The "personalization economy" has had a transformative effect on every industry, including insurance. As more consumers demand customization from all their transactional experiences with favorite brands, insurance carriers are being pressed to offer unique programs and plans. Fortunately, focusing on serving affinity groups helps carriers meet and exceed member expectations and has a broad and positive ripple effect on bigger communities.  

The Rise of Affinity Groups  

Affinity groups have been a part of insurance for a long time. Yet they are increasingly gaining momentum in tandem with consumers' growing preference for highly personalized solutions.   

What makes affinity group programs so valuable is the basis of their creation. In business, an affinity group is a collection of individuals who share interests, characteristics or affiliations. Consequently, an affinity group's members tend to have common challenges. Insurance packages and complementary resources designed to address those challenges can give members the exact security and protection they need.  

The effectiveness of affinity group programs is exemplified by the American Medical Association's (AMA) recent initiative that provides unique insurance options specifically for medical students. In my roles as the president of the Professional Insurance Marketing Association (PIMA) and the president of AMA Insurance, I have had the privilege of overseeing the development of various affinity group insurance programs, including this program designed to meet the unique needs of medical students.  

Why target medical students, though? The answer goes back to conversations the AMA was having through their House of Delegates. The House of Delegates is a body whose mission is to advocate and bring forth ideas for physicians and physicians in training. Though physicians had access to disability insurance through the AMA's insurance packages, medical students didn't. There was a big gap because becoming disabled can be financially and emotionally devastating for medical students.  

According to statistics from a 2023 University of Pennsylvania study, having a disability can reduce a physician's salary by more than 20%. That's significant on its own, but for medical students shouldering student loan debt and other financial obligations, it can lead to personal and fiscal crises.   

As a result, the AMA decided to view medical students as an affinity group and find carriers that could provide a custom disability insurance product for them. It took time but came to fruition. The insurance offerings included a unique student loan payoff provision and preventative tools and resources to help students stay in school. These features helped AMA enhance the plan and make it even more practical and customized for medical students. Consequently, medical schools that opted for disability insurance were also tapping into these prevention-based wellness programs for their students.   

This one-of-a-kind support for medical students had a macro impact that can't be overstated. By giving medical students tools to prevent and handle disabilities, the AMA enabled them to move forward more confidently to become practicing physicians and extend their knowledge, compassion and skills to countless patients.  

See also: How Parametric Insurance Fills in Gaps

Key Insights From Healthcare-Related Affinity Groups  

There were several factors and trends that arose throughout the medical student affinity group experience. The first was that personalized insurance solutions greatly appealed to the end users. Consequently, it is critical to have a deep understanding of the target affinity group audiences. From this understanding, you can more easily seek out partner carriers and options.  

For instance, the AMA considered the mental health aspects of becoming disabled as part of our mission. In the demanding world of healthcare, addressing and protecting physicians' well-being is vital for their ability to deliver high-quality patient care. Recognizing this crucial need, the Accreditation Council for Graduate Medical Education (ACGME) established new requirements in 2017 to prioritize and promote the well-being of residents, fellows and faculty members. The AMA began providing students and residents with preventative programs and resources.   

A second insight from the medical student affinity group was the importance of technology in insurance. Technology is changing how carriers can be found, and quotes can be produced. Technology also makes the consumer experience more streamlined and personal, such as with mobile apps and texting capabilities. Consumers no longer have to accept cookie-cutter engagements with carriers. Those who become part of affinity groups can avail themselves of services designed and customized for them.  

A final insight is that cost is still a barrier. It's hard to get organizations and even end users to pay for insurance, even when it's delivered in a personalized, affinity group-directed way. This is where more education is needed on the true context and benefits of affinity group insurance programs. Affinity group packages aren't limited to offering discounts, lower premiums or accessibility. On the contrary, they can improve the health, welfare and stability of entire communities.  

See also: Insurance's New Math

Looking Beyond Physician Affinity Groups 

The medical student disability insurance example illustrates a use case for how leveraging affinity groups can have sweeping outcomes. Yet affinity groups aren't limited to healthcare professional insurance or medicine alone; their application is more universal. Coverage for members of any affinity group can leave a lasting mark on communities around the world. 

Although it can take time and energy to identify and advocate for affinity groups in the insurance realm, it can be a worthwhile venture. It can also open doors for insurance carriers to build trust with consumers who may not have been exposed to those carriers' brands or product lines. The affinity group members get the insurance to support them and their families, and the carriers get to expand their reach and influence. 

In the future, we expect to see affinity group programs evolve and become more commonplace. This exciting evolution has the potential to make inroads for individuals and families across the nation. All it takes is a willingness to think beyond the status quo and begin leaning into the power — and possibilities — of hyper-personalized insurance solutions from affinity groups.

AI is everywhere in insurance now, transforming traditional processes and methodologies. If you’re in the industry, you’re no doubt already experiencing its effects in a number of ways. My own work, for example, involves using AI to streamline and automate many aspects of property insurance. We use a combination of aerial, ground-level and satellite imagery analysis for insights into the physical characteristics and risk profiles of buildings, enriched further with additional pertinent insurance data such as tax records and building permits.

Generative AI is currently the most visible aspect of AI to most people. That’s because anybody can make use of it, regardless of technical competence. You just talk to it and (if all goes well) get some astonishingly useful answers. We’ll come back later to what happens when things don’t go quite so well.  

Despite the widespread applicability and visibility of generative AI across various sectors, its potential within the insurance industry remains somewhat untapped. However, with the emergence of tools facilitating the parsing, comprehension and transformation of intricate insurance documents, the landscape is shifting. With these developments, generative AI is poised to significantly influence underwriting practices, promising improvements in risk analysis, operational streamlining and overall process efficiency.

Let’s zoom out and think about the likely impacts of generative AI on underwriting in general. It’s already pretty clear that the integration of GenAI in the underwriting process has the potential to change this centuries-old process, improving risk analysis, streamlining operations and enhancing efficiency. 

See also: The Promise of Continuous Underwriting

The operational perspective

Generative text solutions based on large language models are already powering new business underwriter-focused chat applications, providing instant access to comprehensive answers from underwriting manuals. These AI-driven assistants appear almost magical in their ability to interpret complex queries, synthesize relevant information and provide tailored responses. 

Underwriters used to have to consult various manuals, guidelines and policy documents to do their work. But not anymore. GenAI’s automated data extraction cuts out drudge and minimizes errors. It analyzes vast amounts of data, including applicant information, risk factors and historical data, leaving humans to focus on higher-level decision-making.

For anyone brought up on manual underwriting processes, the time savings on offer are mind-boggling. But that’s a one-dimensional view. As well as saving time, GenAI helps identify potential risks or opportunities underwriters may have missed, leading to more accurate, consistent and objective underwriting decisions.  

And beyond the evaluation and pricing of risk, it can potentially automate the generation of policy documents and contracts, multiplying time savings and ensuring consistency across policies.

We’re still not done: AI systems can monitor underwriting workflows, identify bottlenecks, and suggest process improvements. This continuous monitoring and optimization can lead to continuing efficiency gains and cost savings.

What are the challenges?

If that’s the case in favor, there are also challenges. Underwriting involves intricate rules, regulations and industry-specific knowledge that AI models are going to struggle to fully absorb without proper training and oversight. Concerns also remain about potential biases in the data used to train LLMs (large language models), and the potential for unfair practices if not carefully monitored.

These questions about accountability and transparency are not unique to insurance. All industries are wrestling with the legal and ethical implications of GenAI. But the highly regulated nature of our sector means that insurers must carefully navigate these challenges, without losing the power of AI to enhance operational efficiency and decision-making accuracy.

That should be possible, as AI frees people to focus on more complex and high-value tasks. However, successful implementation of AI in underwriting will require careful planning, training and change management.

See also: Underwriters' Productivity Can Double

IT considerations

If AI puts new demands on people, the same is true for tech. Integrating AI into existing underwriting systems can affect infrastructure and support requirements. AI models rely heavily on data for training and inference. While the data may be plentiful, do you have a robust data infrastructure in place and the data governance and quality processes that are also crucial to ensure the accuracy and integrity of the data feeding the AI models?

Integrating with existing underwriting systems, policy administration systems and other core insurance platforms may also require new APIs, data pipelines and middleware for smooth data exchange and communication with legacy systems.

On the security front, AI systems handle sensitive customer and underwriting data. So there is a red flag here. Robust cybersecurity measures and data privacy protocols are essential to protect against breaches or misuse of data and to ensure full compliance with industry regulations and data protection laws.

And with persisting skills shortages, insurers will probably need to invest in upskilling the IT workforce or partnering with external AI experts to ensure effective development, deployment and maintenance.

The underwriter of the future

With AI handling data processing, information retrieval and automated recommendations, underwriters can reinvent their role to focus on more nuanced decision-making, client advice and driving innovation. 

Ultimately, successful adoption of AI in underwriting is going to be about a best-of-both worlds approach that combines human expertise and experience with the speed and insights of AI technologies. By getting the balance right, insurers can unlock the full potential of these tools while ensuring fairness, transparency and responsible decision-making.

The world should be bracing for an increase in cybercrime, with the global cost of cyberattacks expected to surge over the next few years from $9.22 trillion in 2024 to $13.82 trillion by 2028, equivalent to over half the U.S.’ gross domestic product (GDP). 

Over the last five years, companies have continued to increase their investment in cyber tools, yet fewer than 25% of organizations say they are "extremely confident" in their ability to respond to a cybersecurity event. This raises alarm bells for the future of cybersecurity and our collective ability to insure its risks.

In 2023, over 60,000 emails from U.S. State Department accounts were stolen when Chinese hackers breached Microsoft’s cloud-based Exchange email platform. Recently, Clorox suffered over $350 million in damages. In December 2023, genetic-testing company 23andMe admitted that nearly seven million people’s information was accessed by threat actors.

Adding UnitedHealthcare’s recent breach to the list, operational disruptions are replacing mere data loss in cybercrime, and traditional exclusion language in riders is not proving to be as useful in the cyber domain as it has been in the property and casualty domains. We are in a new era.

For the last five years, increasing cyber insurance premiums and more rigorous attention to the presence and maturity of key cyber risk reduction measures at companies – such as regular tabletops and implementation of controls such as the NIST Cyber Security Framework (NIST-CSF) or the CIS Critical Security Controls (CIS-CSC) – have proved sufficient for insurers to improve their underwriting and profitability. It may feel like we are in equilibrium, but we really are just in the calm before the next storm.

Why? Because like so many times in the past, all we have been doing so far is to ask, “Are you doing the right things?” We have not been asking the crucial question: “Are they effective?” 

The new era in cyber risks and their management, and those who underwrite and insure them, calls for us to take all defenses to that last step – to underwrite not just on the paper confirmations about the presence, maturity and tabletop practice of company controls and cyber response and restoration procedures, but now to focus on (i) how effective they can actually be in practice and (ii) whether that effectiveness is being regularly determined using the actual defensive tools under realistic, severe event circumstances.

Underwriting using effectiveness criteria is called Efficacy-Based Underwriting (EBU), and this is how more underwriters can take advantage of the kinds of information an increasing number of companies can now provide.

Large swaths of companies around the world have learned how to efficacy test their financial controls over financial reporting in the wake of the passage of Sarbanes-Oxley. CFOs led the way. In the wake of new regulation in cyber, DORA in the E.U., as well as the new SEC Cyber Rules in the U.S, CISOs are leading the way in regularly testing and showing the efficacy of their cyber controls.  This is the key new lever for underwriters to use as they confront this new era of operationally disruptive cyber risk.

See also: How to Build a Solid Cybersecurity Program

Contextualizing the financial risks of cybercrime 

Cyber insurance, or cyber liability insurance, tries to protect businesses and people from the financial consequences of cyber incidents. The global average cost of a data breach stands at $4.5 million, an increase of 15% over the last three years. As the cost of cybercrime balloons and cyberattacks become bigger threats to a company’s infrastructure, cyber insurance and a comprehensive view of actual and residual risk exposures in cyber are no longer a luxury.

Recent research indicates that only 19% of companies claim to have coverage for cyber events beyond $600,000, with just 55% having some form of insurance coverage at all. An even larger hurdle, however, is that ineffective underwriting models continue to lessen businesses’ appetite for cyber insurance and for insurance companies to provide it.

An acute lack of corporate comprehension of a company’s ability to withstand severe cyber incidents highlights why boards are unsure as to whether they cover those cyber risks and underlines why premiums can be so expensive. If the industry demands to use a data-driven, efficacy-based approach to know where that line exists in cyber, it gives a more adequate option to companies and insurers alike.

Weaknesses in legacy underwriting models

Contemporary cybersecurity underwriting remains reliant on inputs from paper-based assessments. There have been improvements in recent years, including more available data on large losses, which has enabled underwriting models to cater more accurately to industry and company characteristics. Using extensive datasets detailing escalating losses significantly enhances the precision of risk evaluations, thereby advancing comprehension of how companies can manage and alleviate cyber threats. This advancement is illustrated by the NIST Cybersecurity Framework 2.0 and the Critical Security Controls outlined by the Center for Internet Security (CIS), which have collectively refined the conventional approach.

Nevertheless, despite the implementation of more exhaustive risk management frameworks, insurance underwriting models persist in primarily using paper-based evaluations of "control maturities" and generic risk exposure models. These serve as substitutes for assessing how efficiently an organization can deploy security measures or restoration protocols during a significant cyber event.

The expanding repository of material losses underscores the limitations of relying on paper-based assessments as practical performance indicators. Recent incidents, like the contentious settlement of Merck's $1.4 billion cyber insurance claim, underscore that exclusionary provisions are inadequate solutions for the rapidly evolving nature of cyber threats, along with their increasingly diverse methods of causing financial harm to companies.

The efficacy-based underwriting model

By changing the cyber underwriting process to center on the consistently evaluated effectiveness of a company's cybersecurity measures rather than solely relying on paper evaluations, insurers can establish the necessary threshold for accurate underwriting. By rigorously stress testing your systems in real time, insured enterprises will also have more incentives to take more of these preventative stances based on efficacy and proficiency, ready for when a real cyberattack hits your business. 

What’s encouraging is that numerous companies in the U.S. and worldwide have been conducting efficacy testing and refining their cyber controls over the last few years. From optimizing tech stacks to subjecting systems to stress tests, these methods bolster an organization's security posture across their people, process and technology. This strategy entails maintaining high-fidelity replicas of the organization's networks and subjecting them to regular attacks, ranging from minor to severe cyber threat, until failure occurs. This approach enables companies to verify that their teams, tools and procedures remain effective even against the most serious cyber threats. The objective is to continuously assess the effectiveness of individual components as well as the collective efficiency of all of a company’s controls. Consequently, metrics-based efficacy testing in cybersecurity can be, and indeed is already being, implemented.

This approach can be seen in the airline industry. Flight crews regularly practice their responses to severe engine outages and hydraulic and other systems failures in high-fidelity simulations of the Airbus or Boeing planes they fly. They are allowed to fail in this environment and often do. The data collected from such exercises points out where responses are correct and goes a long way in ensuring pilots are proficient and prepared to handle such events during real-life commercial flights. This analogy demonstrates the effectiveness and necessity of testing out-of-production networks, allowing companies to understand their flaws in a simulation rather than the real world. 

See also: The Weak Point in Cyber Security

The sum of all parts

Cyber underwriters are no longer constrained to evaluating companies solely on theoretical effectiveness. Now, companies can furnish evidence of their effectiveness against a comprehensive array of the latest potentially significant cyber threats, enabling insurers to readily leverage this evidence.

For insured organizations, this means quarterly insights into how well their people, process and technology can perform against the most severe cyber threats. The granular efficacy data collected allows them to fine-tune the performance of their defenders and their defenses, as well as perfect and provide visibility into their cyber risk exposures. In turn, companies can be rewarded with lower cyber insurance premiums. 

Cyber insurers that switch their underwriting models to ones based on proven efficacy will better understand the extent to which risk and event exposures can be contained, with minimum damage and disruption. This will speed the organization's ability to get back to business as usual post incident. This approach will also enable smaller companies, which are currently priced out of having any cyber insurance at all, to (re)access coverage. 

Efficacy-driven underwriting provides a mutually beneficial arrangement for both insurers and the insured. Insurers are able to offer lower premiums to entities that truly merit them. Consequently, businesses will be motivated to integrate cybersecurity best practices into the foundation of their operations. This eliminates the disparity between paper reports boasting effectiveness and actual severe cyberattacks revealing the contrary. Both the insured parties and their insurers will have assurance in their capacity to withstand such events in advance, leading to improved outcomes for all.

As we near the June 1 official start to the Atlantic hurricane season, we seem to be facing the worst of both worlds. 

We've been in an El Niño weather pattern for almost a year, which leads to warmer waters off the west coast of Africa, where hurricanes form, and in the Atlantic, Caribbean and Gulf waters where they gather strength. The waters have already reached temperatures that they usually doesn't hit until August and will only get hotter from here. 

The good side of El Niño is that it tends to disrupt the winds that coalesce into the tropical storms that can become hurricanes... but we're moving into a La Niña pattern, which lacks the storm-preventing tendencies of El Niño. 

So we're looking at all the heat energy provided by El Niño but none of its protection from hurricanes.

In advance of this week's official forecast from the National Oceanic and Atmospheric Administration (NOAA) and the June 11 update from Colorado State University (CSU), Phil Klotzbach, a senior research scientist at CSU, laid out how very bad the outlook is.

We've suspected for some time that this hurricane season would be bad. (Here is what I wrote back in February.) But now the predictions are moving well past suspicions. "We’re very confident this year we’re going to see well above normal hurricane activity," according to Klotzbach, a non-resident scholar at the Triple-I, a sister organization of ours at The Institutes. 

He predicts:

• 23 tropical cyclones in the Atlantic basin for the 2024 hurricane season, vs. an annual average of 14.
• 11 of those storms becoming hurricanes, vs. the average of seven.
• five becoming major hurricanes (categories 3, 4 or 5) vs. the average of three. 
• a 62% chance of a major hurricane making landfall in the continental U.S., vs. the historical average, from 1880 to 2020, of 43%.
• 34% chance for a major hurricane striking the U.S. East Coast, including the Florida Peninsula (vs. the 21% historical average).

[Editor's note: The last two bullet points have been updated since this post went live Tuesday morning, the 21st, because the original information, based on an article in Insurance Journal, was inaccurate and greatly overstated the danger to Florida. The summary for this article has likewise been updated. I regret the error.]

Meanwhile, the news of other climate-related catastrophes continues to hit my inbox daily.

Here is Global News, with the headline, "Canada's Extreme Weather Events Are Costing Billions, New Data Shows": 

"From 1983 to 2008, insurance companies in the country spent about $400 million on average annually on catastrophic claims, but since 2009 that number has rise to almost $2 billion. Recent hurricanes, floods and historical wildfires saw that number balloon to $3.4 billion in 2022 and $3.1 billion last year — 50% more than the yearly average."

Here is Grist, via Gizmodo, on "How 'Kitty Cats Are Wrecking the Home Insurance Industry':

"'Severe-convective storms' are large and powerful thunderstorms that form and disappear within a few hours or days, often spinning off hail storms and tornadoes as they shoot across the flat expanses of the central United States. The insurance industry refers to these storms as 'secondary perils'—the other term of art is 'kitty cats,' a reference to their being smaller than big natural catastrophes or 'nat cats.'

"But the damage from these secondary perils has begun to add up. Losses from severe convective storms increased by about 9 percent every year between 1989 and 2022, according to the insurance firm Aon. Last year these storms caused more than $50 billion in insured losses combined—about as much as 2022’s massive Hurricane Ian. No single storm event caused more than a few billion dollars of damage, but together they were more expensive than most big disasters."

One such storm hammered Houston last week, according to Bloomberg:

"Power was out for almost 700,000 customers in the Houston area after an intense storm swept through the area with winds in excess of 75mph (120km/h), downing trees, blowing out windows and leaving at least four dead. Economic losses and damages could be between $5 billion and $7 billion, according to an initial AccuWeather estimate.

"The trail of destruction is the result of what’s known as straight-line winds, fierce gusts that can rival their more familiar siblings, tornadoes. The atmosphere has been primed to unleash all types of violent weather this spring across the central and southern U.S.... 'It seems like we cannot go a day without there being some sort of severe weather,' said John Feerick, a meteorologist at AccuWeather. 'It has been active, and it looks like it will stay fairly active.'”

The Washington Post weighs in with a long article about how sea levels are rising in the American South: 

"At more than a dozen tide gauges spanning from Texas to North Carolina, sea levels are at least six inches higher than they were in 2010 — a change similar to what occurred over the previous five decades."

And Carrier Management cautions: "Catastrophe Bonds Use Models Underestimating Climate Risks, Investors Say." Swiss Re says the $15 billion in cat bonds issued last year played a big role in stabilizing the reinsurance market, so if models turn out to be too optimistic and investors flee the market there could be significant disruption.

About the only good news I've heard recently on climate threats came in a conversation I had with Gabriela Dominguez, president of Avante-Nea Insurance Group in Miami, about the chaos that is the South Florida P&C market. If you read the interview, you won't see much that feels like good news as she describes crazy-busy carriers using major premium increases to push clients to retrofit their homes and businesses to better withstand storms. Especially if you're an agent or broker, you'll feel her pain. But this exchange could signal the start of something important:

Me: "I’ve hoped that insurance premiums would send strong enough signals that policyholders would make their homes more resilient. It sounds like that may be happening."

Gaby Dominquez: "People are doing it. It's either that or lose your coverage, and if you have a mortgage, the force-placed insurance is three times more than the quote that I'm going to give you, which is already expensive."

She added that "the state is providing assistance through different programs that help people replace the roof, get a new AC, install impact windows and so on."

While I'd love to think that we'll get lucky with this hurricane season and that severe convective storms, wildfires and rising sea levels will fade as problems, I'm not counting on it. And the sort of approach, however painful, that Gaby describes--strong price signals from insurers, with some government assistance to ease the transition to greater resilience--feels like a reasonable way to begin what will be a long journey for all of us.

Cheers,

Paul  

Insurers often pontificate about being "customer first." They love nothing more than to create and then count touch points and one-off innovations that show they are delivering on their customer-centric ambition. 

Frankly, that's okay. Progress, while often slow and painful, is progress nonetheless. Even in moderate failures, such as adopting one-off digital experiences without fully baking them across channels, or allowing customers to make low-level, mid-term adjustments to policies, there's still critical learning.

However, insurers' efforts raise some critical questions about what customer-centricity truly means:

1. What does knowing your customer, personalizing your offering, and shifting the policy paradigm look like in an era of multi-banked and multi-insured fragmentation? 
2. How can you maintain viability while appreciating the significant shift required in enterprise design from policy-centrism to customer-centrism?
3. How do you dramatically reduce the time between gaining a customer insight and acting on it? 
4. How can you manage the ever-changing ecosystem to make sure you:
   • Keep up with fraudsters?
   • Deploy new technologies at low-risk?
   • Adapt to regulatory changes increasingly requiring insurers to keep pace with customers?
   • Treat them fairly and manage your own supply chains to deliver better and faster on your promises? 

Those questions are best wrapped up into one fundamental question: Who has the 360 view and relationship stance to become a true ecosystem business? 

The answer: those that act on customer insights fast and continuously.

After all, there aren't many examples of genuine ecosystem businesses in insurance. It's the Apples and Amazons that set the frame for competitive success and market dominance in the ecosystem paradigm, and without doubt drive the expectations of consumers.

You could argue that ecosystems have been tried in insurance, that even Amazon failed and had to close its U.K. Insurance Store. However, the Insurance Store wasn’t a failure. It was a relatively low-cost, high-learning opportunity. Amazon is still in insurance and expanding its presence rapidly.

Tesla is another good example: a business that exhibits many of the characteristics of ‌big ecosystem drivers but has struggled to manage data from its cars into its repair networks. However, it hasn’t given up. More likely, it’s learned and will now optimize its approach.

See also: Convergence and the Insurance Ecosystem

Then there are the insurers that are making ecosystems work. Despite sensible concerns over long-term profitability, Lemonade has managed to reach one million customers in just four years. In fact, it claims to be the first option for first-time buyers and renters‌, and second for people under 35. 

wefox is another. Since its founding in 2015, it's increased its revenue annually, achieving $800 million in 2023. It currently has nearly three million customers in its core markets of Germany, Austria, Italy, Poland, the Netherlands and Switzerland. Rapid growth, for sure. 

So, what sets these ecosystem businesses apart, and what can we learn from them and apply to insurers more broadly? They aren’t “incumbent” businesses with a lot to lose and an unwavering focus on sustaining their existing business models/source of premiums. 

This is important. If you can’t adapt quickly in today’s market, you risk decline, which is playing out in real time. 

The average tenure of old-economy companies on the S&P 500 is plummeting, and incumbency has never seemed to be worth less. Although not as disruptive as it’s been in other sectors, this looming threat to incumbents is present in insurance, and can only grow. 

But this threat is also a massive opportunity. The market forces acting on incumbent P&C insurers today have never been higher. Regulation is now starting to bite, and regulatory changes in the U.S. will follow the Consumer Duty in the U.K. These are requiring insurers to treat customers fairly, and long term they'll force insurers away from price-led and into new business models.

Equally, the road is running out for insurers, even with scale, to outpace the competition on price alone. It’s increasingly unviable even in medium-term views. Instead, understanding the value of a customer, focusing on ‌building mind and wallet share and increasing retention is a far better strategy. 

Which leads us barreling toward the framing in the title because ecosystem business models, and the enterprise design they sit within, hold many of the answers to success. 

Insurers continue to be overwhelmingly built around policy-centric systems and then try to build intelligent orchestration on top so they can create effective customer relationships. This creates a legacy effect, not only in technology terms but also in how insurers operate and how people interact within the organization, as well. This is what we call the legacy trap, and it has two primary impacts on insurers. 

First, change is complex and expensive. The policy-centric wiring often means that insurers don’t know if customers have one, two or 20 products with them.--not without abstracting that data, orchestrating it and acting on it. If you can’t get this basic work right, how can you expect to achieve meaningful changes in your customer relationships, mitigate risks, embed yourself in their lives and sell beyond insurance? 

Second, that wiring in an ever-growing ecosystem of partners is vastly more complex beyond the application programming interface (API). Integrating with legacy systems is usually straightforward. But orchestrating two-way data exchanges and incorporating a partner's value back into operational, employee or customer experiences can be extremely complex, somewhat akin to performing heart surgery.

Technology isn't the issue. The issue is mindset and organizational design. How can you be customer-centric if your business is designed to put the policy and not the customer at the center of it? You can't.

Organizational design drives technology. Get the design correct, and you get the technology right. You need to have a clear vision of the customer and business outcomes you want to create, and a detailed plan of how it'll be achieved. The technology follows.

There’s an obvious answer to this. It’s transformation done properly. Foundations of MACH-based core technology, built around the customer, data fluid and intelligent. These are the drive-trains in the engine of an insurance business that treats data as a perishable asset, constantly mining it for insight and acting on it. This engine provides adaptability in a way that'll drive the truly differentiated and hyper-competitive insurers that'll dominate over the next 10 years. 

From the customer’s perspective, there’s real value. Communication from the insurer through mobile apps, text, portals and dashboards can be used to mitigate risk, reward and influence behavior, lower maintenance and operating costs and reduce marketing noise. 

See also: The Great Unbundling

Performance metrics, comparisons, rewards and other gamification techniques will create even more customer engagement.

The challenge for many insurers will be the limitations of their back-end insurance core systems. Historically, these legacy systems have been purpose-built to support ‌the policy only, creating data and functional silos that impede innovation.

With the right customer-centric mindset, organizational design and technologies, it's possible for ambitious insurers to break free from the commoditization of insurance and offer excellent customer experiences, creating more positive, frequent and valuable customer interactions.

Faster horses are about to give way dramatically to the mechanization era and the P&C insurance ecosystem models emerging. I, for one, can't wait!

Egregious medical overbilling leaves payors and providers haggling over reimbursement for medical services while patients end up with large balance bills they cannot afford to pay. But a captive solution built on indemnification rather than insurance can shield health plan sponsors and members from any financial liability associated with high-cost claims and balance billing. 

Providing a legally defensible strategy to reprice individual medical bills and fully absorb that risk, a captive can transfer the risk exposure for excessive claims to a captive “cell” that separates its assets and liabilities from core corporate assets. The captive takes over the bill and is contractually obligated to pay those claims, relieving patients from the harassment of collection agencies.   

This novel approach is radically different from a traditional single or group captive program, which creates a big enough risk pool to aggregate large amounts of data and dilute overall risk while insuring risk on claims that haven’t yet occurred. The new approach actually takes steps to understand and manage risk on a bill-by-bill basis. Although it cannot prevent providers from continuing their practice of overbilling, experience shows that when providers learn there is a captive indemnification program in play, they typically back-off from claims collection.  

See also: Data Science Is Transforming Public Health

Learning From Failure

Traditional captives are not set up to indemnify health plan members from balance billing in the event that a large claim becomes problematic and there is no agreement on a fair payment to the provider. Healthcare payors have skirted this issue by hiring attorneys to challenge egregious billing in court, which is no guarantee that they – or their health plan members – will escape financial liability. 

Reference-based pricing (RBP) programs in tandem with a medical stop-loss captive also fail to shield payors and patients from balance billing. While RBPs may refer patients to an attorney for negotiating large bills, they cannot erase the responsibility of group health plan sponsors or their participants to pay those charges.  

There have been attempts at indemnification against egregious billing practices in the form of a Contractor Liability Insurance Program known as CLIP to help payors absorb risk, much like reinsurance. But there are inherent limitations to this approach. For example, Securities and Exchange Commission filings prevent a public company from taking on risk. CLIPs also charge huge administrative fees for their services. 

Much of the blame for continued balance billing falls on the inability of the commercial insurance marketplace to resolve this problem and achieve true healthcare price transparency. While government oversight has intensified, the slow pace of provider compliance with new laws and regulations to fix these issues, and lax federal enforcement over violations, have not resulted in any meaningful solutions. Even in the face of legislative and regulatory remedies, doctors and hospitals continue to send balance bills to collection agencies and harass patients for payment. The remedy must come from disruptive innovation, exemplified by captive indemnification. 

See also: Why to Customize Employee Healthcare Plans

Addressing Escalating Costs of Healthcare Benefits

While healthcare has become more expensive each year, it’s now also increasingly risky to provide these benefits. Plan sponsors face increasing pressure to fulfill their fiduciary responsibilities as stewards of group health plans amid growing government oversight and a litigious atmosphere. A recent employee lawsuit alleging Johnson & Johnson failed in its fiduciary duty to health plan participants may spark a new wave of class-action litigation against health and welfare benefit plan sponsors that mirrors decades of court battles waged against sponsors of defined contribution retirement plans. 

Without “true” insurance built on transparent pricing that is clear to consumers before services are rendered and devoid of hidden fees, patients will still receive balance bills. As a result, even many of those with employer-provided health insurance cannot afford important care or medicine, which they delay or forgo. More than 500,000 U.S. households each year file for personal bankruptcy, with unpaid medical bills now the leading cause. 

The only way to shield payors and patients from any financial liability from balance bills, and provide them with peace of mind, is through captive indemnification. Coupled with advanced payment integrity technology and medical expertise for reviewing and repricing bills, it fortifies protection against inflated prices. 

Using physicians and surgeons, rather than coders or administrative personnel, to manage a technically advanced bill review process bolsters claims payment accuracy, prevents overpayments and eliminates fraud, waste and abuse. The only way to ensure that a medical bill is properly reviewed is to fully understand the medicine behind it. When medical professionals are the ones who scrub bills at the line-item level, they can spot redundancies and items such as durable equipment that should never require separate billing or erroneous billing for unnecessary surgical procedures. 

As we have shown at WellRithms, payors now have a viable option to protect themselves and their members in an effort to curtail perverse billing practices.

During finals week in college, friends liked asking what I still had to do before the end of the term. I was such a procrastinator that I always had way more papers to write and tests to start studying for than they did, so they'd walk away feeling better about their situation.

My conversation with Gabriela Dominguez, president of Avante-Nea Insurance Group in Miami, for this month's interview brought finals weeks back to mind because of her vivid descriptions of the difficulties facing agencies in South Florida these days. Agents from just about any other part of the country will feel better about their plights after reading what Gaby is going through. 

For instance, she talked about a tattoo parlor she's writing at the moment, saying, "The carrier that writes that most effectively, efficiently and competitively, if you submit an account to them you've got to wait between 20 and 30 days to get a quote.... How can you wait 20 to 30 days to get a quote?" 

With Citizens, the homeowners insurance lender of last resort in Florida, she said they'll lock in an effective date for a policy but will take 20 to 25 days to look at the submission. "Then, she added, "they come back and say, 'Oh, by the way, you got everything in, but you're missing this. You've got five days to give it to me or you lose your spot and start all over again.'"

And even when a major carrier renews a client, the price soars—she's about to have to tell a restaurant that last year's $15,000 premium is now $29,000.

I draw two primary lessons from the interview. First, as much as carriers talk about making life easier for agents, they have a long way to go, at least in chaotic markets like Florida, and have a big opportunity if they get the coordination right. Second, there are benefits to consolidation to achieve scale, as Gaby describes at the outset of the interview, based on her recent experience with a merger. 

But even if you're not looking for lessons, I think you'll find her interview a compelling read—and it might even make you feel better about the chaos waiting on your own desk​.

Cheers,

Paul  

SOCIAL SELLING FOR INSURANCE AGENTS

Paul Carroll

A study just came out showing that mergers and acquisitions of agencies and brokerages, while down a bit in 2023, still registered one of the biggest years on record. You undertook a merger a couple of years ago. How does that trend look from where you sit?

Gaby Dominguez 

In our case, we were a small enough agency that we were getting constrained with appointments, restrictions, not meeting the quotas, not meeting the loss ratios. Joining with another agent and now having a much bigger book of business means I have more opportunities for appointments.

So, yes, a lot of agents at the size I was before are going to be constrained as to what they can and can't do if they don’t merge. In fact, you're going to probably even lose appointments because you're not able to meet the requirements that some of these carriers are putting on us.

Paul Carroll

For frame of reference, how big were you before and how big are you now?

Gaby Dominguez 

I was at $20 million in premium and $2 million in revenue. We're now at $7.5 million in revenue.

Paul Carroll

I assume dealing with carriers is especially difficult, as well as important, in Florida.

Gaby Dominguez 

In South Florida, our market is so, so difficult right now. Most of our book of business is written through excess and surplus instead of admitted carriers, so having those connections available is key. 

When I merged, I was able to acquire admitted carriers such as The Hartford and Chubb. I was not going to get those appointments on my own. Now that we’re a bigger agency, we have better contracts, better commission structures, better contingency contracts.

Paul Carroll

You were slammed last week because of some big renewals. Those have to be rough these days, especially in Florida.

Gaby Dominguez 

It's horrible.

Markets right now are non-renewing, removing the wind… and you’re getting a quote to present to the client maybe five days before the renewal day. Sometimes, it’s just two days before, especially on larger accounts.

It's just a mess. When you think about the number of accounts that we have to renew monthly, then multiply that by all the agencies in South Florida, it’s hard to get any time with carriers.

You're basically in a pipeline. If you call enough, if you're in front of them, if they like you, maybe they'll put you up in their stack so they can review the account. But you're basically bleeding. 

I've got an account that I'm writing right now, which is a tattoo parlor that also does cosmetic tattoos and medical tattoos, so it's a little bit more extensive. The carrier that writes that most effectively, efficiently and competitively, if you submit an account to them you've got to wait between 20 and 30 days to get a quote.

That's unheard of. How can you wait 20 to 30 days to get a quote? How far ahead do you have to present an account to a carrier to get a quote you can present to a client?

With Citizens [the property insurer of last resort in Florida], you upload all the information: the application, the appraisal, all the supporting documents, which is a huge amount, often including a 40-year recertification. Who was even talking about 40-year recertifications just four years ago? Now that is a must when you submit an application--room certifications, electrical certifications, wind mitigation…. Once you’ve uploaded all that information, you sit there and wait.

They secure your effective date. Let's say the coverage is effective next Monday. But they won’t review the application until they have time. And that can be 20 to 25 days. Then they come back and say, “Oh, by the way, you got everything in, but you're missing this. You've got five days to give it to me or you lose your spot and start all over again.”

There’s no communication with underwriting even with excess and surplus carriers, and nobody will answer a phone these days. I cannot put everything in an email sometimes, so it’s important to be able to pick up the phone and say, “Hey, Paul, can I just talk to you about this account? I get that you're seeing this and this, but look, there's this and this and this, and that other thing has gone away.” The reaction is: Put it in an email.

Paul Carroll

Are the insurance reforms in Florida having any noticeable effect yet?

Gaby Dominguez 

Losses are still being reported. We still have attorneys on the radio saying, “Don't report a claim to the insurance company. You come to me first.”

Carriers are saying the new legislation has made a difference. The number of claims has declined.

But it’s too soon to know. For sure, we have not seen a reduction in premiums. I’m working with a restaurant right now that last year paid $15,000 in premium, with wind. Normal restaurant, nothing big. A major carrier just renewed it: $29,000. Same sales, but nearly twice the premium, and I have to sit with this client and tell them that. 

The Department of Insurance says several carriers are very interested in writing and are preparing to come aboard. Maybe by the end of this year, we'll see three to five carriers coming into play. 

But I've been in this business long enough that I go back to Hurricane Andrew in 1992, which is when all this mess started. Carriers came in afterward and took business out of Citizens, but then another storm brewed, and those carriers went under, so the business went back to Citizens. It’s been a revolving door ever since. So I’m a bit skeptical. Are carriers coming in with the reserves they need? Do they have the management they need to be effective?

Paul Carroll

One of the things we've really focused on at The Institutes is the idea of Predict & Prevent—get away from this model where all you do is repair and replace after the storm hits, and help keep people from having losses in the first place. But is there much you can do to help clients prepare for what forecasts are saying will be a rough year for Atlantic hurricanes? I mean, the storms are going to hit your area, or they aren’t, right?

Gaby Dominguez 

The last 24 months, the number one conversation we’ve had with our clients is, “How old is your roof?” If your roof has a life expectancy of less than five years, you have to change it. Again, that’s not a conversation we were having five or six years ago. 

But people sometimes cannot afford a roof replacement. Here, a normal roof can easily cost between $30,000 and $40,000. It's not what it used to be. Ten years ago, the cost was maybe $12,000 or $15,000.

We also ask, “How old is your water heater? Have you had any electrical and plumbing updates?” If your water heater is more than 14 or 15 years old and you haven’t updated your plumbing and electrical—especially on older homes, and we have a lot of older homes here—then carriers are not going to quote you. So you have to go to the excess and surplus market.

Paul Carroll

I’ve hoped that insurance premiums would send strong enough signals that policyholders would make their homes more resilient. It sounds like that may be happening.

Gaby Dominquez

People are doing it. It's either that or lose your coverage, and if you have a mortgage, the force-placed insurance is three times more than the quote that I'm going to give you, which is already expensive. 

The state is providing assistance through different programs that help people replace the roof, get a new AC, install impact windows and so on.

Paul Carroll 

Are there enough plumbers, electricians and contractors to do all this work?

Gaby Dominguez 

It's a struggle. Every single day, I hear: “Do you know somebody who's reputable?” 

There's just so much work that needs to be done. And that's not only on residential. I do a lot of condominium associations. Right now, I'm battling on a condo whose 40-year recertification failed. The tab to replace the roof, change the electrical—because the electrical is no good—and do some plumbing work is over $500,000. So they have had to go to a bank and request a loan for half a million dollars. Now they’re on a timeline: This week we're doing this, the next two weeks we're doing that, this is where the progress on the roof is. And I have to report to the carrier every two weeks what the insured has or has not done. That is just draining.

Paul Carroll 

Holy smokes. 

Gaby Dominguez 

When an agent-friend of mine from California and I are at agent/broker meetings, we're the two who tell everybody else, “You guys have it fine.”

Paul Carroll

Thanks, Gaby. I really enjoyed the conversation. Here’s hoping conditions start getting at least a bit easier.

About Gaby Dominguez 

Gaby joined the second-generation family-owned business – Avante Insurance Agency – after obtaining her property and casualty license in 1986. She became president of Avante in 2010 and merged with NEA Insurance Group in 2022, where she also serves as leader of the highly successful personal lines team for over 20 employees, who are mostly women. Gaby has numerous professional achievements in her 38-year insurance career including – 1) Chartered Property & Casualty Underwriter CPCU designation showcasing all facets of the insurance business; 2) numerous positions in CPCU Society (local chapter president; regional governor-Southeast; diversity and nominating committees; and chair of the Agent Brokers Interest Group, a position she occupies currently); 3) past president and council president of the Latin American Association of Insurance Agencies; and 4) member of the depopulation and technical advisory committees of Citizens Property & Casualty Insurance, the largest insurer in Florida.

As much effort as carriers have put into digital transformation over the last decade, new research shows that there’s still considerable work to do. According to the J.D. Power 2024 U.S. Property Claims Satisfaction Study, today’s insurance consumers are dissatisfied with how long it takes carriers to process and resolve property and casualty (P&C) claims. And the longer a claim drags on, the deeper the dissatisfaction. Claims resolution times were longer in 2023 compared to 2022, mainly due to the myriad of catastrophic weather events from coast to coast. The study notes a significant drop-off in customer satisfaction levels if the claim takes over three weeks to resolve.

 Even carriers that offer digital interfaces for clients are seeing lower satisfaction rates. From the J.D. Power study:

“Customers who use digital tools for reporting their claim or submitting photos used in the estimation process experience faster claim cycle times but don’t always have higher levels of overall satisfaction. Claims taking longer than expected are partially to blame as satisfaction drops at a greater pace among digital users than non-digital users. For example, overall satisfaction among customers reporting their claim digitally is 903 when the claim is settled in less than three weeks. That score falls to just 727 after 31 days.”

What is driving insurance customers' dissatisfaction regarding digital channels? Carriers can face a few common challenges when building their digital channel engagement strategies. For example, some insurance carriers only offer a limited number of customer service channels. They may focus solely on traditional channels like phone and email, neglecting newer channels like live chat, social media, SMS, or messaging apps. This limits customer choice and may not align with the preferences of younger generations who prefer digital or self-service communication channels.

Addressing these gaps in the customer experience requires a comprehensive omnichannel strategy that prioritizes the seamless integration of all the channels, messaging consistency, agent responsiveness, personalization, and a focus on customer preferences across all channels.

Omnichannel Engagement Creates Happier Customers

A 2023 study commissioned by my company, in collaboration with independent data scientists, analyzed behavioral data from 250,000 P&C insureds. The study revealed that a consistent, diversified omnichannel experience creates higher levels of engagement and customer satisfaction. Policyholders who utilize multiple channels are 21% less likely to cancel their policies, and customers who repeatedly use them have a 25% higher retention rate.

An omnichannel strategy can significantly enhance insurance customer satisfaction in several ways:

1. Meeting Your Customers Wherever They Are: Carriers need to make it effortless for insureds to interact with them. Customers who can interact with the insurance company through various channels of their choice are more loyal. This requires carriers to enable a seamless transition between channels to ensure customers can access services without disruptions, leading to higher satisfaction. Depending on the situation, your customers may want to leverage digital channels for quick questions, or they may need to speak with a customer service professional for more complex needs.  
2. Getting More Personal: By leveraging data collected from multiple touchpoints, insurers can personalize customer interactions. That can include offering relevant new products, providing tailored recommendations, and addressing specific needs, ultimately making customers feel valued and understood.
3. Providing Convenient Self-Service: An omnichannel approach must include a self-service customer portal. The right portal enables customers to complete tasks and access information quickly and easily without the need to speak with an agent. Portals are also highly effective at reducing carriers' costs.
4. Maintaining Messaging Consistency: Consistency across channels is crucial for maintaining trust and satisfaction. With an omnichannel strategy, insurers can ensure that the information provided and the level of service offered remain consistent regardless of the channel used. This consistency builds confidence in the company and enhances the overall customer experience.
5. Achieving Operational Efficiency: During the claims process, customers want to feel that they’re a priority. Omnichannel strategies streamline processes and workflows, allowing insurers to resolve customer issues faster and more effectively. For instance, customer inquiries can automatically be routed to the appropriate department or agent, reducing wait times and improving resolution times. 
6. More Reliable, Real-Time Communication: Customers unhappy with claims resolution times may feel they’re not getting enough communication and updates from their carrier. Effective communication is critical to keeping insureds satisfied. That can mean different things to different customers. For example, some customers will appreciate a text message updating them on the status of a claim, while others prefer to receive an email with more detailed instructions on next steps. An omnichannel strategy enables carriers to communicate with customers more frequently, in real-time, providing updates, notifications, and reminders through their preferred channels. This proactive approach to communication keeps customers informed and engaged throughout their journey.

Carriers who take the time to build an integrated omnichannel engagement strategy can improve customer satisfaction by providing a seamless, personalized, and convenient experience. The main goal is to build loyalty with customers who appreciate the ease of use of each channel. That requires consistency across the full mix of digital and offline channels. Regardless of the engagement channel, carriers must move through the claims process promptly and efficiently, facilitating effective communication at each journey step. Doing so will demonstrate to your customer that their needs come first, even if a claim is complex and takes longer than expected to resolve. 

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