Did you know that artificial intelligence (AI) technology first sounded the alarm on COVID-19?

An algorithm developed by BlueDot, a Canadian AI firm, scoured news reports and airline ticketing data to detect the outbreak on Dec. 31, 2019 in China. On the same day, HealthMap, a Boston Children’s Hospital website using AI, spotted a news report of a new type of pneumonia in Wuhan, China, and alerted global health officials. HealthMap was also the first to notify Chinese health officials that COVID-19 was expanding outside of China.

Over the past decade, U.S. tech firms have made significant advancements in AI, and smart robots are making it far easier to automate tasks and functions across industries. AI’s ability to efficiently analyze large, diverse and unstructured data sets is now proving beneficial in the fight against COVID-19.

We examined the myriad ways AI can benefit P&C insurers in a three-part blog series that ran through February. Now we’re picking up where we left off, but with a focus on a timely and important application for workers’ compensation carriers and other P&C carriers. (A more comprehensive article will be published later in the summer.)

AI in the Fight Against COVID-19

AI is improving the speed and manner in which the world identifies, contains and combats infectious disease outbreaks. Its unparalleled ability to rapidly analyze massive amounts of unstructured data has already proven to be an early detection and warning tool for seasonal influenza.

The CDC, recognizing the potential value of AI, holds an annual competition for AI firms and academic institutions. The participants develop AI algorithms to help identify and predict the severity of future influenza outbreaks. Many of these participants are now leveraging their technology and data sets to fight COVID-19.

See also: And the Winner Is…Artificial Intelligence!

AI alerts have played and continue to play a critical role in detecting and controlling future outbreaks.

In the wake of the global pandemic, AI technologies are offering hope and promise in the fight against COVID-19. MIT’s Watson AI Lab is funding a research project for early detection of sepsis, a deadly complication of COVID-19 affecting at least 10% of COVID-19 patients. The project aims to develop a machine learning system to analyze white blood cells for signs of an activated immune response against sepsis. MIT is also developing an AI tool to help doctors find optimum ventilator settings for COVID-19 patients. Shorter ventilator treatments will limit lung damage and free ventilators for other patients.

U.S. research hospitals are developing AI solutions to improve the speed and accuracy of their COVID-19 diagnoses. Mount Sinai, a leading New York research hospital, was the first in the U.S. to develop an AI solution that could quickly and accurately analyze chest scans of patients and detect early signs of COVID-19 on par with highly trained and experienced radiologists.

The world’s leading tech firms and academic institutions are partnering with governments and hospitals to limit the spread of COVID-19 and to protect healthcare workers. Boston Dynamics and MIT developed Spot, a smart robot, to deliver medicine and monitor vital signals of COVID-19 patients. With the help of its leading tech firms, China created a smart field hospital in Wuhan to relieve and protect overtaxed medical professionals.

AI technology is also accelerating vaccine development in such efforts as the collaborative work between Harvard and the Human Vaccines Project. Given the lengthy time to create, test and approve a COVID-19 vaccine, academic institutions and AI firms are working with scientists to identify FDA-approved drugs for repositioning to treat or contain COVID-19. BeneloventAI, a U.K. tech startup, has already applied its drug discovery platform for this purpose and identified a drug for a COVID-19 clinical trial.

Why It Matters to P/C Insurers

Many AI advances are aimed at protecting the health and safety of medical professionals – doctors, nurses, EMTs and all those employed in hospitals. That protection extends to patients and visitors who do not have COVID-19. As a result, hospitals and healthcare facilities that quickly embrace and implement these new AI technologies should prove to be more attractive risks for workers’ compensation and professional lines specialty carriers.

The adoption of AI and smart robots in healthcare is especially critical given the advent of workers’ compensation COVID-19 presumption statutes and executive orders designed to protect healthcare workers and others on the front lines of the COVID-19 pandemic. Specifically, those legal efforts shift the burden of proof from the employee to the employer and reduce or eliminate the evidentiary requirements to establish a claim. While these developments are well-intended, many workers’ compensation carriers expect to see a rise in claims in states taking this action. If AI can significantly improve the safety of medical professionals, we hope it can offset the rise in claims from the new COVID-19 presumption laws.

See also: 3 Steps to Demystify Artificial Intelligence

To the extent that AI can help reduce illness or its spread, the need for extensive quarantine measures will be reduced, and all sectors of the economy will benefit. Main Street businesses and manufacturing facilities will be able to operate more safely, and that can mean fewer business interruption and premises liability claims during future infectious disease outbreaks.

Insurers do not need a global pandemic to appreciate the economic and health value of AI. Smart robots, AI and automation will continue to significantly improve workplace safety and employee health for all types of businesses even after we have tackled COVID-19. Gen Re continues to monitor these trends and looks forward to helping you understand and navigate the AI landscape.

You can find this article originally published here.

Catastrophes can often be catalysts for how society manages risk. For instance, World War II transformed the U.S. into a highly industrialized economy and put us in a position of global economic leadership. As a result of the COVID-19 pandemic, the U.S. life & annuity insurance industry is at such an inflection point.

Life insurance has endured flat to declining sales for over a decade. Put simply, sales have by and large not kept up with the growth of the population, and younger generations are not seeing insurance as a product that belongs in their financial portfolio.

But as the world shut down seemingly overnight, interest in life insurance has come roaring back, and COVID-19 is now accelerating sector adaptation. Electronic application (eApp) submissions are up by 20% year over year, and e-policy deliveries by 52% YOY, according to recent insight from iPipeline. At Ensight, we have seen a dramatic shift toward the virtual sales experience, with growth of 155% in just the last three months. This agile sector response to COVID-19 bodes well for returning the sector to long-term growth and wider financial protection in society.

However, this resurgence will be short-lived if the life insurance industry doesn’t use this moment of opportunity. Younger generations will not tolerate antiquated illustrations or the absolute need for an in-person sale. When we take a step back, COVID-19 is very likely to drive the following three transformations within the life insurance sector: 

• Greater focus on the transformation of the sales experience
• A broader, accelerated shift to more holistic financial planning by advisers
• Increased consumer understanding of the importance of life insurance

These are potentially simultaneous tectonic shifts. And the potential long-term positive implications for life insurance sales are significant. 2020 may therefore represent the long-awaited inflection point for the U.S. life insurance industry.

So, what are insurance carriers doing well today? More importantly, what additional gaps must be closed to ensure long-term growth?

See also: Will COVID-19 Spur Life Insurance Sales?

The Current Frontier – Tackling the Application Pain Point

Over the past decade, the principal transformation agenda has been on addressing the pain point and cost inefficiency of the life insurance application process. Insurance carriers have largely focused on shifting to electronic applications (eApps), as well as implementing new accelerated/simplified underwriting programs.

This shift is critical. However, insurance carriers need to remember that eApps and accelerated underwriting programs will drive little long-term competitive advantage, because everyone will have them.

The next chasm to cross for the sector is product accessibility. Without it, we will not return to a vibrant life sector in the next decade.

Crossing the Chasm – Addressing Product Accessibility

In 1991, Geoffrey Moore wrote “Crossing the Chasm,” which quickly became the bible for entrepreneurial technology marketing. "Crossing the Chasm" focused on how to drive the introduction of innovative products from early adoption, to finding product market fit and ultimately to wider adoption.

To truly cross the chasm and reignite significant sector growth through broader understanding and belief in the value and application of insurance products, life and annuity carriers should prepare to address digitalization of sales and distribution.

Complete digitalization of the point of sale

Even with eApp growth, the permanent life insurance point of sale experience continues to be rooted in paper. Whether it is PDF brochures heavy on the compliance language or the 40-page illustration, the point of sale has simply not adapted to the 2020 expectation threshold. 

Consumers today - with the fintech movement transforming everything from banking and investing to mortgages - expect a digital, intuitively visual and easy-to-understand experience. These are the prerequisites for selling your products successfully – especially in the world of Amazon.

Life and annuity carriers need to transform the entire sales lifecycle – not just the application pain point. This means addressing everything from digital presentation of the product by financial professionals, to interactive training and to a consumer-oriented in-force web experience. Policy statements sent via snail mail are out of date. 

And financial professionals, for whom 50% of client engagements are now virtual, should be enabled with an interactive, digital experience to explain products to clients. Clients should be able to interactively play with products online to better understand how they might perform, for instance under different market scenarios. This is now par for the course.

Change distribution mindset and prioritize technology “platform plays”

Silicon Valley venture capitalist Marc Andreessen said, “Software is eating the world.” A corollary in financial product distribution could certainly be: “Technology platforms are eating distribution.”

Life and annuity distribution has traditionally been focused on relationships and traditional distribution partner platforms (i.e., people plus services). There is an unprecedented shift happening today – the introduction of distribution technology platforms and the elevated importance of the platform experience.

Insurance carriers will need to open their distribution mindset and strategy to prioritize “platform plays.” This means not only reevaluating whether they are delivering a modern, Intuit-like illustration experience for different types of personas, but also consider how they are enabling new technology platforms to drive premium growth.

See also: Fundamental Shift in Life Insurance?

Increasingly it will be the “platform plays” that will drive premium growth. And without addressing the challenge of “product accessibility,” the life and annuities market will never truly “cross the chasm” and return to long-term, sustainable growth.

Fintech is evolving our world and creating experiences that a growing portion of our potential client base have come to expect. While insurance has gained some renewed interest during the pandemic, we are now at the inflection point that will determine how well we can adapt and grow over the next decade.

It is only the beginning of the 2020 wildfire season, and already there have been 20,351 U.S. wildfires between Jan. 1 and June 12. Compare this with 16,630 fires during the same period in 2019, according to the National Interagency Fire Center (NIFC).

As many as 90% of wildfires in the U.S. are caused by people, according to the Department of the Interior. Some are caused by unattended campfires, burning of debris, downed power lines, negligent discarding of cigarettes and arson.

In many cases, wind causes fires to spread over greater distances, creating exponential expansion. Fire spreads from hillsides to various points in the valleys, creating spot fires with no relationship to the main wildfire body. Examples of late season fires being compounded by extreme winds include several Southern California fires in 2019.

When One Disaster Follows Another

Across the U.S. and Canada, the scale of forest fires has increased to the degree that the fires themselves are now contributing to the rise in greenhouse gas emissions. Some fires are even creating their own weather systems, making winds more erratic and conditions too dangerous for firefighters to protect people and properties. These fires are often called megafires, and they are becoming more common. Some bushfires in Australia created powerful pyrocumulus clouds that led to smoke-infused thunderstorms. The lightning from these storms threatened new fires, which sometimes developed into fire tornadoes.

Warmer temperatures do more than just dry out the land. They also heat up the atmosphere, where clouds hold on to more moisture for longer periods, causing severe drought and fire. This is often followed by crushing rains that can’t be absorbed by severely dry lands. When floods and mudslides destroy property where fires blazed nearby, a cycle of what scientists call “compound extremes” – one climate disaster intensifying the next – makes recovery more difficult.

See also: Wildfire Season: ‘The New Abnormal’?

Evacuations and Blackouts Made 2019 Unique

While 2019 was not as active as 2018 in the U.S., disruption was still significant, leading to the evacuation of over 200,000 people and the declaration of a state of emergency in California. 

One of the most notable aspects of the 2019 California wildfire season was the introduction of scheduled intentional power outages by utility companies when fire conditions were forecast. This was meant to minimize or eliminate ignition risk from downed powerlines. These preemptive power shutoffs occurred in approximately 30 counties in California for approximately 23 days total, by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. The shutoffs initially affected around 800,000 customers, or about 2 million people. Stanford University’s Michael Wara, an expert on electricity policy in California, estimated the total costs of the blackouts were somewhere between $1.8 billion and $2.6 billion.

The shutdowns drew widespread criticism from residents as well as government officials. Many businesses and residents complained of either being misinformed or not informed when shutdowns would occur. California developed programs to protect utility companies and consumers in the advent of future wildfire events. The state legislature passed a bill that created a $21 billion state-run insurance pool to act as a cushion for utility companies against future wildfire claims.

Wildfire Modeling 

Wildfires are a rapidly growing challenge – and businesses need better tools to manage this risk. Predicting wildfire-related risk requires understanding more than just fire history, frequency and severity. Using solutions that are scientifically supported and peer-reviewed can provide powerful insights into wildfire mitigation, monitoring, reporting and response.

At Allianz, wildfire modeling is approached from a loss- prevention perspective:

• Fire frequency, history and severity: Quantifies how often and how severe wildfires are expected to be, based on the history of a specific location
• Ember loss and smoke damage: Scores the risk of a fire breaking containment via drifting embers and the projected path of those embers
• Structure-to-structure ignition: Considers the proximity of houses and structures in each zone and the projected risk of fire jumping from structure to structure
• Urban conflagration: Uses fire shed analysis incorporating the risk of a wildfire’s transition into urban areas, including structure-to-structure loss, ember scoring and accumulated risk
• Correlated risk zones: Uses interactive maps to correlate and understand risk of single-fire events in specific areas

Reinsurance and risk modeling experts have begun using terms such as “megafires” and “the new abnormal” as they have identified several contributing trends of interest:

• Increase in property development in and adjacent to wildland urban interface (WUI) areas 
• Increase in fuel loads on the ground, including dead standing trees due to drought and insect infestation, along with a decrease in fuel moisture content as a result of prolonged arid conditions 
• Increase in weather volatility from year to year, including several years of drought interspersed with a few very wet winters, as well as longer dry seasons extending later in the year when intense seasonal wind patterns are most likely to spread fires 
• Changes in fire behavior, with rapid expansion becoming more explosive in terms of quickness and distance, due to a confluence of extreme conditions, including high temperatures, low humidity, strong winds, high fuel loads (vegetation and structures) and steep, hilly terrain; fires have consumed up to 70,000 acres a day and traveled over 15 miles in a few hours, with embers blown across multilane highways into developed areas within city limits  
• Multiple fires have erupted at the same time and often in close proximity, stretching the availability of fire-fighting resources and their capability for aerial drops of retardants due to massive smoke plumes that reduce visibility

See also: Some Hope in the Face of the Wildfire Threat

COVID-19 Challenges

The 2020 fire season presents new challenges related to COVID-19. The pandemic has raised the stakes at the worst possible time, forest managers say, and is forcing firefighters, officials and communities to rethink how they combat blazes. One such consideration is firefighters moving from blaze to blaze in camping groups while not on the front lines. This previous practice is now considered a dangerous incubator for COVID-19. Also, the combination of smoke inhalation and the novel coronavirus complications greatly expand respiratory risks for first responders.

The continued spread of the coronavirus, as well as the economic paralysis that has accompanied health restrictions, has affected every aspect of wildland firefighting. With fires beginning earlier in the spring and persisting later into the fall, communities may have to contend with the dual risk of COVID-19 and wildfire for several months.

"California is the lab for managing exposure to wildfire risk," according to Lynn McChristian, a professor of risk management at Florida State University. If carriers and reinsurers can make it there, they can make it anywhere.

The past several years have seen a steep increase in the severity of wildfires, with the 2017 and 2018 seasons causing $24 billion in insured losses in California alone. Rates are climbing there, and coverage is dropping—there is clearly insufficient wildfire coverage to meet market demand, especially in high-risk, wildland-urbane interface (WUI) communities. 

These historic losses, combined with insufficient solutions for managing wildfire risk, mean insurers are trying to get a handle on their wildfire portfolio accumulations and gather perspective on relative risk. Simply put, the old way of doing things has been proven not to work—and insurers are demanding better. 

The flaw with historical wildfire risk management: Fires don’t burn in a circle

The California wildfires illuminated that many companies do not have clear best practices around managing wildfire risk, primarily because it has often been considered part of wider policy terms.

One solution is to limit accumulations between highly correlated areas of wildfire risk. Historically, insurers have looked at their concentrations of wildfire risk at the county level, along with using ring accumulations as a tool to assess risk. But fires don’t burn in a circle, and they don’t know postal code boundaries. Now, RedZone, a wildfire modeling company, has used millions of wildfire simulations to identify burn patterns across the landscape to create areas called “correlated risk zones.”

See also: Parametric Solution for Wildfire Risk

These zones are essentially regions that look completely separate but, statistically, burn together. They provide a logical and credible alternative by which to manage portfolio risk accumulations, alongside traditional loss modeling techniques. A more consistent approach to managing capacity can also improve risk-based pricing.

Solving a portfolio-scale problem requires changing the way we think

“Models have focused on risk at specific locations, but this is a portfolio-scale problem,” RedZone CEO and founder Clark Woodward says. 

The above screenshots show RedZone’s models for use in portfolio-level analysis. On the left is RedZone’s burn probability layer. When combined with the image on the right, which is RedZone’s hazard control zones, you can develop a firmer understanding of portfolio composition when it comes to accumulations and likeliness to burn. 

Accumulation analysis involves defining zones of correlated risk—where properties are likely to be damaged by the same event in the same year—and estimating the probable maximum loss (PML) within each zone. By evaluating accumulated wildfire risk, insurers can assess where additional properties may be insured with minimal increase in exposure to extreme losses. 

Reinsurance broker Willis Re has also brought to market a new methodology for wildfire underwriting and customer-specific portfolios. By helping carriers understand not only individual risk selection but geographic areas that are driving up their PMLs, Willis Re can, in turn, help them diversify their portfolios and drive down reinsurance costs.

Practical innovation that can be deployed now  

It’s taken a beat—and a harsh reality check—but better wildfire risk management strategies are now coming to fruition. Providers like RedZone, Willis Re and Insurity are working collaboratively to create solutions, like the correlated areas of risk discussed here, that provide better, more logical ways of managing wildfire accumulations.

This technology can be quickly deployed and implemented alongside traditional risk management strategies. This allows insurers to avoid disruption while employing a consistent approach to managing capacity across both underwriting and portfolio management and, ultimately, better serve and protect insureds against wildfire risk.

In the mess that is flood insurance in the U.S., a bright spot emerged late last month when First Street Foundation released a major report on the issue, along with a model that will go a long way toward making assessment of flood risk more accurate and transparent.

The report serves first and foremost as a wake-up call. It says, for instance, that 70% more homes are within a “100-year” flood zone than are designated as such by the the Federal Emergency Management Agency (FEMA). That means 6 million households face flood risks they don't anticipate, yet aren't eligible for the National Flood Insurance Program. In Chicago, 13% of properties are at risk, according to First Street Foundation's report, while FEMA puts that figure at less than 1%. The report says Washington, D.C., and Utah have five times the risk that FEMA sees, while Wyoming, Montana and Idaho have four times the risk.

Those sorts of figures are quite the clarion call, but First Street Foundation goes even further by providing the beginnings of a solution: data. Its model evaluates the risk for 142 million properties in the continental U.S., based on an exhaustive array of different inputs that not only are as accurate as possible for today but that project how risks will develop because of climate change. The model lets you search any address for free.

The model from First Street Foundation, a nonprofit research and technology group, should provide short-term benefits while laying the groundwork for smarter long-term policy decisions.

In the short run, potential buyers will understand their odds better and can either pass on a higher-risk property or can mitigate the risks by buying insurance or retrofitting the building. Banks will see the risks more clearly when writing mortgages -- and some 30-year mortgages written today will still be in force in 2050, by which point the report projects at least 11% more properties will be at substantial risk of flooding. Insurers will price more accurately. Government -- the 800-pound gorilla on flood policy -- will have a better handle on what public works to undertake to protect vulnerable areas and what areas to steer clear of because the flood dangers are just too high.

(My entirely unrepresentative check on homes where I've lived over the decades struck me as spot on: All were ranked at the lowest level of risk, except for a condo I owned in Hoboken, N.J., that included the ground floor and that, in fact, flooded twice in the decade I owned it.)

In the long run, better information should allow flood risk to be allocated in a mostly rational manner, with homeowners and insurers mostly splitting the liability, but with government in the background to help with out-of-the-blue catastrophes.

We've all heard the stories about homes on the coast that get wiped out by storms, then rebuilt, only to be wiped out again, sometimes more than once. Having more accurate data should lead, in time, to underwriting decisions and government policy that reduce or even eliminate such craziness.

First Street Financial describes its report and model as a necessary but insufficient first step. That sounds right. The report is insufficient on its own because lots of other companies and groups will have to finetune the group's data and, in general, deepen our understanding of flood risk. At ITL, we've long appreciated the work done by reThought and Hazard Hub, among others, but many firms will have to step up. And regulators, not known for turning on a dime, will need to become comfortable with using data that exists for each individual property, rather than thinking in broad, imprecise terms like flood plains.

But the report is a necessary, and very welcome, first step.

Stay safe.

Paul

P.S. Here is an intriguing piece from a sister publication, Risk & Insurance, on how insurance could help address systemic problems in police departments. The idea would be to require that police officers carry professional liability insurance. Police departments would cover the average cost of the insurance, but each officer deemed a high risk by actuaries (based on number and type of civilian complaints against them, for instance) would have to cover the additional premium payments. The hope would be to price bad officers out of work before they could do something that would wind up on the news.

I'm not at all sure the idea would work. Institutional forces such as police unions would resist like crazy, and there is surely enough uncertainty about how to weight risk factors that they'd be able to piece together an argument. But I found the idea innovative, so I figured I'd share the article. Maybe there's a way to build on the idea.

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

4 Post-COVID-19 Trends for Insurers

It’s not all gloom and doom. A crisis usually functions as a great breeding ground for innovation.

The Case for Paying COVID BII Claims

Is it reasonable to assume coverage for a COVID-19-related BII claim in the absence of a virus exclusion? The answer has to be, yes.

How Risk Managers Must Adapt to COVID

To modernize at the scale and speed required, ​"low-code" application development tools should be incorporated within the enterprise.

COVID: How Carriers Can Recover

Does RFP stand for “Request for Proposal” or “Really Frustrating Process?” Carriers can and must do better.

Strategic Planning in the COVID-19 Era

As insurers develop plans for 2021, the question is, where to start? Traditional processes may need to be supplemented with scenario planning.

ERM Shows Its Worth in Pandemic

Companies with sound ERM practices were better-positioned to deal with the pandemic than those with less sound or no ERM.

Although some say COVID-19 is a black swan event, it really is not. Pandemics have occurred in the recent as well as the remote past. A clearly articulated description of pandemic risk can be found in the World Economic Forum’s, The Global Risks Report 2019. “The spread of infectious disease” was among the top 10 risks listed, based on impact. There are estimates of the cost of a pandemic in one of the special chapters in the report, though these may look small compared with what COVID-19 might actually cost.

In the The Global Risk Report for 2020, “infectious diseases” is again among the top 10 risks. That report describes the readiness of countries to deal with epidemic or pandemic and cites a Nuclear Threat Initiative study that concluded that “no country is fully prepared to handle an epidemic or pandemic.”

The World Economic Forum’s (WEF) annual meeting in Davos, Switzerland is attended by government, business, scientific and other leaders from a plethora of countries. The ideas and data developed by its staff and contributors are widely distributed and well communicated. 

The WEF is not the only organization or individual to warn about pandemics. Bill Gates gave an excellent TED talk about pandemics in 2015 that has now gone viral on the internet. Heath organizations, think tanks focused on health and other types of organizations have put out the warning, as well. 

In the face of these warnings, it is puzzling as to why has there been the lack of preparation witnessed in some sectors. On the other hand, many major corporations reacted speedily and effectively to the challenges presented by the pandemic, even if they had not had it among their list of top risks. The reason they were able to do so rests, in large measure, on these companies’ adoption and implementation of enterprise risk management (ERM). 

ERM’s Premise

ERM is a process that addresses both operational and strategic risk across all facets of an organization by identifying, prioritizing, mitigating and monitoring risk to ensure that the mission and strategy of the organization can be assured. Below are the numerous ways ERM has proven its worth in ameliorating the potential adverse effects of the pandemic, whether the risk was fully recognized or not.

See also: How Risk Managers Must Adapt to COVID

How ERM Has Mitigated Pandemic Risk Among Practicing Companies 

A robust ERM implementation includes having both a business continuity and a disaster recovery plan. These plans enable companies to 1) assemble key decision makers immediately to approve responsive actions, 2) communicate to employees quickly and 3) move to “work at home” conditions without too many glitches. Many companies have indeed moved to a “digital only” environment with employees working at home. When this was not possible, companies rapidly put guidelines in place to create social distancing and other modes of worker protection.

ERM places a heavy emphasis on information technology security. Thus, as companies migrated to more work at home, employees already had cyber training. IT staff have implemented strong controls on aspects such as accessing systems and cloud security. Further, cyber insurance products have been purchased. 

ERM also includes having a solid handle on supply chain risks, meaning that supply chains are well-documented and diversified and that supply alternatives lined up. A number of ERM practitioners moderate the parameters of their just-in-time production and ordering to allow for a certain amount of inventory to be available in the event of a catastrophe. However, even a company following ERM best practices can experience supply difficulties and losses when a pandemic is truly global and lingering, but less so than others.

In addition, ERM-managed companies tend to have very solid financial underpinnings in terms of capital levels, credit lines, investment portfolio diversification, etc. The "however" in this case is that many small businesses are unable to have as substantial a financial foundation as larger ones, and even large companies with solid financials cannot sustain a severe drop in revenues for consecutive months. Nevertheless, to the extent that practicing ERM resulted in stronger financials, companies were better-positioned to withstand the financial impact of the pandemic.

Further, ERM fosters keen focus on reputation risk. Companies with dynamic ERM practices understand the need to aggressively protect corporate reputation. As such, many of such companies widely communicated what they were doing to protect all stakeholders from the effects of the pandemic, modified their advertising to take a more sober and caring tone and introduced a new level of caution in all they did.

See also: COVID: How Carriers Can Recover

An Example for Others

Governments and healthcare institutions could have benefited from ERM or more robust ERM. The list of mitigations that could have been in place is legion. For example, stockpiles of personal protective equipment and respirators could have greater, the number of ICU beds could have been higher, protocol for where to treat patients who contract the virus could have been drafted in advance and treaties among co-operating countries that address warnings and the closing of borders in the event of an outbreak could have been drawn in advance. 

It is hard to argue that companies with sound ERM practices were better-positioned to deal with the pandemic than those with less sound or no ERM. The benefit in dollars and cents may not be able to be determined accurately, but the benefit is real.

No one will mistake 2020 for just another year. The turmoil caused by the pandemic, lockdowns and social unrest is unlike any other year. Businesses, individuals and governments have all been forced to make dramatic changes and adapt to new realities.

The P&C insurance industry has responded admirably amid the chaos and continues to adapt to the evolving environment. As insurers develop strategies and plans for 2021, the logical question is, where to start? The traditional planning processes may need to be supplemented with new approaches, given the great uncertainty brought about by the events of 2020. One approach to consider is scenario planning.

Scenario planning is most valuable when there are considerable uncertainties regarding the future. By definition, strategic planning always has to deal with an uncertain future. However, a new set of variables is now layered on to the traditional factors that influence strategic decisions. In a new research report, SMA has evaluated a wide range of variables and has developed four scenarios for the future for P&C insurers. P&C Insurance Post-COVID-19: 4 Scenarios for the Future, looks at the implications of different possibilities for economic recovery and the nature of digital transformation in the world at large. The four resulting scenarios that SMA has described are:

• Survival of the Fittest: In this grim scenario, insurers would be forced to adapt to decreased demand and growth by cutting back the workforce, expenses and investments in digital transformation and innovation.
• Digital Prevails: In this possible future, the pandemic would be embraced as a change event, and the lessons learned would be catalysts for finding creative ways to invest.
• Back to the Future: The world of P&C insurance would be similar to what it was like pre-COVID-19.
• Innovation Abounds: A robust economy and an acceleration of digital transformation in the world will require insurers to take innovation to the next level and accelerate their own transformation.

See also: How Risk Managers Must Adapt to COVID

What would each of these potential scenarios mean for the industry as a whole? For individual insurers? For different lines of business and business areas within an insurance company? That is the essence of scenario planning.

I wish I could travel to the future so that I could tell my clients what future they should plan for. But because time travel is not available yet, the next best thing is to engage in scenario planning to help think through the implications and strategic responses for various possible futures, then use that thinking as input into the traditional strategic process.

Because of COVID-19, carriers are reeling from the moves they have to make to mitigate loss and churn, accelerate digital transformation and automation efforts and improve safety.

The pandemic caused a dramatic reduction in consumer driving with fewer cars on the road, for instance, and many auto insurance carriers issued partial refunds to policyholders. In early April 2020, Allstate reported it would return 15% of monthly premiums, more than $600 million, to auto policyholders to compensate for reduced driving due to state-issued stay-at-home orders. Most carriers also began to extend payment grace periods.  

These swift moves were designed to minimize churn, as policyholders look to save money by reconsidering coverage limits or even reducing the number of vehicles they use. These changes are likely not just short-term. The impact of COVID-19 on the economy is expected to be long-lasting and will more than likely result in the reallocation of jobs, workers and capital across firms. The unemployment rate rose to 13.3% in May compared with 3.5% in February just before the pandemic hit, as reported by the U.S. Bureau of Labor Statistics.  

What else can insurance carriers do? 

To survive and thrive during this unprecedented time, carriers must empower economic recovery and innovate and reimagine business models and services, while serving policyholders’ rapidly changing needs. Retrenching through innovation is an important and necessary step. In my experience, one way to do this is by implementing a process known as "innovation groups" that spans the organization.

Properly structured, innovation groups increase the efficiency of work processes and empower employees. If innovation is too tightly concentrated in specialized departments such as strategic innovation teams, for example, or too tightly aligned with corporate venture interests, companies generally fail to leverage the deep knowledge and expertise of day-to-day operators. The best opportunities for innovation and new technology partnerships — those that truly drive a business forward — come from the active involvement of the people who are closest to the affected end-user and are most familiar with the incumbent process or technology and its deficiencies.

To succeed with a company-wide innovation process, companies must also consider culture and look for ways to make things work as opposed to reflexively saying “no” to challenging change. The most innovative companies have a similar formula for success:

1. They forgo hierarchical authority in exchange for collaborative teams that value data and divergent creative thinking;
2. They create a process and an environment where employees feel safe to bring (contextually focused) ideas without fear of judgment; and
3. They reward bold ideas that challenge the status quo, even if they fail.

Cultural shifts like these do not happen organically or overnight, so carriers must be committed.

We work closely with many of the top insurance carriers to create and implement technology-based solutions. So, I’ve provided a few suggestions based on our experience working with carriers for innovating through disruptions that can drive your business forward.

Leverage third parties to increase carriers’ technology capabilities

The insurance industry was already undergoing a significant technological shift before this pandemic. However, insurance has historically been slower than other industries to shift systems and applications to the cloud, which offers much greater bandwidth and capacity than traditional data centers. According to Forbes, many digital-first business models are the product of increased collaboration between traditional insurance companies, testing new business models, and revenue streams powered by new technologies. 

See also: Evolving Trends in a Post-Covid-19 World  

Insurance carriers are experiencing pressure to come up with solutions faster. Working with third parties accelerates innovation and allows carriers to focus on enhancing their traditional value proposition with expanded services to meet new customer expectations and the changing behaviors of a post-COVID world.

Most importantly, technology solutions can reduce operational costs by preventing fraud and automating services, freeing employees’ time for initiatives that provide more value and allowing insurance agents to acquire and maintain business more efficiently. 

Look for new ways to easily and quickly deploy AI across the business to increase accuracy and speed and to decrease costs.

Artificial intelligence (AI) has improved operations in multiple sectors of the insurance industry by lowering costs, driving efficiency across the business and enhancing the customer experience. If you’re not taking advantage of AI now, it is of utmost importance to start doing so immediately. 

According to Accenture, insurance executives believe that AI will transform their industry, with insurers investing in AI to empower agents, brokers and employees. They aim to enhance the customer experience with automated personalized services, faster claims handling and individual risk-based underwriting processes. 

Roadside assistance programs, for instance, are benefiting from AI, machine learning, automation and data transparency. For many insurers, roadside assistance is one of their highest-volume claims. So it’s vital to offer an omnichannel touchless claims process (voice, web, mobile with “hands off”) to AI-powered chatbots that provide customers with real-time information during a roadside service. New technologies for deep provider profiling and dispatching are also crucial. These digitalization efforts improve the overall roadside assistance experience and make it far more efficient. 

Leverage insurance carrier and partner data more effectively to make more informed decisions.

All companies can do a better job of leveraging data. Leveraging data helps insurers make better and more informed data-driven decisions with regard to pricing, risk selection, fraud, claims and identifying trends. 

Carriers can be more successful in this area by working closely with their third-party partners to design and implement data feeds or warehouses where relevant data is continuously updated and exchanged in a real-time environment. Introducing or evaluating new technology systems and partners is also an excellent way to rethink or update your data strategy. These efforts can unlock sources of data that were previously unattainable and, thus, not actionable. When vendors and clients work together to share data and operate transparently, they quickly become “partners,” with shared objectives and outcomes. They continuously hold each other accountable and are more likely, and more quickly able, to uncover insights.

Fraud is another area where insurance carriers can increasingly use data. Especially in difficult economic times, “bad actors” may look for ways to gain financially from fraudulent claims. Fraud is most effectively detected through artificial intelligence, which can increase efficiency and accuracy without adding headcount. 

Improve the RFP process, which is largely seen as broken and lengthy by startups and innovative companies, to speed your process. Focus efforts on testing/piloting as quickly as possible. 

Does RFP stand for “Request for Proposal” or “Really Frustrating Process?” That depends on whether you’re asking insurance carriers or startups.

Carriers, like many others, are used to using RFPs in their procurement processes. These RFPs have worked well over the years, comparing generally commoditized solutions in an apples-to-apples fashion. They shield operators from situations that might otherwise introduce bias (.i.e, the “procurement wall”), while also aiming to create a fair and equal environment for vendor competition. Sounds great, right?

Not if you’re a startup. By definition, startup companies are funded by investors that believe in a “moonshot vision” and want to see “disruptive innovation.” Investors don’t invest in startups with solutions that only marginally improve the status quo. Now, consider a startup with a highly differentiated solution. How is it supposed to explain that differentiation in a highly structured RFP document or web form in which the questions are often outdated or incorrect, answers are pre-canned or the startup has just 140 characters to explain its wildly different business model?

Analysts have documented that insurtech opportunities frequently fail to reach the test or pilot phase due to “internal difficulties.” And when the procurement process doesn’t actually evaluate a solution, it isn’t much of a procurement process, is it? Imagine trying to compare a potential switch from Yahoo search to Google search in the 1990s. What would that RFP look like? What questions would it have asked? “How many website categories do you support?” “How many human curators add links each day?” “Include screenshots of the search box.” Anyone that tried Google search would have spotted the difference in the quality and usefulness of search results immediately. Would the RFP have communicated this difference?

See also: Step 1 to Your After-COVID Future  

To ensure your RFPs aren’t inadvertently preventing your organization from evaluating truly transformative technologies, focus on relationships and culture fit and, most important, try the technology. Make decisions based on the results. Revisit processes and make sure they open doors for innovative startups. The carriers that focus not only on fixing these “old” processes, but also introducing “new” ones will out-innovate those that do not. Some of these new processes could include startup engagement, integration and staging environments, sandboxes loaded with sample data, APIs and standardized/modern security audit processes,

A catalyst for change

The transformation of the insurance value chain as we know it — from policies, pricing and distribution to underwriting and risk management through to claims servicing and payments —will be accelerated by this pandemic and the resulting economic downturn. Use this opportunity as a catalyst to change outdated processes and technology, implement thoughtful innovation processes, seek high-value partnerships in the rapidly expanding insurtech industry and evolve company culture to come out ahead where others may stay behind.

Risk managers who specialize in catastrophe planning and pricing are coming to grips with the idea that the financial cost of today’s pandemic will dwarf last decade’s​ ​historic​ losses from natural disasters and cyber hacking. According to researchers​, insurers kept pace last decade, saving lives and mitigating the economic hit, through increased use of data analytics and technology in risk modeling and claims processing. Today, the global scale of the pandemic’s economic fallout makes it more urgent for insurers to adopt and upgrade their digital enablement strategies quickly.

But, given the industry’s large base of cumbersome legacy systems, insurers notably​ ​lag behind other market sectors in adopting these much-needed innovations. To modernize core risk management systems and future-proof policy underwriting processes at the scale and speed required, ​experts​ say low-code application development tools should be incorporated within the enterprise.

“Low-code”— a visual development approach for building software using drag-and-drop components that is transforming the way applications are built — has been​ ​vetted​ by analysts as a powerful and effective means to reach a strategic end. For risk managers, that goal is to jumpstart the targeted use of next-generation capabilities, including cloud-based software deployment, artificial intelligence and augmented reality/virtual reality, all of which can be integrated into legacy systems with low-code tooling. Each has a specific way of empowering lean teams of specialists to handle the coming spike in claims, sort through market confusion, conduct complex tasks remotely and assess new sources of risk, while relying on core systems to maintain daily operations.

How Low-Code Bridges the Gap

First, a robust, low-code development platform enables a diverse talent pool of business experts to collaborate with IT teams and coding professionals. This approach captures the knowledge, expertise and iterative feedback of business-focused experts throughout the entire software development lifecycle, enabling quick deployment of customized, targeted software for web and mobile use.

Second, the underlying architecture of low-code platforms prioritizes integration, connectivity and openness. This enables enterprises to extend their digital capabilities with next-gen innovations while keeping their legacy systems’ core clean and secure.

Here are four aspects of technology enablement that empower risk managers to handle newly scaled-up demands and position the enterprise for success in the “new normal.”

The Cloud Enables Resilience

Compared with other business verticals, the insurance industry is late to adopt and fully leverage cloud-based software deployment. A 2019​ ​Deloitte survey​ on insurance trends found that nearly half of all respondents — 48% — were comfortable with a three-year time frame to adopt cloud technology.

But pandemics have a way of rewriting the rules. Today, risk managers are working remotely and require access to data and workflow processes often managed on mainframes. More than one insurance firm recently experienced operational delays when its data centers were hit with connection challenges. Ops teams were not allowed to go onsite to restart these systems until state officials modified their shelter-in-place orders.

In contrast, cloud-based operations are highly resilient. By design, the cloud enables business continuity from small and large interruptions, with a rolling system of global availability spread across geographically dispersed locations. Cloud-based operations today play a vital role in enterprise business continuity, including an insurer’s own disaster recovery strategies.

The low-code platform is cloud-native, offering the security of housing systems remotely and enabling seamless workforce access from anywhere. Regardless of what triggers a systemic shutdown, cloud-based systems will mitigate the impact.

See also: Where Were the Risk Managers for King’s Landing?  

Multi-Cloud Deployment Options Add Security

The majority of insurers have delayed cloud adoption due to data security and regulatory compliance concerns. To date, many firms still place their trust in on-premises data centers. However, cloud providers have evolved their product offerings to meet a wide range of enterprise cloud deployment strategies.

Companies requiring maximum security can adopt a fully private cloud model, or a hybrid model with the ability to “burst,” moving things to the public cloud when disaster hits or when demand spikes. Risk managers should also consider that the major cloud providers have the resources to hire the world’s best security engineers, a valuable and cost-efficient means of supplementing internal security capabilities.

AI Accelerates and Automates Contract Liability Assessments

As closures, cancellations and supply chain disruptions affect businesses, policyholders will file more and more claims. Risk managers also face uncertainty from mounting legal challenges, as underwriters are pressured by state governments and organizations to use business continuity policies to cover losses from government mandates to shelter in place, overriding existing contracts.

Business continuity policies are highly complex legal documents. Enterprise legal teams can quickly run out of bandwidth to evaluate contract liabilities triggered by the pandemic. While it is incumbent on brokers and underwriters to analyze existing contract language to map out covered risks and exclusions during these extraordinary circumstances, they need help to get it done accurately and in a timely fashion.

Applications built with low-code tools can integrate back-end systems with AI and natural language processing tools to review and flag contract language and risk mitigation strategies to ensure proper coverage. Here again, collaboration is key. Input from risk managers, executives, legal experts, process executors and IT professionals is needed to map out a firm’s current level of risk exposure, evaluate its preferred risk appetite and adjust strategic planning. Because it employs a visual “language” understandable by both technical and non-technical personnel, low-code is a powerful collaboration tool for conceiving, building and deploying digital solutions that address the massive disruption triggered by the pandemic.

Quality Assurance and Training Can Be Digitized

The limited number of risk management specialists is a challenge for the industry. Their ranks will never be large enough to thoroughly execute the tasks of onsite assessment and analysis, especially during and in the aftermath of a pandemic.

Risk managers should already be working with a checklist of qualitative items, including operational risks and associated controls, plus event and escalation triggers for risk identification and measurement. Too often, these essential processes are paper-based or stored in Excel documents. One solution to streamline these processes would be a customized mobile application combining a digitized checklist with a time-stamped photographic inventory of a plant or facility. Such an application would also improve training, documentation and knowledge transfer when new risk managers join the team.

See also: 3-Step Framework to Manage COVID Risk  

With current restrictions on business travel, the case for augmented reality tours through plant operations and factory floors makes economic sense. It may sound futuristic, but low-code developers have already integrated augmented reality into warehouse management tasks, insurance claim workflows and even cancer detection by radiologists. Similar capabilities could be leveraged by the risk management industry to confirm a range of safety standards and to analyze visual information that may require a specialist.

Collaborative Digital Initiatives to Power in the New Decade

With revenue taking a big hit, it’s key to remember that risk and recovery are two sides of the same coin. To speed the recovery process, risk professionals must help the enterprise understand the risk profile of every potential customer and reduce the overall risk profile of the organization.

Low-code application development in the cloud, along with AI, AR and other ascending technologies, can bring visibility to otherwise hidden relationships and liabilities, while ensuring that data is understood, available and actionable Risk managers and C-suite executives need to champion innovative technologies that can scale up an effective response and protect the bottom line, speeding the pace of digital adoption from ​later​ to ​now.