While sorting through the latest studies and projections about the path of the coronavirus this past week, I was hit in the face with a veritable two-by-four by this piece in Medium by my old friend and colleague Sam Hill. Sam, an all-around smart guy who may be known to some of you because of some high-impact consulting he's done in the insurance world, writes that, even under the best of scenarios, we're probably looking at the end of 2021 before the world might return to normal.

Let that sink in for a minute. More than 16 more months of this, in one form or another.

In some ways, Sam's piece strikes me as quite optimistic. He is counting on having three viable vaccines for the virus in the market by the end of this year.

But it will take months to manufacture and distribute enough to vanquish the virus. Some vaccines may not work or may have disastrous side effects, leading to caution both among public health authorities and among those of us considering getting the virus -- "In 1976," Sam writes, "one person died of a flu strain that appeared to be like the 1918 flu. We rushed a vaccine through. It killed 250 and paralyzed 500."

Even if the vaccine works, it may only be 50% to 60% effective, not 90%, as we've come to expect with smallpox, measles and polio, so a lot of people would be left vulnerable.

By the time you crank in all the steps that have to be completed before life returns to normal, Sam puts the over/under at roughly the end of 2021.

And that's the best of the three scenarios he lays out.

As long as I'm quoting people this week, here are the two smartest observations I've seen recently on how to navigate these crazy times. Both come from Kevin Sneader, the global managing partner at McKinsey:

"The first piece of advice I’d offer a CEO is, forecasts are out, dashboards are in. The notion that you can now forecast the economy, healthcare and other aspects of what can disrupt life, I think, is gone. Now we’re in an environment where we’ve also learned that what you really need to have a handle on are the metrics, insights and what’s actually happening on the ground—the dashboard of daily life.

"You really do have to think like an attacker all over again. Even if you were the incumbent, even if you were the leader before this pandemic, you’re now the attacker, so you must take the steps that attackers take. Think very differently. Look for new opportunities, new markets. Reshape the portfolio and, yes, look at mergers and acquisitions. Plan to do things quite differently as the future unfolds."

Stay safe.

Paul

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

Why Work-From-Home Threatens Innovation

Non-insurance competitors such as Amazon, Google, Tesla, Comcast, General Motors and many others are not standing still, and neither should insurers.

How Insurers Are Applying AI

Insurers should not invest in technology-driven projects; instead, look for use-case-driven projects.

‘Scalable Compassion’ in Workers’ Comp

As much as claims representatives want to help individuals, there has been no feasible way to provide compassion at scale.

Panic Pricing May Be a Bad Idea

While raising rates might be how the industry has responded to uncertainty in the past, there are reasons not to do so now.

The Problem With Virtual Events

People routinely consume TED talks online and love them -- because they don’t bear any resemblance to boring, low-energy Zoom presentations.

5 Things Here to Stay, Post-Pandemic

While responses to where and how people work have varied, several effects on workplaces from the pandemic will persist even once it subsides.

Are you Zoomed out? Had your fill of webinars? Well, you’re not alone.

As the conference and events industry has pivoted to virtual gatherings, it’s become increasingly apparent how unfamiliar many meeting sponsors and speakers are with the digital stage. Since the COVID-19 lockdown, I’ve attended several such events (as an audience member) and, well…  let’s just say there’s plenty of room for improvement.

Most of the events were marked by technical glitches that should have been prevented with good, thorough preparation. (One major event even managed to mess up the posting of pre-recorded segments. I understand that livestreams are a bit of a wildcard, but to not nail the pre-recorded sessions – how does that even happen?)

What’s worse, though, is that even when the A/V platforms were chugging along perfectly, the presenters weren’t.

There were mind-numbing PowerPoint slides. (Granted, that can happen at live events, too – but, boy, it sure feels more painful online.)

There were physical printouts held up awkwardly to webcams as visual aids, eliciting a flurry of chat box complaints from viewers who couldn’t make out the documents.

There were awkward webcam angles that revealed far more about speakers’ nostrils than any attendee needed to see.

There were distracting backgrounds, with speakers presenting in front of everything from cluttered home offices to gloomy basements to Zoom-generated tropical beaches.

There were light exposure goofs that made it appear that some speakers were presenting from the surface of the sun, while others were broadcasting from their closets.

And there were those little headshot video feeds of the presenter, tucked into the corner of a PowerPoint slide, looking more like a mediocre language translator than a stage-commanding keynoter.

If virtual events are to be successful (and, mind you, I think they can be), then conference organizers and speakers need to approach them less like a Zoom call and more like a TED talk.

People routinely consume TED talks online and love them. They’re engaging, they’re polished and they don’t bear any resemblance whatsoever to boring, low-energy Zoom presentations.

Of course, TED talks are recorded before a live audience, giving them a vitality that no purely virtual event can match. Nevertheless, virtual events can certainly do more to replicate the character of a TED talk, even while we might all acknowledge that it is a high bar to fully meet.

As meeting professionals and speaker bureaus look for ways to stay relevant in the midst of a travel-inhibiting pandemic, it’s incumbent upon them to guide their clients (both event sponsors and keynote speakers) in how to achieve that aspiration.

See also: Building a Virtual Insurer Post-COVID

I’ve written about this previously (“7 Ways To Make Your Virtual Conference Successful”), but, given what I’ve witnessed in recent weeks, some additional tips are in order – specifically related to how speakers present themselves during these events:

• Stand up. Yes, you can sit down for a regular business videoconference, but to stay seated for delivery of a keynote? Absolutely not. Speakers exude so much more energy when they stand and deliver. Presuming speakers are physically able, that’s the position from which they should present.
• Zoom out. Part of the energy that’s conveyed by a live, onstage speaker comes from body language. If the virtual keynoter has the camera or webcam set for what is essentially a headshot, then the audience loses the opportunity to see hand gestures and other physical movements that help engage viewers.
• Go eye-to-eye. The speaker’s camera angle shouldn’t be the most intriguing part of the presentation. No one wants to see a digital keynote from the bird’s eye view of a camera positioned too high, or the nostril-revealing perspective of one positioned too low. Film at eye level (when standing, not sitting).
• Ditch the thumbnail. It’s tough to command the digital stage when your video feed is constrained to a square inch of screen real estate on your audience’s devices. Speakers should be using livestream software to exert greater control over how their video image and presentation visuals are rendered online (e.g., full screen speaker video with cuts to visuals, or split-screens with speaker video positioned alongside visuals).
• Swap the stage for a studio. When a live, onstage keynote isn’t possible, the most suitable replacement isn’t a laptop with a webcam and embedded microphone, positioned on a desk in a dreary office. (Imagine if TED talks were recorded that way.) World-class virtual events require something more, which is why speakers (and perhaps even showrunners and bureaus) should be investing in creating their own studios, complete with high-quality audio/video equipment, professional lighting, backdrops and all the related accessories.
• Avoid distractions.  It can be tempting to enliven a virtual keynote with creative Zoom backgrounds, green screen effects, animations and other technological wizardry. Avoid that temptation; it gets old fast. Choose substance over sizzle. Compelling content, delivered in an engaging manner, will always win the day.

If event speakers and meeting organizers want to successfully move to a digital-first world, it’s going to require more than “phoning it in” via a traditional webinar setup. Audiences don’t want another boring Zoom or WebEx. They want a full-fledged digital event experience — as close a proxy as possible for seeing experts and luminaries onstage.

If meeting professionals and speakers don’t start delivering precisely that, then the industry’s pandemic-induced business pause will turn into a much longer and more troublesome drought.

This article was originally published here.

The coronavirus pandemic forced a near overnight shift in how workers across swaths of industries, including insurance, work. Virtual meetings, telecommuting, a boom in remote tech – these things all became part of the everyday workplace reality in a flash and shook attitudes about what it means to be “at work and working.”   

My team and I work with a range of business owners in the insurance industry, from one-man shop independent agents and brokers to larger firms. While responses to where and how people work have certainly varied, we do anticipate that there will be several permanent side effects on insurance workplaces even after the pandemic subsides.  

1. Putting the brakes on road warriors 

Pre-pandemic, many insurance industry road warriors routinely traveled the bulk of each week to get in front of people. Although some can't wait to hit the road again, others revel in the ability to reach more agents and brokers in less time virtually. Companies will likely be weighing multiple considerations before giving employees license to travel again, and curtailing travel when not absolutely necessary. There aren’t just health and safety concerns for having employees limit travel; companies that have slashed budgets are likely shaving unnecessary expenses.  

2. Expanding first-hand touchpoints with new audiences 

There's still an argument for the effectiveness of in-person sales meetings, but the pandemic has really opened up the lines of communication to the entire organization. That is, where maybe only one or two people might be in an in-person meeting, a virtual meeting gives the opportunity for multiple people to participate. It's a benefit most didn't realize would materialize when electronic calls became the go-to. There's a benefit to customers and employees to connecting first-hand, even virtually, over getting information relayed to them. 

3. Examining operations with an eye for efficiency 

Employees across the industry will be more attuned to how efficiently they work because of lessons learned during the pandemic. A decrease in travel and elimination of a commute free up chunks of time. Everyone will now also evaluated which meetings are truly important and which need to be face-to-face; some clients will prefer to permanently meet electronically. We have already seen a boom in technology advancements and uptake in the industry to help employees work efficiently while remote. 

4. Boosting take-up rates 

The changes forced on business by COVID-19 could increase insurance take-up rates, especially in an area like flood, where the new norms may reduce prices and increase the ease of transactions. What’s more, if there is one glaring lesson that we are learning from the pandemic, it is that the unexpected should be expected. Assessing and addressing risk – whether for businesses or homeowners – is top of mind as people strive to eliminate the potential impact of controllable surprises; for example, the aftermath of the Michigan floods this spring. 

5. Forcing modernization 

Some insurance agencies and brokers are welcoming the changes necessitated by the pandemic, while others started kicking and screaming that they would have to alter their operations. For example, agencies that discouraged a reliance on digital quickly had to change their tune, embrace how well old-style, mandatory two-hour Monday morning meetings could work on Zoom and update technology infrastructure from computer towers to laptops. Regardless of how advanced a company was in terms of digital acceptance, the pandemic has certainly forced those that were behind to catch up or risk the efficacy of their business in the long term. 

The next few weeks and months will likely bring more change and will bring even more clarity to how the industry will be permanently reshaped. There is great value in some of the changes we have seen – and anticipate to stay – and for those willing to be adaptable and flexible there can be great opportunity and growth.

The cost of claims has been at the heart of Total Cost of Risk (TCOR) since even before the inception of risk management as a separate function. The sheer magnitude of losses, insurable or not, defines so much of what risk managers focus on and tends to be what they report on most often, as well. The nature of mature and, by inference, effective risk management programs has claim management as a key focus. While risk maturity is directly correlated with risk effectiveness, this latter term encompasses a much broader perspective on things that matter. 

Not surprisingly, many components of risk management maturity have some connection to effective claim management. Accordingly, it is appropriate to understand what these components are and how they dovetail with a more comprehensive view into effective risk management. Admittedly, this perspective relates most to the traditional practice of risk management, focused on hazard risk, but failure in this realm will likely point to failure in other areas of risk management.

Components of Risk Discipline 

To instill risk discipline, and, by extension, maturity into claim management, one must set the tone for effectiveness across the spectrum of risk management activities and significantly feed overall risk management performance. This tone will influence the ability of risk leaders to act as “trusted advisers” to organizational decision makers. This should be a key goal for risk leaders, critical to long-term effectiveness and functional sustainability.

The starting point for this subject is two key things. First, how one defines “risk” and drives a consensus among key stakeholders about that definition. Claims are, of course, the outgrowth of risk and exposure. This direct relationship is the essence of why claims and effective claims management have a direct relationship to effective risk management. Whether this aspect of the discipline gets done by insurers (as part of the insurance contract), insureds (as a part of a self-administered claim operation) or through third parties (independent adjusters, third party administrators etc.) makes little difference. Effective claim management feeds effective risk management.

The second issue is both which risks are your focus and where on the loss curve they fall. This may sound simple, but the reality is that many risk leaders have responsibilities for only a portion of the risks that organizations face; often only the insurable risks. If that’s the case, the need to focus on claim management is clear; one leads to the other.

The Basics of Effective Risk Management Maturity

If you are a risk leader with broad accountability for risks, then the first question of “what is a risk to your firm?” requires total clarity. For the purposes of this article, a good definition of risk is “uncertainty” as it relates to the accomplishment of objectives. This simple definition captures the most central element of concern — uncertainty. However, the real challenge is determining the amount of uncertainty (such as frequency/likelihood), as well as the level of impact or severity. Each risk leader must make this choice and get it validated by his or her organization.

While many leaders focused on hazard risk look at risks at actuarially “expected” levels of loss, the challenge is how far out on the tail one should manage. While the possibility of loss becomes increasingly remote as you move out toward the tail of the curve, the impact of events becomes more destructive. Because the magnitude of loss in this realm can be catastrophic, the importance of both preventing and mitigating these events and their impact becomes critical. Central to after-loss mitigation is the claim management process. Related key questions that every risk leader must answer include:

• What matters more to your organization: likelihood or impact, or are they equal?
• What level of investigation should you apply to less likely risks?
• How do we apply typically limited resources to remotely likely risks?
• Do you have a consensus among key stakeholders as to what risks to focus on and how?
• Do you have or need an emerging risk identification process?
• Do you have a consensus on and clear understanding of how you define risk in your organization?
• Have you educated your organization on the correlations between losses, claims and risk effectiveness?

These questions are the starting point for ensuring risk management maturity. From your answers to these questions, you can chart your course for what this will mean to your firm. The answers will define the process elements of maturity that will be needed to achieve your desired state. But we need to define what risk maturity is to track progress toward this state and to ensure that stakeholders are aligned around the chosen components necessary to get there. Understanding the attributes of claims and risk maturity includes:

• Managing exposures to specifically defined appetite and tolerances;
• Management support for the defined risk culture that ties directly to the organizational culture;
• Ensuring disciplined risk and claim processes aligned with other functional areas;
• Creating a process for uncovering the unknown or poorly understood (aka emerging) risks;
• Effective analysis and measurement of risk and claims both quantitatively and qualitatively; and,
• A collaborative focus on a resilient and sustainable enterprise, which must include a robust risk and claim strategy.

See also: Future Is Already Here in Claims

Examples of Risk Management Maturity Models

One thoroughly developed risk management maturity model (RMM) comes from the Risk Management Society (RIMS). While it was developed some 10 years ago, it remains a simple, yet comprehensive view of the seven most important factors that inform risk maturity. When well implemented, these components should drive an effective approach to managing all risk within your purview. 

The components of the RIMS RMM model include:

• Adopting an enterprise-wide approach that is supported by executive management and that is aligned well with other relevant functions;
• The degree to which repeatable and scalable process is integrated in the business and culture;
• The degree of accountability for managing risk to a detailed appetite and tolerance strategy;
• The degree of discipline applied to using the elements of good root cause analysis;
• The degree to which a robust emerging risk process is used to uncover uncertainties to goal achievement;
• The degree to which the vision and strategy are executed considering risk and risk management; and,
• The degree to which resiliency and sustainability are integrated between operational planning and risk process.

Like all risk management strategies, no two are exactly the same, and there is no one way to accomplish maturity. Importantly, every risk leader needs to do for his or her organization what the organization needs and will support. 

Of course, RIMS is not the only source of risk maturity measurement. Others, including Aon, offer other criteria. Aon’s model includes these components:

• Ensuring the board understands and is committed to the risk strategy;
• Effective risk communications;
• Emphasis on the ties among culture, engagement and accountability;
• Stakeholder participation in risk management activities;
• The use of risk in/formation for decision making; and,
• Demonstration of value.

This is not to say that the RIMS model ignores these issues, they simply take a different emphasis between the models. 

Another model worth considering is from Protiviti’s perspective on risk maturity as it relates to the board of director’s accountability for risk oversight. A few highlights of the perspective include:

• An emphasis on the risks that matter most;
• Alignment between policies and processes;
• Effective education and use of people and their place in the organization;
• Ensuring assumptions are supportable and understood;
• The board’s knowledge of asking the right questions; and,
• Understanding the relationship to capability maturity frameworks.

Certainly, good governance is critical to ultimate success, and the board’s role in that is the apex of that consideration. If the board is engaged and accountable for ensuring their risk oversight responsibility is effectively executed, the successful execution of the strategy is likely and, by inference, risk and related claims will have been effectively managed, as well.

Another critical aspect of the impact of risk and claims that should not be overlooked is their impact on productivity. If productivity is directly related to people’s availability to work, then we can quickly agree that risks produce losses that affect both people and property, oftentimes together. We can readily agree that impacts to productivity are a frequent result of losses and the claims they generate. Further, productivity impacts are not just limited to on-the-job injury. Every car accident, property loss or general liability loss that includes personal injury has implications for productivity, in either the workplace or outside of the workplace. As a result, it behooves all risk and claim leaders to execute their roles by aligning their interests and driving their focus.

Finally, a few fundamentals that are important to understand in execution of these goals include understanding that:

• how you handle claims will directly affect not just your TCOR but your overall risk management capability and effectiveness; 
• there is no one right approach to managing claims or risks; each organization must chart its own course aligned with its culture and priorities;
• risk and the claims they can generate must be treated as an integral aspect of organizational strategy;
• risk and claim management should be a focus on additive value; and,
• risk and claim maturity have shown that better results are achieved as a result.

See also: How Risk Managers Must Adapt to COVID

In its simplest form, risk management is about preventing (or, on the upside, leveraging), financing and controlling risk and loss. Effective risk management is dependent on many elements, not least of which is effective claims management. And while claims are naturally focused on negative events that have already occurred, this activity is centrally critical to comprehensive, effective risk management.

How you prioritize claims and related activities will have significant effects on how you can contribute to organizational success. Doing both well will enable both risk and claim management effectiveness, demonstrated by measurable maturity.

AI is everywhere. Insurers are piloting various AI projects, insurance technology vendors are building it into their solutions, some insurtech startups are all AI-powered and horizontal tech vendors are creating AI platforms that sit underneath it all. Insurers that haven’t experimented with AI yet are benefiting from the technology through third-party relationships, even if they don’t realize it. 

Unfortunately, the broad scope covered by the umbrella term “AI” can cause confusion for insurers — especially because some technology providers use this label to better position their offerings in the marketplace.  

Usage of AI in the insurance world can typically be broken down into four categories:  

• Machine Learning. The goal of machine learning, a process where an autonomous system learns from a data set to identify novel patterns, is often to refine underwriting or claims algorithms. Applications include advanced predictive modelling and analytics with unstructured data. 
• Image Recognition. Until recently, images were a type of unstructured data better resolved by humans. Image recognition leverages AI to extract insights from digital image analyses. Applications include photo analysis and handwriting processing. 
• Audio Recognition. AI-enhanced audio recognition captures any sound (from human speech to a car horn) and turns it into a rich, usable data source. Applications include speech recognition and non-voice audio recognition. 
• Text Analysis. AI-powered text analysis is pulling out meaningful insights from a body of text (structured or unstructured). Applications include form reading and semantic querying. 

Justifying the Use of AI in Insurance

Novarica’s Three Levers of Value framework can help conceptualize the business value of each AI use case for insurers. Each of these levers — Sell More, Manage Risk Better and Cost Less to Operate — is applicable to a specific AI technology use case. 

Helping insurers identify upsell/cross-sell opportunities, for example, falls under sell more, while accelerating underwriting risk assessment could be categorized as managing risk better and enabling more efficient help desk support helps insurers cost less to operate. 

These are just a few examples of the value AI can bring insurers; AI use cases span categories such as product/actuarial, marketing, underwriting, customer service, billing, claims and compliance. Key use cases include: 

• Deploying better pricing models. This machine learning use case chiefly falls in the domain of product owners and actuaries, as it applies to the area of predictive analytics. In this case, AI can help actuaries make better decisions when pricing products, thus managing risk better. 
• Improving marketing effectiveness. This machine learning marketing use case involves using third-party or internal tools to analyze vast amounts of raw data and identify the media channels and marketing campaigns with the greatest reach and engagement levels. Here, big data analytics can help insurers sell more. 
• Performing better property risk analysis. Using AI-powered photo analysis, underwriters can generate faster and more accurate roof damage estimates. Ultimately, this helps insurers manage risk better. 
• Leveraging smart home assistants to deflect calls from call centers. Through a voice prompt to their smart home assistants, customers can get quotes, request policy changes and even start a home insurance claim thanks to AI-powered audio recognition. By offering another avenue to help answer customers’ FAQs, insurers free their call center employees to address more complex customer inquiries, decreasing operating costs. 
• Increasing invoice processing speeds. Through use of text analysis and image recognition technology, AI can help billing staff eliminate error-prone human invoice handling. Using AI-powered form reading leads to greater process efficiencies, which lowers operating costs. 
• Identifying and mitigating claims fraud. Here, machine learning can help identify potentially fraudulent claims faster. This processing speedup gives claims staff more time to focus on higher-value transactions and leads to better risk management. 
• Enabling automatic handling of compliance requirements. Machine learning can help team members improve compliance and reporting by automatically handling complex compliance requirements. This results in lower operating costs as compliance staff can direct their attention to tasks requiring human review. 

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

The AI ecosystem is evolving quickly, with new technology applications emerging every day. We may soon even see further AI and ML processing speedups with the advent of quantum artificial intelligence and machine learning.  

Insurers should not invest in technology-driven projects; instead, governance should search for use-case-driven projects that most benefit the company. However, in the case of important emerging technologies — like AI and ML — it’s valuable to look for ways to deploy that technology and build up skill sets (and culture) within the organization. Additionally, many insurers have an innovation group whose sole purpose is to future-proof the organization by seeking out opportunities to deploy emerging technologies. In these cases, it’s important to refer to actual business use cases and elucidate the concrete value they provide to specific business units.

To learn more on this topic, check out Novarica’s brief, Artificial Intelligence Use Cases in Insurance.

It’s a common story: A worker falls off a ladder while performing his job and gets hurt. A bone is broken, a disc is ruptured — the worker is in pain and can’t go to work. He files a workers’ comp claim but needs a doctor right away and chooses one at random.

As the claims process begins, it moves slower than the claimant would like because of systems and policies that have been in place for many years. But the claimant needs money now to pay the bill from his out-of-network doctor as well as for expenses that mount up while he is out of work, so he engages a lawyer. This prolongs the claim and adds paperwork and time — more time that the claimant is out of work as well as more time spent by the payor trying to settle the claim, all of which cost the worker’s company money.

This scenario is clearly less than ideal, and it does not represent how workers’ comp is supposed to work, yet it happens.

An Alternative Reality

Imagine if this scenario could play out differently. This time, when a worker gets injured, he is connected with a claims representative with the push of a button. Reaching a person trained to help the moment the worker is in need becomes as easy as ordering an Uber. The claims representative sends an ambulance or directs the worker exactly where to go for help.

In the weeks that follow, the claims representative checks on the injured worker to be sure he is OK. The claims representative schedules follow-up doctor appointments or physical therapy sessions to make life a little easier for the worker. The injured worker receives quality attention without being harassed, and his claims are paid without hassle — a result of a streamlined process designed with the worker’s best interests in mind. He returns to work quickly. The worker is cared for, the claims representative feels useful and the company pays less overall.

This vision of modern compassionate care is not so far off.

Using Technology to Scale Compassion

The biggest problem in the workers’ comp system is not workers “gaming the system” or companies refusing to support their employees; it is simply that workers can’t get the attention they need and deserve because claims representatives are overloaded with cases, and they’re forced to make do with outdated models and tools. As much as claims representatives want to help individuals, there has been no feasible way to provide compassion at scale given the sheer volume of claims they are dealing with. Fortunately, this is a problem new technologies are ideally suited to solve.

Although it may seem antithetical to use technology as a delivery mechanism for a human emotion, compassion, that’s exactly where the future is headed. Advancements in artificial intelligence (AI) and machine learning make it possible to automate many of the tasks that hinder a claim. Other technologies such as wearables or cloud-based solutions make it easy for parties to connect and work together in new ways. Applying this level of innovation to workers’ comp has the potential to elevate the entire experience.

See also: Big Changes Coming for Workers’ Comp

Technology in Action

Let’s dive deeper into the example above to demonstrate exactly how a modernized workers’ comp system could look. A worker falls off the ladder, and his wearable detects a sudden spike in the user’s pulse yet limited movement. It is clear he didn’t jump on the treadmill and start sprinting. The device buzzes the user to determine if everything is OK. The user presses a button, and it connects him with a claims representative as if making a call on an Apple Watch. Another way to think about it is like the worker’s own personal OnStar for his body or a medic alert button on steroids.

While connected to the injured worker, the claims representative calls an ambulance, if needed. If not, she uses smart software to find the right doctor instantly, according to the factors that matter most to ensuring successful outcomes. She makes an appointment for the worker and sends directions to the worker’s mobile device.

Once the worker sees the doctor, the physician’s staff uploads relevant medical records into a shared program, where intelligent systems read and analyze everything — even the notes and images that are considered unstructured data. The system figures out what should be included in a claim and assesses the claim’s risk. If risk is high, the system flags the claims representative to follow up with the injured worker at specific times with relevant information. If there is something unusual in the claim, the claims representative receives a notification, and she closely examines the issue to determine the next step. The claims representative has time to evaluate the information because she is not trying to balance the intricacies and all of the ins and outs of 50-plus claims.

Office visits are paid for electronically through the system so that the injured worker never has to worry about paying for care, and the claims representative routinely checks in to ensure that the worker is healing. If something has broken down along the way, intelligence can still be applied to find the best lawyers. Software instantly provides accurate settlement information and identifies the best outcomes to resolve claim disputes quickly and reduce litigation costs.

Rising to the Challenge

In an example like this, it becomes clear how new technologies can be applied to empower claims representatives to do more and assist a greater number of people, faster and with a heavy emphasis on compassion. Even in the worst-case scenarios, technology can deliver more humanity to claims.

See also: 4 Key Changes to WC From COVID-19

When applied strategically by people with the desire and decision-making power to improve an unfortunate situation, workers are happier and healthier because they received the care that they need from a person who showed that they mattered. Claims representatives gain a deeper sense of purpose and greater job satisfaction because they can do more and make a true difference in a person’s life, all while costs for organizations decrease because workers get the best care from the beginning and return to work faster.

Technology’s impact has the capacity to transform the workers’ comp industry on all sides. The question now is: Will organizations be bold enough to embrace it?

As first published in WorkCompWire.

In a season of unprecedented change and hyperbolic rhetoric, we want to sound a word of caution and suggest the U.S. property/casualty insurance industry think critically about the possible adverse consequences of a headlong rush to impose steep rate increases to cover anticipated loss exposures.

While raising rates might be how the industry has responded to uncertainty in the past, there are a number of reasons why doing so now might be ill-advised: First, the industry risks alienating its customers and inviting more regulatory scrutiny if it pursues onerous rate increases before the full scope of 2020 exposures are known. Second, the past several years have seen a rise in technologies to capture and analyze more precise data, improve efficiencies and develop products, all offering insurers an opportunity to innovate how they manage risk—if they successfully integrate those in their operations. Third, many insurers routinely posting combined ratios in excess of 100% need to first put their house in order and look at their expense structure and underwriting performance before seeking blanket relief by raising rates that do not address underlying problems.

The drivers behind today’s sharply harder rates are a combination of capital markets uncertainty, assumptions about prospective insurance exposures to COVID-19 losses, assumptions about insurance regulatory positions, natural catastrophe forecasts and, last but not least, reliance on historical experience. Based on discussions with regulators, reinsurers, primary insurers and new entrants to the industry, the sharp rate filings now in the pipeline began with reinsurers, followed by primary carriers. The greatest hardening of rates is occurring in commercial lines, especially for small business, as well as in homeowners, general liability and workers compensation.

Filing rate increases based on market or capital uncertainty has historically been an accepted industry practice, managed on a state-by-state basis. However, given the beneficial impacts of COVID-19 stay-at-home orders and business closures on routine insurance expenses, including claims volume, should these filings for extreme rate increases be approved, as if business as usual? We think not.

Back in 2019, the signs of a firming property/casualty insurance market were apparent, due to rising primary, reinsurance and retrocessional rates after years of losses from catastrophic weather and wildfires plus continued low investment yields. Throw in a little 2020 volatility from COVID-19 and social unrest, and the market has grown even harder across both personal (except auto) and commercial lines.

We acknowledge there are valid reasons why incremental rate increases may be needed, but not at the across-the-board and exponential levels we are seeing. We frequently hear of premium increases in the mid- to high double digits, and in many cases the increases are measured in multiples. We have spoken with insureds being quoted premium increases as high as 400%, with most increases falling in the 50% to 200% range.

Among the problems with a business-as-usual approach is uncertainty about the future. In particular, there is uncertainty about the relevancy of historic data sets to actual loss exposures in a rapidly changing risk environment, such as we are experiencing now.

One consequence of these extreme rate increases could be a policyholder backlash. At what point do higher prices cause economic harm to policyholders, driving them to limit or abandon because it is not affordable? Or drive commercial policyholders to captives and other alternative risk financing options? Or drive them to seek relief from insurance regulators—perhaps even federal regulators? What would those consumer and regulatory reactions mean for the future health of the insurance industry?

If we accept that the world shifted on a societal scale within a six-month period, should we not expect that insurers also change how they operate?

While many insurers in recent years have experimented with innovation, unfortunately they appear slow to fully incorporate real-time data and analytics technologies into their operations. These tools, the focus of much innovation activity in recent years, could help to better understand evolving risks and improve loss forecasting capabilities, as well as the ability to mitigate loss frequency and severity.

See also: COVID-19 Highlights Gaps, Opportunities

One of the promises of insurtech is that it would enable insurers to apply the right data sets to the right circumstance to more accurately underwrite a risk—and perhaps identify opportunities to prevent certain losses altogether. As it turns out, the impact of insurtech on incumbent insurers has not yet resulted in a simplification of the supply chain, a reduction in costs, an acceleration of growth or a more accurate predictive view of the future. Rather, the sophistication of actuarial calculations and the application of technologies used to perform historic functions with greater precision have increased the complexity and deepened specialization within the existing supply chain. Silos within organizations are deeper and more restrictive, all of which create challenges to working innovative solutions through an organization, achieving new insights and efficiencies.

Any argument for extreme rate increases should also ask questions about the validity and relevance of the insurance industry’s historic benchmark of profitability: the combined ratio. A ratio below 100% indicates a company is making an underwriting profit, while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums.

Fundamentally, why would a regulator approve a rate increase for an insurer with a combined ratio well above 100%? Wouldn’t this be a misplaced reward for bad management? That may sound harsh, and some may accuse us of being uninformed or naïve, but think about it: What other industry routinely allows businesses to operate at a loss? And now, when investment returns are assuredly lower and no longer offer cover for losses, insurers turning to policyholders to make up the difference seem to ignore fundamental problems.

The COVID-19 pandemic and resulting restrictions has caused enough of a shift in how everyone lives and works that it’s fair to raise fundamental questions about the role of the insurance industry in reacting to and recovering from this shift and in defining how emerging risks are appropriately managed. Simply raising rates cannot be the industry’s only response. Let’s examine some questions that the situation raises.

First, from an economic perspective:

• Could a significant increase in premiums for nearly all non-auto insurance products hurt a national economic recovery or, worse, compound the current financial challenges consumers face? 
• Will rate increases combined with the traditional U.S. insurance industry practice of operating with a combined ratio above 100% contribute to small business closures and job losses?
• What happens if a number of people don’t/can’t procure the coverage they need due to prohibitive costs, and a hurricane or flood or other disaster comes along?  What happens if businesses cannot afford the new premiums and drop coverage, and a loss occurs for which they don’t have coverage? Or what if a business needs to cut jobs or other operating costs to stay in business and pay premiums?

From an operational perspective within an insurer:

• Do remote working environments provide a greater opportunity to break down silos and create cross-functional working groups to capture key learning from our recent/current operating experiences? For example, one regulatory leader described multiple working groups within his organization that also highlight an issue that may be occurring within insurance companies. Two small teams were focused on solvency, while others worked on other operational questions. However, none of these working teams was asked to look at operational practices as they affect the combined ratio. The regulatory leader did agree with our hypothesis that, given the complexities of insurance and chaos of a COVID-19 “new normal,” the combined ratio is a solid “ground zero” number to use as the foundation for rate filing analysis.
• What have carriers learned from operating through the past six months regarding full-time equivalent (FTE) count, efficiency gains, elimination of red tape, gains from new processes and procedures? Consider the savings alone from elimination of routine business travel, from conferences to Ritz-Carlton client lunches, being shut down for months, if not longer.
• Have loss ratios worsened to such an extent that double-digit (or triple-digit) rate increases are necessary? Do these rate filings reflect a sort of day of reckoning for ratings agencies that also believe the present and future must be extensions of the past? Are current economic realities forcing insurers to reckon a loss of investment returns they have relied on to cover underpriced coverage?
• The most recent sigma research report from Swiss Re seems to recognize the danger of unrestrained premium increases in the short term, without taking a longer view. The Swiss Re report noted that there will be challenges to industry profitability in 2020, but the industry’s capital position should be strong enough to handle COVID-19 shocks. Between non-life rates that were already showing signs of firming, and an anticipated increase in demand for risk protection amid heightened risk awareness, industry premiums should rebound in 2021. In other words, don’t overreact. (Swiss Re subsequently announced a $1.1 billion loss for the first half of 2020, after claims and reserves related to COVID-19 of $2.5 billion.)

From a regulatory perspective:

• Are insurance regulators the most appropriate body to challenge the basis for combined ratios that exceed 100% before approving carrier rate filings?
• In the event of a public outcry for federal legislators to “fix” a broken insurance system, questions will focus on the oversight applied by the dtate regulatory system. Were premium increases necessary and warranted for the protection of the customer and resiliency of the insurer?
• Has the role of the insurance regulator changed with respect to prioritizing the viability of insurers, protecting consumers, contributing to state budgets? 
• Will the election cycle increase the natural tendency to expand a federal solution within the construct of the Federal Insurance Office (FIO) created under Dodd Frank with expanded powers to respond to the market?  The long-term effect of this would be to essentially turn insurance into a federally regulated public utility – with all of the bad and very little good that would come from that scenario.

See also: COVID: How Carriers Can Recover

Innovation thrives on uncertainty, and has always been the engine that drives the most growth. The same will be true now. Whether innovation produces efficiencies that reduce combined ratios or generates new sources of revenue, innovation is the better and more sustainable course. Many insurers seem content to rely on rate increases as their strategy for resiliency through these uncertain times. Be assured, based on several advisory engagements from the past six months, others in insurance-related sectors have acted upon and are developing new models, accelerating pace and devoting resources toward their goal. Circumstances that are perceived as chaotic and threatening by any majority of incumbents are also perceived as “once-in-a-lifetime” opportunities to change business-as-usual by those who will lead in the future.

Our purpose is to urge the insurance industry to ask hard questions and examine the potential consequences of the various strategy responses to these uncertain times. To us, there are essentially two paths. There is that path of sharp rate increases and business as usual, with potentially dire results. The other path encourages innovation, a nimble look into the future and a commitment to leadership.

How do you think it will all work out? Let us know.

Global institutional investment is increasingly influenced by environmental, social and corporate governance (ESG) considerations, with sustainable investment now exceeding $30 trillion. That’s up almost 70% since just 2014 and up 10X since 2004; within these figures, the insurance sector forms a significant share of overall investments.

Further, sustainable investing’s market share has also grown globally and now commands a notable share of professionally managed assets in each geographical region, ranging from 18% in Japan to 63% in Australia and New Zealand, according to the Global Sustainable Investment Alliance (GSIA). Clearly, sustainable investing constitutes a major force across global financial markets.

While dedicated ESG funds remain a small part of the global stock market, the broader trend is toward all asset managers becoming more focused on these issues. ESG-focused equity funds have taken in nearly $70 billion of assets just over the past year, according to EPFR, while traditional equity funds have suffered almost $200 billion of outflows over the same period. 

This enormous swing in investor focus can be attributed to better awareness and consequent commitment on the part of companies and investors. Companies have come to appreciate how socially responsible investing can protect their long-term futures through sustainability. 

Out with the old, in with the new

Investors have seen these investments gain traction and allocated a part of their portfolio to them. Society, too, has collectively decided that it’s tired of the old “exploit to the max and then discard” model and has demanded a paradigm shift toward the "people, planet and profit" model.

These beliefs seem to have become stronger still during the COVID-19 pandemic, with people having more time to reflect. So, the impact goes beyond the balance sheet to include customers' buying habits and employees' attraction to work for companies that share their values. 

Don’t think, however, that these huge asset allocations to ESG investments are driven solely by some sort of macro-level conscience shift, with megafunds piling cash into them to salve their conscience, or that the investment community is buying into these funds purely on the basis of some kind of karmic compensation. 

The reality is quite the opposite. So much so that we could reasonably start interpreting ESG as "extremely strong gains." 

See also: Crisis Mitigation Beyond COVID-19

A recent McKinsey report has digested more than 2,000 studies of the impact that ESG propositions have on overall equity returns and has found that 63% of the studies concluded with positive findings.

Many healthy, stable and profitable firms with poor cash flow management can struggle to survive an unforeseen dry spell with little or no cash coming in, as we have witnessed through the forced lockdown and consequent shuttering of businesses around the world as a result of the COVID-19 pandemic. McKinsey’s years-long research on the subject reveals that ESG drives cash flow in five significant ways.

Driving top-line growth

ESG-focused companies stand in good stead with both consumers and governments. On the consumer side, that means it’s easier to consolidate market share, ward off competitive advances and launch products. The companies' good social standing also favors more rapid approval from governments in terms of regulatory approval and licenses, making it easier to expand into new territories, thereby expanding their global footprint and further diversifying their revenue streams.

Reducing costs

Effectively harnessing the “E” (environmental) in ESG can reduce a company’s operating costs, with the savings going straight to the bottom line. Clearly, newcomers to the ESG party are likely going to have to swallow some significant one-off adaptation and business process reengineering costs, but the long-time converts are already seeing the benefits. As McKinsey notes, FedEx is making a determined push to have its entire vehicle fleet running on electric or hybrid engines, and the 20% that have already been reconfigured are delivering savings of 190 million liters of fuel annually.

More nimble legal and regulatory approvals

Strong and meaningful ESG engagement enhances a company’s public image, and this can help grease the administrative wheels when entering new markets or applying for operating licenses in sensitive or highly regulated sectors. And governments looking for allies in public-private partnerships are logically going to get into bed with organizations of good social standing ahead of their less transparent and committed competitors. Supervision or intervention by governments in critical industries is less likely to affect companies that focus on the “G” (governance) in ESG, and poor relations with governments can ultimately cost millions in terms of legal appeals, rejected takeover approvals and corporate reputation.

Engaged workforces

People want to feel good about the companies they work for. Organizations that deliver on the “S” (social) in ESG enjoy higher productivity, and higher productivity translates directly into higher earnings. Not to mention talent retention and acquisition, which is critically important to those companies seeking in-demand profiles to spearhead their digital transformation strategies. 

Conversely, organizations that leave the social dimension aside in the ruthless pursuit of profit will trip themselves somewhere along the way: Weak relations with staff will potentially lead to more strikes; poor supervision of outsourcing collaborators can disrupt supply chains; and consumer sentiment can wane quickly in an economic slowdown.

Better investment frameworks

A solid ESG proposition can boost a company’s investment return by directing capital to promising opportunities that can offer outsized yields as a result of getting in on the ground floor. Refreshing investment capital allocation can also help prevent expensive write-downs on historic investments that have reached the end of their useful life. Better to adapt and spend now than run the risk of having to play catch-up later down the line.

MAPFRE’s commitment 

At MAPFRE, we have committed to stop investing in electricity companies in which more than 30% of its income comes from energy produced from coal, nor are we going to insure new coal mines or the construction of new coal-fired power generation plants.

MAPFRE also has a mutual fund, Capital Responsable ("Responsible Capital"), which follows on from the existing Good Governance Fund and is complemented by a pension scheme and a mutual society (EPSV). The fund is the first of its kind to be launched in Spain and will invest in the shares and fixed income securities of European companies selected on the basis of their ESG attributes.

The Mapfre Inclusion Responsable fund invests in profitable European companies that pursue the inclusion of people with disabilities in their workforce. The goal is to demonstrate that, in the long term, companies that take these factors into account are much more sustainable and profitable than those that do not.

MAPFRE and, we believe, increasingly others, too, will continue to invest in ESG for the good of society but also for the extremely strong gains that will surely follow.

The world is entering month eight of the pandemic and the complete disruption of the personal and business lives of virtually every one of us. While the timing and response to COVID-19 may have varied by country, region and city, nobody is unaffected. And the timeline for a return to anything resembling pre-COVID-19 life remains elusive and unclear. But while we continue to live and work in a state that feels like some surreal form of suspended animation, there is still much we could and should be doing about conducting the business of insurance and the enormous number of people it employs, supports and protects.

Personal and Organizational Growth

Whether we realize it or not, work-from-home (WFH) is dramatically stunting our growth, both personally and organizationally. And even when the pandemic ends, it is now widely anticipated that a majority of workers will be offered, and most will eagerly accept, the option of continuing to work from home permanently or partially.

Though working from home may seem to make life somewhat easier initially, it can become detrimental to employees’ mental health; people are basically social creatures, and working from home can make employees feel disconnected and cause anxiety. An Accenture survey of insurance industry chief human resource officers conducted in June 2020 reveals that, while 80% agreed that workforce engagement and productivity is high, the combination of global pandemic and WFH may be taking a toll on workers’ mental health; 55% noted that employees were reporting an increased amount of anxiety and depression; and 73% said employees are feeling a greater degree of pressure due to the pandemic.

Furthermore, social interaction and interpersonal communications enable learning of all kinds: the value of teamwork, leadership styles, job skills, work styles, the art of communication, friendships, diversity and a sense of mutual purpose. WFH impedes organizations from developing and instilling their company culture, which is fostered, in large part, by employees coming together and engaging in team-building activities and company-wide meetings—so having disjointed teams makes this harder to accomplish. And when employees can clearly identify with a company’s values, they’re more likely to engage with their work.

We need to become more aware of these impediments to personal growth and develop strategies and procedures to replicate some of this personal growth and development. Employees highly value the flexibility of remote work, and the success of fully distributed companies has proven that the model can work. A personal touch is added by setting explicit expectations, conducting consistent and scheduled check-ins and promoting “show and tell” virtual sessions within work groups or even company-wide. Effective team building exercises, even “small talk,” can help create personal connections, build empathy and strengthen working relationships. The organizational chart will need to be redesigned and become more agile.

Partnerships, Alliances and Acquisitions

Prior to the arrival of COVID-19, the insurance industry was undergoing rapid change in the ways in which it viewed and conducted its products and its business. This included reinvention of all business processes to lower costs and increase agility, embracing and adopting emerging technologies and rewriting strategic thinking about everything from product development to distribution and, most importantly, its newfound fierce focus on customer experience and service excellence.

This transformation was being accomplished through a variety of means, both internal and external. Internal organic transformation resulted from corporate reorganization including the formation of officer-level business units responsible for innovation and data science, and the adoption of formal change management programs.

See also: How to Be Productive Working at Home

Externally, insurers sought out startups and early-stage entrepreneurial companies that could help them not only solve specific operational challenges but also accelerate innovation by stimulating, challenging and motivating legacy thinkers within the company to become more agile and act in new and different ways. Many top-tier carriers funded corporate venture capital units whose mandate included the identification and growth of startups whose people, technologies and solutions could benefit and accelerate insurance transformation across their own and other insurance enterprises.

However, effective identification of and engagement with startups and entrepreneurs is more of an art than a science. Attendance at industry conference such as InsurTech Connect, Insurance Nexus, Dig-In and others provided the best environment for this process. Inviting startups to corporate headquarters to present their solutions and vision to a diverse insurance company executive audience also helped broaden an insurers’ thinking in the "art of the possible.” But, in the age of COVID-19, these opportunities are limited to what can be accomplished virtually, which may be effective for delivering information but provide little in the way of developing personal relationships. The industry has already lost eight months of this valuable activity and will likely lose many more. A lost year of innovation and transformation and the momentum that had been building over the prior decade will be costly to the insurance industry. Non-insurance competitors such as Amazon, Google, Tesla, Comcast, General Motors and many others are not standing still, and neither should insurers. Creative new approaches to reignite corporate development, innovation and transformation need to be found and implemented now.