The property insurance industry has been steadfast in its position that COVID-19 does not constitute a “risk of direct physical loss,” the coverage trigger for business interruption (BII) coverage under the Insurance Services Office (ISO) “Special Causes of Loss” property form. 

However, this position raises the question: If a virus does not pose a “risk of direct physical loss,” why did the ISO (the same group that drafted this insuring agreement) feel a need to develop form CP 01 40 07 06 titled "Exclusion of Loss Due to Virus or Bacteria," which specifically excludes coverage for “loss or damage caused by or resulting from any virus”? 

This ISO coverage trigger provides broad coverage that, once triggered, is only modified by policy exclusions or limitations. That is, once there is a “risk of direct physical loss” to covered property, unless that cause of loss is excluded, it's covered. While there have been numerous court decisions discussing this language, each with twists and turns due to the specific fact patterns of each case, the consensus is that, if the interruption of business is caused by some physical problem with the covered property, coverage is triggered. Then, barring any exclusion or limitation removing or otherwise limiting coverage, the claim should be paid.

The insurance industry standard practice is to “read in” coverage wherever possible. That is, if there is a reasonable way to evaluate the policy language that triggers coverage, the insured is entitled to receive the benefit of the policy. Or, as stated in a well-respected industry text used to educate adjusters: “Therefore, the claim representative’s chief task is to seek and find coverage, not to seek and find coverage controversies or to deny or dispute claims.” “The insurance company should not place its interests above the insured’s.” “The claim professional handling claims should honor the company’s obligations under the implied covenant of good faith and fair dealings.”

While the industry argues that the drafters never intended to cover catastrophic economic loss caused by a pandemic, this argument falls flat and appears to be merely an attempt to prevent payment for otherwise covered claims. While most policies do in fact exclude “loss or damage caused by or resulting from any virus,” some do not. In fact, policies without a virus exclusion might have been purchased based solely on the lack of that or similar exclusionary endorsements. In short, not including a virus exclusion on these policies gave these insurers a competitive advantage by providing, or through a perception that they were providing, superior coverage.

The insurance industry seems to be grasping at straws by relying on court decisions that are not exactly on point. For example, one ruling used to argue against coverage is that dirt (which can be easily cleaned) does not constitute direct physical loss or damage. Of course, dirt is not inherently dangerous, usually does not result from a fortuitous event and does not usually cause harm. The same can’t be said of COVID-19. I have also seen an unpublished Sixth Circuit Court of Appeals opinion that addressed mold damage to a landlord’s property, distinct from the named insured “covered property,” argued as a case that somehow supports the position that a virus is not direct damage.

While there are indeed many commercial property insurance policies that do not provide coverage for COVID-19 BII claims due to virus or other similar exclusionary language, the courts will no doubt eventually find coverage under policies without such limitations or exclusions, or under policies with exclusionary language that is not on point, or that is poorly drafted.

Part of the problem is that the phrase "direct physical loss" is not defined in these policies, and even industry experts agree that “when the intent is for the policy to be triggered only by direct physical loss or damage, the language may need to be clearer. To say that a policy covers direct physical loss or damage to covered property from "risks of direct physical loss or damage" may be ambiguous.” And “whether the policy grants coverage for "all risk," "all risks" or "risks" of direct physical loss, this language is intended to mean that coverage is provided for direct physical loss or damage from all perils or causes of loss, unless the peril or cause of loss is specifically excluded or limited in the policy. However, when applied to property loss exposures, the phrase "risks of direct physical loss" could be interpreted to mean the chance or possibility of direct physical loss or damage, whether any property damage ever occurs or not.” 

Consider this International Risk Management Institute (IRMI) definition: 

Direct Damage — physical damage to property, as distinguished from time element loss, such as business interruption or extra expense, that results from the inability to use the damaged property. 

In other words, loss of use caused by some physical problem with the covered property constitutes direct physical loss or damage.

See also: How Startups Will Save Insurance  

Also consider the industry definition of property damage from the standard Commercial General Liability coverage form (in pertinent part):

1. "Property damage" means:
   1. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
   2. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

So, the analysis, when evaluating this coverage trigger should be: Did COVID-19 cause some physical problem that interrupted the business? 

This can be an even easier analysis when evaluating coverage for Civil Authority or Ingress Egress, as many times these insuring agreements do not require “direct physical loss or damage,” only “damage.”

Clearly, mold constitutes physical loss, and courts have regularly held that “direct physical loss can exist without actual destruction of property or structural damage to property; it is sufficient to show that the property is injured in some way."

Some courts have ruled that the term "physical damage" includes "loss of access, loss of use and loss of functionality," and one court even ruled that government regulations rendering cereal unfit for sale was "an impairment of function and value," constituting "direct physical loss or damage” since even “without the actual destruction of property or structural damage to property it is sufficient to show that the property is injured in some way." 

In recent decisions arising from COVID-19, courts have already ruled that COVID-19 qualifies as a “natural disaster,” just like any “hurricane, tornado, … or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life,” and since “the risk is, essentially, everywhere,” any “order to implement social distancing aimed at reducing this risk, policyholders have suffered a 'direct physical loss' of their property.”

The outcry from business owners is understandable because their livelihoods are at stake, but I fail to understand the insurance industry's solidarity and forceful rejection of these claims when some insurers made the conscious decision not to include virus exclusion on their policies, giving them a competitive advantage.

In an early sign of what I predict is coming, a French court recently found coverage for BII under AXA property policies for COVID-19. Reportedly, “Although AXA first signaled that it would appeal the ruling, it now has agreed to pay the claims involved in the lawsuit as well as other coronavirus claims involving similar policies, acknowledging that the insurance policy wording at issue is ambiguous. AXA’s admission that its policy is ambiguous is important as ambiguous policy language is generally construed in favor of coverage; AXA’s decision to pay is the correct one.” 

If one merely steps back and asks: Is it reasonable for a business to assume that it has coverage for its COVID-19-related BII claim when its property insurance policy does not contain a virus exclusion? The answer has to be, yes. While an insured has an obligation to read the policy, if after reading it and not finding a virus exclusion shouldn’t the insured be able to have an “objectively reasonable expectation” of coverage? “Although all-risk policies do generally extend to all fortuitous losses, this is true only to the extent that the policy does not expressly exclude the loss from coverage. . . .

For example, courts “have consistently held that the presence of a dangerous substance in a property constitutes ‘physical loss or damage,'” and at least one court found that an odor constitutes physical loss even without any "apparent" property damage. Interestingly, in that decision, the court ruled that while "the mere adherence of molecules to porous surfaces, without more, does not equate to physical loss or damage," coverage would be triggered “if the molecules on porous surfaces are accompanied by a pervasive, persistent, or noxious odor.” From a coverage evaluation standpoint, there is really little difference between an odor stemming from molecules on porous surfaces and a virus on surfaces causing loss of use due to its harmful nature. 

The bottom line is that if an insurance company truly intended to exclude coverage for virus-related BII, Civil Authority and Ingress/Egress claims, there were ISO forms or language readily available for use that could have been placed on the policy.

See also: ML for Commercial Property Insurers  

Where a policy has a valid and well-written virus exclusion, the insurer should feel free to deny coverage after conducting some minimal investigation to confirm that COVID-19 is the efficient proximate cause of loss, but insurers should think twice before denying coverage under policies without such exclusions and keep in mind that industry standards require that insurers never place their own interests ahead of the insureds’. 

Underwriting departments make informed business decisions when evaluating what endorsements to include or not to include on polices. Because a policy lacking a virus exclusion may be viewed by a risk manager as one of the factors leading to a determination that a particular policy provides superior coverage, insurers not using virus (or similarly effective) exclusions need to honor the terms of the insurance contract, and the insurance industry needs to recognize the important distinction between policies that include virus exclusions and those that do not.

The world is experiencing a unique situation. Over the past months, hundreds of millions of people from all over the globe have been forced to stay home, overnight. The economy came to a halt. The current pandemic determines what we talk about, what we can do and what our future looks like. Besides all the necessary short-term measures, insurers also need to think beyond the current crisis to a future that may be very different. We have identified four post-COVID trends that insurers should definitely tap into.

Waking up in a different world — and rapidly adapting to it

During the first couple of weeks, we found ourselves in a post-apocalyptic movie like "Mad Max." High streets turned into ghost towns. Mass panic buying began of all types of shelf-stable food, survival gear and water. In the U.S., according to Yelp, gun interest went up 360%, as if people were preparing for the end of time. But human adaptability turned out to be astonishing. Very quickly, everyone tried to make the best out of the changed situation. Where we cannot follow our old routines any more, like going to the supermarket to get groceries, people immediately find an alternative by meeting their needs online. And when we could not work at the office any more, we almost seamlessly continued at home, even while combining this with home-schooling for kids. The scale of change in consumer behavior, in such a short time, has been gigantic and unprecedented.

Trying out new things

For a lot of people, the current situation provides a reason to try new things. DIY stores and garden centers watch their revenues rise. Baking pies and playing board games have become popular activities. Alcohol consumption went up by 42% in the San Francisco Bay Area, and in China divorces significantly increased. This is an interesting time for behavioral scientists.

The world is about to open again, little by little

In many countries, the lockdown measures are alleviated little by little. Now that the world is becoming open to us again, we can start giving more attention to the post-pandemic future.

Some expect, or hope, that everything will get back to how it used to be. We believe that because of COVID-19 we entered a new era. Not only because of the economic crisis, but mostly because COVID-19 has the potential to create more permanent changes in customer perceptions and behavior. A number of COVID-19-related shifts in customer behavior are temporary, purely based on coping with the crisis, but other, more fundamental shifts are here to stay.

Although we know that the pandemic will eventually wane, a significant part of our new behavior will stick. Insurers that also want to be successful after the crisis have to understand this new behavior and turn this understanding into propositions and experiences that strike the right chord. They should start thinking ahead and reimagining the way they can stay relevant after the dust has settled.

4 Key Post-COVID-19 Trends Insurers Should Tap Into

We believe that, specifically for the insurance industry, the current crisis amplifies four consumer trends that determine the priorities of insurance customers and what they will value in a post-COVID-19 world. These four trends should serve as inspiration to reimagine the future of insurance beyond COVID-19. Let’s take a closer look at each of these trends.

Trend #1: Health First — More Than Ever

If one thing became clear during the last couple of months, it is that at the end of the day there is nothing of greater importance than your life and health. And almost everyone agrees to that. Individuals, governments and businesses around the world do everything to protect themselves, their families, their citizens and their employees. Virtually everyone is prepared to make huge sacrifices; to drastically change the way we live. Even to put our entire economy in jeopardy.

We notice people not just staying at home but also paying way more attention to health than before. What we learn about the virus contributes to that. Not only do pre-existing conditions such as cardiovascular diseases and diabetes increase the chances of complications and death but so do conditions such as being overweight and having excess belly fat. As a result, people are starting to exercise more and eat healthier.

More exercise

The millions stuck at home are keen to exercise, not only because they are bored but also because they want to improve their lifestyle. According to Yelp, interest in home fitness equipment has shot up 344%, and hiking is up by 116%. Yoga mats and kettle bells, but also bicycles, are selling like toilet paper. The online wellness industry is booming, as well. Meditation apps, digital fitness classes and online platforms such as Peloton, a home exercise-bike company, are growing fast. Subscriptions to workout video channels more than doubled. Videoconferencing platform Zoom, through which many workout, yoga and dance classes are broadcast, has become one of the most important "social wellness" platforms.

More healthy food

Food trends that were already on the radar are now becoming even more important. Data shows that, as social distancing persists, home cooking is on the rise. Online cooking courses are booming. People are becoming more health-conscious and spending more time in their own kitchens, which will further the growing demand for fresh, healthy and additive-free food. People are looking for products that suit their lifestyles and the life stage they are in, and that reduce health risks. Fruit and veggie shops are up by 102%, according to Yelp. LiveHelfi, a leading online functional food and supplement retailer, saw a sales increase of 75% in just three months. Personal nutrition schemes increase, as well.

More self-tracking

All sorts of health apps experience growing popularity. People value the sense of having control over things, now more than ever. So they monitor what they do, how they sleep, what they eat, how they feel, how much they exercise and so on -- self-knowledge through self-tracking with the use of technology. An increasing number of people wear self-tracking devices on their skin providing data that even goes under the skin. It doesn’t get more personal, more intimate.

More willingness to share data

With an identified contamination, you want to have a quick and complete understanding of who that person had contact with to control the spread of the virus. Several countries immediately made efforts to use data from smart phones:

• The government of Singapore came up with a community-driven contact tracing app called Trace Together. The app is able to identify people who have been within two meters of coronavirus patients for at least 30 minutes, using Bluetooth. Infected individuals can choose to allow the ministry of health to access the data in the app to identify those close contacts.
• YiTong Health, from China, launched a monitoring platform for employers to monitor the health of employees. The tool generates daily health reports of employees and an automatic evaluation of COVID-19 risks, and provides precaution courses for employees.
• LingBan provides a chatbot solution for communities to monitor the COVID-19 situation. It automatically makes daily phone calls to the community members with a high risk of infection to check the health status of the neighborhood and with COVID-19. AI helps to perform tracking, monitoring and reducing further risk.

All examples above are Asian. Although the importance attached to privacy differs per geography, we notice the adoption of similar solutions in other regions, as well. In just a few days, the Australian government’s COVIDsafe app had been downloaded millions of times. In Norway, more than 25% of the population has downloaded the coronavirus tracker smartphone app Smittestopp (Infection Stop) of the Norwegian Institute of Public Health in its first week. Apparently, many Australians and Norwegians are willing to play an active role themselves to prevent the spread of the virus and to share some of their personal data because it provides substantial benefits. It proves that reciprocity is the only way to solve the privacy issues that consumers have with sharing data.

More pressure on the health system

The lockdowns had much to do with the pressure experienced on every part of the health system. In hospitals, the occupancy rate of intensive care units has been way above 100% for months. Taking care of elderly relatives is massively impaired by the corona crisis. GPs quickly adopted online channels to avoid unnecessary movement and physical contact. They found that online appointments are more time-efficient, and most will continue to use online channels more than they used to. The sense of urgency for digital health solutions as well as the benefits are now clearer than ever.

Health First — Opportunities to Seize

1. Health insurance: Many expect the volumes in health and life insurance to grow in the next few years. The pandemic enhances the overall concern for personal health and wellbeing. It will make consumers more aware of the importance of adequate life and health insurance plans.
2. Pre-active and preventive services beyond traditional insurance: This has been widely discussed for some time now. The added value of an insurer is shifting from only covering risk when there is damage, to rendering preventive services as a substantial part of the offering. It will take a while before a vaccine is developed and everyone is vaccinated. Instead of simply waiting for that to happen, efforts can be made to prevent contamination and to promote a healthier lifestyle. By eating better and exercising more you become more resilient. Insurers should play an active role, or even take the lead, in promoting a healthier lifestyle with tangible services. This would also immediately increase the social impact of the insurance industry.
3. Data-drive health and wellness platforms: Platforms that combine self tracking, data and all sorts of incentives to help customers with healthier habits will become even more relevant than they already are. In the long term. personalized nutrition may even accelerate the cross-over between food, tracking and advanced analytics. Connected health devices combined with these platforms form the foundation for entirely new business models in the health insurance sector; shifting from a transactional to a relational, collaborative, participatory model, assisting customers to manage their health over time. Quite a few insurers are already exploring such platforms; either by developing these from scratch themselves or by teaming up with an existing platform and immediately leveraging the expertise of an experienced provider, such as dacadoo, PAI Health, Virgin Pulse, Vitality or Wellmo. Insurers need to move from exploration to adoption at scale.
4. Active participation by customers: Trackers and platforms provide actionable information and insights that users can act upon. In turn, this allows a much more active role for customers within insurance products and services. The "quantified self" movement and the adoption of COVID-19-tracking apps clearly show not only the consumers’ need for more control and empowerment, but also the desire and readiness to take a more active approach in assessing symptoms, connecting with healthcare providers and improving self-management of care. Active participation allows customers to take more responsibility, leading to more equality in the relationship with insurers. This is a fundamental shift in the relationship and a great new perspective on innovation.
5. Ecosystems with health providers: Current health systems are not sustainable due to the rapidly aging population and rising healthcare costs. Connected healthcare devices allow healthcare providers as well as health insurers to extend their reach and interactions with patients. Sharing data among all stakeholders, optimal use of this data and remote patient monitoring have the potential to change the way of working entirely, keeping healthcare efficient, affordable and accessible. The application of all sorts of connected devices, telemedicine solutions and advanced algorithms improve patient care, while decreasing total health care costs across the health ecosystem. These applications need to be taken to the next level, for instance by providing home-care solutions and flexible opportunities to engage with care providers for the elderly and the individuals that live independently.

See also: Step 1 to Your After-COVID Future

Examples of the wide variety of innovative tech providers that link insurers to health ecosystems:

• Telemedi.co (Poland): Decreasing medical costs for insurance companies using telemedicine and AI solutions.
• Mediktor (Spain): Supports health insurance clients from symptoms to the best action within five minutes.
• Medlanes (Germany): On-demand digital network, leveraging blockchain to access quality-assured medical providers while controlling costs for health and life insurers.
• Infermedica (Poland): AI-powered platform that makes it easier to pre-diagnose, triage and connect patients with the appropriate medical services.
• Breathomix (The Netherlands/Romania): Cloud-based breath analysis solution for rapid and efficient diagnoses of different types of diseases, empowering personalized medicine.
• reFit Systems (Mexico/Germany): Digital therapy system for individual rehabilitation, developing state-of-the-art digital solutions for healthcare and medical technology.
• Vayyar (Israel): Provides valuable insights into the health of elderly persons, reducing costs of emergency medical services and long-term hospitalization.
• HiNounou (China/Singapore): Wellness ecosystem and platform for seniors and their families.
• Neurotrack (U.S.): Cognitive health platform helping to assess risk for memory loss, and providing tools to prevent and manage cognitive decline.
• Somnox (The Netherlands): On a mission to improve people’s lives by sleeping with a robot.

Trend #2: Connected Living — Now For Real

Shift to digital on fast-forward

COVID-19 put the shift to digital on fast-forward. The whole planet just had a crash course in connected living. Working from home, days filled with virtual meetings on Zoom, Teams or Meet. Shopping for everything online, from groceries to fashion and electronics. Remote classes for children instead of going to school. Streaming movies. Online workouts and yoga classes. Ordering food, even from the finest restaurants. Having drinks with friends on Zoom. Worshipping from home. Even attending a funeral online in real time. It all became kind of normal in a short time.

After years of incremental change in small steps, digital routines were embraced within a few weeks. The longer we keep on following new routines, the bigger the chance that these changes will stay. Consequently, all kinds of aspects of connected living have become normal. What we currently experience is a fundamental shift in how people will live and work.

• Under quarantine, time spent online in China was up by 20%, according to research by Nomura.
• In some European countries, Vodafone’s internet usage has surged around 50%. The increase in data comes from a wide range of activities, from housebound school children logging on to Fortnite, from movies being watched on multiple devices, as well as from people using bandwidth because they work and videoconference from home.
• The demand for online porn has increased massively because of the corona crisis, so much that the government of France requested sex sites decrease the quality of their footage just to unburden the internet.
• In the U.S., according to streaming media intelligence provider Conviva, streaming during the pandemic has climbed 26%.
• Those stuck inside are desperate for social contact. Almost 45% of global consumers are devoting more time to social media, and over 10% are also creating and uploading videos themselves, Global Web Index says.

More remote working

Humans are creatures of habit. Every morning you got out only to await the daily traffic without ever thinking whether it could be done differently. Millions of people now have the chance to experience days without long commutes. The pandemic could permanently shift working patterns. Until recently, many companies were reluctant when it came to remote working. But even the functions that we thought could not be performed from home earlier this year seemed possible a couple of months later. Before the crisis, many companies assumed working from home would be unthinkable for call agents. Business owners and managers are discovering that solutions such as Zoom, Teams and Google Meet are adequate for a fair share of meetings and that much knowledge work can be carried out remotely. Many employees are starting to question why they had to go into the office in the first place. It looks increasingly as if the situation will not go back to how it was, at least not entirely.

In response to the crisis, Nationwide, a top 10 U.S. insurer, announced plans to permanently work from home in 16 of its 20 locations. When the company was forced to move quickly to a 98% work-from-home model, it turned out it could serve customers and partners without compromising the quality of service. “Our goal is to ensure that, when a recovery comes, we’re prepared to win business with competitively priced solutions while enhancing our resiliency and operational efficiency,” CEO Kirt Walker says.

Smart and safer homes

The fact that consumers in general will be integrating all sorts of new technologies into their daily routines will have its impact on their homes, as well. Homes around the world are going to become more connected and smarter in the coming years.

Remote working also leads to new risks. Most people are working in environments that are simply not set up for work. Take Zoom, which became extremely popular in a short time but is also under attack because of security issues. According to Bitdefender, the number of digital attacks in March was no less than 475% higher than in February. Hackers create false domains for Zoom sessions and send phishing mails containing "COVID-19 news" in the subject line. Safety and reliability are more important than ever.

More changes in mobility

The impact of COVID-19 on mobility is multifaceted and hard to predict. People are happy that they are allowed to leave the house again, but for the time being they will be careful. People will, at least when they can afford to, prefer not to use public transportation. Those who can, will use their own car to get to work, and prefer to commute alone. Among others, China, the Netherlands, Turkey and the U.K. already report an increase of sales of new and used cars. Obviously, this could lead to more traffic and consequently more accidents. On the other hand, as people and organizations get more used to remote working, they will be reconsidering commuting to work. Mobility patterns will definitely shift.

• German PHYD insurers that use SwissRe’s telematics solution have seen the weekly number of car trips plummet by 41% in March and April compared with February. Speeding has increased by 21%.
• Insurers using Amodo technology noticed a 56% decline in number of active drivers, 35% decline in number of recorded trips and 32% decline in the recorded distance through all users on the platform in April compared with March.
• The Floow saw a huge drop in journeys being recorded, such as a 90% overnight drop in South Africa, and a slower initial response from the U.K., which eventually led to a 30% drop in journeys on March 24, the day the lockdown was announced.

More demanding customers

Consumers now experience the convenience of mobile and online services even more. They expect comparable service levels from insurers. Customers will increasingly reach out to their current providers to meet their needs digitally. If that doesn’t work, customers will turn to another supplier that does a better job. A lot of insurers found out the hard way. When governments put a halt to face-to-face meetings, the sales of traditional insurers, brokers and agents collapsed.

Weaknesses of traditional models revealed

The gap between digital leaders and laggards has become wider. This development is not new. It just accelerated. The impact goes beyond daily operations. It is about the business model. While many incumbents have always viewed their face-to-face channels as an important differentiator, during this crisis those channels do not even appear to be a qualifier. Even worse, they made incumbents vulnerable. The traditional distribution model turned out not to be competitive and sustainable. On top of that, it was not agile enough to respond fast to changing conditions and a less physical world.

The digital models, on the other hand, have proven to be resilient and successful in these difficult times. It seems that digital models are better-protected against the crisis and more future-proof. Advanced technologies allowing for remote transactions lead over traditional models. Never before have these differences become so clear. That the insurance industry needs to become much more digital is nothing new. But the outbreak made clear how slow the digital transformation of insurance has been to date.

• Steven Mendel, co-founder and CEO of Bought by Many (U.K.): “Our sales rocketed up at the end of March and start of April as the lockdown set in — with sales doubling YOY.”
• Federico Malek, CEO at iúnigo (Argentina): “During the first weeks of the lockdown, we suffered just like the traditional companies. But in eight weeks, we’ve experienced a full recovery, with new business similar to the pre-lockdown period, while the traditional business is still on minus 40% vs pre-lockdown. This means we are gaining share.”
• Jamie Hale, co-founder and CEO of Ladder (USA): “Yes, we’re picking-up market share at an ever-greater rate than before. What is happening in e-commerce is happening in insurance, as well.”
• Martin Fleischer, board member of BavariaDirekt (Germany): “There was no decline during or after the shutdown. On the contrary. We saw an increase, especially in dog liability insurance.”
• Bill Song, CEO of ZhongAn Tech Global (China): “While COVID-19 hit the Chinese insurance industry quite heavily, and virtually every incumbent in the Chinese market saw a decline in sales, ZhongAn achieved 34% top line growth and 122% bottom line growth.”
• Fleur Dujardin, CEO of InShared (The Netherlands): “We are lucky to experience a strong growth and increase in sales and customer satisfaction. People increasingly look for fair online offerings with a good price. On top of that, customers really value our unique proposition. The money we don’t need this year to pay out claims will be returned to our customers.”
• Christian Wiens, co-founder and CEO of Getsafe (Germany): “At Getsafe, we are already seeing a shift from physical sales toward online sales: Since the COVID-19 outbreak, our sales numbers have grown by 20%, and we had the strongest months in our company’s history.”

Connected Living — Opportunities to Seize

1. Prerequisite: Insurers need to become more connected and agile. Being digital is paramount. More and more insurance executives are realizing this. The current crisis is a wake-up call to many. They see the strategic importance, and there is a clear sense of urgency. Simple digital products, online services and customer experiences, delivered at lower cost; becoming more connected and agile – they have become essential for continued growth. For many, they are essential for survival. It is not an option to press the snooze button once again. There will be quicker adoption of new technologies and a bigger role for insurtechs that enable the acceleration of digital transformation and innovation — because the time frames to achieve this have been compressed.
   • Among the 2,500 tech companies in the DIA Insurtech database, around 80% are enablers. They focus on assisting established carriers, to improve or renew specific parts of the value chain or help them to create new ones. Their focus ranges from offering platform solutions to allowing a specific part of customer inter-action to take place remotely. It is interesting to take a closer look at these solutions to spark new ideas. Innovative platform solution providers include Bambi Dynamic, DIG, Evari, iptiQ, Keylane, msg global, Tieto, UiPath, Vlocity and vlot. Companies that make remote digital interaction possible include BDEO, boost.ai, Quattroruote Professional, Scanbot, Surfly, TechSee, Tractable, Xtract and Zelros.
2. Usage-based car insurance: Especially when people use their car less, there will be an increase in the demand for simple solutions that reflect actual usage. Why pay a flat rate for a car that most of the week won’t leave your front porch? It could be that COVID-19 will push for usage-based car insurance to finally become mainstream.
   • Sample insurtechs that help established carriers to launch usage-based car insurance: Amodo, Cambridge Mobile Telematics, DriveQuant, The Floow, Kruzr, Octo Telematics, Sentiance and TrueMotion. Most providers look beyond mileage and more sophisticated pricing. They promote safer driving. CM Telematics, for instance, found that distraction by smart phones can be more dangerous than alcohol. By providing feedback on driving behavior that drivers can act upon, the company allows a much more active role for customers within car insurance products and lets customers take more responsibility.
3. New generation of home insurance with cyber and services: Thanks to connected devices, insurers will be able to offer personalized services meeting the lifestyle needs of customers. The more time we spend at home, the more important such services become as an extension of home insurance. More and more connectivity at home and all the new data streams that come with it open up all sorts of possibilities for services that help customers manage their house better and decrease the total cost of ownership. With people working more from home, also after the crisis, the importance of cyber security will increase. It is therefore likely that the scope of home insurance will broaden in the short term to include new propositions combining home insurance, IoT, cyber security and services.
   • Ideally, we would think of intelligent combinations of what companies such as mitipi, Shayp and ROC Connect have on offer in terms of combining smart home technology, property assistance services, insurance and improved customer engagement, with cyber solutions such as offered by CyberCube, CyberDirekt, CyberWrite and F-Secure. We call this Innovation Multiplied: combining innovations to come up with something that is even more innovative and that unlocks totally new economic value.
4. Reciprocity to solve privacy issues: The use of customer data means fresh grounds for concern over privacy. Obviously, insurers need to manage concerns that many consumers have. Reciprocity is the answer. Consumers' perceptions about the use of data by insurers will flip if they use the data to put customers in control and to offer something meaningful in return. It’s all about giving more than you take. The value insurers deliver based on consumer data should be perceived as bigger than the cost of handing over privacy in return. Insurers should combine things that customers can’t combine themselves or that customers would never think of.
5. Data protection: For centuries, insurers were engaged with offering protection to their customers. It would make a lot of sense to also assist customers in protecting their data, not just by offering cyber insurance but by offering new services. The so-called PODS (Personal Online Data Storage) introduced by Zurich are a great example. The customer owns the data and solely decides whatever part of the data to share with a third party. When you think about the enormous new data flows, there are numerous ideas for new value propositions.

Trend #3: Unprecedented Uncertainty — Lasting Long

The sense of control is far away

In recent decades, technology has given us more control over the way we live. Just think of something as mundane as navigation systems, so we never have to get lost again, or search engines that provide all information at our fingertips. The possibilities seemed endless. But 2020 will be known as the year of biblical disasters: the immense bushfires in Australia, the grasshopper plagues in Africa, Pakistan and India and, on top of that, COVID-19. In a few months’ time, it seems we have been thrown back to the Middle Ages, where plagues lurk around every corner. We’ve suddenly woken up to the reality that the world is much more fragile than we once believed. Nothing is as certain as it once seemed. The sense of control seems to be very far away.

Continuing concerns about health

People are obviously concerned about the virus and their own health. What exactly is COVID-19? Could I have it? If so, what can I do about it? How can I prevent my parents from getting infected with the virus? When will there be a vaccine? There is an enormous hunger for information. Thanks to the internet, the amount of information available is overwhelming, but unfortunately for us not always reliable....

More questionable information

Alongside the pandemic, an infodemic is also taking place. Disinformation and misinformation occur on an unprecedented scale. The arrival of the virus immediately resulted in panic buying of toilet paper, because, according to social media, this is produced in China and would therefore soon not be available any more. Looking back on this situation, most of us can have a laugh about it. However, we also see conspiracy theories on Facebook, the spread of well-meant but non-factual tips via WhatsApp and a world leader who suggests that disinfectant injections might help. According to the World Health Organization, the infodemic is as dangerous as the pandemic itself. When people do not know what to believe and who to trust any more, it becomes more difficult to have proven solutions and advice from scientific experts followed.

• MyHealthDiary (Indonesia) is specifically set up to tackle this problem of misinformation by offering trustworthy medical information only. People who download the app have access to free webinars about topics like why social distancing is important, how to identify symptoms, knowing if a rapid test kit is effective and weeding out hoaxes about COVID-19 in the media. By providing this information, MyHealthDiary educates Indonesia about COVID-19.
• Other tech companies that immediately created solutions to tackle the misinformation problem include Mediktor, Wellmo, SDA and Infermedica.

More vulnerable economies

In addition to uncertainty about the pandemic and individual health, COVID-19 has painfully exposed the Achilles’ heel of individual companies and the economy. Think of too much dependence on distant countries for production and supply, and operating models that did not turn out to be that robust after all. Even a giant like Apple only had stock for 10 days. Many brick and mortar companies did not have their e-commerce in order. Others turned out to be too dependent in their sales on customers in distant, suddenly unreachable countries.

In just a few months, the prospects of companies have changed drastically. The annual plans for 2020 have already been taken care of by the shredder. Companies are mainly working hard on saving what can be saved.

Gloomy economic prospects

When it comes to the supply side of the economy, it could be that we already experienced the worst. In more and more factories, people are starting to get back to work. The question is whether that is also the case for the demand side of the economy. The economic devastation of the pandemic is becoming painfully evident. In February, the unemployment rate in the U.S. was only at 3.5%. As a result of COVID-19, this percentage went up to 14.7% in April. In just two months, it went from an extreme low to the highest unemployment rate since the Depression.

Decline in propensity to spend

Deep economic shocks and unemployment are normally accompanied by financial uncertainty, less consumer confidence and a shift away from spending. Consumers prefer to save their cash amid uncertainty. According to research by personal finance company Bankrate, 52% of Americans had already cut their spending in response to the pandemic. 54% of consumers are no longer considering the purchase of big-ticket items such as homes, cars, holiday trips and luxury goods over the next three months.

The situation may be more positive in Europe, where many countries introduced schemes aimed at keeping people employed. This may also lead to higher confidence and propensity to spend.

Uncertain exit paths

The coming period will be critical. The various exit paths across countries from lockdowns will be precarious. Locking everything and then opening up again is not as easy as it seems and creates alignment challenges across virtually every supply chain. When will the economy get back on its feet again? Will consumers and businesses start spending more? Just as much as before the crisis? We do not know how uncertain consumers will deal with the new health protocols. Can we expect a new peak in infections in autumn? What will the consequences of the recession look like by then? Will it be even more severe than we already experience today?

More stress and reduced mental and physical health

A recession will further affect population health. Events that increase during economic downturns, such as becoming unemployed and losing financial and housing assets, result in more gloominess, more stress and reduced mental and physical health. This is amplified by people’s concerns about COVID-19, their own health and those of their loved ones. In the last week of March, meditation app Headspace saw a 19-fold jump in users completing a calming exercise and a 14-fold increase in those doing a "reframing anxiety" session. It’s a bad omen.

Unprecedented Uncertainty — Opportunities to Seize

1. Safety and reliability: Consumers will have a lower appetite for risks than they had before. Consequently, it is likely that they are more interested in protection than they were before. Insurers have the opportunity to explicitly confirm the feeling of protection and peace of mind to their customers.
2. Simple, transparent, affordable propositions: The economic downturn and resulting thriftiness increase the demand for insurance solutions and price propositions that are simple, transparent and cost-efficient. We already mentioned that PAYD, usage-based and on-demand car insurance may become mainstream – so that you only pay for what you actually use. We expect the same for embedded insurance concepts, in which coverage is part of the purchase of a product or service – so that you don’t have to worry any more. Bsurance, Moonshot-Internet, Qover, Servify and ZhongAn are examples of companies that already tap into this.
   • PSD2, the E.U. payment services directive, creates opportunities to all sorts of third parties to provide new opt-in services to banking customers. Although it is hardly on the radar of insurance carriers, we believe PSD2 has the potential to revamp the bancassurance model, moving from bank partnerships for just distribution and using bank data in marketing and underwriting processes to really being much closer to customers. The right PSD2 applications offer great opportunities to link insurance to a certain payment, making insurance much more individual and much more real-time.
3. Empowered customers: Most people want to make the right decisions in all areas of life. In uncertain times, this desire is even more crucial; especially when there is a growing number of unreliable information sources, it is important to be a trusted source of information and to provide guidance. Data enables insurers to help consumers enhance their lives by drawing actionable insights out of their data sphere and by giving feedback to customers, for example suggestions to adjust behavior that otherwise could lead to costs of damage, increased health risk or bad prospects. Insurers should aspire to give customers "superpowers" with all the available data. Think of speech-to-speech language translators that free you from having to learn foreign languages. Of GPS car navigators helping you find your way without knowing your way. In the coming period, we will see if insurers can give their customers similar kinds of superpowers.
4. Leverage risk management capabilities: Helping customers deal with uncertainty is the core business of any insurance firm. We believe there are ample opportunities to leverage these core capabilities to provide new value to customers, in commercial and retail, beyond offering insurance. The current challenging times offer insurers a great opportunity to sit down with customers and leverage their expertise to help customers also with risk management advice (not just insurance) on how to navigate through these difficult times.

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

Trend #4: Empathy in Everything — Show You Care

Retreat from globalization

Globalization was never perceived as a blessing by everyone anyway. That makes sense; except for a tiny minority, most people find themselves in a very local community throughout the year. Due to the outbreak, everyone experienced the disadvantages of globalization. The pace at which the virus spread worldwide as well as how fast supply chains stopped are, in the perception of many, the consequences of globalization.

Each country its own strategy

Citizens look to their national governments to protect them from the pandemic, which most did firmly. We have rarely seen governments making such rigorous decisions in such a short time. Leaders from major countries had to radiate decisiveness while often using strong language; with a certain eagerness they compared the pandemic to war. To combat the virus, each country uses its own solutions, which makes sense looking at the large differences between countries. But soon the blame game started, every country primarily cared about themselves, and embarrassing fights about medical supplies such as respiratory equipment and masks took place. We haven’t seen much international coordination and later on of solidarity. The benefits of globalization have been carefully hidden during the past period.

More search for self-reliance

This retreat from globalization had already started; think of Brexit and the White House trade wars. During the coming period, countries and companies will keep looking for solutions to reduce economic vulnerabilities. "Self-reliance" is the most used word. Japan provides subsidies to companies to get supply chains back to the country again. The prime minister of India explicitly said that "a new era of economic self-reliance has begun." The reflex is control of one’s own fate and search for strategic autonomy. Citizens in different countries are encouraged to buy products from their own country, city and neighborhood to support local businesses and to rebuild the local economy. #supportyourlocal is trending.

Value of family is on the rise

The retreat from globalization is accompanied by turning inward and a shrinkage of our world. We also see this on an individual level. During the period we had to stay at home, people also rediscovered all kinds of long-neglected traditional life skills and pastimes. Baking bread, playing board games or simply spending a little more time with your loved ones. Self-isolation has forced us to rethink family time. The value of family is on the rise again. Family not only acts as a safety net, but, in hard times, the connections we have with the people around us keep us grounded, something we will need for quite some time.

It made us think of an Allstate commercial that was aired during the financial crisis in 2009, with actor Dennis Haysbert (who played the first African-American president of the U.S. in the hit series "24") telling the viewers: “After the fear subsides, a funny thing happens ... People begin enjoying the small things in life ... A home-cooked meal ... Time with loved ones ... Appreciating the things we do have ... The things we can count on ...”

More sense of connection and togetherness

The crisis also brought up something unexpectedly positive. Everyone is doing their best to help all of us get through this trying time. According to Yelp, interest in blood and plasma donation is up 204%. Clients are buying gift certificates from their favorite local restaurants to help keep them in business. Toy animals are placed in front of windows so that little kids can go "bear hunting." Professionals and volunteers in the health sector are applauded. Italians started singing from their balconies to enhance the feeling of community. Beer brewers recycled stock to produce hand sanitizer. And, of course, the absolute poster child: 99-year-old Tom Moore raised millions for NHS staff by walking laps in his garden. The number of heart-warming examples during the outbreak is unbelievable; also in insurance and insurtech. Just check our article on "how insurers and insurtechs are helping to fight the pandemic." An unprecedented sense of connection and togetherness is noticed. People really care about each other.

Empathy in Everything — Opportunities to Seize

1. Tough times are an opportunity to show you care: Challenging times see people craving for institutions that care. Consumers expect their financial service providers to support customers who are facing difficulties. Show you care when customers experience moments of truth. In March, Kees van Dijkhuizen, CEO of ABN AMRO, said: ‘’’During the previous crisis, banks were part of the problem. At this moment, we are emphatically part of the solution.’’ Standing at this crossroad, insurers must ask themselves a similar existential question: As an insurer, do you want to be a part of the solution, or do you want to be known for causing more problems?
   • In response to the shelter-in-place orders, motor insurers in the U.S. issued premium discounts to compensate policyholders for their reduced risk. State Farm, for example, announced a 25% discount for all policyholders through May 31, a discount that implied a reduction of about $2 billion in premium revenue.
   • U.K. insurer Beazley offered a 60-day premium pause for commercial clients “because we understand our commercial clients are under pressure to keep their businesses running at the same time as sharing the responsibility to reduce the spread of COVID-19 within communities."
   • Hundreds of U.K. firms thought they were covered when the government told them they had to close their doors because of coronavirus. Their business interruption insurance policy literally said that the insurer would pay out when a business was forced to shut owing to a notifiable disease. But when these business owners filed claims, the insurer said the policies did not provide cover for business interruption "because of the general measures taken by the government" in response to the pandemic. Some companies are likely to go bankrupt.
2. Empathy is a pillar for differentiation: The empathic, emotional part of the relationship will become more important for consumers. Demonstrate your company’s commitment to individual customers and emotionally engage with them. Reach out to clients. Act in the customer’s best interest. Treat customers the way you would like to be treated. Simple gestures can make a big difference. The objective is to enhance your usefulness for the customer. In turbulent times, showing that you care will find an extra-appreciative audience and certainly won’t be forgotten. Customers are also likely to return favors by being more loyal and more willing to spread the word about their experiences with you. Furthermore, employees and executives alike find that it is more engaging to work for a company with a caring mindset.
   • Examples of tech providers that help carriers to empower employees, brokers and agents by using artificial intelligence to support human intelligence include AdviceRobo, Force Manager, Glia and Helpshift. In all cases, such applications lead to better conversations, higher customer satisfaction and improved conversion rates.
3. Leverage the human skills of co-workers, brokers and agents: Now more than ever, to relate to their customers, insurers need to secure the feelings side. Humans inject emotion, empathy, passion and creativity and can deviate from the procedure, if needed. The thousands, sometimes even tens of thousands, of employees working at an insurance firm, as well as all the brokers and agents, are the most valuable asset to accomplish exactly that. The challenge is to use advanced technologies to empower them, making them even more effective and efficient and creating the best of both worlds.

Re-Imagining Post-COVID-19 Relevancy

The four trends set the stage

COVID-19 is having a significant impact on people’s lives, beyond social distancing. It seems the Maslow pyramid is turned upside-down; putting your health first is the top priority. The trends toward connected living shifted into a higher gear. The unprecedented uncertainty that people experience regarding the health situation, the recession and their job security is not likely to change soon. The current crisis also highlights the importance of empathy in everything and the human dimension. Consequently, consumers and businesses are looking for a new generation of products and services that fit these new circumstances.

Leaders of insurance companies therefore not only have the short-term challenge to keep their business afloat. At the same time, they also have to make sure the company remains relevant in the new market conditions once the dust is sort of settled. They need to fast-forward digital transformation and reconsider not only processes, products and services, but distribution and operating models, as well. Moreover, they should think of new business and revenue models, leverage the latest technologies and insurtech partnerships and seize new opportunities. The four trends set the stage.

Never waste a crisis

It’s not all gloom and doom. A crisis usually functions as a great breeding ground for innovation. Innovation is no longer optional but urgent and crucial. It is impossible to fight this crisis with the same instruments that you use when everything is going well. The new conditions and constraints force us to think in new ways. Moreover, we see across industries and companies that executives and employees are more open to radical solutions and are much more efficient in realizing these solutions. Think of how rigorously companies and colleagues have switched to remote working. If we abstract from the current situation, we can only conclude that we have exciting times ahead — if we know how to seize the opportunities.

You can download the full white paper here.

What to Learn From the Segway’s Failure Paul Carroll, Editor-in-Chief of ITL The original Segway, whose demise was announced last week to a chorus of chuckles about mall cops and I-told-you-sos about the nerd factor, may have been the most beautiful piece of design I’ve ever seen. Only the iPhone rivals the Segway, in my mind, in terms of how well the designs anticipated how people would use the devices and in terms of the wow factor when they debuted. Yet the Segway flopped. Is there then any hope for the rest of us, who lack the design skills that Dean Kamen brought to the Segway? Actually, there is, because he misunderstood or ignored an issue that is key to innovation success: the ecosystem. If you figure out how to plug into and help develop the right ecosystem, you can succeed where even the talented Dean Kamen and his magical Segway failed.... continue reading > Be Innovative Learn about Notion's easy-to-launch programs to get started.   Learn More SIX THINGS 5 Transformations for a Post-Pandemic World COVID-19 may be the much-needed impetus for change for insurance organizations operating based on decades-old procedures and tactics. Read More Insurers Can Lead on Addressing Inequality Apprenticeships can attract talent from among the underserved, and an industry initiative now makes the opportunity widely available. Read More Ready for Era of Real-Time Payments? Consumers and service providers increasingly expect the same frictionless payment experiences they have in other sectors of the market. Read More Ransomware Grows More Pernicious The emergence of the Maze variant creates a new threat, that stolen information will be released to the public on the internet. Read More 5 Trends Changing Auto Insurance Will insurers continue to provide traditional insurance in traditional ways until forced down a dead-end path, or will they embrace new trends? Read More Time to Streamline Group Benefits Quotes Current, AI-based technology can cut response time for group benefits quotes by as much as 92%. Read More GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started Partner with Us We’d love to talk to you about how we can improve your marketing ROI. Learn More SPREAD THE WORD Share Share Tweet SUBSCRIBE TO SIX THINGS

The original Segway, whose demise was announced last week to a chorus of chuckles about mall cops and I-told-you-so's about the nerd factor, may be the most beautiful piece of design I've ever seen. Only the iPhone rivals the Segway, in my mind, in terms of how well the designs anticipated how people would use the devices and in terms of the wow factor when they debuted.

Yet the Segway flopped. Is there then any hope for the rest of us, who lack the design skills that Dean Kamen brought to the Segway?

There is, because he misunderstood or ignored an issue that is key to innovation success: the ecosystem. If you figure out how to plug into and help develop the right ecosystem, you can succeed where even the talented Dean Kamen and his magical Segway failed.

I became acquainted with the Segway shortly after its debut in late 2001. The consulting firm where I was a partner at the time was putting on an innovation-related event and had gathered enough C-suite executives at major companies that Segway sent its president to do a presentation in early 2002. He was slick: He had us set up a ramp so he could bomb down the center aisle on a Segway and up onto the stage. He did the whole talk on the device, darting to some spot on the stage, drifting back to the center and generally showing how the Segway seemed to respond to his thoughts. Just to show off, he'd occasionally do a 360.

He brought a few of the devices with him so the 70 or so of us could take turns experimenting with them in the desert near the resort in Arizona where we were holding the conference. All I had to do was start to think about heading somewhere, and the Segway would do the rest because it sensed my balance shift. Whenever I'd worry about going too fast, the device would sense my hesitation, and I'd slow down. The Segway didn't have brakes, a throttle or a steering wheel, but it felt like an extension of my body.

I'll always remember Dan Bricklin, who invented the electronic spreadsheet and who was a fellow with the consulting firm, repeatedly asking people to try to run him over. They couldn't. They'd build up a head of steam, but then the user would worry as he or she got close to Dan, and the Segway would pull up.

Kamen had already developed a widely used insulin pump and other medical devices, plus a wheelchair that could climb stairs and raise the user to eye height; the Segway was to be his crowning achievement. Steve Jobs said the Segway could be bigger than the personal computer. Venture capitalist John Doerr, who put up funding, said the Segway could be bigger than the internet.

Nope.

The company hoped to sell 100,000 Segways in its first 13 months but sold only 140,000 over the nearly two-decade lifetime of the product. Shutting down production next month only means laying off 21 people.

The key problem was that Kamen and his supporters convinced themselves that cities would be redesigned to adapt to the Segway -- a colossally bold claim that, alas, turned out not to come true. In fact, as usual, the Segway needed to be doing the adapting, and it just wasn't very well set up to fit into the existing ecosystem.

I happen to think that cities need some redesigning -- they're far too car-centric -- and the pandemic has provided such a shock to the system that it could accelerate change, but so many trillions of dollars are invested in the current setup that rethinking will take many years, even decades. In the meantime, the Segway was going to have to either fit on the street or on the sidewalk, and it did neither well.

The sidewalk would work, in theory, but only in light traffic. In New York City, you don't gain much advantage from a device that goes 10 mph or 15 mph if you're dodging pedestrians who are walking at 3 mph to 4 mph (and who are telling you what you can do with your Segway, in that charming way that New Yorkers have). You also, of course, have to deal with the elements for much of the year, while you'd be protected from them if you're in a car or taking the subway. Even under the best of circumstances, Segway riders were told to wear helmets, knee guards and elbow guards -- fine if you're a kid but not so great for professionals who aren't willing to live with permanent hat hair.

Streets are a nonstarter. Someone on a Segway would be moving much slower than the rest of traffic and without the protection that tons of metal provide for those in vehicles. Even in a modified bike lane, the bikes and Segways could wind up going at very different speeds and getting tangled up.

There conceivably was a strategy to be had by working from the edges in. Perhaps if Kamen had seeded smaller cities, as Lime, Bird and other scooter companies are now doing (while facing their own troubles), and let popularity build in ways that would attract bigger markets. Perhaps if Segway had gone after discrete markets in controlled environments, such as warehouse workers, tourists in areas without cars and -- dare I say it? -- mall cops, then built from there rather than expecting cities to completely redo themselves from the get-go.

The good news is that insurers can learn from the Segway mistakes and, based on the thought leadership I see in the industry, are, in fact, beginning to pay serious attention to the demands of and opportunities in ecosystems.

There are three basic ways to do that: 1) join someone else's ecosystem; 2) invite others into yours; 3) or participate in and foster an ecosystem that has many parts but not a clear leader.

Joining someone else's would be, for instance, selling microinsurance through a shipping company that would offer the opportunity to bundle your coverage into the cost of carrying cargo. There would seem to be loads of such opportunities to bundle insurance distribution into car and home sales and all sorts of services supplied to businesses.

Having someone join your ecosystem would, likewise, be straightforward. You sell auto insurance, and you invite a roadside assistance provider to bundle its services into yours. You sell home insurance, and you offer security or maintenance providers the opportunity to plug into your relationship with the client.

Participating in or fostering an ecosystem without a clear leader (just yet) is less straightforward. At the moment, I'd say insurers are mostly consumers of information in these ecosystems -- pulling in publicly available data to save people time when filling out forms, gathering the full history of construction work on a building, etc. -- but, within the bounds of regulations, will become suppliers of information and relationships to others.

If the world of technology is any guide -- and it generally is, because all industries are becoming technology industries -- participating in ecosystems and forming them will become easier. That's because business processes will increasingly be connected via software, which means that every action and decision has to be super-well defined (via an API, for application programming interface). Once processes become like software modules, they snap together at least as easily as the apps on your smartphone.

So, competition will increasingly be based on ecosystems rather than on your native competitive advantage. Perhaps your underwriting, combined with someone else's distribution system (even from outside insurance) and a third-party claims system will compete against some other ecosystem.

The change to full-on ecosystem warfare is probably a ways off, but the change will be profound. Think back to MS-DOS, for any of you unfortunate enough to use it. It wasn't close to the best operating system, but it had assembled the best ecosystem based on the software that ran on it and on customer relationships, so it beat IBM's OS/2, all the flavors of Unix and even the Mac -- until Jobs assembled an even better ecosystem via the iPhone.

We'll never be as inventive as Dean Kamen, but that doesn't mean we can't be more successful than the Segway was, if we learn the right lessons about ecosystems.

Stay safe.

Paul

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

5 Transformations for a Post-Pandemic World

COVID-19 may be the much-needed impetus for change for insurance organizations operating based on decades-old procedures and tactics.

Insurers Can Lead on Addressing Inequality

Apprenticeships can attract talent from among the underserved, and an industry initiative now makes the opportunity widely available.

Ready for Era of Real-Time Payments?

Consumers and service providers increasingly expect the same frictionless payment experiences they have in other sectors of the market.

Ransomware Grows More Pernicious

The emergence of the Maze variant creates a new threat, that stolen information will be released to the public on the internet.

5 Trends Changing Auto Insurance

Will insurers continue to provide traditional insurance in traditional ways until forced down a dead-end path, or will they embrace new trends?

Time to Streamline Group Benefits Quotes

Current, AI-based technology can cut response time for group benefits quotes by as much as 92%.

Nearly every time you turn on a light switch today, you are witnessing the power of trends upon shifting markets. Though lighting isn’t going away, the types of bulbs we use and their supply chain has been in flux for the past two decades.

On May 27, 2020, General Electric stopped making light bulbs entirely (after 130 years), selling its lighting division to smart home company Savant Systems. All of the other major lighting players have also been negotiating a market and industry in the midst of change. Government mandates for lower energy bulbs have removed most incandescent bulb manufacturing operations from the market. LED bulbs not only use much less energy, but the bulbs last far longer — so the sales of bulbs will drop over time.

Philips Lighting, another stalwart industry player (125 years old), decided that instead of leaving the business it would develop Philips Hue, a connected lighting solution. Smart homes have now given rise to smart lighting, including smart bulbs — digitally driven bulbs that can adapt themselves to the experience that a customer wants. Many can be controlled via home networks and mobile phone apps. Philips also chose to spin off a whole new brand, Signify, that would embrace sustainability and energy-efficient lighting.

Auto insurers are going to have choices like this to make. Auto insurance, coincidentally, is also a 120-year-old “established” industry, based around a policy transaction. Will insurers continue to provide traditional insurance in traditional ways until they are forced down a dead-end path, or will they embrace new trends, new technologies, new services and perhaps a new mobility ecosystem approach? Will they reinvent themselves to become next-gen mobility customer experience providers?

In Majesco’s most recent thought leadership report, “Rethinking Auto Insurance: From a Transactional Relationship to a Mobility Customer Experience,” we use customer primary research and recent trend data from other sources to answer two pertinent questions:

• What are the trends pushing auto insurers to adapt their business models?
• Why should auto insurers begin creating mobility ecosystems and customer experiences that will transform their purpose and their profits?

We consider five trending points that are driving change, including:

• The Auto Insurance Buyer – A Shifting Demographic
• Vehicle Technologies
• New Data Sources
• Ownership vs. On-Demand Mobility
• New Auto Insurance Sources and Providers

Let’s briefly consider these trends and how they may affect auto insurers.

Trend 1: The Auto Insurance Buyer

For purposes of simplifying analysis within the Mobility Survey, we created two generational “super segments” by combining two different age groups, Gen Z and millennials and Gen X and Boomers. As expected, the Gen X and Boomer segment is more active than their younger peers in buying or influencing purchases of household services, insurance and financial products. Three exceptions were in individual life insurance and voluntary benefits, where the segments purchased at equal rates, and Amazon account usage, where Gen Z and millennials have a slight lead.

The older super segment has sizable leads in personal lines P&C insurance (auto and home/renters), employee benefit health insurance, investments and annuities. All of these products are good fits for the 30- to 60-year-old “sweet spot” for insurance and financial products, given they are at a life stage with the greatest insurance and financial planning needs as they establish households and families and accumulate wealth and possessions that need protection.

See also: The End of Auto Insurance  

In 2021 – one year away – millennials, all by themselves, will meet and begin to surpass the older super segment. The young super segment’s dominance will accelerate four years later when the first members of the Gen Z generation also turn 30, vaulting this new generation to buying dominance. Providers of household services, insurance and financial products that have not adjusted their business models, products and customer engagement experiences to meet the needs of this new “sweet spot” buyer market will find themselves challenged and left behind.

The insurance industry will need to adapt to this new super segment of new customers.

Figure 1: Insurance buyer “Sweet Spot” populations by generation in 2000 vs. 2020

Trend 2: Advanced Technologies for Vehicle Safety

Nearly 60% of Gen Z and millennials and half of Gen X and Boomers who own or lease a car have at least one type of newer safety or convenience technology in their vehicle. Navigation systems and blind spot detection are the most popular among both segments. The Gen Z and millennial vehicles have higher rates of collision avoidance systems, surround view systems, automatic braking and automatic parking.

These technologies were expected to depress auto insurance premiums thanks to fewer accidents.  However, insurers’ experience to date has not matched this expectation. The cost of repairing or replacing these more sophisticated vehicles with advanced technologies is greater than the savings derived from lower frequency. Some of these technologies have indeed shown benefits, but the translation to lower premiums has been minimal. For example, NAMIC found that electronic stability control saves a customer an average of only $8 on the annual premium. And, “those who pay for blind spot warning, driver alertness monitoring, lane departure warning, night vision or parking assistance systems save nothing at all.”

Is it possible that eventually the impact of these technologies will overtake the cost of maintenance and repair? In theory, yes. The greater number of high-tech vehicles that are on the road, including the autonomous vehicles of the future, the greater the chance that vehicular accidents will drop. There are, of course, an unknown set of circumstances related to COVID-19 and auto use. Will a significant percentage of the workforce stop commuting? Will public transit commuters begin to use their vehicles to avoid exposure? Or, will technologies such as driverless vehicles create an entirely new commuting scenario?  Lilium, a German aviation startup “unicorn,” has plans for bringing flying taxis to the skies by 2025, which will further change the mobility options. The answers may lie in the rise of mobility ecosystems, which we’ll examine later.

Trend 3: New Data Sources

Connected devices (and other data sources) are enabling underwriting and pricing based on mileage, location and driving behavior, which could lower premiums, while also making them potentially less predictable. Surprisingly, there are very similar levels of interest in these new data sources between the two generational super segments.

The COVID-19 shelter-in-place actions slashed the number of miles driven – by an estimated 50% between mid-March and mid-April. This is spurring speculation and debate about the pandemic’s longer-term effect on mileage-based or usage-based insurance. Although streets and roads have fewer vehicles on them, numerous states and cities have reported increases in speeding and reckless driving and fewer but more severe accidents. From an insurer perspective, broader usage-based/UBI models would be the preferred approach post-COVID-19, rather than simply tracking miles driven.

Despite the growing acceptance of new data sources, with the potential for variable premium by the month, the traditional six-month term with a set premium is preferred by both generational groups. However, Gen Z and millennials have a higher interest in a usage-based model that is automatically triggered by sensing when the car is parked or being driven.

Within the Gen Z and millennial segment, 28% of respondents indicated they have used a device or app to record their mileage or driving behavior as compared with only 15% of the older super segment. Both generational super segments showed strong interest in a smartphone app that provides real-time alerts and advice about driving behavior and conditions. Interest is even higher if following the advice leads to discounts on the next insurance bill.

Trend 4: Ownership vs. On-Demand Mobility

There is growing popularity and use of non-owned vehicles and alternative mobility options like rideshare, rentals (traditional and shared economy) and other local or urban rental options like scooters and bicycles. With their increased usage comes the threat of an offsetting level of private vehicle ownership and leasing, leading to a declining need for personal auto insurance.  This declining ownership could accelerate if more people work from home, eliminating the need for the traditional “two-car family” and using alternative, on-demand mobility.

All-inclusive vehicle subscription services are a relatively new mobility option offered by several auto manufacturers (currently, most are luxury brands) and third-party services. Most allow the customer to switch vehicles on a periodic basis and pay a set monthly fee that covers the vehicle, maintenance and insurance. A surprisingly high number (30%) of Gen Z and millennials indicate they are using or have used a service like this – nearly four times higher than the older generation, indicating interest in different access to mobility options as compared with “owning” a vehicle. Some of these users likely correlated these experiences with micro-term car-sharing company’s such as Zipcar.

See also: Insurance Innovation — Alive and Kicking  

Nearly 26% of Gen Z and millennials and 20% of Gen X and Boomers indicate they would or definitely would consider a vehicle subscription the next time they go to purchase a vehicle. When you add in the “maybes,” these numbers jump to 71% and 61%, respectively.

Figure 2: Usage of mobility technologies and participation in mobility trends

Gen Z and millennials use car-sharing services more frequently than Gen X and Boomers. Over a third (35%) traveled this way for five or more days in the previous month, compared with only 18% of Gen X and Boomers. Clearly, this is an established mobility preference within the younger generation that will fuel a growing market for on-demand rideshare coverage and indicates, once again, the potential decrease in car ownership by this younger generation. 

Trend 5: New Auto Insurance Sources and Providers

Most of the consumers we surveyed said they still own or lease one or more vehicles. The traditional purchase methods for auto insurance are still the most preferred channels — agents/brokers or direct via an insurer’s website. This is consistent from the last couple of years from our consumer research.

However, Gen Z and millennials also indicate strong interest in insurance embedded in the purchase cost of a vehicle, or buying insurance from a vehicle manufacturer’s website, an affinity group, car dealership, or car shopping website – about 25% higher than the older generation. Interestingly, this group also showed strong interest in purchasing insurance from three of the “tech giants,” Amazon, Google and Facebook – a wake-up call for both insurers and those selling vehicles. For a better glimpse, see Fig. 3 below.

Figure 3: Interest in traditional and new sources of auto insurance

If we look at all five of these trends in aggregate, auto insurers are facing a light bulb moment. Many of these trends will likely accelerate as we reconsider our work lifestyles moving to the home coming out of COVID-19.  If changes are going to occur in demand levels, channel types and service offerings, can auto insurers compensate by bringing the right kind of change to the market? Can they invent their own supply chains of opportunity?

In our next mobility blog, we look at this supply chain in depth. Auto insurers are redefining themselves as mobility companies and in the future will be seeking to own the mobility experience using a vast mobility ecosystem, ideally building those ecosystems around their brands. Those who will lead the mobility shift are the ones who have prepared their business systems and models that will focus on the customer mobility experience and foster non-traditional products and services.

Now is the time to start this conversation within your organization! Use Majesco’s “Rethinking Auto Insurance” report as a kickstart for your internal brainstorming or view the replay of our webinar on the research. 

On Jan. 7, 2020, the California Supreme Court heard oral arguments in Montrose v. Superior Court, 14 Cal App. 5^th 1306, 2017. The issue in the underlying continuous environmental contamination damage claim is whether the upper excess layer of coverage should participate in funding only after all directly underlying excess coverage during the coverage continuum exhausts. This is known as horizontal exhaustion. 

On April 6, 2020, the California Supreme Court ruled in Montrose’s favor, finding that vertical exhaustion is appropriate. 

On my very first day at Admiral Insurance, ove,r 26 years ago, the first claim I reviewed involved the Stringfellow Acid Pits Superfund Site in California. Admiral’s insured, Montrose Chemical, was a major contributor of toxic wastes to the site and a major target of the EPA. I had the opportunity to attend oral arguments before the California Supreme Court in the subsequent coverage litigation against Admiral which is the subject of this article. 

One can only speculate about how many hundreds of millions of dollars of transaction costs were paid, i.e. attorney fees and other expenses, arising from the many underlying claims against Montrose, including Stringfellow, and the ensuing coverage litigation against Admiral and Montrose’s other insurers. 

In July 1995 (modified Aug. 31, 1995), the California Supreme Court in Montrose Chemical Corporation v. Admiral Insurance Company, 10 Cal. 4th 645, turned the concept of fortuity on its head, eventually compelling the insurance industry to respond with significant policy modifications. 

It’s Fundamental - Known Loss and Fortuity 

The concept of fortuity, or chance, is the cornerstone of insurance and its operation. Individual losses must be unpredictable and, through the magic of the law of large numbers, these individual losses collectively must be predictable. 

Unless a loss is fortuitous, it is not insurable. Otherwise, those who knew a loss would occur or could somehow influence the occurrence would buy insurance and those who knew that a loss would not occur would not buy it. This “adverse selection” plays havoc with sound actuarial predictions. 

It is that simple. Or is it? 

Montrose v Admiral affected the principle of known loss and caused the insurance industry to react with a variety of “Montrose Exclusion” endorsements and the Insurance Services Office to change the insuring agreement in the CGL policy. Its impact was, and still is, felt beyond California’s borders. 

Montrose v. Admiral involved underlying environmental contamination claims and insurance coverage. The court’s rulings cast a wide net that affected construction defect claims, as well. The underlying litigation involved several claims against Montrose, referred to as “the Stringfellow cases” and the “the Levin Metals cases.” This article will focus on Stringfellow. 

Montrose Chemical manufactured DDT, dichloro-diphenyltrichlorethane, a very effective pesticide, at its plant in Torrance, CA, from 1947 until 1982. (I visited the site in the mid-'90s and vividly recall the eerie fenced-in property with skull and crossbones warning.) In August 1982, the company received a PRP (potentially responsible party) letter from the Environmental Protection Agency, followed by a lawsuit, with respect to contamination and response costs at the Stringfellow Acid Pits site. The Admiral policies commenced in October 1982 and expired in March 1986. 

The Stringfellow site opened in 1956 and closed in 1972. James “Jimmy” Stringfellow owned the site and operated Stringfellow Quarry. He was approached twice by the State of California in 1955 to use the property as a hazardous waste disposal site. Stringfellow declined twice. But the third time was a charm. State officials touted the property as “a ‘natural’ for a waste disposal site because it was underlain by impermeable rocks.” They weren’t. State investigations conducted the investigation and designed the dump site. But not very well. In fact, in the subsequent complex litigation, United States v. Stringfellow, the special master, in the State Share Fact Finding Hearing, called the state’s conduct “grossly negligent, if not reckless.”

Chemical wastes generated by Montrose at its plant were deposited at Stringfellow between 1968 and 1972, when Montrose paid a hauling company to transport byproducts of its DDT manufacturing process to the state-approved and licensed disposal facility. As early as 1970, toxic wastes were detected seeping from the site, and in 1975 the Santa Ana Regional Water Quality Control Board declared the site a public nuisance.

According to the allegations in the CERCLA complaint, the property damage began in 1956 and continued throughout the periods when Admiral’s CGL policies issued to Montrose were in effect.

The following chronology is helpful to understand the coverage issues: 

1947 -- Montrose began manufacturing DDT

1956 -- Stringfellow Acid Pits opened

1968 -- Montrose began depositing DDT wastes

1970 -- Toxic wastes seeping from site detected

1972 -- Stringfellow closed

1982 -- Montrose ceased manufacturing DDT

8/31/82 -- EPA notified Montrose that it was a PRP

10/13/82 -- 3/20/86 Effective dates of Admiral policies 

In applying a continuous trigger, the California Supreme Court ruled that it is when the property damage occurs that determines which policy(s) is triggered. In the case of continuous and progressive property damage or bodily injury, all of the policies in effect at the time the damage or injury occurs are triggered. Of course, determining when property damage, caused by contamination that is continuous and latent, begins and ends is not easy. 

See also: P&C Insurance Is Losing Importance  

Essentially, at issue was the termination date of the triggered period relative to the timing of the Admiral policies. Given the dates of operations, the termination of which occurred before the first Admiral policy, and the manifestation of the contamination occurring before the Admiral policy (certainly no later than Montrose’s receipt of the PRP letter), it seemed reasonable to conclude that any trigger period should not extend beyond the date of the PRP letter. At that point, the loss became known and was not insurable. 

But the court saw it another way: 

According to Admiral, Montrose's knowledge of the problems at the Stringfellow site defeats coverage. In particular, Admiral points to the fact of Montrose's receipt of the PRP letter from the EPA on Aug. 31, 1982, prior to the inception of the first of Admiral's four successive CGL policies issued to Montrose. Admiral misses the point. The PRP notice is just what its name suggests -- notice that the EPA considered Montrose a "potentially" responsible party. While it may be true that an action to recover cleanup costs was inevitable as of that date, Montrose's liability in that action was not a certainty. There was still a contingency, and the fact that Montrose knew it was more probable than not that it would be sued (successfully or otherwise) is not enough to defeat the potential of coverage (and, consequently, the duty to defend).  

Citing the “loss-in-progress rule as codified in sections 22 and 250,” the court asserted that the loss in question in a liability policy is legal liability and that known liability is not insurable. When liability is known occurs when liability is “established” with certainty: 

"We therefore hold that, in the context of continuous or progressively deteriorating property damage or bodily injury insurable under a third party CGL policy, as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been established, there is a potentially insurable risk within the meaning of sections 22 and 250 for which coverage may be sought. Stated differently, the loss-in-progress rule will not defeat coverage for a claimed loss where it had yet to be established, at the time the insurer entered into the contract of insurance with the policyholder, that the insured had a legal obligation to pay damages to a third party in connection with a loss." 

Montrose's receipt of the PRP letter prior to its purchase of Admiral's policies did not establish any legal obligation to pay damages or cleanup costs in connection with the contamination at the Stringfellow site, such as would implicate the loss-in-progress rule and preclude Montrose from seeking to obtain the liability coverage sought. The PRP letter did no more than formally place Montrose on notice of the government's asserted position and initiate proceedings that could result in subsequent findings and orders.

In this author’s opinion, the court pushed the envelope in its interpretation of what constitutes a contingent or unknown event in the context of liability coverage. The court concedes that “an action to recover cleanup costs (may have been) inevitable” at the time Montrose received the PRP letter, yet defines the contingency underlying the fortuity principle only in the context of the establishment of legal liability and not the happening of the event, i.e. the discharge of hazardous wastes at the site, which initiated the PRP letter being sent to Montrose in the first place, followed by the probable inevitability of liability being established and damages awarded. 

The insurance policies at issue provide coverage for damages the policyholder is legally obligated to pay as a result of an occurrence. If the analysis were to stop here, and if one accepts the court’s depiction of the contingency that underlies fortuity and insurability as the establishment of legal liability as opposed to the event that ultimately led to the establishment of legal liability, the ruling seems reasonable. 

However, the analysis cannot stop here. In addition to coverage for the legal liability of the insured to pay damages, the policy also provides another vital type of coverage, and that is defense. The insurer’s obligation to defend does not depend on a finding of legal liability. Rather, it is “triggered” when there is a potential that an insured can be found legally liable, and the defense obligation commences when a suit, or its equivalent, is served upon the insured. So, if a PRP letter is tantamount to a suit the defense obligation would be triggered. 

However, Montrose received a PRP letter prior to the inception of the Admiral policy. With respect to defense coverage, there was no longer a contingency. The obligation to defend existed prior to a finding of liability and was triggered at the time Montrose received the PRP letter unless this occurred prior to the inception of the Admiral policy. It did. 

CA Ins. Code, § 22, defines "insurance" as a "contract whereby one undertakes to indemnify another against loss, damage or liability arising from a contingent or unknown event." The court rewrote the law by restricting, in a liability policy, the contingent or unknown event to the establishment of legal liability rather than the event that resulted in legal liability and despite the fact that insurance defense coverage is triggered long before a formal finding of liability. The subject of the code, the event, resulted in the receipt by Montrose of the PRP letter. As of the date of the policy, which is after the receipt of the PRP letter by Montrose, the event, otherwise triggering a duty to defend, is no longer contingent and, therefore, no longer insurable. 

The court cast its net broadly and specifically brought construction defect claims within its decision by nullifying the previously applied manifestation trigger in such claims. The industry first reacted with a variety of so-called “Montrose exclusions,” and ISO subsequently amended the insuring agreement in the CGL policy. The manuscripted exclusions varied but the common thrust was that losses in progress (known and, sometimes, unknown) were not covered. ISO modified the insuring agreement to preclude coverage for known losses and was less draconian than the “known and unknown” version of the “Montrose exclusions.” As to the former, the burden is on the insured to demonstrate a potential for coverage. In the case of the exclusion, the insurer has the burden to demonstrate that the loss is excluded. 

The intent of the “Montrose exclusions” was simply to limit coverage in the case of one occurrence to the first policy during which the property damage or bodily injury first began. Neither the manuscripted exclusions nor the ISO modification are a “one size fits all” remedy to the Montrose court’s corruption of the fundamental insurance principles of fortuity and known loss. Application of either requires a (very) fact-intensive analysis within the context of the duty to defend (“potential” criterion) versus the duty to indemnify (“actual” criterion), and the differences between them. 

See also: 10 Tips for Moving Online in COVID World  

Some factors to consider when handling these types of claims: 

• What are the underlying facts? What is the insured’s role in the cause of the injury or damage? 
• Bodily injury or property damage? What is the injury or damage process? For example, the injury process of asbestos is different than the damage process of construction defects. 
• What is the trigger of coverage? Continuous, exposure, injury-in fact and their variations? 
• Number of occurrences? Is it the cause or the effect that determines the number of occurrences? Are there additional factors that affect a cause application, i.e. timing of the injury or damage, number of products, trades, homes, claimants, etc.? 
• Are there multiple effects of the same cause, or are the effects the same? Does the “sameness test” affect the number of occurrences even if there is a single cause and the loss occurred in a “cause state”? 
• While injury or damage may precede the policy inception, did the insured's product or work contribute to the existing injury after policy inception?

Any views expressed here are mine and do not necessarily represent the views of Admiral Insurance Group or any of its affiliates.

In a world where messaging tends to overcomplicate things, too many acronyms and too many buzzwords all work against what should be the primary objective: clearly illustrating value. I've found this to be true when it comes to artificial intelligence or, AI.

Generally speaking, the word "artificial" doesn't call to mind a positive image, does it? Listed meanings include "insincere or affected" and "made by humans as opposed to happening naturally." 

Artificial intelligence is, in fact, created by humans. The term was coined by John McCarthy, Stanford computer and cognitive scientist, way back in 1955.

AI is not intended to simply be a digital worker, certainly not within financial services and fighting financial crime. Yes, AI can automate various functions. We're all familiar with the concept of "bots" and virtual assistants. However, those are rudimentary examples of robotic process automation. True AI is human-led and a continuous, instantaneous learning process that drives tangible value. AI is not merely a play to cut costs or replace human capital. Rather, AI enhances the bottom line by keeping compliance staff costs flat in the immediate term and enables our human experts to more appropriately manage their time, by focusing talent on investigations that matter the most.

One of the most valuable aspects of AI, in the context of anti-money laundering and compliance, is the speed by which it can be deployed. We're talking about time to market and time to value in a matter of weeks. Not months, not multiple quarters -- simply weeks. But I don't mean a generic, black box concept. I'm referring to a highly precise, tailored AI solution that has extensive proof points and, more importantly, far-reaching global regulatory approval.

AI shouldn't simply be an extension of legacy rules-based routines, nor a way to further automate the process of scoring or risk-weighted alert suppression. That simply dilutes the true value of AI and does not maximize the cost and efficiency benefits.

See also: 3 Steps to Demystify Artificial Intelligence  

The cost of compliance continues to grow at a staggering pace, particularly for financial institutions and insurance companies. Equally of concern, the impact of fines for non-compliance has also skyrocketed in the last decade, to the tune of $8.4 billion last year across North America alone.

What if you could literally solve every single name screen, sanction and transaction alert? What if you could achieve this without sacrificing any aspect of control and security? What if you could increase the throughput, efficiency and accuracy of your compliance operations without adding a single dollar of staff expense to your budget?

Artificial intelligence isn't scary. It isn't a black box. And it isn't the futuristic world of tomorrow. It is the here and now, and it's battle-tested.

Businesses worldwide are facing new and significant risks due to the pandemic and its many ripple effects. At the same time, work-life has undergone drastic changes -- many have had to shift to remote working overnight or find other inventive ways of getting the job done despite the current situation. In these distressing times, business leaders are dealing not only with significant change but also attempting to navigate an evolving risk landscape. 

Reacting effectively to these changes and risks is absolutely essential, but it is difficult to know what the right reaction is, and many are reacting differently. Some have stayed calm, acting quickly and decisively, while others have failed to act, mishandled things or aggravated the situation by making bad choices. Why do some experienced leaders have this problem or react differently under stress, especially now? 

There are multiple reasons for these differences, and, I'm happy to say, there are also ways to shift to more effectively handle risk and change -- now and into the future.

Why leaders aren’t all on the same page

Decision-making is always somewhat difficult in that it inherently involves uncertainty. But the number of unknowns related to the pandemic means that leaders are experiencing uncertainty more than ever before. They have fewer details and evidence at their disposal to make decisions, and so leaders have to lean heavily on their individual experiences, knowledge and intuition.

Secondly, there’s the matter of time. Leaders are used to being able to evaluate options objectively in a step-based manner, selecting a final choice after good, organized analysis and feedback. Now, the pandemic is forcing leaders to make decisions quickly. They do not necessarily have time to check all the parameters beforehand.

Choices also are more complex for leaders, regardless of whether they have to happen at the local, regional or global levels. Choices can have consequences that are quite significant compared with normal circumstances. And although crisis leadership has always been a valuable skill, most business leaders simply are not prepared for the level of risk-taking and change management capability necessary to respond to the pandemic at a worldwide level, because the COVID-19 crisis is unlike anything most leaders have experienced.

Lastly, current risk management culture is largely defensive rather than opportunistic -- that is to say, most business leaders don’t have the risk management function to drive a culture of resilience and agility. That generally means that leaders react more slowly and in a more limited way to crises. 

See also: Step 1 to Your After-COVID Future  

How to shift to more effective decision-making

Making more effective decisions during COVID-19 and beyond will require leaders to rethink their mental and logistical approach to operations. The first step is to surround yourself with others who have the skills necessary to help you make your choices. Because traditional hierarchical structures will not be self-assured, you must reach out to experts and informed, qualified professionals at every level. Well-rounded insights from a variety of sources will put you in a position to consider options from a broad perspective and to feel confident that you have considered many points of view or potential ramifications.

Leaders also need to commit to maintaining a long-term perspective, even if it means fixing decisions later when new information emerges or the situation changes. This is because the ultimate goal of crisis management isn’t just to get through the crisis -- it’s to recover and thrive well into the future. Leaders have to understand how their choices influence the future path of the company and try to make decisions that offer the right balance of stability and flexibility.

Additionally, situations arising due to the pandemic can naturally present leaders with agonizing moral choices. Companies might have to choose between cutting wages for everyone or paying full salaries and keeping just a portion of their team, for instance. Sometimes crises mean that legislators relax regulations that would keep less scrupulous behaviors at bay -- for example, dumping chemicals, skipping oversight hearings or approving a vaccine without sufficient testing. There are also good examples of leaders supporting the people during this difficult time to draw from, such as CEOs and executives giving up their salaries to redirect funds to their workers. But all leaders should strive to make ethical decisions that are data-driven, address the wellbeing of people and consider those who are most affected by the virus.

Finally, leaders need to embrace the digital future with a focus on building resilience and adjusting to change as quickly as possible. This might look quite different depending on what your company’s mission and industry is. But good examples can include setting up secure remote networks, focusing on business continuity, and even learning to interact virtually with clients for conducting business. As you figure out how technology can serve you to improve both general operations and crisis management, remember that it’s crucial for employees to be able to disconnect for their happiness and health.

See also: We Are Open for Business; Now What?  

Leaders can approach business in a wide variety of ways, which is part of what makes business so exciting. Even so, few leaders are well-positioned to make decisions during and after the pandemic smoothly, as challenges like lack of experience and the sheer complexity of choices create unstable ground.

The bulk of us will need to take deliberate steps to improve the odds that our decision-making will be better. By reaching out to skilled people, maintaining a long-term perspective, dedicating yourself to ethical action, and using technology in innovative ways, you can make judgments to be proud of through this crisis and for years to come.

In an effort to meet the educational needs of financial regulators during these challenging times, the Katie School of Insurance is collaborating with The Institutes Griffith Insurance Education Foundation to deliver a series of 8 non-partisan, non-advocative webinar programs during the month of June.  Because of significant overlap with the informational needs of legislators, we are pleased to provide complimentary access to legislators, staffers, and interns, as well.

Please note: This webinar series is being offered in place of the on-site, multi-day conference, which was to have taken place at the Katie School of Insurance in early June.  That event has been cancelled because of the COVID-19 crisis.  

• The programs are offered without charge to public policymakers. 
• A program calendar appears below, containing information about each webinar.
• Pre-registration for each session is required.

The webinars will be moderated by Frank Paul Tomasello, JD, Senior Director at The Institutes Griffith Foundation, and Jim Jones, Executive Director at the Katie School of Insurance and Risk Management, Illinois State University.  All sessions will begin at 1:30 pm Eastern time.

Please click on the links below to learn more and register:

• June 1 | Identifying Troubled Insurance Companies
• June 3 | The Financial and Solvency Implications of COVID-19 for Insurers
• June 5 | The McCarran-Ferguson Act: Considering the History, Role and Continued Relevance of this Legislation
• June 8 | Reinsurance: An Examination of Its Origins, Evolution, and Impact on Solvency
• June 12 | Captive Insurance: Exploring Underpinnings and Evaluating Opportunities
• June 15 | Insurance Company Rating Agencies: An Overview for Public Policymakers
• June 17 | College of Supervisors: Legal Framework and Practical Experience – A Case Study from Home and Host Perspectives
• June 19 | Wrap-Up Session: Addressing Open Items from the Webinar Series and Seeking Input from Financial Regulators

The Katie School of Insurance at Illinois State University, which has hosted and facilitated a multi-day event for insurance-centric financial examiners and analysts, for the past 15 years, is eager to resume this tradition in the years ahead, upon resolution of the COVID-19 crisis.

There’s been a lot of talk about how the coronavirus pandemic may permanently affect aspects of daily life and fundamentally alter entire industries. The future of the insurance industry deserves particular attention, considering its critical ability to help businesses weather times of extreme hardship and uncertainty. It’s also a sector that, for the most part, has clung to outdated manual processes and, like many long-established industries, has been reluctant to fully embrace digital transformation. Recent blossoming of the insurtech sector has led to what feels like the beginning of a revolution, but, for most insureds, the experience has been as time- and paper-intensive as it was decades ago. COVID-19 may prove to be the much-needed impetus for change for insurance organizations that have been operating (and largely thriving) based on decades-old procedures and tactics.

According to a recent NFIB survey, 92% of small businesses have been hurt by the outbreak of the coronavirus. 80% of those employers report slower sales, and 31% are experiencing supply chain interruptions. A survey by Goldman Sachs found that, while 81% of small businesses are continuing to operate, the pandemic has forced them to cut their workforce by 37%. The promise of insurance protecting businesses has clearly not been fulfilled during this crisis. Insureds are left holding the bag, and, worse, there’s no recipe available for protecting businesses more effectively during any future crises. To survive in a post-pandemic world, insurance organizations can’t continue to conduct business as usual. Businesses are too shell-shocked from pandemic-induced loss of income, forced layoffs, supply chain interruptions and remote work challenges -- not to mention the stress of maintaining some semblance of mental and physical well-being. 

Below are five key characteristics insurance organizations should prioritize to remain relevant and most effective to customers and prospects in the months and years ahead:

1. Be customer-centric.
   Being customer-centric isn’t just a mindset or facet of company culture. There are concrete steps insurance organizations can take to be truly customer-driven and provide meaningful support, such as taking the time to ensure all user experiences and customer funnels are easy to navigate, designed with quality and enjoyable. Insurance organizations should also responsibly collect customer feedback and execute on it as much as possible, and provide free resources such as informative and relevant blog posts or webinar content. Another example of being customer-centric is to prioritize customers’ needs first. When a crisis like COVID-19 hits, insurance organizations need to look out for their customers by offering coping mechanisms such as payment flexibility and premium givebacks. Everything else -- including the threat to insurance organizations’ books -- needs to come second.
2. Go digital.
   Going fully digital and providing an online experience aligns with how consumers purchase goods and services, now more than ever. Also, by providing a digital experience, insurance organizations can be more nimble in accommodating customers for whom time really matters. Small businesses and contractors, for example, typically require insurance (or even the ability to display proof of insurance) very quickly. They also often request immediate changes to their policies as a result of bringing on a new client or taking on a new type of project. By going digital, insurance organizations can satisfy such customer requirements in a seamless and scalable manner, even offering instant price adjustments if needed. 
3. Leverage cutting edge technology.
   Technology like artificial intelligence (AI) and machine learning is vital for simplifying historically complicated, human-intensive and time-consuming purchasing processes. For instance, the technology can be leveraged to automatically assess and determine what a prospect truly needs to thoroughly protect the business. AI, data science and analytics can enable 24/7, instant, customized purchase experiences and products, as well as providing more accurate pricing, thereby improving affordability for prospects and customers. The way to truly transform the industry and customer experience is to provide a technology-driven full stack service that can address the entire value chain all under one roof. 
4. Learn from unprecedented events.
   One of the many things our industry has learned from the coronavirus is that there’s an appetite for insurance coverage that helps address once-in-a-lifetime events. Now is the time to investigate how some form of government assistance or a consortium of reinsurance providers can be leveraged to provide such coverage and help share the risk so that insurance can remain affordable for smaller businesses -- even during tumultuous times. This is a hard problem that hasn’t been solved yet. Insurance organizations and government entities may need to collaborate (as was done with TRIA) to obtain a solution for this very real need. 
5. Simplify customer experiences.
   For small businesses, acquiring and maintaining insurance coverage has always been an incredibly complex task, as they typically have multiple policies and carriers involved. There’s a timely opportunity for insurance organizations to simplify and streamline the small commercial insurance experience, especially given all the challenges this demographic will continue to face as a result of the pandemic.

See also: We Are Open for Business; Now What?

Ultimately, insurance is a social good. To adapt to our “new normal” and be successful over the long term, the insurance industry needs to embrace this ethos and prioritize helping businesses in practical, meaningful ways. Rather than focusing solely on getting our revenue numbers back up, let’s collectively invest more in optimizing customer experiences and providing digital offerings that are fast, intuitive and transparent. This doesn’t mean losing sight of foundational priorities like ensuring profitability and compliance -- those pillars are as important as ever -- but they’re no longer sufficient on their own. By using technology to take insurance ownership into the future, we have the potential to significantly contribute to the rebuilding of our economy and better equip our customers for whatever lies ahead.