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

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

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

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

Justifying the Use of AI in Insurance

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

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

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

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

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

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

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

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

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

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

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

An Alternative Reality

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

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

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

Using Technology to Scale Compassion

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

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

See also: Big Changes Coming for Workers’ Comp

Technology in Action

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

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

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

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

Rising to the Challenge

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

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

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

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

As first published in WorkCompWire.

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

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

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

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

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

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

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

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

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

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

See also: COVID-19 Highlights Gaps, Opportunities

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

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

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

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

First, from an economic perspective:

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

From an operational perspective within an insurer:

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

From a regulatory perspective:

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

See also: COVID: How Carriers Can Recover

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

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

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

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

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

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

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

Out with the old, in with the new

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

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

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

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

See also: Crisis Mitigation Beyond COVID-19

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

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

Driving top-line growth

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

Reducing costs

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

More nimble legal and regulatory approvals

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

Engaged workforces

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

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

Better investment frameworks

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

MAPFRE’s commitment 

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

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

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

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

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

Personal and Organizational Growth

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

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

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

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

Partnerships, Alliances and Acquisitions

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

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

See also: How to Be Productive Working at Home

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

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

This is part 3 in a series.

Wildfires, like tornadoes, can leave one property leveled and its neighbor unscathed — jumping houses, neighborhoods and boundaries with seemingly no rhyme or reason. The devastation seen with 2018’s Camp Fire— which consumed everything in its path and leveled the town of Paradise— wasn’t what happened in Malibu with the Woolsey fire, which hopped the Pacific Coast highway. Now, and admittedly not soon enough, innovations in data and analytics are helping carriers be more proactive with their mitigation and event response operations.  

Having lived in the San Francisco Bay Area, I’ve seen how utterly devastating wildfires can be to communities. California is running out of space, and people are being forced to live and work in wildland-urban interface (WUI) areas that weren’t originally planned for development. But while there is a logical reason for why wildfire risk is intensifying, seeing the devastation is sobering. I recall driving through areas hit by 2017’s Napa fire and witnessing total losses next to areas that were untouched. This gave me perspective about what it must have been like on the ground during the devastation. 

Too many of my coworkers have faced similar experiences — knowing the fear of evacuation and the hope that your house will still be standing. That’s why wildfire risk is a key focus for us here at Insurity.

Understanding the potential path of wildfires is crucial, as they can spread incredibly fast. In fact, 2017’s Northern California fires advanced at a rate of more than a football field every three seconds. Yet perimeter data has historically been generated slowly, especially with a lack of publicly available data over weekends. It’s no wonder insurers have always been a step behind with their wildfire event response efforts, and frequently left in the dark during an event, not knowing which insureds have been affected. 

Years of devastating losses have caught some insurers by surprise, and established players have suffered. The wildfire peril, traditionally viewed as a secondary risk, is now a primary risk worthy of focused attention and solutions. Now, technology is helping to shape solutions, like improved perimeter data and automated event alerts and analytics.   

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

Up-to-date event perimeter data 

Advancements in NASA’s satellite imagery, for example, coupled with geospatial technology are providing insurers with up-to-date event perimeter data. Instead of guessing how a fire has grown and which insureds are affected, carriers can get regular fire boundary updates in the context of their portfolios. But, while data showing burn area and active burn spots is publicly available from sources like NASA and GeoMac, it’s not quick or easy for insurers to operationalize on their own to understand the impact.

By integrating GeoMac and NASA’s Visible Infrared Imaging Radiometer Suite (VIIRS) data with Insurity’s data enrichment and geospatial analytics platform, SpatialKey, insurers get faster perimeter updates while understanding the impact to their portfolios. With the ability to contextualize the data, insurance professionals can visualize exposure, apply buffers and filters, and understand TIV and policy exposed limits. 

Shown above is NASA fire perimeter data from the Woolsey fire in California. This data has built-in buffers set at one, two and three miles from the perimeter. Insurers can join portfolios to understand which insureds are inside the perimeter and apply buffers and filters to understand TIV and policy exposed limits. 

With the severity of wildfire events likely to continue and megafires emerging as a trend, it’s critical for insurers to be able to keep up with these events. Accurate and up-to-date wildfire perimeter data is one way insurers can implement a more timely approach. 

Automated event alerts and analysis

While up-to-date perimeter data is critical, it’s still a manual solution that requires insurers to know that an event is happening (or has happened), and then retrieve information to understand impact. But what if the information could be proactively delivered to you instead?

Automated event alerts and analysis will be a game-changer for wildfire event response by ensuring carriers stay in the know regarding events that have affected or may affect their portfolios. Analyses are executed automatically based on an insurer’s latest exposure data, as well as predetermined financial and peril-specific thresholds (meaning, anything hitting an insurer’s inbox has been prescreened and is worthy of immediate attention). 

See also: Parametric Solution for Wildfire Risk

Moving from “react and respond” to “prepare and serve” 

Using a combination of data and analytics solutions, insurers can monitor and mitigate wildfire risk — finally taking the guesswork out of what’s historically been a fast-moving and elusive risk. Insurance organizations are facing greater scrutiny as wildfire events become increasingly volatile.

How effectively you prepare for and respond to these events can either be an asset or a detriment, and you can take steps toward safeguarding your insureds while moving from "react and respond" to a "prepare and serve" approach.

Here's an analogy for you that may shed some light on how far we can still go -- and must go -- in smoothing our interactions with customers.

The analogy starts from the idea that, over time, every industry becomes a technology industry. That's sometimes expressed in different ways, notably in venture capitalist Marc Andreessen's famous line that "software is eating the world." But the basic idea is the same: Old practices in every industry give way to the faster/better/cheaper -- and sometimes very different -- ways of doing business enabled by technology, and whatever companies are most adept at the technology have a major advantage.

So, here's the analogy:

If the insurance industry were to map its user interactions onto those of the software world, I'd say we're right about where software was in 1990, maybe 1995. As you may remember, installing a big software application like Word in those days involved inserting a series of floppy disks into a drive in a certain order -- sometimes more than once -- and waiting while the drive whirred away, then finally getting a notification to proceed to the next floppy disk. Installation could easily take 20 minutes, and that assumes that everything worked right. If something went wrong, well, good luck to you. You went back to the beginning or wound up on an excruciating call with the developer's tech support.

Doesn't that sound like what a customer goes through when buying anything other than a routine policy or filing something beyond a plain-vanilla claim?

There's all sorts of paper involved, perhaps a fax machine or seven. Errors get introduced as the handwriting is misread or the data is rekeyed. Maybe something gets lost in the translation as the data moves from system to system. There are lots of phone calls and emails back and forth to sort out the problems. Then an underwriter or adjuster sends out a request for information or analysis, and the whole process stalls until responses trickle in.

The good news is that the world of technology has moved well beyond the early to mid-1990s. If you want to load even a sizable app, you just go to the app store and click. Your phone or laptop prompts you when a software update is recommended, and you can have it done while you're asleep. Not that it takes more than a couple of minutes, anyway, with no involvement for you -- and I can't remember the last time anything went wrong during an update. If you mention floppy disks to anyone under age 30, the response is likely to be, "Floppy what?"

So, my analogy suggests that there is lots of potential progress ahead of us. It also suggests that we've already come a long way.

The 1974 computer that inspired Bill Gates to drop out of Harvard and join childhood friend Paul Allen in founding Microsoft didn't even have a screen. It just had a face plate with toggle switches that you used to input data and 14 little LED lights that provided the output -- you, of course, had to be able to read binary code and know what the 1s and 0s represented by the lights actually meant. So, getting to 1990 or 1995 and floppy disks that could load massive programs and produce results on screens represented massive improvement, despite how buggy the process was.

How do we in insurance get from 1990-95 tech world to the sort of ease that technology companies provide today?

First, let's burn all the fax machines. Yes, I know about the "long tail" concept, meaning that some clients will want to use fax machines for years yet, but the pandemic has given digitization a huge boost. Let's at least pretend the machines don't exist and encourage clients and partners to interact directly with our data systems, without a bunch of paper and typists in the middle.

I wrote a story for the Wall Street Journal almost 30 years ago about the advent of online forms and waxed eloquent about how they'd save time and reduce errors. It's about time the insurance industry made an honest man out of me.

Clients will be happier, and companies will be happier, once clients can interact directly with insurers' information systems, at least on routine issues like entering data.

After burning the fax machines, the issues get more complex but are still pretty straightforward. Use public data or data from previous interactions with customers to do as much autofill as possible, both on the applicants and on the assets that are being insured. Use AI to pluck information electronically from all the various data bases, both your own and partners', to reduce the amount of manual querying and replying. Take a look at all your processes from the viewpoint of the customer, rather than based on your internal organization plans, and see what steps you can eliminate or at least accelerate. And so on.

No, you'll never get to the same smoothness that, say, Apple offers. Big Tech can enforce a one-size-fits-all standard, while in insurance, beyond the most routine transactions, one size fits one. But the industry has come a long way since the equivalent of toggle-switch inputs and readouts in binary code. If we burn the fax machines and keep pushing on other fronts, we can keep moving.

I'd bet a floppy disk on that.

Stay safe.

Paul

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

Bigger Disruptor: Lemonade or Tesla?

With its spectacular IPO, Lemonade has the attention of the insurance world, but Tesla may be the bigger disruptor in the long run.

COVID: Agents’ Chance to Rethink Insurance

The COVID-19 virus has given agents a wonderful opportunity to rethink insurance in general and their operations specifically.

AI in a Post-Pandemic Future

The post-COVID-19 world requires accelerated adoption of AI to deliver the efficiencies and augmentations of a highly digitized workplace.

Crisis Mitigation Beyond COVID-19

Whether at small companies or in massive industries, the ability to pivot to support new ways to work is key to sustaining operations.

Things Heating Up in Low-Code/No-Code

Low-code/no-code tackles three huge IT challenges: time to market for new capabilities, development capacity and managing cost.

Underwriting Wildfire Takes Extra Care

Insurers can’t rely on previous wildfire seasons or events, They need a more strategic approach that goes well beyond a single risk score.

I’ve never been a big fan of the term "disruption." I believe that a majority of insurance startups are partnering with incumbents to enable industry transformation and are catalysts for change, to be sure. But few are truly turning the industry on its head.

For instance, Lemonade is a startup that, since its inception, has positioned itself as a disruptor. The slogan is still, “Forget Everything You Know About Insurance.” The constant marketing drumbeat from the company has emphasized its different approach and has focused on appealing to millennials. And, with the recent spectacular IPO, Lemonade has the attention of the insurance world. I believe Lemonade has been very good for the industry (and it has certainly been good for the founders). But I think that Tesla has the potential to be even more of a disruptor in the long run.

This might seem an odd assertion, given that Tesla has heretofore only dipped its toe in the insurance waters, and Lemonade is four years old and on a roll. At this stage, Tesla is only a year into the California auto market as a broker backed by State National (a Markel company), with mixed results. But what has caught my attention is Elon Musk’s callout to insurance actuaries – inviting them to join Tesla to create a “revolutionary” insurance company. You don’t go on a hiring spree of actuaries if you plan to be just a distribution player. Now, on the surface, it might seem strange that insurance would be of interest to Elon Musk. To illustrate, let’s play the Sesame Street game, “Which one of these things is not like the other?”

Space exploration…Autonomous vehicles…Hyperloop travel…Battery Gigafactory…Insurance.

The answer is obvious – does insurance really have the potential to transform the world like these other ventures? Maybe not, but insurance is undoubtedly an enabler of these revolutionary advances and an essential foundation of the economy. And there is actually great potential to “revolutionize” insurance and make a lot of money in the process.

Back to the Lemonade/Tesla discussion. Starting an insurance carrier is a long play. Lemonade, with all its success, is only a small blip in the industry financial picture. Renters and pet insurance are nice businesses, but they will always be secondary lines. Lemonade has also entered homeowners, so there is much more potential there. But now they have to contend with the likes of Hippo, not just the State Farms and Allstates of the world. At SMA, we consider insurers with premiums of over $5 billion to be Tier 1. Lemonade may become a Tier 1 insurer someday, but likely not for years.

See also: COVID: How Carriers Can Recover

On the other hand, let’s consider Tesla’s prospects. Tesla is not the first auto insurance company to enter insurance and try bundling. Others have taken this approach, and, especially those in the autonomous vehicle game, have announced plans for insurance. Most still partner with an insurance company as underwriter. This has been Tesla’s initial approach, as well. Now, with stated plans to build an insurance company, the calculus changes.

Imagine yourself as a brilliant young actuary – wouldn’t it be cool to sign on with visionary Elon Musk and help rethink insurance? For that matter, it won’t stop at actuaries – other industry professionals are sure to be recruited for this venture. Underwriters (if Musk has them), adjusters, loss control engineers and others will probably join. Now, that is no guarantee of success … and the same long play dynamics will apply to Tesla as Lemonade. However, Tesla has some unique advantages. First, it has a well-respected, established brand. Secondly, it has the underlying assets that will be insured – the electric/autonomous vehicles. Third, it has the track record and energy of Musk and his enterprise.

Of course, this is all speculation – Tesla may not go full bore into insurance, and, if it does, it may not succeed for various reasons. But I, for one, would not bet against Elon Musk. 

Postscript: This blog sets up a discussion about two prominent players. There are certainly others that could be big disruptors for insurance. Three companies come to mind and have been the subject of prior SMA discussions: Root, Hippo and Munich Re. Root has shown the most impressive growth among the full-stack insurer entrants and has significant future potential as it moves into other lines and other states. Hippo has built an impressive ecosystem and a unique approach for homeowners insurance. And SMA is on record as saying that Munich Re may be the ultimate disruptor as it explores new business models, new products and broadly invests in insurtech. 

During the worst pandemic in a century, amid the most upheaval in a half-century, the insurance industry faces challenges larger than dollars and cents. Larger still is the need for insurers to have the common sense to communicate with the public, to communicate a plan of action and act with compassion. A tweet, therefore, does not count; a text does not matter; an email does not help. Not if the message is generic, the tone neutral, the spirit absent.

Insurers need to say more than the obligatory, if they even say that, because the best insurance policy for an industry—the best way to ensure the success of so many brands within a single industry—is to exceed people’s expectations. In other words, give people gifts they will cherish.

According to Benjamin Van Damme, founder of A Pearl of My Heart, gifts should be creative. The gifts that corporations give, including the gifts that insurers award workers and clients, should be personal, memorable and expressive. He says:

“Sustaining a sense of connection is essential in this time of uncertainty. A distinctive hand casting commemorates the bond between friends and family, reminding people they are not alone. We hope to strengthen the spirit of togetherness, so we may be stronger and more compassionate.”

I agree with Van Damme’s point about connection, because too many “gifts” are nothing of the sort. Too many corporate gifts in general, be they plaques or gold (plated) pens, look like what they are: soulless—and disposable—objects, which elicit little appreciation and no affection from recipients.

For insurers to weather the challenges of the present requires, well, presents; and presence. Insurers need to be attentive to what consumers want. Insurers need to be present, listening to what consumers say. Insurers need to have the presence of mind to address what consumers hope to receive.

What should be the principal concern of the insurance industry is consumer loyalty. Strengthening the loyalty that consumers have, or creating it where it does not exist, is an investment of time and effort. Through deeds of gratitude come words of praise, where insurers do good works and earn the respect of the public.

See also: COVID: Agents’ Chance to Rethink Insurance

Now is the time for insurers to lead with enthusiasm for the future. Now is the time for insurers to embrace originality, proving they have the will to succeed and the decency to lend a helping hand. Whether the hand is financial or in the form of a hand casting, or both, is critical to the reputation of the insurance industry.

As someone with more than his share of desk calendars and complimentary but worthless gifts from all manner of industries, I encourage insurers to choose creativity over the blatantly corporate. I encourage insurers to distinguish themselves from all other industries.

In creativity lies the gift of gifts: loyalty. In promoting loyalty, insurers will find consumers of great passion and influence. In rewarding consumers for their loyalty, insurers will find the power to influence the world for the betterment of all peoples.