We often get asked where you should go when you want to be inspired by insurance innovations. We always answer that people should look at Asia more seriously.

Think of giants like Ping An and Zhong An leading the way. Think of innovative solutions in the health sector such as Ping An’s Good Doctor and Tencent’s Waterdrop. Or ecosystem plays such as Rakuten, Grab and GoJek.

An important catalyst in developing the Asian insurance market is Invest Hong Kong. Hong Kong is one of the world’s leading fintech and insurtech hubs. Hong Kong has 165 authorized insurers (as of August 2020), and the total gross premiums of the industry was $74.4 billion in 2019 (9.1% growth compared with 2018). With 34 insurers having their regional headquarters in Hong Kong, the city serves as a breeding ground for fintechs and insurtechs that aim to conquer Asia. InvestHK plays an instrumental role in making all of that happen. That is why we sat down with Stephen Phillips, director-general of investment promotion at InvestHK, and King Leung, head of fintech at InvestHK, to have them share their thoughts on the flourishing insurance industry of Asia.

In your view, why is Asia taking the lead in accelerating digital transformation in the insurance industry?

Stephen Phillips: “The Asia-Pacific region is home to nearly one-third of the world’s population and several of the fastest-growing economies. Because of the sheer population size and growth, Asia is already playing a key role in shaping the future of insurance. More importantly, insurance penetration is less than 5% in India, Indonesia, mainland China and Malaysia, signaling a significant amount of unmet demand in Asia-Pacific’s developing markets. In Asia, the insurance industry is all about an inclusive growth mind-set, customer relevance and speed. Growth is established by expansion beyond the traditional distribution channels, product innovation and building new business ecosystems. Regarding customer relevance, in Asia, insurance is not seen as a compulsory product but as a primary product for savings and protection, playing a very relevant role in the lives of clients. Customer expectations in the Asia-Pacific region are the highest in the world, especially around digital interaction and experiences. Because of the growth mind-set, insurance markets in Asia are evolving quickly. To stay on top of fast-changing customer needs and market landscape, Asian insurers have learned to make decisions fast.”

Let’s talk about the Greater Bay Area, set up by the Chinese government to integrate Hong Kong, Shenzhen, Macau and eight southern mainland cities into a 72 million population market and a leading hub for innovation and economic growth. Can you share a bit more?

Stephen Phillips: “The Greater Bay Area (GBA) Initiative encourages further internationalization of China, where mainland Chinese customers can access more international financial products through Hong Kong. Likewise, overseas companies can access financial products and RMB assets from China. In May this year, the People’s Bank of China and the mainland Chinese regulators have announced an updated framework of four core areas and 26 specific segments of financial services where different extents of opening up and transformation among the 11 cities in GBA are encouraged going forward. With a GDP of $1.68 trillion in 2019, the GBA would be the 11^th largest economy in the world, just behind Canada and ahead of Russia. There are endless possibilities in this exciting development!”

Which role will Cyberport play in the development of the startup ecosystem in Hong Kong?

King Leung: “Cyberport functions as Hong Kong’s digital technology community. It is home to about 1,400 digital tech companies, including more than 380 fintechs. It is the largest fintech and insurtech community in the city. This community also consists of many startups, including several of the newly licensed virtual banks, as well as established enterprises such as insurtech unicorn ZhongAn, AWS and Microsoft. These tech companies focus on several areas: AI, blockchain, big data, cybersecurity, insurtech, wealthtech, etc. Cyberport also runs its own Cyberport Macro Fund, where it co-invests in promising companies with other private investors.”

We’ve been there. It’s huge. Almost a city quarter.

King Leung: “Yes – it’s a big business park consisting of four office buildings, a hotel and a retail entertainment complex. Cyberport is wholly owned by the Hong Kong government. The mission is to help youth, startups and entrepreneurs to grow in the digital industry. Cyberport is connecting them with investors and strategic partners such as local and international business partners, established insurance companies. Cyberport is Hong Kong’s flagship digital technology hub. It is committed to inspire innovation and accelerate digital adoption. We all believe in the importance of ecosystems. To develop and enhance the fintech and insurtech ecosystem, Cyberport provides local and overseas fintech companies a jump start to success, for instance, by offering full-range entrepreneurship support and value-added services.”

Apart from Cyberport, are there any other key stakeholders that help the overseas insurtech companies launching in Hong Kong?

Stephen Phillips: “The Insurance Authority (IA), the Hong Kong insurance regulator, has been closely monitoring the development and application of technology in the insurance industry and proactively assisting market participants to tackle insurtech-related regulatory issues. IA’s Fast Track program offers a dedicated channel for new authorization applications from insurers using solely digital distribution channels (i.e., without the involvement of intermediaries) to provide insurance products with a simple structure and high protection element. Between December 2018 and May 2020, IA has granted four digital insurance licenses (two life and two non-life). In addition, the IA launched an insurtech sandbox in September 2017 to facilitate a pilot run of innovative insurtech applications by authorized insurers to be applied in their business operations. In addition to IA, Hong Kong Science and Technology Park (HKSTP) also acts as an important facilitator to Hong Kong fintech businesses. Its Incu-App program, for instance, provides startup support to companies working on business innovation during their inception stage, with a full range of tailor-made support services and facilities that will help drive their business to the next level of development."

How will China’s insurance industry benefit from the flourishing insurtech ecosystem in Hong Kong?

Stephen Phillips: “The Greater Bay Area will introduce more and more opportunities. In May 2020, the People’s Bank of China and the leading regulators announced an updated blueprint for opening up the financial services sector in the GBA across four core areas and 26 financial services segments, including insurance. As the population in the Greater Bay Area has one of the highest GDP per capita in China and are more aware of insurance, demand for insurance will naturally increase. This trend will lead to more insurance companies setting up and expanding their presence in GBA. As more international competitors enter the market, more choices are made available to the GBA customers. At the same time, the intensified competition will lead to more innovative digital features and better customer-centered solutions. To get a piece of China’s booming insurance industry, insurers must leverage technology. To ensure that insurers market growth and scalability, digital distribution channels become a crucial success element.”

The flourishing Asian markets are obviously attractive to fintechs and insurtechs …

King Leung: “Definitely. The Hong Kong fintech and insurtech scene has experienced incredible growth in recent years. As of 2019, more than 600 fintech companies have set up their businesses in the city, among which 53% see Hong Kong as a base for global expansion and 51% operate/plan to expand in the Greater Bay Area. The world-class capital and private investment market in Hong Kong also provide the necessary fuel to accelerate the growth opportunities. From 2014 to 2019, private investment in HK-based fintech companies reached a total of $1.5 billion. In addition, over $10 billion have been raised through fintech IPOs. In 2019, Hong Kong also invested $1.3 billion in nurturing local tech talent, and $64.1 million in attracting overseas tech talent. To support the fintech community on employment amid the COVID-19 pandemic and nurture talent, the government launched the Fintech Anti-epidemic Scheme for Talent development (FAST), where fintech companies will be entitled to a subsidy for talent recruitment. With a total funding amount of $15.4 million, the scheme is designed to create 1,000 fintech-related jobs. Hong Kong (and surrounding cities in the GBA) are home to a huge and diverse talent pool in finance and technology. The local education system is also internationally acclaimed; many universities and institutions have launched fintech-specific programs from BSc to PhD to online professional training in recent years. This talent pool equipped with the latest skills and knowledge in finance and technology provides Hong Kong with a strong foundation for further fintech development going forward.”

As a global city, Hong Kong is attracting people from all over the globe.

Stephen Phillips: “Hong Kong also enjoys an ideal geographical location in Asia. This enables businesses to seize opportunities in the Greater Bay Area and throughout the rest of the region. Many people are drawn to Hong Kong because of the vibrant lifestyle, beautiful scenery, convenience and welcoming international community. The international business community reflects this, allowing businesses of all types to thrive in the city. Hong Kong is also one of the safest cities in the world to live in due to its relatively crime-free society.”

Hong Kong has been recognized as one of the world’s most competitive economies. The ranking reflects Hong Kong’s consistent strides in building a favorable business environment. Can you describe the benefits of Hong Kong’s open business environment?

King Leung: “Opening businesses, for instance, is easy and remains inexpensive. Foreigners can be sole directors or shareholders in a Hong Kong company. There are no restrictions of nationality. InvestHK makes it easy for companies to open up their offices in Hong Kong with all sorts of free facilitation services. InvestHK assists with opening bank accounts, arranging work visas and work permits, helping you find the most optimal office space, etc. and introducing you to the key insurtech stakeholders. We also just kicked off a Global Fast Track program in mid-August for startups around the world as a key element of our flagship annual Hong Kong Fintech Week event on Nov. 2 to 6. We invite fintechs from around the world to participate in the FastTrack program, where we offer support from government funding for business matching with financial services institutions and private fintech investors. The Hong Kong government also encourages business development by providing one of the most tax-friendly systems in the world. And, most importantly, business opportunities can be maximized by taking advantage of the business infrastructure in place. People are open to do business. We’re more than happy to help make the right connections and help you succeed in Hong Kong.”

About InvestHK

Invest Hong Kong (InvestHK) is a department of the Hong Kong Special Administrative Region Government tasked with attracting foreign direct investment to Hong Kong and providing overseas and mainland companies and entrepreneurs with information, advice and services they need to succeed in the city. It works with companies of all sizes, from startups and SMEs to multinationals, and it supports them in every stage from planning, setting up to promotion and expansion.

The staff stationed in 32 offices in key markets worldwide reach out to potential investors and work to strengthen and promote Hong Kong’s status as Asia’s premier investment destination. All of the services are free, customized and confidential and based on the core values of passion, integrity and professionalism. InvestHK strives to provide the best customer service combined with business friendliness and responsiveness.

When the Hong Kong government decided to step up the focus on fintech and insurtech promotion, InvestHK set up a dedicated fintech team with physical presence in Hong Kong, Guangdong-Hong Kong-Macao Greater Bay Area, London and San Francisco to engage with fintech and insurtech companies to raise the profile of Hong Kong as a fintech and insurtech hub. With their vast network in the private sector, they are a conduit for business.

Written by Roger Peverelli and Reggy de Feniks, Founder of The DIA Community. Originally published here.

Law firms and accounting firms alike have complex and often rigorous conflicts and intake processes to vet new business and determine the worthiness of accepting and representing clients. These processes need to consider many different ethical and compliance considerations, depending on the type of work and the jurisdiction(s) the work will reside in. Internally, there are often multiple approvals that must be obtained before representing a new client, and the intake requests often must pass through multiple teams for review and input. While firms have, at times, bolted on additional functions and ad hoc workflows to accommodate new or growing needs, it is not common for these processes to get routinely reviewed for improvements and adjustments. That was until COVID-19.

The COVID-19 pandemic has influenced firms to pause and review three key areas: conflicts and intake processes, technology investments and personnel. Considering conflicts and intake are the initial gateways for all business coming into a firm, and a way to provide a first impression for how a potential client’s firm operates, firms should assess every aspect of their processes to ensure the resources involved can seamlessly adapt to the challenges a pandemic creates, such as using a distributed workforce and a greater need for more mobile technology functionality.

Processes

Firms should use this challenging time to take a deep dive into reviewing their conflicts and intake processes and make these reviews an annual exercise. Create a small team responsible for this annual review. Review all procedures starting at each process stage and the correlating micro-level inputs and outputs, and then learn where the efficiency gaps are. Often, these gaps are caused by a bottleneck at a process stage because this particular step takes more time, and there are not enough resources to handle the volume, or the manual steps are not automated. An effective way to identify this bottleneck is to create quick, easy and routine internal surveys of users’ thoughts on the processes. Include all users that touch these processes, including partners, executive assistants, conflicts and intake staff and departments with overlapping interests or information sharing needs, such as billing, HR, marketing, and IT-support personnel. These annual reviews of the current conflicts and intake processes will help to identify and prioritize areas of improvement. Use the information gathered in the reviews as the building blocks to execute the necessary changes. Performing these reviews annually will help transform a firm from reactive to proactive, which will help firms be more agile as they pivot to address challenges and needs now, and in the future before those challenges and needs become a problem for the firm.  

Technology

The COVID-19 pandemic has also forced firms to review their technology investments, and it is prudent to do so while reviewing the current conflicts and intake technology contracts. There are resources and tools already paid for to help review technology investments that may not be utilized. Reach out to each vendor to find out if there are any new or additional mobile features associated with the product’s use. Finally, ask each technology vendor what its future road map holds for innovation, as well as additional features and functionality. By reviewing conflicts and intake related technology and associated contracts, a firm may realize additional value, features and functionality from their existing technology. A review can also shine a light on potential inadequacies of existing technology and help firms start researching and moving to a better solution. 

See also: 3 Silver Linings From COVID-19

Personnel 

As important as reviewing the conflicts and intake processes is, as well as evaluating what technology investments are, it is equally important to check in on the people who perform these functions. The COVID-19 pandemic has generally resulted in the conflicts and intake staff working from home. This situation can create an environment where collaboration and teamwork could decrease because the workforce is distributed rather than being centralized. To avoid problems, consider cross-training personnel so they learn new skills and can serve the firm in other capacities. Cross-training also creates collaboration and teamwork among the conflicts and intake teams. These efforts will enrich the personnel’s skill sets, increase social interaction with each team and create contingency options for times when a need for a certain position, role or responsibility arises due to changing circumstances. This will also help a firm adapt to situations, such as a pandemic, without missing a beat.   

The COVID-19 pandemic has shown the importance of preparedness and review. A continuous review of a firm’s conflicts and intake processes, technology and personnel should help firms improve in agility and efficiency while also strengthening risk management. Use the COVID-19 pandemic as an opportunity to create a refreshed conflicts and intake process by coupling a firm’s internal resources with an external, independent practitioner skilled in the conflicts and intake arena. Clients, partners and staff will reap the benefits immediately and in the future.

Roadblocks exist for a reason. While often viewed as an obstacle or a challenge, in fact they’re an opportunity to find a solution that’s right in front of you. Take the notion of a mass market telematics programs. In early ideation, telematics was proposed to be a grand, value-generating asset to businesses across multiple lines that consumers would flock to.

Fast forward to today, and we still see some roadblocks and a sluggish adoption rate. But why?

The response that is often given to any question about a relationship involving multiple people or entities applies here – it’s complex. And if someone tries to tell you otherwise, the person simply isn’t looking at the big picture.

Let’s look at that big picture to understand why telematics adoption is complex. The table is set with several players: insurers, automakers and consumers. Each has an inherent and specific limitation that can only be corrected by working together. The question that follows is, how do we move forward? The answer, in short, is looking back to the challenges and how those roadblocks came to be present and applying both innovative thinking and solutions in kind.

Cost and Distribution or Execution

Originally, the main barriers that insurers faced with telematics were cost and execution. In-vehicle devices or black boxes and OBD2 devices discouraged most from participating, and program success was very reliant on consumer day-to day-engagement to make sure the device was functioning properly. Many insurers held off their telematics programs, or stopped and started them.

Today, apps have made telematics easier to execute, evolving to deliver driving behavior data for underwriting and lead generation programs. In addition to feedback, consumers can receive discounts, participate in safe driving reward programs or tap into other value-added services. Connected vehicles, aka connected cars, also make the use of telematics more cost-effective and easier, through taking advantage of the data created by the consumer’s own vehicle. Connected vehicles also open up avenues for the use of telematics data, such as at the point of new business.

Many-to-Many Challenge

Another challenge has been the sheer size of the ecosystem itself and the number of players. Automakers have tried one-to-one relationships with insurers, and some are still pursuing them today. Those past programs were met with varying degrees of success, and time will tell whether the current ones ultimately deliver on expectations. By contrast, insurer-led programs have been more successful, and there are several notable programs in the market today. However, they suffer some limitations in consumer experience, namely that the consumer’s data is really limited to the confines of a particular carrier’s program, and that consumers (and insurers) typically do not see significant benefits from telematics until after the monitoring period is completed (which can be upward of six months).

The good news is that both automakers and insurers are looking to data providers as potential partners to help them. This aligns automakers to both large and small insurance organizations and helps automakers meet their business objectives of increased monetization, data management and, most importantly, improved consumer experience through telematics programs. The arrival of telematics data exchanges changes everything by offering a neutral space for incoming consumer-consented driving behavior data to be normalized and easily incorporated into insurers’ workflows. By giving the customer the opportunity to consent to share data with insurers via the exchange, automakers deliver their owners a better overall experience through opportunities for reduced total cost of  ownership, data portability and improving driving behavior. Insurers that leverage this shift in mindset and take advantage of what I like to call "bridging the gap" are already ahead.

See also: Will COVID-19 Give Telematics New Life?

The Importance of Normalization

Because no data set is alike across organizations, another way of looking at this complex set of relationships is through the lens of linguistics. Imagine three people in a room who don’t have a shared language but are filling the room with indistinct conversation. Sounds hectic, right? However, with a competent translator, the interplay of sound and meaning can be translated into a common language. Applying that analogy to the context of connected cars, the data (language) from any automaker or any other driving data source can be normalized through a telematics exchange and delivered in one easy-to-understand transcript to be used in multiple points – think marketing or lead generation, underwriting and claims – within the insurance process.

Sticking with that analogy, that interpretation of conversation between vehicle and insurer once took an extended period to process for the benefit of an effective usage-based insurance (UBI) program. Today, we are able to harness that power of a comprehensive telematics exchange (translation) in a new fashion. With the recent LexisNexis Telematics OnDemand solution, carriers now have the ability to deliver those same UBI benefits and savings now at the point of quote. This is a game-changer for insurers and consumers alike, who can now forego any trial or initial monitoring periods and offer/receive safe driving discounts and program rewards in real time.

The Appropriate Path

One of the biggest misconceptions we continue to debunk is whether an insurer has to choose one approach and stick with it. The answer is that you don’t have to pick one approach versus another. If you currently have an app-based solution, you can easily participate in a vehicle telematics exchange, as well. The beauty is that, regardless of data collection method, once filtered and normalized the data should tell you the same story. Both approaches can be useful and done in parallel. An app program can help build a relationship with an individual consumer, which can then be kept going no matter the device or vehicle. An exchange partnership allows the insurer to know that consumer's driving behavior from the first moment they meet and offers the consumer benefit of their driving behavior no matter who the participating insurer may be.

Driving Behavior Changes

Now more than ever with the changing environment around driving behavior and volumes dramatically reduced due to the pandemic, the competency around “real time” is something that will become increasingly important across the board, as initial reports outline a potential spur in increased shopping growth rates. Consumers are starting to understand the benefits as well and indicated that they think telematics and driving behavior data are among the fairest ways to set a price for insurance; they will share data if they perceive a benefit.

Exchange models open that data to everyone. Imagine if you knew what to do with a consumer’s driving behavior data; you could offer a fully mature discount and could outprice the competition. The data can be pulled in from an exchange at the point of new business or at renewal. For many of your customers, you may already get their driving behavior data. But they might get a better offer from other insurers, and knowing more can give you a significant edge.

Where to go from here

We can call telematics the “newest old product” because the industry has been testing telematics-driven UBI programs for years, and, from our internal estimates, market adoption remains at approximately 5% of policies. What excites me, though, is that more and more insurers are acknowledging that it’s real and beginning to tap top tier data partners going forward.

See also: 3 Ways AI, Telematics Revolutionize Claims

Now that telematics data from connected vehicles is real and available at the point of quote and renewal, we can see how it becomes part of the fiber of all policies moving forward. And while the automotive OEM and auto insurance industries are going to continue to evolve separately, the opportunity an exchange creates is the ability to deliver the best customer experience with programs that focus on true value - a new lens on retention and loyalty and overall satisfaction of their shared customers.

Complementing experience is having a better understanding of driving behavior to provide a more complete picture of the individual, better risk assessment and better pricing, accordingly. Those insurers that are already adopting telematics data into their organizations and related workflows are on the edge of the market. App solutions make it easy, but connected vehicles and their shared language of data delivered through an exchange are the future. That’s the connected road ahead.

It now seems clear that practically no issue will be left unaffected by the impending presidential election, including matters pertaining to insurance. And while health insurance has been the most dominant political talking point, the November election may also have consequences for certain aspects of liability insurance. To be sure, neither President Trump nor former Vice President Biden has made liability insurance part of their explicit campaign platforms, but some analysts believe the liability landscape may be altered by the winner in myriad implicit ways.

There is a big question about whether a new stimulus bill will include substantial liability protections for businesses that were harmed during the COVID pandemic, that have concerns about employees returning to work or that want to guard against lawsuits from customers and workers exposed to the virus. Dozens of state and federal officials have proposed reforms that would give employers additional protections from liability related to COVID, but it’s all still up in the air both locally and nationally.

Washington, D.C. Republicans—including President Trump—have been steadfast in their effort to include liability protections in the next stimulus bill, although the details are vague. As recently as Oct. 6, U.S. Treasury Secretary Steve Mnuchin proposed a $1.6 trillion stimulus package that would include $250 billion in state and local government relief as well as liability protections for businesses and workers, but a deal has not yet been struck with House Speaker Nancy Pelosi as Democrats continue to push back on several components, including those related to liability protection.

At the core of this issue is whether businesses, and even schools, will be given additional legal and financial protections against liability lawsuits resulting from COVID. By and large, Republicans evidently want to restrict a potential flood of COVID lawsuits against businesses. Otherwise, they believe that entities like businesses and schools and hospitals will see a wave of frivolous litigation that could further damage their ability to operate and that could harm the economy writ large.

Recognizing that liability protections may end up on the cutting room floor in stimulus negotiations, Senators Mitch McConnell (R-KY) and John Cornyn (R-TX) introduced the Safeguarding America’s Frontline Employees to Offer Work Opportunities Required to Kickstart the Economy Act, also known as the SAFE TO WORK Act, in late September. The bill includes a host of provisions that would make it much more difficult for plaintiffs to sue for injuries related to COVID infection.

In other words, a second term for President Trump will likely result in a more restrictive liability landscape, while a Biden presidency could find entities such as businesses, schools and healthcare facilities more vulnerable to liability suits.

See also: 5 Liability Loss Mega Trends

The problem, especially for small businesses right now, is this state of limbo, where they don’t know how this is all going to pan out. If liability protections aren’t pushed forward, either in the next stimulus or through SAFE TO WORK, businesses will most likely have to increase their liability insurance limits. But, according to analysts, they’re not going to spend that money until it becomes clear it’s absolutely necessary.

In a survey of frequent Out Front Ideas attendees, one of the biggest concerns raised by risk managers was the rapidly evolving insurance marketplace. These challenges started back in 2018, but COVID-19, civil unrest and other events have accelerated this change. At the Out Front Ideas virtual conference, a panel discussed these challenges.

Our guest speakers were:

• Daniel Aronson – U.S. casualty practice leader, Marsh
• John Csik – chief operating officer and chief financial officer, Safety National
• Lori Goltermann – chief executive officer, Aon U.S. Commercial Risk & Health Solutions
• Joseph Peiser – executive vice president, global head of broking, Willis Towers Watson

U.S. Commercial Casualty Market

Social inflation has been affecting civil jury verdicts for several years. Juries have been displaying anti-business and anti-government bias, and they have been desensitized to large awards. The combination of these factors is leading to record jury verdicts around the nation, even in cases with questionable liability. Umbrella excess liability and auto liability have been the most affected by this jury behavior.

There has also been a significant impact on directors and officers coverage. In 2019, there were over 400 lawsuits filed against public company directors, and that number is expected again in 2020. Public company D&O coverage saw a 74% price increase in the second quarter of 2020. 

The COVID-19 pandemic raised an entirely new set of risk management concerns. Businesses were shut down. When would they fully reopen? What impact would these shutdowns ultimately have on the business? In addition, risk managers faced new risks in their existing operations. Sit-down restaurants started offering delivery. Many employees shifted to working in different roles.

In the carrier marketplace, there was a change in appetite. Some carriers walked away from certain industries. New exclusions emerged, such as communicable disease, which took away coverage for much more than COVID-19. For example, a communicable disease exclusion eliminated coverage for Legionnaires disease, which was previously covered. Many carriers eliminated some communicable disease endorsements.

There was much uncertainty around the impact on claims due to COVID-19. What would the claims ultimately look like across multiple lines? What policy coverage period would apply? In medical malpractice, many coverage triggers required reporting in the policy term, so healthcare providers reported thousands of claims as a precautionary measure.

During all this, carriers started to grow concerned about the financials of their clients. Did they have sufficient collateral posted to cover potential losses? Some businesses struggled to pay premiums because of decreased revenues. Exposures changed dramatically almost overnight. New insurance regulations intended to provide premium relief to businesses created complications in the workers’ compensation market, which already had a built-in premium audit function.

U.S. Property Marketplace

The U.S. property market is experiencing its 11^th consecutive quarter of rate increases. Natural disasters like wildfires have been significant. Additionally, there have been over 18 named storms this 2020 hurricane season. Civil unrest and damage from riots have also hit the commercial property market.

One broker reported that over 91% of clients had seen commercial property rate increases this year. Even without losses, these increases have been around 25%. Those with losses are seeing rate increases over 35%.

Exclusions have also increased in this market. What started as COVID-19 exclusions expanded to pandemic exclusions and then to exclusions on all communicable diseases. Carriers are trying to eliminate any potential uncertainty regarding their exclusion of coverage of business interruption relating to disease outbreaks.

Global Insurance Markets

Many businesses have global exposures or access to Lloyd’s marketplace for some of their insurance coverage. The challenges seen in the U.S. commercial insurance market are also being seen internationally. The U.S. has seen the highest rate increases, but Australia has also seen significant rate increases. Other international locations are seeing low-double-digit rate increases across multiple lines. These are driven by large losses worldwide, including natural disasters and shareholder lawsuits against directors and officers. Carriers are also pulling back on capacity in certain countries.

The low interest rates globally are having a significant impact on carrier rates. With declining investment income, carriers have to raise rates just to stay even.

Lloyd’s has been transforming for the last few years. Lloyd’s acts as a de facto regulator for the individual insurance syndicates that operate in the market. Lloyd's started a series of reforms in recent years designed to increase profitability and is also limiting capacity. Thus, companies that are renewing late in the year could face capacity challenges with the Lloyd’s market.

Changing Terms and Conditions

Changing insurance policy terms and conditions are also being seen around the world. One big lesson in all the litigation around whether COVID-19 closures are covered under business interruption claims is that words matter.

It is also crucial to make sure you have concurrent wording in your insurance coverage towers. This is increasingly challenging as carriers move away from allowing manuscript or broker-driven policy language and only allowing the use of their policy forms.

Brokers need to work closely with their clients and the insurance carriers to develop policy language that addresses the concerns of all parties. Any change to any layer of the coverage tower harms the entire tower, as many higher layers take a “follow form” approach. Not all policy language is appropriate for all insureds, and there can be increased litigation over claims. Brokers and carriers need to make sure that the changing terms and conditions do not eliminate coverage for the day-to-day operations of a business.

Because of all the complexity in the marketplace right now, brokers must have the time with the insured and the carrier to work out any policy language challenges. The broker needs to have experts reviewing the policy language. Insureds need to make sure they are fully describing their business operations. Carriers need sufficient time to digest all this information and get approval for any proposed wording changes. Having a long-term relationship with your broker and carrier can be very helpful under these circumstances.

See also: 3 Tips for Increasing Customer Engagement

Collateral Considerations

As mentioned, carriers have significant concerns about whether the collateral they are holding is sufficient to cover potential losses below their attachment point on high-deductible policies. COVID-19 has presented an unprecedented credit risk event. Usually, such events are limited to certain geographic areas or industries, but the challenges of COVID-19 affected most businesses. It has created significant financial uncertainty around businesses.

Credit risk underwriters with carriers look at debt ratios, cash flow and business operations to develop a credit grade for each policyholder. That grade is used to determine what percentage of the projected losses below the attachment point need to be collateralized on a deductible policy. There is almost always a percentage of the projected losses that are not fully covered by collateral.

The collateral determination process needs to be transparent. What factors are being considered by the carrier? What is the financial outlook for the policyholder? The more information shared, the better the decision-making on both sides.

One of the challenges of COVID-19 was that it required carriers to analyze the collateral they were holding on their entire book of business in a short period. Carriers focused on what accounts had the most significant risk in terms of funds not collateralized and the impact of COVID-19 on their industry.

While reviewing financial statements is important, collateral decisions in this COVID-19 marketplace required much more information. Are the policyholders able to access any state or federal government relief funds? Are they issuing new debt to increase their liquidity? What changes have they made to their payroll and expenditures? How many months of their operations can they fund with available cash? Carriers also want to know policyholders' view of their future. What are their expectations for reopening and their business volume returning to prior levels?

There has been an increased volume of business bankruptcy because of COVID-19. However, for the most part, these have not been a surprise to carriers. These businesses struggled going into the pandemic, and the additional stresses were more than they could financially handle, necessitating restructuring under bankruptcy.

Advice for Risk Managers

It is imperative for brokers not just to deliver bad news to clients. Brokers need to have a game plan on how to approach the situation.

The timeline for preparing for renewal has changed. Six months before your renewal is not too early to start thinking about how you will approach it. Risk managers need to involve their company leadership to not only help develop messaging for the insurance marketplace but also to manage their expectations in terms of budgets.

Companies need to look at things at a more enterprise-level instead of just line by line of insurance coverage. Should they consider retaining more risk in more predictable insurance lines? Are there potential uninsured or underinsured exposures?

Data and analytics can assist with this analysis. Every company today is different than what it was six months ago. All the risk models are based on a risk profile that has likely changed. Companies need to know what has changed and what they expect to change further in the future.

Best-in-class loss control and business operations are now the expectation, not the exception. If you do not have this, it will be challenging to get carriers interested in providing coverage. It is important to highlight all your safety and loss-prevention activities and demonstrate how you will operationalize those across your enterprise.

Consider the use of more insurance options, such as captives and facultative reinsurance coverage. Clients need to understand their appetite for risk and their tolerance for volatility.

It is also important for companies to consider the bigger picture of their employee health and wellness and the impact that has on both their health insurance and workers’ compensation costs. As workforces are evolving and workers are pushing off retirement, that aging workforce affects your claims.

See also: Step 1 to Your After-COVID Future

The Path Forward

The theme of the Out Front Ideas virtual conference was “The Path Forward,” so we asked our guests to comment on what they see as the path forward for our industry.

Video conferencing is a crucial tool to maintain business relationships. You can video conference with underwriters worldwide, making it much easier to maintain these relationships than ever before.

Unless there is meaningful tort reform, the challenges in the insurance marketplace will continue. As long as claims continue to soar, rates will also continue to grow. Carriers, brokers and their clients need to partner to pursue tort reforms across the country.

We have shown we can continue to conduct business without in-person meetings and with many workforces working from home. What will businesses look like in the future? Companies are reconsidering which people will ultimately return to the offices and which will permanently become work-from-home. This shift will change the way that businesses recruit and retain talent and how they develop their culture.

Relationships are more important than ever. It is a mistake to sacrifice a long-term business relationship for short-term premium savings. Look at the bigger picture and make sure you partner with carriers that can meet your needs in the short and long term.

Finally, transparency goes a long way to eliminating uncertainty and making your business partners comfortable. Now is the time for risk managers to shine and show the impact they are having within their organization.

The personal and commercial property claims process has traditionally lagged well  behind other segments of P&C insurance in the adoption of technology and innovation. That officially ended in 2020, aided by a global pandemic that changed virtually everything about life and business as we knew it. Understanding the factors behind the historical lack of innovation in property claims provides insights into why and how this segment is suddenly undergoing such rapid transformation.

Auto vs. Property Claims Process Transformation

When compared with the recent impressive rate of change in auto claims, property claims appeared to be a more of a laggard than it really was – but a laggard nonetheless. To put this in perspective, U.S. auto insurance policies, premiums and claims in 2019 were approximately four times larger than property. Further, auto claims are generally more visible and more consequential to the public than property claims. And the auto claims process was broken until about 1990, with the emergence of direct repair programs enabled by internet and database technologies, so the transformation has been that much more obvious and impressive.

Industry Fragmentation

The property claims repair market is characterized by extreme fragmentation, which exceeds that in the auto insurance claims industry. This is due to several factors: 

• the relatively large number of service providers specializing in distinctly different major damage types, especially managed repair networks, as well as independent contractors, in general
• the complexity of property claims themselves, which involve the coordination of numerous general and specialty provider types for a given claim 
• the proliferation of task-specific software solutions, which are generally not integrated with one another
• the smaller influence of property insurers on the repair process as compared with the influence that auto insurers have (because of less consolidation of property insurers and because they collectively represent only about 33% of repair industry revenue while auto insurers represent almost 90% of collision repair revenue)

A high-level comparison of market fragmentation of third-party auto and property claims repair provider markets provides another important explanation of the emerging transformation in property claims. The collision repair industry has undergone significant consolidation both in terms of the numbers of repair shops and shop ownership – and consolidation continues. Since 1990, the number of U.S. repair locations has fallen roughly 50% to approximately 32,000. Moreover, consolidators have created large multi-location, multi-regional and national MSOs (multi-shop operators) and now control almost 30% of the repair industry revenue. Private equity investments and relatively inexpensive debt have provided the enormous pools of capital required to enable this consolidation.   

See also: Key Advantage in Property Underwriting

Property Claims Ecosystem

In studying the property claims, mitigation and restoration ecosystem, we identified 110 companies with material market share, which we grouped within nine distinct categories:

• Software applications for:
  • Property estimating
  • Restoration management
  • Claim management platforms
  • Accounting/financial, measurement, documentation, communication and productivity
  • Payment solutions
  • Imaging/aerial inspection
• Services:
  • Third-party administrators (TPAs)
  • Property claims adjusting and estimating
  • Managed property repair networks

Industry Consolidation

When we researched corporate ownership profiles for these 110 firms, we discovered that 45 – or 39% of them – are funded or controlled by private equity, venture capital or a few strategic investors. While there is some such investor activity in every one of the nine segments, it is most pronounced in managed property repair networks, claims management platforms and imaging/aerial inspection verticals.

These investors are fueling consolidation in these segments in much the same way as they are in the auto claims ecosystem, and will spur greater adoption of cost-effective and process innovation technologies. This is already evidenced by the emergence and adoption of artificial intelligence, computer vision, augmented, virtual and extended reality, machine learning and natural language processing across property claims.

Opportunities

Emerging Property Repair Market Opportunity

The property repair industry is 40% to 50% mature, while we estimate the auto claims industry is approximately 80% mature. This is partially illustrated by direct repair claims penetration of the collision repair industry, which is at or over 50% for carriers with higher market share (and more for some auto carriers) versus less than 10% on average for property repair.

Homeowners property insurance claims and ecosystem software and technologies market, viewed holistically, represent a significant and mostly unaddressed market opportunity. The situation closely parallels the auto insurance claims process and collision repair markets of 1990, which saw technology and economics drive vendor consolidation and carrier adoption of managed national repair programs, which were enabled by automated estimating software development, digital communications, imaging and end-to-end claims workflow tools.

Property Claims Solution Platforms

Property insurance carriers increasingly will be seeking technology-driven end-to-end property claims management solutions featuring;

• connectivity between all parties from report of loss to remediation to payment and closure
• hybrid insourced/outsourced carrier claims and repair network management capabilities, including  universal, standardized contractor onboarding, performance metrics, automated skills/needs matching, user reviews and vendor rankings.
• integration with Guidewire’s claims platform or similar partner ecosystems

Property Claims Technologies

Artificial intelligence (AI), machine learning (ML), robotic process automation (RPA),computer vision (CV), natural language processing (NLP), aerial imagery including drones and digital payments are being aggressively adopted across the P&C insurance claims process, and specifically property.

• Smart home technology adoption will mitigate and in some cases eliminate claims and losses; Bain Capital predicts that in just five years there will be 50 billion connected devices and a trillion by 2030. According to Statista Market Forecast, the global smart home market was valued at $55.65 billion in 2016 and is projected to reach $174.24 billion by 2025, growing at an annual rate of nearly 14%. While 32% of homes currently have a smart device, that number is expected to reach 52% by 2025.
• The impact of these technologies to the property claims and restoration industries is already -- and will become even more -- significant
• As residential policyholders become more comfortable with self-administered smartphone photo and video inspections of property damage reported directly, insurers will gain more control over the restoration assignment process, which will promote the use of national repair networks (and the claims management software that can manage the end-to-end process)
  • It is estimated that the use of photo inspection services can reduce field claims cost from an average $550 down to between $60 and $90 and the cost of technical inspections from $550 to $300
  • Technical inspections or VAIP (virtual adjusting and inspection programs) will fuse services, including the use of a licensed adjuster. Claims will offer faster cycle times and savings of 35%.
  • Providers of satellite and aerial images, including drones, are gaining in importance in the residential property damage identification, validation, damage assessment and repair estimation process.
  • Satellite and aerial imagery are increasingly being used by the property insurance industry for catastrophe planning and response, including damage evaluation and estimation.

Property insurance carriers now seek to avoid the effort and responsibility of managing restoration contractor selection or oversight but require a complete end-to-end workflow management platform to achieve their goal.

See also: How to Pursue Innovation in a Crisis

The property insurance claims and repair industries continue to move through a multi-segment structural transformation caused by prevailing market conditions, including industry fragmentation, consolidation, investments, revenue and geographic scale, end-to-end technology and software integration, emerging technology adoption and claims process improvement. Companies and investors that recognize the numerous opportunities presented by this transformation and solve for these dynamics are likely to be the future industry leaders.

Artificial intelligence technologies are everywhere. The great leap forward in AI over the past decade has come along with an explosion of new tech companies, AI deployment across almost every industry sector and AI capabilities behind the scenes in billions of intelligent devices around the world. What does all of this mean for the personal lines insurance sector? SMA answers this question in a new research report, “AI in P&C Personal Lines: Insurer Progress, Plans, and Predictions.”

The first step toward answering this question is to understand that AI is a family of related technologies, each with its own potential uses and insurance implications. The key technologies relevant for P&C insurance are machine learning, computer vision, robotic process automation, user interaction technologies, natural language processing and voice technologies. It’s a challenge to sort through all these technologies, the insurtech and incumbent providers that offer AI-based solutions and where each insurer will benefit most from applying AI.

The overall value rankings indicate that user interaction technologies fueled by AI are at the top of the list for personal lines insurers. Every insurer has activity underway, mostly by leveraging chatbots for interactions with policyholders and agents or using machine learning for guided data collection during the application process. Insurers see high potential for transformation in policy servicing, billing and claims – areas where routine interactions can be automated.

Robotic process automation is in broad use across personal lines, although the RPA technology is viewed by many as more tactical. There is high value related to streamlining operations and reducing costs, but most wouldn’t put it in the innovative category.

Machine learning and computer vision have great potential for personal lines in both underwriting and claims. The combination of computer vision and ML technologies applied to aerial imagery is already becoming a common way to provide property characteristics and risk scores for underwriting. Likewise, images from satellites, fixed-wing aircraft and drones are frequently used for NATCAT situations. And AI technologies will be increasingly applied to these images for response planning.

There are many other examples. But for the purposes of this blog, the main question – which technologies are most valuable – has been answered. AI-based user interface (UI) technologies, machine learning (ML) and computer vision demonstrate the best combination of high value today and transformation potential for the long term.

But perhaps the more important question is not which technologies are valuable, but rather where AI technologies are most valuable in the enterprise. The short answer is that there are so many potential value levers and so many unique aspects to different business areas and lines of business that it is difficult to select just a couple of high-value areas. That said, it is relatively apparent that underwriting and claims both present major opportunities, and activities are already underway there. There are great possibilities for AI in inspections, property underwriting, triage, fraud, CAT management, automated damage assessment, predictive reserving and other specific areas.

See also: Stop Being Scared of Artificial Intelligence

There is no shortage of opportunities for AI in personal lines. Fortunately, there are increasing numbers of tech solutions in the market and growing expertise in the industry involving AI technologies and how to apply them. Ultimately, we expect to see a pervasive use of AI technologies throughout the insurance industry. Some will become table stakes. Others will define the winners in the new era of insurance.  

Having covered developments in artificial intelligence for going on 35 years, I've long been struck by the confusing expectations. Based on what many were saying back in the '80s, we should all be working for our robot overlords by now. Yet people are also often too cautious: If I could tell my 1986 self that I'm now calling out to my Amazon Echo for random factoids that I just have to know that instant or that I'm dictating text messages to Siri, my earlier self would have called for the men with the butterfly nets.

Sorting through the confusion, I've decided that artificial intelligence is a moving target, an aspiration for capabilities that might be possible just over the horizon. Once something becomes reality -- even something as mind-boggling as speech recognition -- what was AI becomes garden-variety computing.

So, I haven't been overly surprised in my seven years with ITL to see the insurance industry light up at the prospects for AI and, at the same time, have trouble realizing them.

Two big studies released last week, one led by BCG and the other by Willis Towers Watson, shed light both on how to realize the gains that AI can provide -- and on how the industry remains unrealistic.

The study by BCG Gamma, the BCG Henderson Institute and the MIT Sloan Management Review found that only 10% of companies reported significant financial benefits from implementing AI -- so figuring out how to realize gains would seem to be in order.

The authors were encouraged by what they see as an increase in interest in AI: Their survey of more than 3,000 executives globally found that 60% have an AI strategy in 2020, up from 40% two years ago. But the authors argue that simply having a strategy -- what they call "discovering AI" -- only gives a company a 2% chance of significant financial benefits. ("Significant" means a gain of $100 million in revenue or a $100 million reduction in costs for a company with annual revenue of more than $10 billion, and proportionally lesser gains for smaller companies.)

The authors say that even moving into the "building phase" -- getting the right data, technology and talent and organizing them within a corporate strategy -- only boosts the odds to a 21% chance of success.

Companies can help themselves a lot, the authors say, if they figure out how to iterate with targeted users on solutions that AI might offer -- achieving this "scaling stage" lifts to 39% the prospects for significant financial benefits.

The study finds that the final, "organizational learning" phase -- "orchestrating the macro and micro interactions between humans and machines" -- makes the biggest difference. Getting to that stage gives businesses a 73% chance or reaping big benefits from AI.

The report cites two key factors for companies that hope to move into successively more mature phases:

• Use as many feedback mechanisms as possible to improve the capability of the AI. There are three possibilities: Humans can provide feedback to the AI; humans can take feedback from the AI; and the AI can teach itself. The report finds that the AI is five times as likely to produce real benefits if all three types of feedback are used than if just one type of feedback is.
• Be willing to change existing processes to incorporate the AI rather than treat it as a separate animal. In other words, don't just assume that you're training the AI; realize that the humans need to be retrained, too. The authors report that companies that changed business processes extensively were five times as likely to succeed as those that didn't.

Fair enough. All that makes sense.

But the second study I saw last week, from Willis Towers Watson, suggests that we're going to be overly optimistic about our ability to absorb AI -- even if we know we're going to be overly optimistic.

The study looked at seven ways that insurers intended to use AI and found a consistent pattern: Asked in 2017 about plans for 2019, insurers expected huge gains. Surveyed again in 2019, the insurers hadn't come close to achieving their goals. Asked about plans for 2021, though, insurers were undaunted; they predicted even bigger improvements than the ones they failed to achieve by 2019.

For instance, asked about using AI to remove bottlenecks in claims, 3% of insurers said they were already there in 2017, but 30% expected to be there by 2019. Actual number? 7% said they hit the goal in 2019. So you'd think insurers would be chastened, and perhaps 10% -- maybe 15% -- would expect to achieve that goal by 2021, right? Nope. 43% say they'll get there.

I was reminded of this sort of inability to escape a recursive logical fallacy earlier this month when a fascinating fellow I interviewed 30 years ago up and won the Nobel Prize for Physics because of work he'd done on the mathematics of black holes. On the side, Roger Penrose shared ideas with Dutch artist M.C. Escher (including about what are known as the Penrose steps), and following our talk I picked up what turned out to be a profound book, "Godel, Escher, Bach," by Douglas Hofstadter. Among the many insights was what is known as Hofstadter's law, which the author posited about any task of sufficient complexity: "It always takes longer than you expect, even when you take into account Hofstadter's Law."

While he was largely referring to programming, I embraced the idea about my various writing projects and posited what I called Carroll's Corollary, which says: "Writing always takes longer than you expect, even when you take into account Carroll's Corollary."

That's all a long way of saying that, while I'd love to be able to give you clear guidance on how to be more realistic about how quickly you'll be able to adopt AI, I realize this is a hard problem. I mean, I have trouble just figuring out how long it'll take me to write Six Things each week.

The only solution I know is calibration. If you're one of those companies in the Willis Towers Watson study, and you're making projections for a couple of years out, don't just start with a blank sheet of paper. Go back and look at the projections you've made previously and see how they've panned out. If, like most, you've been overly optimistic, look into why. Then be specific about the assumptions that have to hold true for you to be right this time around, and see if you aren't making the same mistakes you made last time.

You'll likely still be too optimistic, at least according to Hofstadter's Law, but you'll get better at predictions over time. Eventually -- who knows? -- maybe AI will solve the problem for you.

Stay safe.

Paul

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

AI Ends Guesswork in an Uncertain World

AI is highly sensitive to new data and tends to react immediately, creating a dynamically updated vision of the future.

How to Pursue Innovation in a Crisis

It’s common in crises to pause or cut investments, including in innovation, yet this is an incredible time to innovate. Here are five tips.

Speeding Innovation in Life Insurance

Life insurers have been flirting with a new digital paradigm in underwriting, health protection and remote claims. Perhaps now is the time.

Private Equity Drives Change at Agencies

Independent agencies haven't fundamentally changed the way they do business in 100 years but now must greatly up their game or sell.

How Risk Management Differs From Insurance

If you call yourself a risk manager when you are really only selling insurance, are you representing yourself truthfully?

A Future-Proof Operating Model

Insurers need an operational model with adequate agility to follow market fluctuations. It’s time to outsource all non-core activities.