The adage that “everybody talks about the weather, but nobody does anything about it” – often attributed to Mark Twain but written by Charles Dudley Warner in 1897 – is no longer true, especially when it comes to its current and future impact on the insurance industry.  

Simply stated, extreme weather is disrupting property & casualty insurance profitability while destroying coverage affordability and restricting availability. 

The term "climatic change" was first used in a 1975 article titled "Climatic Change: Are We on the Brink of a Pronounced Global Warming?", by Wallace Broecker, a geochemist at Columbia University. Since then, the expression “climate change” has grown to encompass a wide variety of climatological, natural and man-made weather phenomena. The terms "global warming" and "climate change" became more common in the 1980s and are often used interchangeably. 

However, technically, "global warming" only refers to increased surface warming, while "climate change" describes both global warming and its effects on Earth's climate system, such as precipitation changes. 

Paradigm Shift from ‘Repair and Replace’ to ‘Predict and Prevent’

Ironically, these new threats may have surfaced at a perfect time to encourage the insurance industry to finally transform its legacy approaches to risk managements to position itself for the rapidly transforming new economy. At the heart of this makeover is a critical paradigm shift, albeit still early on, from "repair and replace" to a "predict and prevent" mindset applied across the enterprise: product design, underwriting, distribution, claims, service and marketing. Some refer to this capability as resiliency. Climate tech to the rescue.    

And not immaterially, in its new report titled “Building A Climate-Resilient Future,” launched at COP28, Oliver Wyman observes that “by playing a larger role in increasing resilience, insurers have the power to reduce overall weather-related losses, protect their existing markets and expand coverage into new markets — the combination of which presents a $71 billion annual revenue opportunity for the insurance industry.”

Climate Tech and Insurance

For purposes of this article, we have narrowed the lens of the discussion to a specific, more practical short-term focus on what we will call “climate tech” as it relates to extreme weather and its implications for the P&C insurance industry. 

We define climate tech as technology-enabled tools and solutions that can avoid, limit, mitigate and remediate the impact of extreme weather events on policyholders and their property, whether man-made or natural. This includes emergency response and triage services. 

These technologies include sensors and IoT devices connected to people, homes and property, more accurate weather forecasting, satellite aerial imagery, parametric insurance, earthquake warning systems, catastrophe planning and management software and data-driven decision-making.

Extreme weather is disrupting the claims and repair industry

Extreme weather events, including hurricanes, tornadoes, wildfire and, most recently, convective storms, are converging and somewhat of a moving target, competing for the top spot in severity. Carriers are beginning to explore and use climate tech technologies to better predict and react in several ways.

According to the recently released Q2 findings of CCC Intelligent Solutions' 2024 Crash Course report, more frequent and severe storms are resulting in a surge of higher auto insurance claims costs and longer repair times. The report encourages improved preparation efforts through robust strategies and technologies, including leveraging AI-powered tools with historical data and predictive analytic capabilities to improve storm severity forecasting.

See also: Climate and Catastrophe Risk Strategies

The Role of Re/insurers

Global re/insurers are well positioned to support and encourage carrier adoption of climate tech solutions 

Risk Management Partners, a unit of Munich Re, recently announced a partnership with IT consulting firm CGI to help insurers reduce claims and increase profitability. Munich Re will combine its intelligence platform with CGI's climate risk mitigation offerings to provide insurers with a platform that enables data-driven decision-making.

Wildfires are an escalating threat, consistently surpassing historical records. Since 2000, they have consumed 7 million acres annually, double the yearly acreage burned in the 1990s, according to Swiss Re. Swiss Re, in collaboration with Bellwether, announced that it is using AI and comprehensive data harvesting to enhance underwriting capabilities for insurers facing wildfire risk.

INSURANCE FOCUS ON CLIMATE TECH

Capital and resources are beginning to flow into the climate tech space in a variety of forms. The most common are private equity and venture capital investments, start-ups and early-stage market entrants, new insurance products specifically for climate tech solutions, re/insurers conducting research and development of potential tools and solutions and larger established companies extending their capabilities into products and services focused specifically on “sustainability” and “resilience” initiatives.

One innovative example of this comes from Solera, a vehicle lifecycle management data provider, and its new suite of solutions "Sustainable Estimatics," which analyze and measure the CO2 emissions of the touchpoints in the value chain of the auto claims journey, providing information to minimize the CO2 emissions of the claim managed by insurers,

Chubb: Insurance for Climate Tech Companies

As the global population grows and energy demands increase, clean technology companies are critical to the global economy. As climate tech businesses innovate, they face unique risks due to both the unprecedented nature of their operations and the urgency of scaling for the low-carbon transition. 

These are the companies developing the cutting-edge products, services and technologies necessary to mitigate greenhouse gas emissions and protect Earth’s natural resources during the energy transition.

Chubb is leveraging its expertise in the climate tech industry to support these clients and help protect their organizations.

The Geneva Association

Affordable insurance solutions are a prerequisite to attracting sufficient investment in climate technologies and deploying them widely. Assessing and mitigating the risks involved in projects are, in turn, key to developing such solutions. 

The Geneva Association is the only global association of insurance companies; its members are insurance and reinsurance CEOs. In total, the companies of Geneva Association members are based in 26 countries around the world; manage $21 trillion in assets; employ more than 2.5 million people; and protect 2.6 billion people.

The Geneva Association's two-part research series explores how insurers can help facilitate the commercialization of climate tech.

The first report – "Climate Tech for Industrial Decarbonization: What role for insurers?" – examines the climate tech commercialization landscape and presents perspectives of C-level insurance executives on what the industry can offer in this space. It finds that engaging re/insurers from the very early stages of climate tech projects is critical.     

The second report – "Bringing Climate Tech to Market: The powerful role of insurance" – focuses on how the insurability of climate technologies can be enhanced. It presents a novel "insurability readiness framework" that can be used to pinpoint the areas within climate technologies that pose the greatest challenges to insurability. The framework is applied to two technologies – green hydrogen and carbon management – to demonstrate its use.

JVP (Jerusalem Venture Partners)

In May, JVP (Jerusalem Venture Partners) announced the launch of an international initiative to boost AI technologies in insurtech and climate tech, attracting delegations of hundreds of investors from across the globe, including North America, South America, Australia, Europe, Asia and, notably, Israel.

Hundreds of startups, investors, global insurance industry leaders, bankers and international tech leaders came together at JVP's annual meeting in New York City, a robust testament to international partnership and support for Israeli innovation.

See also: Time To Embrace AI In Climate Change Fight

Oliver Wyman

In its new report titled “Insurance and Sustainability Opportunities for 2024,” Oliver Wyman states that sustainability disclosure is becoming mandatory. The direction of travel is clear: Audited climate and sustainability disclosures are becoming mandatory in a growing number of jurisdictions. At the forefront of this trend is the European Union’s Corporate Sustainability Reporting Directive (CSRD), for which the first disclosures are due in 2025. 

We expect to see more insurers refresh their sustainability strategies considering the results, as new ESG impacts, risks and opportunities come into focus. And because the double materiality assessment determines the scope of future disclosures, it has important long-run implications for reporting costs and risks. We will be watching to see how insurers begin to lay the groundwork for their first disclosures with descriptions of their CSRD work in their 2023 reports to be published in 2024.

Industry events

Given the emergence of climate tech, there are a number of insurance industry conferences underway and being planned, validating interest and illuminating the various related challenges and opportunities. 

In February 2024, Oliver Wyman held the first virtual "Sustainable Insurance Summit," bringing together leading industry speakers and more than 300 insurance and sustainability practitioners to network and discuss mission-critical challenges, opportunities and operational actions insurers can take to future-proof their businesses while building resilience and supporting the transition to a low-carbon world.

One live event on the horizon set for April, 2025 is ClimateTech Connect. This conference is designed for industry leaders, government officials, entrepreneurs and investors leading transformational climate resilience through technology. Primary industries include: insurance, supply chain, logistics, real estate development, land use and zoning authorities, emergency response management, public safety and agriculture. This further demonstrates the breadth and reach climate tech will have in the years ahead.

FORECAST: More Climate Change, Greater Focus and Action on Sustainability and Resilience

It is early innings for climate change and climate tech, especially in the property & casualty insurance industry, but the threats and the opportunities are already becoming clear to many.

As climate impacts continue to mount and sustainability disclosure requirements push insurers to focus more clearly on climate-related risks and opportunities, we expect to see more insurers explicitly integrate adaptation and resilience into their sustainability strategies.

I always look forward to the release of the Global Priorities Survey by our colleagues at the International Insurance Society because it provides a reality check for me. While I read voraciously and talk to as many people in the industry as I can, I hardly have the reach of this survey, which is distributed to nearly 20,000 C-suite insurance executives around the world,

This year's survey didn't contain any huge surprises, but I confess to being struck by how much inflation is still a priority globally -- 69% of respondents listed inflation as a top-three economic priority. It's certainly been a massive issue in recent years, but it has cooled significantly -- Goldman Sachs predicted in June that it would soon drop to 2.2% in the world's developed economies -- and insurers, while initially surprised by surging prices for replacement costs, have been increasing rates to catch up.

The good news is that insurance executives generally said they were prepared to deal with inflation. That confidence is surely buttressed by a jump in emphasis on operational efficiency and, in particular, on AI, which holds enormous potential to take time and cost out of all sorts of processes. Fully 55% of executives said AI is a top-three technology and innovation priority, up from 29% last year and only 17% in 2021.

The bad news is that "more than a third of executives report that their companies are unprepared for [AI's] rapid advancement," the IIS says. "Concerns include the industry's slow adaptation to technological changes and the need for extensive reskilling due to an aging workforce."

Let's walk through some of the other intriguing numbers in the survey, as well as some color provided by Josh Landau, president of the IIS, in a conversation he and I had on Friday. 

We'll start with Josh's commentary. 

He said he wasn't surprised by the emphasis on AI. "Insurance is a pure information industry," he said, "so it can take full advantage of what AI offers." As early successes, he pointed to "augmented underwriting, to make underwriters more efficient," as well as "uses in call centers for customer service" and "uses on the analytics side, to sort through the vast amounts of data that are increasingly available."

Although many executives said their companies aren't prepared for AI, Josh said he sees progress. "AI is no longer a new topic. I liken it to when Bitcoin first came out. People didn't understand what it was. Today, people are more comfortable thinking about its value proposition or lack thereof. With generative AI, we're no longer in the first inning. It's still early innings but not the first. We've gone from, 'What's generative AI?' to 'What version of ChatGPT are you using?' or 'Are you using Copilot?'" 

On inflation, he said executives can see the problem being tamed. He also said they acknowledge that we seem to have achieved a "soft landing" -- 28% said a possible recession was a top-three economic priority, down from 43% last year and 44% in 2022. But he said "the impact of inflation is still being felt because of replacement costs on policies that were written in the past."

He also called out the results on climate change, which 60% of those surveyed said was a top priority, continuing a steady increase from 49% in 2021. The 2024 figure was even higher at property/casualty companies: 71% of executives ranked climate change as a top priority. 

The report says, "The increasing volatility of natural disasters makes it 'very difficult to predict future losses,' according to one executive. The associated increase in costs could have a 'destabilizing impact on carriers, governments and consumers.' There are also fears that climate change is driving a lack of insurability and that 'rates are rising to a point that people cannot afford insurance.' A quarter of executives say that their company is not prepared to address the issue in 2024."

Josh adds, "It's no longer just the severity of catastrophes that's increasing. The frequency is increasing, too. The problem is becoming more tangible. It's no longer a one-off event. There's a recognition that we may have to learn how to adapt to a new environment."

In general, I found the survey optimistic. Only one issue -- geopolitical conflicts -- showed up in the quadrant marked as high priority and as an area where insurance executives felt their companies were unprepared. 

While cybersecurity remains a major concern, executives are feeling more comfortable -- 62% listed it as a top priority in 2024, continuing the steady slide from 75% in 2021. The concern about managing a hybrid workforce has seemingly dissipated -- it was a top priority for 45% of executives in 2022, but that figure fell to 14% last year and stayed there this year. The worry about competition from outside the industry continued to wane, being expressed by just 22% of executives this year, down from 45% in 2021. 

Executives also report seeing major growth opportunities that they feel prepared to tackle in some of the areas I harp on at ITL, including customer engagement, product innovation and Predict & Prevent risk management services. Here's hoping....

Now, optimism always makes me a little nervous. Crises like COVID have a way of popping up unannounced. But it's still nice, at least for now, to see executives feeling good after a crazy stretch for many lines of business.

Cheers,

Paul

P.S. The IIS' report will tee up many of the sessions at its annual Global Insurance Forum, being held this year in Miami from Nov. 17-19, 

Josh also says "there will be an increased focus this year on the continuing deglobalization and derisking of supply chains, which is having an impact on insurers following the near-shoring and friend-storing trends."

That's certainly an appropriate topic for a forum being held in Miami, the gateway from the U.S. to Latin America, which figures to see a lot of economic activity as U.S. companies pursue those trends. I hope to see you there.

Building long-term relationships with customers is critical in the competitive insurance marketplace. Customer acquisition costs in the insurance business are high compared with other industries, with research showing it costs seven to nine times more to find a new customer than to retain an existing one. 

Customer portals often allow insurers to engage with their policyholders through omnichannel methods. Continuous engagement through portals plays a pivotal role in maintaining ongoing interactions while fostering loyalty and trust. Research from insured.io has shown that SMS messaging reduces cancellations by 52% when a proactive message is sent before a policy cancellation. Customers who engage repeatedly with their insurers’ portal have a 25% higher retention rate.

We live in a digital age where consumers expect immediate and personalized service, and customer portals provide a crucial touchpoint for insurers to meet these demands. Portals not only facilitate efficient self-service options but also enable insurers to proactively address customer needs, lowering dissatisfaction and increasing retention. 

By investing in robust customer engagement strategies, insurers can transform passive policyholders into active participants, driving loyalty and long-term retention.

The Importance of Continuous Engagement to Customer Loyalty

Insurers who engage with customers through proactive outreach with positive interactions can increase value and retention. The insurance process has traditionally been a difficult one for consumers, with most interactions being negative ones, like paying a bill or filing a claim. But now, policyholders can easily and inexpensively interact at any time with their insurer through different channels with tailored experiences.

Engagement starts with providing customers with the information they need when they need it, avoiding the frustrations often associated with traditional customer service. A customer portal accomplishes this omnichannel expectation by providing information at the right time through self-service options, and most consumers prefer self-service options. Positive experiences keep customers coming back to engage with the portal, with every interaction an opportunity for insurers to exceed expectations and impress customers.

But it is easy for consumers to lose trust in companies they do business with, and once trust is lost it is difficult to earn it back. Research found 65% of consumers will stop doing business with a company if it does not deliver what it has promised. This fundamental misalignment creates a gap between what a consumer believes will happen and the reality that follows — and in an industry like insurance where consumers have many options, many will shop around for a new company that better meets their expectations.

Some reasons why policyholders lose trust in their insurers after an unsatisfactory digital interaction include poor app performance, inconsistent information across channels, and impersonal interactions. 

Re-engaging customers who have had a poor experience or have become less active requires strategic outreach. Proactive communication that feels personal and targeted can bring customers back in, and every time a customer returns to the portal the insurer has another chance to showcase a new feature or benefit. This continuous re-engagement can help maintain customer relationships even when they have stopped engaging.

On the other hand, companies can engage with their customers in some key ways through personalization, including: 

• Proactive safety warnings for homeowners when bad weather approaches
• Information about how to protect homes and businesses during hurricane or wildfire season 
• Special discounts for policyholders who mitigate their risks through programs like telematics for auto insurance customers
• Updates for customers who have filed a claim, like status changes and important details
• Invoices and policy change notices are sent to customers with links allowing them to pay their bills or access their policies 
• Recommendations for additional products, like home, renters, or pet insurance
• Customizable notifications about policy activity sent to a customer’s mobile device 
• Access to policy information anywhere, at any time, from any device 

Overcoming Common Challenges With Continuous Engagement

The insurance industry often lags behind other businesses in technological advancements, hindering effective customer engagement. This lag can create a disconnect between customer expectations and their actual experiences, but investing in a customer portal can help reduce this gap.

Designing user-friendly interfaces that cater to different customer needs is crucial. Personalizing the digital experience to each policyholder gives the portal a bespoke feel while maximizing the value for the customer. Often, customers do not realize their experience is personalized, but the options and messages they see within the portal are designed to customize their insurance experience and make it seamless. Insurers should exercise caution because a poor design can lead to frustration and mistrust when consumers struggle to perform basic functions.

Another challenge insurers face is balancing communication frequency. Over-communicating can be just as detrimental as under-communicating. Consumers may disengage when there is too much communication, so finding an appropriate balance between sending helpful messages and bothering the customer is key. Insurers can help reduce this risk by considering the timing of their messages. Just-in-time push notifications about policy changes, premium payments, and severe weather are all examples of messaging that policyholders often find valuable.

Emerging technologies, particularly AI, play a significant role in enhancing customer engagement. The use of AI to access and interpret massive datasets of customer behavior is a new frontier for insurance, allowing increased personalization on a entirely new scale, with AI tools being able to assess and predict an insured's need for additional or increased coverage, provide advice on coverages, and enable much more in-depth customer service interactions. completely independent of the need for humans. 

The use of AI in this fashion, however, comes with potential challenges. Many companies, particularly regional carriers, pride themselves on their high level of customer service — and finding ways to maintain the "human touch" in AI-based interactions will become a challenge.  Insurers will need to find a proper balance of efficiency and humanity in order to stay competitive while also maintaining their same level of customer care. 

This is especially true during the claims process, where AI can provide huge advantages to workflows by adding additional context and providing detailed help along the way. But the tool cannot sacrifice the human component of much-needed empathy throughout the claims process. Ultimately AI is an absolute powerhouse of a tool for customer engagement when insurers are aware of the risk of alienating customers.

Customer Portals Build Long-Term Relationships With Continuous Engagement

Continuous engagement through customer portals is crucial for building long-term relationships and trust. Insurers can significantly enhance customer satisfaction and loyalty by offering 24/7 access to information, leveraging multi-channel communication, and personalizing interactions. This positive approach ensures that policyholders feel valued and understood, increasing retention rates.

The goal is to provide a seamless, positive customer experience that keeps policyholders engaged and loyal. As the industry evolves, insurers that effectively implement these strategies will stand out in the competitive landscape by fostering stronger, more enduring customer relationships.

Adapting to technological advancements and continuously improving the digital customer experience will be key to maintaining a competitive edge. By focusing on continuous engagement and leveraging technology effectively, insurers can meet and exceed customer expectations, ensuring long-term success in a rapidly changing market.

External Links:

1. https://www.insurancethoughtleadership.com/customer-experience/lowering-costs-customer-acquisition

2. https://39812339.fs1.hubspotusercontent-na1.net/hubfs/39812339/Insured.io%20eBook%20-%20Revolutionizing%20Customer%20Engagement.pdf?utm_medium=email&_hsenc=p2ANqtz-_DlgGcUzyy1cZrBolDV3nJNtIiqUW0fnqy1LHQS_mH4r7-Snt_eNCmpVb8MoHJwRD0HDqAYG9h5UR8OFfRhrve5z0SWg&_hsmi=277014961&utm_content=277014961&utm_source=hs_automation

3. https://www.forbes.com/sites/forbestechcouncil/2023/05/19/the-changing-face-of-customer-experience-in-the-self-service-economy/#:~:text=Many%20people%20like%20it%20that,ability%20to%20solve%20issues%20independently. 

https://www.qualtrics.com/experience-management/brand/brand-trust/

Sponsored by: ITL Partner: insured.io

In today’s insurance landscape dominated by climate change, rate changes and challenging market conditions, legacy insurance entities – both carriers and distributors - face a pressing need to enhance their agility. Shockingly, 37% of insurance companies acknowledge their resilience and agility as notably weak. A remedy is critical, as firms that exhibit strong adaptability outperform their competitors by up to 50% in total shareholder returns. 

Amid the market’s rapid shifts, fostering a leadership mindset centered on agility becomes paramount. For example, VIU by HUB, an omnichannel insurance platform, has adopted an agile strategy from the outset to navigate a competitive landscape and position itself for growth amid stagnancy elsewhere. 

See also: The Evolution of Leadership Intelligence

At its core, agile leadership starts with a mindset shift, moving away from traditional, control-oriented approaches to prioritizing learning and adaptation. It’s not just about quick responses but about continual adaptation, reflection, staying relevant and promptly meeting customer needs. Developing an agile mindset requires deliberate effort to create an environment and culture within an organization that supports it. Specifically, leading with an agile mindset involves:

• Embracing Learning and Adaptation Over Control: Agile leadership encourages viewing each situation as a learning opportunity and adjusting strategies based on new information. 
• Expanding Relational Networks: In a rapidly changing market, maintaining a robust network of relationships is crucial for staying informed and relevant. 
• Maintaining Disciplined Delivery of Results: Agility doesn’t mean chaos. It requires discipline to ensure goals are met while maintaining a focus on delivering high-quality outcomes. 
• Accepting Uncertainty and Planning for Flexibility: Leaders who accept that plans may change can create strategies that allow for quick adjustments, increasing the likelihood of success.

Think of it this way – instead of entering the day hoping nothing goes wrong, an agile leader starts each day open to new opportunities to learn and add value. This approach uses plans as guardrails for strategic direction while remaining attentive to market demands. 

The value of patience

A common misconception is that agility is solely about speed. However, true agility transcends pace, maximizing stakeholder value through resourcefulness and resilience and adeptly navigating setbacks while keeping teams motivated. For example, VIU delivered a high-quality mobile app by adapting to changing client requirements and market shifts through iterative development, collaboration and continuous learning. By embracing agility, the team demonstrated resourcefulness and resilience, delivering a successful product launch within one year of the company’s emergence. 

Similarly, agility isn’t synonymous with risk aversion or sloppiness. It demands a disciplined approach. This includes identifying operational constraints and fostering innovation within those boundaries, continuously prioritizing tasks that deliver maximum customer value and maintaining flexibility to pivot swiftly in response to challenges and opportunities, ensuring sustained competitiveness. 

The bottom line? Patience is an essential virtue for developing an agile mindset.

See also: ABCs of Digital Transformation

Translating agile leadership into action

Insurance operates in a passive dynamic compared with daily financial tools like debit cards or online banking. Insurance is a promise for future use rather than a daily necessity. This passivity has led to minimal disruption and a lack of urgency for tech advancements. By leveraging agile techniques, companies like VIU, are able to roll out numerous products quickly, even within a legacy organization such as HUB International. 

For insurance leaders seeking to enhance resilience, it’s crucial to identify gaps, develop customer-centric skills, adapt products and services and assess current agility. The following strategies help promote continuous reflection and improvement:

• Optimize Resources: Work effectively within regulatory constraints to maximize available resources. This involves understanding the regulatory environment and finding innovative ways to operate efficiently within those boundaries.
• Adapt to Dynamic Spaces: Embrace a dynamic approach by remaining adaptable to evolving industry conditions, adopting new technologies and methodologies and monitoring market shifts through regular analysis to stay ahead of the curve and mitigate the impact of unforeseen changes.
• Embrace Digital Interactions: Move toward more digital ways of interacting with clients. This not only meets the clients where they are but enhances the efficiency and effectiveness of customer interactions.
• Leverage AI: Integrate AI into business processes to increase efficiency, free time for other strategic projects and enhance customer experiences.
• Stay Customer-Focused: Continually deliver value to customers by staying attuned to their needs and preferences. This requires continuing research and engagement with the customer base.

It’s important to respond to unexpected challenges by turning them into opportunities. Insurance leaders must reflect on unplanned events and use those experiences to improve their agility. This approach can unlock new revenue streams and market expansions. As such, the maturation of leaders who adapt to uncertainty is crucial, especially in a dynamic industry like insurance, shifting from analog to digital while navigating regulatory pressures. 

Over all, insurers must prioritize leadership development to sustain agile practices amid uncertainty and rapid change. These legacy entities must focus on developing the right agile leadership mindsights among their leaders and creating the environments for these agile mindsets to flourish. By doing so, they can enhance their resilience and outperform competitors in a thriving market landscape. Given the trajectory of today’s insurance environment, acting now to cultivate adaptable leaders enables companies to turn disruptions into advantages and drive success in an ever-changing environment. 

Let's be clear: The job of an underwriter is not easy. It is complex and multi-stage, requiring precise data management, communication with various stakeholders and the application of sophisticated risk analyses.

A typical day for an underwriter starts with reviewing dozens of emails, most of which pertain to inquiries, documentation or updates on claim statuses. Next, the underwriter moves on to manually entering data into various systems, verifying documents and analyzing the risks associated with individual policies. Any error or missing information can lead to delays, damaging customer satisfaction and overall work efficiency.

In discussions with representatives from the insurance sector, I have noticed numerous challenges facing underwriters. In this article, I would like to present a remedy for the various inconveniences of underwriters' work. 

Challenges Facing Underwriters

Underwriters struggle with daily chaos and information overload due to the processing of enormous amounts of information. Documentation, emails, insurance applications and client data all must be thoroughly assessed. The lack of consistent and integrated systems does not help, leading to errors and delays.

Decision-making processes, still based on manual data processing and risk assessment, also contribute to delays. It is common for underwriters to wait for additional information or approvals.

Significantly, manual data entry is still prevalent. This activity prolongs working hours, is monotonous and time-consuming and increases the risk of errors. 

Additionally, changing legal and regulatory requirements necessitate continuous knowledge updates and process adjustments.

All these challenges ultimately affect the customer, whose expectations for fast and personalized service are rising. Underwriters need to respond quickly to inquiries, tailor offers and provide support at every stage of the insurance process. Otherwise, the company risks losing the hard-earned customer.

See also: AI's Role in Commercial Underwriting

The New Era of Underwriting

The future of underwriting is looking bright thanks to artificial intelligence (AI) and business rules engines (BRE). Let’s explore how these solutions can enhance the efficiency of underwriters' work.

Artificial Intelligence

Underwriters perform many repetitive tasks, such as data entry, sending emails, generating routine reports and monitoring application statuses, which consume a significant portion of their workday. 

How AI can help them in their daily work?

Aan underwriter at a property insurance company may be required to enter property details and client information into multiple systems. AI can automate these tasks by automatically filling forms based on previous entries or sending automated policy renewal reminders.

Another example from the underwriter's life involves reviewing numerous insurance applications, each containing extensive documentation such as medical records, financial statements and credit histories. An underwriter handling life insurance policies might need to review detailed medical histories to assess the risk associated with pre-existing conditions. With AI-driven data processing automation, these documents are quickly scanned, and relevant data points extracted and analyzed. This automation not only reduces the time spent on manual data entry but also ensures that all critical information is accurately captured and easily accessible for risk assessment.

Another example could be an underwriter working for an auto insurance company. They must assess the risk associated with insuring a driver by analyzing factors such as driving history, age, location and vehicle type. Traditionally, this process involves manual analysis of historical claims data and personal information. AI can streamline this process by using machine learning algorithms to analyze vast amounts of historical data, identify patterns and predict the likelihood of future claims. This enables the insurer to make faster and more accurate decisions regarding premium rates and policy terms.

Business Rules Engine

In the underwriting process, a BRE allows for the automatic management of repetitive and rule-based tasks. However, nothing happens by itself. BRE is a tool through which underwriters themselves decide what will be implemented. How certain tasks are carried out will depend on the rules they create.

Consider a flood. Last year, the residents of this area experienced a flood, and this year their insurance policy is up for renewal. All of them have a so-called flood damage claim. The insurer, however, does not want to take on the flood risk, so the policy renewal must go through an underwriter. Traditionally, the underwriter would have to review each application individually. Using a BRE, a single rule is enough to handle everything automatically. 

Another example of using a BRE is in auto insurance, where it can assess the driver's risk level by automatically checking their driving history. If the applicant has had no traffic accidents in the past five years, the BRE assigns a lower risk score and approves the policy with a lower premium. If the applicant has multiple violations or accidents, the BRE flags the application for review. This automation not only streamlines the policy issuance process but also ensures consistency and accuracy in risk assessments.

BRE also helps maintain information consistency. In a health insurance company, underwriters can use a BRE to verify customer information. The BRE checks the consistency of personal details, such as age or date of birth. If the client's age does not match the date of birth, the BRE automatically flags it for correction. This validation step helps maintain high data quality.

BRE lets underwriters focus on more strategic and valuable activities. 

See also: Insurance Underwriting Will Never Be the Same

Will Automation Replace Underwriters?

Will automation completely replace underwriters? The answer is not straightforward and requires understanding how automation affects various aspects of underwriters' work.

Automation can significantly ease underwriters' daily tasks by taking over routine and repetitive tasks, such as data collection and verification, preliminary risk assessments and the generation of standard reports and documents. Underwriters will still play a crucial role in managing and overseeing automation technologies. Their expertise is essential for calibrating AI systems and updating business rules to comply with current industry standards and regulations.

Automation cannot replace the human experience and intuition in solving complex risk cases. Underwriters will still be necessary for analyzing situations that require a personalized approach and deep industry knowledge.

Automation also cannot replace human interaction. High-quality customer service often requires personal contact and interpersonal skills, which are challenging to automate. 

Conclusion: Automation as an Opportunity

Modern technology will support underwriters, not replace them. This opportunity leads to synergy, which can benefit both insurance companies and their clients. With automation, underwriters can focus on more strategic and complex tasks, increasing their job satisfaction and efficiency. Meanwhile, faster customer service, error reduction, and process optimization lead to increased profits and better customer service.

According to a McKinsey report, automation can increase operational efficiency in insurance by 30% to 40% and reduce claim processing time by 50%. This proves that investing in modern technologies and automating underwriting processes is not just a trend but a necessity to stay competitive in the market.

Among drivers and insurers alike, usage-based insurance (UBI) programs have increased in popularity in recent years. The UBI market is projected to grow from $30.6 billion in 2023 to $80.7 billion by 2028 – and for good reason. According to WalletHub, switching to UBI can save drivers 10% to 15% in annual costs. Moreover, UBI’s rise in popularity is important considering the financial pressures insurers face and the trend toward price increases, with 31% of auto insurers raising rates in 2023 by an average of 16%. 

As more drivers opt for UBI to save money, insurers have an opportunity to capitalize on and maximize their UBI offerings. How exactly? The answer lies in the data that UBI employs. 

UBI programs can leverage technology that provides real-time information and insight into a policyholder’s driving habits, such as driving patterns, speed, phone usage and sudden stops. Insurers can use this same data to implement a crash response component in their UBI program to identify probable accidents and immediately dispatch emergency support, enabling a faster accident response. 

While this technology is readily available, many insurance programs are not applying it in a way that maximizes its full potential and allows a faster crash response. In turn, insurers are leaving myriad benefits on the table for themselves and their policyholders. 

Let’s explore why crash response can be a game-changer when introduced into UBI programs.

See also: Could Auto Accidents Be Reduced by More Than Half?

Reducing Claims Expenses and Cycle Times

One of the most straightforward benefits of enabling crash response is saving time and money. A frequent challenge in the auto insurance industry is the continual rise in claims costs and cycle times. According to Agero’s data and research, vehicle release fees have increased nearly 50%, and storage costs have risen as much as 66% since 2020. 

By implementing crash response capabilities into their usage-based programs, insurance carriers can help mitigate these costs by eliminating the need for customers to self-report accidents, as the technology can automatically start the first notice of loss (FNOL) process immediately after an accident. This is important because customers are taking 97% longer to report an accident, on average, compared with just four years ago. With crash response, insurers can immediately dispatch a tow to the accident scene and begin the appraisal and repair process, leading to a shorter claim, reduced storage costs and fewer secondary tows.

Bolstering Policyholder Retention and Business Growth

A notable benefit to insurers is how crash response factors into retaining clients. While policyholders are increasingly exploring more cost-effective insurance options to combat rising premiums, 40% of UBI customers report they are more likely to stick with their current carrier. According to JD Power, UBI customers have a 59-point higher price satisfaction score compared with general customers – and insurers can extend their customers’ satisfaction.

Policyholders have shown an appreciation for having someone check on their well-being when an accident occurs. With a rapid crash response system, insurers can send a direct message to the policyholder upon notification of an accident to verify the notification is correct. In some cases, the crash response technology may send a false positive alert, resulting in a wellness check to a client who wasn’t in an accident. However, over half of these “wellness checks” resulted in a full 10 out of 10 customer satisfaction rating. 

Moreover, clients involved in an actual accident spoke highly of their insurers and crash response technology, resulting in a higher Net Promoter Score (NPS), which measures the likelihood a customer will recommend a service or organization to others. Approximately four out of five of those involved in a crash who received this dedicated support strongly recommended the service. Combine the high customer satisfaction scores with the cost savings that UBI can provide, and insurers have a recipe for advancing business growth. 

See also: Crash Detection Will Transform Auto Claims – No, Really

Safety and Peace of Mind

While cost-savings and policyholder retention are remarkable benefits, the most important advantage of implementing crash response capabilities into UBI programs is increasing safety. Driving behaviors have grown more dangerous, resulting in increased bodily injury claims, more severe injuries, and a continued rise in traffic-related deaths. Enabling a rapid response to accidents is crucial to the safety of policyholders. When every second matters, an instant alert can be a life-saving factor in rapid EMS response.  

While crash detection is an important part of the process, providing a human touch is essential in the aftermath of an accident, as that ensures drivers get the help they need and can provide a calming presence in an otherwise stressful and scary event. Implementing a crash response system allows carriers to demonstrate a focus on customer health, safety and support in their time of need. Having a dedicated, highly trained support specialist communicate with a policyholder following a traumatic accident can profoundly affect drivers and provide peace of mind.  

Simply implementing a UBI program can help keep a driver safe. When drivers know they are being monitored, they adopt safer driving habits. After the switch to UBI, 80% of people reported improving their driving behaviors, resulting in 45% fewer accidents and potentially decreasing crash-related injuries and fatal accidents.

The Bottom Line

When considering the many benefits, the importance of including crash response capabilities in UBI programs seems evident. According to Statista, there are approximately 6 million passenger car accidents each year. In these moments, it’s crucial not to leave those affected waiting for a response. 

With the increase in popularity of UBI programs, the data and technology that can enable a faster crash response to these accidents are readily available, and using them should be standard. Excluding a crash response component in UBI programs is a missed opportunity for insurers to differentiate themselves to policyholders. By implementing crash response capabilities into these programs, insurers can unlock the many benefits and, most importantly, save lives.

Labeled as slow movers, insurers are perhaps the only ones with live investments in generative AI (GenAI) across the board. The data at the industry’s disposal has hit critical mass, which, coupled with its proclivity to meet customers at the point of need, sets the stage to cash in efficiency gains up to 10% to 20% with GenAI. 

However, as the industry pivots to an ecosystem, witnessing decentralized distribution and customer acquisition with insurtechs and embedded insurance, it will need GenAI to scale up across the value chain, not just at the enterprise level, to be transformational.

See also: Balancing AI and the Future of Insurance

Pockets of Opportunity to Plug in GenAI 

We see the industry responding to a new reality with these trends, setting the stage for multiple, valuable GenAI use cases:

• Behavior-Linked Premiums: Despite collecting scads of customer data to assess risks, insurers still face the possibility of information asymmetry. Moral hazard, where the policyholder retains critical knowledge that leads to the insurer onboarding excessive risks, is a case in point. Integrating with alternate data sources (social media, telecoms, automobile manufacturers, hospitals, etc.) can offer a breakthrough. For instance, for auto insurance, large language models (LLMs) trained on alternate data sources can generate dynamic quotes based on a customer’s historical traffic tickets, auto repairs and most-frequented routes as per in-car navigation systems or ride-sharing apps. This dynamic quote turns into "pay-as-you-drive," conveyed to the customer in real-time through GenAI, paving the way for behavior-linked premiums that reward good behavior and push customers to de-risk.
• Real-Time Risk Assessment: Given the rise of the Internet of Things, insurers have newer avenues to price in risk. For instance, smartwatches and fitness trackers can help gauge a customer’s physical activity and estimate the quality of life based on recorded calorie intake. A GenAI-led self-assessment portal can query the customer on vital health information and, if required, redirect them to a local clinic for further investigation. After issuing a policy, the insurer can correlate real-time data streaming from fitness trackers to dynamically adjust premiums based on changing risk profiles. Another example would be using drones to assess a landscape for property insurance with real-time footage to assess the estate, helping insurers offer dynamic coverage based on usage, upkeep and the possibility of a calamity.
• Streamlined Distribution: With granular behavioral information and real-time premiums, insurers can embed offerings directly at the point of sale. Customers are more likely to buy insurance products when they are bundled with utilities – for example, auto insurance when purchasing a new car. Another trend could be microinsurance, where customers opt to insure sub-parts, resulting in sales uplift and upsell/cross-sell opportunities. It also allows insurers to embed offers in partner channels, such as house insurance for properties hosted via Airbnb, where premiums are commensurate with the number of days the property was rented out. GenAI can make this transition seamless, opening a channel for insurers and policyholders to communicate in real time with minimal hold-ups.
• Friction-Free Workflows: Post-pandemic, insurers put their weight behind digitizing processes to streamline customer onboarding, underwriting and claims processing. Despite tangible benefits, there is still scope to reduce latent friction. For instance, a customer fills in information such as name, age, address and bank details while signing up for a policy.  Instead, by leveraging LLMs with access to third-party databases (enterprise or government), these details can be auto-populated with a customer’s Social Security number, reducing the number of required input fields. Similarly, the insurer can leverage GenAI to assess gaps in claims settlement, request additional documentation, analyze it in real time and significantly accelerate the time to closure.

The Long Haul 

Before getting started with GenAI, insurers must factor in the following caveats:

• Consent-First Data Usage: Personally identifiable information (PII) and behavioral data are used to dynamically price in risk and offer customizations. It is also used to group customers into cohorts, influencing decisions on who gets left out of the insurance fold. It is critical to secure explicit consent to use customer data for decisions that may directly affect them, build guardrails to only use data that has been consented to and for the purpose it was collected and purge the data if consent is revoked. 
• Regulatory Oversight: Weighing GenAI’s gains against potential misuse, regulators are pushing for ethical, transparent and responsible use of AI. Insurers must ensure the AI models or LLMs are trained on data free from bias – something that needs to be checked, remedied and reinforced with model validation. Insurers should also maintain audit trails of periodic model testing for compliance. 
• Data Security: Because they collect hordes of PIIs, insurers have always been a prime target for cyber-criminals. A booming ecosystem of third-party intermediaries and non-industry players increases failure points exponentially. It is no longer sufficient to secure internal IT and data against breaches or misuse; Insurers have a fiduciary duty to ensure data is protected as it moves across the value chain. 
• Higher Integration: GenAI requires real-time data from alternate sources that are outside insurers’ control. For GenAI to scale up, insurers must forge strategic ties with external stakeholders to enable data interoperability among systems hosted in different environments. Open source is a way forward but remains a reach for traditional insurers.

Preparing the Deck: A Comparative Analysis With Other Industries

As the insurance sector navigates its journey through GenAI scale-up, it can help to take lessons on unique challenges and opportunities from similar initiatives in other industries. 

See also: The 10 Biggest Mistakes in AI Strategies

Business leaders may not say, "I did it because AI told me to do it.” That is why explainable, responsible and transparent AI is the first step and the hardest. Developing interpretable and explainable models calls for a well-documented data architecture that includes training data sources, decision-making criteria and logic and bias considerations.

The right technology partner can deliver a robust governance practice that addresses the ethical, social, privacy, regulatory and security aspects of AI adoption. They can also streamline consent-driven data usage with rule-based access policies, building secure and interoperable mechanisms for storing, using and transmitting data—enabling insurers to scale GenAI responsibly.

As with the broader economy, inflation and other disruptive forces have hit the insurance industry. Costly claims and business turbulence over the past few years have made profitability elusive for many insurance companies.

Technology is part of this equation. A Forrester survey of 104 global insurance decision makers, sponsored by EdgeVerve, found that more than half (53%) said their transformation efforts have not been very successful in achieving desired business outcomes. In another study, Deloitte found that most of the 100 IT executives in the U.S. life and annuity market it surveyed had begun their core system modernization journey, but fewer than one-third had completed some or all of their initiatives.

Transformation is, indeed, a journey. Not just a project, but a way of operating. The question is – where are you on this path? If you’re falling behind, look around and try to reboot through automation. If you’re further along, it may be time to start layering AI into your workflows or, better yet, platforms. If you’re advanced, look for opportunities to grow, especially on the customer-facing side.

See also: Why Hasn't Insurance Automated More?

Laggards Should Automate

Insurance companies lacking optimized technology stacks face several persistent challenges that hinder operational efficiency. These include manual processes and paperwork, siloed data and systems that prevent comprehensive views, inefficient underwriting and claims processes and inadequate customer focus.

Sometimes you can address several challenges at once. Take the case of a U.S.-based healthcare insurance company serving 39 million people across multiple plans and services. Their pain points? Heavy manual intervention across claims processing, ticketing and business operations. The complexity drove up errors, despite extensive quality checks. Overall inefficiencies had led to about 70,000 records in backlog.

Following our advice, this insurer automated more than 80 processes across several portfolios, and to great effect. Cross-functional bots worked on multiple tasks, delivering savings that approximated about 170 full-time employees. The software powered a break-even within a year, enabled a 7% increase in productivity, reduced errors to below the human rate, eliminated the massive backlog and boosted overall customer experience.

Intermediate Steps: AI and Platforms

Successful automation means companies have connected the dots – and data – between plans, services and customers. Intermediate or advanced connectivity also correlates with a greater willingness to adopt AI and platform-based approaches to transformation.

It makes sense that insurers with intermediate or advanced connectivity are gravitating toward the adoption of AI, as the Forrester survey indicates. The use of software bots is a beginning, not an endpoint. Technology providers, both legacy and insurtech, are supporting generative AI agents, augmenting the more rigid preset rules of automation with AI’s human-like flexibility.

More digitally mature insurers are also looking at platforms. Not only as a way to connect systems, but also to orchestrate business and technology and tap into enhanced capabilities. Automation combined with advanced analytics, for instance, allows insurers to swiftly analyze large volumes of data, improve the accuracy of risk assessment and make better decisions during the underwriting process. Insurers also see platforms as a way to access prebuilt AI capabilities.   

See also: How Life Insurers Can Leverage Generative AI

Advanced Targets: Customer Engagement

The Deloitte report notes that advanced technologies can help insurers achieve more strategic goals, such as personalized coverage, better customer relations and more effective outreach to underserved segments. Many such initiatives involve closer ties with customers, who have grown to expect service and experiences comparable to those provided by e-commerce giants.

The long-term digital transformation journey of insurance companies, therefore, involves better customer engagement. Launching an ambitious customer initiative too soon could be a mistake – without optimized internal operations, you risk overpromising and under-delivering. But timed correctly and with the right mix of capabilities, an advanced user interface can offer personalized policy recommendations, tailored communication and exceptional customer interactions that foster stronger relationships, higher customer retention rates and risk mitigation.

Crawl, Walk, Run – and Win 

Hard business cycles and disruptive innovations are difficult to manage. But technology is a key part of the solution to today’s multi-faceted challenges. “The evolving operating environment should put even more pressure on insurers across sectors to increase the use of automation, AI, advanced analytics and core transformation in the year ahead,” Deloitte’s global insurance analysts said in their 2024 outlook.

If you’ve been at digital transformation for a while, now is a good time to take stock. If you’re stalled, try to automate some of your core processes. If you’re at an intermediate stage, check out well-tested platforms and begin layering on AI. If you’re advanced, focus on your customers and strategic growth, which is ultimately the only lasting way to work your way out of a tight spot.

The COVID-19 pandemic was a catalyst for the adoption of the Internet of Things (IoT) in healthcare. Before 2019, the average person primarily connected only their computers and phones to the internet. However, the pandemic highlighted the necessity for advanced healthcare solutions. The aging population, costly medical care and outdated healthcare systems also fed the urgent need for innovative solutions to enhance patient care and operational efficiency. The adoption of IoT transcended the immediate demands of the pandemic; it has become a permanent fixture in the healthcare landscape. As IoT technology continues to advance, it is poised to drive significant developments in healthcare, often in conjunction with AI, paving the way for smarter, more responsive and efficient medical services. 

See also: 'Digital Twins': The Race Is On

The trends in IOT healthcare are:

• Remote Patient Monitoring (RPM) -- IoT devices allow for continuous monitoring of patients’ vital signs, such as heart rate, blood pressure and glucose levels. This data is transmitted to healthcare providers in real time, enabling timely interventions and reducing the need for in-person visits. In fact, with the growing number of physicians participating in RPM, new CPT codes are emerging, especially in Medicare, to deliver better patient care.
• Wearable Medical Devices --, Devices such as fitness trackers and smartwatches have become commonplace. They not only track physical activity but also monitor various health metrics, providing valuable data for both users and healthcare professionals.
• Telemedicine -- IOT facilitates better physician monitoring and interaction, allowing for more medical care to be delivered from the comfort of home. 

The Internet of Medical Things (IoMT), once a common term, is now more simply referred to as digital health. This shift in terminology reflects the broadening scope and integration of connected healthcare technologies. Digital health encompasses a wide range of applications and devices designed to improve patient outcomes, streamline operations and enhance the overall healthcare experience. This evolution signifies the mainstream acceptance and growing importance of connected health solutions in the modern medical landscape. 

In 2018, before the pandemic, the global digital health market was estimated at $86.4 billion. By 2025, it is projected to show an almost six-fold increase to more than $500 billion. Some credit Fitbit, launched in 2007, as the pioneer of digital health technologies. However, the most significant milestone came in 2017 when the FDA established a digital health unit, which has been inundated with developments and innovations since the pandemic. This surge in activity underscores the rapid growth and increasing importance of digital health in the global landscape. The COVID-19 pandemic saw the growth of digital physical therapy companies like Sword and Hinge Health. At Segen-Health, we offer a platform that addresses the multifaceted needs of individuals across the musculoskeletal (MSK) and mental health spectrum. 

See also: From Risk Transfer to Risk Prevention

With the growing interest in IoT, especially in healthcare, several challenges need to be carefully monitored. One of the most significant is ensuring cybersecurity and mitigating threats. As more devices connect to the internet, the risk of data breaches increases. Cyberattacks are becoming more frequent and constantly evolving, making it essential for healthcare providers and companies to stay ahead of the game. Implementing robust security measures and continually updating them is of utmost importance to protect sensitive patient information and maintain the integrity of healthcare systems. 

The second most significant threat to IoT in healthcare is the regulatory climate. Despite the existence of digital health unit within the FDA, it has struggled to keep up with the demands and the rapidly changing environment. There is no clear regulatory path forward or established guidelines on who should oversee these technologies. Part of the issue is that IoT in healthcare encompasses a wide range of applications, from Fitbit devices to healthcare visits and remote monitoring. This diversity means there is no one-size-fits-all solution. Additionally, the integration of AI into healthcare complicates the regulatory landscape, as there is currently no dedicated body to regulate AI specifically within the medical field. 

IoT remains a vital technology for companies in 2024, with significant applications in the healthcare sector. The COVID-19 pandemic accelerated its adoption, highlighting the benefits of remote patient monitoring, smart medical devices, telemedicine and operational efficiency. While challenges such as data security and regulatory compliance exist, the potential of IoT in healthcare is immense, promising improved patient outcomes and more efficient healthcare delivery.

Ron Rock, Managing Director, Financial Services at JobsOhio, recently moderated a panel discussion at InsurTech Insights Europe.  Learn from industry leaders who discuss the current trends and best practices for sustained growth, customer acquisition and product development within the InsurTech ecosystem. 

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