In 1970, economist Milton Friedman published an idea that has driven capitalism for the last half-century: The only responsibility of a corporation is to generate profits for shareholders.

That sole focus has produced distortions that have made many, including senior executives, increasingly uncomfortable and has led to an alternative formulation known as "stakeholder capitalism." The new formulation tries to deliver for customers, employees, suppliers and communities, as well as shareholders. A recent survey of Fortune 500 CEOs finds that stakeholder capitalism has gained major momentum, and I heartily recommend that the insurance industry lean into the concept both during the pandemic--when so many stakeholders are desperate for help--and beyond.

The Business Roundtable ratified the movement with a Statement on the Purpose of a Corporation last August that was signed by 181 CEOs. (Progressive Corp. CEO Tricia Griffith was listed prominently among the signatories.) This week, Fortune magazine reports that a survey of Fortune 500 CEOs found that only 4% disagreed with the new emphasis on stakeholders, vs. just shareholders, and that almost half felt that the pandemic will accelerate the move to stakeholder capitalism. (18% said the pandemic would slow the move.)

Alan Murray, president and CEO at Fortune, wrote: "The current pandemic is likely to widen the rifts that have plagued Western society in recent years—between knowledge workers and manual workers, the well-educated and the less-well-educated, top tier cities and the rest. Businesses will need to play a bigger role in healing those rifts, or risk losing their operating licenses."

While Friedman's dictum helped break up the old boys networks that let many weak CEOs hang on as long as they looked the part and didn't ruffle feathers, the discipline inherent in his prescription dissipated for, it seems to me, two main reasons.

First is stock options. They should be the right way to encourage senior executives to focus on benefiting shareholders: Deliver a higher stock price and reap huge rewards. But options have devolved into a "heads I win, tails I win" situation for CEOs. If the stock climbs, senior executives win. But even if the stock drops, boards often find ways to issue another slug of options at a lower price in the name of retaining talent.

Besides, it's become clear that stock options can drive short-term thinking that actually harms a company. How hard is it to cut costs to make sure you hit your number for the quarter--and leave it to the next guy to cover for the R&D that didn't happen?

It's also become clear that, while some CEOs make a huge difference, much of what happens to the stock price is out of the senior team's control. You can be the greatest oil company CEO in the world at the moment, and you're still getting hammered. How can anyone make money when prices have sometimes dipped into negative territory, meaning you're having to pay customers to take your product off your hands? But try to do badly these days as the head of a grocery chain.

A massive research project by McKinsey found that 55% of a company's performance is out of its control in anything like the short term--that 55% stems from a company's "endowment" (its size, debt load and historical R&D) and from the trends in its industry and the geographies where it operates. Even the 45% that can be influenced likely doesn't deliver sustained results for years. So, lots of the variation in year-over-year results that drives bonuses is noise, not a reflection of long-term success.

The second cause of distortion is compensation consultants. Again, the practice was instituted with the best of intentions. Companies would figure out what others were paying senior executives, then decide roughly where an executive fit among his or her peers and arrive at a fair compensation package. But what are the odds that a compensation consultant would rank the CEO in the bottom quartile? Don't you fire someone ranked that low? What are the odds that a CEO would even find himself or herself in the quartile second from the bottom? Yes, the consultant reports to the board, but everyone still wants to make nice with the CEO. So, as in Lake Wobegon, all the CEOs are above average. That means they deserve to be paid more than the average, which raises the average, which means the CEO deserves more, which raises the average--and on and on until we get to today's wild disparities between CEOs and front-line workers.

Stakeholder capitalism will, of course, have its own problems. While everyone seems to be laser-focused these days on the customer and while suppliers will likely be treated fine (they have leverage and can go elsewhere if not treated well), companies will have more trouble seeing communities and, yes, employees as true stakeholders.

Employees would seem to absolutely be stakeholders. Every presentation I used to see as a reporter at the Wall Street Journal would include a slide (often, it was the first slide) claiming that the company had the best people and talking about them as the competitive advantage. But employees are a cost, a huge cost, and every fiber in an executive's being wants to cut costs. So, employees, as a group at least, are paid as little as the company can get away with. Yes, every company needs to be competitive, but competition among businesses tends to drive toward lower costs, not toward higher pay and benefits.

Communities will also be tough. Every company should want to be a good citizen in the communities where it operates, and most try hard to be, but there are limits to what's possible. Companies need to have the flexibility to move resources around quickly, even though the communities that lose the people or the facility may be hurt. And how much compassion could, say, Kodak, show to its longtime headquarters of Rochester, NY, while in the throes of bankruptcy? Communities will often be an afterthought.

But the efforts toward stakeholder capitalism seem to me to be an important attempt to fix the distortions that have developed during the past half-century, especially during the pandemic and especially for the insurance industry.

In the pandemic, people are in a world of hurt, and they're going to remember the companies that treated them well. Just look at the disdain that people still have for the financial services executives who paid themselves big bonuses during the Great Recession, more than a decade ago, while laying off tens of thousands of employees and letting customers' mortgages foreclose. I said that every grocery chain CEO is killing it these days, but... the CEO of Kroger is catching all kinds of heat for preparing to let a "hero bonus" of $2 an hour expire for in-store workers while being in line to collect millions of dollars by hitting profit goals. The long-term benefits of caring for customers, employers, suppliers and communities, as well as shareholders, could be the legacy of this devastating stretch.

The need for insurers to care for all stakeholders seems especially strong, because that's the ethos for the whole industry. We can either define ourselves as truly focused on wellbeing, or we can be seen as merely offering lip service.

After saying as much six weeks ago, in talking about the moral imperative for the industry, and then warning two weeks ago that the industry might be losing the PR battle, I'm happy to say that the opportunity seems to still be wide open to lean into the stakeholder capitalism concept. Insurers, like Progressive, can even claim a leadership role. I hope we will.

Stay safe.

P.S. Here is an article that talks about some specific topics that we all should be addressing now, to use our short-term efforts on the pandemic to set us up for long-term success; the insurance industry could play a major role. I'm more than a bit biased--the article is written by my longtime colleague Chunka Mui, based on some work he and I have been doing together for the past few years, and I even get name-checked in there a couple of times--but I commend it to your attention. It's very smart.

The COVID-19 pandemic has created not just a healthcare crisis but also a global recession, and a complete solution, including robust healthcare measures such as easily available testing, will take time to develop. So, insurers need to focus on both a short-term approach, where most employees remain physically isolated and work remotely, and on a longer-term approach, where there is considerable ambiguity on the scope and timing of an economic recovery.

Every insurer needs to urgently examine current business and IT processes carefully and modify these in a secure manner to adjust to this "new normal."

Internal Culture Remains a Priority

Irrespective of the fact that the end or near abolition of physical proximity will require new modes of work, one thing doesn’t change—the importance of providing protection to customers in a cost-effective, efficient and humane way. Everything else must flow around this cornerstone. 

Every insurer, as part of its culture, needs to have already addressed these foundational aspects:

• Focus on ensuring the health of employees, contractors and associates.
• Define and implement operational business and IT preparedness.
• Prepare and roll out service continuity and mitigation plans.
• Execute a corporate messaging strategy.

Coping With Uncertainty

There are no historical parallels to the COVID-19 pandemic—the closest approximations are the 1918 flu pandemic, the 1930s Great Depression and the 2008 Great Recession; however, they are only indicative—not equivalent.

We cannot predict with great accuracy the nature of either the slowdown or how the global economy will recover, so we must rely on flexibility and speed.

For example, while many respected analysts feel that specific lines of business such as auto insurance or commercial property insurance will recover quickly, a prolonged slowdown might lead many customers to renew with bare bones coverage, cutting premiums.

On the other hand, you have many U.S. states considering legislation to "retrofit" COVID-19 coverage into business interruption insurance, especially for small business owners in the hospitality industry.

Another uncertainty: How are continued social distancing demands going to impact the high-touch nature of high-value life insurance sales and underwriting?

The possible scenarios across various lines of business are too vast to even attempt to list here. The variety emphasizes that speed and flexibility are vital for insurers. Every insurance company will have to focus on being as digital as possible.

See also: COVID-19: Implications for Business Models  

What Will Be Needed?

A clear understanding of the business value and ownership of data is a vital prerequisite for implementing a digital strategy. This understanding must extend not only to data that is created within the enterprise or via business partners but may also involve data that was typically under the purview of telecom providers and national governments—combined in what we can choose to call an "information mesh."

While every government will have differing notions of data privacy, an insurer will need to build a data infrastructure to reliably share appropriate information with the government in an efficient, unobtrusive manner. Witness the reality that the best COVID-19 pandemic control program in the world, Taiwan’s, was based on combining the national health insurance database with cell phone tracking data, etc. 

While building such an information mesh, insurers will need to leverage technologies such as digital, cloud and automation in an agile manner—they should not lose sight of the fact that at its root this is all about people owning data and people deciding how to use it in a secure and efficient way.  

Data and Technology Enablers

Data needs to be trusted to be consumed effectively by internal and external users across the banking, financial services and insurance enterprise, and data governance is the means to this end. The conventional data governance paradigm of managing data as an asset is failing due to the plethora of architectural data patterns. Instead, we recommend that data governance must embrace alternative paradigms. These paradigms can include a hub and spoke for gateways to trusted data or potable data, like a utility providing potable water, irrespective of the water source.

Architectural data patterns can include data lakes, data warehouses or marts, on-premise legacy systems, data in a public, hybrid or private cloud, streaming data, third-party data from commercial aggregators and public sources, click stream data, IoT data and much more.

The scale and complexity of data governance presupposes that human intelligence, collaboration and judgment be helped by advanced analytics, pattern matching and AI and ML techniques in the long run to achieve these ambitious goals.

With the official start of the 2020 Atlantic hurricane season just one month away, there has likely never been a more important one for the insurance industry. This is not just because most of the early-season guidance points to an above-average hurricane season, which could increase the chances of hurricane landfall along the U.S. coastline; but, because of COVID-19, if a hurricane makes landfall it comes with increasing pressures for the people affected and the stress on the insurance industry. With insurers already strained due to COVID-19, additional losses from a named storm could disrupt the industry. 

By their very nature, hurricanes force people to gather close together in shelters and travel away from their places of residency during evacuations. This goes directly against what the Centers for Disease Control and Prevention (CDC) recommend for countering a Covid-19 outbreak. Think about when Hurricane Katrina hit New Orleans in 2005: Around 20,000 people took refuge in the Superdome. One building with 20,000 people can’t happen in the current environment. Additionally, we have all read that the elderly population is more susceptible to COVID-19 and that the CDC guidelines should be strictly followed for this demographic, but the elderly are even more at risk during a hurricane because COVID-19 complicates evacuation procedures that are already difficult for them.

COVID-19 is already placing unprecedented strain on disaster management, health and other systems; a hurricane will exacerbate that strain. With outbreaks across the entire nation, an area hit by a hurricane is less likely to get aid from other states or regions. Will power crews travel hundreds of miles to help restore power? The lack of quick response can further create problems with mold growth if the power is not restored fast enough. After a storm, sometimes as many as 10,000 volunteers come from all over to help with the recovery, but it might be hard finding volunteers amid the pandemic. How about claims adjusters and another insurance personal that need to inspect property damage? How about contractors getting into an area to put tarps on roofs and prevent further damage? The list is almost endless of how uncertainty increases.

This is why all eyes will be on any little disturbance that develops anywhere in the Atlantic Ocean this season.  

Atlantic Hurricane Forecasts Are a Dime a Dozen

Do you know there are at least 26 different entities that forecast various aspects of the Atlantic hurricane season? You can track the majority of the early season predictions here: http://seasonalhurricanepredictions.org.

In meteorology forecasting class, one of the lessons that is taught is that the consensus forecast is a hard forecast to beat. Although early April hurricane season forecasts for activity have the least amount of overall reliability, when you get a great number of forecasts that agree that the overall activity will be above normal it should get the attention of the insurance industry. 

See also: The Best Tools for Disaster Preparation  

All the forecasts speculate on the same general climate factors that are leading indicators to an active hurricane season. One is the El Niño-Southern Oscillation (ENSO). Currently, the majority of the global ENSO forecast models call for ENSO-neutral conditions during the peak of the Atlantic hurricane season for August-October. When ENSO is warmer than normal, it is called El Niño, and it typically reduces Atlantic hurricane activity via increased upper-level westerly winds in the Caribbean extending into the tropical Atlantic that shear apart storms as they are trying to form. This is not forecast to occur this year. There is some indication that late in the summer months a La Niña might develop, which would bring even less wind shear to the Caribbean and might lead to above normal activity. From 1995-2019, the non-El Niño seasonal mean Accumulated Cyclone Energy (ACE) index across the Atlantic Basin is 160 (104 is the 1981-2010 average), with those non-El Niño years having an average of 16 named storms, eight hurricanes and four major hurricanes across the basin. So this is a good place to start if one wants to make the argument for more favorable activity across the Atlantic basin.

The other major climate forcer leading to an above-normal forecast is the Atlantic Sea Surface Temperature (SST), which is unusually warm at this time. This early-season warmth in the Main Development Region (MDR) has a strong relationship to an active hurricane season as a catalyst to tropical waves that move off Africa.

Historically, warmer than normal sea surface temperatures in the eastern Atlantic correlate with more active Atlantic #hurricane season. Currently, most of the eastern Atlantic is warmer than normal, except for north of 45°N. pic.twitter.com/SAkM5DX7VS

— Philip Klotzbach (@philklotzbach) May 4, 2020

While these warm SSTs could change before the summer, the fact that the air temperatures over the area will only get warmer will likely limit any cooling of the current SST. Together with the increased probability of La Niña, the Atlantic SST signals elevated chances of a busy Atlantic hurricane season.

If you haven’t noticed, there has been plenty of severe weather in the Southeast U.S. over the last month or so. Part of the blame of these severe weather outbreaks can also be put on the warmer than normal SST in the Gulf of Mexico feeding moisture into the Southeast as mid-latitude low-pressure systems pull moisture up from the Gulf of Mexico, where water temperatures are one to three degrees above normal. There is no relationship between April Gulf SST and annual hurricane activity, mainly because Gulf of Mexico conditions can change quickly over a given season with weather pattern shifts. However, if such anomalies persist into July, the temperature could be deeply unsettling. 

A wildcard to the season could be how much dry air rolls off the coast of Africa with tropical waves. There have been seasons where all the major climate forcers looked to align, but named storms need the precise set of ingredients to come together to make for a super active year, and dry air can be a wildcard; too much dry air aloft can inhibit named storm development. 

Landfall Analogs

Many of the seasonal hurricane forecasts shy away from the most important factor for the insurance industry, which is overall landfall activity. After all, the Atlantic basin can be very active, but if no hurricanes make landfall the impact on the insurance industry is irrelevant. By looking at current oceanic and atmospheric conditions that are similar to conditions now and that might be expected during the peak of the hurricane season, analog years can provide useful clues as to what type of landfall activity might occur for the 2020 Atlantic Hurricane season. The years that seem to be most common are 1960, 1995, 1998, 2007, 2010 and 2013.

The analog years suggest a clustering of a pattern that would point to named storm activity along the central Gulf Coast and the Outer Banks. There is also a cluster of activity north of Puerto Rico and in the western Caribbean. In general, the analogs point to years with named storm landfall activity, so landfalling named storms should be expected from Texas to Maine, with the most focus on the regions mentioned above.

See also: Flood Insurance: Are the Storm Clouds Lifting?  

Early Season Activity

By now, the insurance industry understands that often tropical named storm activity comes in waves, which is largely a result of the passage of the Madden–Julian Oscillation (MJO) or large scale Convectively Coupled Kelvin Wave (CCKW). As we approach the start of the Atlantic hurricane season, the insurance industry can start to get a sense of when the Atlantic basin might experience some activity. The latest forecast guidance suggests that the first such wave of activity might occur around May 11, with another coming shortly after the start of the Atlantic Hurricane season. Given that the last five hurricane seasons have produced at least one named storm before June 1, it wouldn't surprise me if this year tried to follow suit given the warm SST in the Gulf of Mexico. Often, early season development occurs with storm activity off the Carolina coastline. These types of early systems tend to meander or make landfall along the North Carolina to northeast Florida coastline. But another area ripe for early season activity this year could be in the Gulf of Mexico. 

Summary

The season looks to be active with a higher probability of named storm landfalls along the Gulf Coast or Outer Banks, NC, raising many questions about the possible effects on the insurance industry.

As the BMS Property Practice pointed out, if there is a heightened risk along the U.S. coastline would the authorities even allow non-permanent residents into the area to reach a second home if their primary residence is out of state?

Who is going to take steps to limit damage? How will storm response hamper recovery efforts in terms of volunteers or field adjusters? If hotels are not operating, where do people go, where do adjusters stay?

Maybe this is the year that insurtech solutions help the insurance industry respond to a natural disaster in new ways. No matter how you look at it, we are entering uncharted territory this hurricane season.

The outbreak of the novel coronavirus (COVID-19) and the shelter-in-place response has wounded the US economy. Business and consumer-oriented economic indicators show the extent of the damage thus far, but economic data released in spring/summer months are likely to demonstrate further deterioration. The P&C insurance industry has not been immune to the economic fallout. The downturn is likely to strain underwriting profits, and the decline in interest rates and financial markets will undoubtedly impact net investment yields, which will exacerbate the industry-wide profitability efforts. The P&C insurance industry should expect differing impacts dependent on the insurance line. The line by line policy and loss impacts are studied within this article. Going forward, it is anticipated the pandemic response and economic downturn may expedite technological change and adoption, as industry players seek to maximize operational efficiency in a new world.

The Economic Downturn

The emergence of the pandemic has wreaked havoc on consumer activity, business activity and governments. Declines in manufacturing, residential housing, trade, business formation, and retail/food sales have all shown up in April’s economic indicators. These numbers are likely to worsen with May releases.

Figure 1:

The decline in residential and business activity underscored by worsening economic indicators (shown above) forced businesses to reevaluate their operations. Many have cut costs, including staff. This process has resulted in an unprecedented spike in unemployment claims.

Figure 2:

The recent spike in unemployment is extremely alarming, and despite efforts by government and the Federal Reserve to provide temporary backstops, the impact is already showing up in lower frequency economic indicators, such as Gross Domestic Product (GDP). In the first quarter of 2020, GDP was estimated to have declined by 4.8%. Interestingly, a significant piece of this decline was a contraction in healthcare. The “flattening of the curve” was a mantra aimed at ensuring protection of the healthcare industry during the global pandemic, but an associated decline in elective procedures has resulted in significant losses for many hospitals.

Figure 3:

While the GDP decline was worse than initial estimates and undoubtedly indicates the start of a severe recession, it came in below the measure hit in Q4 2008 when GDP declined 8.4%. It is expected that the 2020 downturn will worsen significantly when 2nd quarter GDP is released in the summer. Some are estimating a 40% fall in GDP in Q2, hinting at an economic depression. Hopefully, that will be avoided.

Impact on the Overall P&C Insurance Industry

The P&C insurance industry is not insulated from the economic fallout. The impact on business activity is expected to be felt in commercial lines and the effects on residential activity and general consumer activity are expected to show up in personal lines. The effects are expected to impact the P&C combined ratio through changes to premiums, losses and expenses.

A combined ratio above 100 indicates the industry is paying out more money in claims then it is making from policies. Due to effects on policies and losses the industry should expect an increase in the combined ratio. Adding to industry stress, net investment yields are likely to decline as well. The industry typically invests very conservatively, so interest rates are a good measure to track as a proxy. Recently the Federal Reserve responded to the emerging economic crisis by expanding the money supply and reducing the federal funds’ interest rate to near zero (again). The decline in P&C investment yields related to lower interest rates will constrain P&C insurance profitability further. The duration of ZIRP (zero-interest rate policy) will specifically impact areas of insurance with longer time horizons.

Figure 4:

Which Areas (in P&C Insurance) are Expected to Be Most Severely Impacted?

While the magnitude of the impact on the P&C insurance industry combined ratio remains to be seen, the economic decline associated with sheltering in place from COVID-19 is bound to weigh on P&C insurance. There will undoubtedly be changes in the demand for insurance and the new environment will lead to alterations in insurance claims and losses. Down the road, this may also lead to changes in regulation and could even generate new business models.

Given the nature of the pandemic, it is challenging to predict all implications for insurance. A recent survey from PwC, for example, explored some potential areas of concern with finance leaders related to COVID-19 and found the following concerns rose to the top.

Figure 5:

These themes are also relevant for leadership within the P&C insurance sector. The entire insurance value chain — from policies, pricing and distribution; to underwriting and risk management; to claims and servicing; to finance, payments and accounting — will be impacted in some manner. The industry will have to navigate operational pressures as more employees work-from-home, while simultaneously finding ways to optimize profit as general business activity pulls back and the economy contracts. If premiums decline or losses spike, insurers will need to find ways to cut costs. Yet, each line of insurance will experience policy and loss effects differently. Figure 6 analyzes the directional impact to each line of P&C insurance.

Figure 6:

Premiums are likely to contract across a variety of lines of insurance as the economy weighs on new exposures and causes early policy cancellations. General auto and air traffic will decline as more people stay home. The uptick in unemployment (shown in Figure 2) will undoubtedly show up in reduced premiums for personal auto, aircraft and commercial auto. The reduction in in workforce along with movement to new work-from-home environment may also result in businesses cutting workers compensation policies. COVID-19 and associated isolation policies impacted global trade (Figure 1) and business projects, which will reduce policies for various lines like ocean marine and surety. Areas related to housing, like homeowners or mortgage guarantee, may have some short-term stability, but long-term risk as foreclosures spike. Cost cutting, particularly within small business, is expected to constrain property premiums as many businesses consolidate. Finally, medical malpractice may see a reduction in policies particularly if the non-COVID healthcare slowdown (shown in Figure 3) continues and more hospitals cut back on elective procedures and associated expenses.

As shown in Figure 6, claim losses are also expected to vary by line. Reduced business and personal activity is expected to lower losses in a variety of lines, including auto, airlines and ocean marine. Credit, mortgage guarantee and surety losses are expected to increase as the economic downturn causes capital challenges and project cessations. Homeowners may see a slight uptick in losses as more residential activity takes place at home, due to school cancellations and work-from-home policies, thereby increasing risk.

Business interruption coverage, which can be included in property coverage (for example), is an area of question. This coverage indemnifies companies for lost profits for nonexcluded risks, yet outbreaks of disease are generally excluded. Certain policies include coverage for “interruption by communicable disease.” Even with this language included, some policies still exclude contamination due to a pathogenic organism, bacteria, virus or disease. There are a lot of elements to consider with this issue. Therefore, it is likely there will be challenges and litigation related to business interruption.

Why the Pandemic May Be a Catalyst for Tech-Adoption in Insurance

The P&C insurance industry was thrust into a new business environment due to the global pandemic. Within a week a relatively manual industry, which relies heavily on face-to-face interaction, showed an impressive ability to adjust and leverage technology to continue to provide products and services. While some firms within the insurance industry had already made strides in tech-related innovation and automation prior to the pandemic, the industry as a whole has been somewhat reluctant to adopt emerging technologies. On the surface, it may seem unlikely that the efforts over the past few months may have lasting impacts and change tech-adoption rates within the industry. Digging deeper, the pandemic and the associated economic fallout may windup being the key catalyst for widespread tech-adoption within insurance.

Prior to the pandemic the stage for large-scale technological adoption within insurance was already set. While the economic downturn will lower the quantity of available start-ups and InsurTechs, the quality and adoption rates associated with InsurTech may increase. In addition, the count of internal projects for brokers, carriers and reinsurers leveraging new technologies has been rising over the past few years. Industry organizations had already understood the importance of innovation, yet had less reason to trigger production usage. Some forward-looking credit agencies understood the industry-wide hesitancy and have created scores for innovation. AM Best released its innovation score methodology in March, 2020. They explain that these company-specific innovation efforts (or lack thereof) are likely to have a long-term impact on an insurer’s financial strength. Put differently, in order to profit maximize, insurers need to innovate. In this new world, they need to do so now.

While innovation can include elements outside of technology, much of it is directly related to technology. A notable constraint to technological adoption within insurance has been lack of customer adoption. Telematics, for example, has been around for an extended period of time, but never experienced robust demand. It’s possible the pandemic could change this. In an environment where miles driven has collapsed and more customers are now unemployed, Telematics and Usage-Based-Insurance (UBI) may provide angles for auto insurers to maximize retention of policyholders. The cost-benefit for consumers to exchange private information for a reduced rate is likely to be changing as well.

One major challenge with consumer and business-adoption of internet connected devices, like those proposed with UBI, has been data security risk. There are still some concerns, but security is slowly improving and the risk is becoming more manageable. It’s likely that there’s a methodical upturn in IoT usage over the next few years, but any increase in insurance usage will be deliberate focusing on areas where security is tight. Interestingly, the large scale public adoption of IoT-oriented devices and the data streams associated may also present new insurable opportunities, while simultaneously providing insurers with an ability to further improve operational efficiency through automation.

It was shown in Figure 6 that certain insurance lines are expected to experience an increase in losses as the economy flounders. Some of the increase may wind up being attributed to fraud. AI and machine learning systems may help reduce the cost of reviewing potentially fraudulent transactions identified by traditional rule-based systems. An additional benefit of cognitive fraud detection systems is that they can detect fraud patterns that humans may overlook. This can help save insurers money in a challenging economic environment.

In an era where insurers are aiming to maximize policies while reducing expenses, AI may also be able to help. Artificially intelligent systems have been developed to read contracts, assess which areas of potential risk, and even offer suggestions on how to improve the terms of the contract.

Blockchain may be another useful tool as it emerges through the ‘trough of disillusionment’ towards production usage. According to Gartner, Practical Blockchain is a Top 10 Strategic Technology Trend for 2020. Within insurance, The Institutes RiskStream Collaborative has been working with roughly 40 P&C and L&A insurance-related organizations to design use cases for life and annuities, personal lines, commercial lines and reinsurance over the past few years. RiskStream had expected a downturn in industry participation in our working groups and committees due to COVID, yet we have been surprised to witness more participation. This may be another signal that the pandemic and economic downturn is causing industry participants to re-evaluate the need for cost savings through technology.

https://www.youtube.com/watch?time_continue=8&v=vRf2kuKlcH4&feature=emb_logo

The timing of involvement in industry-wide initiatives may be also be ideal. RiskStream’s Proof of Insurance and First Notice of Loss solutions described in the video above, have moved through multiple path to adoption steps with members. Therefore, the associated ROI is within reach. Once adopted, it’s likely the path forged within these personal lines areas will allow for easier adoption of use cases being designed/built in other areas, such as commercial lines, reinsurance and life & annuities. RiskStream’s is not alone in demonstrating progress within blockchain. Other industries are also noticing advanced interest in their blockchain initiatives, such as MOBI (in mobility), BiTA (in logistics) and OCC (in energy). Each of these initiatives may also be of interest to insurers.

Whether insurers decide to leverage IoT, AI, blockchain or other forms of technology, there’s little doubt that firms that have made technological adoption progress have more room to withstand the economic downturn’s effects. This article demonstrated that the economic downturn will effect insurance, but also showed each insurance line will be impacted differently. The ROI of technological adoption is dependent on the underlying technology and the specific use case. While use cases for various tech have not necessarily grown since the onset of the pandemic, the overall economic environment has worsened, increasing the need for immediate operational efficiency. Insurers will be required to produce more with less resources. Optimization within the insurance industry, and business overall, will likely be more and more important in a world that is volatile and changing. Careful investment in technology is likely to be a useful resilience tool for insurers in this new, volatile environment.

***Special thanks to RiskStream’s Susan Kearney for offering your business insight and assistance with this project.

References:
https://www.census.gov/economic-indicators/

Back in mid-March, I wrote a piece titled COVID-19: Implications for Insurers. Two of the questions with longer-term implications that I suggested senior executives should consider were:

• Do we need to reduce our reliance on people being co-located, by re-considering office infrastructure strategies and the degree of remote working as standard?
• Do we need to reduce our reliance on people altogether, by increasing automation?

In the weeks since, I’ve realized that these questions are merely a subset of a much broader set of questions that senior executives should be considering – all of which focus on the longer-term business model implications that could arise from COVID-19.

Here’s my current list of key questions to consider, grouped under five headings:

1. Products and Services
2. Channels
3. Workforce
4. Supply Chains
5. Internal Priorities

Products and Services

• In the early weeks of the COVID-19 economic downturn, companies with pre-paid revenues, recurring income streams or subscription revenue models (such as insurers and Netflix) proved more resilient than others. What can we do to move more of our revenue to pre-paid, recurring or subscription models?
• Does COVID-19 create an opening for new, or updated, products and services we should be offering to the market?

Channels

• With huge numbers of people in lockdown, traditional distribution channels (particularly those involving bricks and mortar) often became useless. Do we need to change our existing distribution channel mix or even add channels (such as new digital channels)?
• The same issues applied to post-sale servicing. For example, many contact centers were quickly overwhelmed by their customers. Do we need to change, or add to, our mix of servicing channels? What can we do to make them more responsive to demand or migrate demand to other channels? And if we currently need to service customers on-site (for example insurers’ claim inspections) what can we do to add remote options?

See also: Business Continuity During COVID-19  

Workforce

• As my earlier article suggested, the COVID-19 lockdowns have proved that remote/mobile working is far more feasible than many senior executives had previously imagined. What is our opportunity to reduce our real estate footprint by making remote/mobile working the norm for certain employees? Conversely, how are we going to respond to any employees who, having started remote/mobile working, now demand to continue working that way?
• As the downturn hit, many companies struggled to deal with unneeded labor that they still had to pay. Meantime, companies such as Amazon and Instacart suddenly found themselves with far fewer workers than they now needed. What can our business do to make our own workforce more flexible in the future?
• Teamwork and collaboration usually drive significant benefits. And we’ve now discovered collaboration tools that can work successfully across vast geographies. So do we have more scope for beneficial internal collaboration than we previously realized?
• COVID-19 has shown the susceptibility of carbon-based workers (humans!) to disease. What’s the scope for replacing more of them with less vulnerable, silicon-based workers such as robots, process automation bots and artificial intelligence?

Supply Chains

• Given the disruptions we’ve seen to supply chains, do we need to carry higher levels of inventory?
• Given that many countries imposed blanket bans on certain exports, in some cases even from a subsidiary to a parent company, do we need to replace some of our overseas suppliers and overseas subsidiaries with in-country alternatives?
• Do we need to remove reliance on certain supply partners altogether, by manufacturing that component in-house (where possible)?

Internal Priorities

In addition to business structures, a company also has a tacit understanding of its relative priorities. Do some of these also need to change?

• Do we need to invest (even) more into IT, especially in hygiene factors such as resilience (use of cloud, for example) and cyber-security?
• Should we be allocating an increased share of our budgets to risk management and business continuity planning?
• In common with individuals, many businesses found that their rainy day funds just weren’t big enough when faced with COVID-19. Even once things return to "normal," should we be reducing the levels of cash we pay out in bonuses and dividends so that we’re better-placed when the next black swan event comes along?

* * *

So that's my current list of potential business model implications that senior executives should now be thinking about.

Have I missed any? Do any other business model questions or implications spring to mind?

Read this, and you'll be on your way to knowing more than 99% of what anyone else in insurance knows about a topic that's attracting a lot of interest. That makes you an expert, in my opinion.

The debate is heating up just now about who should pick up the cost for messy losses -- the kind that are hard to model and frequently excluded or defined rather vaguely in insurance contracts. Right now, of course, all the focus is on who should (and how to) cover the various costs arising from pandemics. Covid-19 today, and whatever hits us next time. The problem is being kicked around between insurers, governments and the capital markets.

One way or the other, we’re all going to end up paying, but life will carry on, and there will be even more need for creative solutions to the world's tricky problems.

So it’s worth looking beyond this current bun fight to consider one innovative funding mechanism that has, in some cases, radically changed the most basic nature of insurance. It's already providing at least one solution for covering pandemic losses and has been applied to many other complex or large events.

Parametric insurance offers financial protection against losses that are often hard, or even impossible, to get insurance for. Parametric structures are attractive to capital providers from outside of insurance (hedge funds, banks, pension funds and dedicated investment vehicles). When designed properly, parametric-based insurance products ensure that claims are paid fast, and without dispute.

In the second part of this article, I'm back to review 10 companies I recommend to watch that have been leading the way in designing or using parametric insurance and structures. But first, a quick primer on how parametrics work to get you in the mood for reviewing the recording of our InsTech London live chat event on BrightTALK from April 30.

Traditional indemnity insurance, the kind we are all familiar with, pays out based on the cost of the loss incurred, as decided by your insurer and its loss adjuster. Parametric insurance pays out when a pre-defined event occurs and breaches a pre-agreed figure or index. Examples of perils covered and typical triggers include hurricane (wind speed), flood (height), earthquake (shake intensity), pandemic (number of infections) or cyber (reported data breach).

The not-so-new new thing

Like a lot of great new ideas, parametric insurance isn’t actually that new. Catastrophe bonds, or insurance-linked securities (ILS), have been around for 25 years. It's worth taking a moment to understand how that market has developed when considering what might come next.

Today, the ILS market provides $100 billion of protection, most commonly used as a replacement for conventional reinsurance or retrocession covers. The majority of that capital now comes from outside of insurance. Most ILS bonds still use traditional indemnity losses to define payout, but parametric triggers have been used for 15% of these bonds. Investors like parametric structures because there is less risk asymmetry between the investor and the issuer (the original insurer). This means that investors know as much about the risk being covered as the original insured does (not the case for indemnity insurance).

See also: Growing Case for Parametric Coverage  

Coverage for ILS bonds is usually in the hundreds of millions of dollars, and payment structures have become increasingly sophisticated. At the time of writing. the $500 million pandemic catastrophe bond issued by the WHO is considered to have a high probability of being triggered. (Steve Evan’s Artemis is the best source of information on catastrophe bonds. His (free) deal directory provides fascinating insights into the variety of bonds issued since 1996. Of these, 104 are parametric. Definitely worth a read when you've exhausted the Netflix movie catalog.)

Going back upstream and down in size

Ever since the earliest catastrophe bonds in 1997, there has been interest in making parametric coverage available to large corporations as well as insurers. Oriental Land, the owner of Tokyo Disneyland, took out a $200 million bond for earthquake cover in 1999 that was based on earthquake shake severity. It’s proved tough, though, for brokers to convince risk managers at large corporations to switch from conventional insurance structures to this new type of cover. Few have been willing to bet the company, and their careers, against mostly untested structures with significant costs and an element of basis risk. (Basis risk is the potential for the payout from parametric insurance to be insufficient to cover the true cost of the loss in the way expected).

The first wildfire catastrophe bond, for $200 million, was placed in 2018 and issued by another corporation, Pacific Gas & Electric (PG&E) the California utility company. Wildfire lends itself to parametric cover, but the bond was structured as a traditional indemnity cover. The bond was subsequently triggered and presumably paid out when PG&E picked up $13.5 billion in liability from wildfires in 2018.

The innovator's tool kit

But you don't need a $100 million problem to use parametrics. Parametric insurance is particularly interesting for people or companies looking at ways to introduce innovation into insurance. As you'll see in part two, parametric insurance can actually work very well at a highly localized level, to provide cover for an individual building or field. Parametrics open up opportunities to those that can build, or tap into, a source of reliable data, preferably with years of historical records, that can be used to create indices that correlate with financial losses. These can be particularly valuable if the data source is exclusive. 

We're seeing lots of interest in IoT, but to date there have been few public and credible uses cases for insurance applications. Parametrics and IoT are a natural pairing. Providers of distributed ledger technology (DLT), which can be used to power smart contracts, have been sitting on the sidelines for years now, patiently waiting for a problem to apply their solution to. DLT could be a vital part of parametric insurance, although hang on to your investment dollars for now. DLT is not always essential for parametric triggers. Other choices are available.

The established ILS market will continue to grow, but companies have, until recently, not had many opportunities to use parametrics -- unless they had the appetite and chutzpah to issue a cat bond.

That is starting to change. Technology-enabled MGAs and brokers with clients that are struggling to get the insurance they need are starting to turn to parametric insurance. The concept has also been used for a number of years in microinsurance, as I discussed back in 2015. 

At InsTech London, we’ve been delighted to bring you many of the founders and leaders of teams running and building parametric products onto our stage, through our interviews and on our podcasts. Now we are also bringing you our favorites through our digital live chats on our BrightTALK channel.

I’ve seen the ILS market evolve over the last 20 years. Not every catastrophe bond has performed as expected when the wind blew or the earth shook (or indeed when the world’s banks hit the buffers in 2008). Parametric insurance is still some way from having complete solutions to many of the hardest problems. The world is full of surprises. Odd stuff happens at the edges of our experience. Some parametric solutions will fail to deliver. But innovation flourishes in adversity, and we are starting to see some very intriguing solutions emerging.

If you are looking to learn more about what has happened in this space, and how the future will evolve, then follow the link to the 10 companies I recommend looking at.

See also: COVID-19: Moral Imperative for the Insurance Industry  

If you've found this interesting, then you'll definitely enjoy our live chat discussion on “The Role of Parametric Insurance in Post-COVID world” recorded on April 30 and brought to you and co-hosted with our friends at Qomplx.

Does all this make sense? Do you agree? Who's on your top 10 of parametric companies to watch? Feel free to add comments, share and all the other fun stuff you can do with Linkedin these days. 

I co-lead InsTech London, bringing together the most interesting people with intriguing ideas face to face, online or however you prefer. Now up to episode 80 of the weekly InsTech Podcast, CII-certified (the podcast, not me). We're delighted to be supported (i.e. get money from) almost 100 corporate members (with room for more) as well as a community of over 5,000. If you need a bit more in-depth analyses or help, head over to Abernite website to see what I am up to there.

It already seems like ages ago that we were able to go out at night. In most countries, the bars, restaurants and clubs are closed. In the basements of those places, there are tanks that preserve up to 1,000 liters of beer. But when time passes, the quality of that beer declines. So, what do you do with all that beer? It’s probably too much for the proprietors to drink it all themselves during this period of social distancing. 

Royal Swinkels, the brewery of Bavaria beer, has come up with an excellent and sustainable plan to give the beer another purpose. The brewery recalls the beer, removes the alcohol and recycles that into disinfecting hand soap. Next, ten thousand liters of hand-sanitizing products are distributed among hundreds of hospitals, doctors offices and nursing homes -- for free.

Even though there is a lot of despair in this time, it’s beautiful to see emerging, creative and especially heart-warming initiatives. There are numerous examples -- more and more insurance carriers, startups and other tech companies that are part of the DIA Community are lending their talent and technology to help the world fight the pandemic. 

Our analysis shows that each solves very specific problems. The opportunities seem endless. 

We defined eight categories in which they provide new value, each tapping into real needs, proving the relevancy and social impact of the insurtech and insurance community.

1.  Educating what coronavirus is exactly and how to know if you have it
There are a low number of quick assessments for people with COVID-19 symptoms that provide reliable recommendations and next steps. Consequently, medical professionals and health systems are overburdened by too many cases. 

Infermedica (Poland) provided a solution that cuts both ways. The company developed a screening protocol based on the official guidelines by WHO. It’s free, has been translated into 20 languages and can be used within minutes. This way, Infermedica hopes to help as many people as it can. 

2.  Knowing what to do if you’re abroad

Expats and travelers who are in countries abroad have difficulties finding general and country-specific COVID-19 information. It can also be quite a challenge to get tested or to find medical help, if necessary. Every country has specific requirements and is not always able to offer assistance in English. 

Air Doctor (Israel) created a comprehensive country-by-country guide that includes general information as well as details on where to find help. By using this guide, expats and travelers can comply with specific country requirements, limit exposure to others and help to flatten the curve. 

See also: How to Lead During the Pandemic  

3.  Preventing infection and spread of the virus

We all know we should avoid touching our face to prevent the coronavirus from getting us sick. But this is easier said than done. 

Slightly Robot (U.S.) redesigned a wearable that stops another type of harmful touching -- trichotillomania, a disorder that compels people to pull out their hair -- to one that prevents you from touching your face. The Immutouch wristband senses your hand movement 10 times per second and will vibrate once you touch your face. This way, Slightly Robot will support you in the fight against getting yourself infected with COVID-19.

4.  Offering relief to the overloaded doctors offices

A lot of people with symptoms are in doubt if they have corona. Doctors appointments cause unnecessary movement and physical contact that increases the risk of further spread. Physical appointments are also extremely time-consuming and cause the first line of medical aid to be overloaded.

To help people as well as the medical system, AXA Belgium developed a digital medical consult. Patients dial in, answer a few questions and receive an appointment with the doctor. A doctor calms, advises or refers a patient. With teleconsultation, the risk of spreading the virus is reduced, while the first aid line is still available for those who need it. 

5.  Lightening the workload in hospitals 

Every day, we read about the patient flows resulting from the COVID-19 outbreak, leading to increased scarcity of critical care capacity. 

Philips provides healthcare institutions with telehealth solution to process healthcare requests via online screening. Patients infected with the virus can be remotely monitored through automated questionnaires about their home situation and state of health. The telehealth solution aims to prevent unnecessary visits to hospitals and enables the remote monitoring of the vast majority of COVID-19 patients who are in quarantine at home as an alternative point of care. 

6.  Securing sufficient resources for medical aid  

In many countries, there is a genuine fear that the number of emergency ventilators and other equipment to treat COVID-19 patients is not enough, even leading to a run on equipment. But there are also new initiatives to produce more, quickly and efficiently. 

To be able to save as many lives as possible, Munich Re and Frauenhofer Research Institute set up the Give A Breath Challenge to find the best 3D-printable designs to enable immediate, decentralized production. A jury will decide on the best design, and this design will eventually be produced. The challenge has funding (for prize purses and a realization fund) of at least €1 million.

7.  Understanding COVID-19 better to predict and contain the virus

The current pandemic asks for a speedup in processing test results for COVID-19. But how can you speed things up when test results need to be put into spreadsheets manually, taking several hours or longer to complete? 

UiPath (Romania/U.S.) launched a pilot project with software robots that can sort and distribute test results from the hospital’s on-site lab in minutes, enabling staff to quickly put infection prevention and control measures in place where necessary. By automating the process, nurses and other specialists in the hospital’s infection control department are freed up to spend more time with patients.

See also: Chaos in a Post-Yesterday World!  

8.  Maintaining personal well-being in pandemic times

Maintaining healthy habits and personal well-being during a pandemic can be difficult. Virgin Pulse (U.K.) offers members a specific toolkit and integrated programs to track Covid-19 healthy habits, to ensure people stay mentally, physically and financially fit. This self-service hub, available in 100-plus languages, serves as a COVID-19 Homebase. Virgin Pulse teamed up with Aaptiv, Enrich, meQuilibrium, Monj, Whil and Zipongo to provide free access to health and wellbeing programs and resources for people to navigate this pandemic in a positive, healthy way. Examples include cardio classes, chef-led cooking demos and mindfulness audios put into a gamified app that offers challenges and rewards to track your healthy habits.

Currently, there is a movement by some industry personnel and legislators to expand the Terrorism Risk Insurance Act (TRIA) to include pandemics. There is a discussion draft of a bill, and a summary of that bill here.

So, is a federal backstop program that is part of, or similar to, TRIA feasible or advisable? It’s too early to tell, but below are some initial caveat emptor thoughts.

FIRST, TRIA has not been tested, so we don’t know if this backstop program actually works, how well it might work and how it might affect the insurance industry’s ability to assume risk in the future, much less be able to effectively respond to terrorist acts. In addition, for a claim to fall under TRIA, it must be caused by a traditional covered peril found in most property insurance policies. In the case of PRIA, the pandemic itself is the peril, and it can affect the entire population.

SECOND, following that thought, the industry has significant financial assets but not manpower. We’ve already seen how difficult it is for government and all of its resources to respond to regionally localized claims involving hurricanes, tornados, flooding and wildfires. The ability of the insurance industry to adjust claims on a nationwide basis would likely be extremely limited, raising the question of whether “insurance” is the proper mechanism for responding to truly catastrophic national or global exposures like pandemics.

THIRD, just as the manpower issue cannot be understated, neither can the required expertise of adjusters. PRIA would likely present a far greater indirect loss exposure than TRIA due to both the scope of losses and the impact of government-mandated business shutdowns, curtailments or operational modifications. The most significantly affected traditional insurance coverage is business income. This insurance product is one of the more complex in the industry, and, as a result, claims are FAR more difficult to adjust and require FAR greater expertise from adjusters than direct property claims.

Specifically with regard to TRIA, so far, most terrorist attacks have been localized. While it’s possible that a terrorism attack could have a much more widespread impact, absent a war-like action of a nation the risk is probably substantially smaller than the potential economic impact of a nationwide pandemic. As a result, the maximum possible (or perhaps probable) loss in a pandemic is likely to be measured in the trillions, not billions, of dollars.

See also: 3 Challenges for Pandemic Coverage  

FOURTH, TRIA is optional. Businesses do not have to buy TRIA coverage. Not long after TRIA was passed, a study conducted by the Council of Insurance Agents & Brokers (CIAB) found that fewer than 10% of small businesses and 20% of larger businesses purchased terrorism coverage where the cost was an additional 10% to 20% of their existing P&C premium. By 2013, the Congressional Research Bureau estimated that 60% of businesses had terrorism insurance, though that number was likely much smaller in higher-risk areas, where the coverage could cost thousands of dollars. According to a more recent report, this number has remained fairly constant, most likely due to the affordability of the coverage given the lack of terrorism incidents.

Can PRIA truly be an optional coverage, or must it be mandatory? Because the risk of a pandemic, in both frequency and severity, is presumed to be far greater than anticipated terrorist attacks, insuring it will likely be far more expensive than TRIA coverage. If so, it’s quite likely that few businesses would purchase it if they want to remain competitive with those businesses that don’t buy in. Given that huge numbers of businesses can be affected by a pandemic, what would become of the perhaps sizable majority of businesses that don’t purchase the coverage? Would the government simply allow them to go out of business? Highly unlikely. And, if interest-free loans or grants continued to be available, it’s even more likely that greater numbers of businesses would rely on that fail-safe mechanism than paying large amounts for insurance coverage they may not need in the short term.

In addition, if the impact of a pandemic is likely to be far more significant in densely populated areas, much like flood insurance, adverse selection may play a role whereby even fewer businesses in sparsely populated areas will purchase the coverage even if priced lower than densely populated areas. And how might the uninsured otherwise affect the insured? Contingent business income coverage is critical to some businesses. For example, a business that has one or only a few suppliers or customers could be out of business if they suffered a loss. That likelihood is dramatically increased if they elect not to participate in a PRIA program such that the subject business would have an even greater need for contingent coverage.

Given these possibilities, would a mandated program be more feasible? For example, in response to civil unrest in the late 1960s, the insurance industry implemented a system of civil disorder charges that applied to ALL commercial property rates. The charge varied geographically based on presumptive risks. In the case of a pandemic, where the exposure is far more widespread, to generate the insurance proceeds needed, it’s quite possible that a mandatory funding mechanism could be indicated. Otherwise, an optional program is likely to fare far worse than the current federal flood insurance program, which still does not use actuarially sound rates, suffers from adverse selection and operates in the red year after year.

FIFTH, is traditional business income insurance even a feasible risk management approach to a catastrophic pandemic? As mentioned earlier, business income coverage is a complex product that requires significant financial skill and analysis. Determining loss amounts is far from an exact science and, in fact, often involves a great deal of conjecture and supposition that usually leads to negotiated settlements. In the case of a pandemic that can affect hundreds of thousands (or more) businesses over a very short time, what private sector industry has the manpower and expertise to adjust claims rapidly to the satisfaction of business owners?

IF a PRIA program is remotely feasible, it would probably have to be based on a nontraditional and simplified insurance product. Perhaps, rather than base the amount of coverage on a complex “business income” calculation that requires speculation about all forms of revenue, expenses and profit, the coverage should be limited to only “continuing expenses,” including payroll, to remain in operation for a specified period. The approach would be more analogous to the Maximum Period of Indemnity option currently available in ISO’s business income program.

See also: How to Lead During the Pandemic  

A simplified product covering only continuing expenses for a limited period, such as four months, MIGHT be workable in a mandated basis, but great care must be exercised in constructing and administering such a program. And, keep in mind that, in risk management circles, primary coverage should be provided by the entity with the greatest control over the exposure. In the case of pandemics, that would be the government.

Two forces have emerged that will reshape the workers’ comp system for years to come. The first is the COVID-19 pandemic, which has created sudden and deep shifts to personal health practices and healthcare delivery. To reduce COVID-19’s impact, much of the U.S. population is avoiding public spaces and travel, causing enormous disruption across a range of industries, from airlines to hospitality. This change has ignited a global recession.

Together, COVID-19 and the accompanying recession are driving changes across property and casualty insurance lines, including workers’ compensation, causing carriers, reinsurers and third-party administrators to rethink long-held assumptions. Companies hoping to navigate all of this need to anticipate and prepare.

To help, we held a Q&A session with some of the smartest people in the business who sit on our advisory panel. Special thanks go to Dan Rufenacht, QBE North America; Will LaChapelle, QBE North America; David Bacon, QBE Insurance; Kevin Bingham, Chesapeake Employers’ Insurance; and Jim Kinzie, QBE Insurance. Below is a summary of responses outlining the most fundamental changes to plan for. Let us know what you think — and what your team and company are doing to adjust to this new and dynamic environment.

What are the major changes we should anticipate in workers’ compensation claims due to COVID-19?

The experts on our panel highlighted several ways that workers’ comp claims will change, many of which are related to shifts in volume and type of claim. For example, the total number of claims is likely to go down as unemployment increases. There are fewer people in the workforce, which will lead to fewer claims overall, particularly as work involving manual labor slows.

Although the volume of typical workers’ comp claims will decrease, claims for different types of injuries could escalate. There will almost certainly be an increase in occupational disease claims from workers on the front line of fighting COVID-19 (e.g., police, fire, healthcare workers.). There is emerging pressure in some states and regions/provinces to extend coverage for workers being asked by employers to extend services or responsibilities for essential businesses. There is also the potential for new ergonomic claims and other types of accidents as people adjust from working in an office to working from their bed or couch and sitting for prolonged periods. Additionally, there is a risk for the select businesses hiring new workers — there could be an increase in frequency and severity of claims if workers are inexperienced or can’t be properly trained based on conditions. On top of this, there may be some spikes in preventable accidents, resulting in new claims, if safety service visits have been canceled due to COVID-19, leaving potentially dangerous areas exposed.

Organizations should also expect to see several changes in treatment patterns emerge, as care delivery will undoubtedly be affected under the strain that COVID-19 places on healthcare systems. Most non-essential surgeries, physical therapy sessions and scheduled doctor visits are tabled for the foreseeable future. This will delay the path to health for injured workers and delay the resolution of many claims. However, telemedicine and tele-rehab solutions are being implemented in an attempt to mitigate the effects of delayed treatment. The key here with telehealth options will be ensuring that access to and the effectiveness of care delivered to injured workers remains similar to, if not greater than, the same care provided in-person with the treating doctor or therapist.

See also: Business Continuity During COVID-19  

The shift to telemedicine and tele-rehab is an example of how present stresses are opening the doors for innovations. Telehealth options and digital resistance that insurers and the larger healthcare community have been fighting over for years have suddenly become possible within the course of only a week because they are necessity-driven. At least one panelist welcomed the opportunity, adding that “the old rules of ‘we can’t direct treatment’ are ripe for breaking just now.”

How are claims teams gearing up to handle these changes? Are there parallels that come to mind?

To prepare, claims teams are keeping a close eye on the new claims coming in — the type and volume — to ensure proper resourcing and reporting. New organization structures are also being considered. For example, some organizations are considering bringing some of the claims processing that previously had been outsourced to places like India and the Philippines back in-house — and possibly permanently. The benefit of this move is to open new jobs at home, which can offer good flexibility as employees work remotely.

Also, based on behavior in past crises, the panel noted that claimants are under a lot of additional stress; therefore, it is imperative that claims teams show empathy and compassion. We are all trying to navigate an unprecedented situation, and people are doing the best that they can.

Any impact on other types of claims due to the stresses on the healthcare environment?

Panelists instantly noted how much pressure first responders are under. These workers are covered in many states under presumption laws, which can include PTSD. If so, according to our experts, there will likely be an increase in claims from first responders soon.

Any advice for claims professionals?

Panelists offered several thoughts, including:

• Remember to stick to the basics: Conduct quality and complete investigations and thoughtful compensability evaluations. Use common sense and empathy and talk to peers and managers to manage stress and determine the best ways to help claimants.
• Look for opportunities and new or different treatments and delivery channels that can provide relief in lieu of surgery, as almost all non-emergency surgeries have been postponed or canceled.
• Watch how other lines indirectly and directly affect workers’ comp. For example, health insurers will be inundated with all kinds of pre-hospital, hospital and post-hospital expenses. If they can get workers’ comp to pay for these costs, it may become more important to them.

See also: Chaos in a Post-Yesterday World!  

With things evolving on a daily basis, how do we keep abreast of all the changes going on? Are there any specific resources you use?

Our experts rely on several proven and reliable industry blogs, association websites, attorney newsletters, state bulletins and other alerts to stay on top of the industry — in addition to daily news broadcasts and updates. Some listen to podcasts, as well. Sources include general business and technology, in addition to verticals.

To help, we compiled a list of some of the most useful industry-specific content mentioned:

• AON: Impact of Coronavirus (COVID-19) in U.S. Casualty Claims
• Insurance Thought Leadership: Impact of COVID-19 on Workers’ Comp
• Risk & Insurance: 7 Ways COVID-19 Is Impacting Workers’ Comp, According to One Call CEO Thomas Warsop
• NCCI: COVID-19 and Workers Compensation: What You Need to Know
• WCI: Ensuring Employees Are Safe During a Pandemic – Tips and Best Practices
• Risk & Insurance: When Is Coronavirus Covered by Workers’ Comp? How to Tell When You’ve Got a Claim on Your Hands

I would like to extend my great thanks to all of our advisory panel members for sharing their insights in this turbulent time.

Artificial intelligence has become a hot topic in the insurance industry as the push to modernize the agency with digital solutions reaches a fevered pitch. Especially now, as our society and business operations adapt to a global pandemic, agencies are scrambling to leverage technology and analytics to make smarter decisions for their clients and their own business.

For many independent agencies, however, AI still feels like a theoretical concept — a capability reserved for and only accessible to big companies with deep pockets. But the reality is, AI has tangible benefits for even the smallest independent agencies when it comes to improving client services and strategic business growth. And, it’s more accessible than many might think. 

Leveraging AI can enable better business strategy for agencies of all sizes, today and in a post-pandemic environment. With AI, agencies can:

1. Better advise clients. Now more than ever, insureds are looking to their insurance agents for risk management, stability and reassurance. With AI, agents can draw on industry insights to better understand the risks their clients face, provide more relevant, data-driven advice and do so with confidence. With the right tools, agents can look at data about similar individuals, businesses or industries and spot trends early to offer coverage suggestions. For example, the demand for business interruption insurance has risen sharply since the pandemic began. By leveraging AI, agents can see these potential risks coming down the pike and can make sure their clients are protected.
2. Accurately predict risk. For years, actuarial services have attempted to quantify the economic value of risk to help carriers and agencies arrive at appropriate levels of coverage and premium costs. But today, AI provides a much more insightful and accurate risk assessment. By delving into industry-wide historical data, AI tools can arrive at a more accurate risk value based on real, documented data rather than conjecture. This allows the industry to set premium rates accordingly so that insureds get the coverage they need at a price that’s competitive and makes sense. 
3. Find business opportunities. Without AI, agencies must rely on hunch, experience and clients to find and address new opportunities. AI technologies let agencies quantitatively analyze client needs, market dynamics and carrier appetite. Based on this insight, agencies can make smarter, faster and more confident business decisions to spur growth. For example, with industry intelligence, agencies can identify valuable opportunities to upsell coverage, identify new clients and expand into new markets based on carrier appetite for certain types of policies in specific geographies. 
4. Improve agency efficiency. Digitizing processes to eliminate rote, manual tasks not only improves agency productivity and performance, but also client relations. When agents can spend less time pushing paper and more time talking with clients to better understand their needs and provide expert advice, everyone wins. AI can help drive this efficiency with predictive and automated workflows that can make many common insurance processes move faster. 
5. Enhance client relations. While many agencies fear that AI and other technologies might take away from the personal relationships they’ve built with clients, AI can actually do the opposite. By automating processes and surfacing data-driven insights, AI can give agents more time to spend in meaningful conversations with their clients, providing informed counsel on how best to protect their assets. AI can also improve one of the most frustrating processes for clients — claims processing — to deliver a better experience. For example, we can now automate the submission process by using AI to analyze damage photos and natural language processing of the description of the claim submitted to rapidly assess the probability of fraud. Below a certain threshold, the claim may be automatically and instantaneously paid. This accelerates the process, delivering a more positive experience for the individual or business submitting the claim.

See also: How AI Can Stop Workers’ Comp Fraud  

As digital modernization becomes imperative for agencies, AI is proving to be a crucial ingredient for delivering the level of service that clients expect and for driving agency growth. By scaling AI implementation, agencies can not only keep pace with their peers but also offer innovative solutions that give them a competitive advantage, positioning agents as confident and dependable risk advisers in an increasingly uncertain environment.