Despite what we all feared in March, insurtech has continued to flourish, with lots of capital supporting the sector in public and private markets, closer integration between incumbents and startups and promising solutions for longtime needs in SME and cyber. Keeping up the annual tradition, here are my 11 predictions for the insurtech market in 2021.

1. Do you want insurance with that? Insurance will be embedded in every financial and retail transaction

Because no one loves shopping for it, we will see more insurance being sold as part of another transaction, where the user has a high intention to buy. "Embedded" has been a buzzword in fintech for several years, best illustrated by Buy Now Pay Later (BNPL) players like Affirm and Klarna. Embedded insurance started with travel insurance and extended warranties sold at point of sale, like Square Trade and Assurion. Branch Insurance now sells home and auto as part of the mortgage process, and Matic is embedding with mortgage servicers. 2021 will bring opportunities to embed insurance into transactions, with the goal being delivering a seamless experience of product plus protection.

2. 2021 will be the year for Plaid for Insurance

The original Plaid provides infrastructure to connect banks to financial apps like Venmo, which need access to a consumer’s bank account, so the user can take money from a bank and send it via Venmo, to the recipient’s bank. The explosion of financial apps drove dramatic growth at Plaid. Yes, the Department of Justice has sued to block the acquisition of Plaid by Visa. Worst case: Plaid is forced to go public at a valuation way above the $5.3 billion offered by Visa. In 2020, at least seven “Plaid for Human Resources” were funded. Data connections and enablement are critical across life, health and P&C insurance. In 2021, we will only see more pitches for Plaid for Insurance, and some of those pitches will be winners.

3. The robotic uprising: Automation will take over routine processes and improve customer experience

Automation will be used to support and empower the humans who are still in the process, starting with claims. Startups will accelerate the sale of automation to incumbent insurers, leading to improved customer satisfaction. Who wants to call an insurer to check whether the policy includes glass coverage? Consumers prefer to use their cell phones to text or speak, submit the claim and schedule the windshield replacement service. To show how quickly this change is happening: In 2019, State Farm ran ads mocking Lemonade’s bot; in 2020, State Farm led a venture investment in Replicant, which provides Voice AI to support human call centers. Faster, better customer service, which is cheaper for the carrier: Automation is a win-win with unstoppable momentum.

4. Playing for keeps: Deeper partnerships between incumbents and startups, accelerated by the pandemic

At the beginning of the insurtech phenomenon, way back in 2015, insurers responded by creating innovation groups and adding innovation KPIs to employee reviews. Following the law of unintended consequences, the result was incumbents starting a lot of experiments and proofs of concept with startups. It was frustrating all around, and many of those experiments failed. Now, insurers have moved the decision making back to the operating teams, and those teams are choosing partners to last. The pandemic has focused the efforts of incumbents. That focus will only get stronger going forward, as incumbents understand that they depend on startups to deliver the organization’s goals.

5. More startups will go full stack

Insurtechs will continue to take off their MGA training wheels. Following the high-profile IPOs of Lemonade and Root, 2021 will see full-stack carriers multiply. While the managing general agent model has the advantage of being capital-light and enables a startup to get to market quickly, structuring as full stack gives the startup maximum control over its product and customer experience. Capital is available to build a carrier, coming from multiple sources, as evidenced by sizeable fundraises by Pie, Kin, Hippo and several life insurance startups.

6. SME market will finally get the solutions it needs

At the end of 2019, I swore it was the last time I would predict the success of insurance solutions for SME. But there are finally some serious signs of success and traction in this market. Embroker, Vouch and Next Insurance continue to grow. And Bold Penguin has integrated with the flow of existing insurers, delivering value where incumbents could not. Finally, SME will have some good choices in protecting their businesses, thanks to persistent insurtechs!

See also: Has Pandemic Shifted Arc of Insurtech?

7. Achieving scale with coretech

Incumbents are yearning for alternatives to existing core systems, with an average age over 15 years, antiquated programming languages and vendor implementations measured in years. Two trends are providing hope here: no code/low code and coretech, delivering cloud-native core capabilities. The challenges of 2020 encouraged more incumbents and insurers to start limited implementations of no code and coretech. In 2021, we will start seeing a few insurers adopt these new approaches at scale.

8. Cyber insurance will lead the market in delivering dynamic risk protection

There have been many startups in cyber insurance, covering one of the existential threats for companies. Some startups have struggled by aiming at companies that are too small to afford the premium; others have chosen the wrong threat assessment partner and taken unwarranted risk. The whole market continues innovating and growing, which is good news, because cyber threats are also increasing. By combining real-time threat assessment with insurance, startup cyber insurers will deliver dynamic risk protection, enabling their customers to reduce risks as soon as they are identified. That may be a model for future real-time risk coverage in other business lines.

9. Parametric coverage will surge

Insurtechs will tackle claims costs and delays by eliminating the claims process, via parametric solutions. Defining a loss by reference to a standard objective index like rainfall in a specific geography is no longer reserved for markets like drought risk in developing countries. Now, insurtechs are delivering parametric cover for a range of risks, including earthquake, wind and cyber outages in developed countries. One driver is the user experience, where the insured no longer needs to trust the insurer to pay an indemnity claim promptly. Look for more kinds of risks to be covered by parametric solutions in 2021.

10. Record support for insurtechs at all stages

The pace of both early- and later-stage investments in insurtechs proves that investors remain enthusiastic about the market. Valuable business models built in fintech will serve as examples to its younger sibling, insurtech. There is still plenty of insurtech innovation to go around, and abundant capital to support it. We will see new launches and a record amount of capital raised across insurtech in 2021.

11. More big exits

The public market in 2020 has been the story of hot money looking for a home, and eager to pay up for future growth. Insurtech carriers Lemonade and Root went public via IPO, and Hippo is expected to become public either via initial public offering (IPO) or special purpose acquisition company (SPAC). Metromile became the first insurtech carrier to be acquired by an SPAC. These successful exits will drive continued investment in insurtechs that are taking big swings, and we will see more public exits. We can also expect more insurtechs buying insurtechs, like Bold Penguin’s acquisition of Risk Genius and Next Insurance’s purchase of Juniper Labs. The target will be filling a specific strategic need for the acquirer, and buying is faster than building.

In addition to going public, insurtechs will find other options, including strategic exits. Prudential’s 2019 acquisition of Assurance IQ created a lot of hope, but insurers have not yet shown a broad willingness to pay startup valuations. Brokers, always ready to spot the main chance, have made a couple of acquisitions and can be counted on to find deals that deliver focused value to their existing clients. Verisk, Duck Creek, Guidewire all have public currency, and at least the latter two have created long lists of partnerships with startups. There will be multiple insurtech exits in 2021, ranging from additive deals between insurtechs all the way to more IPOs.

We have to talk about the “B” word. No one wants to go there. But as COVID-19 continues to wreak havoc throughout the world, we are seeing more companies headed toward bankruptcy. Although the stock market continues to soar, the underlying U.S. economy is sputtering. Bill collectors are still open for business, and certain companies, especially those that were in precarious financial positions before the pandemic (think certain retail chains and energy companies hit with the double-whammy of the virus and the oil crisis), are suffering.  

Bankruptcy presents a host of problems for directors and officers. Although litigation against the company is stayed during the bankruptcy process, suits against individuals are typically not. As company indemnification dries up, D&O insurance is the last line of defense for executives. So, it is important to understand how that insurance may/may not respond to protect directors and officers.  

How are D&O Insurance Programs Typically Structured?

Public companies typically purchase traditional D&O insurance coupled with additional dedicated Side A limits of liability.  

A quick refresher…traditional D&O insurance has three main insuring agreements. Side A is coverage for directors and officers personally in the event claims are made against them and the company cannot legally or financially provide indemnification. Side B is coverage that protects the company to the extent it indemnifies directors and officers for claims made against them. Side C is coverage for the company when it is named in a securities claim. 

The dedicated Side A limits that “sit on top” of a traditional D&O tower of insurance are typically written on a “Difference in Conditions (DIC)” basis. If the underlying traditional D&O insurance does not respond to an A side claim, to the extent covered by the DIC insurance such insurance will “drop down” and begin to pay on behalf of directors and officers.  

It is important to review the terms and conditions of your D&O policies to ensure they will respond properly in the event of bankruptcy.

Traditional D&O Insurance Considerations in Bankruptcy

There are a number of provisions within a traditional D&O policy that can have a material impact on the way a policy does or does not respond in the bankruptcy context.

The first such provision is the change-in-control clause in the policy. This provision details the instances in which the policy will automatically convert into a tail period; meaning that, from the date of the change of control until the end of the policy period, the insurer will only cover claims for wrongful acts that occurred prior to the change in control date. The most common change in control trigger is the sale of the company to another company. In some D&O policies, however, bankruptcy triggers a change in control. Most companies will want this trigger deleted from their policy as they will want coverage to continue, uninterrupted, throughout the bankruptcy process. Companies typically purchase a multi-year tail program to trigger at the end of the bankruptcy process.

As traditional D&O insurance covers multiple constituencies (e.g., natural persons and corporate entities), how are policy proceeds accessed during bankruptcy? If there are no claims outstanding and no claims are made during the bankruptcy proceeding, this question does not need to be answered. The D&O insurance goes unused. If, however, there are claims against the company and individual insureds that have triggered (pre-bankruptcy) or do trigger (during bankruptcy) the insurance policies, the policy and its proceeds may become an asset of the debtor’s (the company’s) estate. As such, directors and officers may need to petition the bankruptcy court for access to such insurance proceeds to pay their defense costs.  Additionally, the insurer may request a comfort order from the court.

It is very important that the D&O policy have a carefully thought out “Order of Payments” provision. This provision is an indication to the court considering the petition (and to all insureds) that:

1. the intent of the policy is to first and foremost protect individual directors and officers; and 
2. particularly in the event of a bankruptcy, A side claims should be given priority and paid first.

Next, we turn to exclusions within the policy. In this time of market upheaval (both in the broader financial markets as well as in the D&O insurance market), insurers have been attempting to add insolvency-related exclusions to D&O policies. Although there are arguments that can (and will!) be made under the bankruptcy code that these exclusions are unenforceable ipso facto clauses, these exclusions are very dangerous and should not be added to policies if there is any way to avoid them.  

Additionally, it is important to review the entity (or insured) versus insured exclusion. This exclusion is designed to prevent collusive behavior between insureds. In other words, the company cannot sue an executive and expect insurance to pay unless that suit is brought in specific situations. As creditors’ committees are common plaintiffs in bankruptcy actions and are often acting “on behalf of the companies,” it is imperative to have a full bankruptcy-related exception to the entity versus insured exclusion. 

See also: COVID and the Need for Devil’s Advocates

In all instances, the retention (deductible) applicable to an A side claim should be nil, and the policy should respond first dollar. To ensure that defense costs are quickly advanced to individuals ensnared in litigation, the policy should have clear wording that, in the event the company fails or refuses to indemnify for any reason (including financial insolvency), the insurer will advance such amounts to the insured individuals, dollar one.

Finally, the policy should include bankruptcy waiver language. This language is a contractual promise that both the insurers and the insureds agree to waive and release (and agree not to oppose or object to) any request for relief from any automatic stay or injunction as to the policy proceeds.

Side A DIC D&O Insurance Considerations in Bankruptcy

As with the traditional D&O program, it is important to review the Side A DIC bankruptcy-related terms and conditions. 

The insuring clause will indicate if and when the Side A DIC insurance will come into play in a claim. This insurance is similar to any excess insurance in that it will respond to A side claims if the underlying limits of liability are exhausted. The DIC feature provides that, even if the underlying insurance is not exhausted, the Side A DIC insurance can drop down and begin paying A side claims if the underlying insurance fails to do so. Most Side A DIC policies enumerate the instances in which it will drop down. From a bankruptcy perspective, the key trigger is that the policy will drop down in the event any underlying traditional insurer fails to pay because the bankruptcy court has imposed a stay order upon the policy proceeds.

In line with the recommendations made with respect to the traditional D&O policy form, the following should be considered:

1. Some insuring clauses include “any source” language. This language indicates that the policy will not trigger if the individual is entitled to indemnification from “any source.” This language is less favorable than language that allows the policy to trigger as soon as the individual is not indemnified by the company itself.
2. Although we cannot recall a Side A DIC policy that has a bankruptcy change-in-control trigger, stranger things have happened, so double check your policy.
3. On the most difficult risks, we can imagine even Side A DIC insurers introducing bankruptcy exclusions as part of the underwriting process. For companies that are teetering, if this exclusion is ultimately enforceable, it defeats the purpose of the purchase. To avoid coverage disputes over the exclusion, every alternative to the exclusion must be considered.
4. Some A Side DIC policies have an “order of payments” provision that is unique to debtor-in-possession scenarios. The provision simply states that claims for wrongful acts occurring prior to the company becoming a debtor in possession have priority over claims for wrongful acts occurring after such event.
5. Strong bankruptcy waiver provisions should be included.
6. If the lead Side A DIC policy is followed by excess policies, each one should contain a DIC through DIC endorsement. This endorsement requires excess DIC insurers to drop down and fill any gaps that may be left if an underlying DIC insurer fails or refuses to pay loss.  

Final Thoughts

One of the largest concerns we have seen from insureds is limits adequacy/management. It is important to remember that the D&O limits you purchase could, if the bottom falls out, be the limits you have available to you in bankruptcy for any and all claims associated with the bankruptcy. We have witnessed unfortunate examples of companies that had NO expectation that bankruptcy was even a blip on the horizon one year ago and that now find themselves in the midst of it and unable to secure additional D&O limits. As most of us have learned in one way or another from COVID; “NEVER SAY NEVER – ANYTHING IS POSSIBLE.”   

We have seen claims in which defense costs get out of hand and limits are eroded to the point where there is little if any money left for settlement. This can obviously occur if the limits of liability purchased are too low. It also happens in conflict of interest (whether actual or potential) situations where insured individuals want separate counsel. 

See also: State of Commercial Insurance Market

With respect to conflicts, do the directors and officers agree that they should be entitled to separate counsel only in the event of an actual conflict of interest, or do they require language in the D&O policy (and discussion with the insurers) that any potential conflict of interest warrants separate counsel. As noted above, limits go quickly, and expectations should be set up-front. Remember, in a bankruptcy situation, the D&O insurance is the last line of defense for the individuals. 

Finally, and from a practical standpoint, and not unique to bankruptcy scenarios, it is important to make sure that, if an insured requires panel counsel to be used, the company and its directors and officers are comfortable with the panel list before a claim comes in.  

The time to prepare for these issues is now.

The Next Normal Paul Carroll, Editor-in-Chief of ITL While I’m less optimistic than I was a week ago about the speed of a return to normal — a riot in the U.S. Capitol building will do that to a guy, as will a week of record deaths from COVID-19 and growing concerns about the rollout of the vaccine — I remain confident that we’ll get there some time in 2021 and that we all need to be ready for the next normal. Having read everything I can find about how that next normal will take shape, I commend to your attention this article from McKinsey, which draws on surveys and on evidence from nations that are further along in the recovery from the pandemic than the rest of us. Among the predictions: that 20% of people could work the majority of time away from the office and that we are at the beginning of a new wave of innovative startups — while the risk of failure for established businesses has increased... continue reading > Live Event January 21st | 1:00 PM CT See how NatGen scaled excellence to over 750 agents Register Now SIX THINGS 3 Trends That Defined 2020 by Tony Tarquini The solution for 2021? Reframing digital transformation as an iterative process as opposed to a one-off, wholesale solution. Read More How to Start Selling on TikTok by Robin Kiera A few months, 50 million views and almost 100,000 followers of our channel later, we think Tiktok may be the next big thing. Read More Perils of Pandemic Premium Audits by Mark Walls Controversy relating to workers’ comp premium audits existed long before COVID. However, the pandemic made things much worse. 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 Has Pandemic Shifted Arc of Insurtech? by Mark Breading Have events of 2020 permanently altered the trajectory of the insurtech movement and thrown predictions out the window? Read More How Carrier Tech Drives Agency Change by Tony Caldwell Adapting to carriers' new technology is a challenge, but it gives agents the opportunity to move from distributors to true business partners. Read More Tapping Cloud’s Ability to Drive Innovation by John Keddy There are three key forces that the cloud can unleash: speed of operations, an intelligence premium and innovation. 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

The U.S. P&C industry has significantly lagged behind other U.S. and global industries in reducing unit costs over the last 15 years, and spending on managing claims litigation or contingent liabilities is a major reason. Most large P&C carriers spend 5% to 8% of gross written premium under various categories like external counsel, expert fees and internal attorney costs. This spending is considered a necessary evil so carriers can manage the right settlement or trial outcomes as well as protect their reputation. However, our experience with some of the largest U.S. P&C carriers demonstrates that there is a general lack of strategic insight in managing this large spending bucket and consequently a missed opportunity to reduce expenses.

Social inflation is an accelerating trend in the last decade, and COVID-19-related litigation is likely to complicate the situation for commercial insurers significantly. The systematic increase in litigation funding and rising wealth inequalities have added significant fuel. Many CEOs have publicly raised social inflation as a continuous challenge to profitability.

Sudden economic changes brought by the pandemic have created both risks and opportunities for P&C carriers. On the one hand, extended closure of courts and delays in litigation are likely to drive more plaintiffs to look for faster settlements. On the other hand, there is a high degree of uncertainty because of potential legislation regarding coverage exclusions in business interruption policies. Carriers need to respond to events as they occur, state by state, with great agility, empathy and data-based objectivity.

It is important for insurance carriers to have a robust litigation management strategy. We have identified five key levers in managing litigation spending:

1. Being Data-Driven

Having a data-driven claims team is the first prerequisite for leveraging the power of analytics for litigation. Exploration of claims, litigation and financial data leads to surfacing the need for advanced analytics intervention. Extraction and processing of external court data is challenging and often expensive, but a few carriers have seen tremendous return on such investment.

2. Well-Defined Metrics

Most carriers struggle with a homogenous and widely accepted (internally) definition of litigation spending and its categories. Claims, finance, general counsel, internal trial division, procurement, legal ops – are all the departments that have slightly different ideas of what actually is a dollar spent on litigation, and consequently what and how that expense can be reduced. As a start, a strategic initiative to harmonize the definition and reconcile the differences in metrics (as they flow through multiple databases and reports) should be launched. Such an initiative has very high return on investment as it tends to bring into focus the opportunity for the carrier.

3. Advanced Analytics Capabilities

A few carriers are building models to predict litigation propensity or even to predict outcome based on use of staff versus outside counsel. In addition to data science and analytics model deployment experience, prioritization of the advanced analytics resources toward litigation spending management is a key requirement.

See also: P&C Commercial Lines in 2021

4. Data Infrastructure

Quality and freshness of data flowing into the descriptive and predictive analytics workflows is a key determinant of the value of litigation analytics. Poorly built and broken data pipelines may cause delayed and incorrect execution of the analytical models and may not yield insights to act upon in spite of successful validation of early models. A robust data management strategy is important to ensure collection, cleansing and preparation of critical data elements for analytics execution.

5. Attitudes and Behavior

Perhaps the most important factor holding back P&C carriers is a lack of the right attitudes and behaviors. An economically optimal view needs to be developed for leadership to take an informed decision in every litigated claim (sue or settle) or even potential litigation. Serious adoption of insights by operational staff is usually the last and most critical point toward data-driven success. In our experience, a strategic approach to litigation management requires mixing experienced litigation adjusters skills with data science, engineering and process design experts.

Conclusion

There are no silver bullets in systematically reducing litigation spending. In our experience, the carriers using most, if not all, of the principles discussed here are way ahead. Their desire to manage litigation spending better made them methodical and data-driven. We can say with almost certainty that, as the situation with COVID-19 accelerates, changes in claims litigation combined with the effects of social inflation mean that these carriers are better prepared to face the future.

While I'm less optimistic than I was a week ago about the speed of a return to normal -- a riot in the U.S. Capitol building will do that to a guy, as will a week of record deaths from COVID-19 and growing concerns about the rollout of the vaccine -- I remain confident that we'll get there some time in 2021 and that we all need to be ready for the next normal.

Having read everything I can find about how that next normal will take shape, I commend to your attention this article from McKinsey, which draws on surveys and on evidence from nations that are further along in the recovery from the pandemic than the rest of us. Among the predictions: that 20% of people could work the majority of time away from the office and that we are at the beginning of a new wave of innovative startups -- while the risk of failure for established businesses has increased.

The McKinsey Global Institute isn't saying that 20% WILL spend most of their time away from the office, merely that they could, while remaining just as effective. The McKinsey research arm says the switch to remote work will, in any case, be "a once-in-several-generations change."

The authors add that a survey finds that business travel in 2021 will be roughly half what it was in 2019 and may never recover to 2019 levels.

Trying to take advantage of the disruption -- not just in the work environment, but in shopping behavior, in supply chains, etc. -- small-business formation is surging, the article reports. The authors acknowledge that the numbers surprised them. In the 2008-09 financial crisis, small-business formation tumbled, and in other recessions in recent decades it has risen only slightly. But 1.5 million new-businesses applications were filed in the U.S. just in the third quarter of 2020, nearly double the number in the year-earlier quarter. The number of "high-propensity" applications (those considered likely to lead to businesses with payrolls) grew 50% year over year. France, German, Japan and Britain have also seen surges in new businesses, albeit smaller than in the U.S.

The innovators are coming.

They will benefit from what McKinsey sees as a burst of "revenge shopping" once the vaccine kicks in and it's safe to move around freely again. That burst will mostly occur in services, where demand has been hit so hard, and less so for physical products, which Amazon and others have delivered to our doorsteps in such impressive fashion. The authors cite Australia, which has largely contained the pandemic and where "household spending fueled a faster-than-expected 3.3% growth rate in the third quarter of 2020, and spending on goods and services rose 7.9%." The authors say leisure travel will rebound quickly even though business travel won't -- in China, domestic travel is almost back to where it was before the pandemic, and what they call "high-end" travel is actually ahead.

The article does warn about what it euphemistically labels "portfolio restructuring." Basically, that term means: You'd better be getting stronger in these turbulent times or... look out.

A McKinsey survey of 1,500 companies in October found that the top 20% had seen their earnings before interest, taxes, depreciation and amortization increase 5% during the recession, while those not in that top tier had registered a 19% decline. The article argues that those thriving will be able to lock in their advantage by buying weaker rivals.

Private equity is also on the prowl, looking for bargains. Firms are sitting on $1.5 trillion of "dry powder" that is ready to invest, and the authors say that "we don’t think the PE industry is going to keep its powder dry for much longer; there are simply going to be too many new investment opportunities."

We still have to make it through these next weeks and months; at this point, I'll be happy just to get to Inauguration Day on the 20th. But the next normal looks reasonably promising -- as long as we stay among the innovators or that top tier of incumbents and don't get numbered among the prey.

Stay safe.

Paul

P.S. For those of you who've stuck with me to this point, here is a bonus, a thought-provoking piece about Brexit from Peter Gumbel, who is the editorial director of the McKinsey Global Institute and who was a longtime colleague of mine at the Wall Street Journal. I met Peter when, as a smart, young Brit with a facility for languages, he became a correspondent for us in Germany in the mid-1980s. I followed his career through other posts in Europe and more than a decade in the U.S. What I didn't know until his piece ran last week in the New York Times is that Peter's grandparents had fled Nazi Germany just before the outbreak of World War II. I also learned that, despite pride in his British roots and deep gratitude to the country that took his family in, he was wrestling with his homeland's choice to withdraw from the Continent and was heading toward a gut-wrenching personal decision. (I won't spoil his punchline here.) In case you find the piece as moving as I did, here is a link to the book-length ruminations he recently published on the topic, "Citizens of Everywhere: Searching for Identity in the Age of Brexit."

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

3 Trends That Defined 2020

The solution for 2021? Reframing digital transformation as an iterative process as opposed to a one-off, wholesale solution.

How to Start Selling on TikTok

A few months, 50 million views and almost 100,000 followers of our channel later, we think Tiktok may be the next big thing.

Perils of Pandemic Premium Audits

Controversy relating to workers’ comp premium audits existed long before COVID. However, the pandemic made things much worse.

Has Pandemic Shifted Arc of Insurtech?

Have events of 2020 permanently altered the trajectory of the insurtech movement and thrown predictions out the window?

How Carrier Tech Drives Agency Change

Adapting to carriers' new technology is a challenge, but it gives agents the opportunity to move from distributors to true business partners.

Tapping Cloud’s Ability to Drive Innovation

There are three key forces that the cloud can unleash: speed of operations, an intelligence premium and innovation.

As consumers shop more online for insurance, research on their shopping journeys can be used to ensure they’re more engaged and more likely to convert. Jornaya and iptiQ by Swiss Re partnered to research how comparison shopping correlates to life insurance applications and policy issuance and to understand how these shopping behaviors vary by consumer characteristics.

Consumers on a life insurance buying journey do their research. One in three applications in the data set were witnessed on a comparison shopping site in the Jornaya network before submitting an application. And their research can begin many months before an application is submitted. Specifically, 27% of applicants began their journey six to 12 months before applying.

It’s important to engage with consumers while they do their due diligence pre-application because engaging can increase the likelihood to purchase. In fact, consumers who shop on comparison sites before they apply are 68% more likely to become customers than those who don’t.

Consumers are often on multiple buying journeys. Jornaya’s research found that other considered purchases can affect buying life insurance: 

• 13% comparison-shopped for a mortgage or refinance in the year before applying for life insurance
• Those applicants issued at a 45% higher rate than those who did not show mortgage-shopping activity before applying

During the Application Phase

Consumers frequently shop after they submit an application and should be nurtured accordingly. The study found:   

• One in 12 applicants will continue to shop post-application
• 64% of applicants witnessed post-application returned to market within the first week after submitting an application with iptiQ 
• Consumers who shop on comparison-shopping sites post-app are 26% less likely to become customers

See also: 2021: The Great Reset in Insurance

Post-Policy Issuance 

Retention risk is low early on, and cross-selling opportunities exist for insurance providers that sell multiple insurance products.

• 3.5% of buyers shopped for a health insurance product within 90 days of their policy being issued
• 3% shopped for auto insurance within 90 days post-issue

Implication for Insurance Providers

Insurance marketers will maximize production by using the right data to understand their prospects and create personalized nurture programs to drive timely and relevant interactions. 

No two consumer journeys are alike, and insurance providers are better-positioned than ever to meet consumers in the market exactly when they want to be approached. The key is to tap into and act on the data available from first- and third-party sources to drive stellar customer experiences and differentiate offerings from the competition.

In the analysis, iptiQ provided Jornaya with anonymous identifiers associated with 479,570 life insurance applications, a subset of iptiQ’s 2019 application activity.  Jornaya’s Activate Identity Graph ingested hashed identifiers (email and phone) associated with these records and resolved the anonymous consumer to behaviors witnessed within the Jornaya Network of third-party comparison sites.

While the findings are directly focused on life insurance, the trends hold true qualitatively across all insurance lines of business. Complete research can be found here. 

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.