It now seems clear that practically no issue will be left unaffected by the impending presidential election, including matters pertaining to insurance. And while health insurance has been the most dominant political talking point, the November election may also have consequences for certain aspects of liability insurance. To be sure, neither President Trump nor former Vice President Biden has made liability insurance part of their explicit campaign platforms, but some analysts believe the liability landscape may be altered by the winner in myriad implicit ways.

There is a big question about whether a new stimulus bill will include substantial liability protections for businesses that were harmed during the COVID pandemic, that have concerns about employees returning to work or that want to guard against lawsuits from customers and workers exposed to the virus. Dozens of state and federal officials have proposed reforms that would give employers additional protections from liability related to COVID, but it’s all still up in the air both locally and nationally.

Washington, D.C. Republicans—including President Trump—have been steadfast in their effort to include liability protections in the next stimulus bill, although the details are vague. As recently as Oct. 6, U.S. Treasury Secretary Steve Mnuchin proposed a $1.6 trillion stimulus package that would include $250 billion in state and local government relief as well as liability protections for businesses and workers, but a deal has not yet been struck with House Speaker Nancy Pelosi as Democrats continue to push back on several components, including those related to liability protection.

At the core of this issue is whether businesses, and even schools, will be given additional legal and financial protections against liability lawsuits resulting from COVID. By and large, Republicans evidently want to restrict a potential flood of COVID lawsuits against businesses. Otherwise, they believe that entities like businesses and schools and hospitals will see a wave of frivolous litigation that could further damage their ability to operate and that could harm the economy writ large.

Recognizing that liability protections may end up on the cutting room floor in stimulus negotiations, Senators Mitch McConnell (R-KY) and John Cornyn (R-TX) introduced the Safeguarding America’s Frontline Employees to Offer Work Opportunities Required to Kickstart the Economy Act, also known as the SAFE TO WORK Act, in late September. The bill includes a host of provisions that would make it much more difficult for plaintiffs to sue for injuries related to COVID infection.

In other words, a second term for President Trump will likely result in a more restrictive liability landscape, while a Biden presidency could find entities such as businesses, schools and healthcare facilities more vulnerable to liability suits.

See also: 5 Liability Loss Mega Trends

The problem, especially for small businesses right now, is this state of limbo, where they don’t know how this is all going to pan out. If liability protections aren’t pushed forward, either in the next stimulus or through SAFE TO WORK, businesses will most likely have to increase their liability insurance limits. But, according to analysts, they’re not going to spend that money until it becomes clear it’s absolutely necessary.

In a survey of frequent Out Front Ideas attendees, one of the biggest concerns raised by risk managers was the rapidly evolving insurance marketplace. These challenges started back in 2018, but COVID-19, civil unrest and other events have accelerated this change. At the Out Front Ideas virtual conference, a panel discussed these challenges.

Our guest speakers were:

• Daniel Aronson – U.S. casualty practice leader, Marsh
• John Csik – chief operating officer and chief financial officer, Safety National
• Lori Goltermann – chief executive officer, Aon U.S. Commercial Risk & Health Solutions
• Joseph Peiser – executive vice president, global head of broking, Willis Towers Watson

U.S. Commercial Casualty Market

Social inflation has been affecting civil jury verdicts for several years. Juries have been displaying anti-business and anti-government bias, and they have been desensitized to large awards. The combination of these factors is leading to record jury verdicts around the nation, even in cases with questionable liability. Umbrella excess liability and auto liability have been the most affected by this jury behavior.

There has also been a significant impact on directors and officers coverage. In 2019, there were over 400 lawsuits filed against public company directors, and that number is expected again in 2020. Public company D&O coverage saw a 74% price increase in the second quarter of 2020. 

The COVID-19 pandemic raised an entirely new set of risk management concerns. Businesses were shut down. When would they fully reopen? What impact would these shutdowns ultimately have on the business? In addition, risk managers faced new risks in their existing operations. Sit-down restaurants started offering delivery. Many employees shifted to working in different roles.

In the carrier marketplace, there was a change in appetite. Some carriers walked away from certain industries. New exclusions emerged, such as communicable disease, which took away coverage for much more than COVID-19. For example, a communicable disease exclusion eliminated coverage for Legionnaires disease, which was previously covered. Many carriers eliminated some communicable disease endorsements.

There was much uncertainty around the impact on claims due to COVID-19. What would the claims ultimately look like across multiple lines? What policy coverage period would apply? In medical malpractice, many coverage triggers required reporting in the policy term, so healthcare providers reported thousands of claims as a precautionary measure.

During all this, carriers started to grow concerned about the financials of their clients. Did they have sufficient collateral posted to cover potential losses? Some businesses struggled to pay premiums because of decreased revenues. Exposures changed dramatically almost overnight. New insurance regulations intended to provide premium relief to businesses created complications in the workers’ compensation market, which already had a built-in premium audit function.

U.S. Property Marketplace

The U.S. property market is experiencing its 11^th consecutive quarter of rate increases. Natural disasters like wildfires have been significant. Additionally, there have been over 18 named storms this 2020 hurricane season. Civil unrest and damage from riots have also hit the commercial property market.

One broker reported that over 91% of clients had seen commercial property rate increases this year. Even without losses, these increases have been around 25%. Those with losses are seeing rate increases over 35%.

Exclusions have also increased in this market. What started as COVID-19 exclusions expanded to pandemic exclusions and then to exclusions on all communicable diseases. Carriers are trying to eliminate any potential uncertainty regarding their exclusion of coverage of business interruption relating to disease outbreaks.

Global Insurance Markets

Many businesses have global exposures or access to Lloyd’s marketplace for some of their insurance coverage. The challenges seen in the U.S. commercial insurance market are also being seen internationally. The U.S. has seen the highest rate increases, but Australia has also seen significant rate increases. Other international locations are seeing low-double-digit rate increases across multiple lines. These are driven by large losses worldwide, including natural disasters and shareholder lawsuits against directors and officers. Carriers are also pulling back on capacity in certain countries.

The low interest rates globally are having a significant impact on carrier rates. With declining investment income, carriers have to raise rates just to stay even.

Lloyd’s has been transforming for the last few years. Lloyd’s acts as a de facto regulator for the individual insurance syndicates that operate in the market. Lloyd's started a series of reforms in recent years designed to increase profitability and is also limiting capacity. Thus, companies that are renewing late in the year could face capacity challenges with the Lloyd’s market.

Changing Terms and Conditions

Changing insurance policy terms and conditions are also being seen around the world. One big lesson in all the litigation around whether COVID-19 closures are covered under business interruption claims is that words matter.

It is also crucial to make sure you have concurrent wording in your insurance coverage towers. This is increasingly challenging as carriers move away from allowing manuscript or broker-driven policy language and only allowing the use of their policy forms.

Brokers need to work closely with their clients and the insurance carriers to develop policy language that addresses the concerns of all parties. Any change to any layer of the coverage tower harms the entire tower, as many higher layers take a “follow form” approach. Not all policy language is appropriate for all insureds, and there can be increased litigation over claims. Brokers and carriers need to make sure that the changing terms and conditions do not eliminate coverage for the day-to-day operations of a business.

Because of all the complexity in the marketplace right now, brokers must have the time with the insured and the carrier to work out any policy language challenges. The broker needs to have experts reviewing the policy language. Insureds need to make sure they are fully describing their business operations. Carriers need sufficient time to digest all this information and get approval for any proposed wording changes. Having a long-term relationship with your broker and carrier can be very helpful under these circumstances.

See also: 3 Tips for Increasing Customer Engagement

Collateral Considerations

As mentioned, carriers have significant concerns about whether the collateral they are holding is sufficient to cover potential losses below their attachment point on high-deductible policies. COVID-19 has presented an unprecedented credit risk event. Usually, such events are limited to certain geographic areas or industries, but the challenges of COVID-19 affected most businesses. It has created significant financial uncertainty around businesses.

Credit risk underwriters with carriers look at debt ratios, cash flow and business operations to develop a credit grade for each policyholder. That grade is used to determine what percentage of the projected losses below the attachment point need to be collateralized on a deductible policy. There is almost always a percentage of the projected losses that are not fully covered by collateral.

The collateral determination process needs to be transparent. What factors are being considered by the carrier? What is the financial outlook for the policyholder? The more information shared, the better the decision-making on both sides.

One of the challenges of COVID-19 was that it required carriers to analyze the collateral they were holding on their entire book of business in a short period. Carriers focused on what accounts had the most significant risk in terms of funds not collateralized and the impact of COVID-19 on their industry.

While reviewing financial statements is important, collateral decisions in this COVID-19 marketplace required much more information. Are the policyholders able to access any state or federal government relief funds? Are they issuing new debt to increase their liquidity? What changes have they made to their payroll and expenditures? How many months of their operations can they fund with available cash? Carriers also want to know policyholders' view of their future. What are their expectations for reopening and their business volume returning to prior levels?

There has been an increased volume of business bankruptcy because of COVID-19. However, for the most part, these have not been a surprise to carriers. These businesses struggled going into the pandemic, and the additional stresses were more than they could financially handle, necessitating restructuring under bankruptcy.

Advice for Risk Managers

It is imperative for brokers not just to deliver bad news to clients. Brokers need to have a game plan on how to approach the situation.

The timeline for preparing for renewal has changed. Six months before your renewal is not too early to start thinking about how you will approach it. Risk managers need to involve their company leadership to not only help develop messaging for the insurance marketplace but also to manage their expectations in terms of budgets.

Companies need to look at things at a more enterprise-level instead of just line by line of insurance coverage. Should they consider retaining more risk in more predictable insurance lines? Are there potential uninsured or underinsured exposures?

Data and analytics can assist with this analysis. Every company today is different than what it was six months ago. All the risk models are based on a risk profile that has likely changed. Companies need to know what has changed and what they expect to change further in the future.

Best-in-class loss control and business operations are now the expectation, not the exception. If you do not have this, it will be challenging to get carriers interested in providing coverage. It is important to highlight all your safety and loss-prevention activities and demonstrate how you will operationalize those across your enterprise.

Consider the use of more insurance options, such as captives and facultative reinsurance coverage. Clients need to understand their appetite for risk and their tolerance for volatility.

It is also important for companies to consider the bigger picture of their employee health and wellness and the impact that has on both their health insurance and workers’ compensation costs. As workforces are evolving and workers are pushing off retirement, that aging workforce affects your claims.

See also: Step 1 to Your After-COVID Future

The Path Forward

The theme of the Out Front Ideas virtual conference was “The Path Forward,” so we asked our guests to comment on what they see as the path forward for our industry.

Video conferencing is a crucial tool to maintain business relationships. You can video conference with underwriters worldwide, making it much easier to maintain these relationships than ever before.

Unless there is meaningful tort reform, the challenges in the insurance marketplace will continue. As long as claims continue to soar, rates will also continue to grow. Carriers, brokers and their clients need to partner to pursue tort reforms across the country.

We have shown we can continue to conduct business without in-person meetings and with many workforces working from home. What will businesses look like in the future? Companies are reconsidering which people will ultimately return to the offices and which will permanently become work-from-home. This shift will change the way that businesses recruit and retain talent and how they develop their culture.

Relationships are more important than ever. It is a mistake to sacrifice a long-term business relationship for short-term premium savings. Look at the bigger picture and make sure you partner with carriers that can meet your needs in the short and long term.

Finally, transparency goes a long way to eliminating uncertainty and making your business partners comfortable. Now is the time for risk managers to shine and show the impact they are having within their organization.

The personal and commercial property claims process has traditionally lagged well  behind other segments of P&C insurance in the adoption of technology and innovation. That officially ended in 2020, aided by a global pandemic that changed virtually everything about life and business as we knew it. Understanding the factors behind the historical lack of innovation in property claims provides insights into why and how this segment is suddenly undergoing such rapid transformation.

Auto vs. Property Claims Process Transformation

When compared with the recent impressive rate of change in auto claims, property claims appeared to be a more of a laggard than it really was – but a laggard nonetheless. To put this in perspective, U.S. auto insurance policies, premiums and claims in 2019 were approximately four times larger than property. Further, auto claims are generally more visible and more consequential to the public than property claims. And the auto claims process was broken until about 1990, with the emergence of direct repair programs enabled by internet and database technologies, so the transformation has been that much more obvious and impressive.

Industry Fragmentation

The property claims repair market is characterized by extreme fragmentation, which exceeds that in the auto insurance claims industry. This is due to several factors: 

• the relatively large number of service providers specializing in distinctly different major damage types, especially managed repair networks, as well as independent contractors, in general
• the complexity of property claims themselves, which involve the coordination of numerous general and specialty provider types for a given claim 
• the proliferation of task-specific software solutions, which are generally not integrated with one another
• the smaller influence of property insurers on the repair process as compared with the influence that auto insurers have (because of less consolidation of property insurers and because they collectively represent only about 33% of repair industry revenue while auto insurers represent almost 90% of collision repair revenue)

A high-level comparison of market fragmentation of third-party auto and property claims repair provider markets provides another important explanation of the emerging transformation in property claims. The collision repair industry has undergone significant consolidation both in terms of the numbers of repair shops and shop ownership – and consolidation continues. Since 1990, the number of U.S. repair locations has fallen roughly 50% to approximately 32,000. Moreover, consolidators have created large multi-location, multi-regional and national MSOs (multi-shop operators) and now control almost 30% of the repair industry revenue. Private equity investments and relatively inexpensive debt have provided the enormous pools of capital required to enable this consolidation.   

See also: Key Advantage in Property Underwriting

Property Claims Ecosystem

In studying the property claims, mitigation and restoration ecosystem, we identified 110 companies with material market share, which we grouped within nine distinct categories:

• Software applications for:
  • Property estimating
  • Restoration management
  • Claim management platforms
  • Accounting/financial, measurement, documentation, communication and productivity
  • Payment solutions
  • Imaging/aerial inspection
• Services:
  • Third-party administrators (TPAs)
  • Property claims adjusting and estimating
  • Managed property repair networks

Industry Consolidation

When we researched corporate ownership profiles for these 110 firms, we discovered that 45 – or 39% of them – are funded or controlled by private equity, venture capital or a few strategic investors. While there is some such investor activity in every one of the nine segments, it is most pronounced in managed property repair networks, claims management platforms and imaging/aerial inspection verticals.

These investors are fueling consolidation in these segments in much the same way as they are in the auto claims ecosystem, and will spur greater adoption of cost-effective and process innovation technologies. This is already evidenced by the emergence and adoption of artificial intelligence, computer vision, augmented, virtual and extended reality, machine learning and natural language processing across property claims.

Opportunities

Emerging Property Repair Market Opportunity

The property repair industry is 40% to 50% mature, while we estimate the auto claims industry is approximately 80% mature. This is partially illustrated by direct repair claims penetration of the collision repair industry, which is at or over 50% for carriers with higher market share (and more for some auto carriers) versus less than 10% on average for property repair.

Homeowners property insurance claims and ecosystem software and technologies market, viewed holistically, represent a significant and mostly unaddressed market opportunity. The situation closely parallels the auto insurance claims process and collision repair markets of 1990, which saw technology and economics drive vendor consolidation and carrier adoption of managed national repair programs, which were enabled by automated estimating software development, digital communications, imaging and end-to-end claims workflow tools.

Property Claims Solution Platforms

Property insurance carriers increasingly will be seeking technology-driven end-to-end property claims management solutions featuring;

• connectivity between all parties from report of loss to remediation to payment and closure
• hybrid insourced/outsourced carrier claims and repair network management capabilities, including  universal, standardized contractor onboarding, performance metrics, automated skills/needs matching, user reviews and vendor rankings.
• integration with Guidewire’s claims platform or similar partner ecosystems

Property Claims Technologies

Artificial intelligence (AI), machine learning (ML), robotic process automation (RPA),computer vision (CV), natural language processing (NLP), aerial imagery including drones and digital payments are being aggressively adopted across the P&C insurance claims process, and specifically property.

• Smart home technology adoption will mitigate and in some cases eliminate claims and losses; Bain Capital predicts that in just five years there will be 50 billion connected devices and a trillion by 2030. According to Statista Market Forecast, the global smart home market was valued at $55.65 billion in 2016 and is projected to reach $174.24 billion by 2025, growing at an annual rate of nearly 14%. While 32% of homes currently have a smart device, that number is expected to reach 52% by 2025.
• The impact of these technologies to the property claims and restoration industries is already -- and will become even more -- significant
• As residential policyholders become more comfortable with self-administered smartphone photo and video inspections of property damage reported directly, insurers will gain more control over the restoration assignment process, which will promote the use of national repair networks (and the claims management software that can manage the end-to-end process)
  • It is estimated that the use of photo inspection services can reduce field claims cost from an average $550 down to between $60 and $90 and the cost of technical inspections from $550 to $300
  • Technical inspections or VAIP (virtual adjusting and inspection programs) will fuse services, including the use of a licensed adjuster. Claims will offer faster cycle times and savings of 35%.
  • Providers of satellite and aerial images, including drones, are gaining in importance in the residential property damage identification, validation, damage assessment and repair estimation process.
  • Satellite and aerial imagery are increasingly being used by the property insurance industry for catastrophe planning and response, including damage evaluation and estimation.

Property insurance carriers now seek to avoid the effort and responsibility of managing restoration contractor selection or oversight but require a complete end-to-end workflow management platform to achieve their goal.

See also: How to Pursue Innovation in a Crisis

The property insurance claims and repair industries continue to move through a multi-segment structural transformation caused by prevailing market conditions, including industry fragmentation, consolidation, investments, revenue and geographic scale, end-to-end technology and software integration, emerging technology adoption and claims process improvement. Companies and investors that recognize the numerous opportunities presented by this transformation and solve for these dynamics are likely to be the future industry leaders.

Artificial intelligence technologies are everywhere. The great leap forward in AI over the past decade has come along with an explosion of new tech companies, AI deployment across almost every industry sector and AI capabilities behind the scenes in billions of intelligent devices around the world. What does all of this mean for the personal lines insurance sector? SMA answers this question in a new research report, “AI in P&C Personal Lines: Insurer Progress, Plans, and Predictions.”

The first step toward answering this question is to understand that AI is a family of related technologies, each with its own potential uses and insurance implications. The key technologies relevant for P&C insurance are machine learning, computer vision, robotic process automation, user interaction technologies, natural language processing and voice technologies. It’s a challenge to sort through all these technologies, the insurtech and incumbent providers that offer AI-based solutions and where each insurer will benefit most from applying AI.

The overall value rankings indicate that user interaction technologies fueled by AI are at the top of the list for personal lines insurers. Every insurer has activity underway, mostly by leveraging chatbots for interactions with policyholders and agents or using machine learning for guided data collection during the application process. Insurers see high potential for transformation in policy servicing, billing and claims – areas where routine interactions can be automated.

Robotic process automation is in broad use across personal lines, although the RPA technology is viewed by many as more tactical. There is high value related to streamlining operations and reducing costs, but most wouldn’t put it in the innovative category.

Machine learning and computer vision have great potential for personal lines in both underwriting and claims. The combination of computer vision and ML technologies applied to aerial imagery is already becoming a common way to provide property characteristics and risk scores for underwriting. Likewise, images from satellites, fixed-wing aircraft and drones are frequently used for NATCAT situations. And AI technologies will be increasingly applied to these images for response planning.

There are many other examples. But for the purposes of this blog, the main question – which technologies are most valuable – has been answered. AI-based user interface (UI) technologies, machine learning (ML) and computer vision demonstrate the best combination of high value today and transformation potential for the long term.

But perhaps the more important question is not which technologies are valuable, but rather where AI technologies are most valuable in the enterprise. The short answer is that there are so many potential value levers and so many unique aspects to different business areas and lines of business that it is difficult to select just a couple of high-value areas. That said, it is relatively apparent that underwriting and claims both present major opportunities, and activities are already underway there. There are great possibilities for AI in inspections, property underwriting, triage, fraud, CAT management, automated damage assessment, predictive reserving and other specific areas.

See also: Stop Being Scared of Artificial Intelligence

There is no shortage of opportunities for AI in personal lines. Fortunately, there are increasing numbers of tech solutions in the market and growing expertise in the industry involving AI technologies and how to apply them. Ultimately, we expect to see a pervasive use of AI technologies throughout the insurance industry. Some will become table stakes. Others will define the winners in the new era of insurance.  

Having covered developments in artificial intelligence for going on 35 years, I've long been struck by the confusing expectations. Based on what many were saying back in the '80s, we should all be working for our robot overlords by now. Yet people are also often too cautious: If I could tell my 1986 self that I'm now calling out to my Amazon Echo for random factoids that I just have to know that instant or that I'm dictating text messages to Siri, my earlier self would have called for the men with the butterfly nets.

Sorting through the confusion, I've decided that artificial intelligence is a moving target, an aspiration for capabilities that might be possible just over the horizon. Once something becomes reality -- even something as mind-boggling as speech recognition -- what was AI becomes garden-variety computing.

So, I haven't been overly surprised in my seven years with ITL to see the insurance industry light up at the prospects for AI and, at the same time, have trouble realizing them.

Two big studies released last week, one led by BCG and the other by Willis Towers Watson, shed light both on how to realize the gains that AI can provide -- and on how the industry remains unrealistic.

The study by BCG Gamma, the BCG Henderson Institute and the MIT Sloan Management Review found that only 10% of companies reported significant financial benefits from implementing AI -- so figuring out how to realize gains would seem to be in order.

The authors were encouraged by what they see as an increase in interest in AI: Their survey of more than 3,000 executives globally found that 60% have an AI strategy in 2020, up from 40% two years ago. But the authors argue that simply having a strategy -- what they call "discovering AI" -- only gives a company a 2% chance of significant financial benefits. ("Significant" means a gain of $100 million in revenue or a $100 million reduction in costs for a company with annual revenue of more than $10 billion, and proportionally lesser gains for smaller companies.)

The authors say that even moving into the "building phase" -- getting the right data, technology and talent and organizing them within a corporate strategy -- only boosts the odds to a 21% chance of success.

Companies can help themselves a lot, the authors say, if they figure out how to iterate with targeted users on solutions that AI might offer -- achieving this "scaling stage" lifts to 39% the prospects for significant financial benefits.

The study finds that the final, "organizational learning" phase -- "orchestrating the macro and micro interactions between humans and machines" -- makes the biggest difference. Getting to that stage gives businesses a 73% chance or reaping big benefits from AI.

The report cites two key factors for companies that hope to move into successively more mature phases:

• Use as many feedback mechanisms as possible to improve the capability of the AI. There are three possibilities: Humans can provide feedback to the AI; humans can take feedback from the AI; and the AI can teach itself. The report finds that the AI is five times as likely to produce real benefits if all three types of feedback are used than if just one type of feedback is.
• Be willing to change existing processes to incorporate the AI rather than treat it as a separate animal. In other words, don't just assume that you're training the AI; realize that the humans need to be retrained, too. The authors report that companies that changed business processes extensively were five times as likely to succeed as those that didn't.

Fair enough. All that makes sense.

But the second study I saw last week, from Willis Towers Watson, suggests that we're going to be overly optimistic about our ability to absorb AI -- even if we know we're going to be overly optimistic.

The study looked at seven ways that insurers intended to use AI and found a consistent pattern: Asked in 2017 about plans for 2019, insurers expected huge gains. Surveyed again in 2019, the insurers hadn't come close to achieving their goals. Asked about plans for 2021, though, insurers were undaunted; they predicted even bigger improvements than the ones they failed to achieve by 2019.

For instance, asked about using AI to remove bottlenecks in claims, 3% of insurers said they were already there in 2017, but 30% expected to be there by 2019. Actual number? 7% said they hit the goal in 2019. So you'd think insurers would be chastened, and perhaps 10% -- maybe 15% -- would expect to achieve that goal by 2021, right? Nope. 43% say they'll get there.

I was reminded of this sort of inability to escape a recursive logical fallacy earlier this month when a fascinating fellow I interviewed 30 years ago up and won the Nobel Prize for Physics because of work he'd done on the mathematics of black holes. On the side, Roger Penrose shared ideas with Dutch artist M.C. Escher (including about what are known as the Penrose steps), and following our talk I picked up what turned out to be a profound book, "Godel, Escher, Bach," by Douglas Hofstadter. Among the many insights was what is known as Hofstadter's law, which the author posited about any task of sufficient complexity: "It always takes longer than you expect, even when you take into account Hofstadter's Law."

While he was largely referring to programming, I embraced the idea about my various writing projects and posited what I called Carroll's Corollary, which says: "Writing always takes longer than you expect, even when you take into account Carroll's Corollary."

That's all a long way of saying that, while I'd love to be able to give you clear guidance on how to be more realistic about how quickly you'll be able to adopt AI, I realize this is a hard problem. I mean, I have trouble just figuring out how long it'll take me to write Six Things each week.

The only solution I know is calibration. If you're one of those companies in the Willis Towers Watson study, and you're making projections for a couple of years out, don't just start with a blank sheet of paper. Go back and look at the projections you've made previously and see how they've panned out. If, like most, you've been overly optimistic, look into why. Then be specific about the assumptions that have to hold true for you to be right this time around, and see if you aren't making the same mistakes you made last time.

You'll likely still be too optimistic, at least according to Hofstadter's Law, but you'll get better at predictions over time. Eventually -- who knows? -- maybe AI will solve the problem for you.

Stay safe.

Paul

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

AI Ends Guesswork in an Uncertain World

AI is highly sensitive to new data and tends to react immediately, creating a dynamically updated vision of the future.

How to Pursue Innovation in a Crisis

It’s common in crises to pause or cut investments, including in innovation, yet this is an incredible time to innovate. Here are five tips.

Speeding Innovation in Life Insurance

Life insurers have been flirting with a new digital paradigm in underwriting, health protection and remote claims. Perhaps now is the time.

Private Equity Drives Change at Agencies

Independent agencies haven't fundamentally changed the way they do business in 100 years but now must greatly up their game or sell.

How Risk Management Differs From Insurance

If you call yourself a risk manager when you are really only selling insurance, are you representing yourself truthfully?

A Future-Proof Operating Model

Insurers need an operational model with adequate agility to follow market fluctuations. It’s time to outsource all non-core activities.

This year continues to present challenges that force us all to think differently. The pandemic response promoted independent action, self-help and a heightened sense of social responsibility. This has accelerated the harnessing of technology as solutions for how we work, communicate, access healthcare, buy goods and receive services. Perhaps more than ever, we are aware of the risks we take and how they affect our chances.

For insurers, the focus on health and wellbeing could be a signal to launch new types of technology-led digital services and support for policyholders. Individuals who are embracing remoteness demonstrate a more open-minded attitude to sharing their data when using technology to get things done. Changes in patterns of working may have revealed shortfalls in existing protection product design that present an opportunity to do things differently.

The pandemic has cruelly also exposed the comorbid impact of previously reversible conditions, including diabetes, obesity and poor cardio-respiratory health. The socioeconomic consequences have also highlighted the financial inequalities behind the increased prevalence and unequal distribution of mental ill-health. Insurers will be asking themselves if they can do more to help.

A new era of preventative healthcare and remote monitoring means individuals can take control of their health by leveraging technology. Right at this moment, insurers have an excellent opportunity to engage customers with products that add some real value. Life practitioners have been flirting for some years with the idea of a new digital paradigm in underwriting, health protection and remote claims management. Perhaps now is the time for it.

Insurers aim to provide as many people as possible with financial protection. As recent claims have provided a grim reminder, life insurance protection helps when all is lost, but products linked to health-boosting technology could help to prevent loss. Flexible disability income products that better serve home and gig workers could have eased the burden on government during the current pandemic. Developing products based on parametric design, such as digital health software, may allow consumers to receive much fairer levels of coverage by deploying technology that avoids medical exclusions.

Offering products that offer flexible help rather than pure indemnity is only one aspect of improvements made possible by technology. Simplifying the road to policy issuance is another. Chatbots and automated processes can link customers to insurers and provide faster response times and increased levels of service with less hassle. Emerging technologies are promising to augment and replace current medical underwriting; digital apps and platforms are proven to improve medical outcomes. In view of these developments, insurers should leverage the new awareness about health and financial risk by appealing to consumers who have experienced for themselves the brittle nature of social support.

See also: COVID, and How to Pivot to Innovation

The life insurance industry has very effective with longstanding protocols that work well, and it has a low appetite for swapping proven methods for new ways of working that may not be as robust. But we are not promoting technology for the sake of it. Proxies for medical risk assessment, for example, will emerge as perfect replacements for health record paper chases and tricky questions on application forms. It is also important to offer safe solutions in this context, particularly in health interventions. The importance of safe solutions underscores the importance of selecting carefully from the large numbers of potential solutions, choosing only those with convincing scientific underpinning.

We all like technology that provides what we want while keeping our data safe. People, however, are also willing to engage and share data in return for something tangible. Working with these two factors, customers will soon be willing to offer disclosures of their digital health metrics in exchange for the benefits of health monitoring if they know their data will be protected and kept private.

This is a period of opportunity for the life insurance industry. Over the next 18 months, the smartest and most nimble insurers will take the collaborative action necessary to develop and deploy tech-based solutions for the new normal needs.

You can find this article originally published here.

No business has escaped the impacts of COVID-19. Whether a company is managing demand that is skyrocketing or plummeting, finding workarounds for a fractured supply chain or enabling employees to work safely or from remote locations, leaders have been forced to take on priorities that few could have imagined. They are reshaping priorities, reassigning resources, reducing and eliminating expenses and making dramatic organizational changes. They are making split-second decisions with incomplete information, uncertainty about the future and no experience managing through a pandemic.

It’s common in crises to pause or cut investments, and innovation may be among the first areas seen as expendable when belt-tightening. Yet, this is an incredible time to innovate. Important, unsolved problems with potential to scale are everywhere. The situation is manageable with the right mindset, by taking actions that are within a leader’s control.

Here are five recommendations to advance innovation at a time when resources are tight:

Start by revalidating your innovation priorities

That list of priorities that you entered 2020 with, which seemed baked into the annual plan? You may need to scrap or temporarily shelve pet initiatives that no longer make sense, however frustrating and disappointing that feels. Take stock of what matters the most right now. Look at the innovation plan and align with the overall strategy of the business. Priorities will continue to shift, so continue to listen carefully and be educated about the business’ overall performance.

What external signals are you looking at to be able to detect where the innovation spaces have shifted?

What customer insights—qualitative and quantitative—are you accessing to understand how market needs have changed, and what this means to the innovation road map?

Make sure that the greatest sources of customer value make it to the top of the priority list. Stop things that do not make sense.

Challenge the orthodoxies of what is required to innovate

Think like a startup founder and take budget off the critical path to making progress on new concepts with evidence of potential. Startups don’t have big budgets to hire market research firms, buy syndicated studies or build production-ready systems. They are scrappy. The few people involved roll up their sleeves and figure out how to drive progress to generate enough evidence that, even in a scarce resource environment, seed capital can be justified.

I have shared the story of a particularly resourceful founder who built his first product prototype from parts he and his son scrounged one Saturday morning in an auto parts junkyard. Where’s your junkyard? How can you get to the next milestone on “good enough” terms to expand your base of support?

See also: COVID-19: Technology, Investment, Innovation

Overhaul execution processes that no longer make sense

Great innovators are skilled at asking the right questions, the right way. In any established organization, execution and decision-making processes that may work well for running a mature business are in all likelihood inappropriate for creating what’s next.

Ask, “Why do we do it this way?” and you may be surprised at the answers; it could well be that nobody knows—it’s just always been that way. Asking this simple question could open the opportunity to set aside outmoded practices, replacing them with agile techniques that improve the clock speed and quality of your work.

Rethink the hows of delivery to do more with less

Startup team members often "multi-hat." They take an all-hands-on-deck approach to closing resource gaps. To do this successfully, though, requires team members who are capable of stretching beyond the boundaries of specialist roles. Effective multi-hatters:

• Are curious and continuous learners, pursuing opportunities to expand their skills.
• Collaborate, reaching out to colleagues and members of their networks for help and advice.
• Contribute to a culture where diverse perspectives are welcome and people feel included.

Borrow from the field of improvisation

Trained improvisation artists are models of resourcefulness. Improvisation is all about learning and doing on the fly—having a second or two to react to what just happened, and not really knowing what is coming beyond your contribution.

Anyone can learn the basic skills of improvisation. The core principle is captured in just two words: “Yes, and…” Make sure you are a “yes, and” person, not a “no, but” type, and you will invite creativity and constructive problem-solving that will move concepts forward far more efficiently.

“Yes, and” is a simple tool that can make any innovator more effective.

See also: 3 Silver Linings From COVID-19

As companies across the world tighten expenses and investment budgets while striving for resilience and sustainability in a suddenly changed world, the need to advance innovation in all of its many forms is an imperative. Finding ways to advance the organization’s innovation priorities takes extreme focus, new ways of working and alignment with the business’ strategy. Leaders who can enable innovation under today’s resource constraints will unlock the many opportunities being created by the pandemic and its effects and will thrive in this environment and whatever comes next.

You can find this article originally published here.

How many of you have ever put together a proposal for a prospect, and the more you worked on it, the more excited you got? By the time you have it finalized, it's all you can do to not run over to their office right away. After all, it is SO OBVIOUS that you have the right solution for them. There is NO WAY they could say "No." This one is in the bag!

But the unexpected “No” happens all the time, doesn't it?!

Change has always been hard

Over the past several years, there has been a renewed interest in the unbundling of medical plans and the assembly of more creatively designed self-funded plans. It has become apparent how broken the system is and how much wasted money it sucks out of consumers’ wallets.

Benefits advisers have been educating themselves on where to look for the waste and restructure plans by implementing value-based insurance design (VBID) principles into self-funded plans. Quite often, these plans allow employers to improve the benefits they provide to employees while significantly reducing the costs.

We have regularly discussed, online, and in previous blogs, the frustration advisers have had with employers’ hesitation to make the changes necessary to put a new plan in place. "Thanks, but we're going to stay where we are," is a common, if seemingly irrational, response. Even when it comes with increased benefits and may offer cost savings as much as seven-figures.

Many factors contribute to the reluctance, but it just goes to prove something we all know. Change is hard; it always has been and always will be.

As the saying goes . . .

We don’t embrace the pain of change until the pain of not changing becomes greater.

Our ability to ignore the current pain is truly perplexing.

Until change is forced on us

The reality is, in a typical business environment, our circumstances evolve so gradually that we have the luxury of managing change on our terms. Oftentimes, the process includes making a conscious decision not to change at all.

And then came the pandemic.

The pandemic has FORCED unprecedented change on everyone. Not only have we all had to face change, but we have also had to face it at an unprecedented pace, level and frequency in EVERY aspect of our lives.

It’s safe to say we’re all exhausted.

Business owners are no different and may be the most tired of all. They have change fatigue and are saying unapologetically, “I’m not forcing ANY additional change on my employees.”

This is adding a hurdle to your challenge of bringing creative solutions to employers. When they arguably need these ideas more than ever, their aversion to additional change is at an all-time high. Not only are employers less inclined to move to self-funding right now, but they are also less willing to move from one fully insured carrier to another.

“NO MORE CHANGE” is a literal demand.

Change the change you ask them to make

This really sucks for those of you whose client acquisition strategy depends on prospects making plan changes in order for you to write a new client.

We recently asked on LinkedIn, “How are prospects responding (compared with pre-COVID) to recommendations to change their medical plan in exchange for significant savings?” 68% said they are finding prospects “less likely to change.”

However, this doesn’t mean you can’t be acquiring new clients right now. It merely means that, more than ever, you have to separate the business owner’s decision to work with you from the decision the owner makes about which plan to offer employees.

See also: An Inconvenient Sales Truth

Employers are faced with two primary decisions regarding their benefits program:

1. the decision of which plan to offer and
2. the decision of the adviser with whom they will work.

SOMETHING has to change

You can argue all day about what a bad decision it is for employers not to make plan changes, but that is the reality of where they are today. If you insist on showing up at renewal with a spreadsheet, you will quickly become a victim of their organizational change fatigue.

So, change when you are showing up and the decision you are ask them to make.

We write all the time about how critical it is for you to bring a broader, more consultative approach to the sales process. We preach all the time that there are countless opportunities (communication, technology, compliance, HR resources, etc.) for you to bring improved results to your clients that don't necessitate any modifications to their benefits program.

Use this to your advantage. Yes, businesses have change fatigue. As much as they may ultimately benefit from a change, the last thing they want is the thought of anything else being disrupted.

They want and need relief. Lead them there, my friend.

The off-renewal, consultative sales process we have always promoted as a competitive advantage has quickly become a non-optional approach. Clients may fight irrationally against anything that brings additional change to their team. Still, they will embrace in a heartbeat a partner capable of delivering a respite from the challenges they find themselves dealing with every. single. day.

You can find this article originally published here.

The independent insurance agency industry is being disrupted, but the disruption is not necessarily coming from the place everyone fears, which is technology. The sustained boom in agency acquisitions by large national brokers, regional agencies and especially private equity organizations is, in effect, hollowing out the middle of a traditional industry. In fact, my recent discussions with industry experts suggest that if the pace of recent agency acquisition continues, the remaining “investable” agencies could be depleted in just four years. 

The acquirers are bringing increasing financial sophistication and technological capability to the industry to earn a return on the increasingly high prices they are paying for the underlying asset. This fact has important implications for agency owners who are interested in preserving the legacy of their business by not selling to a larger organization: To remain competitive and maintain traditional profitability levels, locally owned independent agencies must match the big organization’s sophistication. 

The biggest difference between private equity or other acquirers fueled by the stock market and locally owned agencies is their ability to gather, analyze, manipulate and use data to improve their operations, cost structures and organic growth. There are two pieces that agency owners need to understand. The first is the human capital capability for analysis and decision making; the second is the systems, software and other capabilities these organizations invest in to provide the data and analytics they need. Let's begin there. 

Data-Driven Change

For an agency to grow beyond a couple of million dollars of revenue, it needs a deeper understanding of the books of business and clients. As agencies grow, they tend to make increasing use of their fundamental software system, the agency management system (AMS). However, that is just the beginning point for an agency fueled by private equity. Such agencies also use software like Risk Match, which tells them at the account level what carriers will pay them for the business they're writing and how individual accounts will afect profit sharing. This granular data and analysis helps large agencies make very sophisticated decisions about the business that they will and will not write, as well as where they place it in the companies they represent. 

Systems like this also give tremendous insight into carrier compensation, which increasingly sophisticated operations are able to use to negotiate arrangements that are tailored to their individual operations. These software tools not only assist the agency’s organic growth but also facilitate reductions in expenses through greater marketing efficiency. 

See also: Of Independent Agents, Heirloom Tomatoes

Private equity-owned and similar organizations also use sophisticated customer relationship management (CRM) programs customized for their operations. These programs manage sales teams and prospecting activities much more intensively than small agencies and gather data to reach potential clients with very targeted marketing messages. This capability, along with flexible teamwork, improves client acquisition. 

Increasingly, private equity-funded agencies are also purchasing services and software that until recently were only the purview of carriers. The agencies are able to purchase data and analytics from third-party providers to gain additional insight into their existing books of business and also opportunities in the niche markets they choose to serve. 

These firms are also investing huge sums of money to give clients what they want, which increasingly is the ability for self-service. While many independent agencies are using off-the-shelf capabilities provided by their AMS, the private equity firms are opting for a bespoke approach with the understanding that the incremental capability they are able to deliver clients will help them increasingly win and retain business. 

In addition to opting for self-service technologies, larger agencies are rapidly adopting what many local independent agencies continue to shun. That is the use of account servicing technologies like CSR 24/7, insurance operations and business process solutions providers like Resource Pro and even company service centers to drive down expenses. These large agencies recognize they must take an aggressive approach to cost-cutting to generate the profits necessary for an adequate return on their investment. Once the returns have been realized, these efficiencies contribute to capital and the capability to acquire even more business. 

Finally, large, well-funded private equity groups are able to bring to the party sophisticated human resources required to make the best use of this technology from an analytical point of view. Simply put, because of their size, these groups can hire data scientists and data experts to inform better, more sophisticated decisions. The groups expect staff in the acquired agency to use the technology, the data and analytics; increasingly, those who don't will have no place in these organizations. 

The Agency Bottom Line

What all of this implies for the independent agency that intends to remain independent is the need to make increasing investments in similar capabilities. The challenge for smaller organizations is the cost of these human and technical capabilities, which  is exacerbated by the fact that the technical capabilities are expanding at an exponential rate and that agencies can no longer assume that software they purchase will have a useful life beyond the time it takes to pay for it. 

Increasingly, to remain competitive, agencies will have to make investments, not knowing in advance what the return will be. The good news is that, for the vigilant and adaptable organization, much of this technology will become increasingly less expensive. However, the fundamental choice remains for agencies: Are you willing to adapt at a rapid rate to remain competitive with much larger organizations that have a local presence in your community, or will you attempt to grow your business by either moving down market or reducing your historical profitability?

See also: 4 Keys to Agency Modernization

In many ways, the independent insurance agency industry has not fundamentally changed in the last 100 years. Yes, we are using computers to do faster what we did with typewriters 50 years ago, and by hand before that. But we are still doing things essentially the same way. Today, though, sophisticated data analytics, automated submission systems, outsourced service capabilities, dynamic self-service and other technologies — along with increasingly sophisticated human capabilities — being brought to the industry by private capital are making fundamental changes to the traditional industry. 

Agency owners are, therefore, increasingly faced with the difficult choice of selling to one of these organizations and giving up their traditional independence, accepting lower profit margins in an attempt to hang on or embracing similar technologies in a renewed effort to compete in a changing business. For agencies, the question is: Which choice will you make?