Insurance companies long for a way to attract and interact with customers, rather than just hitting customers’ bank accounts every quarter for a premium payment or re-upping a contract at the end of the year. What if I told you that insurers could attract customers with smart home devices that generate interaction seven to 10 times A DAY -- and that customers would initiate those interactions? What if that level of involvement in customers’ lives led to a Net Promoter Score (NPS) above 50 for the insurers? 

Those numbers are in fact possible, both with homeowners and with small businesses, through an approach that incorporates IoT to help people avoid P&C risks while fitting easily into their home and work lives.

We know because we’ve seen these sorts of numbers at Notion, which we began with a Kickstarter campaign and grew through insurance partnerships with Hippo, Nationwide and others before being acquired by Comcast this year. 

While Notion partners with insurers to provide homeowners and owners of small businesses technology to monitor for water leaks, fire, theft and more, there are a variety of ways to win with smart IoT in the property/casualty world. 

In our experience, there are two keys to winning strategies: customer-centric technology and a comprehensive economic case for investment.

First, the technology should deliver benefits, such as “peace of mind,” that customers value highly even though the benefits would be hard to quantify. In our case, customers interact so frequently with the Notion app because they’re checking their system to see if the front door opened around the time their child was supposed to be getting back from school, that it is a comfortable temperature across their home, etc. Those benefits don’t show up in losses averted or claims reduced but can do an awful lot to increase installation rates, to bolster loyalty toward an insurer, to boost NPS and to create opportunities for cross-selling other services.

Every company that has led with a “prevent water damage” message has seen very little interest among consumers. Even if insurers provide water sensors for free, the installation rate can be low if that is the only use case. But technology and messages related to broader home coverage and security resonate with consumers.

Let’s walk through Notion as an example of the trajectory that the “smart home” (and “smart” small business) can take. Auto telematics long required a device to be professionally installed and focused just on discounted premiums for good drivers, and had a slow uptake, so we took a different approach: We’ve focused on a do-it-yourself (DIY) approach and on making that more-than-economic argument for insurers.

We built an affordable system where consumers can monitor their home or small business from anywhere and easily grow to fit their needs. The Notion sensors monitor for water leaks, temperature changes, opening doors and windows, and sounding smoke and carbon monoxide monitors. All the information is collected wirelessly and is made available to the user through an app on their smartphone.

Most homes and small businesses can have key areas covered with just five sensors -- total price for a five-sensor Notion Starter Kit is $199. 

Which leads us to the second key to winning strategies: a reasonable economic case for the IoT investment. Many technologies and programs aren’t there yet. For instance, a water shutoff valve that requires a professional installation may not pay for itself for 10 years -- the initial cost is a high barrier. 

So, we started from scratch and came up with a program design that produces full ROI in just under two years -- the kind of ROI that any business can appreciate. Just looking at water damage, there are about $10 million in claims each year per 50,000 homeowners policies. By investing in an $85 smart monitoring kit and program for customers, insurers can practically cut their water claims in half.

The ROI looks even better when you consider the other benefits to insurers outside water claim reduction: customer acquisition, customer loyalty, data insights and the potential for selling other services.

The large returns our insurer partners generate by preventing claims allows them to offer a kit at a discount plus offer discounts of roughly 3% to 15% on premiums to help drive adoption. Our partners say discounts could grow substantially as they gather data on losses prevented. (The high end of the discounts goes to those who fully outfit a house or small business, who have professional monitoring and whose setups can be verified by the insurer to make sure they’re actually being used.) 

While the discounts alone aren’t enough to generate full adoption even of free sensors, a curated flow of customer communication with a “what’s in it for me” message drives installation way up. (The same was true in telematics: Once messaging switched from discounts to security issues such as driving behavior, adoption finally picked up.)

While regulators were initially careful about what could be given away and what bundles should be allowed, they have become more comfortable with the IoT and understand that we’re all working together to benefit consumers. 

They have thus cleared a path for far greater adoption of the IoT, at a time when all trends were already pointing in that direction. According to Statista, the number of homes in the U.S. using smart security systems will nearly triple from 12.8 million in 2017 to 36.7 million by 2023 -- meaning that more than a quarter of U.S. homes will have them. Revenue from smart home devices is expected to grow 17% annually for the foreseeable future. 

The trend is very much toward DIY: 47% of security system owners report self-installing their system in 2019, an increase from 27% in 2014, according to Park Associates.

The pandemic seems to even be accelerating the trends, both toward the use of IoT (because people are spending more time in their homes) and toward DIY (because people have more time, without their daily commutes, because people want to keep strangers’ potential infections out of their homes and because videos and chat capabilities on smartphones make “telemaintenance” easier). 

A platform like Notion can become the hub for all kinds of services that can be bundled with hardware or sold separately to make the lives of homeowners easier -- for example, connecting a homeowner with a plumber when they have a water leak. With Notion, we have taken this one step further and created a direct integration in our app with HomeAdvisor. Once a leak has been detected, the homeowner can connect to HomeAdvisor’s network of certified professionals with one click. 

But that kind of service is just the beginning. In the same way that Tesla bundles insurance with its cars, I can imagine lots of maintenance-related services that could fit nicely into an IoT-based “protect my property” platform. When I say good night to my Google Home, it may remind me to do certain things around the house; why couldn’t insurers help inform homeowners and small business owners? 

Now there are winning structures for insurers to leverage IoT smart devices to connect and provide value to their customers -- a win for customers and for P&C insurers.

Sponsored by

When dealt a hand of cards, the goal is to play them as best you can. In other words, be constructive. The COVID-19 virus has given agents a wonderful opportunity to rethink insurance in general and their operations specifically. I'm going to start with a brief synopsis of what insurance is designed to protect.

Many writers have written that the pandemic is a Black Swan event (a few creative writers have stretched for more exotic animals, but a Black Swan is more applicable to insurance). Black Swan events were brought to the financial world's attention through Nassim Nicholas Taleb's book, "The Black Swan," which gained considerable popularity for its seemingly prescient prediction of the credit crisis. Taleb considers how luck, uncertainty, randomness and risk all coincide and how, as the subtitle suggests, The Impact of the Highly Improbable can be managed.

The pandemic was absolutely expected by the scientific community, if not by regular citizens and politicians. I think one might conclude that insurance carriers expected it, too, because of the exclusions they built into their policies. Insurance is designed for Black Swan events, but in many ways carriers, agents and the public have lost this perspective. Insurance is designed to restore the policyholder to the financial status (a balance sheet position) enjoyed immediately prior to the unexpected loss. Insurance would not be affordable if the losses were expected. Those are maintenance policies.

Moreover, insurance would not be affordable if the events were unexpected but occurred frequently. A really good example of how insurance companies have lost track of this point is in my home state of Colorado. For some reason, insurance company after insurance company has opened up in this state for property without realizing that hail happens all the time in all of the major population centers. Hail should be expected to affect a large number of properties on a fairly regular basis, if on an irregular schedule.

A good play to make with poor cards is to simply rethink and go back to the basics of what insurance is designed to do. Then, build your agency and value proposition to clients from there. Insurance is a fantastic tool for reinstating a person's wealth to its position immediately prior to a highly unexpected and relatively rare event. While auto crashes occur all the time, auto crashes per capita are relatively rare, and outside of fraud, always unexpected.

E&O claims often occur because agents fail to address unexpected and rare events. Business income coverage is a great example in this environment. Claims are virtually always unexpected and relatively one of the rarer insurance claims. Insureds are, therefore, less likely to recognize this exposure as an important insurance coverage. Agents are less likely to recognize it. too (ignoring for the moment most agents' lack of adequate understanding of this coverage). If both parties fail to recognize its importance, the odds of an insured having adequate coverage if an unexpected business income claim occurs is low.

I read a quote from a business owner who had a pandemic-related business income claim denied. He said something to the effect of, "But that is what I thought insurance was for! That is what I thought I'd bought." I don't know anything about that particular claim, but my guess is that he never read his policy and maybe even if he did read it he did not understand the need for pandemic business income coverage. There is no reason to expect he should have.

See also: 5 Transformations for a Post-Pandemic World

Humans have an incredibly difficult time understanding the unknown. Humans do not have a great ability to appreciate the importance of Black Swan events. (I encourage you to read Taleb's book "The Black Swan" and his book on fragility, "Antifragile: Things That Gain From Disorder.") Yet insurance is designed for Black Swan events. Arguably, insurance is designed for larger-probability events than Black Swan events but still at the tail end of the normal curve. This is why actuaries are employed. This is also why claim stories are so much fun and fascinating and often earn the sobriquet of, "You can't make this stuff up!" You can't make up the claims stories, because they are rare and unexpected.

This re-established insurance foundation provides the cornerstone for helping manage the agency, remotely or otherwise, helping clients and navigating insurance distribution going forward. There are two classes of insurance agents -- "order-takers" and "professionals." Agents who are order-takers work from the assumption or presumption that insureds know what rare and unexpected claims they want insurance to protect. The insured orders these coverages, and the agents obtain those coverages to the best of their ability. It's pretty simple, except that most insureds have a limited knowledge of what the unexpected events are for which they are likely to need coverage, and, in my experience, most order-taking agents are even less knowledgeable. The blind leading the blind is a great combination for eventual disputes, unhappy clients and E&O claims.

Going forward then, managing the agency should perhaps start with deciding whether your agency will be an order-taker or a professional agency. Once you make this decision, you can then best determine how to manage your agency and help your clients. Because, as an order-taker, you will not be making thorough coverage recommendations, if any recommendations at all, the key is going to be speed and low cost.

These are the benefits you will thrive upon because these are the benefits best appreciated by this class of customers. You will want to hire people focused on speed and efficiency. You will want to invest in technology that emphasizes speed and low cost. The entire agency must be focused on speed and low cost.

This may mean online quoting systems. It may also mean hiring employees who can process emails, calls, paper, etc. at a fast pace but are not skilled in insurance coverages. The technology used is different from the technology of professional agencies because coverage analysis, intimate meetings with clients -- "close" work, in other words -- is unnecessary in the order-taker environment. Employees who fit the order-taker environment will have a different personality than those who focus on coverages. Hiring specific to your model is vital.

From an E&O perspective, the historic middle ground is being eliminated due to the pandemic. The lines are being drawn more clearly than ever. Agents need to choose to operate as one type of agency or the other because the middle ground has become a dangerous trap. The best way to play this hand of cards is to fold on the strategy of following the middle ground.

The professional agent will focus on hiring people who have excellent communication skills, great insurance technical knowledge and critical thinking skills. These three skills are mandatory for "close" client work at the professional level. These people will educate clients on their exposures. Exposures are common and identified. The question is whether, once a client understands the exposures, the client wants to buy insurance for the unlikely event that an accident (unexpected) occurs relative to that exposure. The education required for this kind of service is challenging, and not everyone has the skills or patience to achieve it.

See also: Managing Risk in a Pandemic

The technology required for a professional agency is different from order-taking agencies because quality Zoom-like meetings will be far more important. The agencies will probably want to train their people on Zoom backgrounds, voice delays and other improvement protocols and will likely find ways to meet in person with clients when possible. These agencies will, more than ever, focus heavily on insurance technical training.

No universal answer exists to this paradigm change other than deciding which kind of agency you will be. Just like a hand of cards -- other than the fact that every hand needs to be played -- no universal answer exists. Be constructive and decide who you will be going forward. Decisions become much, much easier when you know your point of origination.

You can find this article originally published here.

A potentially devastating perfect storm is forming due a combination of COVID-19 fears and many parents now not getting their children wellness exams and routine vaccinations. The National Foundation of Infection Diseases has reported a 50% decline in well child office visits due to COVID-19 fears since the beginning of this pandemic. The World Health Organization just stated: “The avoidable suffering and death caused by children missing out on routine immunizations could be far greater than COVID-19 itself.”

As we approach the fall and the new school year, new flu season and a potential second surge of COVID-19 cases, there has been a dramatic decline in children receiving routine vaccinations in my home state of New Jersey. According to the NJ Department of Health Commissioner, there has been a 40% decline in the rate of vaccinations in children under two years of age and a 60% decline among children over two. 

Parents need to know that the need to protect their children from COVID-19 does not eliminate the need to protect their children from serious childhood disease like the measles, mumps, chicken pox and whooping cough. This alarming trend is just not happening in NJ; rather, pediatricians around the country and around the world are deeply concerned that proven vaccines will not be received by large numbers of children, resulting in serious unintended consequences in the spread of preventable illnesses.

The Lancet has reported a major disruption in childhood vaccination efforts in poor rural areas around the world.  During the recent COVID-19 lockdown in the province of Karachi in Pakistan, the rate of immunizations dropped over 50% compared with the previous six months. Once the lockdown was lifted, the situation improved, but there was still over a 25% decline in the rate of childhood immunizations. 

What makes matters worse in these impoverished countries are hot spots for not only preventable diseases like the measles but also polio. Pakistan and Afghanistan are the only two remaining countries where polio is still a major problem. In Pakistan, the number of reported polio cases went from 12 in 2018 to 147 in 2019.

The overwhelming challenge now faced by public health officials around the world is how to address not only the worldwide COVID-19 pandemic but the real danger of the resurgence of 100% preventable childhood diseases once thought eradicated. The World Health Organization declared in 2019 that the anti-vaccination movement was a major threat to public health. The anti-science, anti-vaccination and anti-mask movement is a dire threat to all of us.  

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

Long before the COVID-19 outbreak, 2019 was the worst year for the outbreak of the measles in 27 years in the U.S., where there were 1,300 cases in 31 states. The major outbreaks in Washington state, New York and New Jersey were all linked directly to unvaccinated people spreading the measles in airports, at ballgames, at weddings and in other public venues.

As a result, there was a major education effort, and several state legislatures voted to take on the anti-vaccination movement. In Washington state, two major outbreaks resulted in the state legislature banning personal and philosophical exemptions for the MMR vaccine. The city of Seattle provided free vaccines prior to banning unvaccinated children from attending school, which was said to be 2,000 students. 

In New Jersey, the state legislature in 2019 fell one vote short of removing personal, philosophical and religious reasons for parents not getting children vaccinated, much to the delight of the anti-vaccination protesters, who held loud protests in the state capital with slogans like “my body, my choice” and actually called members of the state legislature “murderers.” The 2019 measles outbreak in New York and New Jersey were all based in orthodox Jewish neighborhoods where people were declaring “religious freedom.” In a public education campaign, several rabbis went on TV declaring there is no religious prohibition on vaccines. None. There is no major religion in the world that has a religious exemption for vaccinations, except for the Taliban version of Islam.

The anti-science and anti-vaccination movement is beyond dangerous to all of us. As the world awaits a proven COVID-19 vaccine, the anti-science and anti-vaccination movement is already spreading conspiracy theories. 

Let’s get the facts and the truth straight. The entire anti-vaccination movement is based on a documented hoax linking the MMR vaccine to autism, which has been called “the most damaging medical hoax in the past 100 years.” (See, "To Be or Not to Be (Vaccinated)?" 4/28/15.)

These are the undisputed scientific facts about the MMR vaccine, which is considered one of the great public health success stories of all time, along with the polio vaccine and Louis Pasteur.

The MMR vaccine is 99% effective and provides a lifetime of immunity. There is a 90% chance of an unvaccinated person getting infected if exposed to the measles. There is only a 1 in 3,000 chance of a mild reaction to the MMR vaccine. The measles is, in fact, extremely dangerous and can result in hearing loss, pneumonia and even encephalitis, or swelling of the brain. 

It is completely understandable during this pandemic why parents have been afraid of going to the doctor to get their children what should be routine vaccinations. However, if parents do not believe the measles is still around and very dangerous, look at the results of the recent measles outbreak in Samoa. The outbreak there began in September 2019, and by January 2020 there were over 5,700 cases and 83 deaths. The cause was directly attributable to a drop in vaccination rates, from an already low 74% in 2017 to roughly 30% in 2018. Neighboring islands, with 99% vaccination rates, had no such outbreak. Parents need to call their child’s pediatrician office, which can schedule needed vaccinations at safe and effective times, when there are no known sick children present. 

A public education campaign to remind parents that routine vaccinations are critical should be included in the COVID-19 public health announcements from governors and state health officials in coordination with other state executive orders, such as mandating masks in public places and plans for re-opening schools in the fall. 

See also: Strategic Planning in the COVID-19 Era

Parents need to protect their own children, who then might infect other children. The Imperial College London found lockdowns in Europe saved over 3.1 million lives. The University of California, Berkeley Global Health Lab stated that without restrictions in place there would nearly 14 times as many COVID-19 cases in the U.S.  

Don’t be a knucklehead like the protesters last week outside the governor’s home in New Jersey who had a “burn the mask" protest. Wear a mask in public places, get your child the routine vaccinations before school starts and get the flu shot. You will help save lives and prevent major diseases, including your own.

In the last few weeks, another tech giant entered the low-/no-code space when Amazon announced a new platform called AWS Honeycode. While the product does not break new ground from a technology perspective and is still immature relative to the market, it has created an avalanche of media activity centered on low-/no-code technology. 

Low-/no-code is a complex space, but it’s worth the effort to navigate. It promises to address three of the biggest challenges in insurance IT: time to market for new capabilities, development capacity and managing cost. 

What Low-/No-Code Looks Like

Low-/no-code is both a development paradigm whose influence continues to broaden and a rich market segment with dozens of vendors completing for mindshare. 

As a development paradigm, low-/no-code is everywhere. It can be found embedded in CRM platforms such as Salesforce and MS Dynamics, in integration tools from vendors like Informatica and Dell, in robotic process automation (RPA) tools like Blue Prism, in digital experience platforms (DXPs) such as Liferay and Sitecore and even in some policy administrations systems.

The market segment is often referred to as Application-Platform-as-a-Service, or aPaaS, because most solutions are now deployed in the cloud using SaaS licenses. Vendors such as Mendix, OutSystems, Microsoft (PowerApps) and now Amazon market their products as general-purpose development platforms to compete with (and eventually displace) traditional development environments like Java and .NET. 

While some of these vendors include industry-specific functionality, most market to a range of industries and seek to compete on horizontal capabilities such as integration, workflow, native mobile support, user experience (UX) and the strength of their partner ecosystem/network. A recent Novarica report covers this segment.

Insurance-Specific Variations

The insurance industry also has its own industry-specific low-code platforms that Novarica refers to as insurance digital platforms (IDPs). Their DNA can be traced back to the agent portal. When core vendors began to offer portals as part of their administration suites, they found that adoption was lower than anticipated, especially among midsize and large insurers who chose to build instead. Packaged portals were seen as too restrictive in terms of customer experience (where insurers like to differentiate) and difficult to extend beyond the basic capabilities offered by the vendors’ back-end systems. 

Vendors answered this need with the IDP. Digital platforms include pre-built integration to a vendor’s back-end system but are typically stand-alone and licensed/deployed independently. Their focus is insurance digital experience (web and mobile) applications, but they can be general-purpose enough to tackle a wide range of front- and back-office problems across the enterprise. 

Like the horizontal players, IDPs often feature a rich partner ecosystem or network of plug-ins and canned integrations, but these tend to focus on insurance-specific capabilities needed for submissions, underwriting, rating, accessing third-party data and payment processing. Examples of IDPs include Majesco’s Digital1st and Sapiens' DigitalSuite.

See also: Agile, Organizational Realignment

Does Specificity Matter?

The question is whether any of these marketing distinctions really matter. The answer is, as usual, “it depends.” While low-code platforms do overlap in many of their core capabilities, differences become clear when considering the specific uses that an insurer needs to support. 

For insurers already running a vendor’s core systems, there can be compelling advantages to using the IDP from that vendor, especially when the primary use case is building agent or customer portals. If integration with multiple back-end systems is needed, insurers should also consider a broader range of options including the horizontal players. Some platforms are better suited to workflow/BPM, others are better for mobile development and still others excel in building customer-centric applications. 

For an insurer focused on building customer-facing websites that require personalization, content management, social media integration and some lightweight application development, a DXP with low-code technology may actually be the best fit.

Another consideration is the target developer. Some vendors tout the benefits of “citizen development,” where line-of-business resources trained to build their own apps. Other vendors aim to make the traditional developer more productive, and some focus on enabling a mix of both with powerful features for business/IT co-development. 

A final differentiator is licensing and pricing. While horizontal low-/no-code tools and DXPs compete with each other at scale, IDPs are often priced differently, and bundling with a core system purchase can be a pricing consideration.

A recent Novarica snap poll of insurers found that about 50% were using or had piloted a low-code platform. Novarica projects that by 2025, at least 80% of custom development projects in the industry will involve low-/no-code technology. All the big tech players now have a foothold in the space, and that makes it an area insurers should watch closely.

The COVID-19 pandemic put businesses under extreme pressure and has led to a massively accelerated digitalization of the workplace. The silver lining is the opportunity to develop more efficient, digital operating models by reinventing work and leveraging the power of artificial intelligence and automation.

Artificial intelligence and why it matters

Hype has for some time surrounded AI, but promises first made more than 60 years ago are now finally being delivered. What has been the game changer responsible for putting AI back on the map and on the verge of changing, well, just about everything? The answer is deep learning, an old idea that found an opportunity to mature in the late 1990s and early 2000s. 

Based on learning tasks using artificial neural networks inspired by the biological nervous system, deep learning technology is highly advanced and requires vast volumes of data and computing power only recently made possible. By 2030, AI is estimated to contribute as much as $15 trillion to the world economy, making it the biggest commercial opportunity in today’s fast-changing economy. Indeed, the new realities of the post-COVID-19 world require the accelerated adoption of AI to deliver the efficiencies and augmentations of a highly digitized workplace.

Figure 1: AI’s projected impact on global GDP

For more than 250 years, the fundamental drivers of economic growth have been technological innovations, the most important being general-purpose technologies such as electricity and the steam engine. Now it is AI that stands out as the transformational technology of our digital age, which, as with previous GPTs (general purpose technologies), is expected to trigger waves of complementary innovations and opportunities.

What tangible opportunities does AI offer businesses right now? We are currently witnessing the first wave, usually as a result of companies automating tasks and processes, reducing costs and creating more efficiencies. The work dividends from this first wave are mostly positive. Low-level, tedious, hazardous and boring tasks are taken over by machines, freeing time for the humans to do the higher-level, more productive tasks. 

Significant shifts in computing power and availability of large-scale data advance the development of AI applications that continue to rapidly grow in complexity and autonomy. AI’s autonomous nature and the way it is trained on data - essentially learning from the mistakes made in the past - make the technology both an opportunity and a risk.

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

AI at work

As organizations deploy technologies that automate work or introduce machine intelligence in the organization, the limiting factor in translating these innovations into real business benefits will be talent. Beyond the designers, developers and data scientists that everyone is battling for today, companies will need to explore what new roles are likely to emerge in digital disruptors.

As with many professions, underwriters have been doing a job one way for decades and now are expected to do things differently. The role is primed for transformation as AI is poised to reconfigure and augment insurance underwriting. Fueled by an explosion of data, low-cost data storage and open source technology, AI has the potential to help underwriters analyze an incredible amount of information, find red flags and help make more accurate decisions. 

While there is no expectation for human underwriters to be replaced, as their judgment will still be needed for complex cases, future underwriters will be expected to work alongside AI systems to ensure all risks are accurately measured and priced. As underwriters increasingly interact with automated AI systems, there will be a need for new skill sets to develop, with some old skills potentially becoming obsolete.

Meanwhile, demand for these new skills far outstrips supply at present, which indicates that the main roadblock to insurers capturing the full value of this new technology is not the science, but the human change management factor. It is a tall order, but starting by having the right people with the right skills in the right roles will far outweigh picking the right technology, algorithm or latest start-up to work with.

More digital, more human

One of the major transformations of the digital age is to see more companies adopting a flat working structure, where career paths are less clear and the turnaround of young talent greater. In this new environment, a next-generation operating model that supports the opportunity to learn skills, to have thought leaders provide mentoring and to involve new staff in meaningful projects will be critical to attract and retain the best digital talent. 

By moving beyond a one-size-fits-all approach to human resources and talent management, digital workforce platforms can help create the conditions in which employees feel energized by their work, valued by their organization and happy in their environment.

Google and Apple are examples of early adopters of digital workforce platforms that built ecosystems allowing them to innovate, take advantage of new technologies to cut costs, improve quality, build value and respond quickly to the fast-changing and rising digital expectations of consumers. How can this model be replicated across other industries?

The answer may depend on the ability of corporate leaders to restabilize the workforce — and to reconceive organizational structures — by using the very same digital technologies that have destabilized it in the first place. The incoming AI revolution should reinforce, not weaken, the uniquely human characteristics that define how we work, particularly in the way that we collaborate, communicate and develop relationships. To fully exploit emerging digital capabilities, most organizations will continue to depend on people, with human skills actually becoming more critical in the digital world, not less. 

See also: Stop Being Scared of Artificial Intelligence

As tasks are automated, they tend to become commoditized; a “cutting edge” technology such as smartphone submission of insurance claims quickly becomes almost ubiquitous. In many contexts, therefore, competitive advantage is likely to depend even more on human capacity, on providing thoughtful advice to an investor saving for retirement or calm guidance to an insurance customer after an accident.

AI is likely to be one of the biggest game changers in insurance history, offering a wide range of opportunities from faster and more efficient claims management to a greater variety of on-demand insurance services. As organizations transform to thrive in a digital environment, their success will be affected by how well they integrate their workforce into the transformation journey and manage the tension between the constant drive to innovate and improve and the new governance, compliance and regulatory risks created by new AI technologies. Digital transformation requires the overhaul of culture beyond technology updates or process redesign to reap the anticipated benefits.

The coronavirus pandemic and its sweeping impact have been unexpected and swift. For most businesses, survival has been predicated on how nimble the organization can be in the moment — this is true for small companies and massive industries. The ability to pivot to support new ways to work has been key to sustaining operations. 

Restaurants, for example, have spun up digital payments and text-enabled curbside delivery protocols that are so well-orchestrated that we may never want to get out of our cars to pick up and pay for food again. Telemedicine ramped quickly, with online appointments growing 50%, ensuring routine and non-urgent appointments can be kept during stay-at-home orders. 

Within our industry, the adoption of mobile and AI-based technologies allowed customers to submit claims and insurers to process them without physical interaction. Photo-enabled estimating more than doubled from January to April 2020, and some carriers report photo estimates now represent more than half of their total claims volume.

It’s unlikely these experiences will revert back to pre-COVID-19 norms. If history is any guide, consumer changes during economic upheavals frequently take hold, setting a new standard and expectation. 

For example, research shows 68% of new grocery ecommerce shoppers will continue to shop online in the future, and sales for click-and-collect services, those identified as being ordered online and picked up curbside – via locker, or some other hub – are expected to increase 60% this year. Insurers can expect their consumers to continue to look for mobile claim services as well, with 84% of adults responding to a CCC survey about their recent auto claim saying they would use photo technology again to initiate a claim, citing an overall better and faster experience.    

These examples, and a host of others, demonstrate that companies responding to the pandemic by fast-tracking their technology adoption cycles and process have been rewarded with business continuity and increased customer satisfaction. 

COVID-19 is not our only challenge 

Responding to a global pandemic is – let's hope – a rare experience. But, in the insurance business, crises happen more regularly. And while some of these may be predictable, responses will need to evolve because of COVID-19. 

For example, each year billions of dollars are spent responding to and helping policyholders recover from weather-related events. The 2020 hurricane season is underway, off to a fast start and expected to see above-average activity, with more named storms. Combine this with recent spikes in the number of coronavirus cases – especially in Atlantic states where hurricanes could hit hard – and disaster response will be especially challenging. CAT teams will face social distancing protocols and travel limitations.

Fraud gives us another example. 

Unemployment rates, while trending down, remain over 11%, and unemployment insurance claims through mid-June are estimated at 33 million. While it is impossible to know what’s going to happen next, data shows that fraud increases during severe economic downturns. 

In our new world, one gripped by an unrelenting pandemic, mounting financial pressures and rapidly changing stay-at-home orders, insurers need to continue to find new ways to be efficient and effective in their approach to service delivery and policyholder satisfaction. Embracing smart, digital tools – like those successfully employed in response to COVID-19 – can prepare insurers for the seen and unforeseen that lie ahead. 

See also: How to Lead in the COVID-19 Crisis

Innovation is the best preparation

A hurricane touches down near southern Florida, and thousands of policyholders are left dealing with house damage, potential injuries, auto damage and more. The typical response is to dispatch CAT response teams, set up triage centers and begin the business of damage assessment and claim management. Social distancing will render this response nearly impossible.  

What is possible? Equipping policyholders with a self-service mobile app that will guide them through the process of capturing a series of vehicle damage photos and answering specific CAT-related questions. Remote appraisers can quickly assess these vehicle damage photos, make near-instant total loss versus repair decisions and move the process forward without any in-person interactions. And, for vehicles declared a total loss, technology can seamlessly connect insurers and automotive lenders to expedite loss resolution and keep parties informed of the status of the claim. 

These same enabling technologies can also help insurers mitigate risk associated with prior damage claims, which can cost billions of dollars each year and affect more than 30% of policies. 

Policyholders using their smartphone camera can easily capture and share vehicle photos. AI, geo-location and damage detection heat maps work together to allow insurers to assess vehicle condition and verify location. Photos are digitally tagged and integrated into an insurer’s claims workflow for easy reference should a claim for that vehicle be filed. Inconsistent vehicle details shared at the point of a future claim – knowingly or unknowingly – are flagged for closer review. 

As we look to the future with some uncertainty, what is becoming clear is that those businesses or industries that can quickly embrace or evolve their innovation strategies are best positioned to respond to the unknown. In an era of social distancing, which is unlikely to change any time soon, digital solutions support and advance businesses while respecting calls for personal space.

We’ve certainly learned a lot from the COVID-19 and virus response. An insurer’s ability to take decisive action and advance technology decisions to support customers and employees has made the difference – can we make this a "new normal" and stand ready for anything that comes next?

This is part 2 in a series.

An increasingly volatile recipe of climate change and urbanization means that the past is no longer representative of the future when it comes to wildfire risk. Insurers can’t rely on previous wildfire seasons or events to inform future strategy. Just as every wildfire is unique, there simply is no one-size-fits-all approach to underwriting this risk. If you're going to write wildfire risk in the U.S., and particularly in the West, then not only must you concede to assuming some level of risk but you must implement a more strategic approach. Savvy insurers know this, and that’s why they’re reaching out to solutions providers, brokers and data companies to help them develop a new game plan for a risk that’s 90% caused by humans and 100% variable. 

Back-to-back years of catastrophic wildfires raise the question: When will wildfires cease to be historic on an annual basis? According to GenRe, the severity of wildfire events is likely to continue. Its research reveals that it’s not so much the frequency of events (with the number of wildfires being fairly consistent since the 1980s), but the size of the event, with megafires an emerging trend: 

“Thinking of 2017 and 2018 as ‘1 in 20’ events may seem extreme; thinking of them as ‘1 in 5’ is almost too frightening to accept. No one knows the right answer, but we believe that long-term historical answers are unlikely to be the right ones.” -- Ira Kaplan, GenRe 

So, how can insurers confidently underwrite wildfire risk when the cards seem stacked against them? Answer: By implementing a more innovative and strategic underwriting approach. 

My role as director of data products for Insurity’s SpatialKey solutions focuses on helping insurers explore new avenues to reduce wildfire risk and identify opportunities by applying smarter data and analytics. Our data partners continue to push the envelope by developing savvier ways to analyze risk by examining past behavior. For example, California’s megafires, including Tubbs, Thomas and of course the Camp Fire, which devasted the town of Paradise, have brought to light a few strategic considerations:

A single score is not the be-all-end-all

“It’s all about finding good risks in bad areas,” according to Clark Woodward, CEO and founder of RedZone, an innovative wildfire modeling company. “Wildfire is difficult to model because there are so many factors such as urbanization, a rapidly changing climate, increasingly intense fire behavior and the unpredictability of where fires ignite. This means insurers need to move away from a single score, which does not accurately encompass the complexities of fire risk. You’re going to be much more likely to be surprised if you are relying on a single number.”  

We’re seeing more of our partners, such as RedZone and Willis Re, bring data to market that tells a more complete story. For example, RedZone’s “correlated risk zones” data supports both underwriting and portfolio-level analysis by enabling risk analysts to identify communities or regions that may be many miles apart but could be affected by the same event. These regions, statistically, burn together even though they are separated by natural breaks (i.e. highways, ridgetops, rivers). The zones help insurers identify risk based on fire behavior and characteristics.

Reinsurance broker Willis Re is applying an innovative wildfire risk score underwriting methodology that also helps clients understand areas that are driving up probable maximum losses (PML) to help diversify portfolios and drive reinsurance costs down. This solution enables carrier clients to make more informed rating decisions while considering the hazard level of the new locations and the associated impact. As Vaughn Jensen, executive vice president at Willis Re, explains, “California’s recent wildfires illuminated that many carriers do not have a good handle on their wildfire risk, in no small part because existing industry models do not accurately represent the hazard.”

See also: Wildfire Season Off to Perilous Start

More data points need to be taken into consideration 

Layering HazardHub data, such as distance-to-fire-station and distance-to-hydrant, with another wildfire model can provide insurers with a more comprehensive understanding of wildfire risk, especially when visualized within a geospatial analytics solution that provides contextualization of the surrounding landscape. For example, visualizing wildfire risk in combination with data points that answer the following questions is critical to understanding the big picture: 

• What’s the proximity to the nearest fire hydrant?
• What’s the proximity to the nearest fire station? 
• What’s the proximity/access to the nearest road(s)? 
• Is there evidence of active tree clearing and mitigation efforts surrounding the structure(s)? 
• What’s the loss type (i.e. direct, embers, smoke) and intensity?
• What’s the construction type and year built (likeliness to burn)?

The above underwriting report includes critical fire station data from HazardHub along with the relative risk score of the peril itself from Willis Re. This combination of data points helps to contextualize and price risk in a single view.

Bringing it all together for a more strategic and informed view of wildfire risk

Multiple data points, and even multiple models, should be used collectively for more informed and strategic wildfire risk assessment at the point of underwriting. It’s imperative that wildfire risk isn’t assessed with a single model or single score, which is why I’m dedicated to facilitating a more open ecosystem where our P&C clients have access to multiple sources of expert data.

Equally important to leveraging new data sources is the ability to readily access them and use them to make informed underwriting decisions based on your risk appetite and in the context of your existing portfolio data. Making data easily accessible to decision-makers, along with enhanced analytics, will be the defining difference between companies that succeed with wildfire risk and those that fail.

"Social inflation," an on-again, off-again issue for the insurance industry for more than four decades, is on again as a major factor in insurance claims and, thus, rates. The issue, related to beliefs and trends that lead people to expect ever-higher compensation and for juries to grant it, has been growing for several years and seems to have accelerated since last summer.

The pandemic and the economic crisis that resulted may exacerbate the problem for insurers -- or may mute it. There are arguments on both sides. Some see social inflation being dampened as financially strapped people and businesses become more willing to settle a claim and as the logistical complications that come with less face-to-face interaction drag out negotiations and judicial proceedings. Some see social inflation increasing as people feel wronged and try to take out their anger on those that they distrust and that have enough assets to make them tempting targets -- read, insurers (among others).

Me? I see the pandemic boosting social inflation.

The term goes back at least to 1977, when Warren Buffett used it in his annual letter to shareholders of Berkshire Hathaway. The issue is often described in extreme terms -- like the guy who sued for $67 million over a $10 dry cleaning bill -- but shows up in all sorts of more pedestrian ways. People increasingly are inclined to bring the lawyers in, rather than take the settlement offer from an insurer, and claimants insist on higher amounts. The problem builds on itself -- this is the "social" part of the inflation -- because who wants to take what feels like a lowball offer when others have been receiving more in similar situations? (The dry cleaning plaintiff lost his suit and had to pay court costs, but no one seems to remember that part of the story.)

The issue surfaced from time to time in the decades since Buffett used the term, then steadily increased starting five or six years ago, according to this white paper from The Institutes. The paper notes that, from 2013 through 2018, commercial auto claim losses increased at an annualized rate of 10.9%, compared with a 1.0% annualized rate in the prior six years. The trends were similar in personal auto and medical malpractice. In product liability, incurred losses grew at an annualized rate of 17% from 2014 through 2018, after decreasing at an annualized rate of 7.1% in the prior five years. 

These trends became very public last fall when Travelers added hundreds of millions of dollars to reserves and cited social inflation.

To understand where we go from here, it may help to look at what The Institutes' white paper lists as the main drivers of social inflation. I'll quote from the paper and address each issue, or group of issues, in turn.

"Changes in underlying beliefs about the appropriateness of filing lawsuits and expectations of higher compensation"

Although it's hard to predict what will drive "underlying beliefs," the white paper says that income inequality has driven many people to demand more and notes a general distrust of corporations. The result is anger.

The paper says: "In its 2019 annual report on emotional states around the world, Gallup reported that 22% of Americans reported feeling angry 'during a lot of the day yesterday' — the highest level of anger measured by Gallup in more than a decade."

Although Gallup didn't ask people to identify the source of their anger, I'm sure we can all imagine some reasons, and I'd guess that anger has risen, not dropped, in the crazy year that is 2020.

So, I suppose it's possible that financially strapped people and businesses will be more inclined to settle, but I don't, in general, expect that people will become less litigious or demanding of compensation.

"Rollbacks of previously enacted tort reforms intended to control costs"

"Legislative actions to retroactively extend or repeal statutes of limitations"

If we project those factors forward to imagine the likely effect of the pandemic, it's hard to see legislatures taking any actions on tort reforms or statutes of limitations that would reduce social inflation. State legislatures have been moving in the other direction, with many trying to find ways to make insurers liable for costs of the pandemic even when business interruption policies don't cover such costs. And, if people remain angry, well, legislators who want to be reelected (as in, all of them) tend to react to anger among citizens.

"Increased attorney advertising and increased attorney involvement in liability claims"

"The emergence and growth of third-party litigation financing"

"Increasing numbers of very large jury verdicts, reflecting an increase in juries’ sympathy toward plaintiffs and in their willingness to punish those who cause injury to others"

"Proliferation of class-action lawsuits"

If people do somehow change their underlying beliefs about filing lawsuits and about seeking big awards, then, yes, these drivers of social inflation will fade. But history suggests that it's wrong to expect society to become less litigious. When Thomas More was chancellor of England under King Henry VIII in the 1530s, he often had no cases on his docket. When John Jay was the first chief justice of the U.S. Supreme Court, he heard only four cases and resigned after six years, in 1795; he was elected governor of New York and thought that position was more important. As for litigation today....

Lawyers have made loads of money through advertising and "litigation financing" -- having third parties provide funds so plaintiffs can afford to continue a court fight much longer than they could have on their own -- so lawyers won't back off unless there's a huge change in public attitudes.

Lawyers have also become more effective at winning "nuclear verdicts" -- judgments that are at least $10 million and that can reach the billions of dollars -- by tapping into what is referred to as the "reptile brain" of jurors. The strategy tries to trigger the "fight or flight" response in people, using techniques to make them so scared of the defendant that they react in a highly instinctive, emotional way that overwhelms rational arguments.

If the approach is working -- and it certainly seems to be producing bigger jury verdicts -- why would lawyers back off?

While the pandemic has made all of us humbler about our ability to predict, I just don't see any reason to expect social inflation to abate because I don't see any of the pressures going away. I think that the pandemic will encourage cash-strapped people and businesses to ask for bigger settlements and that sympathetic juries will be inclined to go along.

Stay safe.

Paul

P.S. Following my own advice from last week's Six Things about the need to find a devil's advocate to challenge your thinking, I found a very different take on social inflation. Here is a consumer group, affiliated with a law school, arguing that insurers manufacture social inflation claims to justify rate increases.

P.P.S. Here are the six articles I'll highlight from the past week:

The Real Disruption of Insurance

The future of insurance isn't incremental change: Technology is enabling direct threats to carriers, not just their partners and providers.

Expanding Options for Communications

Messaging and platforms, business texting, chatbots, voice and even augmented reality can help customers--while cutting costs.

How to Thrive Using Emerging Tech

A survey finds that 75% believe AI can provide a competitive advantage through better decision-making, and early adopters report gains.

Optimizing Experience for Life Beneficiaries

Focusing on beneficiaries can not only help facilitate the claims process but also provide life insurers with opportunities for growth.

4 Keys to Agency Modernization

Agencies must modernize to survive, but where do you start? Here are four guideposts that can help.

COVID-19: Next Steps in Construction

As more projects resume, contractors can draw lessons from areas where work was never halted to reduce risks and rebuild momentum.

Mental health is in the forefront as an impact of the coronavirus pandemic. A new article in The Atlantic discusses widespread increases of anxiety, depression and substance abuse since the onset of COVID-19. A Kaiser Family Foundation survey found that this public health crisis has hurt the mental health of 56% of adults. The manifestations of post-traumatic stress - from spontaneous conflicts in retail stores to healthcare workers taking their own lives - have become common on the daily news.

Now, more than ever, the mental health of employees in the workplace is an immediate concern for employers. The impacts on productivity, quality control and business continuity are there alongside the health and safety of all workers. Financial insecurity and lost jobs raise concerns over workplace violence. For many workers, their home has become their new workplace, and adverse impacts of domestic and child abuse are emerging with disturbing frequency.

A variety of mental illness factors cost American employers more than half a trillion dollars annually. Investment in improving employee mental health and alleviating some of the stresses causing anxiety and depression yield valuable human and economic returns. Employers can take concrete actions to help their employees get the assistance they need.

Remove the Stigma of Mental Illness — Although it has been almost 25 years since passage of the Mental Health Parity Act, which considers mental illness on the same basis as any other illness, the stigma of mental health hangs on. Mental illness is too often viewed as a weakness, those who suffer from it characterized as "disturbed," or worse, and the troubles it causes as "all being in your head." The truth is that mental illness is real illness and requires treatment in the same way that cancer, diabetes or pneumonia does. By communicating supportively and offering real help for employees' mental health, employers can break down the stigma and encourage early treatment before mental health issues become a crisis.

See also: 6 Life, Health Trends in the Pandemic

Communication That Educates — Employers that deal with workplace mental health realistically are doing more than just eliminating negative attitudes about mental illness. They are educating employees on how mental health affects their work, teaching them valuable skills for managing stress and resolving the kind of issues that lead to depression, anxiety or burnout. Resources for educating the workforce in stress reduction, conflict management and personal resiliency are among the training available through Keenan SafeSchools/Keenan SafeColleges/Keenan SafePersonnel platforms.

Supervisors Who Are On Board — Your supervisory and management team are the front line who work directly with the most employees. Just as important as general employee education on mental health, educating supervisors about mental health and supporting their employees helps mitigate the impact of mental illness in the workplace. An empathetic relationship between supervisors and their employees is a key success factor in addressing potential mental health issues early and encouraging the use of available mental health resources.

Professional Assistance Through Employee Benefits — Mental health benefits are vital to employees getting the treatment they need for mental health conditions. As one of the Essential Health Benefits provided under the Affordable Care Act (ACA), employer-sponsored health plans generally provide the range of treatments to address workplace mental health. In addition, an Employee Assistance Program (EAP) is effective for intervention for many immediate issues and response to major crises. These benefits make a real difference in people getting help without creating a financial burden or forgoing treatment altogether.

Employers bear a significant amount of the impacts of mental health. Confronting the challenges of workplace mental health compassionately and realistically, employers can also go a long way to reduce those impacts. While improving the vitality and safety of their facilities, they are also enriching the lives of their employees.