At the International Insurance Society's annual forum last week, several CEOs of major insurers said they foresee a very different world post-pandemic -- one where trust in insurers not only needs to increase but must take a different form; one where work happens in different places at different times in different organizational structures, all at far greater speeds; one where the challenges increase, but the opportunities do, too.

Amanda Blanc, group CEO at Aviva, said on the opening CEO panel that the "one overriding challenge" she sees is "trust, and the reputation of the industry. I’d say it’s fair to say the industry has had sort of a mixed record over the past six months."

Others agreed, though Dan Glaser, president and CEO of Marsh & McLennan, added that trust has long been a problem. "It may be at a low now," he said, "but it wasn’t coming from a high."

Dean Connor, president and CEO of Sun Life, said he thinks the industry needs to generate a new sort of trust. "100 years ago," he said, "the question was, If I give you my money, will you be around in 50 years to give it back? So, we expressed our brands as beautiful, big buildings. But now, the question is, What are you doing with my data? We really need to pay attention to client data."

Glaser said he thought that, broadly speaking, while cybersecurity was something that people "weren't really talking about a decade ago, it's the No. 1 risk right now. Imagine what a firm would be like if you couldn’t talk to your employees or your clients.... The idea of a cyber hurricane looms for the entire industry, where you might have multiple events in multiple countries at the same time."

Gabriele Galateri, chairman of Generali, agreed that cyber has become a huge issue but noted the opportunities that come along with the increased digitalization of the industry. "On the other side," he said, "the impact of the technology on all our processes and products is just extraordinary -- the way we can be more flexibility and creative and make our products much more personalized."

Connor said he's seen a "step change in productivity that’s not going to go away," as well as an acceleration in decision making. He said that, back in the spring, Sun Life went right to market with a product that in the past would have first involved extensive back-and-forth with brokers. "Instead, we just put it out there, and, boom, 500,000 Canadians signed up for health care." He said he wants that sort of speed to continue.

At Generali, Galateri said, he couldn't believe how fast the company could go digital. He said he's seen in weeks or months the kind of progress that could have taken five to 10 years, though he said that "reskilling" and "upskilling" remain big challenges and that structural changes to the business will be needed to take full advantage of digitalization.

At Aviva, Blanc said she's spending a lot of time thinking about how to design the workplace of the future, how to design a collaborative work space that fosters the right culture. "The workplace of the future will be very different than the workplace of the past," she said. For the moment, she added, "while people used to talk about working from home, now they may say they're living at work."

Whatever results, Connor said, will involve a flatter organization structure, because of what businesses have learned during work-from-home during the pandemic. "COVID has flattened organizations," he said. "CEOs don't just talk to their leadership team. They can talk to everyone." The question, he said, is: "How do we use this time as an accelerant?"

The panelists singled out low interest rates, now cemented in place by the economic crisis that the pandemic has caused, as a hurdle for the industry. Any company that depends heavily on returns on investments will find those hard to come by, perhaps for years, and will have to be much more accurate in its underwriting.

But Connor said, "You could also flip that around and say there’s an opportunity. How do you construct a retirement plan" when interest rates are so low? Companies that can help clients do that will win, he said. He added that COVID has heightened awareness of health and mortality. "Our clients need what we do," he said.

He's broadly optimistic, too, about how 2020, as crazy as it's been, could help produce needed social change, such as on racial inequality, and sees a role for the insurance industry.

"Look at all the change that can happen in just a generation or two," he said. "Think of smoking cessation, drinking and driving, all the millions in Asia who’ve been pulled out of poverty and into the middle class. The Me Too movement has had a profound effect.

Glaser said that "maybe a silver lining of COVID is that while we are all at home watching our screens, some things that happened in the world were unavoidable." He cited the killing of George Floyd by a police officer who knelt on his neck for nearly nine minutes as an event that made him rethink assumptions about "inequality in general, about health outcomes, about access to education. People, me included, are used to the idea of unequal outcomes in a capitalist world. What's clearer now is the extent of the unequal opportunities."

The panelists committed to doing their part through hiring and training to reduce inequities, as they prepare for a post-pandemic world where they have to forge new types of trust relationships with clients, where the work environment will be different and where the challenges and opportunities will change.

"There's more to be optimistic about than to worry about," Glaser said.

Or, as Blanc put it: "I think the insurance industry is incredibly adaptable, and I look forward to seeing what we can do."

Stay safe.

Paul

P.S. To watch the video of the CEO panel or to learn more about the forum, you can check out the IIS site here.

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

Future of Insurance: Hyper-Personal

Protection products will increasingly have to be dynamic, meeting the needs of each individual as preferences and life circumstances change.

How COVID Alters Claims Patterns

Claims in some lines, such as entertainment insurance, have surged, while traditional property and liability claims have been subdued.

3 Silver Linings From COVID-19

Insurance is positioned to thrive in the virtual world as the need for large processing claims centers and customer service hubs vanishes.

How to Unlock a ‘Customer 360’ View

Why do so many insurance companies fail to deliver on their customer-centric objectives? It almost always boils down to inaccurate data.

How to Engage Better on Auto Insurance

Believe it or not, your policyholders would like to hear from you more often―and communication can affect policyholder loyalty.

Keys to Limiting Litigation Liability

Risks associated with GL and AU claims can be managed, even with “social inflation,” “nuclear verdicts” and tough jurisdictions.

Customers are rushing to embrace the digital space. Is your business prepared?

Even before the pandemic, insurance customers were moving to digital channels and demanding the kind of smooth experience they get with Google and Amazon. With customers demanding new types of interactions and agencies and companies needing to increase leads in a world that’s gone from face-to-face to zoom, technology doesn’t have to be intimidating.

Watch this complimentary webinar and learn how to:

• understand your customers’ expectations
• expand the ways you connect
• streamline your communication channels
• attract and service customers digitally

Don't miss this free on demand panel discussion. Space is limited, so register today!

Presenters:

 

Every year, financial crime becomes more sophisticated, new malware emerges and fraud losses rise. Top that problem up with continuously evolving regulations and hefty non-compliance penalties, and financial institutions are facing an increasingly complex risk landscape.

To compete in the new environment, banks, insurance companies, asset managers and other industry players need to rethink how they approach financial risk management. That’s where artificial intelligence can lend a helping hand. With advanced analytical capabilities, AI can augment human-led risk management activities to drive better outcomes much faster. It is estimated that through better decision-making and improved risk management, AI could generate more than $250 billion in the banking industry.

Insurance companies, banks and fintech startups alike are starting to integrate AI-driven analytics into their financial risk management software. Here’s a roundup of three practical use cases to give you the idea of AI potential.

Accurate fraud detection

The complexity and visibility into multi-channel fraud prevention is a major challenge for financial institutions. Scammers are getting more sophisticated and quickly find creative ways to steal from banks and their customers. Each year, fraud costs over $5 trillion, a sum more than 80% greater than the U.K.’s entire GDP.

To stay agile and quickly respond to threats, banks are augmenting their fraud detection toolkit with machine learning capabilities. The idea behind ML-driven fraud analytics is that fraudulent transactions have telltale signs that algorithms can uncover much more effectively than rule-based monitoring systems. By processing customer, transactional and even geospatial data, they can even spot patterns that seem unrelated and simply go unnoticed by human data analytics.

As a rule, ML algorithms leverage supervised or unsupervised learning techniques for fraud detection. The difference between these two types is that supervised learning-based algorithms heavily rely on explicit labels, meaning that machines need to be repeatedly trained on what a legitimate versus fraudulent transaction is. Unsupervised learning models, in contrast, do not need prior labeling to recognize abnormal activity, so they can continuously update their datasets and detect even previously unknown fraud and abuses.

Credit risk prediction

In simple terms, credit risk refers to the risk of financial loss when a borrower fails to meet financial commitments. And as these non-performing assets continue to grow, it has become imperative for banks to find better and more robust mechanisms to manage default risks.

Advanced ML-driven analytics can do just that. By analyzing a vast amount of financial and non-financial data, trained machine learning algorithms can model credit risk and predict default with a much higher degree of accuracy than traditional methods.

See also: Claims and Effective Risk Management

There is no shortage in up-and-coming startups that work on AI-powered credit scoring solutions to help the financial industry fight high delinquency rates. One such example is British startup SPIN Analytics, which has developed its RiskRobot to optimize credit decisions. The solution leverages advanced analytics to forecast credit behavior and credit losses of individual customers and entire credit portfolios.

Effective regulatory compliance

Over the years, the number of rules and regulations that banks and financial organizations need to adhere to has multiplied — EMIR, SFTR, MiFID II/MiFIR, MMF, GDPR. With this raft of regulatory bodies, updates are issued every seven minutes. And, with hefty fines and penalties, non-compliance is not an option.

Handling the overwhelming volume of regulatory change is no easy feat. But recent advancements in natural language processing (NLP), an AI subfield, are bringing us closer to effectively solving the compliance puzzle. With the ability to understand the human language, NLP-based solutions can scan and analyze millions of lines in regulatory content, including legal documents, commentary, guidance, legal cases, to spot applicable requirements much faster — that’s what London-based Waymark offers its corporate clients.

Another prominent regtech player is IBM, which offers its cognitive computing platform Watson to drive down regulatory compliance costs. Trained with the help of Promontory, Watson identifies and tags obligations, guides and controls to facilitate regulatory change management.

The bottom line

The financial risk landscape is changing fast. Staying on top of emerging fraud threats, credit risk and rapid regulatory changes requires a superhuman effort.

AI can augment human intelligence with rich analytics and pattern prediction capabilities to drive fraud and credit risk detection with higher accuracy and at a larger scale. In the regtech space, AI-fueled analytics solutions can significantly accelerate compliance procedures while reducing the costs.

Artificial intelligence (AI) has been in almost every technology-based headline over the past 24 months. If an incumbent technology provider or a newly emerging insurtech organization wants to grab attention – well, just insert AI in the first few lines of the description. Better yet, insert AI in the product or organization name.

In fact, AI holds exceptional business promise, and there are numerous proven use cases. But AI is a complicated topic.

There are many sub-categories of AI, and one of the first steps in choosing the appropriate technology is to break down AI into consumable bites. SMA finds that there are six primary AI technologies in play within commercial lines organizations: machine learning (ML), computer vision, natural language processing (NLP), user interaction technology, voice technology and robotic process automation (RPA). The big question is – which AI technologies drive the most value for commercial lines?

Not surprisingly, there is a tug-of-war between AI for transformational purposes and AI for tactical purposes. According to commercial lines executives and managers, ML, RPA, computer vision and NLP (in that order) will transform commercial lines the most. Given the general need for transformation across the insurance industry, one could conclude that the previously stated order of technologies would be where the industry is heading in terms of investment. But that is not the case.

The actual investment order is new user interaction tech, machine learning, RPA and NLP, with the remaining technologies following. Does this mean commercial lines insurers have gotten it wrong? The answer to that question is “no,” with possible shadings of “could be.” Much of the framing for this answer lies in the product mix.

For the small business and workers’ comp segments, new user interaction technologies such as chatbots and text messaging have been invaluable in contact centers. This affects underwriting and claims by clearing tasks from work queues, thus freeing up technical expertise for more complex interactions. Billing benefits, as well. Collaboration platforms and real-time videos proved highly valuable during the pandemic’s height and continue to be highly worthwhile.

Machine learning has universal value across product lines. Whether it be ML to improve straight-through processing for less complex lines, such as small business and workers’ comp, or to provide decision support for complicated product lines, ML can contribute in all areas. The great thing about this is that investment in adopting ML skills pays off across the enterprise.

RPA is a technology that not only improves operational efficiency and expense management – important internal goals – but also enhances customer and distributor satisfaction through rapid request fulfillment. Policy service, underwriting and claims all gain value through RPA adoption. Because almost all commercial lines segments have repetitive processes, RPA skills are used universally.

See also: COVID-19 Sparks Revolution in Claims

The “could be” warning comes in terms of computer vision and NLP. Both technologies have significant transformational value in commercial lines, ranging from turning aerial images into information to digitizing paper-based information sources. Prioritizing these technologies sooner rather than later is critical across all product segments.

More than almost any other technology, AI technologies work best in combination -- for example, NLP with RPA to increase process penetration. The industry is in its early days when it comes to AI usage, and skill sets are still advancing. The “getting it right” discussion is frequently dependent on product segments. But, over time, value will be universal regardless of product complexity, albeit for different reasons.

For additional information on all six AI technologies and survey results, see SMA’s new research report, AI in P&C Commercial Lines: Insurer Progress, Plans, and Predictions.

While the industry had digital as a “priority” in nearly every survey the last few years, the events of 2020 have accelerated its importance – creating a tipping point for insurance. Malcolm Gladwell's bestseller, The Tipping Point, described this phenomenon as a “magic moment when an idea, trend or social behavior crosses a threshold, tips and spreads like wildfire.” We now have a “digital wildfire” expanding rapidly every day, reshaping every aspect of our customers’ lives and businesses.  

The COVID-19 crisis exposed less than desirable customer experiences due to manual, paper-bound processes, non-digital post-service transactions like claims, payments, printing, mail, a rise in online insurance purchases and the need for extra caution due to fraud. Projects are getting reprioritized for this and next year to adapt to this new reality. But companies need to consider prioritizing investments in the digital platforms that will meet their needs today and in the future.  

Digital Insurance Platforms – Digital Wildfire Creates A Burning Platform

We have been writing and talking about digital platforms for a few years, including in our thought leadership report, Insurance Platforms – A Burning Platform for Market Leadership in the Digital Era of Insurance. Through our research over the last five years, we have found a top motivator for digital transformation is the need to meet customer and distribution channel expectations of a much-improved experience. We identified a strong intersection of business and consumer technology trends that are relevant to the insurance industry that require a new insurance platform. The insurance platform lays the groundwork of a new digital insurance business model defined by a focus on customer experience, business innovation and technological leadership, with rich and robust capabilities that will enable speed to value as a digital insurer. 

In the insurance platform report, we define a platform as an architected, networked system that provides access to a broad set of services, data and other capabilities; is continuously and seamlessly upgraded with newer technology, content and functionality; is accessed via APIs that are part of a robust, extensive API catalog; enables personalized customer engagement; is cloud-based, with a designed-to-scale, pay-per-use pricing model; leverages AI and machine learning through embedded capabilities; is flexible to aggregate heterogeneous services from multiple providers (technology, data, insurtech); and enables rapid “test and learn” for new business models and products while supporting current operational business models.

Fundamentally, the insurance platform model replaces the old paradigm of the integrated suite of core insurance systems focused on transactional processing with “one-size fits all” portals over the core. While that approach enhanced the traditional business of insurance of the last few decades, it does not meet the demands and expectations of a new era of insurance because it leaves unchanged the nature of the business model and the products that insurers sell.

Today’s next-generation insurance platform uses cloud-based technology architecture to unite core insurance processing systems — policy, billing, claims — with advanced digital and data/analytics capabilities and third-party services delivered via application programming interfaces (APIs) that will enable the customer-led digital transformation. Furthermore, platforms enable innovative companies to create speed to value, unique customer engagement, a “test and learn” platform for minimal viable products and value-aligned, optimized costs.

See also: Digital Future of Insurance Emerges

Digital Platforms Must Digitize, Optimize and Innovate

On June 24, SMA held a virtual event (now available on video) focused on digital platforms. Manish Shah, Majesco’s president and chief product officer, described the digital transformation journey with three main parts:

• Digitize — This first step enables organizations to create digital portals for interaction with traditional product and channels, to digitize and automate the existing processes.
• Optimize — The second step enables organizations to move beyond digital portals to create richer digital experiences beyond core transactions.
• Innovate — The final step, and goal, enables organizations to launch innovative products and services to transform the business and operating models for sustainable, competitive advantage.

Customer expectations and changing market dynamics are shifting business and operating models and driving digital transformation. We believe that all three steps of digital maturity – Digitize, Optimize, and Innovate – are needed to build sustainable, competitive advantage in the digital age. Many of our customers are at the different steps from building next-generation customer and agent portals, optimizing the business with electronic bill payment, creating a powerful single quote and buy experience for different products across multiple policy systems and leveraging new dynamic sources of data to creating an innovative on-demand product for the market. These are just the tip of opportunities and innovation well underway.

Digital Leaders – From Owner to Orchestrator to Provider

Emerging digital leaders, many of whom align to our Knowing – Doing leader focus from our Strategic Priorities report, are aggressively investing in new business models, products, and processes – including customer engagement and distribution models aligned to a more digital economy and growing demographic.

Customers are looking for ways to make their lives simpler and have a great experience. The next generation of customer experience is bigger and broader, and it requires a digital platform and robust ecosystem that work together under one common platform across different core systems.

Given the nature of ecosystems, insurers can assume multiple roles, from owner of the unifying platform, to orchestrator of the products and services to provider of products and services. What insurers achieve will depend on their ability to create a cohesive digital experience … requiring a digital platform that creates rich customer experiences; innovates business models, products and services; leverages a vast ecosystem of third-party capabilities; capture market opportunities; competes in the digital age; and reinvents the insurance industry. Future success and growth are tied to your answers and your digital transformation. 

See also: New Digital Communications

What is your digital strategy and journey? What role will you play with your customers? Are you investing in a digital platform that will take you across the entire journey or stop at the first step of portals? Do you have a burning platform for today’s digital wildfire?

Despite the challenges posed by COVID-19, insurers can seize opportunities from the unexpected silver linings that have appeared. The sudden, widespread case study in remote working has validated the forecasts and long-held views of insurtechs. Insurance, more than almost any other industry, is positioned to thrive in the virtual world as the need for large processing claims centers and customer service hubs vanishes. 

The pandemic forced openness to a change in mindset, and this flexibility was a prerequisite for the bright spots that ensued. A recent survey found that 76% of employees expect to work more flexibly even after restrictions ease, and 67% feel they are more or equally productive from home. In the post-pandemic world, as insurers rethink their work model, they will be confronted with a crucial choice: whether to keep that openness to change or revert to old ways of thinking.

Here are some of the silver linings we’ve seen in the insurance industry.

Increased access to executives and breaking of silos

Across the industry, executive teams and other teams within organizations are collaborating more closely than ever, meeting more frequently and making quicker decisions. As the pandemic took hold, document-sharing systems and other collaboration tools were rolled out quickly across enterprises, with IT, legal, communications and HR departments working together to a degree not seen before. Policies such as procuring headsets and chairs so that people could have comfortable home office setups were enacted swiftly. Of employees working remotely, 40% say they have received the most employer support in the form of digital tools and software, while 39% cite line manager check-ins with employees. It will be important for insurers to maintain these levels of connectivity and collaboration rather than allowing them to be anomalies of the pandemic.  

Innovation realized faster

A pre-pandemic innovation session was as much about the physical space and gathering of people in one location as it was about innovation itself. Some insurers had even moved to rescind their work-from-home policies and push their people into collaboration spaces. All of that has given way to a more pragmatic approach. Now, though a certain amount of lead time still exists, multiple innovation sessions can occur in a shorter period. This is an imperative, as the ability to continue innovating quickly is key to meeting high and changing customer expectations. Research has found that remote workers not only are more highly engaged, but also more likely than their office colleagues to consider their workplaces innovative.

Better engagement across geographies

Teams are collaborating much more in the virtual environment, which has leveled the playing field across offices — and research backs up the benefits. One study found that employees who work from home averaged an extra productive day a week, had 50% reduced role attrition, took shorter breaks, had fewer sick days and took less time off. Another study found that full-time employees working from home have been “optimistic adapters” – meaning they’ve demonstrated strong psychological capacity based on feeling in control of their future, and have dealt better with being locked down than other workers. And 43% of employees in that same survey said they have enjoyed a better work-life balance.

Still, evidence shows that there are some people for whom these silver linings don’t exist. Executives have cited an increase in employer relations cases during the pandemic, underscoring the idea that those cohorts of the employee population who were isolated in the pre-remote work environment are even more isolated now. As an example, 41% of Gen Z respondents in a recent survey said they are struggling with having limited private space and family. Managers may not be as adept at mitigating difficult situations as they would be if they saw problems unfold in person. Leaders will need to redouble efforts to identify employees who aren’t assimilated into the company’s culture, measure the extent and produce interventions to close those gaps. 

See also: A New Boom for Life Insurance?

The longer we go on in a virtual environment, the greater the tendencies people have to revert to old behaviors or fall back into old roles. But insurers are poised to thrive if they document the positives that have arisen during this time, chronicle how they’ve come about and who has modeled best behaviors and then hard-wire those into their cultural dynamics and operating model. Those that do can turn the accidental silver linings of the pandemic into a purposeful program of meaningful change and better business outcomes.

Don’t be hesitant to reach out to your policyholders. They want to hear from you — but in the right way. It’s all about creating and implementing the right outreach strategy.

Auto insurance consumers are shopping more than ever before, and that’s not surprising. A competitive environment combined with easy access to online quotes and an informed shopping audience has led to a shopping bonanza, even among loyal policyholders.

Carriers find themselves needing to retain valuable customers but may be nervous that their outreach might not be well-received. Do not fear. Your policyholders want to hear from you, if you use the right outreach strategy.

What’s your outreach strategy?

Does your strategy revolve around the renewal period? Do you simply send policyholders a renewal notice rather than make personal contact? Are you concerned they won’t welcome your outreach outside of renewal?

If you’ve answered yes to any of these questions, you’re not alone. Anecdotally, we know that many carriers are reluctant to reach out to policyholders outside of renewal for fear of putting them off.

However, if you avoid outreach outside of the renewal period, you could be missing an important opportunity to improve customer satisfaction, profitability, retention and upselling/cross selling initiatives. Why? Because believe it or not, your policyholders would like to hear from you more often―and that can affect policyholder loyalty.

See also: 5 Trends Changing Auto Insurance

What consumers are telling us

Our recent auto insurance consumer study, which surveyed over 2,000 U.S. auto insurance consumers who had shopped their insurance in the last year, indicates consumers are not being contacted by their carriers as often as consumers would like―and they’d like that contact to be more personal, not simply a standard renewal notice. After all, who wants to be treated like a number?

Across every age group, 74% or more of our respondents reported they want to personally hear from their carrier during their renewal period. Slightly over half are open to outreach anytime during the policy term. Almost one-third of policyholders would like to be contacted by their carrier both at renewal and during the policy term. Fewer than 14% are content with just a renewal notice.

Here’s the disconnect. Only 46% of respondents reported any personal contact from their carrier during their policy term, including renewal ―even though many are receptive to it, especially during renewal, when the vast majority of policyholders most want to hear from you. In fact, almost half of our respondents who shopped their insurance policy said their carrier’s failure to reach out to them influenced their decision to switch.

Who should reach out to whom?

While our study debunks the common myth that policyholders shy away from carrier contact and reveals that your policyholders do want to hear from you, there are a few caveats. One of them is, “I won’t contact my carrier. My carrier should contact me.” In fact, our research shows that almost half of policyholders are reluctant to contact their current carrier before switching to a new carrier. 18% of those who switched believe it’s the carrier’s responsibility to contact them instead.

But that’s not all. 19% of policyholders who didn’t contact their carrier before switching believed contact wouldn’t have made a difference. In other words, they were sure their carrier wouldn’t respond to their needs. Among those who shop, almost half who switch carriers are influenced to do so because their current carrier never reached out to them.

The message is clear. Connect with your policyholders, because they are waiting to hear from you. By upping your outreach and opening meaningful conversations with your policyholders, you can boost retention and create valuable, long- lasting relationships.

Engage with your policyholders…but on their terms

While it’s great news that policyholders want more engagement with their carriers― engagement that extends well beyond an automatic renewal notice, it’s not a green light for you to inundate them with irrelevant contact or content. Your customers want to engage with you, but they want that engagement to be meaningful and on their terms.

Most policyholders prefer to hear from you through email (90%), but quite a few Baby Boomers would also welcome a phone call (55%). Almost as many millennials are open to contact through a mobile app (43%). If you happen to know when policyholders are actively shopping, it’s good to know that the vast majority of those shoppers are okay with you reaching out within one to five days after they’ve received a competitor’s quote. However, they don’t want to be pestered. One post-quote outreach is enough for most policyholders.  

See also: How to Thrive in Auto Insurance

For carriers that have been reluctant to touch base with policyholders outside of the renewal period (and we suspect there are many), the message is―don’t be. But make sure you understand your target audience’s preferences first, then tailor your outreach to match those preferences.

What do your policyholders want to talk about when you reach out to them? More than you might think.

From increased coverage to bundling options to providing feedback that can help you improve your business, your policyholders are ready and willing to have important conversations with you. These critical conversations can lead to improved customer satisfaction, profitability, retention and successful upselling/cross-selling programs.

Since the revival of the modern Games in 1896, the Olympics have had to cope with a range of risks, from financial, security, sporting and reputational risks to diplomatic incidents and war. In 2020, that list expanded when the Tokyo Games was postponed due to COVID-19.

Any catastrophe affecting the Olympic Games could result in high-impact, long-term consequences for the cities that host them. People, infrastructure and entire supply chains are at stake. Forcing the Tokyo Olympics to be postponed by a year, the COVID-19 pandemic has stolen the risk limelight, but it remains as vital as ever to remember the wider risk landscape.

People risks 

Olympic Games typically involve a large population influx from various countries to a city, in this case Tokyo, already one of the largest cities in the world. How will this work in a COVID-19 world, where physical distancing is set to be recommended for a long time? 

A recent government survey showed only 0.1% of Tokyo residents have coronavirus antibodies. That is much lower than 14% in the state of New York in April, and 7% in Stockholm. The citizens of Tokyo may not want to accept the risk of an influx of people on top of managing their own national situation. The pandemic has also reduced the enthusiasm of residents to host the event, with a recent poll showing that only 24% in Japan look forward to the Olympics. 

There are other people risks to consider. Ever since the 1972 Munich Olympics, where terrorists kidnapped and killed Israeli athletes, crowded spaces like sporting and entertainment venues have become targets for international and domestic terrorists. In the latest Cambridge Centre for Risk Studies City Risk index, Tokyo comes out on top by risk exposure, with interstate conflict listed as the top potential loss driver. 

The multiple layers of security (including police, military and private security) will rely heavily on technology, not least to coordinate their activities. These will be the first Olympics to make use of facial recognition technology to assist with risk management and identification.

Technology risks

With such a high-profile event, security must be ultra-tight, and cybersecurity in particular is a major concern. Due to their operational requirements, scale and scope, Olympic events have the potential to trigger complex second-order effects, and cyber-attackers have grown increasingly ambitious as organizers have embraced digitalization. At the 2018 Pyeongchang Winter Olympics, suspected state-sponsored hackers carried out extensive campaigns, with TV signals disrupted, the games website crashing and ticket sales disrupted. Russia was thought to be involved in those attacks, and earlier this year Japan’s National Intelligence Agency issued a stark warning on the possibilities of state-sponsored attack at the Summer Games. 

Earthquake risks

Earthquake risk is a top concern for Tokyo. The region sits at the intersection of the Pacific and Philippine Sea tectonic plates being pushed under Eurasia and forming the Itoigawa-Shizuoka Tectonic Line (ISTL). Given the structural dynamics, megathrust earthquakes along these boundaries are a common driver of risk discussions for the region. However, recent swarm activity in the Tokyo area can be interpreted in two ways. A simple view is that an increase in smaller earthquake activity leads to higher chances of a big one. However, a seismic creep could also be an indication that fault stress is being reduced in the region. Whatever the impact, the immediate response strategy remains the same. 

Japan already has strict building codes governing construction and engineering and many Olympic venues will sport earthquake-ready designs aimed at decreasing damage by spreading the shock to a building across seismic isolation bearings. Drills and evacuation exercises aimed at supporting fast and efficient emergency plans have been held, and extra time should allow organizers to identify further improvements in response strategies. 

See also: How Risk Managers Must Adapt to COVID

Weather and climate risks

The first Olympics to experience heat stress issues were the 1912 Stockholm Games, where temperatures reached 32 degrees Celsius (90 degrees Fahrenheit) in the shade and resulted in half the marathon runners failing to complete the race. Only two years ago, record-breaking summer heatwaves led to the deaths of over 1,000 people in Japan. Similar heatwaves from that year have been studied in the U.K., with research suggesting that record-breaking temperatures are now increasingly likely due to human-induced global warming. 

Japan’s average temperatures are virtually certain to be rising at a rate of 1.21 degrees Celsius per century, compared with the global rate of 0.73 degrees Celsius per century (calculated by the Japan Meteorological Agency). While fine and sunny weather will help the Games run smoothly, this increased risk of serious and deadly heatwaves is an important consideration to add to other weather and climate risks such as typhoons and extreme rainfall. Whether contingency plans must be enacted due to heatwaves, or whether extreme weather leads to damage to infrastructure or venues, there could be a substantial financial impact, and risk transfer options will have been considered.

Flood risks

During the 2012 London Olympics, the tube link to Stratford in east London was closed after a water main flooded the tracks of the Central line, which connects the West End and City to the Olympic Park, raising concerns about the resilience of London's transport network. Flooding issues were also seen in Russia in the run-up to the Sochi Winter Olympics, when flash floods caused massive disruption to the preparations. An estimated 2,000 workers were required to clean up the mess.

Japan has committed to large infrastructure projects, hoping that the Tokyo Olympic Games leave a long-lasting legacy. The first time Japan hosted the Olympics, in 1964, prompted the operations of the first Japanese bullet trains. The government has built several state-of-the art flood control structures in the Greater Tokyo Metropolitan area, home to more than 37 million people and the most populated megacity in the world. Super levees around the Arakawa River provide protection against major floods, and the massive underground storm water storage facility that forms part of the Metropolitan Area Outer Underground Discharge Channel is the biggest in the world. 

Stakeholders across the board are going to need to challenge their thinking and decision-making styles as these Games break from the regulated cycle of audits and check-ins. The reputation risks for all involved have never been higher, and, while organizers are already looking at options to simplify the Games, there may come a point where the risks exceed the appetite. 

See also: 3-Step Framework to Manage COVID Risk

Conclusion

It is still unclear whether the Tokyo Olympics will indeed happen in 2021. The current climate has reminded us that we should always expect the unexpected.

Taking extreme events and stress-testing them, whether through quantitative modeling or qualitative scenarios, is one way to build resilience to global, complex risks and decide what to do next. As COVID-19 has demonstrated, society has developed in such a way that the impacts of past events are no longer a certain guide for the future, and this event presents an opportunity for all to make changes beyond the organization of these Games and leverage insights from science to increase their resilience. 

Claims trends and risk exposures are likely to evolve in both the mid- and long-term as a result of the COVID-19 pandemic. With the reduction in economic activity during lockdown phases, traditional property and liability claims have been subdued, most notably in the aviation and cargo sector, but also in many other industries, with fewer accidents at work, on the roads and in public spaces, according to a new report COVID-19 – Changing Claims Patterns from Allianz Global Corporate & Specialty (AGCS).

Estimates vary, but the insurance industry is currently expected to pay claims related to the pandemic of as much as $110 billion in 2020, according to Lloyd’s. AGCS alone has reserved about €488 million ($571 million) for expected COVID-19 claims, especially for the cancellation of live events and the disruption of movie or film productions in the entertainment industry. 

Surged and subdued

We have seen claims in some lines of business, such as entertainment insurance, surge during COVID-19, while traditional property and liability claims have been subdued during lockdown periods. There is still the potential for claims to occur as factories and businesses restart after periods of hibernation, and given the longer development patterns for third-party claims in casualty lines.

Claims notifications from motor accidents, slips and falls or workplace injuries slowed as more people stayed at home, and with the temporary closure of many shops, airports and businesses during lockdowns across the world. AGCS also noticed a positive impact on U.S. claims settlement from the suspension of courts and trials. 

Some claimants and plaintiffs have been more open to negotiating settlements out of court rather than opting to wait a long time until their case is scheduled – a trend also highlighted in another recent AGCS publication on liability loss trends. In general, claims activity is likely to pick up again following resumption of economic activity.

Property/business interruption 

Property damage claims were not significantly affected by COVID-19, as loss drivers such as weather are not correlated. However, as production lines restart and ramp up, there is risk of machinery breakdown and damage and even fire and explosion. With fewer people potentially onsite, inspections and maintenance may be delayed or loss incidents such as a fire or escape of water may be noticed too late, increasing the severity of damage. 

COVID-19 has caused business closures and disruptions globally – which often may not be covered in the absence of physical damage as a trigger of coverage. However, the pandemic has affected the settlement of standard business interruption (BI) claims in different ways. On one hand, factories in hibernation will not produce large BI claims, as many manufacturers, their and suppliers either shut down or scale back production. When a U.S. automotive supplier was hit by a tornado in the spring, the resulting business interruption loss was lower than it would have been during normal operations. Conversely, containment measures during lockdowns can lead to longer and more costly disruptions as access restrictions prevent effective loss mitigation and prolong the reinstatement period, as a fire and explosion at a chemical plant in South Korea demonstrated. 

Liability and directors & officers (D&O) insurance

To date, AGCS has only seen a few liability claims that are related to COVID-19. However, liability claims are typically long-tail, with a lag in reporting, so general liability and workers’ compensation claims related to COVID-19 may yet materialize. A number of outbreaks of coronavirus have been linked to high-risk environments such as gyms, casinos, care homes, cruise ships or food/meat processing plants. 

A wave of insolvencies, as well as event-driven litigation, could be potential sources of D&O claims. To date, only a relatively small number of securities class action lawsuits related to COVID-19 have been filed in the U.S., including suits against cruise ship lines that suffered outbreaks. The pandemic could trigger further litigation against companies and their directors and officers, if it is perceived that boards failed to prepare adequately for a pandemic or prolonged periods of reduced income. 

Aviation

The aviation industry has seen few claims directly related to the pandemic to date. In a small number of liability notifications, passengers have sued airlines for cancellations or disruptions. Slip and fall accidents at airports – traditionally one of the most frequent causes of aviation claims – have declined along with the massive reduction in global air traffic, which fell by a record 94% year-on-year in April 2020. 

See also: COVID-19 Sparks Revolution in Claims

Although a large proportion of the world’s airline fleet has been grounded, loss exposures do not just disappear. Instead they change and can create new risk accumulations. For example, grounded aircraft might be exposed to damage from hurricanes, tornados or hailstorms. The risk of shunting or ground incidents also increases and can result in costly claims.

Long-term claims trends 

COVID-19 is accelerating many trends such as a growing reliance on technology and rising awareness of the vulnerabilities of complex global supply chains. Going forward, many businesses are expected to review and de-risk their supply chains and build in more resilience. This could involve some reshoring of critical production areas because of disruption caused by the pandemic. Such a move would likely affect frequency of claims and the costs of any future business interruptions.

Meanwhile, the growth of home working means that companies may have lower property assets and fewer employees onsite in the future, but there would be corresponding changes in workers' compensation and cyber risks. During the pandemic, cyber risk exposures have heightened, with reports of the number of ransomware and business email compromise attacks increasing. However, to date, AGCS has only seen a small number of cyber claims that are related to COVID-19. 

For additional insights, please visit COVID-19: Changing Claims Patterns.

Any internet search on the phrase “Customer 360” brings up thousands of products, articles and research on how companies can achieve a complete, holistic view of their customers across all of the various systems that store data about them. In these articles and white papers, huge promises are made about dramatically improving revenue by deepening the customer experience. As such, Customer 360 has become a cliché. 

But, as with any cliché, there is a grain of truth. Building a Customer 360 program can indeed transform the customer relationship, leading to higher revenues through cross-sell and upsell opportunities and improving customer retention. With all the software products and know-how available, why do so many insurance companies fail to deliver on their customer-centric objectives? Hint: It almost always boils down to data. 

Why Data Accuracy Is Key to Achieving Customer 360

If an insurance company does not know who the proverbial John Doe is, there is no way to effectively achieve a Customer 360 view. Because most insurance companies have multiple back-end systems to manage their business operations – and heavily use third-party data to assess and manage risk – golden records management, the creation of a unique record as an index, is even more important. This is because there is no way to connect and enrich data without an index, so simply throwing customer relationship management (CRM) systems and databases on top of sloppy data will not fix the underlying issues.

Without golden records management, the struggle to identify and understand John Doe will persist, which limits underwriting effectiveness. Because the underwriting databases and risk models populated from third-party data sources and internal company data cannot easily be linked together or to the policy management systems, underwriting loses visibility. It becomes difficult to determine systematically not just what the John Doe in question has purchased but if the risk has been properly priced.

See also: Why Customer Journey Mapping Is Crucial

If John Doe has an auto policy and is a good risk for another policy, insurance companies can offer him a discount through his agent on a bundle for a renters policy; they know he’s a renter and not a homeowner because they know his address and other demographic information. With this example, which should be seamless with a well-integrated Master Data Management (MDM) solution, the insurance company has managed to optimize the channel and cross-selling in one campaign. 

The example above is for property/casualty. However, the same logic applies to life, health, workers’ comp or any line of insurance. Customer 360 is particularly important for multi-line insurance companies because it only makes sense to extend the product portfolio to as many customers as possible, assuming the risk and pricing are good.

Reaping the Benefits of Your Customer 360 Efforts – How MDM Can Help

Because insurance is such a brutally competitive industry, taking care of the customer is not optional if an insurer wants to grow profitably. Competition simply does not stop, particularly when the playing field is being leveled with the rapid adoption of new technologies. However, many of these solutions only reinforce barriers to Customer 360 because of disconnected siloes of data. But what constitutes master data?

Master data is the static or slow-moving data referenced by business processes to carry out transactions. Policy, insured, agent and other dimensional data elements that rarely change are examples of master data and are used to issue a policy, send out bills, collect revenue, open and settle claims, pay commissions and conduct the business of an insurance company. MDM is more than a specific technology, it is also a function and discipline around a technology to ensure the uniformity, accuracy, availability and governance of data. A less understood capacity for MDM is its ability to set up custom hierarchies to relate and associate data. 

By having unique identifiers, an insurer can connect and enrich data, efficiently and cost-effectively, in ways that were previously not thought possible. Reference data, the data used to categorize and classify information, can be brought in from third-party data providers, internal insurance data or both to better reflect the business landscape, such as who makes up the household. This capability to structure and relate accurate and trusted data is why MDM is so important to enabling Customer 360.

See also: Managing Customer Opt-Ins in New Normal

Insurance has always been a data-intensive operation. Traditionally, the focus has been on policy-level detail, not an aggregated customer account view. Efficiently and effectively managing master data is the critical step needed to build a foundation for Customer 360. Correcting, connecting and unifying data is the path to achieve the true view of the customer. The goal with MDM is to make sense of the huge amounts of data being collected, and if an insurance company cannot see who John Doe is, at the person level, then it cannot relate all of the data, from all the systems, for John Doe to John Doe. Core insurance systems do not do a good job of locating and defining John Doe. Without the golden record, an insurance company cannot achieve a complete view of the customer. 

Mastering data is important for an insurance company to stay agile, to put it into a position to take advantage of market opportunities. MDM is one technology that connects all this data together to help companies build competitive advantages. The benefits are real, and they can be substantial. Revenue, margin and profits can all be significantly improved.