Any consumer-serving organization knows how important both its customer experience (CX) and product development teams are. What the organization must also remember is how important the synergy between the two is.

There are many departments that keep an organization running smoothly, but two that must be in sync are your customer experience (CX) and product development teams. Your CX team has the most insight into your customers and, therefore, understands the challenges they face and that the product could solve. The most successful companies are the ones whose product teams leverage the CX team’s customer insights and drive brand loyalty. 

Steve Jobs is quoted as saying, “You’ve got to start with the customer experience and work backward to the technology.”

Here are a few tips to ensure that your CX and product teams can work together efficiently.

Align on a common goal

Despite being two different departments and playing different roles in the company, the CX and product teams must align on a common goal: to solve customer problems and create an engaging customer experience by working together.

Having a shared goal leads to more efficient teamwork and guides fluidity across teams. 

Have each other on speed dial

The CX and product teams must be in constant communication, filling in one another daily about how the customer is experiencing the product.

It’s a good idea for the two departments to connect regularly so that the CX team can share the insights they’ve gathered from customers, what drives customers to contact the company and what the general customer sentiment is when they contact the company. 

Likewise, the product team must share details about product updates that are in the pipeline. This knowledge empowers CX teams to respond to answer customer questions, troubleshoot and retain customer trust.

See also: 3 Ways to Improve Customer Experience

Focus on the feedback loop

The feedback loop is a process in which customers’ experiences with the product are analyzed and shared with the product team to create a product that better meets needs.  

The CX team must first develop a scalable system to granularly track and aggregate data about what drives customers to contact the company.

Although communicating with the customer opens a door of opportunity to improve their perception of the brand, most of the time, when a customer contacts you, it’s because the company or product has failed omehow. This failure point is where the feedback loop starts.

It is then up to CX team members to not only identify the underpinning reasons why customers contacted the company but to also provide such delightful experiences that customers feel more connected to the company than they did before. A great way to measure the latter is to request customer satisfaction ratings of that experience, taking particular note of the response rate to that survey itself. The customers who are most wowed by their customer experience (whether positively or negatively) are the ones who will take the time to respond to your survey. 

The final part of the feedback loop is for the CX team to regularly share which parts of the product could be updated, to both reduce customer servicing costs and help inform and prioritize the product development road map.

Encourage a humanistic approach to business

Make sure your customer advocates embody empathy. They are the ones who are communicating with the customers and responding to their needs. Therefore, they must have the people skills to make the support interaction as pleasant as possible. 

Entrepreneur Tony Allessandra puts this astutely, “Being on par in terms of price and quality only gets you into the game. Service wins the game.” Customer advocates are the face of the company and the first stop for your customers when something goes awry. It’s critical that they know how valuable their role is and that the company empowers them to genuinely meet customer needs.

Your customers’ expectations of their support experiences are different and may vary. Therefore, it’s critical to provide customers with various options. This can involve allowing them to connect with you through different channels, such as chat, email or phone.

See also: Elon Musk and Your Feedback Loop

As for the product team, they must continually look for ways to improve the product experience and recognize the expertise that the CX team has. This will ensure that they’re continuously learning and expanding both their product and customer expertise. 

There are many benefits when your CX and product development teams are aligned on the type of customer experience the company aims to provide. Although the two teams have different day-to-day roles, they both play an important role in helping one another create a customer experience that inspires brand loyalty.

Cyber attacks have been on the rise for years, but many organizations are unaware of just how costly cyber incidents can be and what protective measures are most effective in mitigating loss not “if” an attack will happen, but “when.” In fact, a report by Cybersecurity Ventures estimates that global ransomware damage, which includes loss of data, lost productivity, reputation damage and more, will cost organizations $20 billion by 2021.  

Many companies are still skeptical of what cyber insurance actually covers and are oftentimes unsure of which policy best suits their needs. According to Advisen’s 2019 Cyber Insurance: The Market’s View survey, “not understanding exposures” (73%), “not understanding coverage” (63%) and “cost” (46%) remain the top three identified obstacles to writing and issuing cyber insurance.

But thanks to recent developments, including the use of AI to assess cyber risk for an organization’s cyber posture, cyber insurance no longer has to be a long, drawn-out and complicated process. In other words, we can treat cyber insurance like another important tool in an organization's cyber resilience toolkit, alongside endpoint security, securing networks and the like. 

See also: 5 Things Here to Stay, Post-Pandemic

Here is how business owners can ensure they are purchasing a comprehensive cyber insurance policy, unique to their business: 

Choose a Carrier With Expertise in Technology

While many in the cybersecurity sector argue that cyber insurance isn’t effective and that prevention is the only solution, when executed correctly cyber insurance can save organizations big money and repair reputational damage. Insurance providers with expertise in cybersecurity know that policies should be specifically designed for cyber risk exposure — not associated with other lines of coverage. The most thorough policies to safeguard against cyber threats take into consideration security, cloud, compliance and other security best practices. 

As the digital landscape evolves and malicious cyber criminals find new ways to wreak havoc, cyber insurers must go beyond data breach coverage and offer policies that cover all forms of cyber incidents -- ransomware, cyber extortion, social engineering,  business interruption due to distributed denial of service (DDoS) attacks and more. Ransomware-as-a-Service, for example, is now a business in itself, with bounties doubling or tripling during 2019 and forcing the insurance industry to rethink how it approaches coverage and limits. 

Prioritize Education and Analysis

When selecting a cyber insurance policy, organizations should not only want to protect themselves but also educate themselves. The ideal policy offers dynamic, automated, insurable cyber risk assessments, providing businesses with real-time insights into insurable risks. There should be full transparency for all stakeholders: Policyholders, brokers, agents, insurers and reinsurers should have the same access and visibility to risk data.

Manage Risk Aggressively

An effective cyber insurance policy should cover the cost of a security team in the midst of a cyber attack as part of the breach response. The security team would then determine how to upgrade systems to ensure maximum privacy. From a technology standpoint, cyber insurers must anticipate possible threats and continuously evaluate underwriting practices. Another key element in risk management is evaluating the time and cost of recovery. Companies with precise plans on how to get back on their feet after a cyber catastrophe will, without a doubt, be most prepared.

See also: An Inconvenient Sales Truth

When purchasing a cyber insurance policy, you are not just paying for cyber insurance but also all of the services that go along with it. Outside of paying claims, cyber insurers must focus on providing customers with tools that empower them to learn more about the cyber landscape and better protect their businesses.

With many organizations looking to cut costs during COVID-19, some may be quick to axe security spending. Defending against cyber threats that have the power to damage entire corporations and livelihoods, however, is not an area to skimp on. Other assets in our lives are no-brainers to protect,  such as our homes, health and vehicles; there’s insurance for that. There’s no reason that companies shouldn’t add cyber insurance to their resiliency plans to prevent financial and reputational ruin.

In 2020, we find ourselves living in a world that demands a real-time shopping experience. Brands like Amazon make this experience as easy as possible by providing the option to compare one product against another product(s). The comparisons include price, features and the length of time it will take for the product to arrive. Furthermore, we can see recommended products based on buying behavior patterns, as well as related products that can be purchased to maximize the overall value. Each of these factors weigh into how, when and from whom we purchase.

Behind the scenes of Amazon’s user experience are two key technologies driving innovation: artificial intelligence (AI) and machine learning (ML). These terms are not often tossed around when referring to the current group insurance shopping experience, although there is certainly much room for carriers to integrate these innovations to their benefit. The McKinsey Global Institute reports that up to 60% of insurance sales and distribution tasks could be automated, as well as up to 35% of underwriting tasks.

Herein lie three major machine learning opportunities to unlock a better user experience for all stakeholders in the purchasing process, from sales representatives and underwriters to brokers, employers and employees. 

1. Automating Broker Emails and Required Quoting Documents

Imagine if Amazon required you to email a request every time you wanted to purchase a product, without knowing when the product would arrive, how much it would cost or whether it would even be shipped at all until three to five days after sending the original email. 

In many cases, this is the experience today for brokers who email a request for proposal (RFP) to a group insurance carrier. And so we arrive at our first opportunity for machine learning; speeding up the quote turnaround time (TAT) by automating the setup of broker emails and documents required to quote. As we peel back the onion to see how most life and disability and worksite group carriers receive and process quote requests today, it is clear how manual the current process is. This process often entails inputting data twice; once in a CRM such as Salesforce, and a second time in a quoting and underwriting engine, or spreadsheet on macro steroids.

Much of this process can be automated by leveraging machine learning to train a model that runs through thousands of previous broker email RFPs to understand broker requests, the differences between brokers and what information is required to quote the desired products. Oftentimes, brokers do not provide all the information necessary for quoting, which today is handled by placing the group “on hold.” The RFP intake specialist then has to manually email the broker back and ask for the missing information to proceed with the quote request. Machine learning can help to quickly identify what is missing, and automatically reply to the broker requesting this information and drive to completion.

See also: COVID: How Carriers Can Recover

2. Automating Plan Design(s) to Quote

Many times the RFP includes a current coverage contract or booklet that could be anywhere from 30 to 50 pages. This document contains all the clues as to which plan design should be quoted to compete with the carrier currently in force. The foundational plan design to quote starts with matching up the exact benefits for each product line and, you guessed it, going line-by-line through that 50-page contract booklet to manually hand-stitch a plan design to quote. As you can imagine, this is not the most efficient experience for the RFP intake specialist, nor the broker who ends up receiving a quote riddled with manual errors and plans that do not match up with the customer's current coverage.

In this case, a machine learning model can be trained to extract all the plan design elements from any incoming file that contains current coverage details. This ML model would be able to decipher the current carrier’s format structures and benefit naming conventions, and subsequently translate them into the quoting carrier’s structure. Of course, there are instances in which a customer's current plan design is not able to be quoted, sold and administered. In this case, a machine learning model would be able to flag any benefits that aren’t able to be translated and accounted for. To get the maximum value, this use case assumes an API integration with a quoting engine to automate plans to quote.

3. Analyzing Closed-Won and Closed-Lost Proposals 

At the moment, once a case has been either sold or lost, most carriers are not harnessing the true power of the resulting data (i.e. the insights and components required to make a winning proposal.) Carriers tend to look more closely at closed-won proposals because they have to use this data to implement policies and sold rates. But even here, the data currently being captured and tracked leaves much room for improvement.

Machine learning and AI models can be used here to better analyze which RFPs are the most likely to win based on a variety of factors. For example, an ML model could track the current carriers and rates on incoming RFPs and gather won/lost data once the sale has closed. This data can be used to inform which future RFPs are most likely to win based on the customer's current carrier.

On the flip side, closed-lost proposal data (that now typically ends up in an abyss far from any BI visualization tools) could be used to show key factors as to why the case was lost. A national life and disability carrier focused on the small group sector may have around 100,000 RFPs a year. If the close ratio is 9%, that means 91,000 proposals were lost. These thousands of proposals could be fed into a machine learning model to analyze their ingredients, in the hopes of adjusting the sales recipe to increase future close ratios.

A More Profitable Future  

Opportunities for ML and AI implementation within the group industry are evident, and these use cases will ultimately enhance the user experience as well as service policies, manage billing, process claims and handle renewals. 46% of AI vendors in insurance offer solutions for claims, and 43% have solutions for underwriting; the solutions have been far more widely used within the home and auto industry than in the group insurance sector. One important part of this approach is to identify where the "lowest hanging fruit" use cases exist, which can be implemented in a proof-of-concept fashion.

See also: How Machine Learning Halts Data Breaches

The implementations can either be achieved with internal teams or by working with insurtech partner solutions. The first and second ML opportunities outlined both exist within the RFP intake process, which can provide direct operating savings ROI, whereas the third may take longer to actualize as close ratios gradually increase. To move toward a more profitable future, it is essential that group carriers notice and take full advantage of the advancements being made in machine learning technology today.

As the COVID-19 pandemic continues, we’re learning a lot more about how insurance customers are being affected. We surveyed 6,000 U.S. consumers from May 22 to June 6, 2020 to get a snapshot of their attitudes about and experiences with insurance. Our survey uncovered the potential influence of COVID-19 on service preferences, loyalty to carriers and attitudes toward auto, homeowner, life, dental and vision coverage, as well as retirement.

As carriers navigate from their initial response to a longer-term strategy, they’ll likely need to adjust their approach based on shifts in consumer behavior. The takeaway? Financial stress correlates with dissatisfaction — but insurance carriers can improve customer satisfaction by introducing alternative pricing, bundling plans and, of course, upping their digital game.

Spotlight on consumers in this survey

• 55% do not feel financial stress right now
• 37% fear that the pandemic may cause financial impact to their retirement plan
• 15% anticipate they are likely to purchase life insurance due to COVID-19
• Source: PwC’s COVID-19 Consumer Insurance and Retirement Pulse Survey, June 2020: base of 6,000.

Consumers who faced challenges with their insurer

• 41% say they are likely or more likely to switch providers due to a lack of digital capabilities
• 15% identify lack of digital capabilities as the topmost challenge while interacting with insurers
• Source: PwC’s COVID-19 Consumer Insurance and Retirement Pulse Survey, June 2020: base of 657. Note: Percentage calculated as a subset of those who reported facing challenges with their insurer.

Budget strain tests customer loyalty in the insurance industry

As lockdowns took effect across the U.S., 45% of respondents reported financial stress. Job-security concerns — not only job loss, but also cuts in hours, pay and benefits — were the primary sources of stress. The most-cited concern (41%) was whether household income would return to previous levels.

See also: The Real Disruption of Insurance

More young households were under pressure: 73% of the 18- to 24-year-olds surveyed felt financial strain, compared with only 19% of those 65 and older. Three-quarters of respondents found federal relief helpful, at least in part. Among furloughed workers, 28% did not have a good understanding of their benefit status, including those in employer-sponsored life plans.

Tensions were running high in households with incomes of less than $50,000, where 59% felt they were under pressure. Within this group, 21% reported post-COVID-19 challenges in dealing with their insurers, half of whom were looking for more flexible billing and payment options. Four out of five (82%) in this group said they’d likely switch carriers as a result. Across insurance categories, 26% of auto and 18% of homeowner policyholders said new payment options should be standard practices as a result of COVID-19.

At all income levels, consumers indicated that they’re more willing to shop on price within the next 90 days, with levels ranging from 23% for respondents earning more than $200,000 to 34% for those in the $20,000 to $50,000 bracket. COVID-19 made price a top priority for 32% of consumers.

The top concern, among 25% of the auto policyholders, was that their decrease in driving would not be reflected in premiums. For life insurance policyholders, unsatisfactory coverage options or complex underwriting conditions were likely to prompt a potential change. Perhaps because they were mindful of the quick turn to remote staffing, consumers were less likely to drop their carrier based on the most common challenge: long call-center wait times.

Takeaways

Financial stress correlates with dissatisfaction, and it can lead customers to look for change. To avoid that, we recommend the following:

• Provide monthly billing options to help address policyholder cash-flow concerns.
• Explore forbearance or deferred payment options to help customers facing income disruption. Explain these accommodations and how customers can secure them. 
• Develop alternative pricing designed to help you retain customers. For example, consumers may be more willing to consider bundling policies or usage-based auto insurance programs, such as pay-as-you-drive GPS trackers and safe-driver telematics. Early adoption of COVID-19 rebates have contributed to high satisfaction among auto insurance customers and may have set expectations for price adjustments in other categories. 
• Consider ways to play in a bigger ecosystem — one that can meet an individual’s full financial wellness needs. Look beyond your own products and services. Consider offering more guidance and coaching to ease the worry of financial stress and help customers with the sometimes complicated trade-off decisions they need to make.

Life after COVID-19: Financial security needs grow stronger

Consumer concerns extend beyond immediate financial setbacks. COVID-19’s future impact is a top current concern: 40% of the stressed population said they’re anxious about both access to emergency funds and saving for college or other milestones, and 37% fear that the pandemic may affect their retirement plans. Many consumers worry that their workplace benefits will be cut or more coverage will be needed. Some said their experience with the pandemic has made them more open to considering life insurance (15% of respondents), supplemental health insurance (10%), disability insurance (9%) and critical-illness coverage (9%).

Takeaways

Annuities and cash-value life insurance products may be more attractive in a COVID-19 world, as older policyholders strive to preserve wealth and younger consumers seek assets to tap into in the event of a future crisis. However, the investment market volatility that makes these products attractive can also make it difficult for you to price them. We recommend you consider the following:

• Provide more conversion features without penalties that will enable customers to easily switch between products.
• Reexamine investment strategies to reduce risk and enhance payouts for longevity — creating options that pay out later — and retain cash value.
• Accelerate programs to simplify and expand access to life insurance, supplemental health, disability and critical-illness coverages.

Digital gets it done: Apps gain new acceptance in the insurance industry

Our survey indicates that as customers looked for alternate ways to update accounts, renew policies or resolve issues, online options came up short. Of those who expressed difficulties in dealing with their carriers during the crisis, 41% said they would be likely to switch providers due to a lack of digital capabilities.

When traditional channels shut down because of the pandemic, 19% of customers said they anticipated more interaction with their insurer through video chats with agents or chats via a website. They also planned to make more use of email and, especially for younger users, mobile apps.

Young consumers were most vocal about expecting digital options. Among the 18- to 24-year-olds surveyed, 53% said they were likely to use digital channels to engage with their insurers within the next 90 days, 49% were likely to purchase usage-based insurance and 49% were likely to shop around to save money on insurance.

See also: Why Traditional Insurance Won’t Work

Takeaways

Having digital capabilities has emerged as a differentiator as insurance customers are increasingly expecting to conduct business digitally. We recommend that you consider:

• Accelerating your digital development now that customers have broken old habits to embrace online and mobile channels.
• Leveraging technology to automate claims processing.
• Strengthening your self-service capabilities, which may enhance customer satisfaction and reduce operational load.

The pandemic’s early uncertainties have given way to both setbacks and a chance to operate differently. Insurers that examine customer pain points and life changes and accelerate their digital adoption have an opportunity to gain share and build loyalty.

We would like to acknowledge Anshu Goel and Susmitha Kakumani for their contributions to this article.

The insurance industry in the UAE is relatively young. The oldest insurance company in the country is less than 50 years old. The Insurance Authority, the regulatory body, was established as recently as 2007 to protect the interest of consumers.

The industry is going through rapid change. By the end of this decade, personalized insurance covers will replace the one-size-fits-all products currently available. Most of this change is a result of the consumer shift toward digital channels.

E-commerce in the UAE is booming. It is currently at more than $16 billion a year and is expected to grow 23% annually for the next couple of years. This shift has opened the doors to digital distribution for the insurance companies.

Consequently, sales through the digital channel on web platforms run by brokers, insurers and aggregators are growing by leaps and bounds. In the UAE, about five years ago, online car insurance sales accounted for less that 1% of the total motor insurance. Today, the channel contributes about 5% to 7% of the motor insurance market.

In countries such as the U.S. and India, online platforms have already become a preferred channel for purchasing both life insurance and general insurance products. According to a PWC report, 47% preferred buying insurance through one or another digital mode in India.

The COVID acceleration

The COVID-19 pandemic is an inflection point for the insurance industry in several ways. It has put life and health insurance front and center in the minds of people all over the world. The pandemic has made digitization an almost necessary condition for survival for the insurance industry. With restrictions on travel and the fears associated with even intercity mobility, the online sales channel has become paramount for insurers.

As the UAE marches toward digitization, there are some speed breakers. Despite the adoption of insurtech, there is still the need for some amount of manual paperwork during insurance purchases. For example, medical tests and policy issuance still require offline paperwork. To become truly digital, insurers need to invest more in technology.

Bumps on the road

While internet penetration in UAE is among the highest in the world, the UAE has an insurance penetration of just 1.9%; average global penetration is 6.1%. The insurance industry in the UAE is expected to grow at a compound annual growth rate of 4.2% between 2019 and 2024.

I believe that greater consumer awareness and tailored products could be the game-changers in the long term. In the shorter term, we need to accelerate digitization -- in particular, in the post-transaction phase to allow for instant issuance of the policy.

Quickly building and marketing a strong digital infrastructure is a challenge faced by many distributors. As the industry grapples with this challenge, we also need to re-engineer our operations so they can be run remotely, free from the limitations of confined office space.

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

What the future holds

Once the changes and innovations become widespread among insurers and distributors, consumers will start benefitting immensely. New, improved and custom-made insurance products to suit the various consumer life stages and financial goals would provide optimum protection against the uncertainties of life. The whole process of buying insurance would shift to digital mode -- from telemedical or video-based medicals examinations to digital fulfillment processes. Premiums will go down thanks to cost-efficient distribution channels.

As the industry moves toward an automated, technology-based marketplace, a plethora of opportunities will arise for progressive insurers and distributors to gain market share. The industry would have more data to assess and analyze individual risk factors, while distributors will have more efficient means to communicate with customers. The insurance industry in general will be able to provide a vastly superior consumer experience.

While the processing of inbound and outbound payments in insurance isn't exactly known for its speed, there are significant advancements being made by both insurers and solution providers to hasten delivery of payments and expand payment options.

A digital interaction actually happens at the speed of light – it is immediate and, being digitally based, can be controlled precisely. Insurers are now looking at sending invoices to their policyholders in the method of the policyholder’s choosing – email, SMS or even a digital wallet. The consumer can now start to change the method of payment in real time.

Consumers also want their money delivered at the speed of light, but outbound payments are still generally made by check.

Recently, SMA held an Insights to Solutions virtual event that focused on the transformation underway in the Digital Payments space. Of the insurers registered for the event, a resounding 83% stated that improved customer experience is a key motivator as they look to adopt digital payments. 67% of registrants envisioned digital payments as a key element of their digital strategy and road map.

Many of the changes needed to transform the outbound experience were also profiled at the event. The shift to digital payments requires an adaptation of people, processes and technology to make the experience successful for both the sender of the funds as well as the receiver.

At the event, we explored the impact of COVID-19 on payments. No one wants to send someone into the office just to print a check. 64% of the registrants were looking to reduce their reliance on paper checks, and 53% were seeking to reduce internal processing expenses.

The interest highlighted a focus on operational efficiency that includes offering the claimants options on an array of payment methods that are “best-fit” based on circumstances – the line of business, amount, etc.  

See also: How Claims Process Must Drive Change

Even for those who pride themselves on being high-touch, an interaction with a person does not always best serve a customer. At times, the speed and efficiency of a digital process – including immediate payments – are better. 

COVID-19 has accelerated many digital payments initiative, because advancements are needed now. There was always a need. Now there is also urgency.

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View this email in your browser | Forward to a colleague Elon Musk and Your Feedback Loop Paul Carroll, Editor-in-Chief of ITL Although I sometimes can’t decide whether Elon Musk is the business genius of our time or is two bricks shy of a load, he sure does get a lot of key principles right. The latest instance is a little-noticed announcement last week about how he is using Tesla’s auto insurance offering to create a feedback loop to help him make better cars. When an accident occurs, his designers learn immediately through the insurance arm what happened and can consider whether some modification to the car would reduce the damage or at least lower the cost of the repair. Customers will become less likely to wonder, “That fender-bender cost how much to fix?” Word-of-mouth on the cars will improve, leading to more sales, creating more data via the insurance arm, allowing for more design improvements and so on, pumping ever more money into Musk’s pockets. While emulating Musk won’t mean that you, too, can land spent rocket stages upright on floating platforms, insurers have a number of opportunities to create feedback loops and virtuous circles that could let them dominate part of the industry... continue reading > CLM CE Tracker Tracking and renewing adjuster licenses doesn’t have to be an administrative nightmare and time burden. Untangle it with CLM Tracker. Learn More SIX THINGS ‘Law of Computability’ Powers the Bionic Era by John Sviokla The bionic era automates symbolic work – perceiving and judging – and blends powerfully with the industrial era's automation of physical work. Read More COVID-19: Technology, Investment, Innovation by Stephen Applebaum There are two extremely different states existing within the insurance ecosystem: larger, well-funded participants and then all the rest. Read More Graph Theory, Network Analysis Aid Actuaries by Ankur Jain Graph and network analysis helps organizations gain a deep understanding of their data flows, process roadblocks and other trends and patterns. Read More Winning With Smart IoT in P&C Brett Jurgens, CEO and co-founder What if I told you that insurers could attract customers with smart home devices that generate interaction seven to 10 times A DAY? Learn More Voice Is the Future – Even for Insurance? by Robin Kiera Wouldn’t it be good to be among those present at the start of voice-activated assistants, a technology of the future, and gain market share? Read More The Most Underused Channel for Leads by Nick Hedges One advantage many captive insurance carriers overlook is tied to what may seem like a disadvantage— consumer preference for online research. Read More 3 ‘Must Have’ Digital Investments by Deb Smallwood Transformation has advanced five years in eight weeks, and P&C insurers need to keep up with digital platforms, payments and communications. 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

Managing business risk is a tricky thing. With an appetite too small, opportunity could be lost, but taking on too much risk could hurt profit and performance. 

Companies that are not thinking about risk are at risk!

Making the move to proactive risk management requires a culture shift, but 65% of organizations say they’re still operating with “reactive” or “basic” risk management response. Mature companies often take a strategic and calculated approach to risk management. Considering that risk = probability of occurrence x severity or consequence, mathematic analyses can help organizations avoid preventable pitfalls. Risk modeling using advanced statistical techniques has developed to align theoretical risk with real-world events and provides C-suite decision makers with quantifiable support needed to make data-informed decisions.

A Five-Step Approach to Data-Driven Risk Management

Where do smart companies start when they want to begin addressing risk? Data. 

To understand risk beyond “gut feelings” and anecdotal evidence, companies need to leverage the information that is available to them – especially in today’s data-saturated environment. These five steps can outline your path to data-informed risk management.

• Step 1: Collect your data. Often the most difficult step, identifying the right data to inform your analysis, is critical. We all know that “data is out there,” but not all data is created equal. For best results, explore different dataset options, take the time to understand how this data was collected and then clean data to ensure any risk analysis is both relevant and actionable.
• Step 2: Develop a risk model. Risk modeling allows teams to include contextually relevant predictors and relationships. If historical data exists for current risks, create an empirical model to articulate key predictors. If analysis focuses on emerging risks where no data exists, craft a theoretical risk model based on the relationships you do know.
• Step 3: Explore differing scenarios. There are probably a few risk scenarios that keep you up at night. Use your model to understand the likelihood and loss of these potential events. Estimate losses for each scenario in a metric that’s meaningful to your audience. Money? Time? Human capital?
• Step 4: Share your findings. Now it’s time to tell your story. This is where data geeks sometimes “lose their audience.” Your analysis is ineffective if decision makers do not understand the implications.  Share your findings in a way that is meaningful using relevant metrics, data visualization and scenario storytelling. In practice, this means avoiding abstract metrics in favor of direct impacts — such as potential revenue loss or downtime — and possibly using infographics to support cause and effect narratives. Connect the dots between risk and results with a relevant story that ends with actionable advice.
• Step 5: Enable action. As Theodore Roosevelt once implied, sharing a problem without proposing a solution is called whining. Once you’ve presented your model and your findings, you will likely have an understanding of the leading risk factors. Let these factors inform your recommendations for risk mitigation. This will help decision makers prioritize their resources for maximum impact. 

Sometimes, data isn’t enough

Not surprisingly however, data isn’t always enough to instigate change. As anyone who’s listened to the news lately knows, data can be manipulated and interpreted in different ways. Sometimes, we see what we want to see - it’s in our psychology - and the C-suite is not immune to this. To be human is to be biased. 

Therefore, communicating risk with data is a strong technique for neutralizing the effects of human biases, but one should be aware of common predispositions that often arise when people assess risk.  

See also: Claims and Effective Risk Management

To Be Human Is to Be Biased

The famous psychologist Daniel Kahneman highlighted the fallibility of human cognition in his work to discover inherent human biases. These biases evolved over millennia as coping mechanisms for the complex world around us, but today they sometimes impede our ability to reason. The challenge is that many of us are not aware of these biases and therefore unknowingly fall victim to their influence.

"We can be blind to the obvious, and we are also blind to our blindness." – Daniel Kahneman 

There are a few important biases to be aware of when presenting your risk analysis and recommendations. 

• Conservatism bias: People are comfortable with what they know, and we show preference toward existing information over new data. As a result, if new data emerges suggesting increased risk, an audience may resist this new information simply because it’s new. 
• The ostrich effect: No one likes bad news. When it comes to risk, people tend to ignore dangerous or negative information by “burying” their heads in the sand like an ostrich. But just ignoring the data doesn’t make the risk go away. A strong culture of risk management will help negate this effect. 
• Survivorship bias: Biases can work toward unsupported risk tolerance, as well. With survivorship bias, people only focus on “surviving” events and ignore non-surviving events (or those events that did not actually occur). For instance, a company’s safety data may show a lack of head injuries (surviving event), and decision makers may believe there is no need for hard hats. 

Communicating risk with data is an excellent start toward shifting your work culture to one of predictive risk management, but we cannot forget the human element. As you share your models, data and findings, remember to address potential biases of your audience… even if your audience is unaware of their own human susceptibility!

Although I sometimes can't decide whether Elon Musk is the business genius of our time or is two bricks shy of a load, he sure does get a lot of key principles right.

The latest instance is a little-noticed announcement last week about how he's using Tesla's auto insurance offering to create a feedback loop to help him make better cars. When an accident occurs, his designers learn immediately through the insurance arm what happened and can consider whether some modification to the car would reduce the damage or at least lower the cost of the repair. Customers will become less likely to gasp, "That fender-bender cost how much to fix?" Word-of-mouth on the cars will improve, leading to more sales, creating more data via the insurance arm, allowing for more design improvements and so on, pumping ever more money into Musk's pockets.

While emulating Musk won't mean that you, too, can send astronauts to the space station, insurers have a number of opportunities to create feedback loops and virtuous circles that could let them dominate a major part of the industry.

Companies have long tried to incorporate feedback, largely by having customer service reps' interactions interpreted in ways that can guide product design teams to fix problems or to understand customer needs that hadn't previously been articulated. Over the years, we've published articles about innovations such as improved speech-to-text translation, which let companies plumb customer calls for key phrases that could lead to insight. Just last week, we published a piece on how companies should track every time they say "no" to a customer, to see if a "yes" might be possible and lead to innovation in products or services.

What's different -- and what creates major opportunities for insurers -- are the newly available speed and specificity of insight, which can create such a tight feedback loop that the power increases over time and can lead to an insuperable advantage.

Technology companies dramatize the power of the right feedback loop. Facebook so dominates social media that it sees a huge percentage of the interactions and can mine them to see which ads work and which don't, which algorithms generate the most interactions in people's news feeds, etc. Facebook feeds its knowledge back into product design, and its competitive edge keeps growing (even though Washington is finally showing some antitrust concerns). The same holds true for Google's search engine: When Microsoft announced years ago that it was pouring unlimited resources into its Bing search engine, to take down Google's search engine, I was sure Google had nothing to fear even from a powerhouse like Microsoft. Google was seeing two-thirds of the searches, so it was learning and improving far faster than could Microsoft, which was seeing maybe one-fifth of the searches. Google Maps had the same sort of feedback edge over Apple Maps. Amazon, as the marketplace for so many goods, sees what works and what doesn't in exceptionally fine detail -- by color, by size, by time of year, by slight variation in price, etc. It's actually facing antitrust scrutiny because competitors claim Amazon uses the information to decide which products to start making on its own and enters markets with an unfair advantage.

Because insurance isn't nearly as digital as Facebook, Google or Amazon, the feedback loops will take longer to build, but they're still possible.

I'm especially optimistic about claims. As the process is being digitized, particularly with auto, there seems to me to be a great opportunity for some independent company to become good enough that it will achieve critical mass. At the moment, real progress is being made, as those involved in an accident take their own pictures, as artificial intelligence offers on-the-spot repair estimates and as coordination with the body shop at least begins digitally. But imagine what might happen if one competitor got its nose far enough ahead of others. That competitor would see so many of the claims that it could learn faster than others about just which pictures matter and how they should be taken, could finetune the AI to offer much more accurate estimates of damage (addressing what seems to be a source of many complaints at the moment) and could generally smooth the process between accident and repair by continually spotting and removing friction points. Then that company would become even more popular, giving it access to more feedback... and away we go.

Wouldn't you like to be that company?

Not every aspect of insurance lends itself to tight feedback loops. When you underwrite a batch of life insurance policies, for instance, you don't get your feedback for years or even decades on how accurate you were.

But just about anything that can be digitized allows for the kind of fast feedback that could produce a dominant information position.

Distribution is becoming digital enough in these pandemic times that at least pieces of the process could be optimized through instant feedback from agents, carriers and customers about where the pain points are. The opportunity is especially large with independent agents because, no matter how big a captive sales force is, it won't have the same scale as the universe of independents does, and information advantages are most powerful at scale (see, Facebook, Google and Amazon).

Business process outsourcing, buttressed by AI and robotic process automation, could be another opportunity for an information advantage from a tight feedback loop. That opportunity may be too immature still because, in general, if you've seen one business process at a company you've seen one business process at a company. There will likely need to be more more in common among processes before a company could swoop in and win the whole opportunity.

RiskGenius has always intrigued me as an information play, because of its AI that searches through policies to spot changes, compares clauses against similar ones in other policies, etc. If RiskGenius gets to critical mass in the number of policies in its systems....

There are surely other possible feedback loops, too, and if those of us in the insurance industry don't spot them then others surely will. Always remember what Amazon founder and CEO Jeff Bezos says: "Your profits are my opportunity."

Stay safe.

Paul

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

‘Law of Computability’ Powers the Bionic Era

The bionic era automates symbolic work – perceiving and judging – and blends powerfully with the industrial era's automation of physical work.

COVID-19: Technology, Investment, Innovation

There are two extremely different states existing within the insurance ecosystem: larger, well-funded participants and then all the rest.

Graph Theory, Network Analysis Aid Actuaries

Graph and network analysis helps organizations gain a deep understanding of their data flows, process roadblocks and other trends and patterns.

Voice Is the Future – Even for Insurance?

Wouldn’t it be good to be among those present at the start of voice-activated assistants, a technology of the future, and gain market share?

The Most Underused Channel for Leads

One advantage many captive insurance carriers overlook is tied to what may seem like a disadvantage— consumer preference for online research.

3 ‘Must Have’ Digital Investments

Transformation has advanced five years in eight weeks, and P&C insurers need to keep up with digital platforms, payments and communications.