As the New Year begins, the time for reflection has arrived. After a year that nobody could have predicted, I look to summarize three defining trends that developed last year and give my own prediction about the future of insurance as we begin the journey of 2021.

1. COVID-19 compelling the need for agility

Falling equity markets. Historically low interest rates. Shrinking new-business volumes. Reductions in consumer spending. The impact of COVID-19 within the insurance industry has been pronounced.

Insurers face a cacophony of challenges: new rivals, increased customer expectations, stalling transformation projects – the likes of which have been detailed extensively by market analysts.

However, the impact of COVID-19 was not in bringing these challenges into being but to cast them into the light: accelerating their impact and forcing insurers to re-prioritize their goals in unfavorable market conditions.

And, while many have articulated how we got here and why the challenges happened, few are commenting on what happens next, and the road back to pre-COVID rates of growth for the industry as a whole.

New Priorities

Insurers face a transformation crisis. Many long-term digital projects are stalling. While it is impractical to undertake a capital-expense-heavy program in the era of COVID-19, the demand for digital services continues to grow.

Insurers, therefore, are faced with a contradictory impasse. The solution? Reframing digital transformation as an iterative process as opposed to a one-off wholesale solution.

By undertaking small and agile projects, with a quick time-to-value and low cost, insurers can obtain the short-term benefits that drive growth and deliver agility with low risk.

Using this methodology, insurers can continue to innovate, digitize and build capabilities in applications, cloud or low-code solutions, while not over-committing to any specific long-term objective that could carry high risk due to the volatility of the market. 

2. The Continued Rise of Customer Experience

Customer experience is not a new concern. The adage, “the customer is always right,” has been a ubiquitous element of the business lexicon since the times of Harold Selfridge back in the early 1900s.

But, today, customers demand services that are personalized to their every need and prioritize simplicity and performance, so the importance of customer experience has grown. The realization that policy admin systems are not the most valuable systems insurers possess is starting to come to the fore.

In years past, the industry was built around policy. If you were traveling on holiday, you chose a policy that best satisfied your needs. If you bought a home, you chose a policy that provided the level of cover you wanted. If you drove a car, you chose a policy that matched your driving experience. And so on and so forth. The policy was at the center of the equation, and policy admin systems were created to maintain this status quo.

See also: Designing a Digital Insurance Ecosystem

Fast-forward to the modern day. Now the customer is king, and customers want their individual needs satisfied immediately, clearly, just in time, with a personalized service, and they want to only pay for the cover they need. That is a world away from selling a standard policy a million times over to people who might (or might not) need it, either in its entirety or all of the time.

In response to this shift, insurers are attempting to change the focus of the industry and gear it toward customers, but attempting to do this with a policy admin system is the equivalent of trying to fit square pegs in round holes: It simply does not work.

Round Pegs. Round Holes.

Insurers, today, must equip themselves with the right tools to provide an exemplary service. Policy admin systems that are focused on the creation of policy remain invaluable tools but only when used appropriately.

Instead of using a back-end system to provide a front-end service, insurers are realizing that they must focus on implementing two-speed architecture; the back end focused on policy, the front end focused on the customer and each designed to communicate with the other in an open-looped system.

Through this design, policy admin systems are put to use doing what they do best, while a more strategic, adaptable, omnichannel and personalized customer relationship management system can run in the foreground, delivering customers the content and experiences they want and driving up insurers' satisfaction rates as a result.

3. The Unrelenting Pressure of Digital Disruption

"Disruption" and "innovation" are terms often used interchangeably, but the truth is that they have very different meanings.

Innovation, makes an existing approach better, whereas disruption transforms an existing approach into something new.

For the insurance industry, digital has rapidly moved to the disruption category.  

Digital disruption – or digitization – is having such a pronounced impact on the insurance industry that it is radically changing the very essence of what it means to be insured.

Traditionally, in the event the worst happened, insurance would reimburse you to the value of the wrong you experienced, at a cost to the insurer. It was a cause-and-effect relationship.   

However, via the process of embedding new technologies into their everyday operations, insurers are moving the needle away from reactionary tactics.

Using AI-driven technology and big data in real time to more closely monitor insurance products and predict and manage claims events before they even happen, insurers are no longer merely responding to when something goes wrong; they’re helping their customers avoid it.

From Reactive to Proactive

This disruption is having a pronounced impact on the industry as a whole – as a growing number of consumers demand this protection and insurance package.

Today, insurers understand that technology holds the key to delivering this differentiated value to their customers. But acknowledging new technologies and implementing new technologies are very different propositions.

While digitization is a foregone conclusion for insurers wishing to compete in the world of tomorrow, understanding how to deploy the right technology for the right purpose is no small feat. And those really willing to compete in this new dynamic must be prepared for significant change to the systems, processes and people within their business.

See also: How Will Strategies Change in 2021?

A Complex Equation

It is, perhaps, underwhelming to describe 2020 as memorable. The term era-defining might yet serve a more accurate purpose. For insurers, the year was unpredictable at best and unmanageable at worst; a string of disruptive and unforeseen events combining to create a pressure cooker of complexity.

Today, insurance stands on the precipice of profound change, and this piece has articulated a handful of the defining trends that brought us here. But as we look to the future of the industry, my prediction is that customer experience will become the single greatest definer of success, and those insurers that best find the balance between policy and customer will reap the rewards.

To learn more, check out these insurance success stories.

Because workers’ compensation premiums are usually driven by employer payroll, carriers audit the payroll figures to ensure that the worker classifications are accurate and that the premiums reflect the covered risks. States and the rating bureaus have stringent rules around what counts as payroll and how to calculate premiums. Regulators also audit carriers to ensure their premium calculations are consistent and accurate. Every carrier is held to the same standard to create a fair and competitive market. 

The premium audit process can be very contentious because it is labor-intensive, and no one wants to be told they owe an additional premium on an expired policy. However, every workers’ compensation policy has this as a condition of the coverage.  

Many do not realize that the leading cause of workers’ compensation fraud is related to payroll reporting. Some companies will try to lower their premiums by intentionally reporting lower payroll figures by misclassifying workers. Companies classify workers as either independent contractors or positions with lower premiums (e.g., reporting foundry workers as “clerical”). Sometimes, these companies will simply report a lower payroll than was paid. 

All this complexity and controversy relating to workers’ compensation premium audits existed long before COVID. However, the pandemic made things much worse. Many states issued emergency rules requiring immediate premium audits with the thought that this would bring premium relief to troubled businesses. However, these rules mostly created confusion and added high administrative costs to both businesses and carriers. No one was prepared for the massive data collection and analysis effort that the states mandated.  

While there is significant state variation in the emergency rules, here are some examples that help explain what carriers, brokers and businesses are dealing with while trying to manage their businesses during a global pandemic:

1. It does not matter if you are self-insured and rarely report data to the bureaus. The states have imposed data reporting requirements on carriers and businesses relating to COVID. The orders apply to all workers’ compensation coverage: first dollar, deductible and self-insurance. 
2. Furlough pay is complicated. Furloughed payroll may be excluded from premium calculations where the state has approved this exclusion and if the employees meet the definition of a furloughed worker. These definitions vary by state.
3. If an employee is on leave due to COVID (either diagnosis or quarantine), that time off may be classified differently than someone on leave due to another illness. 
4. If an employee’s COVID-related leave is due to exposure while on the job, it could result in a workers’ compensation claim. 
5. Employers with temporarily reassigned workers may have premiums adjusted based on new classifications. Again, there are significant state variations on this. Essentially, this makes employers and carriers look at payroll week-to-week instead of once at the end of the policy term. It is an extremely labor-intensive process for everyone involved. 
6. Employers are expected to maintain extensive records on furlough pay and other variations, which must be reported to the carriers and, ultimately, the states.
7. It is important to understanding the difference between severance and furlough. Furlough is temporary, and you plan on bringing them back.
8. Every workers’ compensation policy has a minimum premium, and these still apply. Some carriers have decreased these premiums to accommodate current circumstances, but not all have adjusted.
9. Self-insured employers are expected to comply with the state rules in monopolistic states such as Washington and Ohio. 
10. It cannot be stressed enough that there are many variations by state. Even all the National Council on Compensation Insurance (NCCI) states are not operating under the same rules.

See also: Has Pandemic Shifted Arc of Insurtech?

Are you confused by all the complexities? Don’t worry. You are certainly not alone. Chances are, there will be more emergency rules issued soon to add to the confusion. The best advice right now is to document everything and be patient. The carriers didn’t make these rules; the states did. Carriers, brokers and businesses need to work together to satisfy these extensive state reporting requirements.

Over the next several years, everyone in the property and casualty industry will face new challenges because of the evolution and disruption caused by technology. Insurance companies will, perhaps, be the most challenged. They must respond to the increasing competitive forces created by insurtech. These include the demand for faster, easier underwriting and service, and a better customer experience. Insurers will need to invest huge sums of money to overhaul their increasingly outmoded systems, processes and ways of doing business. 

This investment will be painful for all and potentially create an existential crisis for some. The required investment, while different for each carrier, will have certain fundamental aspects that must be met regardless of carrier size or financial capability. Insurance carriers must focus on their cost structure if they are to thrive.

Rising Distribution Expense

These new cost pressures arrive on top of growing distribution expenses. In the last couple of decades, carriers have increasingly discriminated among agencies by rewarding agents based on size. Larger agencies are paid significantly more for a dollar of premium produced than smaller ones. This is one of the factors that has led to the development of market access providers and fueled the merger and acquisition activity of the last few years. While a good thing for agents, this aggregation activity, along with the leverage created by these new distribution models, has meant insurance companies are forced to pay more, on balance, for distribution. 

Because distribution represents one of the largest expenses for insurers, and with the costs of digital adaptation affecting their bottom lines and surplus, carrier scrutiny of agent-related costs will continue to expand. Traditionally, insurance companies have evaluated insurance agencies based on their production volume, loss ratio, new business flow and retention. Now, carriers will also add the total cost of doing business with an agent to their appointment and compensation criteria. Agents will have another set of issues to manage as they seek to maximize their opportunities with their carrier partners.

In a recent conversation with a Hartford Insurance executive, two specific issues of importance to carriers were raised: hit rate and carrier technology use. While hit rate has always been a key performance indicator, the relative success a carrier has in writing quoted business will rise in importance as cost pressures mount. This executive pointed out that many agencies have been slow, or completely unwilling in some cases, to adopt carrier technology changes designed to reduce expenses while creating operating efficiency. This will simply be unacceptable in the future.  

While these changes don’t appear to be the harbinger of fundamental change in agent-carrier relationships, they may be profound for many agents. Agencies have always understood they have a role to play in carrier costs. The loss ratio on their books of business is a key variable in maintaining good relations. Meanwhile, the bonuses gained by successfully holding those costs down is a fundamental part of agency compensation. In that sense the coming focus of carriers isn’t new. But it is more serious.  

Winning Agency Strategies

To stay ahead in this new agent-carrier paradigm, agents should consider employing these strategies:

• Make sure business is quoted in the carrier system with an eye to maximizing pass-through rates. Carriers are focused on speeding new business flow. Agents should do what they can to collaborate here, as it not only increases new business success but also lowers expenses.
• Do not ask carriers to quote business the agency has no intention of placing. This is somewhat problematic for agencies because many are used to “blocking markets” on the one hand, while demonstrating marketing efforts to clients on the other. Wise agents will recognize this submission activity represents a significant, unproductive expense for their insurer partners and, instead, find new ways to accomplish their business objectives. 
• Use carrier customer service systems. Insurers have invested heavily in systems to enhance their customers’ (and agency clients’) experience. Systems like apps and web portals will become seamless, and intuitive; customer self-service practices and agencies will assist carrier cost reductions by seeking to maximize their use rather than duplicating them. The concomitant reduction in agency expense is obvious.  

See also: Has Pandemic Shifted Arc of Insurtech?

As carriers focus on cost pressure increases, they will become progressively less likely to quote business for agencies that don't maintain a relatively high hit ratio. And as they pour hundreds of millions of dollars into systems to speed business flow, decrease human involvement in underwriting and pricing decisions and improve ease of doing business with producers, they will expect agencies to use these systems. If agencies do not cooperate, it will affect a carrier’s willingness to continue to do business with or pay the agency what it is used to receiving. 

The issue for some agencies is simply that they are satisfied with their current way of interacting with carriers. They don't wish to change. Another is that the more carriers an agency represents the greater number of systems it is expected to master. This raises its cost of doing business. However, carriers will insist that this behavior change. 

At the end of the day, agents need to understand that their role in assisting carrier profitability is not just in new business and loss ratio management, but also in becoming low-cost producers for their carriers. To do so, agents need to evolve in a number of ways. But this should be a welcome challenge for agents, as they have the opportunity to move from distributors to true business partners.

Right before the pandemic hit, I published a blog that reflected on the first decade of the insurtech movement and made predictions for the decade. Little did I know that the world was about to plunge into chaos and fundamental change. My predictions on insurtech through 2030 were based on my involvement in the movement over the last decade as a mentor, adviser, researcher and consultant to startups, insurers and venture capital firms. Of course, predictions are predictions, and those that are a decade out should always be taken with a grain of salt. But now the big question is whether the events of 2020 have permanently altered the trajectory of the insurtech movement and subsequently thrown all my predictions out the window.

Despite all the turmoil of 2020 and the dramatic changes to society and business, I have decided to stand by my earlier predictions. There have certainly been big implications for insurtech during the year – our research report from October contains our observations (The Top 10 Themes for InsurTech 2020: Operating in the Pandemic Era).

Here are the six pre-pandemic insurtech predictions and my commentary on how 2020 has supported (or altered) those predictions:

1. By 2030, we will see multiple insurtechs with over $1 billion per year in revenue.

The insurtechs that were on a strong growth path at the beginning of 2020 continued to grow throughout the year. Companies like Root, Hippo, Lemonade and others already have multibillion-dollar valuations and are on a growth path to be $1billion-plus in revenue before 2030.

Prediction Assessment: On target

2. The term "insurtech" will fade by mid-decade, but the impact of the movement will be lasting.

Despite some assessments early on in the pandemic that insurtechs would fade more rapidly, the movement picked up steam again in the second half of 2020. There is as much or more activity than ever in terms of funding, partnerships, pilots and even the launching of startups during the pandemic. The term "insurtech" is not even close to fading out of the lexicon.

Prediction Assessment: On target, but the term may be around a bit longer

3. The next three to five years will see a flurry of M&A activity in the space.

M&A, between insurtechs and of insurtechs by incumbents, increased in the second half of 2020. Marquee acquisitions included the Bold Penguin acquisition of RiskGenius and the Brown & Brown acquisition of CoverHound. The market conditions are currently favorable for M&A activity, and this is likely to continue into 2021.

Prediction Assessment: On target

4. Insurtech funding over the next five years will be greater than the prior 10 years combined.

The final numbers are not in for 2020, but a series of blockbuster deals in the second half of the year, along with the Root and Lemonade IPOs, demonstrate a continuing strong appetite by investors for insurtech startups. With many insurtechs maturing and growing, it still seems likely that there will be very significant funding over the next five years and even more deals in the multiple hundreds of millions of dollars.

Prediction Assessment: On target

See also: Tapping Cloud’s Ability to Drive Innovation

5. Insurtech distributors will gain significant market share in personal lines, but agents/brokers will still dominate in commercial lines overall.

The lockdowns and work from home environment of 2020 have accelerated e-commerce and the digital transformation of the world. More people are now comfortable with doing business online and have higher expectations about interacting with companies digitally. This will drive more of the personal lines customers to direct digital distribution options. For more complex risks on both the personal and commercial lines sides, there will be an increase in digital enablement, but agents and brokers are still in a strong position to play a major role.

Prediction Assessment: On target, may accelerate on the personal lines side

6. Insurtechs will play a major role in reshaping ecosystems for connected vehicles and smart homes, but the revolutionary changes in these areas will occur in the 2030s.

The interest in telematics is increasing significantly due to the pandemic’s alteration of driving patterns. Likewise, the increase in individuals staying home for work and school has caused new activity in the smart home space. Thus, 2020 may serve to accelerate the impact of these new ecosystems earlier than the initial prediction, although big impacts may still lie five years out or more.

Prediction Assessment: Maybe too pessimistic – COVID is accelerating smart home and connected vehicle activity

I would be very hesitant to make any detailed predictions about 2021 given the high degree of uncertainty still surrounding the pandemic and economic implications. But over the longer term, the big themes that have been present in insurtech and these six predictions from just before the pandemic seem to be on course.

To read the original blog "InsurTech: A Decade Gone, A Decade Ahead," from February 2020, click here.

As insurers accelerate their digital transformation and customize solutions in areas like customer engagement and data management, they are realizing that they must overhaul traditional approaches and infrastructures and replace them with forward-looking, cloud-enabled solutions.

Instead of looking at a set list of projects or deliverables and identifying how cloud infrastructures can help efficiently tackle them, leaders need to look holistically at the various benefits that such systems can deliver – both in the short and long term – and focus on the myriad of forces that the cloud can help unleash. 

Cloud-Powered Forces

Three key forces that the cloud can unleash are speed, the intelligence premium and innovation.  

• Perceived speed — This is the most compelling cloud force. Not too long ago, IT departments had to order equipment, navigate shipping delays and gaps in available inventory and then spend weeks receiving, installing, configuring and testing. This protracted timeframe caused major corporate initiatives to stall. In the cloud world, wait time is no longer part of the equation – the expectation is that you can get up and installed within hours. 
• Improved learning process — Smart, ambitious people can learn from various cloud courses (online even). People don’t need their manager to approve the cost or time for a corporate-backed training course and endure other impacts of bureaucracy. They can soon have the knowledge needed to leverage the cloud’s potential to build and do new things.
• Innovation acceleration — Combining smart internal resources with a powerful cloud provider can greatly accelerate innovation.

Identifying the Right Cloud Partner

Once insurers appreciate the potential of the cloud, the next step is identifying the right partner, which will drive an organization’s core cloud infrastructure and therefore be an important collaborator in innovation. At Security Benefit, we recently decided to go all in on AWS, and that’s been great for us. In discussions with AWS employees, we hear all the time that “it’s always Day 1,” which speaks volumes to the provider’s innovation culture. 

Embracing innovation is important for acquiring talent. Prospective employees – junior and senior alike – want to know that they are landing at a place that champions groundbreaking ideas. When a company is leveraging the cloud’s capabilities, that organization is suddenly attractive to a larger pool of talent. This, in turn, compounds future opportunities for innovation.

See also: Data Security to Be Found in the Cloud

Overcoming the Hurdles During the Transition

Technology leaders should expect some challenges when making a transition to the cloud. While most people think that the biggest challenges they will face will be around compliance and regulation, that is not always the case.

In fact, the biggest barrier in a company’s cloud transition journey can be IT leaders who struggle to change their thinking. Some believe that cloud infrastructures are “just what we have always done, it’s just in another data center,” or that “we already do virtualization as we have a private cloud, so we know this.” That thinking can keep an organization from making much-needed upgrades.

The leading cloud providers today have changed some paradigms of technology. Even infrastructure experts may struggle with the change. Roles and responsibilities may need to be realigned to place the leadership duties in the hands of those with the right skill sets and mindsets.

A cloud-based infrastructure certainly has the potential to enable speed, collaboration and cost efficiencies, while delivering new levels of options and enabling transparencies. To make the most of the possibilities that cloud unlocks, insurance businesses must prioritize the right mix of internal teams and external partnerships.

The Word of the Year Is...'Ecosystems' Paul Carroll, Editor-in-Chief of ITL I hesitate to make predictions about 2021. Those for 2020 didn’t work out so well for any of us, right? And 2021 is already off to a rocky start, with the pandemic still killing thousands a day (just in the U.S.), with the ever-so-promising vaccines being rolled out ham-handedly and with political dysfunction in Washington, DC, reaching fever pitch. But I’ll still hazard a guess and say that one of the biggest, if not the biggest, themes of 2021 in insurance will be ecosystems. We may be well into the year before we see the effects. The pandemic — and perhaps the nutty politics in the U.S. — won’t release its grip for a good while yet. But ecosystems should produce key changes in two areas: how we touch customers and how we organize internal processes... continue reading > Live Event January 7th | 1:30 PM ET See how AmTrust improved CSAT scores and automated QA - in 45 days! Register Now SIX THINGS Big Opportunities in Insurance Ecosystems by Stephen Applebaum Today, insurers succeed by offering products. In the future, insurers will win by providing access to risk prevention and assistance services. Read More Designing a Digital Insurance Ecosystem by Michael de Waal Insurers should emulate Uber, which has an ecosystem of 2,200 microservices. Here are three ways ecosystems provide a competitive edge. Read More Who Will Buy Direct and Why? by Karlyn Carnahan The question for insurers is how they want to address a growing desire by small businesses to purchase online. Read More The Insurer’s Customer Acquisition Playbook Sponsored by Data Axle The question for insurers is how they want to address a growing desire by small businesses to purchase online. Read More Telematics Consumers Are Ready to Roll by Teresa Scharn and Pete Frey Telematics solutions let customers leverage their driving data’s potential to enable discounts and operational savings. Read More Banishing Busywork: Recruit the Robots by Jeff Heigert Bots help combat productivity drains that deplete resources and allow employees to focus their time on higher-priority tasks. Read More How to Leverage Behavioral Science by Alex Frommeyer Coupled with tech advances that improve risk assessment, behavioral science could be the silver bullet in a period of strain from the pandemic. Read More MORE FROM ITL The Future of Blockchain Series Episode 2: Usage in Commercial Lines Complimentary On Demand Webinar Blockchain has incredible potential to streamline business functions and open up opportunities for a wide range of innovations Watch Now January's Topic: Commercial Insurance Much of the focus on innovation has related to personal lines and that makes some sense: Policies tend to be more cookie-cutter than in commercial lines, and individuals, spoiled by online resources like Amazon, have demanded a better experience from insurers.  But don’t sleep on commercial lines. As businesses see what’s changing in personal lines, they aren’t going to be left behind. Businesses are demanding simpler interactions and more understandable policies, as well as better prices. Take Me There GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started Partner with Us We’d love to talk to you about how we can improve your marketing ROI. Learn More SPREAD THE WORD Share Share Tweet SUBSCRIBE TO SIX THINGS

As part of this month's ITL FOCUS on commercial insurance, we spoke with Stephen Applebaum, managing partner, Insurance Solutions Group, about the future impacts of technology in commercial lines.

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What is the biggest change you expect to see in commercial lines in the next 12 months?

COVID-19 related claims, notably first-party property business interruption and third-party liability, will proliferate and create new distractions in commercial insurance once the complete extent of losses is tallied in 2021 and beyond, attracting growing attention from media, regulators and other public watchdog groups, further complicating commercial policy renewals and new business and challenging actuaries, underwriters, agents and brokers. Adoption of policy process automation, including automated underwriting workstations, will accelerate as carriers struggle to regain operating efficiency while managing risk more accurately.

Connected auto, home and business insurance models will begin to see meaningful adoption. Telematics program adoption, featuring innovative partnerships will explode in commercial auto insurance for fleets, especially small business, offering more compelling value propositions focused on driver safety/behavior modification, rewards and fleet and asset management benefits. Commercial property will follow this trend.

In the next five years?

Distribution channels will change and multiply dramatically. Changing customer expectations and behavior will drive insurers to develop more robust multi-channel distribution. New and increasing competition will push insurers to develop new digital models and partnerships designed to make the insurance selection and purchase process fully seamless. While agency writers still hold a ~70% commercial P&C market share, the number of independent agencies will continue to decline as new direct distribution channels and channel consolidation grows, both fueled by expanding private equity and venture capital investment. Many exclusive and captive agencies will convert to independent agencies. Also, carriers and brokers will pursue more cross-border and geographic expansion through M&A and partnerships to drive scale.

An increasing percentage of work will be performed by artificial intelligence technologies, including machine learning and robotics process automation. Consequently, concern and public debate will ensue concerning the issues of bias and ethics in the design and use of AI, and governing standards will begin to emerge.

The demand for commercial cyber risk and liability insurance will continue to grow as digitization and mobility further penetrate communications. Insurers will adopt a variety of  growth strategies, including innovative partnerships, alliances and collaborations, new products and enhancements, as well as M&A to achieve growth and presence in the cyber insurance market. The global cyber insurance market size is projected by industry experts to grow by at least 20% annually from $8 billion in 2020 to well over $20 billion by 2025.

In the next decade?

Consolidation of the North American agent and broker channel, will continue unabated as private equity investors seek attractive returns through deployment of historically high levels of “dry powder” as investment fund sizes continue to break records.

Technology will continue to enable innovation and process transformation through 2030, including;

• completely digital quoting processes for retail agents and brokers
• deployment of e-signature solutions that will satisfy all compliance concerns and create a standardized process across all lines of business
• connected vehicle technologies that will alter the commercial auto insurance landscape and give auto makers an important role in insurance sales, distribution and claims
• connected home and business technologies that will similarly transform the commercial property landscape
• the commercial insurance claims process will evolve much as did personal lines claims; claims ecosystems and platforms will form that enable much shorter claims cycle times, better outcomes for carriers and customers and greater visibility into claims vendor performance. 

What are the three technologies you think will play the biggest role in driving change -- perhaps one for each of the three time periods?

Technologies driving change over the pre-defined time periods:

NEXT 12 MONTHS	Cross-enterprise digitization AI-enabled process automation Emergence of platforms and open ecosystems
NEXT 5 YEARS	Cross-enterprise digitization AI-enabled process automation Emergence of platforms and open ecosystems Connected sensors/devices in workplaces and buildings enabling risk management and ultimately risk avoidance
NEXT DECADE	AI-enabled process automation Emergence of platforms and open ecosystems Connected sensors/devices in workplaces and buildings enabling risk management and ultimately risk avoidance Virtualization of everything; workforce, external/internal communications, healthcare, claims reporting and claims management

Please pick a technology mentioned and describe in a bit of detail how that will play out.

Digitization will fuel virtualization much like the conversion of data from analog to digital form enabled all of the many information management solutions. As digitization continues to expand across each operating segment of the insurance enterprise, it will spawn innovation of virtual processes to improve upon and replace formerly manual, stubbornly long, costly, complex and inefficient ones. Ultimately, the commercial insurance industry will sell more profitable, lower-cost, innovative protection products and services such as hyper-personal, parametric and variable interval insurance through seamless, direct-to-customer distribution channels. 

Through these technologies, the industry’s primary selling proposition will pivot from insurance products, risk and claims management to protection services, risk and claims avoidance.

What is the one trend you see people talking about today that you think WON'T pan out, at least within a reasonable period?

Expectations for 100% automated and touchless processes without any human involvement will go unrealized well into the future. A subset of non-routine and catastrophic claims will continue to call for expert human, empathetic handling. However, numerous repetitive processes not requiring human support or judgment will be automated using AI technologies, eliminating a significant number of industry positions – but many of the individuals impacted will be offered retraining and upskilling by their employers –  thereby improving their job satisfaction and compensation levels.

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We would like to thank Stephen Applebaum for participating in our ITL FOCUS interview series. To learn more about Stephen and read more of his articles, click here.

This interview is a part of the January 2021 ITL FOCUS: Commercial Insurance article. View the full piece here.

I hesitate to make predictions about 2021. Those for 2020 didn't work out so well for any of us, right? And 2021 is already off to a rocky start, with the pandemic still killing thousands a day (just in the U.S.), with the ever-so-promising vaccines being rolled out ham-handedly and with political dysfunction in Washington, DC, reaching fever pitch.

But I'll still hazard a guess and say that one of the biggest, if not the biggest, themes of 2021 in insurance will be ecosystems. We may be well into the year before we see the effects. The pandemic -- and perhaps the nutty politics in the U.S. -- won't release its grip for a good while yet. But ecosystems should produce key changes in two areas: how we touch customers and how we organize internal processes.

A friend wrote a book years ago that included a line that has stuck with me: "Nobody is as smart as everybody." That ethic explains a lot of the power of ecosystems: Nobody individually is as powerful as everybody working together.

We've already published quite a bit on ecosystems, including the two articles at the top of the six I highlight below, and will publish much more, but I'll summarize here what I see as the two biggest opportunities.

The first relates to sales. Traditionally, insurers have sold products through expert sales forces. But that has typically meant that a customer has to walk into that Allstate office in a strip mall and speak to an agent or that that Allstate agent sponsors a local kids soccer team, becomes known in the community and gradually meets and grooms prospects. But digitization -- accelerated greatly because the pandemic has forced us all to deal with each other remotely -- allows for serving customers in a more natural way, by meeting them in their moment of need.

Digitization allows for bundling car insurance with the purchase of a car, or home insurance with the purchase of a home. A home buyer is already dealing with a mortgage broker or banker, who can digitally provide options for insurance at the moment when someone is actually motivated to buy it. You don't have to fill out any more forms -- the bank has already done a colonoscopy on your finances and can auto-fill whatever the insurer needs on you or on the home. You don't have to drive to an office, and the agent doesn't have to spend weekends schmoozing soccer moms and dads.

Life insurance, usually such a tough sell, can become a routine part of interactions with financial advisers, even being initiated by the growing assortment of robo-advisers. Shipping insurance can be bundled with shipping contracts. And so on.

Plenty of effort will be required for an insurer to bring banks, car dealers, financial advisers, etc. into their ecosystems. Lots of coordination will be required, too, to make sure that everyone's IT systems play nice with each other. Regulators will also have their say, to make sure no one is tilting the playing field unfairly, especially if customers are somehow being put at a disadvantage.

But it's inevitable that digitization will push the initial contact with customers well beyond the walls of individual insurers and their agents and will require building an ecosystem. Some years ago, when a colleague and I wrote a book based on a massive research project into what can be learned from corporate failures (called "Billion Dollar Lessons," if you must know), we decided that the only successful synergy strategy for sales was, "Do you want fries with that?" Well, I think there will soon be a whole lot of folks in non-insurance fields asking, "Do you want some insurance with that?"

The second opportunity for ecosystems is even more fundamental, because it allows for rethinking the whole organizing principle of major parts of a business and, eventually, the entire business.

Historically, big insurers have been closed systems. They have their sales force, their underwriting teams, their actuaries, their claims organization, etc., all down the line, all operating within one set of walls. But what if an organization were more like a piece of software and could be organized as an open ecosystem, so the organization didn't have to do everything itself and could incorporate a continual stream of innovations, whether from inside or outside the organization?

That ecosystem sort of approach is how apps work on your phone. There's some core piece that a team has written, but the team incorporates bits of software, called "objects," that handle the rest. Why write your own calculator when someone has already done one? Why write all that code that expresses your app on the phone's screen when someone has already written code you can rent?

The key is what's called the application programming interface (API) -- you and the others in the ecosystem have to specify exactly how your piece will accept data and will export data. (The coordination piece is so key that Plaid, a startup that lets apps connect to users' bank accounts, has an agreement to be acquired for $5.3 billion by Visa.) Once you've specified the API, you can do anything you want as long as you don't change it. You can improve your piece. You can decide, say, to swap out the calculator you were using and swap in a better one. Whatever.

Now imagine being able to apply that sort of model to an organization. What if your business were so modular that, finding out that your adjusters were best-in-class, you could sell their services to others, connecting easily and instantly through an API? What if the reverse were true, and you wanted to draw on some other company's adjuster module?

Something that fundamental is unlikely to happen soon, if only because companies see a skill like underwriting as a core competitive advantage and won't want to share. But I suspect we'll start to see more processes conceived as modular, to great effect.

Jamie Yoder, an old colleague of mine who is now president of Snapsheet, which provides claims automation services, offered an interesting way of thinking about ecosystems. He said the claim has to be "the captain of the process." In other words, rather than thinking about a traditional flow, in terms of how information comes in, how it gets passed from person to person, how approvals are done and how payment is made, you use artificial intelligence to give authority to the claim. It "knows" what needs to be done and can send out queries, whether to information systems or to humans (the client involved in a car accident, an adjuster, whomever), to move things along much faster and more efficiently than happens with today's games of phone tag and all those files sitting in in-boxes until a case reaches the top of a to-do list.

The key is the APIs: That claim needs the information in exactly the form it can handle. So there will need to be a lot of initial coordination, requiring considerable human intervention early on. But once all parties agree, for instance, on how the details on a crash and on insurance coverage will be presented and agree on how authorizations for payment will be exported, then the process becomes an ecosystem. Any piece can be swapped out if a better option comes along, with no disruption to the other pieces, creating the opportunity for what Jamie calls a "flywheel" of innovation. (If you want more, Jamie and his fellow panelists at the International Insurance Society's annual meeting said a lot of other smart things about modularity and innovation in a Six Things I wrote on Dec. 14.)

As I say, reconceiving even processes based on a modular, API sort of view of the world will take time. But I do think we'll see considerable progress this year, and I expect to hear a lot of the insurance version of, "Do you want fries with that?"

Here's hoping we get through these next several rough months and can make some real progress on ecosystems in 2021.

Happy New Year!

Stay safe.

Paul

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

Big Opportunities in Insurance Ecosystems

Today, insurers succeed by offering products. In the future, insurers will win by providing access to risk prevention and assistance services.

Designing a Digital Insurance Ecosystem

Insurers should emulate Uber, which has an ecosystem of 2,200 microservices. Here are three ways ecosystems provide a competitive edge.

Who Will Buy Direct and Why?

The question for insurers is how they want to address a growing desire by small businesses to purchase online.

Telematics Consumers Are Ready to Roll

Telematics solutions let customers leverage their driving data’s potential to enable discounts and operational savings.

Banishing Busywork: Recruit the Robots

Bots help combat productivity drains that deplete resources and allow employees to focus their time on higher-priority tasks.

How to Leverage Behavioral Science

Coupled with tech advances that improve risk assessment, behavioral science could be the silver bullet in a period of strain from the pandemic.

We started using Tiktok as an experiment. A few months, 50 million views and almost 100,000 followers of our channel (see here) later, we think Tiktok may be the next big thing.

The organic reach of our channel and the demand of our community is so big that we started a never-planned fashion brand (our store here) to answer the magic question: Can you sell on Tiktok?

You can. We aren't selling insurance yet, but we think that could be possible.

Our new brand of “CEO of DIGGI" ("diggi" means “bro” in German) and “Team Diggi” merchandise include your go-to shirt, hoodie, cap, cups and a lot more. We have always believed in TikTok’s potential, but we were shocked what kind of opportunities it provides. If you would have asked me if I believe that an insurance nerd could sell branded hoodies on social media, I would have doubted that severely. But it worked.

We strongly believe that, with attention-hacking strategies, selling insurance on the same platform where the CEO of DIGGI started is also possible. And it’s starting right now. Several of our clients have begun.

The misconceptions

Just recently, I presented TikTok as the next possible big thing for the industry in a board meeting but got stern looks from the board members. One said, “That’s only for young people.” After a brief silence, I asked him how many people his company reached each month. "Maybe 10,000,” he said. I told him that my little brand reached 10 million to 16 million people each month. That is 20% of the population of my home country, Germany.

TikTok is not just for Gen Z's or millennials. A study done by Oberlo showed that its adult users grew 5.5 times in the U.S. in less than 18 months. To say that sales promotion in TikTok is a waste of effort is absolutely wrong. It has a very engaging algorithm based on a combination of factors, not including your number of followers. On TikTok, excellent and relevant content can go a long way.

How did it all start?

We started exploring TikTok as part of our effort to scout for the latest trends. The first videos that I made were about finance for young people, and some of these went viral.

Followers slowly became a community of different ages and backgrounds, all interested in watching and hearing my short video updates. They started calling me “CEO of Diggi” and eventually labeled themselves “Team Diggi.”

The amount of support we received each day exhilarated us. We became excited to manifest the interest of the community in our designs, so we did a dry run of our CEO of DIGGI shop. We haven’t formally announced the store yet on any other platform, but support is spreading quickly. The traffic was so immense that the drop-shipping company we use could not deliver certain products, and we stopped their sale temporarily. 

See also: Want to See Social Media Genius?

We did it! And you can, too!

Yes, you have read it all quite right! It is possible to gain considerable attention on TikTok, and it is fun and amusingly crazy.

Insurers could start by selling branded merchandise. Some have shops, such as Allianz and classical car insurer OCC, but not many insurers actively sell merchandise. 

Then, for our core business, offering protection from the risks of life, we could do the following: create a ton of content on TikTok about relevant topics and questions among the target group, including entertainment and fun, without directly promoting products. Users will start to ask specific questions about insurance. By answering them, we could and should mention our products that help those users to solve the problem they have and provide tailor-made landing pages and sales processes. This can be done by leading insurer and smaller agencies.

Our biggest mistake

Of course, not all went perfectly. By accident, we switched early from English to German content. We have a beautiful community, but we probably will never scale outside the 100 million German-speaking people in Europe. The choice of language is one of several key factors to consider when starting your TikTok channel.

Our presence on TikTok is, in the end, somewhat ironic. We started it as an experiment, became successful by being at the right time at the right place time, investing resources before most did. Now insurers around the world ask us to help them not only with strategy -- but with TikTok.

We are at a moment in history when businesses in all sectors are rapidly reworking how they interact with customers, to see how they can remain a valuable part of people's lives as so much is changing. The pandemic has accelerated these changes, of course. In its massive disruption of daily life, shaking people and societies out of familiar routines and forcing new ways of pursuing their professional and personal interests, COVID-19 has created a new space for changes in behavior.

The insurance industry -- long known for offering peace of mind, stability and trust -- is adapting. In fact, the insurance industry is expected to spend nearly $28 billion annually on customer experience solutions. But many people still lack trust in insurers. Fewer than half of those surveyed in EIS Group's Customer Compass Report say they trust insurers to respond to their basic needs. That is troubling and should be a wake-up call.

Now is the time for insurers to check their headings and set new courses to gain the trust and satisfaction of customers. To start, insurance companies must focus on adjusting two major components found throughout the customer journey -- customer experience and personalization.

Customer experience and personalization -- which have been predominant concerns in retail for some years -- are now only second and third to price when it comes to main reasons why people might switch insurers, according to the Customer Compass Report. A full 28% of policyholders stated that poor customer experience is a "main reason" for leaving a provider, and 20% cited lack of personalization. Getting experience and personalization right is no longer a "nice to have" for insurance providers; it is quickly becoming a crucial element of what insurers offer to customers.

As the world becomes increasingly digitized, opportunities abound. Fitness trackers, for instance, help their users with real-time insight into their health and activity -- but the same data can be fed into a health or life insurance product to provide personal rewards and discounts. A few insurers, including John Hancock with its Vitality program, have been successful with this model. Similar approaches are relevant for automotive insurance, rewarding users when they avoid risky activities or drive responsibly, while giving them options for more extensive insurance if that's what is appropriate for their lifestyle and behavior. 54% of consumers indicated they would consider car insurance they would pay for only when they drive. 60% would consider car insurance that costs less if they drive at low-risk times of the day.

See also: How Insurers Are Making Connections

Customers can be offered multiple ways of communicating, including email, self-serve interfaces and automated chatbots as well as phone and instant messaging. However, consumers have astonishingly low expectations of insurers -- only 23% expect insurers to integrate their experience across mobile, web and in-person channels.

For a truly satisfying customer experience, insurers need to ensure that customers can move seamlessly between those channels as they wish. As an example, a buyer might receive some initial information about an insurance offer via email, then use a messaging app to get further details in a conversation facilitated by a chatbot. A web form would then be pre-populated with the information from that chatbot conversation, and a quote sent. At the same time, a call center would be available where a representative can see an overview of progress, if the buyer has any final questions before completing the purchase. While this example may seem commonplace for many consumer buying cycles, it is not for insurance buyers.

One truth of the digital economy is that people are willing to research and assess which products are right for them. But they are also interested in simplicity and want a "one-stop shop" for products that meet their specific needs. With data and tech accelerating faster every day due to the pandemic, insurers must embrace the challenge and seek all the potential opportunities that can improve customers' lives.