Many agents see technology as a threat. Several years ago, when hundreds of millions of dollars began to flow into insurtech companies, the promise these startups made was that they would disrupt the insurance industry. The rise of online insurance distribution firms, with steadily increasing capabilities, has added to the anxiety of insurance agents. 

But as the years go by, what we’ve seen is technology that, while it may be disruptive, holds the promise of reducing the drudgery of agents’ lives. It can do this by eliminating the need for manual data gathering, creation of applications, coverage analysis, policy marketing and proposal preparation. The technology promises to free agents to spend more time with clients and prospects, allowing them to broaden and deepen their relationships, which is the most important and highest-value activity of the professional agent of the future. 

The AI Promise

If one steps back from all of the tasks performed by agents today, data gathering, manipulation and presentation take up a large percentage of the time. All of these tasks can and will be performed more efficiently by artificial intelligence (AI). 

Peter Diamandis, the author of “Abundance: The Future Is Better Than You Think,” says that not only will everything will be knowable in the very near future, but artificial intelligence will be able to retrieve it and organize it for us instantaneously. While this seems fantastic to some, it's already taking place. Many insurance companies, for example, are already purchasing third party data for all or most of the underwriting information they need to make coverage and pricing decisions and then using this data to make those decisions in real time. 

One of the largest commercial carriers has been demonstrating the capabilities of AI to eliminate agent’s work by quoting business owner policies (BOPs) with nothing more than an address. While this capability is nascent, it will be expanding dramatically in the next few years. In personal lines, Plymouth Rock Insurance has demonstrated its ability to underwrite, price, sell and deliver homeowners insurance with a lower-than-average loss ratio with nothing more than an address. These kinds of capabilities are being developed now and will rapidly reduce the time agents must spend on these and similar activities in the near future. And they won’t be limited to simple accounts; they’ll also extend to the most complex middle market and large accounts, as well. 

See also: The Future of Blockchain Series

AI for agents will be able to collaborate with these smart underwriting systems and do much of the now laborious analysis required on differing policy options. When clients need service, or claims assistance, agency automated technology will handle the details. While some capabilities in these areas are already available. we will look back in the coming decade and think today’s technology is like the Model T when compared with the Dreamliner in speed and ease of use. 

With these capabilities coming soon, what will the role of the agent of the future be? I believe it will be to develop real relationships with clients that go beyond the superficial to a true understanding of the needs, wants, aspirations and fears that an individual organization or person experiences. With that knowledge, agents will be able to tailor coverage solutions in a way that is much more intimate than is possible today. 

No More Free Pass

Until now, clients have largely given insurance agencies and agents a pass on the customer experience they are now demanding from other businesses. This isn't going to continue. The average person's routine experience offers customized recommendations based on detailed knowledge and an understanding of their other interests. While this has been fairly simple in the beginning, like suggesting additional products based on purchase history, it is evolving rapidly. 

What people experience in other areas of their lives necessarily informs their expectation in others. For example, Amazon and other online merchants are now able to automatically deliver things as mundane as toilet paper to a consumer before he or she knows she needs it. Soon enough, that toilet paper will not only be delivered before it's needed, but changes in brand, quality, quantity and other factors will be done automatically on behalf of the consumer because the vendor’s AI will know before the customer does what they really want or need. 

When agents marry this type of technology to the unique human communication that will remain necessary for complex purchases like risk transfer, the future will be much different. 

Some are concerned that technology will enable businesses and consumers to bypass agents and make insurance purchase and placement decisions on the basis of their artificial intelligence alone. I don't think this is likely. It's true that properly programmed algorithms can sort and analyze data far faster than any human. But it is only the human who can look into the eyes of another human being, judge the voice tonality, body language and dozens of other nonfactual and nonverbal cues that create and power true communication. When the agent is freed from the drudgery of data analysis and manipulation, she can focus increasingly on the human aspect of serving clients. And she will be able to do so faster, better and more deeply. 

This marrying of technology and human capability will serve to increase opportunity at the same time that it lowers costs. While this future isn't here yet, it is close, so agents need to begin to prepare now to remain competitive in the future. The first step is to maximize their existing data gathering and analysis capabilities and leverage existing technologies to the greatest extent possible. The beginning point for that is the commonplace agency management system. Automating every agency process possible with current technology will prepare the forward-thinking agent well for what is coming soon.

Beyond the Transaction

The other focus for agents is behavioral. Even in middle market and larger accounts, selling insurance has become largely transactional, particularly in new business situations. Agents all too often allow themselves to be placed in the trap of providing apples-to-apples replacement comparisons. These behaviors serve neither the agent nor the client well. One has only to look at the real, genuine confusion on the part of the business community regarding business interruption policies that did not provide coverage for coronavirus-related losses to demonstrate the result of quoting a standardized set of coverages, instead of focusing on communication about coverage needs and solutions. The agent who ends the process of allowing herself to be treated as a commodity is the agent who has begun to prepare for an effective and prosperous future. 

See also: The Future of Underwriting

As agents are freed up by technology, they will have the time required to delve deeply into their client’s greatest concerns. They will have virtually limitless ways to provide coverage powered by artificial intelligence. And they will have the well-earned trust of their clients because of the deepened relationships that time and technology have empowered.

The insurance industry excels at tactics. If one is an underwriter, a claims person or contact center manager, and a problem is detected, it’s all hands on deck to solve that problem. What tactics could wrestle that problem to the ground? That’s generally the direction the industry is most comfortable with because we are a pragmatic group by nature. IoT can easily fall into that scenario: if a commercial building is tall, let’s get a drone out there to inspect the roof. If a homeowner has a water damage claim, a water sensor is going to prevent a recurrence.

To be clear, the tactical use of technology is essential. If technology doesn’t solve a problem, then it’s just a shiny object, and no insurer has time for that – or the money to dedicate to it. However, particularly in terms of IoT, some may believe that it is a one-sided coin: a tactical tool to solve a specific problem. But that view short-changes the true value of IoT. It really is a two-sided coin.

The two sides of the coin emerge when IoT devices and sensors are connected with other initiatives. SMA finds four specific initiatives that change the business outcomes and value of IoT adoption:

• Data Initiatives. Sensors and connected devices generate unfathomable amounts of data. And almost all insurers are seeking new data sources to improve decision making, processes and risk management. It is critical that insurers include IoT data sources when initiating and advancing data-related projects. Ingesting and operationalizing IoT data is easier when these sources are planned for at the outset.
• AI Initiatives. In terms of IoT, AI represents a “chicken or egg” scenario. Is the tactical value of IoT the most important thing? Or is AI necessary to bring out the value? The tactical value of IoT is good. But using machine learning (ML), computer vision and natural language processing (NLP), to mention but a few of the AI family, generates new insights from the data and takes things to a whole new level. In fact, without AI, IoT is just a tactical tool. When assessing an incumbent or insurtech IoT provider, one of the important things to ask is whether they have data skills and AI embedded in the technology. Time to business value is critical.
• Customer Experience Initiatives. There are a number of things to consider when undertaking a customer experience initiative. IoT should be one of those things. For example, Siri, Alexa and Google Voice are present in many homes. With development and planning, these devices can be a service point to make policyholder experiences easier. Leading fleet telematics technologies provide fleet owners and managers with information to assist with driver development, making it easier to conduct business. There are numerous other IoT uses related to customer experience, and taking an outside-in view can reveal many opportunities.
• Parametric Product Development. In a quest to reduce claims expenses and facilitate the coverage for perils such as drought and pandemic, once difficult or impossible to insure, insurers are turning to parametric insurance. While not a primary line of coverage, parametric insurance can provide a source of indemnity to quickly assist a policyholder with immediate expenses. Sensors are frequently key in executing a parametric product because they define the attachment point for the coverage. Insurers can expand product offerings in new competitive ways by considering how sensors can define the occurrence.  

See also: Crucial Technologies for P&C During COVID

So IoT is a two-sided coin – tactical and strategic. Both sides need to be understood and developed. Personal lines insurers are further down the road in terms of adopting IoT, but in 2021 commercial lines insurers are adopting and spending.

A recent SMA report, IoT: Connecting P&C Insurers to New Business Opportunities, provides personal and commercial survey data around what insurers are doing, furnishes examples and includes an in-depth view of business value.

2021’s Key Technology Trends Paul Carroll, Editor-in-Chief of ITL While I usually don’t believe in either Christmas songs or lists of key New Year’s trends until after Thanksgiving, Gartner recently produced an early list of technology trends for 2021 that provides some pre-turkey food for thought. The most intriguing trend is what Gartner calls the Internet of Behaviors. The name itself reeks of consultant-speak for me, but the trend is profound. It combines the ever-growing reach of the Internet of Things with a surge in ability to understand customers, based on the burgeoning array of digital interactions with them. Lots of commentators have talked about how the pandemic has accelerated the world’s move toward digital. That’s true and important, but this trend explains what comes next.  continue reading > SIX THINGS 9 Months on: COVID and Workers’ Comp by Kimberly George and Mark Walls Does COVID open the door for future infectious disease coverage under workers’ comp? Likely, yes. Read More 6 Megatrends Shaping Life Insurance by Ed Majkowski and Nicole Michaels The life insurance and retirement market is set for profound change in the next decade. Read More New Paradigm for Reinsurance by James Vickers Can the global reinsurance market morph into a new paradigm, allowing a more responsible and sustainable market to emerge? Read More How AI Can Tackle Claims Staffing Gap by Thomas Ash A job description with “acquire AI superpowers” might appeal to millennials more than “study policy footnotes and calculate claim reserves.” Read More NPS Scores Provide 3 Keys to Growth by Corey Brundage Automation, analytics and the right ecosystem of partners can drive up customer satisfaction and let carriers grow in these chaotic times. Read More How to Boost Chance of Being Acquired by Jason Andrew The founder of Limelight Health offers three key lessons on how to increase your company’s chances of being acquired. Read 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

While I usually don't believe in either Christmas songs or lists of key New Year's trends until after Thanksgiving, Gartner recently produced an early list of technology trends for 2021 that provides some pre-turkey food for thought.

The most intriguing trend is what Gartner calls the Internet of Behaviors. The name itself reeks of consultant-speak for me, but the trend is profound. It combines the ever-growing reach of the Internet of Things with a surge in ability to understand customers, based on the burgeoning array of digital interactions with them.

Lots of commentators have talked about how the pandemic has accelerated the world's move toward digital. That's true and important, but this trend explains what comes next. Once interactions become digital, they can be easily captured and analyzed in ways that in-person interactions cannot. Digital interactions can also be easily tweaked, through what Silicon Valley calls A-B testing, and continually improved in ways that make customers happier while boosting revenue for insurers.

Basically, the Internet of Behaviors -- or whatever better name emerges -- is a road map of the sort that Amazon and other tech-based giants have been following for decades. Insurers can't follow their exact road map: Regulators wouldn't come close to allowing the tinkering with prices and product features that happens with Big Tech. But insurers can still massage all the newly accessible data and develop a deep understanding of their customers and prospects, even while using digital interactions to cut costs and speed processes.

What Gartner's list calls Anywhere Operations should also be a big one in 2021, I believe. While many businesses found it surprisingly easy to switch from in-person work to Zoom meetings and other forms of digital interactions, a second wave of digital innovation should be coming soon.

Former colleagues of mine at some of the big consulting firms say that travel won't rebound to anything like prior levels -- the in-person interactions were largely designed to show a commitment to client service that would justify those hefty fees, but nobody liked it, and it is turning out not to be necessary. So, the firms are all working on tools that will go beyond today's Zoom meetings, to make remote work as effective as possible. The firms are developing digital white boards that everyone can write on at the same time, ways for people to disengage briefly from a call to have a sidebar discussion, etc.

While the consulting firms are likely to be pioneers in Anywhere Operations, the capabilities should start rolling out to the rest of the business world some time in 2021.

Cybersecurity Mesh should also become important. As a colleague of mine puts it, the firewall approach to cyber is history. It's no longer realistic to think you can build such a secure wall that you can keep bad guys out. There are just too many entry points -- as Target learned the hard way in 2013, when hackers got into its central computer system through its HVAC operation. And, if you rely on a firewall, then there aren't enough safeguards to stop the bad guys once they've breached the perimeter and are roaming around inside. The Cybersecurity Mesh approach focuses on identity. I need to continually prove my identity to the system, and then am allowed to do whatever my status says I'm entitled to do. Under this approach, the equivalent of security guards will continually interrogate actors inside a computer system and kick out those who don't belong there.

There are certainly drawbacks to this approach. The continual authentication of identity could slow processes, and hackers will still find ways to impersonate people with significant privileges in the system. But, conceptually, the Cybersecurity Mesh idea could move us beyond firewalls.

There will be many more lists soon enough on what to expect in 2021. Tis the season. But I hope this discussion serves as a useful appetizer.

Stay safe.

Paul

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

9 Months On: COVID and Workers’ Comp

Does COVID open the door for future infectious disease coverage under workers’ comp? Likely, yes.

6 Megatrends Shaping Life Insurance

The life insurance and retirement market is set for profound change in the next decade.

New Paradigm for Reinsurance

Can the global reinsurance market morph into a new paradigm, allowing a more responsible and sustainable market to emerge?

How AI Can Tackle Claims Staffing Gap

A job description with “acquire AI superpowers” might appeal to millennials more than “study policy footnotes and calculate claim reserves.”

NPS Scores Provide 3 Keys to Growth

Automation, analytics and the right ecosystem of partners can drive up customer satisfaction and let carriers grow in these chaotic times.

How to Boost Chance of Being Acquired

The founder of Limelight Health offers three key lessons on how to increase your company’s chances of being acquired.

Senior executives in few, if any, industries think in longer or broader time horizons than those in life insurance. But, thanks to persistent low interest rates, shifting demographics, technology-driven disruption and regulatory shifts and the current global pandemic, life insurance leaders have adopted a more urgent and near-term perspective. While insurers face considerable risk if they fail to take bold enough action or delay necessary investments, there is also tremendous upside potential for firms that move quickly and creatively. 

As highlighted by the most recent installment of our NextWave Insurance series, the following megatrends are reshaping the life insurance and retirement market now and setting the stage for more profound change in the next decade: 

1. Financial health and wellness: Financial well-being — or having the ability to control day-to-day finances, the capacity to absorb a financial shock and the confidence to meet financial goals — has become increasingly important to more consumers around the world. With state pension and retirement plans looking less viable, such security will be harder to achieve. 

For insurers, value propositions will highlight how they can help people live the lives they want. Offerings will be more flexible, forward-looking and “goals-based,” with an emphasis on preparation rather than downside protection. The value propositions will also reflect that more people work for themselves or participate in the gig economy. 

However, insurers will be more transparent about prompting necessary consumer behaviors to achieve goals, rather than guaranteeing outcomes, as in the past. Retirement savings products will be more holistic and offer more options as consumers’ needs change. That’s how they’ll enable individuals to follow nonlinear career paths and take nontraditional retirements, based on alternating phases of asset accumulation and decumulation. 

2. Long-term value: Investors and analysts will expand their valuation approaches to include more holistic, long-term metrics, rather than only short-term financial measures. Intangible assets, such as intellectual property; talent; brand reputation; innovation; and environmental, social and governance impacts now carry greater weight. The shift toward inclusive, or stakeholder, capitalism will help build trust with younger generations and spark broader public-private collaboration to address societal issues, including the cost of future environmental damage or social injustice. 

3. Collaboration with governments and regulators: Difficult macroeconomic conditions, underfunded government retirement programs and intense regulatory scrutiny (especially around consumers’ best interests and data privacy) will force insurers to collaborate with public authorities on multiple fronts. Other priorities: increasing financial education, facilitating product innovation, influencing public policies, including tax incentives and issuing long-term bonds. More robust consumer protections and data privacy standards, as well as financial reporting frameworks, will be designed to promote financial stability. 

See also: Speeding Innovation in Life Insurance

4. Ecosystems and omnichannel engagement: Ecosystems will continue to grow and mature, becoming a primary method that companies use to engage consumers across channels. Technology advancements – particularly in the realm of application programming interfaces, microservices and data fabrics – hold the key by enabling rapid integration and smooth data sharing. 

Insurers will create their own networks of partners to offer complementary services. They will also engage in those orchestrated by others. Ecosystems will allow insurers to focus on their specific strengths (e.g., offering particular services to niche segments) or innovate more broadly (e.g., with subscription models). Ecosystems also suit insurers looking to modernize their distribution and shift to hybrid advisory models that balance robo-advice with human interaction. Partnerships being formed today will set the stage for future ecosystem success.  

5. Capital optimization and convergence: Beyond the near-existential threat of low interest rates, macroeconomic and competitive factors are driving the quest for higher levels of capital efficiency. Mergers and acquisitions and reinsurance are key variables in the equation. 

With more capital available from a wider range of sources and increasing clarity about the need for well-being, sector convergence will accelerate among life and health insurance, retirement planning and wealth and asset management. Capital efficiency will be a key design principle for future business models, largely because it will be necessary for survival. 

6. Commoditization and customization: The long-term trend in customer preference toward greater simplicity, transparency and comparability has helped commoditize life insurance and retirement products. Increasingly, consumers perceive value through user experiences, ancillary services and trust-based relationships. That’s why flexibility and customization are imperative. Delivering the right balance of simplicity and personalization requires stronger digital and analytics capabilities.

In light of these megatrends, we see a greater appetite for operational, organizational and technology transformation than ever before. The rapid shift to remote working and all-digital customer touch points revealed how quickly companies could adapt. That ability to change quickly and nimbly will serve life insurers well in what promises to be a dynamic decade.

The global reinsurance industry has been battered by several years of underperformance. It has been hit by natural catastrophe losses, both modeled and unmodeled, social inflation, declining investment returns and diminished reserve releases and is now facing an unprecedented globally systemic loss in COVID-19. Have we now reached the point where the global reinsurance market can morph into a new paradigm, allowing a more responsible and sustainable market to emerge? Or are we seeing a reworking of old approaches that have failed to deliver the sustainable, efficient solutions that primary insurers, policyholders and increasingly society seek?

Moments like this do not come often. Arguably, the last opportunity for a reset was 20 years ago in the aftermath of the 9/11 tragedy. So, what has gone wrong, and how can we build back better?

The harsh fact is that, with a consistent weighted cost of capital in the 7% to 8% range, the global reinsurance industry has not covered its cost of capital for the last six years. A prolonged soft market has led to under-reserving on many long-tail lines, a problem that is being exacerbated by social inflationary pressures. Overreliance on pricing models that have proved unreliable has led to unsustainably low pricing, which eventually requires disruptive correction.

Despite the unsatisfactory performance, capital has continued to flow into the global reinsurance market, most notably in the very significant expansion in insurance-linked securities (ILS) over the last 10 years but also through retained earnings on existing reinsurers, which have been bolstered by investment returns. Without the constraints of capital limitation to control excessive competition, the inevitable result has been underperformance as reinsurers chased top-line growth at the expense of profit.

Fortunately, the reinsurance industry remains well-capitalized, with capital levels above the end of 2018 and only slightly reduced on the capital levels at the end of 2019. Because capital constraint is clearly not going to limit pricing competition, we must look elsewhere for drivers that will help to put discipline and structure around achieving sustainable, adequate returns.

Investment income offers a potential solution. Unlike previous hard markets, when investment rates were much higher, current investment rates remain pitifully low, and are likely to remain so for years because nearly all governments are pursuing fiscal expansion as a result of COVID-19. Most reinsurers' investment holding periods are four to six years, and they have to face the reality that low investment returns will continue.

Faced with the loss of the investment crutch, reinsurers have no option but to concentrate on improving underwriting results to generate enough margin to reward their capital. With a 7% to 8% cost of capital and return-on-equity (ROE) targets of 9% to 10%, reinsurers now need to run combined ratios in the low 90s, something the industry has not achieved for many years. This requires a back-to-basics underwriting approach to ensure that each unit of risk accepted is appropriately priced within a reinsurer’s overall portfolio. This approach inevitably means rate increases, along with changes to terms and conditions, neither of which will be easy to achieve in a global environment where many policyholders are under significant financial stress.

Reinsurers have a delicate path to navigate, but the strong capital position should let the industry ensure that risk is appropriately differentiated, and that pricing corrections are applied on a case-by-case basis in a sustainable fashion that clients can manage.

See also: 4 Post-COVID-19 Trends for Insurers

More important than addressing the short-term issues is to avoid the mistakes of the past and build a better future. Reinsurers must enhance their value to society and build long-term demand. Here, the COVID-19 situation helps, as it has moved the discussions about uncorrelated tail risk from theory to practice, and with it the demand for reinsurance. At the same time, the increased reliance on underwriting profitability is emphasizing volatility management, where again reinsurance plays a major role. Risks such as cyber and climate change also fall into the uncorrelated tail risk category, and again reinsurers have a pivotal role to play. Finally, there is the enormous opportunity represented by the uninsured economic gap. Finding innovative solutions to help society narrow the gap will lead to a complete reframing of the reinsurance market.

Achieving this will require dedication, long-term vision and the ability to build partnerships with organizations that the reinsurance market has never interacted with before, many in innovative public-private partnerships.

The opportunity to build back a better reinsurance market is clearly before us. The test will be whether reinsurers can develop transparent solutions that bridge the gap between capital that requires reasonable sustainable returns and new risks that threaten society. If the reinsurance industry fails to grasp this opportunity, it will be doomed to suffer the fate of so many, with the current generation repeating the mistakes of predecessors.

You can find this article originally published here.

There is an ever-growing push for the insurance industry to modernize, and today’s carriers are looking to find more innovative ways to do business. As an insurtech founder, you are the innovator. The products that insurtech startups offer are becoming highly sought-after by carriers, private equity firms, investors and incumbents alike. So how can you take advantage of this unique position and move your company toward an acquisition opportunity? 

As co-founder and CEO of Limelight Health, an insurtech startup offering core system sales, rating and underwriting SaaS solutions for group insurance carriers, I grew our company to eventually be acquired by FINEOS, the global market leader in core systems for life, accident and health insurance. If you’re looking to do the same, here are three key lessons I learned along the way to help increase your company’s chances of being acquired.

1. Know Where You’re Going but Remain Flexible

Early on, I wish we’d had more clarity on the Limelight Health strategy and the goals we were working toward. In hindsight, I would have spent more time building out our strategy and developing a clear vision before we did anything else. But what we did well was pivot and adjust as we learned. As Mike Tyson said, "Everybody has a plan until they get punched in the mouth."

Your journey toward acquisition will be much smoother if you know where you’re headed from the beginning. But even with this goal in mind, you shouldn’t necessarily grow your company simply for the purpose of being acquired. You should aim to grow your company to be a strong, solid business regardless of what may happen in the future. 

Focus on increasing your revenue, developing your tech stack and bringing on a stellar team to help build your company for the long term. This way, your company will thrive whether you get acquired, go public or continue as a growing and sustainable business. 

2. Build Relationships

Taking the time to make sure you’re aware of what’s going on in the market, and meeting other players in the space can be a game changer for your company. And this should include your competitors.

Oftentimes people shy away from knowing their competitors, connecting or partnering with them. But the majority of the time, it will be a competitor that eventually acquires you. If you don’t know who they are (and vice versa) and haven’t built a relationship there, you could miss out on a great opportunity. 

See also: How AI Powers Customer Contacts

By constantly building relationships in your market, you will greatly increase your chances of being acquired. You never know where a new connection could lead you, so start reaching out and working on those relationships early on. If you look back to the late '90s, when Steve Jobs came back to take over Apple and the company was in big trouble, it was Microsoft, Apple's biggest competitor, that sent the company a $150 million lifeline.

3. Identify Strengths and Weaknesses

The earlier you can begin to identify which areas your company excels in and which may need some extra attention, the better off you’ll be. By playing to your strengths and improving weak areas, you’ll build a more solid company all around, making you a more appealing candidate for acquisition. 

Have conversations with analyst firms,  M&A banks, investors, partners and competitors early on, and ask for their feedback on what your company’s strengths and weaknesses may be. Get their input on how you can strategically move your business forward with this knowledge, and strengthen your position in the market. 

Just as important as knowing your own strengths and weaknesses is knowing those of your competitors. Remember when I said you need to know your competitors? This is a big part of the reason why. If your company has a strong point in an area of weakness for a competitor, you can use this to leverage your business as the most appealing option in your space for M&A opportunities. Or, if a competitor is acquiring you, knowing their weak points will help you make a solid case for why they need your company to strengthen their own. 

See also: Innovation Comes to Risk Engineering

A Few Tips for Approaching the Acquisition Phase 

So you’ve worked through all of the points above and have built a strong and profitable business. You’re about to begin the early phases of having your business acquired by a solid prospect. Now what? 

As you move toward closing the acquisition deal, here are a few tips on how to lead your company through the process.

1. Don’t underestimate the amount of work and distraction the acquisition process will bring to focusing on business operations. 
2. Only bring appropriate staff into the acquisition conversation as needed until you’re certain you have a deal.
3. Once you know the deal is done, develop a clear transition plan with your team and take the time to listen to how your employees are feeling. At Limelight Health, one effort we are doing along these lines is hosting a virtual benefit concert to “sunset” our brand and commemorate what we’ve built together.

The COVID-19 pandemic has been with us for over nine months now, with no end in sight. During this time, we conducted several Out Front Ideas COVID-19 Briefing webinars and The Path Forward virtual conference. These educational events were designed to provide risk managers and others in the industry with a better understanding of how COVID-19 was hitting our industry. As more time passes, the impact on workers’ compensation is becoming more evident. However, we are still in the early stages of developing claims, and it will be some time before we have clarity on the full impact.

What has changed? Frankly, everything—how the industry handles claims, the types of claims submitted, how medical treatment is provided, staffing models, and the list goes on. Today’s workers’ compensation is different from what it was before the pandemic started, and it is not likely to revert to the exact model we had before March 2020. 

Defining Workers’ Compensation

First and foremost, the definition of a workers’ compensation claim has been fundamentally changed. When workers’ compensation started over 100 years ago, it was to cover traumatic workplace accidents, things that happened at a specific date, time and place. 

Over time, workers’ compensation expanded to cover occupational diseases. These diseases could be traced to exposures that were particular to the workplace and associated risks — a chronic disorder caused by work activities or environmental conditions in the workplace. In many states, workers’ compensation expanded to cover injuries occurring gradually. As a result, repetitive trauma/continuous trauma claims are now a significant cause of injuries and workers’ compensation claims in some states. 

Front and center today are infectious diseases. Workers’ compensation was not designed to cover a global pandemic. But claims for an infectious disease could be covered under workers’ compensation if there was an increased risk due to employment, and there was documentation of exposure and a diagnosis. Tens of thousands of workers’ compensation claims for COVID-19 have been covered nationally under this standard. And now we have states enacting presumptions that COVID-19 is work-related for specific occupations. These presumptions fundamentally change one of the basic tenets of workers’ compensation, the burden of proof. Typically, the affected employee would be responsible for proving that exposure happened in the workplace and that the employee is at higher risk for exposure than the public. With presumptions, employers are left responsible for proving that exposure did not occur in the workplace, which can be extremely difficult.

With these changes, one of the more frequently asked questions in the industry is, does COVID open the door for future infectious disease coverage under workers’ compensation? We participated in a Southern Association of Workers’ Compensation Association (SAWCA) regulatory roundtable discussion earlier this year, and the consensus from the panel was, yes, that door is now open.

Reinsurance

Workers’ compensation is a statutory coverage. Carriers cannot exclude specific causes of loss like other insurance coverages can. After the 9/11 terrorist attacks, the reinsurance market responded by excluding terrorism from workers’ compensation treaties. Now we see reinsurers exclude infectious disease and pandemic from coverage. Because the carriers writing the coverage cannot exclude that risk, carriers are left exposed to unlimited liabilities. There has been talk of a federal pandemic reinsurance program, similar to the Terrorism Risk Insurance Act (TRIA) with terrorism. But those talks are very preliminary. 

See also: Companies’ Biggest Unrecognized Risk

Payroll

Tied closely to the workers’ compensation industry is employer payroll. Fewer people working means fewer premiums, and the payroll in certain sectors is down significantly. The question is, when will this bounce back? Recently, the CEO of one of the largest hotel chains in the world said it would be at least 2023 before the company returned to 2019 occupancy levels. Major airlines are predicting decreased demand through at least 2022. 

But the impact is going beyond the travel industry. As many office buildings around the nation remain mostly unoccupied, all the ancillary businesses around those buildings are affected — restaurants, retailers, dry cleaners, parking garages, etc. Brick and mortar retailers that were already struggling are facing an increasing challenge. Thousands of businesses will ultimately close forever. 

When will the economy bounce back? When will we see 2019 employment levels again? Those are two huge unknowns facing the workers’ compensation industry. 

Claims Volume

Because fewer people are working in some industries, there are fewer claims. In April 2020, third-party administrators (TPAs) reported that their claims volume was down close to 50%. While that volume is bouncing back, it remains below 2019 levels. 

This decrease in claims hurts all workers’ compensation industry vendors that depend on volume, including TPAs, medical networks, medical providers, case managers and even defense attorneys. This reduced revenue may eventually lead to more industry consolidation. 

Not all claim volume is down. First responder claims are increasing more than ever before, with both the pandemic and civil unrest resulting in thousands of new injuries. Healthcare industry claims are up, as well. Some retailers, including supermarkets and big box stores, have expanded their payroll to keep up with demand. Trucking, shipping and delivery businesses have also expanded payrolls. 

Catastrophic injury claims have not decreased during the pandemic because the types of industries where there are higher incidences of such claims have kept working, such as construction, trucking and public entities. Violent attacks against first responders have also increased with the civil unrest around the nation. 

Data Accuracy

The foundation of the insurance industry is the law of large numbers and predictability. Years of accumulated data is analyzed by actuaries to determine the expected claims for the future. How has COVID-19 changed this? Unquestionably, there has been delayed medical treatment and extended disability on existing claims. The big question is, to what degree? It will take years for this change to flow through actuarial development triangles.

The pandemic has likely affected the benchmarks you used to measure your workers’ compensation programs. Employers need to reset their starting point when evaluating the effectiveness of their loss prevention and claims handling programs. 

COVID-19 Claims

As time passes, we are starting to understand better the types of claims the industry is seeing from COVID-19.

Safety National’s data shows the most affected industry group, as expected, is healthcare. However, closely behind healthcare is first responders, with police officers, firefighters and paramedics. According to the National Fraternal Order of Police, 247 law enforcement officers have died from COVID-19 through the end of October. The public entity piece is missing from the bureaus’ analysis because most of these entities are self-insured.

At this time, Safety National’s data also shows that the total number of death claims reported for employees below age 55 is almost the same as for employees over age 65. However, there are 48 times as many claims in the under-55 age group.

Sedgwick has handled over 45,000 COVID-19 workers’ compensation claims for clients. 78% of those are closed, with an average paid of $1,050. 54% of the claims had no payments made. 

Healthcare accounted for 57% of Sedgwick’s COVID-19 claims, with public entity, retail, services and food/beverage rounding out the top industry groups. 

Sedgwick claims show almost an equal distribution of claims by age group between 30 and 40 years old, up to over 60 years old. However, the average incurred in the over-60 age group is close to double any other age group. Over 71% of the death claims were for employees 51 or older. 

Overall, most of the COVID-19 claims by the workers’ compensation industry are relatively minor. However, death claims and claims with extended ICU hospital stays can have total incurred values over $1 million. 

One big question is, how will these claims develop? Will we see continued medical complications develop? Will we see permanent partial and permanent total disability claims?

See also: 4 Post-COVID-19 Trends for Insurers

The Path Forward

One way in which the workers’ compensation industry has adapted to the pandemic environment is with the increased use of telemedicine. Sedgwick still sees telemedicine on over 10% of claims. Before COVID-19, telemedicine utilization was on less than 1% of claims. 

Return to work has been a more significant challenge with business restrictions, which could increase costs on existing claims. Sedgwick data showed a 21% increase in TTD paid on active claims from March-September compared with 2019. 

Finally, carriers have to develop new models to estimate their potential exposure to future pandemics. Without question, COVID-19 will continue to affect the workers’ compensation industry significantly into 2021 and beyond.

Kimberly George with Sedgwick and Mark Walls with Safety National host the “Out Front Ideas” educational series. You can view their archived sessions here.

Since COVID-19 made its way into the U.S., insurers have been hyper-focused on customer retention.  

But priorities have shifted since the beginning of the year. A Celent survey released in January revealed that most companies were confidently readying for a year that would focus on innovation and be characterized by investments in digital claim offerings, client satisfaction strategies and process optimization. Fast forward to April, when a follow-up survey found that innovation took a back seat to customer retention, process optimization and cost-reduction measures as insurers responded to the 2020 pandemic dynamic.

One strategy remained high on the list: the need for digital transformation, especially in the area of claim payment.

A recent Metabank survey found that 42% of consumers would be more likely to stay with an insurance provider that pays approved claims within minutes. Findings from a VPay report revealed that the majority of policyholders — especially across younger generations — would change carriers to gain access to real-time payment. 

Consequently, groups that are still dealing primarily in paper for claim payment processing must act as their future competitiveness hinges on getting money into policyholders’ hands quicker. And those insurers that have already taken some action on the digital payment front — such as implementing automated clearinghouse (ACH) — can no longer rest on their laurels. Next-generation claim payment will be characterized by an expanded portfolio that considers a wide range of offerings, from ACH and virtual cards to push-to-debit and mobile e-payment. 

See also: Transforming the Claims Space

In the near term, insurers would be wise to consider how to make claim payment as convenient as possible through the provision of more payment options. For example, web-enabled solutions that enable the policyholder to quickly approve payments and opt for e-payments will become key differentiators. The lag time associated with ACH payments will not suffice any longer as the industry moves closer to real-time payment.

Consumers are also increasingly looking for personalized experiences. Options that allow policyholders to select their preferred form of payment, whether a digital offering or paper-based check, improve customer satisfaction across a wide array of generations.  

As insurers speed process reengineering strategies, many are finding that the business case for outsourcing digital payment is easy to make, according to the most recent Celent report. Findings suggested that many groups were considering pushing out non-strategic activities, such as payment, to third parties, as they lacked the infrastructure and expertise to implement and oversee a digital strategy that complies with regulatory requirements and protects security. 

A Growth Strategy for 2020 and Beyond

The introduction of COVID-19 has undoubtably left a lasting mark on the insurance sector, uncovering areas that left many companies exposed in terms of process optimization. These shortfalls only further underscore the need for digital adoption — especially as it pertains to claim payment. Insurers that embrace the digital age during COVID-19 recovery and beyond will be better positioned for future success and sustainability.

Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities

A key benefit of the technology, providing a single source of truth kept up to date in real time and accessible through permissions by all stakeholders, has huge implications for the insurance and risk management industries. This webinar begins by exploring blockchain’s promise, then dives into the technology’s use in personal lines, highlighting two production-ready use cases. The adoption of this technology could save the industry $1 billion a year.

Watch to learn:

• Where blockchain is about to make a big impact  
  
• The road map for the future of blockchain
  
• The status of active use cases and their testing schedule
  
• How to start preparing to reap the benefits

Don't miss this free on demand panel discussion.

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Presenters:

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Additional Information

Blockchain has long been seen as having great promise, but somehow just over the horizon. The benefits have now become tangible and are about to start rolling out across the insurance industry. This webinar lays out the broad promise, then dives into personal lines, where blockchain will soon go into production -- and where just the two use cases covered here could save the industry as much as $1 billion a year.

Who should watch:

• Executives at P&C companies, especially in personal lines, or any executive involved in innovation
• Technologists
• Operations executives focused on driving down costs