Back in 2019, I joined a podcast with Accenture where I said that to truly get people to do great work and best service your clients, you must support them in every way. This still rings true today.

It’s worth reflecting, however, on whether things such as artificial intelligence, insurtech, blockchain, and big data are delivering the assistance we expect. Have industry cost or efficiency ratios really improved as a result of the application of technology over the last 10 to 15 years? The short answer is no. But we can get on a better path.

First, we need to remind ourselves that people are the central ingredient to making the insurance industry run. The people help bring the deep and valuable complexity of the industry to life. When you put the people front and center, you allow for the technology to properly do its job in supporting the work and not be the main driver. 

See also: Adding Humanity to Life Insurance

Once the people are in place, you can go back to the foundational work of insurance in providing advice, managing processes, and delivering service in a timely manner to clients. At CAC group, we focus on the placement process, which can be messy but, when broken down to its components, runs well despite the complexity -- and customers report being very happy.

The transition to digital in the insurance industry does not mirror others. Using banking or an iPhone as a comparison is a false premise and distracts all of us from what’s required. It is always smart to look outside our industry for exemplars, but taking a checking account and shifting it from the checkbook to the digital world is far simpler than having 100 insurer participants share and layer property placement. Similarly, an iPhone provides a wonderful experience in the art of simplicity but as an example of how simple things should be in insurance it would work only if all clients were more or less identical and wanted to be treated the same way despite highly varied preferences, risk profiles, exposures, locations and legal jurisdictions.  

Ignoring these differences results in poor thinking and execution around what’s required to progress.

See also: Balancing Technology and Empathy in Claims

What to do?

Put people at the center of everything. We must view the use of technology through the lens of the customer and who is serving that customer. Everything in our business is filtered through people, which is a very good thing! Questions to ask include, Are the data we are consuming and the architecture that we are building truly helping serve the customer better, faster, and smarter? Do they have access to these elements in a customer-friendly way? Pursuing such questions will build trust in technology and tighten up all the data ingestion points where we can only rely on people, because their advice and knowledge are central.  

We also need to realize that the transition to a more digital world will be slower than we might imagine. The best example of a digital transition in insurance is auto insurance. It is mainly a digital experience today, but the actual transition started 15 years ago.

We need to get our heads around that time and distance. As the transition occurs, we will need to run insurance businesses in two ways – for today and as a digital alternative. Clients can self-select into the digital experience, but it will not be comprehensive initially, or ever. It will begin to support simpler activities such as sharing dashboards and information and evolve into proactive analytic offerings. 

If we are patient, we can alleviate many of the data challenges that limit progress today. When technology supports the people who drive the core business, we will be surprised at how ideas for improvement become organic. And all the data you need to support and advise a client is virtually identical to data you need to digitize the marketplace or enhance service offerings. We have just been attacking the opportunity from the wrong end. 

All of this builds to hundreds of iterative changes that in total will be transformative. It shouldn’t surprise us that there is no silver bullet, Easy button, or magic pixie dust available to replace hard work, attention to detail and an approach centered on broker/client relations. 

It requires industry leadership to believe in what’s valuable: our colleagues. 

Insurers are at a crossroads, where innovation isn’t just a strategic advantage but is essential to their very survival. 

The global insurtech market, valued at $3.85 billion in 2021, is expected to reach $166.7 billion by 2030, representing a jaw-dropping compound annual growth rate (CAGR) of 52%. Driving this explosive growth are once-traditional insurers that are adapting to today’s more customer-centric business models while also implementing technologies to optimize and protect their operations. 

Following are five of the technological trends that are reshaping the insurance sector:

1. Data Analytics and Artificial Intelligence

Increasingly, insurers are leveraging artificial intelligence (AI) and machine learning (ML) to analyze vast amounts of data in real time, enabling more accurate risk assessment and underwriting processes, personalized pricing, improved decision-making and fraud detection. Predictive analytics, which uses historical data and statistical algorithms to forecast future outcomes, is also helping insurers to anticipate consumer needs to improve their services and develop new offerings, leading to greater customer retention and profitability. 

See also: 10 Ways Tech Can Reshape Insurers' Operations

2. Internet of Things (IoT)

IoT is revolutionizing risk management, with insurers leveraging devices such as telematics, wearables and smart sensors to collect real-time data on insured assets and policyholder behaviors. Such data enables insurers to assess risks more accurately and encourage policyholders to adopt safer behaviors. IoT-enabled solutions also facilitate risk mitigation and claims prevention, ultimately reducing losses and improving profitability. As one example, usage-based insurance (UBI) takes into account vehicle type, distance driven, driver behavior and other criteria based on data collected by technology. UBI also supports positive driver behavior modification.

3. Cybersecurity and Data Privacy

Greatly enhanced cybersecurity and data privacy and protection measures are crucial as insurers face growing risks from sophisticated cyberattacks such as ransomware, phishing, data breaches and more. Protecting sensitive customer data, including personally identifiable information (PII), HIPAA-regulated data and financial records, is paramount to maintaining customer trust and safeguarding against financial losses and often irreparable damage to brand reputation. 

To read about some of the most recent cyberattacks that have affected organizations within the insurance industry, go here. 

4. Blockchain 

Blockchain technology can augment security, transparency and efficiency, with industry usage in applications for smart contracts, claims processing and fraud detection. Smart contracts, for instance, enable automated policy issuance, premium payments and claims settlements, reducing administrative costs and eliminating the need for intermediaries. Additionally, blockchain provides an immutable ledger that enhances data integrity and facilitates secure data sharing among insurers and other stakeholders.

5. Customer-Centric Digital Platforms

In the insurance industry, customer-centric digital platforms are in demand for enhancing engagement and loyalty. Mobile apps and personalized, self-service portals empower customers to access their information, file claims and communicate with agents effortlessly, meeting the growing expectations for anywhere, anytime services. Features such as AI-driven chatbots and virtual assistants, tailored policy recommendations and instant notifications and alerts ensure a seamless and highly relevant customer experience. As a result, insurers can not only acquire new customers more effectively but also retain existing ones by delivering value and convenience.

See also: The Sad Truth About Insurance Technology

Future-Proofing the Insurance Business

In a piece on the impact of AI, McKinsey stated that “Most important, carriers that adopt a mindset focused on creating opportunities from disruptive technologies—instead of viewing them as a threat to their current business—will thrive in the insurance industry in 2030.”

The time for adoption is now, and insurers must take action. In our increasingly digital and data-driven landscape, insurance companies should begin exploring and forming partnerships with insurtech providers, technology vendors and expert consultants that can help them seamlessly integrate these emerging technologies into their business models and operations. Such technology transformation will continue to reshape every aspect of the insurance value chain, from product development and risk assessment to claims processing and customer service. 

Embracing this wave of digital transformation is one of the best insurance policies that insurers can give themselves for their future success. 

Heads up or heads in the sand? The choice is yours. 

Marie, a dedicated workers' compensation adjuster, faces an endless stream of complex claims. Understaffed colleagues leave injured workers feeling ignored and undervalued. Efficiency demands overshadow her efforts to provide personalized support, leading to dissatisfaction and burnout. Despite her best efforts, Marie knows the system's flaws and recognizes the urgent need for a more balanced approach. 

The workers' compensation industry is facing challenges as overworked adjusters struggle with complex claims while injured workers feel unheard and undervalued. The industry's focus on efficiency often prioritizes cost reduction over personalized support. This creates a high-pressure work environment for adjusters, leading to dissatisfaction, turnover, and understaffing. Ultimately, this compromises the quality of service for injured workers and, in turn, leads to an increase in costs.

By automating routine tasks, AI can free adjusters to focus on the human aspects of their work that require empathy, nuanced judgment and creative problem-solving. AI can also provide data-driven insights to support decision-making, equipping adjusters with crucial information to perform their jobs effectively and empathetically. 

AI’s potential to transform the role of an adjuster envisions a future where technology and human expertise are combined. The result is a more efficient, supportive and equitable claims process that benefits both adjusters and injured workers alike.

See also: New Workers' Comp Laws for 2024

Evolving Role of the Claims Adjuster

Experienced adjusters are increasingly leaving their roles due to burnout and overwhelming workloads. The growing complexity of cases and the burden of administrative duties pushes these seasoned professionals to seek more sustainable career paths.

At the same time, there are significant challenges in attracting qualified new talent, as well, particularly among Generation Z – the latest cohort to enter the workforce. This generation, more than any before, prioritizes careers that offer autonomy, leverage their problem-solving abilities and provide a sense of purpose and job satisfaction. Having grown up in a digital world, Gen Z views technology as an integral part of both their personal and professional lives. 

Injured Worker Perspective

Beyond the workforce, the expectations of those served by the industry are also evolving. In today's digital age. Consumers expect 24/7 access to services and information. Injured workers are no different; They expect immediate attention to their claim details and continuous updates.

Injured workers, like all consumers, value the convenience of digital services, but their unique circumstances heighten the importance of human interaction. Injured workers are vulnerable, dealing with physical pain, emotional stress and financial uncertainty. AI may expedite claims, but it cannot replace the compassion and individualized support that injured workers need to navigate their recovery journey.

When genuine human connection is absent, injured workers are more likely to experience frustration, resentment and a sense of isolation. This emotional toll can lead to dissatisfaction, distrust and hindered recovery, prolonging treatment and escalating costs. In some cases, this may even escalate into seeking legal recourse, complicating the claims process and increasing costs for all parties involved.

See also: How to Enhance Workers' Comp Outcomes

Streamlining the Claims Process

AI's 24/7 availability, combined with its ability to rapidly process vast amounts of data, streamline assessments and consistently apply complex rules across a wide range of scenarios, presents an opportunity to transform the industry. When a first notice of loss (FNOL) is filed, the accompanying documents often require in-depth individual reviews. AI can extract and consolidate crucial information from medical reports, bills and other relevant sources into a clear, concise format. By analyzing this data and cross-referencing it with historical claim patterns, AI can make an immediate judgment on the validity of the claim. 

Furthermore, AI can function as an intelligent assistant, responding to inquiries from injured workers, resolving procedural questions and leveraging a broad range of data sources to provide prompt and accurate answers to common questions about coming appointments, payment timelines and the overall claims process. This includes streamlining tasks such as scheduling appointments with healthcare providers based on real-time availability. This not only saves adjusters valuable time but also enhances the injured worker’s experience.

Enhancing adjusters effectiveness

Adjusters use their empathy and emotional intelligence to build rapport with injured workers. Many adjusters excel at navigating complex, nuanced cases that require consideration of multiple, often conflicting factors. This human touch results in a smoother claims resolution. AI, as a collaborative partner, can enhance these strengths by providing adjusters with data-driven insights, enabling them to make more informed decisions and provide even better support to injured workers.

A workers' compensation claim can be an emotional process, and some injured workers are more adept at handling it than others. AI-powered tools analyze the emotional wellbeing of the injured workers’ communications. These insights can be leveraged for the adjuster to formulate responses accordingly. This capability allows adjusters to provide more personalized and empathetic support.

This ability to personalize information opens up possibilities for adjuster training. Imagine a virtual coach that analyzes your injured worker interactions during a call, offering immediate feedback on communication style, empathy and active listening skills. Similar to how AI-powered language learning tools are already helping individuals refine their conversational abilities, this technology could empower adjusters to continuously improve their communication and interpersonal effectiveness.

By leveraging insights learned from countless interactions, AI can tailor its advice to address specific areas where an adjuster might need improvement. This personalized approach ensures that training is always relevant, helping adjusters refine their skills and ultimately deliver better service to the injured worker.

Responsible AI implementation

The development and integration of AI systems will require significant time and investment, along with careful consideration of ethical, security and data privacy concerns. Resistance to change is a natural part of any technological shift and should be expected with the implementation of AI.

Increased efficiency should not come at the cost of dehumanizing the claims process. If AI is implemented solely to drive productivity, it could inadvertently exacerbate existing issues. The anticipated efficiency gains might lead to an increase in the number of claims assigned to each adjuster, further burdening an already overworked workforce. While AI-powered training tools hold potential, they could also be misused to monitor conversation times and result in a new level of control. This misuse for excessive monitoring could lead to a demoralizing and micromanaged environment.

Balancing efficiency and empathy

Workers' compensation claim adjusters grapple with overwhelming caseloads, complex claims and pressure to prioritize efficiency over personalized care. This challenging environment often leads to high job turnover and makes it difficult to attract and retain qualified talent

AI presents an opportunity to enhance the claims process, creating a more efficient and empathetic approach to serving injured workers while simultaneously making adjusters' work more rewarding and important. By automating routine tasks and analyzing complex data, AI empowers adjusters to focus on empathy and communication and enhance these unique skills through AI-powered insights and feedback. 

Successful implementation requires a thoughtful approach that balances efficiency with empathy, ensuring AI complements rather than replaces human expertise. By embracing this technology responsibly, the industry can create a future where both adjusters and injured workers benefit.

The insurtech movement is not dead. In fact, it is finally showing concrete impacts.

However, what has worked aren't the shiny toys loved by futurologists and black swan hunters. Instead, what has worked are awesome innovations done in the kitchen of the large carriers (borrowing the metaphor used by my friend Robert Pick at the WISA event last April). These usages of technologies and new data stay obscure and are even misunderstood by those who observe the sector without walking daily in these kitchens and understanding the language of their cuisine brigades.

Is there anyone significantly outperforming the competition due to their use of insurtech? Yes! 

My favorite example is Progressive's journey with pricing sophistication and telematics. Auto insurance is an extremely competitive and regulated market, making it a cost-plus business. However, Progressive has consistently achieved a significantly better loss ratio than the rest of the market for the past 10 years. The higher the weight of telematics in their business (and the surcharge level for the risky profiles), the higher their overperformance.

Why did I choose to dedicate the headline to death?

Because, over the past quarter, we saw mounting storytelling about the death of the insurtech movement:

• “Global insurtech funding falls to its lowest quarterly level since 2018” in Q1 2024.
• Carpe Data's message at their event: "InsurTech Is Dead." They argue that "the Golden Age of InsurTech is now a long way off, and it's not going to return."
• Swiss Re withdrew from their embedded insurance arm, IPTQ.
• The European insurtech poster child Wefox's fall. (I expressed doubts a year ago.)

But these stories are only Darwinian selection. It is natural, and it is good!

Choose your idols carefully to avoid being disappointed. As I ranted last year, among the newcomers, you could pick Kinsale instead of Lemonade. (It is hilarious how Lemonade is deflecting from all the elements -- one after the other -- of its original and fascinating storytelling. Now, far from the old claim of their bot substituting for brokers, they are paying fat commissions to brokers to sell their policies.)

Let me go back to the Progressive overperformance.

Last year, Progressive dedicated an entire earnings call to its telematics journey, talking about the increased relevance of usage-based insurance (UBI) in its personal auto portfolio and the sophistication of its pricing. Progressive has improved the sophistication of its UBI tariff and increased the maximum surcharge for riskier drivers step by step over the past years. It is impressive to look at Progressive's technical results over the same period, as reflected in the chart below.

Progressive private passenger liability portfolio has consistently achieved a significantly better loss ratio (including loss adjustment expenses and IBNR) than the rest of the market:

• At the beginning of this series -- in 2014, when they had just started surcharging risky drivers -- their loss ratio was four percentage points better than the competitors (about a 7% difference);
• Between 2015 and 2021, their loss ratio was about 10 percentage points better (about a 16% difference);
• Finally, in the past two years -- characterized by, on one side, the increased level of relevance of telematics on the portfolio and a boost in the risky driver surcharge up to 60%, and, on the other side, a complex context due to inflation and many unfriendly state regulations about rate change -- their loss ratio was about 15 percentage points better (above a 20% difference).

Do you remember what Berkshire Hathaway's head of insurance operations said at the annual meeting in 2021? "Geico clearly missed the bus and were late in terms of appreciating the value of telematics. They have woken up to the fact that telematics plays a big role in matching rate to risk."

He was clearly talking about the evidence from Progressive.

See also: Where Insurtech Went Wrong

Telematics is an extraordinary insurtech lever that has demonstrated a concrete impact in creating a sustainable competitive advantage.

• Have you ignored it in the past? You should start your telematics journey!
• Have you tried it and failed? Instead of denying the value of telematics, you should start again, studying the journey of the best practices and doing a critical review of the lessons learned in your past.

Even a recent AM Best study on the U.S. auto insurance market showed how "Highly Innovative Personal Auto Carriers Have a Significant Competitive Edge." The cluster of insurers rated by AM Best as more innovative has grown more since 2018 and has achieved better combined ratios.

You know I love insurance incumbents, having advised a few hundred of them -- including 14 of the top 25 P&C international carriers and seven of the top 25 life international insurers -- over the past two decades. I've seen so many other terrific, successful insurtech stories in their kitchens!

Let's start with risk prevention. Here is the old, gold study I did with the Geneva Association on this great opportunity in 2021. Nothing happens overnight in the insurance industry, but it is awesome to see the concrete impacts some of the pioneers in risk prevention are currently achieving:

1. Hanover's 2024 earning calls and investor presentations are constantly offering testimonials of the effectiveness of their risk prevention program for commercial properties

2. Many other U.S. P&C carriers have obtained similar results (more than three dollars saved on the expected losses for each dollar invested) with IoT-based risk prevention in commercial property portfolios, as shared last year: Insurance IoT is a social good!

3. Hosting a C-suite roundtable at the last North American IoT Insurance Observatory was a breakthrough. Top executives from Great American, HSB, The Hartford, Tokio Marine and Travelers discussed a common vision about the P&C insurer of the future and what is currently happening in their kitchens:

• They talked about a vision where the P&C carriers not only assume risks and pay claims, but their portfolios will also be connected and protected through a layer of IoT-based prevention services.
• They shared double-digit penetrations already achieved on some niches of their portfolios where they decided to scale a specific IoT approach based on the evidence of a robust ROI.
• They highlighted how these IoT programs are becoming an integral part of the way a business line deals with a class of business.

I discussed these U.S. market trends at Underwriting Network London, and surprisingly none of the many European carriers was aware of these success stories.

Let's focus on a third concrete insurance success story using data and digital technologies: a beyond-insurance journey.

Unipol Gruppo has been one of the first movers and bolder actors in this trend around the globe. They have even created a dedicated division. Their chief beyond insurance officer is Giacomo Lovati, an insurance executive I have had the privilege to advise multiple times -- with different hats -- over my career. Unipol's beyond insurance journey has already reached the milestone of €1.6B in additional annual revenues, making a significant contribution to the group bottom line, as Giacomo shared in his speech at ITC Europe last year.

I love these kinds of initiatives, where insurers take the front seat, with the ambitious vision of orchestrating an ecosystem of services and the customer experience of their policyholders. I love to see insurers succeeding in doing it, demonstrating that staying relevant in the life of the policyholders is an achievable (and profitable) target. Some say all insurance will eventually be embedded, so insurers should hide themselves behind cooler brands. But I disagree. I love insurers and the smell in their kitchens and think they need to stay relevant. (Here is one of my old articles about staying relevant.) 

See also: Why Insurtech Funding Dried Up

The last insurtech success close to my heart that I want to describe is Vitality.

I have always learned a lot in my exchanges with discovery teams around the world over the past 11 years. My first viral insurance innovation article was about them, and I'm honored to have them among the members of the IoT Insurance Observatory since 2018. Vitality's behavioral change approach has:

• demonstrated a robust return on investment: “Over the five-year period, Vitality saved an average of $462 in annual medical claims costs per engaged member. […] This represents 4% reduction in claims costs over the analysis period due to Vitality engagement. This results in a ROI for Vitality clients of 180%, taking into consideration all program and incentive costs.” 
• shown consistent results in life and health insurance portfolios in different geographies around the world 

I hope these facts and figures about concrete impacts generated by incumbents' insurtech initiatives will further support your appetite to innovate using new data and technologies. 

Repeating my recommendation from last year: Don't let the Darwinian selection stop your commitment to the innovation journey. Please, my fellow insurers, don't stop investing in innovation!

Even Chubb’s CEO said "insurers are data companies” at the recent S&P Global Ratings Annual Insurance Conference in New York. 

Or, as I have ranted for the past decade, all the players in the insurance arena will be insurtech, meaning players using technology and data to achieve their strategic goals!

Paul Carroll

What advice would you give to insurance executives on how to think a little differently about operational efficiency?

Paul Leinwand

The environment we're in right now, with so much uncertainty, is leaving a lot of executives anxious about placing big investments for growth. The concern is that the environment could shift, and those investments might not pay off. The cost lever is always available and it's very easy to see why executives turn to cost in managing performance.

Costs are often seen as a negative topic, right? Well, cost is actually the precious investment we make in the most important things we can do to drive growth.

So the advice we provide is that executives need to think about costs in a strategic way. We really believe that taking costs out as an independent cost exercise often leaves companies weaker. You're just managing costs down rather than fundamentally rethinking where does the investment need to go in the business?

That’s quite different than how most companies take out cost “Let's do across the board 10% or 15% cuts. Everybody will figure it out.” That approach will often cut the good cost and the bad cost all at the same time. An article we wrote for Harvard Business Review delves into how to think about cost strategically, using a framework we've described as Fit for Growth. It describes a segmentation of costs and explains what to do with the various elements. Should you keep them? Should you take them out? Should you actually invest more in some of the costs because there is significant upside?

Paul Carroll

What are the elements of that framework?

Paul Leinwand

We think of costs in four main categories, which span every business unit, every function, every geography, and they can be used to rethink the nature of where we put investment.

The first is what we describe as “lights on.” A cost that's “lights on” is required to operate, to be legally compliant, but we certainly don't think of those costs as providing any mechanism to drive differentiation from competitors. So, we want to be as lean as possible in those categories.

The next category is what we've described as table stakes. These are defined by what your customer expects and what your competitors are providing. Here again, while these might be more than required legally or operationally to run the business, they aren't the source of growth. They aren't the source of why a customer is going to choose us versus another organization.

That is the third category: differentiation. Those capabilities help determine whether customers choose us today or might choose us tomorrow. They are a pretty limited set. There are probably three to six areas where you’re really going to be better than anyone else and should be because you believe it supports your value proposition and has a meaningful return.

The fourth category is “not required.” These could be areas that maybe supported projects five years ago that were going to drive growth but didn't. They might have supported parts of the portfolio we no longer own. They might support things that some team believes are important but may not be important.

The exercise around these four segments of costs is to in some ways take everything out of the building. Then each area has to be meaningfully debated based on tremendous objectivity. We often take a lot of costs for granted, but we want to look at everything through a fresh lens: Is this cost generating the type of return we need? Or is there a better use for that money?

One of the really interesting things about this exercise is that executives often have a clear list of areas where they’d like to invest more to drive growth. But there's always a shortfall of cost available to do that. The perspective changes when executives realize they’re protecting a cost at the expense of something that could differentiate them. There might be a better use for that cash.

Paul Carroll

But if you wait until you see the big opportunity for differentiation, you don’t have enough time to cut costs and free up the funds, at least in a measured way, right? What example or two would you offer of a company approaching cost-cutting correctly?

Paul Leinwand

There are various companies approaching cost-cutting efficiently across industries. As mentioned in our book published under PwC’s Strategy& division, Strategy That Works, companies like IKEA are approaching cost-cutting strategies in an effective manner every step of the way. The key is to incorporate such cost exercises throughout the business and not view it as a last-minute mundane task. In other words, you don't wait until you need to take out cost. You think of cost reallocation as strategic. You prevent the growth of costs beyond what they should be, and you have the opportunity to constantly reallocate the investments that you have.

One of the things we see a lot with all our client work is that annual budgets typically represent plus or minus from the year before. I have a marketing budget; maybe it's plus 2% this year. I have a finance budget; it's plus three. I've got an HR budget….

If every year we're just doing plus or minus, our budgets are largely representations of the world of maybe 10 years ago and cannot possibly be the right allocation of cost, given today's priorities.

The opportunity that I think some companies seize is being able to reset their budgets based on what is needed and what's most important and not getting locked into the idea that the budget is the budget. In our view, there is no such thing as a strategy until it's been translated into the budget itself. If the strategy effort is over here, and the budget is running over there, and they're not talking to each other, there is no such thing as execution of the strategy.

Paul Carroll

That’s great. Is there anything I didn’t ask you about that I should have asked about?

Paul Leinwand 

I'd be remiss not to mention another article we wrote in HBR recently, on growth, with Paul Blase. The article points to companies that are building a growth engine, rather than just searching for growth.

Searching for growth is thinking about paths to pursue: Do I go into a new business, do I acquire something, should I consider adjacencies? Should I pursue new customer segments, new product segments? The companies that have really done well have first built the capabilities to grow. Then, when they thought about the places to grow, it was much easier to succeed because they were differentiated. They had the underlying wherewithal to innovate, to drive customer success, to drive insights that are going to yield the type of growth that we need.

So there’s a very different way of looking at growth, one being very much about the growth itself, and the other being about the underlying system that an organization needs. The article highlighted a really helpful analysis that showed that growing consistently has significant excess returns. For companies with the same CAGR across time, those that grow consistently saw greater returns to shareholders. Shareholders return companies that don’t just randomly find growth, but have built the unique capabilities to do so repeatedly.

There's no way to build the system of growth without spending money in the right places. So tphere has to be a connection back to the cost agenda and to the reallocation of that precious investment that we have. When you run through the cost exercise and take everything into the parking lot, the argument for taking something back into the building has to be that it links to your differentiation, to that underlying system of growth.

Some of this works against human nature. We want to be amazing at everything. But we can’t be. We need a lens that lets us decide: It’s okay to be just good enough on this capability, so we can spend money on something else.

That's a pretty hard concept to put in place, but it's a really important one to get right.

Paul Carroll

Thanks, Paul. It’s been great to catch up a bit.

Independent agents are a critical part of the insurance value chain and significantly influence business placement in the insurance industry. Ensuring that agents have the tools to offer policyholders a superior customer experience and improve their own operational efficiencies should be top of mind for carriers. 

Beyond selling additional policies to existing insureds and attracting new business, agents play a crucial role in policyholder retention. The relationship an agent cultivates with customers is a significant factor in the policyholder experience, across all age groups. New Invoice Cloud research shows that even Millennials still purchase policies through agents, which perfectly demonstrates the far-reaching importance and continuation of the insurance agent role.

To empower agents and yield the most profitable opportunities, insurers must make it easy for agents to do business with them. Since payments-related activities – including taking deposits, answering calls, researching collections issues, etc. – consumes much of an agent’s time, it’s imperative that carriers implement a simple, digital billing and payments platform. Not only can an easy-to-use payment solution positively impact the agent experience with your organization, but this type of platform can also benefit carriers seeking to improve customer retention and attract new, profitable business. 

Since selecting the right online payment platform can have this significant impact, here are a few key factors to look for when selecting a payment solution that will thrill insurance agents. 

1. An easy-to-use agent interface 

Insurance agents are creating your company’s best, most reliable stream of revenue – so why wouldn’t you provide these key players with the best, most reliable tools? 

Companies are all vying for profitable business in this competitive insurance market. While pricing and policy options play a role in where agents place business, it is well-known that the experience an insurer provides (for both the agent and their policyholders) is often the deciding factor.  

When it comes to online payments, agents want an intuitive platform that is easy to use and promotes excellent customer service to policyholders. Solutions that enable transparency also allow agents to quickly access payment information and better service customers. 

Bottom line: offering a streamlined solution that is simple, transparent, personalized, and easily accessible will compel agents to place more profitable business with your company. 

2. Optimized, omni-channel payment options 

To keep pace with changing policyholder demands, carriers must offer insureds multiple ways to receive bills and pay premiums, also known as omni-channel payment options. The more payment options an insurance organization can offer, the higher that carrier’s online adoption rates will be. 

When online adoption rises, billing-related calls, delinquent payments, and policy cancellations tend to decrease significantly, allowing agents to focus on more value-adding activities.  

It’s important to note, however, that each channel must be equally optimized to be truly effective. This means an insured should have the ability to start making a payment on, say, their mobile device and continue online or over the phone later, with the same context and ease. Without this cross-channel consistency, your organization cannot provide a top tier policyholder experience. 

3. Intelligent payment reminders  

Agents want to avoid delinquent payments and cancellations more than anyone. Collection calls are not only uncomfortable but deter from an agent’s valuable time. In our research report, Customer Experience in the Insurance Industry, we found that 50% of insureds who missed a monthly premium installment simply forgot to make their payment. Stemming this forgetfulness would benefit any insurance organization, particularly from an agent perspective. 

The best way to keep payments top of mind for policyholders is with targeted, dynamic payment reminders through multiple channels (i.e., text, email, voicemail). 

Your payment solution should be able to notify customers of upcoming payments with personalized notifications, detailing their policy type, amount due, due date, and more. Even better, your online payment solution should offer communications that go beyond payment reminders. For instance, Invoice Cloud offers Outbound Campaigns, allowing billing organizations to quickly send targeted messages to your customers about COVID updates, changes to their policies, and more. 

These reminders keep payments consistent for agents and improve their customer’s experience, which, ultimately, reflects positively on the agents themselves. 

4. Designed to drive self-service 

We’ve touched on the importance of finding an online payment solution that’s simply designed for policyholder and agent ease of use. More importantly, though, the solution’s design must actively work to drive self-service enrollment. 

Self-service options, such as automatic payments (AutoPay) or paperless billing, provide significant value for both policyholders and agents. These services save your policyholders time and provide peace of mind regarding their monthly payments, not to mention the major positive impact self-service routes have on policyholder and agent satisfaction. 

But here’s the catch – insureds will only enroll in these options if they’re aware they exist and they are easy to use. To ensure full utilization of your self-service options, look for a digital payment platform designed with customer engagement in mind. 

The more you engage policyholders throughout the payment process – guiding them toward your self-service routes at every opportunity – the more insureds will enroll. 

This boost in self-service is one of the best things your organization can do for its agents. Policyholders want the option to make payments when, where, and how they prefer. So, offering these self-service capabilities should enhance customer satisfaction, reduce delinquent payments and cancellations, and increase operational efficiencies for both the agent and the carrier. 

Improving the insurance agent experience 

To stand out from the sea of carriers vying for insurance agent’s business, you must provide agents with tools that will make their job simple. When it comes to payments, that means offering an online payment solution that can: 

Save agents time by reducing call volumes and manual processes. 

Keep premiums consistent with payment reminders and high rates of self-service enrollment. 

Assure the policyholder payment experience is quick and simple. 

Invoice Cloud has a proven success rate of 2 to 3 times higher than the industry average when it comes to online payment adoption. Our insurance solution has helped countless insurance organizations like yours increase policyholder satisfaction, save costs, reduce workloads, and much more. 

Watch the video below to see how California Mutual Insurance Company partnered with Invoice Cloud to save 780 hours annually on the reconciliation process and more:

  

 Read Original Article Here

Sponsored by ITL Partner: InvoiceCloud

A prominent venture capital firm, Andreessen Horowitz, published a provocative note last week that calls into question the future of the customer relationship management systems that have been the backbone for sales organizations for decades.

"We believe AI will... fundamentally reimagine the core system of record.," the note says. "Instead of a text-based database, the core of the next sales platform will be multi-modal (text, image, voice, video), containing every customer insight from across the company. An AI-native platform will be able to extract more insight from a customer and their mindset than we could ever piece together with the tools we have today."

While I'm not suggesting you rip out your Salesforce system any time soon, I do think it's worthwhile to start imagining what your future system of record will look like--and how you get there from here. 

The Andreessen Horowitz note offers a good explanation of the limitations of today's CRM systems and of how AI-based systems could go well beyond them:

CRM companies "were enabled first by the arrival of the relational database, and later, of course, the cloud. The core of these companies’ foundation is a structured representation of sales opportunities, in rows and columns, with their related criteria in text.    

"Today, due to the reliance on point solutions, data is often siloed in discrete activities along the sales funnel. There’s no complete view of what’s happening, end-to-end, across the sales process. A solution that adds personalization to increase conversion at the top-of-funnel has no data on whether that personalized touch ultimately increases the close rate. 

"With LLMs [large language models], the core of the next sales platform could be entirely unstructured and multimodal, including text, image, voice, and video. A company’s sales platform could include data about existing and prospective customers from countless sources: recordings and transcripts from any conversation with someone at the company, emails and Slack messages, sales enablement materials, product usage, customer support activity, public news, financial reports…the list is endless. Furthermore, the LLM powering the platform would be constantly ingesting data to create the most up-to-date context."

I'll be more colloquial. 

Today's databases, as great as they are, require an awful lot of up-front effort. The data has to be clean, and it has to be put in just the right cubbyhole in the right set of cubbyholes in the right room in the right building on the right campus full of cubbyholes... or you won't be able to find it when you need it.

An AI-based version of CRM could be like my Mom was. She always knew where everything was, even in a house full of eight rampaging kids. Once, when my older brother and I were trying to quietly leave on a Saturday morning for a Boy Scout camping trip, we couldn't find something-or-other. As we slunk past her bedroom door, she said quietly, so as not to wake my Dad, "It's on the top shelf of the closet in the family room." And it was. 

Andreessen Horowitz goes on at length about how an AI-based version of my all-seeing, all-knowing Mom can allow for radically better sales processes. It also, being a VC firm, speculates at some length about whether Salesforce and other incumbents will lead the way to these new systems or whether what they call an AI-native approach will win -- the VCs, of course, root for the startups, because their whole business is based on identifying and backing the next set of industry giants.

But I think those issues are a ways down the road, unless you want to try your hand at early-stage investing. The technologies have to be developed before you can use them to start revolutionizing your sales processes.

What matters more for now, I think, is getting a sense of how soon this AI vision can be realized and who is going to get you there.

You should design your optimal sales process for five or so years out and use it as a benchmark to see if the upgrades your current CRM supplier is providing will get you there. If not, you might want to start building some flexibility into your plans so you could cut over to a competitor, possibly a startup.

You also should start mulling when you're going to make the switch to an AI-based CRM like Andreessen Horowitz describes, because, make no mistake, the switch will be a massive endeavor. You'll not only be replacing a core piece of your sales architecture, but you'll have a fundamental issue to solve with your new system: While it sounds great to have an AI grab every bit of information about every single customer or prospect, the holders of those bits of information may feel differently. 

Should a colleague be able to dip into my personal contacts and call a friend of mine without my permission? If I'm paid on commission, do I have to share everything I know with everyone in my office, some of whom may be competing with me for business? And so on. 

A huge amount of work will have to go into figuring out all the rules for accessing and using the information that an AI will be able to gather. You can't just let an AI run loose.

Marc Andreessen was once asked how he decided which technologies would bear fruit and which wouldn't. He replied that, in his experience, all technologies worked. The key was to figure out the timing.

In the case of the future of CRM systems, I think he's spot on.

Cheers,

Paul 

In the early 1800s, a French builder brought the “Russian mountains” to Paris. Since the 1600s, Russians had been sending people zooming down hills on sleds on tracks made of ice, and the Frenchman wanted to duplicate the experience. But French winters aren't nearly as cold as those in Russia, so he built tracks with wooden rollers and ran the sleds over them. Thus, the term "roller coaster." 

The roller coaster came to the U.S. in 1884, on Coney Island in New York, and is now a ubiquitous amusement ride. Somewhere along the way, “roller coaster” began to be used to describe any series of unbridled ups and downs. 

Over the past four years, the P&C industry, among others, has fit the roller coaster analogy perfectly. In fact, think of the wildest ride you've ever been on.

Homeowner and auto lines have been the most tumultuous in comparison with commercial lines, mainly due to premium adequacy efforts. For instance, long-term underperforming business auto insurance had the humbling benefit of constant rate increases attempting to bolster anemic loss ratios -- an eye-popping 50 quarters in a row, now going on 13 years. Meanwhile, carriers were in a virtual home and auto race to the bottom in the pre-COVID years. Insurers pursued “switch and save,” “bundle and save” marketing strategies along with huge investments in lead generation as they recognized most consumers first shop online before speaking with an agent to bind the sale.

These prolonged competitive conditions are partly responsible for the nearly unaffordable rates in the market today, particularly in homeowner lines. In hindsight, home lines were underpriced, not keeping pace with replacement costs. And in real time, carriers consciously balance overall profitability, products per household and the whole other side of insurance -- generation of revenue from investments. In other words, a trade-off of weak underwriting margins for healthy investment returns does happen.

Converging weather exposure, inflation, higher accident frequency, social inflation and other factors are hammering both home and auto underwriting performance. However, consumers struggle to digest massive differences in premiums from just a few years ago or even the last renewal. Bankrate reports a 26% increase for full coverage auto, and for $300,000 in dwelling coverage premiums average $2,270. Such increases are wreaking havoc on the housing and auto industries, as total cost of ownership is a real barrier. Car repossessions are up 23% over last year according to Cox Automotive, while the tandem of higher interest rates and insurance costs has disrupted real estate markets.

See also: 10 Pivotal Challenges Facing Insurers in 2024

Remain Buckled In: The Ride Is Not Over

Since 2017, there was only one year with a homeowner underwriting profit (2019), per S&P. Although the reinsurance market has begun to stabilize, the first half of 2024 global insured natural disasters reached $62 billion, higher than the 10-year, $37 billion average, according to Munich Re, jeopardizing rate flattening. Likewise, collision repair and injury claim costs remain elevated. The underlying factors of repair technician shortages, longer repair cycles, increased cost of new car technologies, distracted driving, higher accident frequency and social inflation continue or are rising.

On the upswing, overall insurer profitability and premium growth has been boosted by top line revenues simply due to major rate increases while net income has benefited from strong investment returns. Auto lines are recovering much more quickly while the outlook for homeowner lines underwriting profitability is less optimistic. Climate and weather exposure, inflationary pressure and reinsurance costs will fuel the coaster ride, with expected twists and turns ahead.

Uh Oh: More Ups and Downs

High rates only tell part of the story. So-called underwriting actions are taking hold, with more to come throughout 2024 and beyond. Such actions span: risk eligibility, specific requirements, limited capacity in certain markets, inspections and so on. This translates to higher scrutiny and greater burden to consumers and business owners, such as required roof replacement costing tens of thousands of dollars to be or remain eligible. Or high deductibles, moving from standard $250 to $500 amounts to percentage deductibles. Example, a 5% deductible on $300,000 “coverage A” home policy is $15,000. – a dramatic change by any measure.

Meanwhile the P&C industry and ecosystem have experienced numerous ups and downs, with layoffs, hiring sprees and reshuffled priorities as attention is diverted to profitability and all hands “righting the ship.” Despite innovation being the lifeblood and future to insurance modernization, insurtech solution providers are experiencing even longer sales cycles when working with carriers. Project investment and innovation budgets are evaporating, or the dreaded carrier ‘reprioritization’ realities can derail a budding partnership altogether. Just when the insurtech ride is slowing down... hold on... global insurtech funding surged ahead to $1.27 billion in the second quarter of 2024, the highest level since the beginning of 2023, according to Gallagher Re.

But not all carriers are in the same position.  

Imagine the roller coaster ride consisting of 10 cars linked together and representing the top 10 U.S. carriers slowly ascending to the next peak before rapidly accelerating into the next dip. Now freeze-frame that image so some of the cars are ascending and others already descending.  Apply this mental image to rates, profitability, layoffs, hiring, underwriting actions and market growth appetite, and we see several recovering and others yet to catch up. 

It’s easy to visualize a very uneven, bumpy ride for all. For instance, Nationwide announced a 5% workforce reduction last week while Progressive reported growth plans to fill some 10,000 roles in April. Similar variation is found among combined ratios, from Progressive’s impressive 91.9 second quarter to others over 110.

This tail effect will continue throughout 2024-25 as evidenced through recent second quarter earnings. Variance in loss ratios translate to ranging rate indications and ultimately differences in rate selections by individual insurers. Likewise, consumers will shop for relief. Auto insurance shopping rates reached an all-time high between April and June as the quarterly quote rate increased to 13%, per J.D. Power.

See also: Insurance in 2030: What Does the Future Hold?

What’s Around the Next Bend?

As home and auto insurance affordability takes center stage, the looming consequences of uninsured and underinsured or growing protection gaps have yet to be fully realized. In auto claims, policyholders can be left holding the bag when an at-fault driver has insufficient or no insurance. This can be devastating when there are serious injuries. Increased out-of-pockets, delayed or forgone damage repairs, delayed or avoided claim reporting have implications to consumers as well as insurers and are more likely scenarios due to fundamental changes in risk transfer. Fraud and claiming for unrelated damages are of particular concern. Further, consider the next coastal tropical storm with more homeowners self-insuring or carrying massive percentage wind deductibles. More disruption is likely.

Outlook and Solutions

Aside from longer-term efforts to incorporate building resilience, several lawmakers are calling for federal disaster insurance. If it is modeled like the National Flood Insurance Program, it is reasonable to expect widening protection gaps, not to mention tremendous burden to taxpayers and costly premiums, as the NFIP has run a deficit since Hurricane Katrina in 2005, despite re-mapping, new underwriting standards and constant last-minute federal funding.

Technology and new products/services will play a major role in filling gaps and solving the insurance crisis, presenting, opportunities for entrepreneurs, solution providers, insurtechs and carriers. At a high level some of the potential concepts that are new or in-market look like:

• Climate tech to better predict, mitigate and prevent losses
• Aerial/geospatial services already in market and expanding
• Parametric insurance, filling gaps and addressing emergency costs
• Deductible and repair financing -- specialized and embedded
• Repair marketplaces matching customers with experts  
• Micro insurance protection
• Home spending account savings and planning services
• Actual cash value coverages and policies
• Accident settlement services (outside of insurance claims)
• ADAS collision avoidance systems
• Sensor technology, alerting and avoiding damages, e.g. weather
• Telematics coaching and safe driving features

Reform and legislation will also play a key role, albeit long-term in nature. Recent reforms to Michigan’s no-fault system have already lowered premiums. Florida instituted sweeping tort reform in early 2023 and is showing signs of improvement. A handful of states are tackling litigation financing. And California has modified CAT risk modeling to permit a more prospective forecast in rate making for wildfire exposure. Clearly, more reform and legislation are needed to keep pace and tamp down abuses geared to unfairly inflating insurance costs.

So, buckle up. The roller coaster ride is far from over.

If, like me, you kept a weather eye on the Olympics while working Monday, you probably saw occasional images of an unlikely figure leaning back in a chair, looking like he was trying to take a nap amid the chaos around him. That was Stephen Nedoroscik, a member of the U.S. men's gymnastics team, who was readying himself for about 20 seconds of supremely important effort. 

His four teammates were going to perform the first 17 routines that were part of the team competition. Then they were going to turn to Nedoroscik, the only American to ever win a world championship on the pommel horse, and ask him to bring them home on his specialty. At stake: the team's first Olympic medal in 16 years.

He delivered. Big time. His teammates knew it, too, long before they saw the score that put them well ahead of the fourth place team. They were jumping up and down even as he began his dismount, and they mobbed him as soon as they could get to him.

Social media mobbed him, too. My daughters tell me that for a while their various feeds were 80% about Nedoroscik. 

How did Nedoroscik even get the change to be the hero? The 25-year-old began to specialize in the pommel horse way back in high school, when he found he wasn't progressing in the other events. That specialization is the only way he could have made an Olympic team.

And what does his success have to do with insurance? More than you might think. I'll explain. 

Nedoroscik is a quirky fellow... some of it by necessity: He has a disease that renders his eyes permanently dilated. Glasses let him deal with day-to-day life, but on the pommel horse he has to operate by feel. He's also an amiable nerd, an electrical engineering major who solves the Rubik's Cube in less than 10 seconds.

But his decade of specialization has parallels in insurance, where many MGAs and excess and surplus carriers have thrived in recent years. My theory is that insurers will be able to specialize more and more because we're gathering better and better data, letting us become far more precise than was possible with traditional risk pools. 

If you're intrigued by the possibilities, I commend to your attention the interview I did recently with my longtime friend and colleague Andrew Robinson, the CEO of Skyward Specialty, which has been extremely successful with a "rule your niche" strategy. (In case that interview doesn't set your heart racing, here is a link to Nedoroscik's medal-clinching routine.)

Not that specialization is easy. In fact, Andrew predicts a shakeout in specialty lines because he sees a lot of junk as well as some excellence. 

The key is to start with "a peril, an industry area, a line of business or some combination of the three" that isn't awash in competition, Andrew says — like, for instance, the pommel horse, probably the least glamorous of the men's gymnastics events. And that's just the start: You then have to figure out a way to become world-class, like Nedoroscik, at understanding and serving that market. 

After you figure out those issues, you can start working on your Rubik's Cube skills.

Cheers,

Paul