The Next Wave of Insurtech Paul Carroll, Editor-in-Chief of ITL At the recent International Insurance Society annual meeting, panelists laid out some provocative thoughts on insurtech, saying that the first wave is ending and describing the outlines of the second wave that has already begun to form. The key takeaways: 1) The industry is focusing too much on what panelists called “the shiny objects,” like artificial intelligence, and not enough on the issues that really matter to customers and to corporate bottom lines; and 2) incumbents will bear much of the responsibility for whatever success the second wave has, depending on how well they retool their mindsets and their processes to absorb the steady stream of innovations that smaller players will provide. The best image: the mullet. That’s how Jamie Yoder, president of Snapsheet, characterized innovation in insurance to date. “There has been so much attention paid to the front end [basically, sales],” he said, “but there’s a huge opportunity to clean up the back.”...  continue reading > SIX THINGS 2021: The Great Reset in Insurance by Stephen Applebaum A shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will bring a great global reset. Read More Innovating Our Way Out of a Crisis by Michael Byrne Any requirement, process, delay or regulatory cost that does not serve insurer solvency or consumer protection should be on the table for retirement. Read More Ecosystem-Based Business Models by Gaston Messineo More insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity. Read More 3 Must-Haves for a Self-Service Portal by Yaroslav Kuflinski A hybrid approach to customer service appears to be the most appropriate strategy, smartly balancing self-service and human support. Read More Free Insurance Data You’ll Need by Matthew Grant I’ve been building and reviewing business plans for years and come across great free resources to help me along the way. Here they are. Read More Time to Move Climate Risk Center-Stage by Hélène Galy Insurers face a steep learning curve in embedding climate risk into their enterprise risk management programs, but the climb will be worth it. Read More The Future of Blockchain Series Episode 1: Usage in Personal Lines Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities Learn More GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started Partner with Us We’d love to talk to you about how we can improve your marketing ROI. Learn More SPREAD THE WORD Share Share Tweet SUBSCRIBE TO SIX THINGS

Employees value the insurance benefits their employers provide, but, now more than ever, people need answers and support. Vaccines are on the way, but the world is still facing a once-in-a-century public health crisis, and the economic fallout added a financial dimension to the anxiety, leaving people craving certainty and security. 

A recent Guardian Life report found that a large majority of employees say they’d be unable to afford benefits like health insurance without employer sponsorship. But many employees aren’t familiar enough with their coverage terms, and nearly 40% of employers admit they could do a better job of educating employees about their benefits. 

That’s where insurance providers can step up, form direct relationships with their insured customers and provide relief for overworked HR professionals who are struggling with multiple challenges at the same time. Insurance partners (whether brokers or carriers) can create a situation where everyone wins. Here are five ways to make it happen:

1. Don’t rely on HR for communications access to insured employees.

HR typically handles employee benefits education and gathers the associated paperwork. This sets the tone for the relationship going forward, with HR acting as an intermediary between employees and the broker or carrier on routine questions, unless an issue is escalated. You’ll need to break that pattern to form a direct relationship with customers, getting their attention earlier in the process. 

2. Get consent to carry on a conversation where customers are.

Building relationships with customers is as easy as collecting their express consent for insurance provider outreach, and you can make that part of the welcome message during enrollment. Get permission across all of the channels your organization supports, including phone outreach and digital channels like text, chat, email and social media. 

3. Offer to share the load with HR.

This has been a tough year for everyone, and, in the workplace, HR’s burden is heavier than ever. Companies are reorganizing or completely rethinking how they do business. HR staff who might have been territorial about benefits before don’t have as much time to answer questions about coverage for contact lenses, prescriptions and therapeutics now. They’ll be more receptive to a proposal to put employees in direct touch with insurance providers. 

4. Brokers should assess carriers’ digital support capabilities.

One key factor in developing a direct relationship with customers across channels is the carrier’s ability to support conversations with customers. Insurers have made great strides over the past several years, but some carriers are more active and technically proficient than others. Brokers need to understand which companies are up to speed and which are still building out modern customer communication capabilities. 

5. Carriers should evaluate their communication platforms.

A point related to the one above: Insurers that want to strengthen their individual relationships with customers should take a look at their customer communication platforms. Can they easily handle a variety of channels, delivering a consistent customer experience no matter how the insured contacts the company? If not, it’s time to upgrade those capabilities, taking advantage of application programming interfaces (APIs) and automation. 

See also: 2021: The Great Reset in Insurance

Insurance providers looking for a reset that strengthens customer relationships have a real opportunity here — a chance to improve not only the ways they serve customers and the overall experience customers have when they interact with their insurer, but also their partnerships with the HR professionals who are on the frontline of benefits administration. 

Employers and employees are experiencing significant anxiety and uncertainty right now, with the pandemic having a devastating effect on the health of millions and continuing to disrupt the economy. People crave certainty and connections, and, over the past several months, they’ve become more accustomed to reaching out online and via digital channels. 

Insurance providers that form more direct connections with their insured populations can serve those customers more effectively, identifying their needs in a personalized way and proposing solutions in addition to providing accurate coverage information. They can also help alleviate the burden on stressed HR teams. Everyone wins. So, keep these five things in mind heading into 2021 -- it can be a better year for all of us.

At the recent International Insurance Society annual meeting, panelists laid out some intriguing thoughts on insurtech, saying that the first wave is ending and describing the outlines of the second wave that has already begun to form.

The key takeaways: 1) The industry is focusing too much on what panelists called "the shiny objects," like artificial intelligence, and not enough on the issues that really matter to customers and to corporate bottom lines; and 2) incumbents will bear much of the responsibility for whatever success the second wave has, depending on how well they retool their mindsets and their processes to absorb the steady stream of innovations that smaller players will provide.

The best image: the mullet. That's how Jamie Yoder, president of Snapsheet, characterized innovation in insurance to date. "There has been so much attention paid to the front end [basically, sales]," he said, "but there's a huge opportunity to clean up the back."

In addition to Yoder, whose young company digitizes and automates the claims process in personal lines, the panel consisted of: 1) Chris Cheatham, who founded a startup, RiskGenius, that uses AI to facilitate review of policies and that was recently acquired by a bigger startup, Bold Penguin; and 2) Jeff Berezny, SVP and general manager of enterprise products at Trov, which provides a digital technology platform for incumbents. The panel was moderated by James Maudslay, global head of insurance at Equinix, which operates a huge network of data centers. (You can watch the entire session here.)

Yoder argued forcefully that much of the focus for innovation is on the wrong issues. He said that the sexy part of what Snapsheet does is the computer vision that can analyze photos of damage in a car crash and use artificial intelligence to provide an estimate of the cost of repairs. But he said computer vision saves only maybe 15 minutes on estimating -- in a claims process that can languish for days. He said he can get from a first notice of loss to a settlement in 30 minutes, but the computer vision only works in 1% of the cases. Why not, Yoder asked, focus on the big delays that happen as the insurers for those involved in a crash gather and exchange data, sort out responsibility and get money to clients so they can get their cars repaired?

He said the secret to innovation isn't to have AI do the estimate. "Al will do," Yoder said. [Lest his joke doesn't come across in print: He's saying that Al, as in someone perhaps named Albert, could do the work that everyone seems to want to assign to artificial intelligence and still allow for considerable innovation.]

"The real issue is all the handoffs," Yoder said. The solution is to "have the claim be the captain of the process. It's determining, what can I do myself? It's assigning tasks to vendors, updating the customer, getting an issue to a person when it needs a person." At the moment, he said, claims processes are managed "based on massive diaries and to-do lists, which don't really foster efficient throughput of work. And this is in a piece of the business that is 70% of the cost."

He said it's also crucial to focus on all parts of the process, because so many can yield improvement. "We'd do all this work with carriers to speed their claims, then find they were still cutting paper checks," Yoder said. "It's like you decide to drink a diet Coke but then order a Big Mac to go with it."

Berezny agreed that the beginning of the claims process "is just phone tag. Call me back, call me back, call me back...." So, having AI that manages the process, to reduce the administrative load on people, and that speeds the handoffs would matter much more than AI that prepares an estimate.

He said the second wave of insurtech that is taking shape now will be more about "selling picks and shovels" and not about the "gold rush" that is being capped off now with the huge valuations that Lemonade and Root achieved following their initial public offerings.

But he said the incumbents have a lot of work to do to prepare. While being cloud-based and digital are table stakes for being able to innovate these days, Berezny said, "Insurance just isn't there yet."

Yoder said incumbents need to develop modular processes, based on application programming interfaces (APIs), so companies can have "plug-and-play innovation." Are information systems designed so "you can just plug your innovation in, or are you stuck with a new wave of IT integration projects every time" you see an insurtech whose software could improve your business? "Innovation isn't about a point in time. This is a journey."

He said the need to be able integrate innovation quickly is all the more important because so much is becoming available. Yoder, who until two years ago ran the insurance practice at PwC, said clients used to need to invent a host of capabilities to be able to pursue a digital strategy. "Now," he said, "you can just pull together a list of insurtechs with those capabilities, and there you go. You should get there a lot faster and for a lot less money."

Berezny said he sees the new wave of insurtechs leading to "not just direct but embedded" insurance. As a result, he said Trov is working with mortgage groups to embed home insurance in their sales processes, with new digital banks to offer insurance as part of their portfolios and with affinity groups to include insurance in their dealings with members.

"Insurance needs to meet people where they are," Berezny said. "You can't just assume they'll come to your great, shiny website."

Yoder agreed that embedded insurance has great promise. "People sometimes look for innovations that are way beyond what anyone ever thought of," he said, "but sometimes the opportunities for innovation are staring you in the face."

Cheatham said that, with "the first wave of insurtech coming to an end," he hears a lot about how AI will supposedly eliminate human jobs. But he said the second wave will be about "augmenting humans, not replacing them." In commercial insurance, where RiskGenius and Bold Penguin focus, "There are too many nuances for us to think that we're going to get rid of humans in any part of the process."

He said that innovation in commercial lines moves more slowly than in personal lines, where Trov and Snapsheet live. But he said, "We've shrunk processes from weeks down to days, and we can go so much further. I see a big acceleration going forward.

"We'll catch up to you other guys soon enough."

Stay safe.

Paul

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

2021: The Great Reset in Insurance

A shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will bring a great global reset.

Innovating Our Way Out of a Crisis

Any requirement, process, delay or regulatory cost that does not serve insurer solvency or consumer protection should be on the table for retirement.

Ecosystem-Based Business Models

More insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity.

3 Must-Haves for a Self-Service Portal

A hybrid approach to customer service appears to be the most appropriate strategy, smartly balancing self-service and human support.

Time to Move Climate Risk Center-Stage

Insurers face a steep learning curve in embedding climate risk into their enterprise risk management programs, but the climb will be worth it.

Free Insurance Data You’ll Need

I’ve been building and reviewing business plans for years and come across great free resources to help me along the way. Here they are.

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Today, human support is steadily losing ground to self-service in the insurance industry. For one thing, clients have grown tech-savvy and self-reliant and are willing to solve issues on their own, without waiting to reach a live agent. What is more, as the pandemic interrupted the conventional face-to-face service and support delivery, even the most reluctant customers became favorable toward online channels. Against this backdrop, insurers are implementing out-of-the-box self-service portals or developing custom insurance software. 

Companies should prioritize the particular needs and expectations of their customer base rather than follow the examples of other self-service portals. Insurance customers, as shown by Accenture in its 2019 Global FS Consumer Study, do not feel comfortable resorting to self-service in every case. The majority would rely on digital channels for tasks like looking up information or submitting personal data. Yet, when it comes to complex financial decisions — purchasing a policy or changing the terms of a contract — over half of the respondents admitted they can’t do without human assistance. 

Given these customer behavior patterns, insurers need to invest in providing exhaustive information, features for handling non-critical issues and account management as self-service options, but refrain from trying to automate all customer interactions. Below, we explore the self-service features that suit the set tasks most.  

A knowledge base 

The idea of customer education meets skeptical attitudes from the majority of insurers. According to Deloitte, 33% of surveyed executives believe that clear product information is a decisive factor for new customers, yet only 16% see it helping retain customers. 

In fact, a detailed and consistent knowledge base is not only an essential self-service channel but also a powerful driver of customer satisfaction. Building a centralized repository of relevant insights, like policy comparisons, legal terms glossary, claims application guides and so on, you give customers an opportunity to find answers and solutions quickly and at any time. 

Through relevant and innovative content, a company can also reach a wider audience and build a reputation as a niche expert. What is more, by analyzing the knowledge base activity, insurers can discern customers’ common needs and challenges and come up with solutions.  

For such a knowledge base to prove authoritative and helpful, the content needs to be of high quality but clear and comprehensible to an average customer, free of complicated terms and industry jargon. What is more, the materials need to be reviewed and updated regularly to remain relevant in the face of your evolving service offer and changes in the insurance industry. Therefore, when choosing your knowledge base format, make certain you have sufficient resources to maintain it at a proper level. 

See also: Self-Service Portals Improve CX

AI chatbots

Conversational AI has taken the business world by storm, becoming a staple of customer relations strategy. What is more, customers have come to appreciate chatbots for their efficiency and increasingly prefer to seek their assistance first. These facts, coupled with the opportunity to cut customer service costs, make AI chatbots a self-servicing option worthy of adoption.  

Implemented in your insurance portal, chatbots can tirelessly handle numerous customer queries and come up with relevant advice in each case. Through simple message commands, users can ask the bot to describe or compare insurance plans, find policies matching certain criteria or help address any current insurance policy concern. Unlike human agents, the technology can provide answers and take actions in real time, driving customer satisfaction up. 

Beyond this, chatbots can be programmed to analyze a customer’s profile information and engagement history and supply personalized product and service recommendations or even craft bespoke insurance policies and quotes. 

Yet chatbots are not without limitations. They are not geared toward making independent decisions and can only perform actions defined by the algorithm. This means that complex issues and requests need to be escalated to human service representatives. Moreover, chatbots are still bad at gauging human emotions and expressing sentiment appropriate to the situation, which can unnerve an already distressed customer. 

Claims management

Traditionally, claims management is one of the most cumbersome and confusing journeys for the insured. The customer fills out forms, gathers a lot of paperwork and photo evidence and submits it all in person for the company to process and reach a conclusion. 

But the digital age has altered customers’ expectations in this regard. They want a simple, speedy and transparent process that can be handled remotely in real time. By integrating a claims management engine into your self-service portal, you can meet this demand. 

The solution should allow a customer to make the first notice of loss to the insurer and then fill out and submit the official claim together with all the necessary photo or video evidence. As the information is processed and checked for fraud, the damage is appraised and the settlement is offered, the policyholder has full visibility into the claim status without the need to contact company representatives.     

Inevitably, there can be complex claims that require the agent's on-site damage assessment or the personal presence of the insured. But for many other cases where fully digital handling is possible, self-servicing offers customers the freedom to manage their claims anywhere, anytime and allows them to control the process. The solution proves beneficial to insurance companies, as well, as it frees agents’ time spent on customer communication and paperwork in favor of other tasks, while minimizing human errors in the submitted claims.   

See also: Time to Try Being an Entrepreneur?

Summing up: The balance is vital

Despite the extensive reliance on self-service, insurance customers are not yet ready to accept it as the only alternative. As long as there are people who appreciate human touch over convenience and speed, traditional customer support will remain in demand.

Therefore, a hybrid approach to customer service appears to be the most appropriate strategy for insurers. Smartly balancing self-service and human support features and ensuring intuitive access to them all, an insurance company can meet the shifting customer needs and offer an outstandingly rich and dynamic support experience.

This past summer, a group of African-American YouTubers filed a putative class action against YouTube and its parent, Alphabet. The suit alleges that YouTube’s AI algorithms have been applying “Restricted Mode” to videos posted by people of color, regardless of whether those videos actually featured elements YouTube restricts, such as profanity, drug use, violence, sexual assault or details about events resulting in death. The lawsuit alleges that this labeling has occurred through targeting video keywords like “Black Lives Matter,” “BLM,” “racial profiling,” “police shooting” or “KKK.” YouTube says its algorithms do not identify the race of the poster.

Whether the allegations are true or not, the case illustrates AI’s potential for inadvertent discrimination. It is easy to see how an algorithm could learn to use variables seemingly unrelated to race, sex, religion or another protected class to predict the outcomes it was designed to target. In the YouTube example, we could imagine the algorithm noting a link between the mentioned keywords and videos depicting violence, thus adding the keywords to factors it weighs when deciding whether Restricted Mode should be applied to a given video. The algorithm is simply programmed to restrict sequences containing violence, but in such a situation it could end up illegally restricting videos posted by African-American activists that depict neither.

In response to such potential pitfalls, the NAIC this past August issued a set of principles regarding AI. The set includes principles about transparency, accountability, compliance, fairness and ethics. The only way to ensure compliance, fairness and that ethical standards are maintained is for AI actors to be accountable for the AI they use and create — and the only way for these actors to properly monitor their AI tools is by ensuring transparency.

As Novarica’s most recent joint report with the law firm Locke Lord on insurance technology and regulatory compliance notes, all states follow some version of the NAIC’s Unfair Trade Practice Act (“Model Act”), “which prohibits, generally, the unfair discrimination of ‘individuals or risks of the same class and of essentially the same hazard’ with respect to both rates and insurability.” There are many possible insurance use cases that AI and data-based technology enable, like analytics-driven targeting, pre-underwriting, rules-based offer guidance and pre-fill data. Although these capabilities can be delivered without AI, the effort required to do so has historically been prohibitive, meaning that using AI will be essential in the coming years — as will ensuring that AI does not discriminate against protected classes.

A key area for insurers to monitor is the use of third-party data in underwriting processes that may not be directly related to the risk being insured. A good example of this is credit score, the use of which several states have restricted during the pandemic. NYDFS’s Circular No. 1 lists other external consumer data and information sources for underwriting that have “the strong potential to mask the forms of [prohibited] discrimination… Many of these external data sources use geographical data (including community-level mortality, addiction or smoking data), homeownership data, credit information, educational attainment, licensures, civil judgments and court records, which all have the potential to reflect disguised and illegal race-based underwriting.” Insurers must thus have transparency into what factors an algorithm is considering and how it arrives at decisions, and they must be able to adjust the included factors easily.

What will the regulatory future hold? Benjamin Sykes of Locke Lord foresees new model regulations requiring data to be subject to regular calls on underwriting criteria and risk-scoring methods, certification by insurers that the proper analysis to avoid any material disparate impact has been performed and a penalty regime focused on restitution above and beyond the difference in premium to those hurt by an algorithm’s decisions.

CIOs will need to consider how to handle the evolution of various regulations as they arise and their implications for how third-party data is used, how machine-learning algorithms are developed and applied and how AI models “learn” to optimize outcomes. Both the regulations and the technology are moving targets, so CIOs and the insurers they represent must keep moving, too.

Open enrollment is finishing up, and human resources departments are already in preparation mode for 2021. Traditionally, this is also a time when many organizations set out to find a new insurance broker or begin exploring options.

In fact, 53% of firms offering health benefits reported shopping for a new insurance carrier or health plan, according to the Kaiser Family Foundation's 2019 survey, similar to the previous year's percentage. Some 18% reported changing carriers in the previous year, and it stands to reason that the disruptive events of 2020 will drive that figure higher.

Why? Because COVID-19 has upended the way businesses operate and altered daily life for almost everyone. Employers are exploring how their coverage needs have been affected by the wholesale behavioral shifts occurring around them and by adjustments made to their own business models since the start of the pandemic. How should plan features adjust to serve a work-from-home employee base? How can benefits best answer demand for mental health services that have mushroomed under social distancing and the strains of confinement in isolated or overcrowded households?

The employer's own coverage demands extra attention, as well. How should its coverage change to reflect a smaller office footprint or risks and liability associated with virus outbreaks at the workplace? Do its policies address the elevated threats of cybercrime and damage to company equipment occurring in the homes of a newly remote workforce?

As HR teams confront a host of critical decisions, they want their insurance broker to serve as both an advocate and guide, helping to illuminate the shadowy corners in their risk profile and then walking them through scenarios and coverage options. The need to find the right broker, to align advisers and the organization in the pursuit of human resources objectives, is now mission-critical.

Perhaps more than at any other time in living memory, companies are motivated to comparison shop their markets in the hope of finding the best match to their needs. 

Searches in an Opaque Industry

Most communities host a variety of insurance offices from which to choose, operated by providers, independent brokerages or both, and often with multiple locations. 

The employer's challenge in finding the right broker is to make an informed selection from an abundance of options. As many HR managers can attest, however, there are surprisingly few reference points to help distinguish a brokerage's quality and advantages, or to make comparisons among the insurance businesses in a market. 

Standard internet search engines are a common starting point but often yield disappointing results. The initial list built through a web search will offer scant context, requiring earnest seekers to research each name for specializations and credentials or even to determine which brokerages are still in business. Traditionally, the search for a good insurance brokerage has been a form of research project, often requiring hours of online investigation, perhaps soliciting referrals from brokers and gathering recommendations from colleagues.

See also: Technology and the Agent of the Future

On the other side of the match-making equation, brokerages are typically motivated and eager for the opportunity to inform potential contacts about their successes, affiliations, special training, longstanding client relationships and other distinguishing characteristics. They may regularly purchase local advertising to that effect, in addition to the networking, community involvement and word-of-mouth promotions that insurance professionals have relied on for decades.

Yet these traditional approaches lack consistency and efficiency. Just as there are surprisingly few resources to help an employer search for the right brokerage, there are few forums where an insurance team can clearly showcase its expertise and capabilities for fair comparisons with competing firms.

AI-Powered Alternatives

Technology is poised to transform the brokerage marketplace, however. For instance, our firm, Mployer Advisor, recently launched a platform that promises to bring a new degree of transparency to the insurance brokerage space. Built to help employers search, evaluate and select business insurance brokers and employee benefits consultants, the system draws real-time data across multiple private and public sectors. Powered by algorithms and artificial intelligence, the platform enables users to conduct rapid searches of brokerage data and drill down into results by their size, industry, geographies and product offerings to narrow results.

The Mployer Advisor platform also introduces a brokerage rating system, M Score, which leverages public and private datasets to understand and quantify a brokerage's experience. Scores range 1-5; the higher the M Score, the broader the broker’s experience. While a brokerage cannot directly change its M Score, it can claim its profile and fill in any gaps in its listed expertise, which might trigger a recalculation. The platform also showcases reviews of each brokerage.

See also: 2021’s Key Technology Trends

Millions of Americans rely on employer-sponsored health coverage and benefits obtained through an industry that historically has lacked clarity. For too long, those companies have been forced to navigate the broker selection process with limited resources. Technology, powered by today's advanced algorithms and artificial intelligence, now provides the means for change. It is time to address this deficiency and give employers the transparency and tools they need to find the insurance broker best suited to their industry, company size and product needs.

Across the insurance industry, boards and senior executives are coming to terms with the need to become more digital, efficient and agile. The current environment is prompting insurers to find new revenue streams, boost customer engagement, achieve sustainable profitability and generate higher returns on equity. 

In reimagining their customer engagement models, many forward-thinking insurance executives view ecosystems as essential. Early adopters have already leveraged ecosystems and collaborations with insurtechs to get closer to customers. One carrier created on-demand access to insurance for ride-sharing drivers. Another offered free home monitoring services to its policyholders. A third developed a digital health platform to help customers achieve personal health and wellness goals. 

These programs and business models are helping drive growth mainly because they are centered on leveraging partnerships and shifting non-core capabilities outside of the enterprise. No wonder more insurers now see ecosystems as an effective, flexible and capital-efficient way to grow the business and promote customer-centricity. 

What ecosystems are and why they matter

Ecosystems are networks of companies that choose to collaborate and may produce a higher level of business value than any individual business can produce on its own. 

Typically, ecosystem-based models feature leadership or orchestration by a single company, which provides a platform of core capabilities and participants that offer complementary services and add-on features and functionalities. Consumers engage with this ecosystem, paying for various products and services and benefitting from the value created by the leaders and participants.

Within insurance specifically, ecosystem-based models typically enable interactions across the value chain by leveraging a differentiated infrastructure to allow for better service offerings, richer customer interactions and higher rates of automation. 

See also: New Actuarial Model for Unclosed Business

The journey to ecosystem success

While the benefits are often compelling, insurers may need to have a road map in place to create the most effective ecosystem strategies and business models. The following three core actions can help map out a fruitful journey.

1. Engage insurtechs for stronger customer engagement and increased agility

Insurtechs are integral to the development of successful ecosystems and can foster meaningful innovation across the industry. Insurers have a multitude of opportunities to invest in or collaborate with insurtechs – be it to launch products faster, engage customers in new ways or enhance back-office processes. Consider how Nationwide, a leading U.S. insurer, used an ecosystem model and extensive insurtech collaboration to launch an entirely new digital business focused on millennials within only seven months. 

Insurtechs can help insurers in multiple ways, starting with access to customer-centric technology and analytics and the ability to deliver rich and tailored customer experiences. Typically, companies can derive value from these collaborations by clearly defining strategic imperatives and adopting a test-and-learn mindset.  

Many insurers also benefit culturally from insurtechs’ relentless focus on innovation, agile working style and next-generation thinking. The most fertile opportunities for collaboration and new capabilities often involve the most advanced technologies, including the Internet of Things, artificial intelligence (AI), machine learning and robotics, with potential applications across the value chain. 

2. Scale faster by digitizing existing business models and embracing advanced technology

For years, many insurers have been constrained by inflexible legacy technology. Today’s advanced technology offers meaningful upside for insurers that modernize their core systems. Early adopters are using software-as-a-service (SaaS), AI, machine learning and robotics to enable straight-through processing, self-service and smarter cross-selling. Within the claims function, AI and robotics can deliver faster and more accurate payments, starting with frictionless first notification of loss, which may lead to higher customer satisfaction. 

Similarly, predictive analytics, another game changer for insurance, can allow insurers to make better use of internal and external data for pricing risk. 

By moving more processes and data to the cloud, insurers may effectively engage with ecosystem partners and streamline digitization of key processes. 

3. Enhance the operating platform to increase effectiveness and agility with innovative workforce and sourcing strategies

Strategically, ecosystems allow different participants to play to their strengths. In that sense, insurers can look to enhance their operating model, focusing on core, differentiated capabilities and adopting the right sourcing strategy for everything else. 

One large U.S. insurer determined that a new spin-off company would be able to compete more effectively in the personal life and annuities markets. The new company was designed to be lean, cloud-based and asset-light. Freed from the constraints and complexity of legacy technology architecture and able to engage with a range of partners for non-core capabilities, the company became poised for long-term growth.

Offshoring and outsourcing can drive efficiencies and cost savings across routine processes, freeing human and financial resources to focus on the highest-value activities. Policy administration and call center support are typically the first to be migrated to nearshore or offshore captives. Third-party administrators (TPAs) are often a viable option, while other insurers have turned to SaaS models as an alternative to expensive and risky system upgrades or replacements. 

Ushering in the new age of ecosystems

Given how ecosystems can be an effective go-to-market strategy across industries, thanks largely to success in driving growth and innovation and the creation of relevant products and personalized experiences, the collective and widespread adoption of these models within insurance may be imminent.

In fact, to some extent, ecosystems are already driving innovation at an outpaced scale and speed within the insurance industry. Additionally, such models are helping carriers overcome long-standing challenges related to outdated technology and weak customer engagement. 

See also: The Pandemic and a New Ecosystem

However, the first step for insurers to effectively integrate these models into their businesses may require a shift in management thinking – one that is willing to understand why the whole is bigger than the sum of the parts. With a clear vision for profitable growth, strategic foresight and operational and technology investments and an appetite for significant cultural change, insurers may be able to successfully embark on the ecosystem journey.

There are a few things we may never see again thanks to COVID-19. Free samples at the grocery store, infrequent cleaning of subway cars, cramped conference rooms, packed elevators, communal office pies and cakes, stigma around sick days and working from home, plastic ball pits for toddlers, buffet restaurants, paper menus, shaking (too many) hands and unpackaged dinner mints (okay, maybe those aren’t a thing any more), to name a few. These probably were not great ideas in the first place, at least not during flu season.

There would seem to be equivalents in insurance regulation – wet signatures, certain paper consumer notices, hard-copy regulatory filings, notarization and in-person continuing education, examinations and office requirements. Insurance regulators across the country have temporarily waived, on an emergency basis, certain of these requirements to varying degrees during the pandemic, to allow licensees and regulators to continue to serve consumers consistent with public health concerns. 

Various states have also waived certain legal and regulatory impediments to real-time insurance transactions. For example, states have permitted temporary termination and limited extensions of coverage and mid-term retroactive refunds and other premium adjustments that more accurately reflected underwriting risk during certain stages of the pandemic.

Recognizing some of these measures could be extended post-COVID without any material impact on state regulatory oversight, the NAIC Innovation and Technology (EX) Task Force and the Innovation and Technology State Contacts recently requested comments to support making permanent various “regulatory relief” and “regulatory accommodations” related to innovation and technology. Read comments from this author and other stakeholders. 

This request for comments is part of a larger effort by the NAIC and individual state insurance regulators to modernize various legal requirements and to encourage and facilitate innovation. Among other areas of focus, we’ve seen it in amendments to the NAIC Unfair Trade Practices Model Act concerning rebating and inducements. These changes, once adopted in the various states, will expressly permit licensees to provide certain loss prevention/mitigation and other value-added services to consumers at no charge or at a discount, without violating the anti-rebating and anti-inducement prohibitions. (California, Illinois and New York already permit these practices.) The NAIC’s commitment to facilitating innovation seems genuine and reliable, having completed this work over the past several months despite the pandemic. But the NAIC also needs continuing and consistent support from its individual state insurance commissioner members and their respective staff. And any meaningful and lasting innovation cannot be accomplished without cooperation and equal participation and commitment from the National Council of Insurance Legislators and its legislator members.

These waivers, accommodations and other relief measures are most welcome. By default, 2020 has served as a pilot program of sorts in which such additional regulatory flexibility was tested in many states. The country appears to have passed the test with flying colors—there has been no discernible negative effect on either of the two pillars of state insurance regulation – solvency regulation and consumer protection. 

See also: How to Outperform on Innovation

Can we build back better? In addition to removing unnecessary regulatory requirements and processes, state insurance regulators can facilitate innovation by expediting rate and form filings and expanding file and use and filing exemptions and access to the excess and surplus lines market. These extra steps will more adequately and efficiently address consumer demand for products tailored to their coverage needs in something closer to real time. Recognizing state insurance regulatory resources are already thin, and regulators are already overworked and underpaid, it should not be controversial to suggest industry would provide the financial support necessary for state insurance departments to obtain additional resources, including much-needed expertise around the use of technology and big data in rating and underwriting.

Any requirement, process, delay or extra regulatory cost that does not arguably serve either insurer solvency or consumer protection should be on the table for permanent retirement. It’s time. Before the next pandemic (or extension of this one) and the crisis after that.

Now, let’s share a pie [maybe some mints?] (and a handkerchief) in the elevator on our way to the [holiday?] buffet, and then hold hands and jump in the ball [mosh?] pit!! Who’s with me???

More than enough has been written about the global pandemic of 2020, and now the end is within sight during 2021. But what is not nearly as clear is how different the post-pandemic world will be as a result – in the insurance industry and beyond. These differences will not only be numerous and significant, but many will be permanent. This fundamental change will transform corporate, individual and societal thinking and behavior for the better. A subtle but powerful shift toward greater corporate and social responsibility and empathy in general is underway, and 2021 will be the year of a great global reset.

New Thinking — New Behavior  

Everyone is familiar with the voluntary rebates and discounts that auto insurers have issued to policyholders as personal automobile use dropped dramatically as a result of lockdowns and work-from-home edicts. It is widely anticipated that a significant portion of those employees will opt to continue working from home post-pandemic. Longer-term shifts such as noticeable migration from urban to suburban living will permanently alter transportation patterns, which will affect the insurance industry. The rise in new and different flavors of connected vehicle telematics programs also illustrates the change in consumer preference for dynamic and contextual auto insurance coverages and costs.

Crisis-Driven Innovation

The digitization of the insurance process was well underway before 2020, and adoption has been supercharged by the pandemic and the changed landscape. Health-conscious consumers have embraced contactless everything: virtual claims adjustment, digital payments, online car shopping and more. Life insurance applications hit an all-time record in March 2020 as the spread of the coronavirus acted as a catalyst, prompting people who have put off getting coverage to finally sign up. A percentage of these changes will be permanent as a result of their positive economic impact to carriers and policyholders.

But funding this accelerated digitization and innovation will require severe expense management to offset the new costs. In its new “2021 Insurance Outlook” report, Deloitte Insights’ research states that 61% of survey respondents expect to cut costs significantly – between 11% and 20% – over the next 12 to 18 months. 

Crises create a sense of urgency in business, a necessary focus on fewer priorities and more tolerance for experimentation. This allows organizations to foster and sustain a more innovative culture. To compete with digital players, traditional insurers will build their own new digital businesses. Even after the crisis passes, much of this transformation will have been institutionalized. and the benefits will be permanent. 

In a new report titled “Global Technology Governance Report 2021,” the World Economic Forum and Deloitte examine key applications of Fourth Industrial Revolution (4IR) technologies for thriving in a post-pandemic world and identify governance challenges that these technologies could help to address. These include five 4IR technologies: AI, mobility, blockchain, drones and IoT. 

A Global Community

We now more clearly understand that what happens in one part of the world can affect all 7.8 billion of the world’s inhabitants. That includes not just the global spread of the coronavirus in under 90 days but also man-made causes of climate change, including the use of fossil fuels, the deforestation of Brazil’s Amazon rainforest and many more such tragic examples. This realization will result in a greater sensitivity overall and changing decisions and behavior of individuals, governments, investors and corporations. 

See also: 2021’s Key Technology Trends

Social Responsibility

The financial services sector, including the insurance industry, are at the forefront of adopting new principles that were gradually emerging before 2020 but will move into the mainstream in 2021 and beyond.

• Impact investing refers to investments made into companies, organizations and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments provide capital to address social and environmental issues. 
  • In a July 2020 Milliman report titled “ESG considerations in the insurance industry,” Milliman reported that some insurers are setting standards for their investment managers with respect to how they take ESG factors into account, including Standard Life and AXA.
• Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
  • When announcing its Ambition 2025 plan, Munich Re announced an extensive decarbonization strategy, shifting away from coal, oil and natural gas and aims to reduce net greenhouse gas emissions in its investment portfolio by 25% to 29% between now and 2025, before achieving net-zero emissions by 2050. The firm has already ceased to invest in companies that generate more than 30% of their earnings from coal or by extracting oil from oil sands.
• Diversity, equality and inclusion (DEG) refers to the traits and characteristics that make people unique. Inclusion refers to the behaviors and social norms that ensure people feel welcome. Not only is inclusivity crucial for diversity efforts to succeed, but creating an inclusive culture will prove beneficial for employee engagement and productivity. Equality addresses injustices and discrimination and is manifested in gender pay gap, racial discrimination and discrimination based on sexual orientation.
  • Munich Re also shared its ambition that 40% of managers below the board of management are to be women by 2025.
  • Northwestern Mutual, through its foundation in partnership with its diversity and inclusion team, announced a 2020 commitment of $1.6 million to All-In Milwaukee to fund its new Talent of the Future program for Milwaukee-area high school students over the next four years.

Early signs are emerging that we are becoming more concerned and caring about the well-being of our fellow man, beyond just our immediate circle of family and friends. Have you noticed how many virtual business meetings typically open with questions about how the participants and their families are doing? It’s a welcome development and a small but important reflection of how our focus and values are changing, and it portends even greater change as the great global reset emerges.