge in interest, such as selling through affinity groups or bundling insurance with the product to be insured. Even worksite marketing, which has been primarily the province of voluntary benefits and life/health, is an option for P&C distribution.

Now, introduce some of the digital age models like the creation of a digital brand or selling through emerging ecosystems like smart homes or connected vehicles. And, of course, there are many insurtech distribution players now in the mix, either in the form of digital agents or MGAs, new digital brands or new affinity or ecosystem partnerships. As with many strategy options in the digital age, there is no shortage of choices. More than ever, the key is to take an outside-in view to identify more discrete customer segments, the risks unique to those segments, and the best channel to reach those customers with products that serve their needs.

See also: Best AI Tech for P&C Personal Lines

Managing Channels, Including Channel Conflict

Some insurers will stick with one primary channel and work to strengthen the relationships and the technology capabilities supporting that channel. However, many are expanding by offering new channel options. When this occurs, there is often an issue of channel conflict, especially when an agent channel has been the primary channel. This is nothing new – insurers have been dealing with this since the early days of the internet, when it became apparent that new distribution models would emerge. However, our findings indicate that the agent/broker community, in general, now accepts the notion of multi-channel distribution. It does not necessarily mean that they are happy about it, but most understand it is the reality of the P&C world today. The key for insurers is finding the right approach to differentiation.

The Future of Distribution

We expect to see a more varied mix of distribution channels for P&C. There will likely be all manner of channels. As connected world ecosystems continue to evolve around property, vehicles, farms and other areas, the paths to the customer will expand. New technologies are likely to increase exposures in some areas (such as cyber) and introduce unexpected risks that need insurance coverage. And, yes, in the midst of all this change, there will still be agents and brokers playing a key role in insurance distribution in the future.

Commercial insurance faces a growing claims adjuster staffing gap. On the retirement end, there’s a rising tide of experienced adjusters leaving the profession. According to the Pew Research Center, nearly 10,000 baby boomers retire each day in the U.S., and about 25% of them leave positions in the insurance and financial services sector. Seasoned adjusters leave with a wealth of experience built up over decades, leaving newer adjusters to handle a rising volume of claims.

On the entry side, few adjusters are entering the business to make up for the wave of departures. According to the Hartford’s 2015 Millennial Leadership Survey, only 4% of millennials are interested in entering insurance, compared with 36% interested in education and 31% interested in healthcare. The gap is especially acute in commercial insurance, where few college graduates have been exposed to workers’ comp, business continuity and other types of claims outside of personal lines.

There’s little indication that COVID-19 has changed this dynamic. While job listings for “insurance adjuster” have risen, according to ZipRecruiter, insurance caseloads also continue to rise, increasing pressure on claims teams facing waves of new types of claims, from COVID-19 workers’ comp to business interruption.

One way that carriers can change the game and attract millennials is by focusing on artificial intelligence (AI), which itself is experiencing a surge of interest. AI is commonly seen as a replacement for people, a way of fully automating jobs to prevent the need to even hire in the first place. But the real value lies in machines and humans working alongside each other, where machines can enhance humans’ natural instincts.

It’s this augmentation role that makes AI an appealing solution to the industry-wide talent gap — across three broad dimensions.

Break out of the mundane

The first way AI can help is by handling aspects of the adjuster’s job that are more routine and thus less appealing. AI techniques like machine learning are optimal for handling an array of calculations, such as estimating reserves needed for a claim or tracking the cost of medical bills that have been paid. Natural language processing can identify relevant comments and insights in a sea of text, reducing the need to parse every document that emerges. Entity resolution detects when multiple providers, attorneys or companies are actually related in some fundamental way, which can significantly cut down time-consuming legwork that can go into sizing up the various players engaged in a claim.

In these examples, AI gives adjusters superpowers that free them to focus on the more nuanced and interesting aspects of claims adjusting. A job description with “acquire AI superpowers” might appeal to millennials more than “study policy footnotes and calculate claim reserves.”

See also: How to Recruit Claims Adjusters

A natural mediator

The second major appeal AI offers is in transforming a potentially adversarial relationship into a more mutually supportive one. The traditional workers’ comp claim can feel like a one-dimensional tug-of-war between adjuster and claimant — where one’s gain feels like the other’s loss. But AI can find win-win breakthroughs by considering a wider range of factors and data.

By identifying doctors with successful track records in a specific injury type, for example, AI can get workers to providers that enable them to recover faster, while also reducing both the workload and cost for the adjuster. Automatically interpreting adjuster and provider notes can detect situations where the worker is confused about the claims process, enabling adjusters to address the confusion before it becomes a deeper source of frustration.

Aligning adjuster and claimant plays to the healing side of claims adjusting — and to a new generation that is increasingly looking for meaning in their work. In the 2019 Rising Medical Solutions survey of over 1,000 claims professionals, 36% of respondents indicated that shifting to an advocacy model with workers would improve the reputation and social image of their organizations. Lifting the social image of the organization and profession will increase the appeal to millennials and Generation Z, both more mission-focused cohorts than older generations.

An expedited ramp-up

The third way AI can attract talent is by helping newcomers optimize their impact within months versus having to invest years in traditional training. AI-generated recommendations can come with explanations that show how they were arrived at. This gives the user confidence in the recommendation. It also provides the user with guidance to accelerate overall mastery of the domain.

Adjusters can generate their own insights and recommendations, looking at the various factors in the claim, then compare those against the AI-generated answers, giving the adjusters a ready-made feedback loop to train themselves over time. Newbies can play this “guessing game” until they get enough right answers to start taking action on real claims. They’ll, of course, need training from experienced colleagues, but this approach can get them up to speed faster.

Claims professionals can set themselves up well for future changes by playing up their familiarity with AI. Insurers can emphasize the AI fluency that adjusters will gain from specific roles. Adjusters can increasingly reference AI strengths on their resumes. Technically inclined claims professionals can shift all the way into business intelligence, machine learning or data engineering tracks, which are among the fastest-growing in the entire economy, according to LinkedIn. Claims operations end up with an increased flow of talent and a strengthened internal mobility program that they can showcase to new candidates.

See also: Transforming the Claims Space

The adjuster recruiting challenge didn’t appear overnight and will take years to overcome. But AI is clearly one way smart firms can accelerate progress and stand out to attract a new generation of insurance professionals.

As first published in PropertyCasualty360.

The New Shape of Innovation Paul Carroll, Editor-in-Chief of ITL When I interviewed Howard Schultz for a magazine cover in the late 1990s, I was struck that he didn’t just talk about imagining Starbucks as a chain of upscale coffee houses like those that had charmed him on a trip to Italy as a young man. He talked about Starbucks as a “third place.” We all have our homes and our offices, he said, but he thought we could all use a “third place” that was somehow positioned between home and office and that let us pursue business or leisure however we cared to. That thought has stuck with me as I’ve pondered the forms that innovation can take, and the term resurfaced for me when I read a recent interview with Kevin Kelly, a co-founder of Wired magazine and one of the more intriguing thinkers on innovation. He, too, had heard Schultz use his “third place” term and was thinking that the idea of a “third” way could be applied in many areas today. For instance, he said, Uber drivers aren’t really employees in the traditional sense, but they’re also not non-employee contractors. They’re a third thing and should be treated as something new in employment contracts, in insurance and in government regulations. I think that “third” idea could be important for insurance in two ways... continue reading > ITL ON DEMAND 3 Tips for Increasing Customer Engagement Complimentary On Demand Webinar Customers are rushing to embrace the digital space. Is your business prepared? Watch Now SIX THINGS Transforming the Claims Space by François Metzler Paying claims needs to be the default, with AI and analytics ensuring that adjusters spend their time more valuably and have more interesting work. Read More The Evolution of Telematics Programs by Harry Huberty Interest in pay-as-you-drive or pay-per-mile policies has increased in 2020 as more Americans are working from home. Read More How AI Powers Customer Contacts by Patrick Kehoe Existing and prospective customers now expect prompt, appropriate answers via the channel of their choice, or they may look to your competitors. Read More Accelerating Industry’s Digital Scenarios by Giuliano Altamura Scenarios that previously seemed like nice-to-haves have suddenly escalated to urgent, and futuristic ideas may become critical. Read More Essential Steps for Cyber Insurance by Ron Pelletier Corporate IT, legal, risk and business leaders must collaborate on three steps before updating or acquiring new cyber coverage. Read More Innovation Comes to Risk Engineering by Andrew Anzenberger "From now on, nothing in risk engineering will ever be constant BUT change. If you can’t get used to constant change, you'd better leave.” Read More 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

2020 has been a tumultuous time for consumers and businesses alike. The coronavirus crisis led to nearly half of American employees working from home in the spring of this year. Pair that figure with the fact that unemployment rates climbed to nearly 15% in April 2020, and it’s easy to understand why consumers are looking for ways to reduce their expenses and stretch the dollars they have. And why some insurance companies are making unprecedented moves. 

Numerous auto insurance providers took steps to reduce premiums or issue partial refunds to customers in light of the COVID-19 pandemic, but consumers are still on the hunt for savings. Those one-time deals might not be enough. According to a recent study, online demand for new insurance policies has gone up by 27% since March. 

Without a daily commute for the foreseeable future, consumer interest in pay-per-mile coverage is on the rise 

A recent survey by J.D. Power revealed that more than 40% of consumers were interested in telematics-based auto insurance options. This survey was released in May, early in a pandemic that many hoped would be quickly squashed. With COVID-19 cases once again spiking in some states, the interest could be even higher, because customers only want to pay for as much coverage as they use. 

Despite the appeal, true pay-per-mile policies aren’t offered across the board. At present, only a few carriers offer pay-per-mile insurance and determine premiums according to a mileage fee plus a base rate. Also, the potential savings from a pay-per-mile program may not be quite as high as consumers expect. Drivers who log an average of more than 1,000 miles per month (12,000 miles per year) on the road could end up paying more than they would with a traditional auto insurance policy.  

Increased interest means it may be time for more carriers to consider pay-per-mile insurance as a way to avoid customer turnover while increasing potential revenue.

See also: How to Engage Better on Auto Insurance

The impact of pay-per-mile coverage

While consumers may be interested in the option, some insurers' hands are tied. Providers cannot offer these types of policies without first getting approval from each individual state’s department of insurance. In addition, privacy concerns and state regulations can make it difficult or costly for insurance companies to implement telematics-based programs in certain states. At present, usage-based car insurance policies are only available to residents in a little over half of the U.S. 

With pay-per-mile insurance, the industry may experience:

Fewer payouts. Drivers who sign up for mileage-based car insurance policies may also be more cognizant of their driving habits, speculates Andrew Hurst, insurance analyst at ValuePenguin. More-aware drivers should create safer roads for everyone — and potentially fewer payouts for insurance providers as a bonus. 

Reduction of fraudulent claims. Usage-based insurance could also lead to a reduction in fraud, according to the National Association of Insurance Commissioners (NAIC). Details that insurance companies collect from telematics devices can make it easier to estimate damages and review the actual facts (i.e., speed, time of incident, hard braking, etc.) when accidents take place. 

More insight into driving behaviors. Telematics tracking could also help an insurer identify individual drivers who should possibly pay higher premiums due to risk. Progressive reveals, for example, that it increases the premiums of around two in 10 drivers who sign up for its Snapshot program due to risky driving habits. However, Hurst said, “I'm not so sure this would be worthwhile in the long run, as customers could simply leave and go to an insurer that didn't do that.” 

Pay-per-mile coverage and the future

Thanks to a number of factors, traditional auto insurance rates are likely to rise in 2020. Higher repair costs on tech-heavy vehicles, more accidents from distracted drivers and natural disaster-induced claims are partially to blame.  

See also: How to Thrive in Auto Insurance

At the same time, consumer desire for lower premiums and usage-based options is on the rise. So, the insurance industry may need to find other ways to appeal to price-sensitive drivers while still controlling risk and overall costs.

This year has not been kind to the insurance industry. According to the 2020 Allianz Global Insurance Outlook Report, premium income is expected to shrink by 3.8% globally, mostly due to the global COVID-19 pandemic. So, it’s all hands on deck to find ways to stem the losses, and one of the highest priorities is customer retention. Winning new customers is critical to recovering from the economic shocks caused by the virus, but these new customers will only make a difference if carriers can hold on to the customers they already have. 

Happy customers generally remain customers, and one of the best measures of customer satisfaction is the Net Promoter Score (NPS). It’s a simple measure that’s calculated by subtracting the percentage of customers who would not recommend your product or service to friends from the percentage of those who would. But don’t be fooled by its simplicity. It’s a powerful metric. 

In the Harvard Business Review article that introduced NPS to the world, the authors found that, “remarkably, this one simple statistic seemed to explain the relative growth rates across the entire [airline] industry; that is, no airline has found a way to increase growth without improving its ratio of promoters to detractors.” Further research showed that this finding applied across most industries. The takeaway is this: If carriers increase their NPS scores, they will also accelerate growth.

Of course, improving customer satisfaction is no small feat. But with the right technology and the right partners, insurers will see their NPS scores rise. Here are a few of the technologies and strategies we’ve used at my company, HONK Technologies, to achieve a high NPS scores for our carrier clients.

Automation:

Customers appreciate it when they receive fast service, and nothing speeds service like automation. The insurance industry has made a lot of progress on this front. According to the 2019 J.D. Power U.S. Auto Claims Satisfaction Study, customer satisfaction with the auto insurance claims process hit a record, as the amount of time that passed between filing a claim and the return of a vehicle was 12.9 days, half a day less than it took the year before. 

But there’s still room for improvement, particularly on the claims intake side. For example, instead of sending an adjuster to inspect the vehicle or other property and make a report, the carrier can have the customer send photographs of the damage electronically, perhaps using the carrier’s mobile app. The claim can then be audited by a remote adjuster or even artificial intelligence.

See also: 10 Tips For Using Net Promoter Score

It’s a good idea to undertake a full audit of the claims process and then identify where emerging technologies can automate tasks. It’s not a simple project, but if it’s conducted at regular intervals and management acts on recommendations, the long-term benefits to customer satisfaction and cost efficiency can be substantial.

Analytics, AI and machine learning:

It’s not always obvious what changes could improve customer satisfaction and increase NPS scores, especially because many of the obvious measures, such as speeding up claims processing, are already underway at many carriers. Carriers will need insights into customer behavior that aren’t evident even to an experienced insurance professional. Advanced analytics, artificial intelligence (AI) and machine learning (ML) can help provide these insights. 

But these technologies require a lot of data, so insurers should collect as much information about the customer experience as is ethical and legal. No data point is too small to collect. Everything from demographic information and customers' interactions with your website, to recordings of customer service calls and interactions with third-party service providers could be important. Just as the HBR author, Frederick Reichheld, was surprised to find that the simple NPS score correlated with business growth, you may be surprised to discover that something as mundane as the layout of the claims intake form could make an enormous difference to customer satisfaction.

The more information you gather, the more likely you are to uncover unexpected insights about your customers that can help you increase their satisfaction.

Partner evaluation:

These days, ecosystem services are just as important as claims for creating happy customers. According to a report from Bain, additional services beyond traditional insurance — such as assistance with buying or selling a vehicle, home security advice, healthy living consultations or roadside assistance — can make a big difference in customer loyalty. Bain found that carriers that offered three or more ecosystem services had an average NPS score that was more than 3.5 times higher than those that offered none.

After all, customers are likely to interact far more often with one of these services than they are to file a claim (unless they are very unlucky, indeed). These services are not nice-to-haves; they’re must-haves, and, if they’re poor quality, that will reflect on your brand. So as you work with ecosystem partners, require them to provide data on each customer interaction, and regularly evaluate their performance. Set up key performance indicators (KPIs) and, if they’re not being met, find a new partner. Your NPS score and future growth are at stake, after all.

See also: COVID, and How to Pivot to Innovation

It’s a difficult environment right now for insurance, but as anyone who has been in the business long enough knows, even the worst cycles eventually come to an end. Insurers that lay the groundwork now will be well-positioned to grow once the public health crisis finally passes and the economy recovers.

When I interviewed Howard Schultz for a magazine cover in the late 1990s, I was struck that he didn't just talk about imagining Starbucks as a chain of upscale coffee houses like those that had charmed him on a trip to Italy as a young man. He talked about Starbucks as a "third place." We all have our homes and our offices, he said, but he thought we could all use a "third place" that was somehow positioned between home and office and that let us pursue business or leisure however we cared to.

That thought has stuck with me as I've pondered the forms that innovation can take, and the term resurfaced for me when I read a recent interview with Kevin Kelly, a co-founder of Wired magazine and one of the more intriguing thinkers on innovation. He, too, had heard Schultz use his "third place" term and was thinking that the idea of a "third" way could be applied in many areas today. For instance, he said, Uber drivers aren't really employees in the traditional sense, but they're also not non-employee contractors. They're a third thing -- and should be treated as something new in employment contracts, in insurance and in government regulations.

I think that "third" idea could be important for insurance in two ways. First, we need to be aware of how the industries we cover are changing, so we can be there to provide insurance for Uber drivers and other innovations as they occur. Second, we, too, can find new forms for doing business if we think beyond traditional boundaries like home and office, as Schultz did.

Although Kelly didn't get into the implications for insurance in this interview in Alta, he noted all sorts of anomalous "third" things that provide food for thought. Facebook isn't a publisher in any traditional sense, but it sure provides a lot of content -- it's just a new animal, whose users provide and even create most of what appears on the platform. "And free speech?" Kelly says. "When you say something on Twitter, is it public? Is it private? Neither; it’s a third thing."

He even raises more fundamental questions. "The idea of ownership is overrated," Kelly says. "In the world where you can have instant delivery of anything you want from this jukebox in the sky, this access is almost the same as owning [something]. In fact, many times it’s better than owning it. You don’t have to store it. You don’t have to catalog it, insure it, clean it. You don’t have to find it."

Transportation networking companies are certainly betting on this sort of approach to ownership, especially as driverless cars move into the mainstream. You won't have to own a car, but you'll always have a claim on one, because you'll subscribe to a service and be able to summon a ride any time you want to go somewhere.

Plenty of other goods and services could move into that sort of in-between world, where you don't own something but you have such clear access to it that you don't really not own it, either. My daughters have occasionally rented formal gowns for events (back when people were hosting events) from an online company that provided an easy way to ship a gown back the next day. While Amazon and other online retailers currently focus on distributing goods, there's no reason they couldn't pick the goods up again after they've been used briefly. Rather than buying a bunch of equipment and leaving it in the garage to gather cobwebs, why not just rent the tools that you need for a weekend project and have them shipped to you, then return them when you're done? After all, as the classic Harvard Business School line puts it: Consumers don't want to buy a quarter-inch drill; they just want a quarter-inch hole.

Kelly says the thinking about the future of work needs to be reframed in a "third" way, too. Rather than wonder which jobs will be done by humans and which by machines, he says, we should think about "centaurs" -- in this case, part human and part machine, rather than part human and part horse. In other words, don't imagine having some work done by machines and some work done by humans. Think of ways that human/machine combos can do work most efficiently and effectively. The contribution by humans and machines in each job will vary a lot, but all will involve some such combination.

"What I’m suggesting," Kelly says, "is that we’re in this era now where we have a whole bunch of things that are the third thing, and we’re still trying to [look at] them in an outdated, binary way."

As the world adopts pieces of this "third" approach, the insurance industry will find huge opportunities in covering the risk for the gig workers at places like Uber, for those who now share assets rather than own them outright, for companies that provide products and services in new forms, etc. The relationship will be symbiotic: Unless insurance can come up with creative ways to cover new risks, these new forms of innovation in business will proceed haltingly, if at all.

Innovators in insurance might benefit from conceptualizing their own work on new products and services as finding a "third" way.

I've covered many of my ideas on the topic in this space over the months and years. For instance, I see term life insurance as potentially being included in a mortgage, to make sure the loan will be paid off even if the mortgagee dies. Such a policy would be cheap because there would be almost no sales cost, and underwriting would be almost automatic, based on the demographics of the person taking out the loan. The amount of coverage could even decline over the years as the mortgage is paid down. Life insurance could also combine more with wealth management, breaking down traditional silos. And why couldn't life and health insurance feed into each other? After all, they're both designed to give you a long, healthy life. I see the data that is currently used to underwrite risk increasingly being used to decrease it; if you see a problem in a company's cyber security, why not help the company address the problem, rather than just jack up the premium? And so on.

There are loads of clever people out there who understand the problems and potential solutions far better than I do. Here's hoping they find a way, "third" or otherwise. Maybe a cup of coffee would help, even if you can't get to your local Starbucks in these pandemic times.

Stay safe.

Paul

P.S. In case you're wondering, Schultz uses a French press to make his coffee. He also must have quite the constitution. It seemed to be a point of honor that he'd welcome each guest with a cup of coffee, and my meeting with him was mid-afternoon, so the pot he made for us in his office must have been at least his sixth or seventh of the day. Yet, while I would have been bouncing off the walls on the first such day and then sleep-deprived for the rest of my life, Schultz was as serene as could be.

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

Transforming the Claims Space

Paying claims needs to be the default, with AI and analytics ensuring that adjusters spend their time more valuably and have more interesting work.

The Evolution of Telematics Programs

Interest in pay-as-you-drive or pay-per-mile policies has increased in 2020 as more Americans are working from home.

How AI Powers Customer Contacts

Existing and prospective customers now expect prompt, appropriate answers via the channel of their choice, or they may look to your competitors.

Accelerating Industry’s Digital Scenarios

Scenarios that previously seemed like nice-to-haves have suddenly escalated to urgent, and futuristic ideas may become critical.

Essential Steps for Cyber Insurance

Corporate IT, legal, risk and business leaders must collaborate on three steps before updating or acquiring new cyber coverage.

Innovation Comes to Risk Engineering

"From now on, nothing in risk engineering will ever be constant BUT change. If you can’t get used to constant change, you'd better leave.”