Paul Carroll, editor-in-chief of Insurance Thought Leadership, recently sat down with Vijay Muniswamy, senior director of product management at Vertafore, to discuss the inefficiencies in agency workflows and how to address those issues.

What follows is a transcript of that conversation, edited for length and clarity.

Paul Carroll: 

What are the main inefficiencies you've observed in agencies over the years that you're trying to address?

Vijay Muniswamy: 

Having been with Vertafore for nearly 17 years, my primary role has been to work on document management and workflow optimization for agencies. Workflow standardization is crucial because when each agency user performs the same process differently, it leads to a lack of standardization and potential loss of efficiency.

The ImageRight and WorkSmart products I've worked on for over 16 years help bridge that gap by creating a standard workflow model for each process, such as an endorsement or renewal. This ensures that everyone follows the same optimal steps.

Historically, people often do things differently based on their familiarity with the solution and their tenure. When not using a workflow solution, everyone tends to do things differently based on their comfort level.

Paul Carroll: 

Where do the inefficiencies arise when employees at an agency have different ways of working?

Vijay Muniswamy: 

The issues vary among agencies. They can show up as the largest agencies grow by acquiring smaller ones. People from these acquired agencies may have been using different solutions and have different ways of working before being onboarded onto a standard solution.

When leadership looks at the agency's productivity and tries to assess operational efficiency, such as how many new businesses and endorsements are being written per day/week/month, they don't get a unified view if everybody is doing things differently. However, if everyone follows a systematic, standard process in executing workflows, leadership can view the information through the same lens.

This allows them to understand why one team might be taking longer to do something than another team, considering factors such as the types of businesses they're writing, the carriers they're working with, etc. Having a unified lens provides leadership with the information they need to assess how well their teams are performing.

Paul Carroll: 

What are other benefits of workflow management systems for insurance agencies?

Vijay Muniswamy: 

Workflow management systems offer two primary benefits for insurance agencies, each catering to different stakeholders within the organization. The first set of stakeholders are the management and business leaders who are focused on understanding profitability margins, operational efficiency and business growth. For them, the insights provided by the system regarding time spent on tasks and overall performance are crucial.

The second set of stakeholders are the service team members, who are critical to any agency. Their primary concern is operational efficiency, as they spend a significant amount of time servicing customers end-to-end. Streamlined workflow management systems help them handle requests more quickly and efficiently, allowing them to accomplish more in a given day with less effort.

Paul Carroll: 

With Project Impact, you're promising a dramatic improvement in efficiency. What breakthroughs have you seen over the last months or years that allow you to make that promise?

Vijay Muniswamy: 

Our team has put a lot of time and effort into data collection for Project Impact. We’ve personally sat with more than 110 agency service personas over eight months to learn more about the challenges they face, and where we can drive efficiency. One of the breakthroughs concerns all the manual work people are doing within an optimized workflow. For instance, when an email comes into a user's inbox, the user spends a significant amount of time indexing that information and determining where it needs to go in the workflow.

We can achieve efficiency gains by utilizing technologies like AI, OCR [optical character recognition] and automated AI to read the unstructured information in the email, predict with great accuracy what it's about and place it directly into the appropriate workflow, notifying the user to start working on it. This eliminates the overhead of someone manually identifying and routing the email.

Another area of optimization is in document handling. Users often describe documents so they can identify and retrieve relevant information about the document, such as the associated policy and its effects. AI and automation can be employed to identify all the important parameters of a document and present them consistently throughout the system, eliminating the need for users to perform duplicate data entry.

Furthermore, in the insurance industry, many lines of business are built on standards. However, some specialty lines like cyber coverage, D&O insurance, employee practice liability and errors and omissions insurance lack standard models for capturing data in most management systems. This leads to account managers taking notes, creating their own Excel sheets or using miscellaneous forms that don't accurately capture details needed to get the policy quoted for the line of business.

By providing standards for these specialty areas, we can reduce the data collecting burden on users. Additionally, we're focusing on supporting data entry and management, making it easier for users and reducing their workload. If the system can automatically populate and preview information, it frees time for users to focus on other tasks.

Certificate management is another area where we've identified opportunities for optimization and operational efficiency by allowing reduced handling times and providing self-service options for their clients. Lastly, we're working on processing efficiency by eliminating the need for duplicate and redundant information, removing “noise” from the user workflow with fewer clicks, streamlined processes, quick actions – focused on speeding up key processes.

Paul Carroll: 

Insurance is obviously very much a document-based, form-based industry. Thirty years ago, I wrote an article in the Wall Street Journal about how you could input information directly into a computer; it might use an interface that looks like a form, but then it becomes data. Is that sort of shift from forms to data happening in insurance?

Vijay Muniswamy: 

The notion that forms would disappear has been around for a long time, but it hasn't come to fruition yet. While technology has certainly evolved and automated many aspects of data collection and processing, forms remain a reliable and familiar tool. They provide structure and consistency, which is important for both the user experience and data integrity.

However, the nature and presentation of forms have adapted to the digital landscape. We now have web-based forms, mobile-friendly forms and forms that are integrated with various software systems. The key is to make forms more user-friendly, intuitive and efficient, rather than trying to eliminate them altogether.

The goal is to strike a balance between the benefits of structured data collection and the need for a seamless user experience.

Paul Carroll: 

More broadly, how is the insurance industry shifting from a document-based to a data-driven approach?

Vijay Muniswamy: 

The transition is definitely happening, but not at the desired pace. For instance, when it comes to data downloads from carriers to agents, not all lines of business supported by the carriers are directly downloaded into an agency's system.

Some carriers still rely on their older systems, where they generate policy documents that are stored in their carrier portal. Agents then have to either access the carrier's portal directly to download the documents or rely on their relationships with underwriters, who email them the documents.

While there has been significant improvement over the last decade, with more and more information being downloaded to avoid dealing with unstructured data and documents, it will still take some time. The industry is still operating on the principles of data capture, extraction and transmission to carriers, as well as receiving downloaded information from them.

Paul Carroll: 

So I wasn't wrong, just really early?

Vijay Muniswamy: 

We all want things early, but insurance is a very slow-moving industry. But I've witnessed transformation, such as our transition from on-premises to online solutions.

Many of our customers were initially hesitant to move their data from on-premises servers to the cloud. Some still have reservations about storing their data in the cloud rather than on their own servers.

I would love to see everything move from an unstructured format to more structured data, downloads and automation of data. While progress has been gradual, the insurance industry is undoubtedly evolving in its adoption of technology.

Paul Carroll: 

Thanks so much.

About Vijay Muniswamy

Vijay Muniswamy is the senior director of product management at Vertafore. He has 25-plus years of experience in the IT industry and 15-plus in the insurance industry. He has been with Vertafore on the product management team since 2007. He serves as the head of Project Impact, which is geared toward optimizing and enhancing the workflows of Vertafore's product portfolio, with a primary focus on elevating operational performance for the servicing persona. He is also responsible for translating customer needs into product features and strategic product road maps.

Andrew Robinson became Skyward Specialty’s second chief executive officer in May 2020 and is a highly experienced and successful global insurance executive, with a 30-year-plus track record of growth, financial improvement and strategic and operational leadership. His experience includes 10 years with Hanover Insurance Group, where he was president of specialty insurance, executive vice president of corporate development and chief risk officer. Subsequently, at Crawford, he was global chief operating officer and executive vice president. While at Hanover, his responsibilities included all aspects of the company’s U.S. specialty businesses, including profit and loss and strategic and operational oversight. He was also responsible for acquisitions, divestitures, business integration and enterprise risk management for the broader enterprise. Prior to his time at Hanover, he was the managing partner of global insurance at Diamond (now PWC) Consulting and executive in residence and senior adviser at Oak HC/FT.

Paul Carroll

I have been surprised to see so many managing general agents (MGAs) and excess and surplus (E&S) carriers become rock stars, and I figure you are the perfect person to talk to, given the wave you are riding. Where has all this momentum come from?

Andrew Robinson

First, I will look through the Skyward lens, then I will broaden out. Our strategy is, Rule your niche. We are trying to target parts of the market where we believe we can deliver top quartile returns and build real, defensible positions based on technology and talent while solving problems that are meaningful to that particular part of the market. That is a winning combination. 

It is as simple as that. And the more focused you can be, probably the more defensible your position. 

We made the distinct decision to stay away from the small commercial market based on the belief that it is a very challenging market and that the big players have an information advantage that is very hard to assail. That decision has been proven right because there are a handful of insurtechs receiving huge investments, and one in particular that has raised over a half-billion dollars, that have failed to come close to the results of the better to best small commercial competitors such as Travelers and Hartford; in a number of cases they are out of business. The only place that is not true, as far as I can tell, is in cyber, and that is because that is a true, digital exposure.

We focused on the middle market because, when you get into very niche areas, the generalist sort of information doesn't apply. You really have to be able to see things specific to your market, and a lot of new data can be incredibly valuable. 

I will give you a super great example. Within our A&H business, which is a medical stop-loss business, our focus is on companies with 500 employees or fewer. A big chunk of that is companies that are coming out of the guaranteed cost market and looking to self-insure and stop-loss. Guess what? The data coming out of the major healthcare companies, the Blues and so forth. is near impossible to work with for anybody who is going to self-insure.

So how do you get somebody to self-insure? Well, we are using incredibly interesting information that allows us to assess the risks and provide early indications long before the broker has to do all the heavy data collection for us to be able to finalize the business. 

For instance, we are able to see anonymized information about drug use inside the group, like a recent prescription for an anti-nausea medicine. Almost always, anti-nausea medicines are tied to cancer. Yet there was no documentation of cancer treatment provided by the current carrier, a major health insurer. Well, sure enough, an employee’s wife had just started to be treated for breast cancer.  As such, before even working with the broker to collect all the data to present a proposal to move the group to a self-insured solution, we were able to better understand the specifics of this situation and construct a solution that formed part of our proposal. 

In an important area where the information is so opaque and poor, there was an opportunity to leapfrog, and we took it. 

There are lots of opportunities like that, particularly in dislocated, tougher parts of the market. There are creative ways to get data that allows you to do things better than others have done it both from a product standpoint and in terms of fidelity, adverse selection, pricing and delivery of services. 

That is the thesis.

Paul Carroll

My experience has been that technology migrates, sometimes from consumer applications up to business applications, but generally down, from big companies to smaller companies. It seems that insurance companies no longer need to be major carriers to have access to a lot of important innovation and that the move to AI may even accelerate that migration. But how are you seeing this playing out?

Andrew Robinson

Let me answer that in a roundabout way, with an example. 

We asked our claims leadership and technical team to focus on what factors are most likely to cause social inflation with a claim, and we tested the capabilities we have been building against those of three vendors you know but that we will not name. 

We have focused on one thing, the application of large language models on claims notes. We parse the claims notes and identify those claims that are going to contribute the most significant portion to reserve development. 

We gave the three vendors access to a historical cohort of information from a period starting more than two years ago (i.e., these claims have fully developed) and asked them to isolate those that over time would drive the greatest reserve development. Simultaneously, we developed our own approach tailored to our business, which proved to deliver double the fidelity of the best guys out there. We could identify 80% of the reserve development, and the next best book could identify 50%. The next two were worse than that. The generalist solutions are simply not as good as what we can do in certain instances.

Now, we are a $1.6 billion business, so we are not an immaterial business at this point, but you can see what is possible without having to be a top 10 carrier.

Paul Carroll

Where do you see the MGA trend going from here?

Andrew Robinson

I am not sure. You cannot say how the book will end when you are only three chapters in. 

My view of the MGA market is that, first and foremost, it is no different than what's happened in retail and wholesale, which is that private equity has gotten its claws into it, and there's a financial arbitrage model that they understand. 

And I would say to you that for every five MGAs that are out there, maybe as many as three or four are not great and can be irresponsible even at times like now when the market is generally constructive. Then of the five there are one or two that are as good or better than the better to best players out there. 

I will give you an example. We recently had a California education institution, a for-profit management liability account. We provided million-dollar entity limits and sub-limited nearly everything else due to the underlying exposure and the jurisdiction. And we charged $40,000. An MGA wrote a policy that took out all the sub limits and made each coverage part a million dollars, non-aggregating. They took all the exclusions out of the D&O. They charged $10,000. That is crazy. They are going to get pasted if that underwriting repeats. 

There is still a lot of hoopla about MGAs, and it is not over yet. But I believe a shakeout is coming.

Paul Carroll

When do you expect it? Two years? Five years?

Andrew Robinson

We are already starting to see it in certain areas. You will see it in commercial auto/trucking in the next two to 10 quarters. 

And there are some very good ones out there focused on a peril, an industry area, a line of business or some combination of the three that have real distinctive capabilities.

But there is a lot of junk out there, too.

Paul Carroll

How do you identify an opportunity?

Andrew Robinson

We ask ourselves the following questions: 

One, can we deliver top quartile underwriting profitability? Two, is there a clear line of sight for us to build a legitimately defensible position, something with a competitive moat so we can not only be good during good times but during tougher times, as well? And three, can we afford it?

I will give you a great example. We launched a global agriculture segment by focusing on markets where government subsidies are prevalent and reduce the wild swings in prices. That approach lets us write a book that includes Canada and Latin America and Asia rather than writing in one geography. The book is becoming a substantial business that is not correlated with our current business.

That is all on the back of some basic notions. That idea was two years in the making until we found the right person to lead it, because we did not know a lot about the area. And we found the right person: James Tran.

Paul Carroll

One final thing: If I am a customer working with you and other providers of niche solutions, is my life getting more complicated because I am having to knit all these solutions together rather than having a single carrier do it for me?

Andrew Robinson

Great question. 

I think it gets easier. Look at a typical Skyward construction account. One of the uncommon things we do is focus on key risk transfer contractual elements between the general contractor and subcontractors (and we insure both), such as additional insureds, waiver of subrogation, hold harmless and indemnification – these elements can materially change the risk profile of an account. Today, we deliver state-specific contract reviews for our construction clients. As we are learning how this is being used, our intent is to make available such reviews on demand via our broker portal chatbot, allowing the organization to take greater control of a key feature of risk management. 

Now, do our construction clients have 10 other risk management things to address? Sure. They have to worry about employee safety, controlling the job site and so forth. 

But if you have two or three or four of these very-high-impact, easy-to-use solutions being delivered to you, you should have greater information and control at your fingertips. That makes life a lot easier. 

Paul Carroll

Thanks, as always, Andrew.

The scourge of legal abuse in insurance is hardly new or even recent but rather has been insidiously growing throughout the industry for decades. Referred to today as social inflation, legal abuse's stakes are higher, with no signs of slowing, and so-called tort reform. 

Some 86% of Americans agree state and federal lawmakers should address the abuses of the U.S. legal system (see APCIA/MunichRe survey results below). The insurance industry can no longer rely on current strategies and responses to this threat, nor can it continue to absorb and pass along the associated costs to policyholders. 

History/Background

The term "social inflation" was coined by Warren Buffett in 1977 in a letter to Berkshire Hathaway stockholders, where he defined it as "a broad definition by society and juries of what is covered by insurance policies." In 2010, reinsurer PartnerRe expanded on the definition in a white paper stating that social inflation is the increase in insurance losses caused by:

• Higher jury awards
• More liberal treatment of claims by workers' compensation boards
• Increased use of social media
• Increasing attorney involvement in claims
• Social developments that influence jury members and lead to very high jury awards
• Widespread distrust of large corporations
• Widening of income disparities

See also: A Tipping Point for P&C Litigation

Today

Today’s operating environment has become even more challenging for carriers. Having seen record rate increases in 2022 and 2023, consumers and regulators have begun to push back. Putting further pressure on growth and profitability, a growing number of insurers have suspended auto and property policy renewals in unprofitable jurisdictions and in some cases withdrawn from the market completely until rates become more attractive.

As multi-line carriers emerge from the shadow of general cost inflation and hold their breath for the predicted more active 2024 hurricane season, the longer tail of liability claims looms like a dark cloud. Reserve accuracy comes into question with the long-tail effect in mind. For instance, fear of adverse trial decisions tends to pressure settlements upward and is just one of social inflation’s tentacles. Jury verdicts of $10 million and more, known as ‘nuclear verdicts,” as well as higher plaintiff awards in general, can cause insurers to settle cases more frequently and at higher settlement amounts than previously, distorting both reserving and loss payment patterns.

According to an AM Best special report — ‘Social Inflation Remains a Thorn in the Side of Casualty Insurers’ — the lines of business most affected by social inflation are commercial auto, professional liability, product liability and directors’ and officers’ liability insurance.

Litigation/Funding

In addition to the cumulative economic challenges presented by all the foregoing, along came “litigation funding” around 2015. Litigation funding (also known as legal financing) is the mechanism or process through which litigants can finance their litigation or other legal costs through a third-party funding company in exchange for a sizeable portion of any award or settlement. 

Litigation funding has encouraged litigation and larger awards that may otherwise have not been viable. A recent RAND research report reveals: 

• a 10% increase in the annual number of new court filings per capita between 2012 and 2019 in 19 states.
• that 64% of cases reached a verdict in favor of the plaintiff in 2019, up from 53% in 2010.

In recent years, litigation funding has experienced explosive growth and is now a multibillion-dollar industry worldwide, with an estimated $15.2 billion in commercial litigation investments in the U.S. alone. There are dozens of funding firms operating globally, both public and private, some backed by private equity investors. The global litigation funding market was valued at $18.2 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 13% through 2028.  

Only four states have litigation funding laws (Wisconsin, West Virginia, Indiana and Montana).

In March 2024, the American Property Casualty Insurance Association (APCIA) and Munich Reinsurance America, (Munich Re US) released survey results conducted by the Harris Poll among more than 2,000 U.S. adults. The results revealed that a majority of Americans are not aware of the negative impact plaintiff lawyers’ tactics, including predatory advertising and the use of third party litigation funding, have on their household costs via the “tort tax,” whether or not the household is involved in civil litigation. 

The survey also found that many Americans are not aware that the plaintiff lawyer keeps a high percentage of a settlement or jury award and that a large amount may go to third party investors who have no relationship to the claimant, other than to profit from their misfortune. 86% of Americans agree state and federal lawmakers should address the abuses of the U.S. legal system.

Attorney Involvement

Plaintiff attorney firms specializing in personal injury cases are expanding nationally and recruiting clients through aggressive advertising budgets. Morgan & Morgan is the largest such law firm in the country, with a network of over 1,000 attorneys and offices in every state. Last year, trial lawyers spent more than $2.4 billion on local TV, print, billboard and radio ads across the U.S. Claimants are bombarded with attorney marketing letters shortly after even a minor accident. After all, plaintiff attorneys have major incentives by commanding some 30% to 50% of the settlement amounts.

The degree of attorney representation rates in claims is a key metric of average claim settlement amounts. Higher rates of attorney use drive up claim costs in several ways, including lengthier claim cycle time, greater legal defense costs and ultimately higher settlement amounts. These cases also tend to focus consumer awareness on the potential rewards from litigation against insurers, fanning the flames. 

In a 2023 research survey, LexisNexis Risk Solutions found that of auto insurance claimants who hired an attorney, 57% decided to do so before submitting the claim, and 71% said the attorney encouraged them to seek additional treatment.   

A study by Sedgwick found that of litigated commercial auto claims, 55% have attorney involvement before, or the same day as, the report to carrier date. This measure was at 43% only four years ago. Meanwhile, 67% of litigated claims have attorneys involved within the first 14 days of being reported.

See also: Litigation Risks in 2024 and Beyond

Industry Response

Considering the combined effect of all of these challenges, carriers can no longer afford to stand by as their profitability is eroded and the business becomes untenable. Rising rates of litigation, jury awards and claims severity are contributing to higher liability costs. All of which are passed on to consumers and businesses through premiums.

A complex interplay of factors underscores the need for further research to isolate social inflation from other contributing elements. Although the insurance industry has spearheaded tort reform laws in several states, any organized industry pushback against litigation abuse remains disproportionate by a wide margin.

But not all industry leaders agree on the most effective strategies to combat it. Evan Greenberg, chair and chief executive officer of Chubb, explained that social attitudes pitting the little guy against big U.S. corporations are a key driver of the spiraling costs of jury verdicts. “We are not the sympathetic face to show” to change those attitudes, Greenberg said of insurers during the S&P Global Ratings 40th Annual Insurance Conference. The corporations, he said, are now motivated to lead battles that will be waged state by state and county by county, noting that a social inflation fix will not be found at the federal level.

Looking Ahead: Call to Action

The insurance industry can no longer rely solely on current strategies and responses to this threat, nor can it continue to absorb and pass along the associated costs to policyholders. Tort reform is slow and arduous and ineffective in addressing today’s trends.

We suspect that more carriers will take the lead and begin to deploy new, comprehensive short-term strategies to combat social inflation head-on. Such efforts will likely include actions designed to push back on the plaintiff bar in problematic jurisdictions; avoid litigation from the onset, bolster legal defenses altogether and perhaps take more risk via trials.

Insurance industry associations, including the APCIA, will play a key role facilitating exchanges of information among carriers wishing to adopt best practices while broadly supporting legal tort reform in an effort to ensure the long-term health and viability of the industry.

There is no better time to start than right now.

Elon Musk is driving me nuts. 

He keeps promising that a breakthrough is just around the corner for Teslas that will not only make fully autonomous driving possible but that will let owners mint money by making their vehicles available as part of a robotaxi network that Tesla will manage. And – this is the really crazy part – many investors seem to believe him even though he’s been making such empty promises for more than eight years.

He’s also now back to talking up the idea of colonizing Mars. He’s said that a million people will be living on Mars in 20 years – 30 years, tops. Even though I realize he’s in his carnival barker guise and is promoting interest in Space X, the sheer stupidity of his claims is breathtaking. We won’t have a single person living on Mars in 20 years, let alone 1 million.

While the connection between Musk’s fantasies and insurance is less direct than I generally like to be in my notes to you, I do think there are a couple of lessons here about how to test claims of coming breakthroughs, including in insurance. I’ll try not to froth at the mouth too much as I lay them out.

The first and more obvious test concerns the credibility of the visionary -- and Musk has none on the autonomous capabilities of Tesla vehicles, in my not-so-humble opinion.

It's easy to see why Musk had loads of credibility in what I think of as his Iron Man days a decade ago. He had co-founded an online city guide in the early days of the first Internet boom and sold it for more than $300 million in 1999. He then got involved early with PayPal and made a fortune. He founded Space X in 2002, with the then-audacious idea that private companies could get into space flight -- and with reusable rockets, no less. That company thrived, too. Musk put up most of a round of financing for Tesla seven months after its founding, became chairman and later won the right in a lawsuit to call himself a co-founder as the company became the leading force in electric vehicles. For good measure, Musk came up with the idea for the "no money down" model for solar installations, which was extremely popular with customers, and helped two cousins launch Solar City. 

While he has stumbled more recently with his purchase of Twitter, seemingly on a whim, his Starlink network of satellites for internet access has become a major player in communication. 

That record is extraordinary. It makes Musk one of the business titans of at least the last half-century.

But somewhere along the way he decided that selling electric vehicles as a way of saving the planet from climate change wasn't enough of a hero story. Tesla was also going to lead the way in making cars autonomous. 

With each passing year, it's become more obvious that Musk's claims have been wildly inflated or even false, but he can't seem to back away, whether because of ego or because so much of Tesla's stock value depends on the promised autonomy capabilities.

In April, I wrote that we should ignore Musk's promise of a major robotaxi announcement in early August, and, sure enough, he's now postponed the announcement to October. But two months of delay isn't anywhere near enough time to solve all the problems with Musk's autonomy strategy. (I went into detail in that piece both on Musk's long history of falsely promising that autonomy was within sight and on the bad technology choices he's made, which I believe leave him permanently behind his competition, especially Google's Waymo, so I won't repeat myself here.)

Even if Musk somehow unveils a breakthrough on his self-driving technology in October (and he won't), he's still years away from being able to deliver on his claims that owners of Teslas will be able to make them available as part of a robotaxi fleet. 

How will a car get charged once it leaves the owner's control? How will Tesla know it needs to be cleaned once some sandy kid gets in or some adults have a party in the back? Who will clean it? Who's liable when the car is involved in a drug deal? When it's in an accident? What happens when people stop a car from moving by standing around it (or simply by placing orange traffic cones on the hood, as some anti-AV residents in San Francisco learned they could do)? How do you position cars around a city while they wait to be summoned, so the summoner only waits a few minutes? How do you handle all the payment logistics with cars designed for private, individual usage?

There are more questions, too, all of them much more easily handled by a company owning the fleet, a la Waymo or General Motors' Cruise unit, than by a company managing a fleet of hundreds of thousands of privately owned vehicles.

Musk's overblown claims are catching up to him, according to a Washington Post article. It says: 

"The U.S. Justice Department is probing the company’s marketing of both Full Self-Driving and Autopilot, Tesla’s advanced driver-assistance systems. California’s Department of Motor Vehicles is also reviewing those features in light of provisions including a 2022 law prohibiting companies from using marketing and language that would “lead a reasonable person to believe that the feature allows the vehicle to function as an autonomous vehicle.” Tesla has received inquiries from the Securities and Exchange Commission related to its claims to investors, according to news reports and public filings. And a civil lawsuit in California represents drivers who say they were defrauded by the company’s claims [that their cars would earn money as robotaxis] and are seeking refunds and damages over their purchases."

Tesla's lawyers are left to argue that Full Self-Driving doesn't really mean full self-driving and that Autopilot doesn't really mean the car can operate autonomously -- in other words, that drivers have to keep their attention on the road at all times, have to be prepared to take back control at any moment and are responsible for all accidents. 

Saying, as Tesla does, that its cars are "self-driving but not autonomous" strikes me as an argument that only a lawyer could love. In the meantime, as the various investigations and lawsuits make their way through our cumbersome legal system, we as consumers and investors need to make our own assessments of whether Musk has any credibility left on his autonomy claims. 

The second test is probably more relevant to the insurance industry, given that we tend not to have the sort of splashy icons like Musk, Larry Ellison or Steve Jobs and his "reality distortion field" who can sell an idea just based on personal charisma. That test is based on plausibility and should be based on a "devil's advocate" process designed to find holes in assumptions. (My thinking is based on the process that Chunka Mui and I laid out in "Billion Dollar Lessons," a book we published in 2008 on the lessons to be learned from major business failures, but others have outlined similar processes.)

In Musk's case, it's trivial to find holes in the assumptions he's making about colonizing Mars, as reported in a lengthy recent piece in the New York Times on how he has recently begun concrete planning for his long-held dream. 

It took a massive effort to land men on the moon, 240,000 miles away, and no one has done it since, but Musk is planning on transporting 1 million people to Mars, which is 140 MILLION miles away on average. He expects to pull off the most complicated logistical feat in the history of the world without any major problems, not just transporting those people but having each wave keep building out infrastructure to welcome the new arrivals -- and that infrastructure had better be ready, because each flight to Mars would take roughly nine months, and once a group is launched there's no turning back. Musk expects, based on no particular testing to date, that people will thrive in an environment where the atmosphere is 95% carbon dioxide and gravity is only 38% of what it is here on Earth.

Even if the logistics work perfectly, think about the expense. Reports say the cost of putting a pound of something into orbit via Space X can be as low as $1,200, so what would the cost of sending a pound of something to Mars be? Given the kind of rocket that would be needed to get to Mars, the nine months of travel time in each direction and the need for the rocket to be able to land on Mars and return to Earth for the next shipment, I'll spitball an estimate of $250,000 to $500,000 a pound. And we'd need to send hundreds of millions or billions of pounds of material to Mars to construct a Musk city that would house 1 million people. 

Finally, ask yourself why we'd go to all this effort. Sure, it'd be great for Space X, but why would the rest of us want to spend all the money and other resources? If we thought Earth would be uninhabitable in the next half-century or so, then, absolutely, but no one is predicting a future that extreme. And even if the forecasts on climate change were that dire, why wouldn't we spend hundreds of trillions of dollars fixing Earth rather than trying to colonize a planet that we've never even been to and that is far less hospitable than Earth has been?

In the insurance world, we've had something of a lesson over the past decade of insurtech about the need to check for plausibility. While I hardly got every call right, I doubted the peer-to-peer model from the get-go because I didn't think there'd be enough capital there to cover anything beyond modest losses. I dabbled a bit in the possibility that a Big Tech player would disrupt insurance but was cautious because of all the regulation in insurance and all the risk capital that's required -- Big Tech avoids regulation at all costs and likes asset-light models, not asset-heavy ones like insurance. 

While I think a lot of the irrational exuberance has disappeared from the expectations for insurtech, I'd still hold up Musk's claims about autonomous Teslas and Mars as object lessons. The track record of the person making a claim needs to be inspected carefully -- even if, like Musk, the person has a spectacular record in other areas -- and someone needs to lay out all the ways a plan can go wrong, lest they get swept aside in the enthusiasm that a grand vision can create.

Cheers,

Paul 

“Every insurer in the world suffers from FOMO [fear of missing out]. They all want to know what their competitors are doing and don’t mind being the second carrier doing the same.”

When veteran insurance adviser Tony Tarquini made this startling statement at Send’s latest INFUSE webinar last month, my fellow panelists and I had a Eureka moment. We realized insurers are now putting innovation ahead of competition. Even better, insurers are also open to strategic partnerships to create new revenue models and expand their customer base. Does this make collaboration a new touchpoint in an insurer’s road map to success?  

During the fourth session of our INFUSE webinar series, titled, "Partnerships: Collaboration Is the New Competition,’ the panelists -- Britt Van Dalen, senior partner, Alpha FMC, and Jakub Wroblewski, manager, Sollers Consulting, as well as Tarquini --shared insights on how to identify and find the right partners, develop new revenue streams and improve core competencies that will help accelerate growth for carriers in a competitive and evolving insurance landscape. 

See also: Overcoming the Talent Crisis in Underwriting

The insurance business has become unpredictable 

Once recognized for its mature business model and stable growth, the insurance industry isn’t as predictable any more. Rapid evolution in technology, economic volatility and unique customer expectations have disrupted business dynamics.  

There is an urgency for carriers to innovate, find new business models and improve on existing competencies. This has given rise to more strategic collaborations, with the objective to create stability, open new possibilities for distribution and revenue and expand the customer base for carriers. 

Collaboration enables a win-win-win for all.

The emergence of technology has increased customer expectations that are challenging traditional insurance models to innovate and deliver value faster and more cost-effectively. Insurers are collaborating with partners in technology, healthcare and home services and are generating a win-win-win situation for insurers, brokers and collaboration partners. One of the most successful partnerships so far is between insurance and technology.    

By adopting smart solutions based on automated workflows and tasks, underwriters are streamlining data analysis, are able to deliver faster responses to brokers and ultimately are seeing increases in customer satisfaction.

For example, at Send, we recently established a partnership that lets users of hyperexponential’s pricing decision platform, hx Renew, to seamlessly connect with Send’s underwriting workbench capabilities.

See also: Why Agents and CPAs Must Collaborate

Three golden criteria for selecting a partner

There is a sincere need for pragmatism when two brands forge a strategic alliance. This is precisely why I think the three golden criteria for selecting a partner are:

• Cultural fit
• Aligned vision 
• Strong expertise

These are an absolute necessity in the selection process. You’re in for the long haul, and you need to be targeted in your approach when selecting the right partners. This holds true not just for technology partners and system integrators but for the entire ecosystem, which will be at a crossroads at some point.

The future of insurance will be grounded in collaboration

The future of insurance will rely on strategic partnerships. As the insurance industry evolves, insurers must adapt and embrace new strategies to remain competitive. Collaboration among brokers, carriers and other partners is one of the keys to unlocking new business opportunities.

As the November 2024 elections draw near, questions abound in many areas of Americans’ lives, including what the impact could be on health insurance. 

Although health insurance issues are rarely on the ballot directly, many ballot box decisions carry implications that could be felt directly in the healthcare world – be it Medicaid expansion, the future trajectory of the Affordable Care Act (ACA), the long-term funding of Medicare, strategies for negotiating prescription drug prices or even the future of abortion and reproductive care. 

See also: Our Crazy Healthcare System

Medicaid and the ACA

Medicaid expansion in the few holdout states dominates this year’s health-related election topics. 

So far, 40 states and D.C. have expanded Medicaid coverage in line with the ACA, while 10 states, including Florida, Georgia, Kansas, Mississippi, South Carolina, Wisconsin and Wyoming, have not.

Kansas’s governor has included Medicaid expansion in the 2025 state budget for legislative consideration, despite previous pushback from the state legislature. Similarly, Wisconsin’s governor previously proposed expansion, only to be blocked by the state’s legislature.

Some states are working on limited Medicaid expansions and seeking waivers from the Centers for Medicare and Medicaid Services (CMS), including work requirements, but none would fully qualify as expansions without a federal waiver.

Looking ahead, Florida is considering a 2025 ballot initiative to expand Medicaid, though no states have put an expansion initiative on the 2024 ballot yet.

For its part, the Affordable Care Act enjoys broad popularity, and reducing health costs appears to be a major concern for many voters. A recent poll by the healthcare nonprofit KFF found that 48% of voters consider lowering out-of-pocket costs a top priority for the country.

Additionally, 59% of Americans have a favorable view of the ACA. This support is evident in enrollment numbers, with a record 21 million people signing up for an ACA marketplace plan during the 2024 open enrollment period.

In recent years, the White House has increased funding for Affordable Care Act outreach programs to encourage enrollment in marketplace plans, and Congress has passed legislation to boost subsidies, reducing premium costs for many families. Those subsidies are set to expire soon, though – which is one area where the election could hold a direct impact on the healthcare industry. 

Medicare

Whoever wins in November is sure to be hit with decisions very quickly regarding the future of Medicare funding. If no action is taken, projections indicate that the Medicare Hospital Insurance Trust Fund will become insolvent by 2031.

Medicare has several funding sources. Medicare Part A, which covers hospital expenses, is primarily funded by FICA taxes. When revenues exceed expenses, the surplus is deposited into the Hospital Insurance Trust Fund for use in lean years.

Several factors affect the health of this fund, including economic growth, the retirement rate of seniors, the number of new workers entering the economy and overall healthcare costs.

The projection that the fund will be depleted in seven years doesn't mean Medicare will cease to operate, but it does mean that decisions need to be made soon.

Current proposed solutions include increasing payroll taxes on high earners, raising the retirement age or reducing benefits for certain procedures and treatments. Another possibility is that Congress might allow the fund to run out of money and then cover the shortfall with general funds.

Medicare Parts B and D are already supplemented by general federal funds, but there is currently no mechanism for using these funds to support the hospital trust fund, so doing so would require congressional action.

Congress could also choose to cut Medicare benefits to align with payroll tax revenues.

Although there is no concrete plan yet, it is almost certain that the newly elected president and Congress will need to address these Medicare issues during their next terms.

See also: How to Predict Healthcare Costs

Drug price negotiations 

A recent KFF poll found that voters trusted President Joe Biden more than former President Donald Trump on health issues. But nearly three in 10 respondents said they trusted neither (and the poll was taken before Vice President Kamala Harris became the Democratic nominee for president). 

One area where the candidates align more than they differ is their disdain for the price of prescription drugs. 

Last year, the White House announced deals with drug makers to negotiate down the price of 10 popular prescription drugs as part of the Inflation Reduction Act’s Medicare Drug Price Negotiation Program. 

Those new prices will take effect in 2026. CMS has plans to negotiate prices for 60 more drugs over four years, with plans for 20 additional drugs each year moving forward. 

For any future president to back off the Inflation Reduction Act’s negotiation mandates would require action from Congress. 

Abortion and reproductive services

After the Supreme Court's Dobbs v. Jackson Women’s Health decision, many previously settled healthcare laws are now up for debate and might be influenced by future elections.

So far, 27 states have implemented some restrictions on abortion access.

In Alabama, a State Supreme Court case following the Dobbs decision has raised questions about the future of in vitro fertilization. Consequently, many states have been quick to enact specific protections for parents and doctors to allow IVF to continue.

Some advocates are concerned that restrictions on abortion could eventually lead to limitations on certain methods of birth control, although no current proposals have advanced significantly. Although some lawmakers have introduced federal protections for birth control, these measures have not progressed in the divided Congress.

The Affordable Care Act requires that birth control be covered at no cost for women. However, if states outlaw certain types of birth control, this coverage could also be affected.

While abortion and birth control are not set to appear as direct ballot questions in the November elections, the outcomes will undoubtedly influence state and, in some cases, federal policies for years to come.

The question of whether insurers should “buy or build” needs to evolve. It’s not a simple, binary choice like flipping a coin. Risk management is complex, further complicated by current economic pressures, rising reinsurance rates and the increasing frequency of severe weather. Many insurers simply don’t have the time or resources to build new tools. Thus, the conversation shifts from a pure buy-or-build dilemma to a more nuanced question: Is investing in external technology worthwhile? And to what extent should one buy or build? 

Who Buys, and Who Builds? 

In exploring who tends to buy or build, it’s clear that size and resource availability are decisive. For instance, historically, many insurers are more inclined to buy and adopt new technologies. Building a robust solution in-house requires significant time and resources. Even if an insurer could build their own solution, the software would need continuous updates to stay effective and efficient. Building any comprehensive software solution is difficult, and insurers already have enough on their plates. 

Some carriers opt to build partial solutions, with an eventual goal of an end-to-end solution. If they have the infrastructure to build internally, they often will. They may even possess data science and engineering teams dedicated to creating a customized solution, and building in-house allows them to maintain control over their data and processes. However, this approach still presents significant challenges. Despite available resources, it’s nearly impossible to avoid long development timelines and continuing maintenance needs while keeping up with the latest tech advancements. Building a full end-to-end solution is an arduous journey. 

Although the build option varies for each insurance carrier, it is a huge challenge. 

So, should insurers simply buy an external solution? Not necessarily, as not all solutions are created equal. The key is finding the right partner and unlocking the most value. 

See also: 5 Must-Haves in Agency Management Systems

Strategic Collaboration 

When selecting an external technology provider, insurers should understand the provider’s experience, capabilities and the comprehensiveness of their solutions. 

Here are a few key aspects to look for:  

• Transparency is paramount, particularly with AI technologies. Insurers must ensure these technologies are explainable, to minimize errors and biases, aiding rather than complicating decision-making processes. 
• Adaptability is crucial. The technology must be flexible enough to meet specific insurance needs and accommodate regional differences. For instance, insurers in Washington and Louisiana may both want insights into property conditions across their portfolio but require different predictive risk scoring for wildfires or hurricanes. 
• Testing is essential. Insurers should demand demonstrations of the technology's effectiveness in real-world scenarios, such as the ability to remotely monitor roof condition for staining, ponding or rust. 

A truly innovative solution should also provide comprehensive support and continuous improvement to ensure the technology evolves alongside the insurer’s needs. If these criteria are met, insurers are much better equipped to reduce risk, predict and prevent losses and improve their expense and loss ratios. 

See also: A New Approach to Resource Management

The Importance of Customizability 

Suppose a Northeastern insurance carrier relies on a small underwriting team to assess 50,000 properties across their portfolio. There’s simply not enough time or resources to manually inspect each property. 

But if they leverage a solution with high-res and recent imagery paired with accurate computer vision models, the system could accurately identify which properties are at risk and which are not. If the system can automate and straight-through-process low-risk properties while flagging high-risk properties, the underwriting team can move much faster and focus their attention where it’s needed most. 

Consider the same issue for a better-resourced insurance carrier. Perhaps they’ve already developed some front-end functionality in-house to monitor property risk. Now, suppose they want specific AI models from a vendor trained with high accuracy for dozens of other property attributes. What should they do? In that case, the right vendor could seamlessly integrate their models with the insurer’s existing systems to provide a tailored solution.  

Perhaps that same carrier has solved many of its underwriting challenges. Instead, they may need to buy the back-end—like a catastrophic weather or disaster response system—to help manage claims and the impact of severe weather. Again, the right partner could provide access to the latest cutting-edge technology, set up proper workflows and eliminate the burden of development and maintenance. 

This customizable approach allows larger insurers to balance proprietary innovation with leveraging market-proven technologies. Think of it this way: If you’re making a cake, you might have all the baking tools, but if you’re missing eggs, you wouldn’t buy a whole farm just to get eggs. You'd simply purchase the eggs you need. Similarly, if you lack all the necessary ingredients, you’d buy a ready-made cake. This principle applies to insurance technology, as well: Rather than investing heavily to build everything in-house, you buy the full or partial solutions based on your individual needs.  

Final Thoughts 

The “buy or build” debate in P&C insurance is nuanced, heavily depending on each insurer’s unique circumstances, and will likely continue to evolve. So, it’s important to be a resource to help insurers evaluate their options. Strategically choosing when to buy and when to build enables them to leverage the best of both worlds, ensuring competitiveness and efficiency in an evolving industry.  

In this day and age, talking about going digital seems almost outdated, as people have entire worlds in the palm of their hands and access to information like never before. Yet, taking organizations and larger processes to the digital realm can prove challenging for companies when the foundational pieces are not squarely in place. 

When Legal & General America launched the Horizon experience in 2019, it was one of the first digital platforms in the life insurance industry, so the work didn’t come without its hurdles, challenges and lessons. They say to start at the very beginning, as it’s a very good place to start, and Julie Andrews is rarely wrong. So, to make a company-wide digital transformation as easy at 1-2-3, it’s time to go back to school for the ABCs.

See also: Digitization and Enablement of Agents

A: Assess the marketplace

Before any journey, it’s best to get the lay of the land. Companies don’t need to pull out an old Rand McNally, but they do need to see where things stand in their own industries. 

The U.K. has been implementing automation into underwriting and applications since 2012, well before the U.S., which seems backward given that Silicon Valley is in the States and acts as the beacon for technological advancements. But when it came to life insurance, innovation started across the pond. 

In 2017, LGA bought a product that was part of a digital suite but wasn’t actually automating underwriting. The technology was starting to exist, but being able to build that same technology in-house would afford more flexibility and customization based on what advisers and applicants wanted. The technology also could turn a life insurance company into a technology company.

Yet the U.S. is vastly different from the U.K. Bringing the technology over couldn’t be a simple copy/paste solution, given the differences in regulations, technologies available and consumer behaviors.

When it came to consumer behaviors, the landscape was shifting even more to “I’ll do it myself,” or at least wanting the illusion of autonomy. The pandemic escalated this in 2020, forcing people to do things themselves or digitally, as agents couldn’t make the same house calls. But the relationships that agents and advisers cultivated were not wasted, they just took a different form. Whether an applicant is filling in a form next to an agent or simply has the agent on standby for questions, those relationships can be strengthened with the right digital tools in place.

So the assessment was that the landscape was ripe with opportunity.

B: Balance Technology With Business

As the saying goes, don't judge a fish by its ability to ride a bicycle. The same can be said for any digital transformation. The technology developed and deployed must serve a business purpose, or it’s as useless as a bike at sea.

When technology is built in silos without understanding the business, companies can tout amazing advancements but see little use and in turn, negligible progress on key performance indicators (KPIs) and return on investment (ROI). There needs to be in mindset, toward becoming a technology company that knows insurance. The issue isn't just about having the best coders and developers in the room. The key is seating them side by side with the best people in the business, from underwriting to distribution. Horizon was developed without intense technology jargon; instead, it was discussed as a solution to problems actual LGA employees and clients were facing. Instead of bringing IT to business departments, bring the business to IT and meld them. 

The main pain points the LGA team was to solve for were cycle times, reducing Not in Good Order (NIGO) rates and getting policies in more hands. When IT and operations, underwriting and distribution worked together, these KPIs were exceeded. In the first five years of Horizon, cycle times have decreased substantially to about 15 days (from more than 60). 90% of applicants finish the application within 24 hours of starting it, which allows advisers more free time and gets them compensated quicker. LGA also saw NIGO rates go from 38% to 2%, reducing the amount of follow ups for both internal and external parties. And, highlighting the main goal of any life insurance company, once Horizon was implemented there were 50,000 instant decisions from 2019 through 2023, and the 100,000th instant decision occurred in June 2024, so the pace of production and acceleration doubled in less than a year. 

A balance was struck.

See also: The ABCs of Agency Planning for 2024

C: Commit to a growth mindset

Another C here could simply be challenges. Transformation isn’t as easy as butterflies make it look; everyone remembers being a teenager and how awkward change can be. But leaning into the challenges and committing to a growth mindset will set an organization apart.

When it comes to agile methodology, the shift creates more ownership, which can empower team members -- but only those team members who aren’t afraid to make mistakes. It’s okay to make a mistake if you learn from it. And just because something doesn’t get rave reviews doesn’t mean it’s a mistake. It may just not fit the purpose. The bike shouldn’t be upset the fish doesn’t like it. 

LGA was lucky in that its leadership committed early on to a growth mindset, which afforded those creating the technologies the opportunity to A/B test what worked and what didn’t and move on to the next issue. 

Once these building blocks are established, companies can create customer and partner experiences that haven’t been imagined yet and do so successfully. Whether it’s a full digital transformation or implementing new technologies here and there, follow the ABCs, and it’ll be easy as 1-2-3.

Life insurers base their business on anticipating and accounting for catastrophic mortality events, including natural disasters, war, accidents and disease. The COVID-19 pandemic presented a unique opportunity: It allowed life insurers to evaluate how well they anticipated the effects of a global pandemic and study COVID’s actual impact to adjust their modeling for future pandemics. 

Insurers can look back much further than COVID-19 for valuable insights into the mortality and morbidity outcomes of pandemics, including the devastating effects of the 1918 Spanish flu, the deadliest pandemic in the last 400 years. While researchers anticipate an increasing frequency of extreme epidemic events, numerous factors affect the spread and penetration of diseases across global populations. By isolating these factors and studying them in combination, life insurers can better prepare for future disease outbreaks. 

While the terms are sometimes used interchangeably, pandemics and epidemics are distinct. An epidemic is a disease outbreak that occurs within a specific geographical area. A pandemic occurs if the disease spreads to multiple areas or the entire globe. 

The chance of a pandemic occurring depends on the combined effects of two factors: spark risk (how and where a pandemic is likely to start) and spread risk (how easily the resulting disease can transmit between people). Spark and spread risk factors often overlap. 

See also: Is 2024 the Year of Digital Health?

Some geographic areas are associated with a higher spark risk. For example, West and Central Africa and South and Southeast Asia, areas of increasing human expansion into animal habitats, carry higher risk for zoonotic spark, where a viral pathogen jumps from animals to humans. 

Risk drivers for a zoonotic spark include:

• Behavioral factors, such as bushmeat hunting and use of animal-based traditional medicines
• Natural resource extraction, such as logging, mining and the retrieval of fossil fuels
• Extension of roads into wildlife habitats, increasing interactions between humans and animals 
• Environmental factors, including the degree and distribution of animal diversity (For example, the high number of zoonotic viruses found in bats and birds has been attributed to their large populations, mobility, ability to colonize human environments and significant species diversity.)

Zoonoses (diseases that move from animals to humans) can also originate from domesticated animals, particularly those concentrated in areas with dense livestock production systems, including areas of China, India, Japan, the U.S. and Western Europe.

Zoonoses are not well adapted to infect humans. They typically spill over to people in random incidents, sometimes resulting in small, contained outbreaks referred to as stuttering chains. These instances of intermittent virus transmission, or "viral chatter," raise the threat of a pandemic because they give viruses opportunities to evolve and more effectively spread among humans.

Spread risk encapsulates the transmissibility of a virus and its variants. After a spark, the risk that a pathogen will spread within a population is influenced by:

• Pathogen-specific factors (such as its R0, discussed later in this article)
• Human population-level factors (such as the density of the population, and the speed and effectiveness of public health surveillance and response measures)

A country’s ability to minimize pandemic spread can be expressed using a preparedness index. The index illustrates global variation in institutional readiness to detect and respond to a large-scale outbreak of infectious disease.

See also: The Crisis in Long-Term Care

Well-prepared countries have effective public institutions, strong economies and adequate investment in their health sectors. They have built specific competencies critical to detecting and managing disease outbreaks, including surveillance, mass vaccination and risk communications. Poorly prepared countries may suffer from political instability, weak public administration, inadequate resources for public health and gaps in fundamental outbreak detection and response systems.

The COVID-19 pandemic illuminated the fact that our global community is facing the greatest confluence of spark and spread risk factors compared with any point in history. Today’s global population is over four times larger than it was at the time of the 1918 influenza pandemic. We live more densely and travel frequently. Experts suggest that these trends and those outlined above have dramatically increased, and will continue to increase, the emergence of zoonotic diseases.

Historic pandemics and the shadow of the Spanish flu

Despite the seemingly unprecedented panic and worldwide disruptions caused by COVID-19, pandemics are nothing new. The emergence and spread of infectious diseases with pandemic potential – such as plague, cholera, tuberculosis and influenza – have occurred regularly since the dawn of mankind.

Before SARS-CoV-2 emerged in late 2019, most of the infectious disease research community anticipated that the most likely pathogen to cause the next pandemic would be a novel influenza strain. The human-adapted influenza virus transmits easily from person to person; people can carry it without showing symptoms, allowing sufficient time for infected individuals to travel and potentially infect others; and its symptoms can be confusing and difficult to immediately identify as the flu, particularly in the early periods of infection.

These deadly attributes fed the astonishing progression and spread of the 1918 Spanish flu, which killed between 20 million and 100 million people at a time when the global population was just 1.8 billion. 

In August 2021, a group of environmental engineering researchers led by Marco Marani published a paper on the “Intensity and spread of extreme novel epidemics.” They combed 400 years of records to identify 185 pandemics globally that caused significant loss of human life. While COVID-19 upended our global society for a time, that pandemic's impact (and that of nearly every other pandemic on record) is dwarfed by the devastation wrought by the 1918 Spanish flu. 

This chart illustrates pandemic intensity, defined as the number of deaths divided by the global population at that time and the pandemic's duration – essentially, deaths per 1,000 people per year. The researchers examined the probability of humans experiencing a pandemic as severe as the Spanish flu. Assuming risk is stationary, they estimated that the probability of such a pandemic occurring yearly is 0.42%. Put another way, a pandemic of such an extreme scale would occur once every 235 years. 

What made the Spanish flu deadly? Primarily its lethality and transmissibility. 

Infection fatality rate (IFR): Spanish flu uniquely affected working-age people in their 20s and 30s. When plotting the IFR by age, researchers expect to see a “U” or “J” among the data points for most viruses: The youngest and oldest lives are those with the greatest risk. The 1918 Spanish flu instead presents a remarkable “W” shape, demonstrating how deadly the virus was to a normally robust working-age population. 

The overall IFR for Spanish Flu was 2.2% using a present-day age pyramid of the U.S. population. To put that in context, some estimates suggest the original strain of COVID-19 carried 0.8% IFR. Later variants of COVID-19 carried higher and lower IFRs; the Delta strain of COVID perhaps had an IFR very close to 2.2% and, like Spanish flu, seemed to be more lethal to working-age people. 

Spread/R0: Pronounced “R naught,” R0 is a mathematical term that indicates the average number of people who will contract a contagious disease from one person with that disease. R0 is a function of numerous biological, socio-behavioral and environmental factors: for example, population density and patterns of social interactions, work and travel. R0 is a fundamental calculation that helps researchers estimate the spread of a pandemic and the effectiveness of interventions like quarantine, masking and vaccines.

Scant epidemiological data make it difficult to estimate the R0 of the Spanish flu, which circled the globe with spectacular effectiveness given limited means of travel at the turn of the century. One study estimated its R0 to be 1.7-2. Interestingly, Spanish flu was generally less transmissible than COVID-19. The original strain of COVID-19 carried an R0 of approximately 2.5; later strains like Delta (R0 estimated 6) and Omicron (R0 estimated 8) were much more transmissible.

Could a Spanish flu-level pandemic occur today? In 1918, many U.S. cities attempted non-pharmaceutical interventions (NPIs) such as isolation, quarantine, use of disinfectants and limits on public gatherings to curb the pandemic. But without modern medicine, including antibiotics, flu vaccines and antiviral drugs – and compounded by poor sanitation and food scarcity caused by World War I – Spanish flu ravaged the global population. Today’s world is much better equipped to respond to an influenza pandemic. One model from 2018 estimated that nearly 70% fewer deaths would result from a Spanish flu event had it occurred 100 years later.

Assessing the risk of future pandemics 

To estimate the frequency and severity of future pandemics, researchers employ probabilistic modeling techniques that can augment the historical record with a large catalog of hypothetical, scientifically plausible simulated pandemics that represent a wide range of possible scenarios.

Modeling can also incorporate significant changes that have occurred since historical times, such as medical advances, changing demographics and shifting travel patterns.

Researchers can “play” with their models by applying different rates of IFR and R0 to gauge the impact of a simulated pandemic. Other key modeling assumptions might include the choice and effectiveness of NPIs, the timing of a vaccine rollout, vaccine efficacy and uptake. 

These exercises are essential for assessing risk. A 2020 report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) warns that future pandemics will emerge more often, spread more rapidly, do more damage to the world economy and kill more people than COVID-19 unless there is a transformation in the global approach to dealing with infectious diseases, from reaction to prevention. 

See also: Growing Number of Uninsurable Risks

Lessons learned from COVID-19

Given the high probability of future pandemics, the most recent global pandemic offers key lessons for insurers and policymakers. 

Vaccines: Vaccines do not solve everything, and herd immunity – when a large portion of a community (the herd) becomes immune to a disease – may be difficult or impossible to achieve. Developing, manufacturing and distributing vaccines – a process that itself took months to complete – helped immensely in protecting public health, but COVID-19 and its deadly variants continued to spread even after wide introduction of vaccines. Additionally, no vaccine is 100% effective. Public health officials also realized not every person is willing to take a vaccine. Vaccine hesitancy varies considerably by age, country and other factors – although vaccine uptake is markedly higher in insured lives. As early as 2019, the World Health Organization (WHO) named vaccine hesitancy as one of the top 10 threats to global health. 

Ripple effects: COVID-19 deaths were not the only driver of excess deaths during the pandemic. In addition to causing economic shocks, the pandemic overwhelmed health systems, causing significant delays in treatments for other medical conditions. The pandemic also influenced other public-health problems, exacerbating addiction-related deaths, mental illness and anxiety disorders and financial stress and housing insecurity.

Country differences: During the pandemic, researchers observed that infection and mortality rates differed between countries based on several risk factors. RGA researchers conducted a correlation analysis and found the following drivers had the highest correlation to COVID-19 deaths globally: 

• Prevalence of cardiovascular diseases

• Gross domestic product (GDP)

• Gini index (income inequality)

• Vaccine uptake of the first two shots

• Proportion of population living in urban areas 

RGA researchers studied other risk factors like obesity and smoking but did not find a strong enough correlation for those factors. 

Differences between the insured and general population: In general, the mortality on fully underwritten products is significantly lower than that of the general population, because full medical underwriting usually removes at‐risk groups, such as people with underlying chronic diseases. Insured individuals tend to have a higher socioeconomic status, which may afford them better healthcare access and greater awareness of pandemic risks. However, this same demographic is more prone to travel internationally and reside in densely populated urban centers, factors that can introduce different risks.

RGA research, including a series of COVID mortality reports and updates written with the Society of Actuaries (SOA) and LIMRA, determined the direct and indirect impact COVID-19 has had on mortality in insured lives as well as the general population. It was clear from these studies that COVID-19 levied unequal effects on mortality rates in insured lives versus the general population, with significant differences by age, also.

Conclusion

The experiences of the COVID-19 pandemic, set against the backdrop of historical contagions like the Spanish flu, offer an invaluable learning opportunity for life insurers and life reinsurers to reassess their exposure to catastrophic mortality events. While the probability of a pandemic in any given year is low, the likelihood of significant losses for insurers is high without adequate risk management. Life insurers can take this opportunity to refine their internal risk models as well as their risk management strategies. 

Some strategies to consider include reinsurance, and pursuing a diversified product range and geographical footprint. Other risk mitigation strategies include asset choice and management, and insurance‐linked securities (such as catastrophic mortality bonds).

The constant exposure of life insurers to pandemic risk remains a challenging issue; however, the COVID-19 pandemic has certainly deepened our understanding of this risk. Furthermore, pandemic preparedness and health security are now even more critical matters for governments, public health organizations and other institutions around the globe.

Sitting on the other side of a Zoom call was my top performer. I was sure she’d quit in the next few months. Maybe she wouldn’t leave the company, but she would quit all the same. In her one-on-one, she shared how frustrated she was with our department culture. It seemed to her that everyone was slacking. She complained about lack of communication and projects that were inconsistent with values. People felt pulled in different directions. Some "other people" had become disengaged. She even joked that she’d be better off if she just stopped caring, too. She ended by trailing off with, "I mean, where am I even going? I’m capped out in my role, and no one else is invested like I am."

Did she know she was quiet quitting?

I’m not sure she saw herself sliding down that slippery slope in that venting session, but I did. If she was comfortable joking to her boss that she should stop caring, she probably already had. I needed to act fast. But what could I do? I couldn’t have her step back her efforts in her daily work. There was no way to change culture or senior leadership’s communication or prove her efforts would lead to future opportunities in enough time to make an impact. To be honest, I didn’t know if I could make those changes. Would any attempts end up being lip service that proved her point? 

We met again the next week. I shared a project idea she could work on if her daily tasks were caught up. The project would showcase her talents and bring the values and initiatives into alignment for the ‘others’ who were struggling. I also shared the ways a project like this translated into skills she’d need for a promotion.

See also: Leveraging AI to Upskill Employees

Three things I did to drive results while increasing engagement

• Clarified what success looks like - Every employee needs a clear picture of what makes them successful in their role and what can help them improve. They are empowered to grow and excel in their role when they fully understand it. A matrix that outlines critical skills by position can significantly help leaders identify, prioritize and communicate wins and provide specific feedback on areas of opportunity.
• Encouraged raising the bar - No one likes the idea of being average. Understanding success in daily tasks naturally highlights what going above and beyond looks like. I linked how quality work on my employee's part would enhance her skills for future leadership roles, and her eyes lit up. Pro tip: I used career development as an incentive because she expressed frustration with her career plan. The key is to focus on the employee's goals and link them to results. If she was frustrated with work/life balance, I likely would have tied the results quickly to her shutting her laptop earlier in the day.
• Consistently linked effort, results and impact on the big picture - Throughout her project, and consistently in huddles thereafter, I drew straight line examples from the effort to the desired business results, to impacts on personal goals, to the company vision. I used a proven communication framework that empowered each member of the team to connect their success to the company success.

Recreate these results with your team

• Focus on their motivators, goals and the link to company mission - The most foundational aspect of success in driving results without quiet quitting is understanding what drives your team and what drives company results. If you don't understand those two aspects, the best communication framework in the world won't support your drive for achievement on the team. How do you do this? Get curious in your next one-on-one. What do they want to get out of work? Is this a steppingstone? If so, to what dream job? If you had a magic wand, what specifically would they want you to fix and why?
• Follow through on commitments and communicate with authenticity - This one is simple: Don't make promises you can't keep. Meet or exceed the commitments you do make. Overcommunicate on what you're working on, why and how it will affect them. Explaining that you can't promise something they want, like a promotion, raise or flexible schedule, builds your credibility. Telling them you'll update them on where you are in the process, and then doing it, builds trust. When your team trusts you to work with them and for them to achieve both their goals and those of the company, they want to do the same.

See also: Top Employee Incentive Trends for 2024

Quiet quitting isn’t inevitable when you drive results

When you tie your team members’ motivators to company initiatives, communicate your commitments and follow through with what you say, you lead teams who want to achieve more. Your best results as a leader will come from your ability to engage every employees on your team with their results. When this type of engagement is your number one priority as a leader, your team produces at a higher level and they only want to make an even bigger impact in the organization.

What's standing in your way? I asked one client, only to learn she couldn’t make the connection of employee motivators to company vision. Once we corrected that, she had a team that exceeded metrics and were looking for new tasks and projects to develop more skills. Focusing on their goals and how they could tie to the company goals helped her remove roadblocks that were frustrating employees and impeding results.