Frontline healthcare workers are relieved when critical PPE arrives on site, and families are grateful to find store shelves restocked with toilet paper and disinfectant. With essential supplies in-hand, what these folks often don't recognize, however, are the heroic efforts taking place behind the scenes to deliver these products to market.

In the face of the COVID-19 pandemic, brokers, shippers and carriers are laboring under considerable stress and strain. While their work has never been more critical, it has also never been quite so risky. They must contend with the health and safety of their work forces, the economic downturn and the skyrocketing demand for capacity. In the rush to rapidly transform business operations, their increased risk exposure can easily go unnoticed.

As the freight industry seeks to better manage its risk, streamline processes, cut costs, preserve cash flow and, ultimately, protect business sustainability, insurance innovation is emerging as a critical piece of the puzzle.

Facing fresh challenges in the new COVID reality

Today, carriers are facing extraordinary pressure to rapidly move essential goods to market. Between FMCSA hours of service suspensions and pandemic-related panic, drivers are strained and exhausted—making them more likely to be involved in an accident.

What's more, private fleets may be entirely unaware that they're operating with additional risk exposure. With for-hire authority fast-tracked by the FMCSA, many are moving into the spot market—and they're likely self-insured. Meaning, they aren't carrying the same comprehensive insurance coverage as for-hire carriers right out of the gate.

Meanwhile, the economic downturn has rendered shippers incredibly vulnerable. There's no room for error. With business already interrupted by the outbreak, however, their cargo is moving more slowly than before—putting them at risk of contractual penalties.

Should goods be damaged or spoiled en route, without their own coverage shippers are forced to engage in time-consuming claims settlement processes that demand they prove carrier negligence—something they may be unable to do. If so, they absorb the losses at a time when losses are particularly painful. Even if their claims are successful, settlements must move through a human-driven process—straining cash flows as carriers wait for potentially 100 days or more.

Finally, as COVID-driven demand exceeds the ability of contractual logistics to cope, overflow freight is moving to the spot market. And, recognizing the urgency needed to move essential supplies, brokers are increasingly contracting with new carriers. In the rush, they're less likely to do proper due diligence.

See also: Will COVID-19 Disrupt Insurtech?  

Tech innovation delivers real-time risk rating for the on-demand age

Traditional insurance has served the freight industry well for decades, but its fragmented processes can't deliver against the time-sensitive needs of today's market. There simply isn't time for a policyholder-to-insurance-broker-to-underwriter-and-back-again game of phone tag. 

Likewise, while the freight industry has been awash in data, there hasn't been a way to harness that data to underwrite cargo insurance on a pay-as-you-go basis.

Loadsure technological innovation, however, has ushered greater efficiency and effectiveness into the cargo insurance marketplace. Leveraging APIs, Loadsure pulls in massive amounts of data to build predictive models powered by machine learning. These models, in turn, deliver the real-time risk rating necessary to introduce per-load insurance to the client's daily workflow.

A proprietary decision-making engine also automates the claims process, accelerating settlements from days, or even weeks, to just minutes.

Today, as freight businesses are challenged to remain profitable, and often with fewer resources, innovation offers a self-serve, pay-as-you-go approach that enables businesses to eliminate expensive annual covers and purchase insurance only when they're exposed to risk, cutting costs and preserving cash flow.

In the retail industry, O2O "online-to-offline" signifies an online trigger, such as an ad, that prompts consumers to go to a physical location to complete their purchases, but it can also occur in the opposite order.

In the insurance sector, over 100,000 independent agents in the U.S. depend on high-value networking, customer references and direct carrier relationships. For insurance professionals, interacting with customers face-to-face has been vital.  But in the wake of the coronavirus, it is critical to move insurance agencies from an offline to an online model, O2O, where almost all tasks that agents were accustomed to on a day-to-day basis need to be done completely remotely.

This change can offer considerable benefits if executed correctly: higher productivity, greater scale and a high degree of accuracy that allows agents to continue to build trusted relationships. As risk management advisers, agents are responsible now more than ever for equipping policyholders with unbeatable risk transfer strategies. As cyberattacks on small to mid-size businesses (SMBs) continue to escalate, cyber insurance presents an opportunity to rebuild an agency book of business when done right. 

Here are 10 tips on jumpstarting your O2O transformation:

1. Focus your efforts on insurance lines with growth opportunity

Cyber insurance is relatively new, with substantial opportunities for adoption in the SMBs market as cybercriminals exploit people’s vulnerabilities using sophisticated social engineering attacks during COVID-19. In fact, phishing has increased by over 600% since the end of February, according to security provider Barracuda Networks.

2. Prioritize industries for which cyber insurance is vital

Organizations have begun using SaaS applications and operations in an effort to digitize online but will likely be left vulnerable to cyber incidents. Recognize which industries are either required to obtain cyber insurance or are paving the way for digital transformation.

See also: Will COVID-19 Be Digital Tipping Point?

3. Select partners that operate exclusively online

Now is the perfect time to reassess the insurance carriers and programs that you’re working with for capacity to shift online. Today’s technology allows businesses to deliver a vertically integrated insurance solution that ties together insurance requests, risk assessment, underwriting and policy and claims management in one system enabled by a common, relevant dataset. 

4. Search for admitted, standalone programs

This is directly related to your carrier of choice. The shift toward standalone cyber insurance programs is occurring because cyber insurance provided as an endorsement to other intricate coverages only creates more complexity. Standalone cyber programs outline what incidents are and are not covered, and the policy’s aggregate limit and sub-limits for each coverage, along with precise cyber criteria. 

5. Align risk to coverage, as your go-to sales pitch 

Cybersecurity aims to safeguard a business’ use of technology and the web. Each business uses different applications and operates in its own way. In turn, each business has drastically different risks that should be recognized by policies. Policyholders must be able to account for the coverages, aggregate limit, sub-limits and deductibles that best fit their risk assessment. 

6. Learn as much as the customer about the risk, if not more

Cyber risk exposures and attacks are constantly evolving. Evaluating an organization for cyber risk yearly is a risky and obsolete cyber strategy. Being able to regularly reevaluate risks and coverage on a continuing basis is necessary for cyber and shields all parties from coverage gaps.

7. Collaborate with carriers on prospecting

Transform your website to a producing site, not just a lead generation platform. API integration of your website into the carrier’s quoting and underwriting platform is instrumental in delivering a constant stream of potential cyber insurance consumers.

8. Educate policyholders on claims experience and loss control

Your customers should be equipped with security awareness training, generally administered by the carrier. Phishing simulation and basic InfoSec training are key education tools. Regular updates to policyholders on providing their risk insights and remediation guidance provide effective risk mitigation and loss control.

9. Educate yourself on what events activate which coverage

Outline for your policyholders what exactly is covered by the carrier’s insurance program by sharing your claim scenarios. Demand a list of cases for each incident that would activate specific coverage paired with concrete use cases.

See also: COVID-19: Implications for Business Models  

10. Don't spend more than a few minutes on a submission, application or binding

Moving to an online operation can feel unsettling at first but, if done correctly, will produce real results:

• Faster and more precise applications
• Quicker turnaround time on quote and bind when working with a program that is also deployed online
• Ability to offer additional services to policyholders as part of the online experience – risk assessment, training, notification of critical updates. Consistent communication online boosts customer satisfaction and opens the door to lasting relationships

In the early days of the internet, a professor at Northwestern's Kellogg School of Management said something to me that's been rattling around in my head ever since: "Once you can manage something by wire, it doesn't matter how long the wire is."

The professor, Mohan Sawhney, was referring in particular to the possibility of managing factories from a great distance, but his insight from the late 1990s describes so many other possibilities, too. Basically, once a process becomes digital, you can do it from anywhere — and COVID-19 is greatly accelerating the digitalization of insurance processes.

So, let's ponder for a moment what has historically been done face-to-face that will now be done remotely. Lots has been written about the surge in telemedicine, and that's certainly an important trend that seems likely to continue, but that's just the start. Remote handling of claims and sales will get a big boost from our experience during the pandemic and, perhaps, fear of future ones. So will an area I hadn't thought much about until recently: property inspections.

Telemedicine has dominated the "tele-" discussion for good reason. We've been social distancing for months now, but people still need medical care beyond COVID-19, and a lot have realized that a doctor doesn't have to say, "Stick out your tongue, and say 'aahhh,'" to diagnose and treat many issues. Telemedicine had already been proven as a concept. It was just being held back by regulatory issues such as how to license doctors communicating across state lines and by the sort of uncertainty that comes as any truly new approach is adopted. So, when COVID-19 demanded remote treatment, telemedicine was ready.

Telemedicine is so much more convenient for both doctors and patients that it will continue to grow, though I see it becoming an integrated part of healthcare rather than a separate form of care. A doctor can't fully evaluate me remotely, but if tele-visits become part of my relationship with my primary care physician, they could remove any worries I might have while helping the doctor spot problems sooner than he or she would if we waited for my annual seven minutes in front of the doc. Similarly, telemedicine capabilities could be added to what on-site clinics offer at many bigger companies. Telemedicine is already starting to be done to triage injured workers. I can imagine plenty of uses in caring for mental health, even beyond what's possible via phone hot lines; a sympathetic face can mean a lot. Elder care seems promising, too — just looking into a nonagenarian's eyes and talking to him or her for a minute can tell you a lot. (My mother, who just turned 90, still beats most of us at bridge online, so I'm excluding her from the possible beneficiaries of any acuity assessment.)

(If you're interested in reading more about the possibilities of telemedicine, this article from McKinsey is quite thorough.)

Claims have been getting attention, too, because they were already heading in a do-it-yourself direction before COVID-19, and the trend has picked up speed. I remember how radical it seemed when Robin Roberson founded WeGoLook and we helped her promote her network of thousands of "lookers," who were dispersed around the country and could go take photos of damage, saving an insurer the cost of dispatching an adjustor. But who needs lookers now? Everyone has a camera and, guided by a remote expert — on as long a "wire" as you like — can document the damage without the need for a visit by an adjustor. Claims will keep getting more "tele-," and probably quickly.

Sales have been slower to go remote. People do much of their research online but have still finalized an awful lot of contracts face-to-face. Not so much now. Avoiding handshakes and wearing masks has taken a lot of the magic out of in-person meetings, even when they're allowed. And, now that sales can be done remotely, we'll have to see just how remote they become. I have a feeling I won't see nearly so many "Insurance" signs in strip malls any more.

Property inspections have already gone a bit "tele-." It's now possible to have a drone fly around a house and take photos of the exterior while providing exact measurements, without making a guy with a tape measure spend an hour crawling through the bushes and climbing onto the roof. But that seems to be just the beginning, partly thanks to COVID-19. Startups such as Flyreel are enabling DIY inspections: You walk around your home or apartment, documenting everything that's there while the expert on the other end of the video call asks questions. "Are those countertops granite?" "Could you go a little closer to the wall; I need to see if that's dry rot?" You not only save time by not having to dispatch an inspector but wind up with a precise, video record of the state of a property — "Sorry, but no, that couch wasn't brand new...."

Brett Jurgens, who is the CEO at an interesting "smart home" startup called Notion (and who introduced me to Flyreel), speculated that DIY could move beyond inspections in a way that blends insurance and maintenance. Why would you have to call a plumber, for instance, when you might be able to just call one, show him or her the problem and ask for advice? How many other visits could be handled remotely, perhaps as part of some sort of subscription service? (Free idea, independent of insurance, for someone: Having killed my share of plants over the years, I'm betting some "plant doctor" could sell inexpensive subscriptions for remote monitoring and advice.)

I think that Jurgens is on to something and that, if we let our minds roam, we can imagine all sorts of possibilities for remote handling of processes, well beyond healthcare, that now just have to happen in person. And that's without getting into the sort of internal realignment that companies in the insurance industry will go through as they decide how much work will be done in the office and how much can be done from home — another topic for another day.

Stay safe.

Paul

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

4 Key Changes to WC From COVID-19

How companies respond to these changes in workers' comp may determine their survival in a challenging economic environment.

How Startups Will Save Insurance

The evolution is unstoppable because innovation benefits both the insurance markets and the underlying consumer.

Is Insurance Office Going Away for Good?

Take this time to plan how to restructure your business. As things settle out, you need to have permanent adjustments ready to go.

PRIA: A Tale of Two Policyholders

An uncomfortable reality is that a TRIA-style “make available” requirement would separate policyholders into the haves and the have-nots.

Planning for the Unknown Unknowns

In the New Normal, you cannot do as you did in the old normal, just harder. You need a new approach to strategy.

Now Comes the Flood Season

We can’t expect collective, nationwide resilience to flood events without innovation from FEMA and decisive action from Congress.

We’re entering a flood season where one-third of Americans are expected to experience flood events, after which we’re forecast to see above-average hurricane activity. With people already experiencing financial shocks from COVID-19, it is all the more important that we take steps now to prepare for flooding. 

We need three things: rapid innovation from the Federal Emergency Management Agency (FEMA), long-term authorization of the National Flood Insurance Program (NFIP) and the removal of regulatory barriers around private flood insurance.

1: Rapid FEMA Innovation

FEMA’s response to COVID-19 was swift and decisive: It extended its flood insurance premium payment grace period to 120 days (from 30). This offers homeowners breathing room and will go a long way toward ensuring homeowners maintain the protection they need while juggling other financial commitments.

The agency has also provided guidance for remote claims adjusting, which makes it possible for policyholders to have a flood loss adjusted without an adjuster physically visiting the property. This guidance lets everyone comply with social distancing directives.

These actions illustrate the agility and innovation FEMA is capable of. To ready homeowners for 2020’s flood season, we need more of this, in areas that go beyond direct responses to COVID-19.

While there are some actions FEMA can take today, the most important changes would require action from Congress.

2: Long-Term NFIP Authorization

NFIP authorization is set to expire on Sept. 30, in the midst of the 2020 hurricane season. This is incredibly dangerous. 

We’ve been lurching from short-term authorization to short-term authorization since 2017. The lack of long-term authorization creates uncertainty that could cause further financial damage to a population already reeling from record unemployment. This would happen via two mechanisms.

First, an NFIP with lapsed authorization cannot write new policies or issue renewals. This has the first-order effect of leaving millions of Americans without flood protection. Just as crucially, the lapse could also cause real estate transactions in some areas to halt, as mortgage lenders will not issue loans in these areas without proof of coverage.

For an industry already strained by COVID-19, a lapse would be disastrous.

Second, without long-term authorization, the NFIP’s ability to borrow from the Treasury is severely reduced, which could jeopardize its ability to pay claims. After a flood, homeowners with insurance might be delayed in collecting benefits they depend on to rebuild their homes. It’s hard to overstate how devastating this could be, particularly in light of current economic conditions.

See also: Need for Context in Assessing Flood Risk  

3: More Common Sense Around Private Flood Insurance

Today, homeowners with private flood insurance who decide, for one reason or another, that they want to switch to an NFIP policy aren’t considered to have had continuous coverage, which can make them ineligible for subsidized NFIP rates.

In today’s flood insurance landscape, where private products are increasingly available and robust, this policy no longer makes sense. But FEMA seems unable to update it without authorization from Congress.

It is incumbent upon Congress, therefore, to update eligibility guidelines so that Americans who have maintained continuous insurance coverage are eligible for subsidized NFIP rates. Without those subsidies, cash-strapped homeowners might opt to forgo flood insurance altogether, meaning that, in the event of a storm, they become wholly dependent on emergency FEMA resources rather than benefits from a policy specifically designed to help them recover and rebuild.

To Prepare for 2020’s Flood Season, We Need Support From Lawmakers

Much flood preparation happens at the individual homeowner level.

But we can’t expect collective, nationwide resilience to flood events without innovation from FEMA, and we can’t achieve that without decisive action from Congress. We need long-term NFIP authorization to ensure that homeowners have coverage when waters rise and regulations that acknowledge the validity of private flood insurance to ensure NFIP subsidy access to homeowners returning to NFIP policies.

Without both, we risk augmenting financial distress for both individual homeowners and the larger economy, neither of which we can afford right now.

The insurance industry —which, in the U.S. alone, accounts for $1.2 trillion—works as the "shock absorber" of the economy, so the industry has a vital role to play in the COVID-19 economic disruption that is hitting the world. The Insurance Information Institute, in its first-quarter “Global macro outlook,” reported that COVID-19’s impact on global growth and the insurance industry is likely deeper and broader than the current consensus and could last well into the third quarter and beyond.

Against such an outlook, here’s a view on the overarching trends in the sector in a post-COVID-19 scenario:

Rise in Claim Backlogs/ Rejections

The impact of rising claims can be seen in all the stages of the claims process: registration, adjudication and payment. These may lead to backlogs/rejections. There may also be delays in claim payment due to staff unavailability/limited knowledge, leading to customer dissatisfaction/litigation.

Focus: Insurance firms must now focus on implementing intelligent automation and digitalization for efficient claim processing/adjudication, underwriting, etc. to provide better service levels to customers.

See also: COVID-19 and a New Theory of Capitalism  

This is where increased adaption of enhanced analytics tools like OCR (optical character recognition), CV (computer vision), NLP (natural language processing) and synthetic data preparation can help insurers scale.

Changes in Underwriting/Sales

The industry will see broad underwriting changes as a result of the pandemic. There will be increased/modified underwriting scrutiny, and insurers have to change their underwriting strategy as a result. A potential shift from traditional channels to digital channels from product recommendations to underwriting is expected.

Focus: Some insurance products may do better with direct sales via digital sales channels. Helping the traditional channels with broker/agent enablement with account/customer intelligence with digital tools and better customer insights will be needed. Customer service will have to look at capacity planning, emerging topics and sentiments and try a digital offload wherever required.

Change to a Remote Working Process

This would mean increased digitalization of processes and workflows. Companies have to figure out strategies to maintain productivity and trust while coping with remote working for the long haul. Robust information security and audit processes will have to be built as a result.

Focus: Insurers have to review existing policies inclusions/exclusions and review coverages to adapt to the changes.

Changes in Policy/Product

During and after the crisis, insurers will have to initiate policy/product changes—including what to cover and how to price it. They may address coverage gaps and introduce pandemic/epidemic pricing on their products.

Focus: Insurers have to focus on repricing, rate calibration and reserving. They will also have to calculate exposure estimation loss prediction (using structured internal data and proxy external signals) by sub-industry, lines of business and regions. They would also need the technology, platform and assistance to usher in digital transformation to enable these products.

See also: COVID-19’s Impact on Workers’ Comp

With renewed focus, insurers can adapt to the changes and continue to cushion the various sectors of the economy from risks and shocks.

A strategic inflection point, a term first used by then-Intel CEO Andrew Grove, is a period when an organization must respond to disruptive change in the business environment effectively or face deterioration – it’s typically illustrated by the S-curve of business development.

Strategic inflection points are changes that are more than 10 times more significant than typical market changes in the industry; one such clear example is the COVID-19 pandemic that has caused significant disruption to businesses and industries worldwide.

When a strategic inflection point occurs in the market, the companies must act to stay relevant or decline into obsolescence, risking either going completely out of business or ending up as an acquisition target for market players that made the jump onto the new S-curve successfully.

A major reason for companies not being able to make the required shift to the new S-curve is lack of awareness and knowledge in the executive management team; it takes a specific management style and set of competences to actively monitor, understand and act according to market changes.

This whitepaper addresses the management competencies required to successfully lead a company through a strategic inflection point.

The S-curve and why it matters

The S-curve model has proven itself time after time, and it has become clear that all companies, regardless of how successful they are today, at some point will run out of room to grow in their current business areas and trajectory.

There are many reasons for the stalling, from not understanding changes in customer behavior and preferences to sticking to the core competencies of the business (or holding on too long) to not executing and implementing required changes successfully.

In fact, there is less than 10% chance for companies to fully recover, once the company faces a major slowdown in the business (Olson and Bever, “Stall points”).

Faced with this fact, companies must be capable of reinventing themselves over time to stay relevant in the markets, and the S-curve provides an excellent tool to understand this and to help managers identify when it’s time to reinvent the company and jump onto the next S-curve.

Companies rarely go out of business because they’re unable to fix what’s broken, but because they fail to realize (accept) that it actually is broken in due time. When business is "as usual" and management has been accustomed to slow growth – or even stagnating growth – complacency kicks in; “this is our industry, our business, we cannot do anything about it” while indeed management can!

This is where the S-curve becomes an invaluable – and refreshingly simple – tool to help companies understand the market development and enable them to react in time. That is, if the management knows what to do to plan and execute on the response to the changes.

In essence, the S-curve simply depicts the various stages of development of the company and – as history has shown – pretty accurately predicts what will happen next for the company. Analyzed correctly, the S-curve will act as a guide for management on the next strategic move.

Basically, the S-curve has three important inflection points that are necessary to understand:

Starting point

The starting point of the S-curve is where new product and services have just been introduced to the market and are waiting to be picked up. In this phase, the company will typically continue to be innovating the product and service features, testing the market reactions and adjusting the products and services based on the initial experiences with the customers.

During this stage, the company is extremely aware of market changes and focuses on staying agile and flexible enough to respond to these changes as quickly as possible.

Because the organization is fully tuned in on the innovation and development process, and market uptake may be initially slow, there is a risk that the teams become frustrated as growth is not happening fast enough to reward the hard work put into the innovation.

During start-up, management’s focus is on the product development process and how to secure best possible introduction to the market, including adjusting the organization to quickly respond to changes. The need for continuing changes and adjustments often results in less focus on profitability and scalability.

See also: COVID-19: Implications for Business Models 

Growth inflection stage

When the new products and services are reaching a stage where they are aligned to market demand, the company will be able to scale and grow the (new) business. This requires scaling of the production and delivery processes and also demands a more structured approach to operating the business as a whole.

It is no longer feasible to sustain the preceding levels of corporate flexibility and agility as the company now has to produce and deliver at scale – often, standard operating procedures are introduced, and management will begin focusing on delivering the products and services while maximizing profits.

The teams will feel excited and inspired by the growth during this stage, and management will have to balance between keeping the motivation high and introducing standard ways of working to secure economies of scale and, through this, profit.

Strategic inflection point

Stagnating — or even declining — growth is a sign the company is approaching the strategic inflection point, the point where the company is forced to respond to disruptive change in the market.

At this point, the company has faced growth decline and management has therefore been focusing on optimization and cost-cutting, focusing on only the key value drivers and costs. This has led to a somewhat frustrated atmosphere in the organization as new initiatives and development typically has been put on hold because of financial constraints.

Unfortunately, many companies fail to realize (or accept) the strategic inflection point in time, allowing the disruption to happen at full scale and speed, further increasing the cost focus and sense of despair in the company.

It’s time to set out a new direction to put the company back on the growth trajectory – and this cannot be done by focusing on costs — there’s a need for a revitalized growth and business development mindset.

In the New Normal, all capabilities are required at the same time.

However, there’s still a need for focused cost control as the company would need to invest in the future growth and development, and there’s a need to align and optimize the operations to keep the business running during the period of reinvention and redesign of the products and services

Suddenly, all three management capabilities are required; the startup and business building capability, experience and competence in scaling and running operations effectively and cost optimization/restructuring capabilities.

Historically, companies are going through three phases in a cyclical manner, requiring various management capabilities depending on the phase the company is in.

During the growth and innovation/development phase, the primary management capabilities are innovation skills, company start-up experience, market proximity, abilities to see partnerships across industries and think in new value chains and distribution models.

Scaling a company up to cope with increasing demand requires operational experience, optimization capabilities and experience working with processes and process optimization, all connected through solid knowledge on organizational structuring to match the purpose.

Managing a stagnating company takes cost optimization capabilities, including knowledge on outsourcing/offshoring models to secure the company is running with as low a fixed cost base as possible – this frees cash to help the company through the stagnating period.

Sustaining momentum, moving from the current (old) S-curve to the new, requires all capabilities to be present. The leaders must be able to drive business innovation and development in uncharted waters as well as carrying out significant changes to the organization and processes to ensure scalability and effective processes and operations.

Adding to this, the manager must be capable of cutting costs and freeing as much capital as possible to ensure the needed funds for investing in the business innovation.

Focusing on costs, process optimization and organizational redesign will only keep the company on a stagnating route, leaving it as an attractive acquisition target for companies ready to innovate and invest in market and business development.

If leaders leave the company to doing business as usual at a strategic inflection point, the company will deteriorate and become obsolete over time.

Pulling yourself — and the team together.

It’s safe to say that most organizations – and insurers specifically – are at a strategic inflection point at this moment, and sustaining business momentum requires leadership that possesses all three capabilities, from growth over scaling to rationalization and optimization.

The fewest – if any – executives have all three capabilities as core competencies, so it is important for managers to understand their own competencies and, based on these, gather a team around them to make sure all required competencies and capabilities are present in the executive management team.

This chapter briefly highlights the leadership capabilities that are specifically required for each of the phases in the S-curve and is meant as a guide to a self-assessment as well as assessing the team members so it’s possible to create a dream team that collectively has all competencies required to secure the momentum of the company going forward.

Use Table 1 as a starting point for evaluating your own key competencies in the light of what’s required for the different S-curve phases and then do the same for the management team – ideally the combined capabilities should all be in the extensive proven experience column.

When the team has been identified and established, it is imperative that it is functioning as a cohesive unit, that all major decisions are made in agreement and that the entire leadership team agrees openly and uniformly in front of the employees.

A team that is not fully aligned risks losing the advantage of having all specific capabilities combined, and risks losing the trust of the employees, which will make the organizational change indefinitely more difficult.

Managing another gap — the lack of know-how.

In the New Normal, you cannot do as you did in the old normal, just harder. You need a new way of doing things, a new approach to strategy, to management and to your organizational construct.

The world at present – and according to all predictions in the future, too – will present companies and leaders with a situation of many unknowns and even unknown unknowns. There will be many moving parts that all need attention, and chances are that leaders will not be aware of how many of these will develop over time, let alone how to take action on the developments.

Faced with this, it is easy to become overwhelmed and experience action paralysis, a state where the vast amount of information – or the fact that there is no information – results in a sense of not knowing what to do.

Action paralysis can be extremely dangerous for the company, as managers experiencing this typically will focus on small details in the daily operations instead of grasping the big picture and working on a way forward to secure a future successful position for the company.

The known-unknown matrix is a valuable tool in creating an overview of the situation compared with what actions are required to be taken – it’s built around an axis of market outlook and development and an axis on actions to be taken as a function of the market development.

Both axes are split into what is currently known and what is unknown, and this mapping helps generate an overview and what’s required to get the sufficient knowledge on how to prepare and execute actions for the company.

All eyes on you.

As executive, and especially during turbulent times, employees will look at you to seek guidance and comfort in the situation – it is an inherited human need to be comforted and feel safe, and employees will seek this from the executive management – and especially the CEO – of the company.

Executives must find ways of eliminating the many unknowns and unknown unknowns and turn the knowledge into specific actions and mitigations – this will be a vital part of becoming confident in setting the direction of the company, provide employees the guidance and comfort they seek and set the company on the course to success.

Using the known-unknown matrix will help creating the required overview of the situation and provide a plan for what to do next. As a starting point, areas of the business environment that should be mapped are shown in Table 2.

Start out by mapping the factors from Table 2 into the known-unknown matrix with your current levels of knowledge and resulting actions and mitigations.

The purpose of the exercise is to map out what is known and what is unknown so the unknown areas can be uncovered and actions planned – theoretically to move all unknowns into the known-known quadrant.

Don’t think you’re expected to know it all, but you’re expected to know what you don’t know and make decisions based on this, seek advice and guidance wherever and whenever you feel you’re outside your comfort zone.

It is important to seek information from credible sources, which can be anything from industry analysis from partners and via internet, as well as peer discussions within the industry and in near- field industries.

Acting on the known-unknown matrix

One dimension of the known-unknown matrix deals with market intelligence and predictions, and the other dimension is about management reactions, strategy, actions and implementation.

It should be the aim of managers to work on moving all important factors discussed above in Table X into the Execution quadrant of the known-unknown matrix as this will provide the knowledge required to take action.

Unknown unknowns – create scenarios

Factors that are in the unknown unknown quadrant are areas where there is not sufficient knowledge about the current and future market development and there is no experience or knowledge on how to take actions on possible outcomes.

Working with uncovering factors in this quadrant can be done through scenario planning where hypothetical developments in the markets are paired with corresponding management actions – there will therefore be created a mitigation from management in the case any of the market developments hypothesized is happening.

Unknown known

The building of scenarios are closely linked to the quadrant above, the ‘unknown market development, known actions’ as the scenarios are prescribing just that – “if this scenario happens, then we do this” – the difference is here that the leaders already have a set of mitigation actions ready, depending on the market development.

See also: COVID-19’s Impact on Delivery of Care  

Known unknown

In the cases where the development/future outlook is known for the factors being analyzed, but actions to mitigate the developments are not, research into best practice management responses will go a long way in determining the actions required.

Execution

It is important to understand that when it comes to acting and executing on plans, two dimensions must be considered, knowledge- based and action-based executions.

Knowledge-based – understanding what to do

The knowing what to do is partly covered by the analysis made with the known unknown matrix and covers situation assessment as well as strategy and scenario building.

However, in understanding what to do, it’s crucial that the leaders hone their mental agility – their critical thinking skills and their comfort with complexity. In most cases, the actions required will be taken in unchartered waters, and the leader must appreciate this and be ready to dive into the unknown to execute the plans made.

Action-based – knowing how to do it

One thing is understanding what to do and preparing yourself to do so, another thing is to actually do it. It takes resolve to make the hard decisions and stand firm when (almost) all are against you.

To get things done, it is necessary to cut through the corporate political mess and make sure that the agreed-on actions are actually carried out – there will always be forces trying to work against the change.

Final thoughts

Changing an entire company in unknown times is an incredibly difficult task. However, it is important to remember that the task does not disappear by not responding to it and doing nothing.

This whitepaper covered important areas to be aware of and to understand in the current business environment and in preparing to compete under the New Normal – a new and unseen business environment that is expected to be volatile, uncertain, complex and virtual.

Responsible business leaders should take note of this and prepare themselves to lead their organizations through dramatic changes toward a new operating model and prepare themselves – and their organizations – for a world of constant change.

There will be no new stable business environment for the foreseeable future, and failure to adopt and adjust to this will be fatal for the long-term survival of the firm.

All journeys begin with a first step. I hope reading this was yours.

Good luck.

A discussion draft of the “Pandemic Risk Insurance Act” has circulated over recent weeks. Based on the Terrorism Risk Insurance Act, the text is an excellent jumping off point to think about what would work and what would not.

The draft quickly forces to the surface an uncomfortable reality that a TRIA-style “make available” requirement would separate policyholders into the haves and the have-nots. 

Large corporations with the financial wherewithal and sophistication to establish their own pandemic risk insurance companies may structure multibillion-dollar bailout plans free from government intrusion into executive pay, share buyback plans and layoff strategies. More than 500 such “captives” already participate in the Terrorism Risk Insurance Act and could claim as much as 95% of federal funding under that program.

Small and medium-sized businesses, churches, school districts and other nonprofits and local governments would not fare so well. These regular policyholders cannot afford to set up their own insurance companies. The standard insurance policies available to them only cover business interruption losses caused by “property damage.” PRIA’s "make available" requirement would cancel out a pandemic or virus exclusion – it does nothing to address the necessity of property damage.

A large corporation can simply negotiate with itself to remove the prerequisite of property damage. Regular policyholders would have to file lawsuits seeking a judicial finding of property damage as is happening right now in the context of COVID-19. 

The discussion draft should be focusing attention on the needs of regular policyholders. Once we have a solution that works for them, we can worry about what the program can do for insurance companies and large corporations.

You can find the full report here.

Digital disruption used to be seen by insurance industry watchers as an existential threat to the sector. That argument no longer applies. Today, there’s no argument that the insurance needs digitalization to secure its future. 

Across the financial services sector, companies are being re-defined by their clients’ needs.

It’s what happened with banks. They were driven to embrace fintech because of the speed of innovation required, and what their customers were experiencing elsewhere, particularly in the retail sphere. In the same way, insurers (and brokers) are looking to insurtech for answers.

Actually, the insurance industry doesn’t have a choice, with insurance spending as a percentage of GDP declining over the course of the last two decades. The industry’s share of GDP has declined from a high of 7.5% in 2002 to 6.1% in 2017 (source: Swiss Re Sigma Explorer Dataset 2019).

This is happening in part due to an increase in the world’s population and disproportional prosperity growth in emerging markets, creating more consumers who need to protect their property and families. Meanwhile, value is changing in the corporate rankings, where businesses with high-value intangible assets, like Google, Alibaba or Apple, have overtaken companies trading in more tangible products.

It all points to a need for risk management and for the insurance industry to drive innovation and its relevance – especially during a period of great change. Arguably, the incumbent market simply should be innovating at a quicker pace to meet the evolving needs of its client base and its stakeholders.

Many clients today have unmet risk transfer needs, related to intellectual property, the gig worker economy, cyber threats, pandemic or climate, for example. We as an industry need to acknowledge these differences across traditional and emerging markets, tangible and intangible assets, and deliver a differentiated approach in our increasingly connected world.

Meanwhile, the entire sector – brokers and insurers – has been making healthy profits. This combination of an inverted innovation curve and profit pool has proved to be irresistible to entrepreneurs.

See also: Will COVID-19 Disrupt Insurtech?  

Incumbents’ fears around digital disruption are misplaced, however. After all, when the fintech wave hit the banking sector, it didn’t knock out the big players like JPMorgan Chase, Bank of America and Citi. They retained their positions because they took the best of innovation and applied it.

In a similar way, the insurance industry can and will adapt to the direction of change in the use of technology-enabled platforms.

The insurance industry has to incorporate digital distribution and automation in underwriting, the intersection of data science and actuarial science, to design modern underwriting models and create larger pools of insurable risk in ways that insurers remain profitable covering them.

Common ground with clients

Our clients themselves are looking for innovative solutions, so we have common ground. For example, new technology in trucks now allows for user-based analysis of driving behavior. Aon Affinity partnered with CarrierHQ to roll out a new motor insurance program that applies third-party data, real-time driving analytics and a proprietary rating algorithm to score each driver in a fleet of 20 or fewer trucks. Premiums are adjusted monthly for each truck based on the driver scores. To power this behind the scenes, Aon partnered with Instec to enhance the customer experience for small fleet trucking while improving underwriting results for the insurers.

By using our data analytics and insight, we can design technology-enabled platforms for all kinds of business, big and small. It’s why Aon acquired Coverwallet, the leading digital insurance platform for small and medium-sized businesses. 

The evolution is unstoppable because innovation benefits both the insurance markets and the underlying consumer. 

Even pacesetters like Amazon and Uber continue to be defined by their clients and appreciation of the transparency and convenience these platforms afford them.

See also: Time to Retire the Term ‘Insurtech’?  

To meet the needs of a changing consumer, incumbent businesses – including insurers – need to be client-driven and data-centric to embrace innovation and better network among themselves.

But crucially, everyone needs to stay safe in a dynamic environment heightened by cyber risk, global pandemics and climate change, a problem that insurtech is helping resolve to the benefit of both insurers and insureds.

In the middle of a pandemic, no one seems to argue that data isn’t essential. What many people don’t realize is that the same attributes that make data vital today won’t go away when the crisis ends. Data, effectively used, will always have ground-breaking, business-changing, mind-enlightening value.

Certainly, one of the benefits from the crisis is that data’s value is selling itself with a clear voice. While insurers were already on a dizzying pace of change, the pandemic has accelerated the need for adaptability.

But there is a hurdle. Without a very strong focus on data as a strategic corporate asset, insurers will struggle to keep up with the necessary changes in the “new normal.” The right philosophy is the foundation needed to design and implement a strong enterprise data strategy.

The Most Vital Data Philosophy — Data as an Enterprise Asset

Every insurance company believes that it knows the importance of data.  We say “believes” because if the company truly knew the value of data, there would be an enterprise data governance team that would: (1) treat all data as a true enterprise asset – as opposed to a department asset; (2) look at the data strategy and how the company plans to use data both internally and externally; and (3) have an organizational structure to fully support that strategy.

Most insurance companies have siloed data, owned by various departments, not the enterprise. The attempted solution has been to create a Huber data storage, master data management (MDM) or data lake solution. The company assumes that, once the data is in one of them, everyone would have full access to any type of analytics or reports that they desire from the data. Some insurers spent tens of millions of dollars, only to fail due to the sheer size and complexity of the effort. Too often, it was driven by the IT organization, relegating it to a technology exercise rather than a business-driven strategic project.

Data must be first viewed as a corporate asset, no different from the financial department.

Data Needs an Enterprise Strategy

But most companies do not have an enterprise strategy for data.  Many carriers leverage data for predictive analytics by the actuarial department, but these models can take four to six months to develop because, with each data set refresh, the data must be cleansed from scratch. Actuaries report that this cleansing takes 60% to 90% of the total effort depending on the quality of the data. Different departments, such as claims and marketing, have done analysis with their data with varied levels of success. Each instance somewhat resembles the actuarial example — the effort takes too long or the results are suspect due to the quality of the data supplied. In each case, we are still dealing with siloed data instead of integrated enterprise data.

It takes a visionary data leadership team to convince the organization that efficiency and accuracy can co-exist. Enterprises need a full enterprise data ecosystem model to establish and define both internal and external data flows and the business value associated with these efforts. When this happens, an insurer’s capabilities change overnight, but the strategy must come ahead of tactical data efforts.

The enterprise data strategy requires a very strong business focus on the use of data and data quality within the enterprise. Data is not an IT asset, it is a business asset. It is the lifeblood of the insurance business and, indeed, the entire insurance industry. It can no longer be an IT initiative to address the quality of the data and how to integrate it. At the enterprise level, there must be a thoughtful and concerted focus on the business value of data and how both internal and external data can be incorporated into the executive mindset.

This has proved too daunting for most insurers.

Why Is Data an Enterprise Asset and Not a Departmental Asset?

Most corporate assets are clearly considered an enterprise asset. Budgets always start from the top and are broken down into smaller organizations and departments. No company ever tries to start the budget process at the department level and consider it the department’s money that “we’ll share as a good corporate citizen to help the company” as applicable. This would be unthinkable. For each department or organization to decide what assets are theirs and what is worth sharing would never work. Why then is this approach used with respect to data? 

You hear statements like, “We need to bring in the claims division’s data or product team’s data or marketing data into a consolidated store.” People are referring to the department’s data as if the department owns it. This kind of thinking adds layers of redundancy and fosters siloed approaches, not to mention losing cross-departmental knowledge and an understanding of synergies.

See also: Getting Back to Work: A Data-Centric View  

While an insurer does want to integrate the company’s claims data with the company’s policy data, with the company’s marketing data, it is the enterprise’s data. 

The other part of this misaligned mindset is discovered when only the claims team “knows” the claims data, only the product team “knows” the product data and so on. 

Carriers must change their mindset about their data. It is the enterprise’s data and must be governed, understood and managed from the very top, no different than any other corporate asset.

Insurance Data Efforts Deserve a Data Management Organization (DMO)

Most insurers have a program management office, or PMO. The PMO’s purpose is to create and maintain a consistent world class project management methodology and process for all project engagements across the company. The PMO establishes policies, processes and best practices, plus standards, training and governance. Project managers are expected to execute against these best practices for each project. The PMO doesn’t get involved in individual projects unless they deviate from planned budgets or delivery timeframes, or fail to adhere to the standards.

A similar approach is required for an insurer’s data strategy. Adding a data management prganization (DMO) and a governance program can be a game changer for providing valuable, holistic data perspectives. Similar to a PMO, a DMO would:

• Create and maintain a consistent, world-class data management methodology and process for all data management engagements across the company;
• Train, certify (if possible), coach and mentor data stewards in not only data management but also in data delivery, to ensure skill mastery and consistency in planning and execution;
• Manage corporate and data priorities, matching business goals with appropriate technology solutions and providing increased resource utilization across the organization — matching skills to data needs;
• Provide centralized control, coordination and reporting of scope, change, cost, risk and quality across all data initiatives;
• Increase collaboration across data efforts;
• Provide increased stakeholder satisfaction with data-related work through increased communications, collaboration, training and awareness;
• Reduce time to market by providing better coordination and the right resources with the right skills for the data projects;
• Reduce data costs because common tasks and redundant data efforts could be eliminated or managed at the central level; and
• Reduce corporate project risk.

While a PMO might be more focused on the internal execution of a project, the DMO must address both internal and external data services and projects. The crucial point of the DMO is that it must be governed and understood at the executive level.  It sets the corporate objectives for all data initiatives, and the business value of all data initiatives must be clearly understood at the executive level. The genius of the DMO is in its ability to translate data’s real, enterprise-wide potential, plus its day-to-day value, up to the executive level, where it can promote leadership buy-in. In other words, all of data’s chief users within an insurer gain an internal champion to lobby and lead them in ways they may never have been able to do otherwise. Instead of departments losing control by adding a DMO, they gain an enabler.

Data Needs a Map With Detail

The final step for insurers is to create their data ecosystem strategy and direction. This is more than just documenting the existing data flow. It must take into account where data can be applied to business processes for more effective decisions and business value. For example, one insurer is applying AI to its underwriting process, creating real-time updates to underwriting models. Another example is bringing an insurer’s own historical data on their customer and product experiences into renewal and underwriting decisions. The focus is now on the value of the data being brought into the decisions to improve them, then to make lower-level data corrections at this level.

Data Business Value Must Be Driven by Executives

Many organizations have created CDO (chief data officer) positions or aligned the data group under the CFO. Both of these are great first steps, but they still miss the need for an insurer’s data strategy, direction and projects to all be driven by the executive level and the data asset value understood at the executive level. A CDO should be at the executive table working closely with executives across the organization, eliminating the silos and managing the DMO for the company.

The CDO and DMO should create dashboards to understand the value achieved by data efforts, adherence to the processes and impact. This will ensure that data’s efforts are aligned to business goals and objectives, to help drive better decisions from a business perspective than from a data or IT perspective.

There is still much unknown about how deeply and pervasively the pandemic will affect the U.S. and global economies; however, a deep and long-lasting recession is now a foregone conclusion. The downstream effects of a recession will change the workers' compensation market dramatically for years to come.  

Employers should anticipate a hardening workers' compensation marketplace beginning soon.

Rate Increases:   

For the past decade, employers enjoyed the advantages of a soft market. Premium rates fell year over year; in 2019, the average workers' compensation rate was at the lowest point in the 46 years since 1973 [California Workers' Compensation Insurance Rating Bureau's 2019 State of the System report]. 

Businesses in all industries should expect workers' compensation rates to increase dramatically over the next few renewal cycles. Insurance carriers offering both guaranteed-cost and high-deductible policies maintained their market share in a competitive marketplace with enticingly low premiums. Carriers partially offset the cost of insurance with the burgeoning investment returns earned in the booming stock market. With stock market returns evaporated, carriers must now charge the actual full cost of the insurance plus overhead, operating costs and shareholder profits, which will result in dramatically higher premiums.

Reduced Availability of Coverage:

Over the past decade, carriers competed for the employer's business by offering a plethora of competitive options.  

Welcome to the new reality of a hard market. In previous hard markets, carriers exited the workers' compensation market altogether to focus on more profitable and predictable lines such as general liability, auto, directors and officers' coverage and the like. With limited competition, the few remaining carriers will become more choosy. Even employers with long-term, loyal relationships to a carrier may be bewildered to be refused a renewal offer. New coverage pricing may be so costly as to require the employer to re-think its entire business and pricing strategy. 

This marketplace reversal presents distinct challenges to employers unable to absorb the higher cost of workers' compensation insurance. Higher insurance rates will hammer companies that have long-term, fixed-price contracts or that operate in markets with cutthroat competitive pricing such as service-based businesses, construction and government contracting.

See also: COVID-19: Implications for Business Models  

A Safe Port in the Storm: Self-Insurance

However, all hope is not lost. A few alternatives to traditional workers' compensation insurance have always existed. In California, there is a reliable and robust self-insurance option for employers. A recently conducted actuarial study found that self-insured employers lowered their workers' compensation costs an average of 24% even when insurance rates are favorable. These savings are stable and likely would be even higher in the new hard market. Self-insurance is primarily available to medium-sized and large companies that meet specific financial criteria. Self-insured groups (SIGs) exist in many industries, making self-insurance accessible to smaller employers.

Self-insurance is a stable, predictable and lower-cost option to employers in boom times and recessions.

The employer pays only the direct cost to adjust the claims on an as-incurred basis. There is no carrier involved, so there is no risk of rate increases or lack of available coverage.

In any market, self-insurance offers employers four additional and significant benefits: greater control, increased savings, improved outcomes and peace-of-mind.

Greater Control: Self-insured employers can design their programs, so they exert greater control over how the program works. Employers can determine priorities based on the needs of their company and employees. Priorities may include such objectives as more robust claims processes, faster return-to-work cycles, white-glove treatment of their employees and telemedicine.

Increased Savings: Employers save money because they do not pay carrier overhead, marketing and shareholder profits, as demonstrated in head-to-head studies comparing traditional and high deductible policies with self-insurance. 

Better Outcomes: With the potential of greater control over the care and treatment of the employees and processes comes improved outcomes for injured workers. Employees of self-insured companies receive the care and treatment they need in a timely way, delivered by providers chosen by either themselves or their employers. Expedited medical treatment, caring claims administration and return-to-work programs can hasten healing and recovery of the injured workers. Greater control results in employees reclaiming their lives and returning to work sooner, equaling happier employees at a lower cost to the employer.

See also: COVID-19’s Impact on Workers’ Comp  

Peace of Mind: A stable and predictable workers' compensation solution, together with improved outcomes all at a lower cost, contributes to peace of mind for the employer.

Are you interested in looking into self-insurance for your company? First, check with your agent or broker. Some brokers may be knowledgeable and willing to assist you in becoming self-insured, working for a flat fee instead of a commission paid by the carrier. If your agent is not able to assist you, contact the California Self-Insurer's Security Fund or visit the website at www.securityfund.org.