Insurers that are heavily dependent on traditional business models have struggled over the past year with financial strain. But automation presents an opportunity to establish short-term successes to speed up recovery and long-term results that can stimulate growth by accelerating digital transformation.

Here are the ways automation can help create resiliency in insurance organizations, ensuring that operations run smoothly and effectively:

Improving Customer Service and Employee Experience

Customer expectations are at an all-time high as digital-native brands like Amazon continue to dominate and set standards that are difficult for other companies to copy. These standards don't only appear in business-to-consumer transactions but also in business-to-business transactions that include promoting product innovation and mix. Insurers strive to deliver high-quality customer experience, but there is still a gap between what customers expect and what insurers are delivering – especially when it comes to being available at all hours and on all channels. 

See also: New Tool: Cognitive Process Automation

Typically, at an insurance enterprise, when a customer calls into the support line with a question about billing, the inquiry goes straight to a call center agent. The agent must spend time asking a myriad of repetitive follow-up questions to confirm a customer’s identity and understand the situation, then spend more time searching for a customer’s account information across multiple systems just to identify the issue. With automation, as soon as the call comes in, a software robot begins aggregating the relevant customer data for the agent. Through a combination of customer sentiment and behavior analytics, the robot then pulls actionable information into a streamlined application with quick access to next steps for the agent.

This seamless interaction means a customer has a much quicker, more personalized, positive experience, and the agent is ready with the right information to do the job efficiently and bring to the customer request to an appropriate resolution. 

It is essential that insurers invest in technology that drives a seamless digital experience at every communication channel – whether it be a chatbot, a mobile app or an interaction by phone. When an insurer is available in this capacity, it can provide customers with an easier experience and provide servicing or resolve claims at a lower operational cost. Intelligent automation links the ecosystem of traditional insurance systems with technology capabilities.

Streamlining Business Operations

In addition to the front-end benefits to the customer, automation is key to optimizing internal, time-consuming manual processes. Automation means insurance organizations can react more quickly to increasing demands from policyholders, agents and partners with innovative, customized and transparent products and pricing.

Insurance is a long-established business with tons of existing systems, including spreadsheets, PDFs, scanned documents, applications like Duck Creek and Guidewire and data from third parties such as LexisNexis. According to Celent in 2018, 45% of insurance CIOs identified heavy, disconnected and duplicative legacy systems as a key inhibitor to digital transformation. And this reality hasn’t drastically changed. According to KPMG’s 2020 CIO Survey, insurance CIOs have “improving operational efficiency” as their #1 business issue that needs to be addressed. The primary reason for lagging operational efficiency is being disconnected and multi-tech systems with non-standardized data.

See also: Keys to ‘Intelligent Automation’

Automation can be created on top of existing systems, meaning these systems can be integrated so that data and underlying processes can be much more streamlined, enabling an easier digital transformation. Once the legacy systems are integrated with automation, it’s easy to create hands-on and hands-off robots that automate repetitive tasks, reduce process costs and cycle times and free time to focus on higher-value work like pursuing new business.

Processing claims end-to-end is one high-value example of how automation can streamline operations. To begin processing a claim, an agent must collect customer information from a variety of sources, including policy administration systems, documents, third-party systems and claims processing systems. Manually looking for the right information across multiple locations – virtual or not – can be time-consuming. Once the information is collected, entering it manually into the system is a frequent source of mistakes. 

The consequences of redundant and incorrect data entry range from delays and harming the customer experience, to errors and omissions in claims information, to potential fraud and leakages – all of which are damaging to the business. Hybrid automation – the process of using a combination of unattended robots, which send cases to humans for decision making, and attended robots that sit on an employee’s workstation and trigger the employee to take a specific action to start a workflow – can take care of the entire process start to finish, eliminating many of the unnecessary mistakes while saving time and resources.

Navigating Future Disruption

This past year of unprecedented changes and hardships has CIOs and CEOs preparing for expanded digital change. Some insurers are already using automation to accelerate digital transformation and see results in their core operations, including claims, customer service and new business intake. 

The typical response to new customer needs are large, long-term investments, ranging from core system modernization to multi-channel integration, that are slow to get off the ground and drag on the time-to-value. When automation is a core technology, digital transformation can be delivered at speed, meaning faster service and faster return on investment. Modernized, automated solutions mean CIOs and senior business leaders can build the flexibility to adapt to market demands more quickly, deliver improved customer experiences and advance the business digitally transforming the legacy environment.

If all labor has dignity, employers must recognize that what furthers the soul does not feed the body, that spiritual recompense is not a dispensation from the laws governing labor: that worker retention is every employer’s job; that this job is just; that just compensation is an achievable end through the available means of life insurance. If employers want assurances from workers, if employers want to ensure workers do not leave their jobs, life insurance is a solution for management and labor. 

Life insurance levels the scales of competition, allowing employers to retain talent without bankrupting themselves in the process. Because of the flexibility that life insurance offers, employers can write and underwriters can issue policies that appeal to workers. The benefits are as diverse as any policy of workplace diversity, addressing the needs of specific workers—exceeding the needs of individual workers—by honoring workers through a combination of words and actions.

If, for example, an employer wants to introduce a deferred compensation plan and retain workers, awarding tax-free bonuses that mature within a set timeframe, life insurance expedites this plan. Life insurance makes this plan possible.

To make this plan probable, to increase the probability that employers will introduce such a plan—that takes communication. The onus is on insurers to tell employers the facts about life insurance. The onus is not expensive, though any such expense is defensible, because the price of success is responsibility. The responsibility to inform is a price insurers should acknowledge. The responsibility to lead is a price insurers should accept.

Communication works to answer the concerns of employers, whose questions include: Why invest in recruiting and training workers when someone else can profit from this investment? Why hire anyone when there is no way to stop everyone from joining another employer?

Both questions speak to matters of risk. Both questions speak to that which is containable but unavoidable. Both questions are reducible to a single question: What should employers do about uncertainty? In so many words, deal with it.

If employers want to lower risk, they should present workers with the certainty life insurance provides. If insurers want to expand their influence, they should present employers with the clarity workers deserve. If workers want to maximize their worth, they should be party to this presentation.

See also: Behavioral Science and Life Insurance

Because work is fluid and workers are mobile, the nature of work is as dynamic as the seasons and as unpredictable as the weather. What is predictable is what a life insurance policy does, when it takes effect, how much it pays and to whom it applies.

What is also predictable is the need among employers to retain their most valuable workers.

By this standard, the face value of a life insurance policy is not the total value of a life insurance policy. Not when a policy yields dividends by boosting loyalty and improving morale. 

By any standard, life insurance works to the benefit of employers and workers.

Property/casualty commercial lines carriers have ambitious plans to expand their distribution channels. Much of the change is centered on traditional channels and agents, brokers, MGAs and wholesalers. Because of that, my original title idea was, “The More Things Change, the More They Stay the Same.” However, our new SMA research shows that there is much more going on here than just upgrading relationships with existing partners. So, I settled on the tagline, “The Times, They Are A-Changin’,” even though I doubt that Bob Dylan was thinking about insurance when he penned that tune in 1964.  

Our recent survey of commercial lines executives revealed that four in five carriers have new plans underway for distribution, with less than 20% standing still. This is true for carriers focused on the small commercial segment as well as those serving mid-market and large accounts. 

Part of what’s driving these changes are the expectations of how distribution will change over the next five years. Nearly everyone expects significant consolidation and the growing influence of larger platform agencies, brokers and financial institutions – which just continues the trend and is not much of a surprise. 

But there are also significant numbers of executives who believe the entry by big tech, insurtechs and direct competitors will be a major force. This would be the expected response if the topic was personal lines distribution. But carriers now anticipate these entries in the small commercial segment and even for mid/large markets. 

There are important plans to add channels, expand business with other channels and, in some cases, even scale back the use of certain channel partners. Insurtech partnerships already abound and will continue to grow, but the use of independent agents, brokers, wholesalers, affinity relationships and direct channels are all slated for increased use. 

Let’s face it – there are two trends that are pulling commercial lines insurers in opposite directions. The first trend is in simplifying insurance for small business, especially the micro-businesses. Digital, easy-to-understand, rapid quote-bind-issue are the direction that many carriers are headed. On the other end of the spectrum, commercial lines, in general, are moving toward more and more specialization. Carriers are building deep expertise in specific industry segments and creating the right set of coverages to address the unique risks of those customers. 

The trend to simplify in the small commercial space draws carriers to partner with insurtech platforms, establish more affinity relationships and consider direct models. The focus on specialization drives companies to seek distribution partners that have expertise in those spaces and relationships with customers in those segments.  

See also: The Digital Journey in Commercial Lines

The complexity and evolution of the commercial lines marketplace favors many of the traditional players. In fact, much of the carrier investment in tech is aimed at providing advanced digital capabilities to their distribution partners. 

But it is also important to recognize that we live in a diverse world where the expectations of customers have continued to evolve, and in many ways have been reshaped by the pandemic. Thus, there is plenty of room for the more modern, digital channel alternatives to flourish, as well. 

Factor in the expanding size of the market, the potential to reach the uninsured and underinsured and the emergence of new risks – and the result is opportunity for distribution through many channel options.

The final consideration is that channels should not be thought of as silos or a binary choice to reach customers. There are many opportunities for hybrid channel solutions combining two or more types of channel partners to effectively reach customers.  

It is a time of much experimentation by both carriers and distributors. My advice to companies concerned about all the change comes from another Dylan song, “Don’t Think Twice, It’s Alright.” 

For more information on commercial lines distribution expansion strategies, see our recent research report, “Channel Strategies and Plans for P&C Commercial Lines: A View of Small and Mid/Large Commercial Segments.”  

Unlikely Icon for Insurers Paul Carroll, Editor-in-Chief of ITL As I continue to think about how the insurance industry can focus on — and brag about — its noble purpose, I’ve come across an unlikely model: Best Buy. The company was given up for dead in 2012. But a new CEO rallied the company around a clear, worthwhile purpose — to enhance people’s lives through electronics — and got away from the emphasis on just moving as much product as possible out the door (preferably items on which Best Buy received incentive payments from manufacturers). Best Buy not only served its customers better but won over employees, whose knowledge and passion about electronics could now shine through. Best Buy became a growth story again — as profits soared, so did the stock price, from $12 in 2012 to $114 today. The CEO who effected the turnaround recently published a book that is getting considerable attention, and Best Buy is getting great publicity in business books and other publications as an exemplar of the power of purpose. Purpose, profit and publicity: Doesn’t that sound like a model that insurers should try to emulate? continue reading > GET READY: THE FUTURE OF INSURANCE IS HERE Hear from Chris Cheatham, VP of Insurance Intelligence at Bold Penguin and Denise Garth, Chief Strategy Officer at Majesco as they discuss changes in the insurance industry and opportunities to supercharge your data analysis efforts.  Listen Now SIX THINGS New Picture of Total Digital Health by Brian Longe With cyber risk increasing with every data breach, phishing scam and identity threat, it’s time digital health is taken as seriously as physical health. Read More Future of AI and ID Management by Chris Koverman There is no doubt that it won't be long before nearly all identity management systems are powered by AI and machine learning technologies. Read More How to Increase Profits With Connected CX sponsored by Statflo Fostering connected experiences is vital to meeting customer expectations and succeeding in a technology-centric world. Read More Top Problems That AI, ML Help Solve by Ryohei Fujimaki As insurance carriers get better at leveraging data and predictive analytics, the focus will shift from product-led to customer-centric models. Read More Why Gen Z Should Go Into Insurance by Kristin Nease During an uncertain time for employment, the insurance field may be that sure thing Gen Z job seekers are looking for. Read More The Perils of the Purchasing Process by Kimberly George and Mark Walls Risk managers and service providers are often challenged to demonstrate the value of centralized purchasing. Read More Foreclosing Danger by Ending Foreclosures by Jason Mandel We can eliminate the fear of foreclosure by deputizing real estate agents, making them advocates of life insurance or insurance agents outright. Read More MORE FROM ITL A Conversation on Workers' Compensation, with Kimberly George and Mark Walls As the world starts to emerge from the pandemic, ITL Editor-in-Chief Paul Carroll sat down to discuss the new normal for workers’ comp with two of ITL’s most widely read contributors: Mark Walls, VP of communications and strategic analysis at Safety National, and Kimberly George, global head of innovation and product development at Sedgwick. Watch Now JUNE FOCUS: Workers' Compensation The world of work turned upside-down and inside-out beginning 15 months ago, as the pandemic shut down offices and forced so very many of us to work from home. Now that we're beginning to reverse this process, insurers will have to sort through all sorts of new issues. Here's one: When is the place where a worker works a "workplace," and when is it not? Welcome to the new world of workers' comp. Keep Reading Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2021 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

Better data means better leads for any business. But for insurance businesses, the right data can illuminate consumer behavior patterns that mean the difference between sinking and swimming. Rather than selling commodities, insurance companies must reach prospects who are on a unique shopping journey related to a major purchase or decision: a home, a vehicle, a life insurance policy. These big decisions require more scrutiny, so customer expectation is high. 

To provide that personalized experience, customer data is the fuel for converting leads into sales. To save time and costs while increasing conversion rates, insurance companies benefit from working with a trusted lead seller to know the quality of their leads. Insurers are also enhancing their first-party data with behavioral data to get know more about their customers and prospects. Doing both can have a number of benefits to the overall health of the business, including better leads, better sales and a higher ROI on marketing costs. Let’s explore why.

Improving lead qualification

For many industries, any lead will do. The purchase of a new pair of shoes, for example, isn’t exclusive to any one demographic. Everyone wears shoes, and there are thousands of different kinds, so an algorithm can take an educated guess at which ones to target. Purchase history also is incredibly helpful for industries such as this, because they can leverage past purchases to inform future possibilities.

For insurance companies working in silos, comprehensive consumer data is difficult to come by. First-party data from a proprietary website can only provide limited insights. With data limited, many companies cast a wide net, targeting consumers who are low-quality prospects—wasting both time and money. 

But there is an alternative. Insurance carriers that buy leads from comparison shopping sites—also known as lead sellers, aggregators or lead generators—can gain a significant competitive advantage. These leads need to be high-quality, qualified leads.

See also: Surging Costs of Cyber Claims

Unfortunately, a number of factors can lead to low-quality leads, so it’s essential to create a trusted relationship with a lead seller with a strong focus on lead quality and compliance. For example, if it isn’t properly filtered out, non-human web traffic creates low-quality leads, which waste time and resources for the buyer. Similarly, lead sellers that fail to ensure TCPA compliance and set expectations with the consumer about how they will be contacted can cause significant reputation risks and legal concerns for your company. This underscores the importance of building a trusted relationship with a lead seller to provide quality leads that will improve conversion rates. 

Choosing a compliant partner

For a real-life example, consider Policybind, which specializes in consumer acquisition for the insurance industry. Policybind leveraged the V!A Directory, a comprehensive directory for the lead generation and performance marketing community, to connect with new partners and better match the consumer to the agent who can best address their current need. 

To create a successful partnership with a lead buyer, it’s crucial to be discerning. Compliance with data regulations and privacy laws is paramount in dealing with consumer data, and working with a partner that keeps these elements top of mind is a must. When creating a partnership, understanding how the lead partner secures consent to be contacted from customers and maintains compliance with current regulations is essential for protecting your business. Policybind was able to gain evidence of TCPA compliance on every lead through the Publisher Partner Program.

Knowing more about your customers and prospects

Knowing your audience shortens the marketing funnel and greatly increases the chance of converting a lead. The possibilities for segmenting audiences according to different needs allows for marketing efforts to be more focused, increasing conversions and creating a greater return on marketing investment. This type of segmentation can be performed using demographic data, such as location, age, etc., or the much more valuable, behavioral data. 

Unlike demographics, behavioral data changes all the time. Leveraging it, therefore, allows marketers to target consumers based on their current needs because it provides an understanding of where they are in their shopping journey, as well as their pain points and actions. This also creates room to respond at an individual level or through micro-targeting, rather than at a group or demographic level. This personalization delivers better customer experiences and increases marketing performance. 

For insurance carriers, the pathway to faster sales and high return on marketing investment is tied to effectively leveraging behavioral data. Instead of asking what kind of audience you’re speaking to—the age, income levels, location—get all the answers that you need to meet your targets where they are by acquiring more informative insights. By enhancing first-party data and working with trusted lead sellers, you can make conversions more quickly, ensure compliance and power ROI for your marketing dollar.

Insurers, brokers and all businesses, for that matter, already know there will be people issues to deal with during and post any merger or acquisition. These issues pose real risks for companies, yet they are not always identified or addressed. With an uptick in M&A in the industry, it is timely to consider some of the most common of these risks.

Who Leaves; Who Stays – Turnover Risk  

Even before a deal is completed, some staff members may decide that they do not want to live through the turmoil and change involved in combining companies or they may fear they will not fare well in the combined company. Such staff members begin looking for opportunities elsewhere. Among the staff who decide not to be part of the new entity, there may be some whose leaving would be detrimental for the entity, for example:

• High performers,
• Staff with specialized expertise,
• Staff who have ties that will enable them to bring customers with them to the new employer,
• Staff who have a strong internal following that will enable them to bring other staff with them to the new employer.

In some cases, these individuals may have non-compete agreements with the one or the other company in the deal, which could lessen the potential impact of their leaving. However, these agreements are not always enforceable. This may be especially true in cases involving a change in corporate ownership or structure.

One way to minimize undesirable turnover in M&A situations is to talk directly with the individuals who will be vital to the new entity. However, seek advice from legal counsel about how any discussions should be handled. There are multiple potential pitfalls in discussing the future with staff, such as: 1) saying something that can be construed as a promise when it might not be possible to keep such a promise, 2) saying something that might be construed as a threat, 3) saying something that is contractually prohibited by terms in the deal. These are just a few examples among many.

 Reductions in Force – HR Administration Risk

Most M&As come with expectation that they will create economies of scale and that overall headcount will be reduced in the new entity. For that to happen, whatever reduction in force voluntary turnover does not produce will have to be made up for by management deciding who to retain and who to let go.  

The first risk in this regard is legal. Decisions about terminations need to be made in keeping with all laws and regulations involved. From starting with adherence to the Warn Act (notification requirements applicable for a certain number of terminations in a given location) through to adherence with the numerous laws and regulations regarding individual termination decisions and their combined impact on various protected classes, there are many things to keep track of. Risk certainly exists in terms of inadvertently (or intentionally) failing to comply with any one or a number of such laws and regulations.

See also: Bringing Transparency to Brokerage Selection

The second set of risks are not legal but rather assessment risks in doing staff reductions. For example, there is always the risk of mistakenly selecting better performers for termination while retaining the less good performers. There is also the risk of terminating too many staff, only to have to incur the cost of recruiting for positions that were recently vacated. Conversely, there is the risk of not reducing enough staff at the beginning, only to have to keep up a steady stream of terminations, which hurts momentum and morale in the new entity.

The ways to avoid some of these risks is to identify them early, address them with ample mitigations and monitor the status of planned mitigations. To do this well requires knowledgeable and skilled HR and other professionals to be involved.   

Culture Wars – Culture Risk

In combining companies, the question of which company and its staff is the “winner” becomes divisive, despite efforts made to avoid the appearance of “winners” and “losers” from the deal. After years of building team spirit and using motivational language about beating the competition, among other actions, companies think they can flip a switch and have staff from two different companies embrace each other. It is not so easy.

Generally, an all-out culture war ensues after a merger or acquisition. The risks that emanate from a culture war include:

• lack of co-operation among staff, which leads to errors, lost opportunities and extra expense,
• delays in getting things accomplished as “sides” bicker and negotiate,
• reputational damage as internal strife leaks into external interactions.

Among the mitigations for this are:

• the senior team models cooperation and camaraderie for the rest of the organization,
• expectations about culture are clearly communicated,
• mixed teams are formed to tackle projects with an objective third party, an HR staffer or consultant included to intervene or point out unproductive behavior,  
• cooperation is positively reinforced. 

Employment-Related Litigation – Litigation Risk 

As part of due diligence, any existing employment-related lawsuits or regulatory complaints should be disclosed. What these open cases will ultimately result in is an uncertainty. Risk is definitionally uncertainty. There is always the risk that one or more of these, if they exist, will create a loss for the new entity, whether reserved for or not, unless they are contractually transferred elsewhere. 

Perhaps more importantly, new lawsuits or regulatory complaints could arise from the nature of actions taken as part of the merger or acquisition. They could emanate from the way staff terminations are handled or from the way benefits, such as pensions, are treated.  

See also: Why Open Insurance Is the Future

Both old and new litigation or complaints to governmental agencies need to be identified as risks and accounted for within the totality of the deal construction and implementation.

EPLI and transaction insurance are available to help manage this risk.

Summary

M&A can add value yet carries a good deal of risk. Shareholders have begun to better understand those risks and to look at how well boards and management teams handle them. Companies must recognize all the manifestations of people risks and be proactive in addressing them.

The past year has provided unexpected challenges and opportunities across all areas of the insurance industry because of the COVID-19 pandemic. As businesses were forced into lockdown, many carriers wondered how they would fare, because collaborative office environments and in-person meetings are crucial to delivering quality insurance service. However, through the adoption of insurtech solutions over the course of the year, insurance companies learned to adapt to remote work without sacrificing efficiency, productivity and collaboration.

By using virtual platforms that incorporate the kinds of features and tools demanded by the reality of working remotely during a pandemic, the insurance industry has learned to benefit from increased global access and collaboration. The normalization of digital platforms and tools has increased the interest of digitizing the entire insurance industry, accelerating efforts. Having seen their effectiveness in action over the past year, carriers are seeking out more insurtech partnerships than they would have previously. 

Similarly, technology companies are increasingly developing insurtech solutions that improve the customer experience while also introducing new advantages. “The tech community has had time in last couple of years to understand what insurtech is and is now starting to approach [the insurance industry] with ideas that aren't about customer engagement; they're about new risk spaces or entirely new verticals, or they're about reducing risk in the first place,” said Stephen Brittain, director and co-founder of Insurtech Gateway, at Insurance Innovators USA. The current environment brought about by COVID-19 has served as a catalyst for insurtech innovation. The insurance industry is likely to focus on insurtech strategy and partnerships well beyond the pandemic.

Digital claims management

Previously, insurance carriers looked to partner with technology providers to help streamline internal business processes. However, there has been a growing focus on how technology can help insurers deliver customer-centricity. In many cases, the accelerated adoption of new technology by insurance carriers has facilitated remote processes for both insurance adjusters and customers. Due to the pandemic, 90% of insurance claims are now processed virtually. Insurtech software simplifies this process, allowing customers to upload relevant information and photos of their property or auto claim and providing adjudicators with augmented reality (AR) and virtual reality (VR) tools to corroborate claims and increase accuracy and efficiency when analyzing damage off-site. 

Additionally, the digitization of claims management allows carriers to use artificial intelligence (AI) capabilities to identify and prevent fraud. With more customer and claims data available, insurers can leverage AI algorithms to compare similar losses for discrepancies and develop systematic business practices that save time and money. 

Customer-centricity

While digitization can help carriers automate processes, it also primes customer’s high expectations of immediate service. The insurance industry is hyper-focused on the customer experience and delivering consistent service. Insurtech solutions enable transparent customer communication and user-friendly platforms, including comprehensive consumer portals and touchless claims capabilities. Insurance carriers that expand collaborations with insurtech providers are more likely to produce exceptional customer engagement and are better suited for growth as the legacy industry adopts the digital platforms found at the foundation of these new insurtech systems. 

See also: Role of Underwriter in Age of Insurtech

The digitization of the industry allows insurers to craft an end-to-end experience for the customer, tailoring seamless digital and virtual processes to their personal needs through integrated insurtech platforms. Carriers can provide real-time status updates and improve productivity of field adjusters through mobile applications and optimized scheduling features, completely automating processes for increased efficiency. 

The future of insurtech

This past year has been a time of impressive innovation throughout many business sectors. While many argue that insurance is becoming less visible to its consumers, insurtech providers are imagining new ways to rebrand the industry and reinvent the market. The integration of insurtech tools provides a positive spin on the industry as it progresses with technology and the user experience in mind. Big insurance companies and brokers often look to gain efficiency from new partnerships, seeking collaborators who can bring about new distribution, enhanced customer experience and novel insurance solutions.

Today, technology innovators outside of the insurance ecosystem are providing valuable insight and producing structural changes with tools crafted to drive insurance goals through data-driven insights that inform evolving business practices. Insurance carriers play a big role in helping insurtech startups thrive after this past turbulent year. These companies are building a road map for a new view of insurance.

“It is really difficult for carriers to reimagine the industry,” says Peggy Klingel, director of startup engagement for Allstate Insurance. “It is important that we support startups because we need the insurtech ecosystem to bring their invaluable perspective on the industry and where it can be improved.”

Providers can benefit from the insurtech ecosystem by investing time, providing feedback and professional mentorship, as well as capital so that innovation can thrive. In return, well-supported technology startups can craft comprehensive solutions that align with insurance carriers’ policy and claims processes to deliver a valuable, fully integrated system to the end user.

Ransomware attacks are increasing at an alarming rate -- Colonial Pipeline, JBS and now McDonald's, where cybercriminals stole some data. And those are just a few of the growing number of cybersecurity breaches being reported.

According to the Institute of Security and Technology, victims paid $350 million in ransom in 2020, more than four times the amount in 2019. Around 2,400 government organizations, healthcare facilities and schools in the U.S. were reportedly attacked.

The economic impacts from these evolving cybercrimes are massive. Apart from the loss of money paid in ransom, companies and governments have to go through several additional challenges, such as service downtime, loss of private data and recovery cost. 

This surge in ransomware attacks highlights the urgency in dealing with the national security threat before it gets out of control. Businesses should carefully evaluate every potential alternative available before paying the ransom. When hackers succeed in extortions, these kinds of crimes become more attractive. And there is no guarantee that the hackers would give the decryption keys even if a ransom is paid.

The government organizations and the private sector should work hand in hand to deal with cyberattacks and ensure data is recovered without paying a ransom. Companies should keep law enforcement agencies in the loop when tackling a ransomware attack and support the administration in disrupting the hackers’ network. There should be an aggressive, joint strategy and an unbreakable security network to combat these cybersecurity challenges.

Meanwhile, a collaborative global effort involving governments and security agencies is crucial in the fight against cybercrimes. Nations should aggressively investigate and prosecute cybercriminals operating from their land. Governments should use strategies, such as sanctions, to pressure countries refusing to act against cybercriminals.

See also: What’s Next for Ransomware

The increasing number of cybercrimes could also be exposing the security loopholes in the companies' network with employees working away from the office. Most businesses are operating remotely these days. It is important to note that not all business has the right security system in place, as they were unprepared for a sudden work-from-home migration when coronavirus struck. Organizations should implement security protocols, such as multifactor authentication, endpoint detection and response and data encryption, as well as prepare a plan to deal with these kinds of security threats before it strikes.

Another aspect to note in the recent cyberattacks is that the criminals seem to prefer cryptocurrency, which makes it difficult for law enforcement agencies to track criminals behind transactions. It is high time that the government enforces strict guidelines to ensure that the crypto exchanges follow processes such as Know Your Customer.

I started out in the industry in the dawn of Black Monday. Fast forward 30 plus years, and we’re now in the aftermath of the biggest event to shake the industry in decades.

This last pandemic year has brought into focus the digital constraints of the insurance sector, but more so the importance of being able to identify and adapt rapidly to changing customer needs. 

For the U.K., there are new pricing rules looming, too, which will make understanding the complexities and behaviors of customer segments more important. It means traditional insurance models are feeling the test of time again, and insurance providers can no longer fixate on price alone as a differentiator for new customers.

Price is right?

The regulator is clamping down on the practice of ‘price walking’ in the U.K., which has been prevalent in motor and home insurance market. Under the smog of a lack of transparency, the market adopted a practice of quietly creeping prices up, year after year. If there had been clearer communication about introductory pricing for new customers, the story might be different, but change will now be forced on parts of the industry from 2022. The change is set to affect the way insurance companies attract and retain their customers, as well as the role of price comparison websites.

Across the sector, the balance of power in the 4Ps of marketing (product, place, price, promotion) is already shifting, and the skill of building long-term relationships with customers is in demand. Price is still important, but simply being the cheapest is a potential pitfall. If you don’t understand why you are the cheapest and how your price aligns with your customer landscape, you run the risk of creating something that is commercially unviable.

Data-rich companies have the vantage point here, and the role for data analysts and data scientists is growing rapidly as the industry gears up for future models that will rely more on machine-led pricing and optimization and less on human interventions.

Getting closer to the customer

Today, we need to have in-depth understanding of our customers and design products to deliver what they need, at an attractive price – quickly. 

The late '80s -- during the start of my career -- were very different than today, but the sector hasn’t kept up with the pace of change. Back then, it would be common for prospective customers to wade through pages of confusing paper proposal forms -- filled with jargon that even insurance executives struggled to understand. While this complexity has largely (but not completely) been eradicated, insurance is still known to breed poorly designed products with difficult, one-size-fits-all questions. 

Behavior of consumers is constantly changing, and as an industry we need to keep up. Treating the market like a homogeneous mass doesn’t work anymore. Think, for instance, about small business insurance. Asking a hairdresser about their work at height or a personal trainer about whether they need tools cover, can leave these customers feeling unrecognized and unengaged by an insurance brand.

People want to be able to find and buy what they need quickly, and being reliant on an endless series of profiling questions immediately diverts from the fast digital purchasing journey that people crave. Whether people are buying the latest fashions or a financial services product, they expect a slick, tailored online journey, delivered in the minimum time possible.

The pandemic heightened the pressure for the insurance industry to respond faster. Following Boris Johnson’s announcement of the U.K.’s first nationwide lockdown in March 2020, for example, we saw bike sales rocket, an overnight switch to virtual fitness sessions and a move toward more domestic caravan holidays. Help for customers needed to immediately follow.

It was testing for an industry still hugely reliant on legacy technology and restrictive processes of the past – where product development can take months and changes to existing products are entrenched by digital limitations. 

See also: The Intersection of IoT and Ecosystems

The digital tide

There are signs of the digital tides turning. The latest briefing from CB Insights and Willis Towers Watson suggests investment in insurtech reached an all-time high in Q1 2021, with $2.55 billion across 146 deals. 

Despite the drive for change, poor-quality data can hinder digital initiatives for organizations. For the insurance sector, rapid visibility and interpretation of data is needed to understand why a product is performing as it does – so we can respond to what it is telling us. 

The success of insurance deployment is at a virtual crossroads. AI and machine learning will play an important role in getting the price and positioning right – and getting into the mind of the customer or ‘community’ you service has become more crucial.

The science of our industry is changing, and we need to move with it.

As I continue to think about how the insurance industry can focus on -- and brag about -- its noble purpose, I've come across an unlikely model: Best Buy.

The company was given up for dead in 2012. But a new CEO rallied the company around a clear, worthwhile purpose -- to enhance people's lives through electronics -- and got away from the emphasis on just moving as much product as possible out the door (preferably items on which Best Buy received incentive payments from manufacturers).

Best Buy not only served its customers better but won over employees, whose knowledge and passion about electronics could now shine through. Best Buy became a growth story again -- as profits soared, so did the stock price, from $12 in 2012 to $114 today. The CEO who effected the turnaround recently published a book that is getting considerable attention, and Best Buy is getting great publicity in business books and other publications as an exemplar of the power of purpose.

Purpose, profit and publicity: Doesn't that sound like a model that insurers should try to emulate?

Back in 2012, Best Buy was reeling from the pricing pressure that Amazon was placing on all big-box retailers and was reacting so poorly that a much-read Forbes article began, "Best Buy is headed for the exits.... It's only a matter of time." While acknowledging the competitive pressures, the article said the problem was more basic: "Best Buy just doesn’t understand its customers’ point of view."

Enter Hubert Joly, who became CEO in August 2012 after his predecessor resigned under pressure. Joly had no experience in retail but had been CEO of Carlson, a large hotel, travel and restaurant franchise business, and he set about understanding the customers' point of view from day one -- as he describes in this lively excerpt from his book, "The Heart of Business: Leadership Principles for the Next Era of Capitalism."

He soon learned that customers hated Best Buy's markups on products that they could buy for far less on Amazon. (I gave up on Best Buy during this era because a cord that would have cost me $4 on Amazon cost me $30 at Best Buy. I couldn't wait for Amazon to ship the cord, because my dog had chewed through the old one, and I needed to print something that day. As I shared my experience, I learned that loads of friends had similar stories.) Joly quickly pledged to match Amazon on prices.

He then turned to the notion of purpose and saw that, as much as we all love our electronics, we find them confusing and welcome help. I have my brilliant daughters to handle my technology needs, but lots of people need professionals. Best Buy had already moved into the services space by buying the Geek Squad in 2002; Joly expanded services in a host of directions, providing installation, consultations, even in-home visits.

Customers loved the help, as this Washington Post article describes in detail.

Now, I don't want to oversimplify the success at Best Buy and say it's entirely due to a clearly stated and worthwhile purpose. While there has been a lot of (justified) focus in recent years on environmental, social and governance (ESG), "stakeholder capitalism," and other ideas that focus on the broader role of business in our society, I don't think businesses can just find a purpose and then sit back and wait for the profits to pour in. Emmanuel Faber tried that as CEO of Danone, where he was a strong advocate for social responsibility, but investors pushed him out when they didn't see the returns they expected.

If you read Joly's book, you see that, beyond purpose, he devoted loads of attention to operational detail. For instance, he cut the space in stores devoted to physical media, like CDs and DVDs, which were losing out to streaming, and increased the space devoted to mobile phones (and small appliances like juicers, which I certainly wouldn't have pegged as big sellers for Best Buy, but which were). He also tested extensively before rolling out big changes. For instance, before promising to match Amazon's prices, he knew from pilot projects that increased volume would make up for the drop in prices.

In all, though, I think Best Buy is a model that insurance can follow. The industry certainly has a noble purpose and can build on it by using advances in technology and data to help people avoid risks and by helping tackle big societal issues, including climate change. The industry will still have to spend lots of time in customers' heads to understand their point of view, just as Joly did, and will have to pay attention to all sorts of operational detail. But the result should be more focus on advice (and less on pushing product), faster service, fewer gotchas, friendlier language in policies, etc. -- addressing all the stuff that makes perfect sense from an industry viewpoint but little to none if we, like Joly, adopt the customer's viewpoint.

If Best Buy can do it, why not us? We're even starting from a much better position: No one is writing that "it's only a matter of time" before insurance "is headed for the exits."

Cheers,

Paul

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

New Picture of Total Digital Health

With cyber risk increasing with every data breach, phishing scam and identity threat, it’s time digital health is taken as seriously as physical health.

Future of AI and ID Management

There is no doubt that it won't be long before nearly all identity management systems are powered by AI and machine learning technologies.

Top Problems That AI, ML Help Solve

As insurance carriers get better at leveraging data and predictive analytics, the focus will shift from product-led to customer-centric models.

Why Gen Z Should Go Into Insurance

During an uncertain time for employment, the insurance field may be that sure thing Gen Z job seekers are looking for.

The Perils of the Purchasing Process

Risk managers and service providers are often challenged to demonstrate the value of centralized purchasing.

Foreclosing Danger by Ending Foreclosures

We can eliminate the fear of foreclosure by deputizing real estate agents, making them advocates of life insurance or insurance agents outright.