As insurance firms broach the use of generative AI (GenAI), some are rightly concerned about risks. The technology represents a tremendous opportunity to make member experience more engaging and efficient, but, in the quest to implement the technology, is trust getting lost? 

Currently, the most effective methodology is a GenAI-first approach, which sees policyholders engage with GenAI on the frontline alongside a series of guardrails to limit unwanted behaviors and combat hallucinations. Achieving this optimized balance requires engaging key stakeholders both internally and externally.

More than that, realizing this kind of member experience requires using guardrails to account for any technical limitations, leveraging GenAI’s strength at hyper-personalized interaction and ensuring human agents remain in the service flow. This multi–pronged approach, which places customers and safety at the core, builds more robust engagement with trust at its forefront.

Why Is Trust Essential?

The technology and our understanding of it continue to evolve, requiring more frequent communication with policyholders and employees. Letting them know about how you plan to implement AI tech is essential, especially when tasks like claims processing, underwriting and customer service may be affected.

Take First Notice of Loss. The process depends on policyholder input and steers the lifecycle of a claim. With a virtual agent available to aid that process, which can be an emotional one depending on the circumstances, firms must build users’ comfort with the technology. Poor experiences can, and do, hurt experience.

Members have a wealth of providers to choose from, and going above and beyond to demonstrate an understanding of any concerns is important. Auto insurance, for example, faces a higher degree of consumer shopping, with retention rates down three percentage points since Q1 2022. Similarly, generating buy-in from internal teams and encouraging their understanding of and trust in new technologies will only help them do the same in external communications.

See also: Balancing AI and the Future of Insurance

Setting Up Guardrails

Guardrails are also necessary in unlocking the highest performance of GenAI in the insurance setting. With the potential for models to interact with sensitive data or inform official brand communications, risk can and should be mitigated. 

Insurance firms may not be ready to manage the risk of generative technology directly. Generally, 41% of business leaders say their organizations are slightly or not at all prepared to address governance and risk concerns related to generative AI adoption. In those instances, it becomes important to establish an understanding across the company, and with any technical vendors, about how to address risk -- doing so openly, and transparently so all stakeholders can align. 

At the technical level, an undesired outcome, like hallucination, can be managed with a multi-pronged strategy targeting where and how a generative model sources knowledge and information. For insurance firms, this may look like strict limitations around communications concerning policy. 

The Power of Personalization

GenAI’s technical capability unlocks a wealth of personalization options for firms. It can inform more targeted recommendations at the product level or create more dynamic agent conversations. When competing for attention, it’s critical to think about how the service process will be optimized for more personalized interaction.

Generally reducing barriers to desired outcomes, for example requiring members to routinely provide personal information, can improve satisfaction and provide an overall more seamless experience. In this context, identity verification can be made more efficient with models able to reference previous interactions. 

Consumers take notice of personalization, with 67% of them expecting relevant product and service recommendations from brands. For firms, this may look like a virtual agent recommending product bundles based on the context of a conversation. That kind of interaction is made more possible by guardrails to ensure models make suggestions consistent with pricing structures and policies.

See also: The Rise of AI: a Double-Edged Sword

Maintaining the Human Touch

Implementing a GenAI-first approach doesn’t mean members will engage with GenAI exclusively. Whether implemented as a virtual agent or embedded into another internal process, GenAI is a powerful tool that can be managed with human input. Additionally, depending on the kind of query or action, members may prefer engaging with a GenAI model over a human one, or vice versa. 

Onboarding this new technology also creates opportunities for existing staff to focus on more pressing queries. With experience in both routine and escalated queries, agent input is also key to model training. Just as a hybrid approach leans on both conversational and generative AI, the larger contact center strategy can prioritize both human and virtual input in the applications where they’re strongest.

Member interactions can be made more meaningful and convenient when their first encounter is with generative AI. Customer service, account management and other core processes can be optimized when firms prioritize transparency, personalization and risk management. The GenAI-first approach to member service isn’t wholly a new concept, either. It’s an evolution based on tested experience, and a hybrid approach blending existing best practices with innovative technology and guardrails.

Hurricane season is here as weather-related losses continue to torment insureds and insurers. Just last year, data from the annual Natural Catastrophe and Climate Report by Gallagher Re found that global insured losses from natural catastrophes reached approximately $123 billion, the fourth consecutive year losses exceeded $100 billion. 

Across the board, my company, Pennsylvania Lumbermens Mutual Insurance Company (PLM), is seeing rising claims from a range of storm events, including wind and hail, hurricanes, lightning, tornados, wildfires and more. An increase in events like these has led to a surge in losses, but even with this uptick in frequency, as insurers we know we can reduce our risk by helping our policyholders reduce theirs. 

While storm risk exposures may be nothing new to insurers, during times like this, it becomes even more important to work with policyholders to help them understand their unique risk exposures to storms and to help them navigate that risk. 

Learning From Losses

At PLM, we’ve seen the value of thoughtfully implemented comprehensive risk mitigation time and time again. Sharing sample loss stories can be an easy way to get policyholders to see the value in risk mitigation and see why a focus on weather safety is important. Insureds need to understand the implications of a loss, and claims stories can paint a vivid picture.

With our expertise being wood-related businesses, we can share loss stories that connect with our individual insureds. For example, last year, a lumberyard owner experienced straight line wind damage to several buildings on their property to the point where they were forced to temporarily shut down operations. Without emergency response supplies on hand, recovery was delayed, extending the business shutdown and leading to unnecessary financial loss. Adequate risk mitigation and storm safety planning could have prevented some damage and sped up the time it took the business to get back up and running.

In a separate incident, the owner of a lumberyard in New Orleans suffered a massive loss from a hurricane – a loss that could have been prevented. The lesson to learn here revolves around the business owner’s purchase of used air ducts to upgrade their ventilation systems and failure to secure them during installation. When the hurricane hit, the ducts flew off and destroyed the roof. If these ducts had been properly secured, this multimillion-dollar loss likely could have been avoided. 

Sharing stories like this can emphasize to policyholders the value in creating a formal disaster plan and leveraging other risk mitigation tactics. Purchasing emergency supplies, including tarps and duct tape, investing in remote electrical systems, conducting regular maintenance and understanding the risks of taking shortcuts on repairs can offer policyholders a crucial line of defense. 

Motivating Your Policyholders

See also: Lessons From Florida's Hurricane 'Mean Season' 

While it may be self-evident to those of us in the industry that it is a smart business move for policyholders to invest in risk mitigation practices, how do we get them on board? 

Regular policy reviews can open the door to share those loss stories and remind insureds to keep their policies up to date and invest in risk mitigation, particularly as we face an increase in storms. 

Insurers and producers should be taking time to set up regular property tours and review disaster safety plans with their clients. These meetings should provide a comprehensive audit of those plans to ensure common disaster safety issues are covered and proper risk management policies are implemented.

Once the client has a better understanding of their policy and the value of risk mitigation, you can share more specific risk mitigation best practices with them – particularly as they relate to storm safety. As we continue to navigate these weather events, risk mitigation conversations should include the following best practices:

For Wind Storms:

• Roof Maintenance: Staff members should be conducting regular roof and building inspections and developing safety plans. Insurers should recommend a roof expert examine their structure to confirm there are no clear weaknesses. In this maintenance period, staff should also regularly trim trees to prevent accumulating additional debris.
• Securing Loose Items: If a hurricane warning is issued, secure any loose items, tie down any lumber and move critical equipment inland if the property is large. For larger, more difficult items to secure, consider tying items together so they serve as an anchor to each other. Ensure all doors are closed, as well. 
• Tornado Safety: Like hurricanes, most tornados are strong enough to remove roofs or toss trees around the property. If an insured is located in an area with tornado activity, materials should be stored on the east of any structures. This will reduce the risk that  heavy materials hit structures if debris does begin to fly. 

For Wildfires: 

• Limit Fire Fuel: We recommend insureds maintain a large distance from vegetation to building exteriors. All vegetation should also be regularly trimmed. This will limit fire fuel, and in the event the vegetation does catch fire, the distance from the building may prevent it from damaging facilities. 
• Develop Non-Smoking Policies: Non-smoking policies should thoroughly highlight the fire-prone areas where employees cannot smoke and include a safe location for smoking. 
• Consider Technology: Investing in the right technology can also be critical. For example, some businesses use automatic sprinklers that detect fires and respond accordingly. In lightning-prone areas, we have also seen lightning suppression systems limit the chance of a fire caused by a lightning strike.

For Lightning Strikes:

• Invest in Lightning Protection Systems: This should include surge protectors, and verify that the electrical ground is working, with adequate grounding rods, and that antenna masts are properly grounded with a separate grounding system. This will limit the damage lightning can cause to high-value equipment and technology and reduce the chance of an electrical surge.
• Stay Away From Electrical Equipment: In the event of a lightning storm, businesses should also ensure people stay away from electrical appliances, windows and telephones and avoid any isolated trees. Take shelter in enclosed buildings or vehicles. 

Finally, a good disaster safety plan will outline the key risk exposures at the facility, determine a disaster response team and recovery plan and establish protocol in the event of an incident. 

Insurers should work with their clients to develop this plan and revise the plan annually to confirm they are acting safely. They also should recommend regular staff training on disaster safety, so team members know how to act when in danger. A formal response plan can make all the difference in this type of dangerous situation.

Policy Reviews

While we’re focused on risk-mitigation here, policy review also presents an ideal time for producers and insurers to work with policyholders to confirm their property is adequately insured. Insurers can also use this opportunity to educate their clients on the topic of insure-to-value. Many business owners do not know that if they have incorrect limits or property or inventory on site that they have not discussed with their insurer, they may have to pay for the damages themselves.

Additionally, a policy review provides an opportunity to let clients know that replacement costs remain high due to the supply chain shortages. Insureds will not want to find out when it’s too late that the cost to replace or rebuild their property or inventory is much higher than expected because they had not had their facility examined in some time. 

See also: Disaster Fraud: The Dark Side of Insurance Claims

Your Role as a Trusted Partner

In these conditions, one of the best tactics for an insurer to demonstrate their value is to serve as a trusted partner. 

Natural disasters and weather events remain a leading loss driver in insurance. Too many business owners remain unprepared for the range of challenges a storm can bring to their operations. Insurers and producers should take time to ensure their clients understand the challenges facing their businesses and have the right safety practices in place to protect their team, their customers and their work.

As an insurance professional, you’re acutely aware of the growing home insurance crisis in the U.S. From coastal California communities to Gulf Coast states and many areas in between, insurers are dramatically increasing rates, declining to renew coverage and, in some cases, pulling out of states entirely.

What’s behind this current crisis and, more importantly, how will we solve it?

The current home insurance crisis

A few factors led to the current situation in the property casualty insurance industry. First, climate change has caused increased wildfires, hurricanes, tornados and hailstorms, meaning insured disaster losses have also surged. 

Second, rebuilding costs after these claims have risen dramatically in recent years. Inflation doesn’t just affect the cost of groceries and utilities. Construction materials, including wood, steel, concrete, electrical conduit and insulation, have risen by an average of 19% since 2020.

The result? The U.S. property/casualty industry recorded a $21.2 billion net underwriting loss in 2023 after recording $24.9 billion in net underwriting losses in 2022. Companies are trying to stop the bleeding by raising rates, tightening underwriting criteria, forcing insureds to accept higher deductibles or lower maximum limits and pulling out of high-risk markets.

See also: Rethinking Property Insurance

Potential solutions

Given that mortgage lenders require borrowers to maintain homeowners insurance, the home insurance crisis can potentially undermine local housing markets.

While there’s no single solution to the home insurance crisis, here are a few ideas.

State-run insurance programs

When private insurance becomes unprofitable and unattainable, many states have government-backed “last resort” insurance options that will insure homeowners unable to find coverage on the traditional market.

Often referred to as Fair Access to Insurance Requirements (FAIR) plans, these programs receive financial backing from a combination of premiums and fees levied on other insurance companies issued in the state.

Currently, California, Florida, Hawaii, New York and North Carolina have state-run FAIR plans. Other states may have plans operated by private insurance companies.

As the insurance market tightens, these state-run plans will likely take on a greater share of home insurance coverage in their states.

Surplus lines insurance

Surplus lines insurance is an alternative to state-run insurance programs. It’s a market for highly specialized insurance companies that provides coverage not available in the standard insurance market.

Surplus lines insurers are not licensed to do business in the state and thus not regulated by the state’s Department of Insurance in the same way licensed insurers are. That said, they are regulated in the state or country in which they’re located. 

The number of homeowners insured by the surplus lines market is growing. For example, the number of California homeowners insurance policies written by surplus lines carriers increased from fewer than 20,000 in 2021 to around 49,000 in 2023.

See also: How to Tackle the Long-Term-Care Crisis

Risk mitigation

Individual homeowners and communities can take steps to reduce the risk of losses.

For example, homeowners in areas prone to hurricanes and high winds can have a contractor install hurricane straps on their roofs, reinforce garage doors or install hurricane shutters and impact-resistant windows. These measures help prevent wind damage. 

On a community-wide level, local governments can change their building and land use regulations to adopt hazard-resistant building codes and limit new construction in flood-prone areas.

Several state and federal grant programs can provide funding for hazard mitigation projects. For example, the EPA’s Hazard Mitigation Grant Program (HMGP) gives money to states, tribes and territories implementing hazard mitigation after federally declared disasters. The Building Resilient Infrastructure and Communities Grant (BRIC) is available to states that have had a federally declared disaster within the past seven years. It provides funding for hazard mitigation projects that promote climate adaptation and resilience.

Some states are implementing their own mitigation grants. For example, the Strengthen Alabama Homes program offers homeowners grants of up to $10,000 to windproof their homes in a way that complies with FORTIFIED standards developed by the Insurance Institute for Business and Home Safety (IBHS).

Reforming litigation processes

Another approach to alleviating the home insurance crisis is to make it more challenging to sue insurance companies.

In 2022, Florida passed Senate Bill 2-A, which included a variety of measures to stem the tide of claims litigation. For example, it made each party in a lawsuit responsible for paying its own attorney fees rather than allowing plaintiffs attorneys to collect legal fees from insurers, which can encourage lawsuits.

Legislative action can be slow and contentious, and lawmakers must balance reforms with protecting consumer rights. However, by curbing excessive litigation, insurers can reduce legal costs, which can, in turn, help lower homeowners' premiums.

Addressing the home insurance crisis requires a multi-pronged approach to stabilize the market and provide relief to homeowners. Lawmakers, insurers and property owners must collaborate to address the crisis and provide a secure market for homeowners across the country.

The insurance industry is facing a critical moment. Rising costs, a talent shortage, fluid customer expectations and even regulatory changes have created an inflection point. 

While it’s easy to see how these challenges could inspire anxiety, many of us in the insurtech space see an exciting opportunity to transform the industry.

Economic and environmental pinch points have implications for budgets across departments, and tech is no different. But it’s important that insurance leaders lean into this moment by investing in innovation. With all business leaders searching for the most effective uses for artificial intelligence (AI), investing in automation to lay the groundwork for future AI policies is one of the smartest ways to future-proof your operations. 

In a recent webinar hosted by Insurance Thought Leadership, and alongside InvoiceCloud, my colleagues dug into the various ways the insurtech industry can meet this moment head-on.

Customer expectations are evolving. Insurance providers must evolve with them.

While there’s still a lingering perception of millennials and other digital natives as adolescents, they now make up a significant percentage of insurance customers. As they’ve become adults, they’ve purchased homes and cars—and the necessary insurance. These are people who came of age when the internet was already ubiquitous as a marketplace, so they have different expectations of services (including insurance) than their older counterparts. Many younger people have become accustomed to flexible and streamlined customer engagement experiences like those they encounter with big e-tailers like Amazon. 

Forget mailing a check—they expect to be able to make payments digitally, set and forget AutoPay for recurring bills and resolve any issues on their own time, instantly. Achieving these standards can be challenging for traditional insurance carriers, but it’s increasingly important for those who want to stay competitive.

AI has the potential to surpass even the loftiest customer demands. It can provide personalized experiences, like tailored product recommendations, customized communication and proactive assistance based on an analysis of a customer’s needs. AI can also facilitate predictive analysis based on historical data and customer behavior patterns, allowing it to offer tailored risk mitigation advice and policy adjustments and provide timely alerts and notifications.

Of course, it will take time for the promise of AI to be fully realized. That’s why insurance companies should focus on automation as a stepping stone toward this AI-driven future. Automation can address current consumer demands and pave the way for seamless AI integration later, while improving the experience for both insurers and policyholders in the process. For instance, by automating certain customer touchpoints, insurers can enhance self-service, empowering policyholders to access information, file claims and manage policies independently, even at hours when traditional customer service agents are unlikely to be available.

The webinar highlighted the most common, routine touchpoint between insurers and their customers: the billing and payment process. According to industry insights, 73% of insurance customers prefer digital claim payments over paper checks. Automation can streamline administrative tasks, reduce manual intervention and speed the payment process, ultimately improving policyholder satisfaction and retention. These options help build trust and positive sentiment by matching the demands of today’s younger cohort of policyholders.

See also: How Automation Can Address Today's Growing Underwriting Challenge

True SaaS, digital ecosystems and the opportunity for digital billing

Another topic we touched on was the importance of traditional insurance carriers investing in the software as a service (SaaS) business model. 

The main business model of insurance companies is to offer financial support to people when the unexpected happens. That said, insurance leaders would benefit from considering their sector a software as a service (SaaS) business, as well. The average customer’s interaction with an insurance company is through the digital ecosystem that the insurer has created. True SaaS enables insurance companies to deliver modern experiences instantly and ensures consistent updates and system improvements. This technology helps insurers build a reputation for reliability, extend their reach beyond just sales and renewals and adapt to changing customer demographics and demands.

Consider a straight-through processing (STP) experience that enables an application to be processed, evaluated and approved automatically by the insurance company's system. It delights customers when the process is faster and more efficient, reducing waiting times and minimizing the chance of errors, while omnichannel engagement ensures the entire experience is consistent and integrated at every stage, regardless of how one chooses to interact with a carrier. These are the sorts of insurtech innovations that can make a huge difference come what may with AI tomorrow. 

See also: Why Hasn't Insurance Automated More?

Effectively investing in AI begins with embracing automation.

AI’s capacity for collecting and analyzing data in an instant could prove revolutionary and help bring the insurance industry into the future. For example, AI could analyze climate data, geography, temperature and historical weather trends to predict weather patterns, enabling carriers to provide customized solutions such as three-month flood insurance policies ahead of shifting hurricane seasons.

But the truth is the AI-driven future is still some ways off, particularly when it comes to insurance and insurtech. This doesn’t mean leaders in the space should ignore AI—to the contrary, it’s worth taking the time to create a solid foundation for integrating AI technologies in the long run, by embracing and investing in automation now. 

In a recent conversation, Paul Carroll, editor-in-chief of Insurance Thought Leadership, spoke with Jeroen Morrenhof, CEO and co-founder of FRISS, about the multifaceted issue of insurance fraud and the strategies being employed to combat it, including the crucial role of ecosystems and the company's significant partnership with Verisk. What follows is a transcript of that conversation, edited for length and clarity. 

Paul Carroll: 

What is the importance of attacking insurance fraud, both for insurance carriers and for customers, who have to pay a sort of "fraud tax" if fraud isn't addressed? 

Jeroen Morrenhof: 

Insurance is an industry built on trust. Customers trust insurers to make them whole again, and this trust allows people and companies to take risks, enabling the economy to flourish. However, not everyone can be trusted, and those who defraud the insurance industry undermine this essential trust relationship. 

Insurance fraud has multiple implications. It undermines the perception of insurance and increases the "fraud tax" or "premium tax" that every consumer pays. Studies estimate that billions of dollars and euros are lost to fraudulent claims. Every consumer is paying hundreds of dollars to cover the cost of these claims. This is a significant issue for the industry. 

Fraudulent behavior takes advantage of the trust between insurers and customers, and it's a two-way street. Misrepresentation can occur from both the insurer to the customer, such as in the fine print, and from the customer to the insurer. 

Paul Carroll: 

Why are ecosystems so important in the fight against fraud? 

Jeroen Morrenhof:

Ecosystems are key in tackling the complex issue of fraud. At FRISS, we have invested heavily in understanding various fraud schemes and developing methods to detect, investigate and prevent them. However, many other companies also specialize in this space, each with their own focus and expertise. 

We work with numerous partners, including hundreds of data vendors connected to our platform across the 47 countries we operate in. These vendors provide data specific to countries, states or even counties, as well as global data. We always strive to find the best data sources for compliance lists, credit scoring, weather data and more. 

Another critical part of our ecosystem is core solutions like Guidewire, Duck Creek, Sapiens and others. These solutions provide essential services to their customers for policy, claims and billing. We aim to integrate seamlessly with these core solutions through APIs and iFrames, allowing their customers to leverage our capabilities, such as claims automation, as part of their product. 

This integration is a significant aspect of digitalization, straight-through processing and further automation of processes. It must be real-time, integrated, seamless and native. By sticking to our sandbox and integrating with core solutions, we enable their customers to benefit from our fraud fighting capabilities within their existing systems. 

Paul Carroll: 

What is the significance of your arrangement with Verisk for FRISS and the insurance industry as a whole? 

Jeroen Morrenhof: 

Our arrangement with Verisk is very significant, and not just for FRISS. 

When I moved to the U.S. six years ago, FRISS had zero customers there and had just made our first hire. We knew that the most important predictor of future fraud is historical claims data, so accessing this data source was crucial for us to begin our work in the U.S. market. Now, being the first insurance fraud vendor allowed to incorporate Verisk's ClaimSearch data into our product is a huge milestone. 

This integration provides numerous benefits, but most importantly, it greatly enhances our ability to predict and prevent future fraud. 

Paul Carroll: 

It seems to me that FRISS is taking the sort of platform approach that I’ve seen work so well for IBM, Microsoft, Google, Apple and others in my days covering the computer industry. Every new capability that gets attached to the platform makes it more powerful, which attracts others, which makes it more powerful, which… and so on.  

Jeroen Morrenhof: 

Yes, that is correct. By integrating multiple data sources, including policy and claim history, fraud databases and other relevant information, we create a holistic view that enables our customers to make informed decisions quickly and efficiently. This comprehensive perspective allows our customers to determine whether a case can be automated or requires closer examination. If further investigation is needed, our platform provides insights into the reasons behind the decision, potential fraud scenarios and the best next actions based on historical success rates. 

By consolidating all the information into a single, unified view, we eliminate the need for customers to navigate various separate reports or data points. This streamlined approach really orchestrates and empowers them to make swift, confident decisions to either proceed or investigate further, ultimately providing significant value to their operations. 

Paul Carroll: 

What are your plans for expansion in the U.S. market now that you have established a presence here? 

Jeroen Morrenhof: 

Over the past six years, we have grown from zero to over 40 customers in the U.S. Our team has expanded from our first hire to around 30 to 40 people in the country. I recently made a key addition to my executive leadership team, hiring Yogesh Sapre as the president for the Americas. He brings valuable experience from his previous role at Duck Creek and will be responsible for driving further growth in the region. This partnership, along with Yogesh's hire, will be crucial in enabling our continued growth in the U.S. market. 

Paul Carroll: 

What does the competitive landscape look like in the fraud detection space, and how does collaboration factor into tackling fraud? 

Jeroen Morrenhof: 

We're certainly not the only ones trying to support the industry in combatting fraud. A lot of relationships used to be more competitive, but now we’re more collaborative, friends who are doing what’s best for the industry. 

One of the bigger competitors is the "do-it-yourself" approach. It's fairly common for senior data scientists or heads of data and analytics teams to believe they can build their own fraud models. While they may initially create a model that performs, maintaining it and integrating it with third-party data, network analytics and so on can be very challenging. 

Beyond our technology, we provide value by benchmarking and sharing intelligence with our customers. We compare their performance to peers in their state or across the states they're active in, identifying areas where they excel or underperform. We then offer suggestions for improvement, which may involve changing processes, adding technology or data or adjusting configurations to better detect specific fraud schemes. 

Our focused approach sets us apart from broader analytics companies that offer capabilities across the entire value cycle. We believe in being the best in our specific sandbox, providing a dedicated solution for fraud detection and prevention. 

Paul Carroll: 

What are some specific examples of how your customers have used your fraud detection system to uncover fraud and improve their processes? 

Jeroen Morrenhof: 

Our fraud funnel allows us to monitor the entire fraud detection process for our customers. We track the number of claims, referrals, accepted referrals by investigators and the results of those investigations, which could be a withdrawn claim, partial withdrawal or proven fraud. All of this data is captured in our case management system, which investigators use to document their findings. This information then feeds back into our claims scoring and underwriting processes, continuously enhancing our fraud detection capabilities. 

Across this process, we see a wide variety of fraud scenarios in both commercial and personal lines. Our customer success managers, who typically have extensive experience in the field as heads of SIU or at various insurance companies, work closely with our customers to share best practices and strategies for investigating these different types of fraud cases based on their own expertise and what has worked well for other customers. 

Paul Carroll: 

How is the fraud landscape changing, and what are the key drivers behind these changes? 

Jeroen Morrenhof: 

The fraud landscape is constantly evolving, driven by various factors such as economic trends and technological advancements. During times of financial hardship, such as the COVID-19 pandemic or periods of high inflation, some individuals may resort to insurance fraud to make ends meet, justifying their actions to themselves. 

Technological trends also play a significant role in the changing fraud landscape. The development of deep fakes and other AI-generated material has made it easier for fraudsters to create false statements, manipulated images and other deceptive materials to support fraudulent claims. 

These advancements make it increasingly difficult to detect and prevent fraud. For example, in the past, investigators could identify fraudulent claims by finding images downloaded from the internet, such as expensive watches or paintings. However, with the advent of AI-generated content, these images are now unique and harder to detect. Additionally, fraudsters can use AI to manipulate images of genuine damages, such as adding a broken side panel or windshield to a vehicle, to inflate the claim amount. Addressing these evolving challenges is one of the additional use cases that FRISS is working on in collaboration with Verisk. 

Paul Carroll: 

Is there anything else you'd like to add about insurance fraud in general, or FRISS in particular? 

Jeroen Morrenhof: 

There's so much more to discuss when it comes to fraud in the insurance industry. If I were to focus on one aspect, it would be the various partnerships we have at FRISS. Currently, we are integrating ClaimSearch data into our product, which is just the first of 15 identified use cases with Verisk. Another exciting use case involves image analytics and the pooling of images across carriers. 

Our partnership with Verisk is particularly promising. Together, we aim to provide additional use cases that will make insurance processes more efficient across the entire value cycle. This includes streamlining fraud case filing to authorities, improving reporting and enabling more straight-through processing. While we have three use cases live at the moment, I'm very excited about the 12 that will follow soon. 

Paul Carroll:

In my opinion, insurance fraud is simply evil, and fighting against it is doing God's work. I sincerely hope that this endeavor succeeds and that we can help raise awareness about this issue. 

You can watch a quick demo of the Verisk ClaimSearch integration here: Verisk (friss.com)

Sponsored by ITL Partner: FRISS

Two years ago, we embarked on a journey with GRAIL to promote early cancer detection in the U.S. life insurance industry. We were convinced that GRAIL’s Galleri multi-cancer early-detection test could advance our vision of helping life insurance policyholders live longer, healthier lives. During this time, Munich Re Life US and GRAIL have worked collaboratively to educate the life insurance industry on the science and benefit of multi-cancer early detection and enable carriers and distributors to offer tests to their eligible policyholders as a value-added service. 

I’m happy to share that results to date have outpaced expectations. We’re currently active with 11 carriers and two distribution partners on live programs or pilots to offer the Galleri test on a post-issue basis to eligible individual or group policyholders. Carrier and distribution partners have reached more than 100,000 policyholders about multi-cancer early detection, more than 7,000 tests have been completed and we know of over 50 cases where cancer was detected. Seventy-three percent of these positive signals, at an average patient age of 60, were for cancers with no current screening available today. 

See also: How AI Can Lead to Personalized Medicine

The test is potentially lifesaving. Just look at the case of Rich, whose cancer was detected many months before symptoms would likely have developed thanks to his adviser’s suggestion that he take Galleri’s simple blood draw test. Advisers play a key role in engaging with policyholders about the tests, and they value the opportunity to have such meaningful discussions with policyholders. As Rich’s adviser states in the video, “To have that kind of impact on someone’s life is amazing,” and I agree. This is a result the industry can be proud of and can expect to see more of as our Galleri test programs and pilots gain momentum. 

The offering has changed how some carriers and distributors interact with their customers, and we are seeing an exciting trend of some companies building holistic health and wellness strategies to help policyholders live healthier lives. Our partners have received strong endorsements from policyholders and agents regarding their offerings, and have shared positive feedback:

“Product innovation is difficult and incremental in the life insurance industry. The ability to offer a client or policyholder an opportunity to take a test that has the ability to identify over 50 types of cancer at early stages can actually be life-changing, if not life-saving! We provided the test to 70 of our agency principal partners, and one came back with a cancer marker. We later found out that they had no symptoms, and this early diagnosis made a huge difference in the treatment and prognosis. The companies and advisers willing to embrace Grail understand that this is real innovation, real differentiation and real added value.” 

• Bill J. Shelow, Jr., president and CEO, Libra Insurance Partners

“Being able to deliver a program that can help our policyowners gain access to tools, technology and insights that can help them live longer, healthier lives is good for our policyowners and good for MassMutual – and is a great way for us to not only help people secure their future and protect the ones they love but also support their overall quality and length of life.”

• Sears Merritt, head of enterprise technology and experience, MassMutual

See also: Data Science Is Transforming Public Health

“Today, nearly 80% of cancer-related deaths are from cancers for which there are no routine screenings, and with the United States expected to surpass two million new cases of cancer for the first time ever this year, it’s critical that we embrace the resources available to us now. Adoption cannot fall to the healthcare system alone. I believe the private sector can and should help people live longer, healthier, better lives. It has the potential to yield cost savings and better health outcomes far beyond any single company. At John Hancock, we’ve now had many customers who have learned that they have cancer by virtue of taking this test, offered through their John Hancock Vitality policy. So, when you think about that as a life insurer, it’s great for the customer, which we deeply value, but also good for society as a whole and for our business.” 

• – Brooks Tingle, president and CEO, John Hancock

GRAIL has continued its impressive growth and is making inroads into the life insurance, health system, clinic and employer channels and furthering its work to demonstrate Galleri’s efficacy. Early results from clinical trials in the U.S. and the U.K. support the Galleri test’s ability in real-world settings to detect a cancer signal across multiple cancer types, including stage I and II cancers. Galleri can detect more than 50 types of cancer, at least 45 of which currently lack individual screening tests. This means Galleri can potentially transform the future of cancer detection, leading to early intervention and potentially improved outcomes. With cancer as the leading cause of death in the U.S. life-insured population, the impact could be significant.  

It’s been a rewarding two years for Munich Re and the companies that have joined us. For those of you who aren’t yet involved, we invite you to join our industry’s fight against cancer and explore how your organization can play a deeper role in policyholder lives. By paving the way for innovations like the Galleri test, we broaden the value that life insurance offers and support policyholders when we can make the greatest impact. We remain committed to this vision and ready to help advance it.

Cyberattacks are a serious threat to any organization, but there has been a growing threat of cyberattacks in insurance. According to cyber insurance and security provider Coalition, ransomware demands have considerably increased from the first half of 2020 to the first half of 2021. In fact, the average ransom demand made to Coalition’s policyholders increased nearly threefold, from $450,000 to $1.2 million per claim. 

During this time, business email compromise attacks increased by 51%, and funds transfer fraud (FTF) attacks increased by 28% with the average funds stolen in an FTF attack increasing by 179% from $116,842 to $326,254. This substantial increase is in part due to some policyholders’ fear of making payments online. Last year, in our State of Online Payments survey, we learned that 33% of policyholders surveyed are hesitant to pay their premiums online out of concern for their safety — and with this trend in cyberattacks, it’s easy to see why.

Small insurers are becoming a major target 

According to Coalition’s report, small and micro-insurance organizations are becoming cyberattack targets with a 57% increase in the frequency of cyberattacks against organizations with under 250 employees. Why such a large increase? Coalition believes increased automation of cyber attacks combined with the widespread use of insecure remote access tools during the pandemic has made smaller organizations more exposed. 

It’s important to note that insurance organizations aren’t the only ones affected by cyberattacks— small towns and utility providers have seen an increase in cyberattacks as well. For small utility providers, budget may be limited, and security software may not be a top priority. If security software is installed, it’s often not properly maintained and managed, leaving holes in your system that cybercriminals can exploit. These cybercriminals know that while the ransom they extort may not be as big as an attack on a larger organization, it’ll be less work for them to get just as much money from smaller organizations. 

What is cyber insurance? 

So, what exactly is cyber insurance? And does your organization really need it? Cyber insurance works to mitigate losses suffered from a cyberattack including network damage, data breaches, extortion demands, hacking, and more. Typically, general liability insurance or property insurance doesn’t include coverage for cyberattacks, so it’s crucial for organizations to consider having this separate line of coverage. 

In short, yes — your organization may want to consider exploring obtaining cyber insurance. With these types of cybercrimes on the rise, it’s more important than ever to protect your organization, your policyholders, and their information. It’s not enough to just prepare for the worst — simply just securing cyber insurance still leaves your organization and your policyholders vulnerable. Enlisting secure software solutions is the best way to proactively protect your organization — especially when it comes to your billing and payments software, considering the recent spike in FTF fraud. 

Leveraging SaaS to prevent cyberattacks in insurance 

Software as a Service (SaaS) technology keep insurance organizations protected so they hopefully never need to utilize their cyber insurance. SaaS solutions are cloud-based software models that deliver continuous improvement with no maintenance on your part—guaranteeing your organization always has the best and up-to-date security patches to remain compliant with industry standards. 

For payment solutions, SaaS technology not only safeguards organizations against compliance liabilities but alleviates policyholder concerns about making online payments—keeping your organization safe and your policyholders protected. 

Interested in learning more about what SaaS is and what it can do for your premium payment collections? Download a copy of our free ebook, The Benefits of Software as a Service: Why SaaS is the Best Delivery Model for Payment Solutions, right here.

 Read the Original Article Here

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As I sit in sweltering Northern California -- where it's 105 degrees as I write this -- I realize that I barely have anything to complain about, given the crazy weather seemingly everywhere else.

The biggest problem for the moment is Hurricane Beryl, which devastated parts of the Caribbean and made landfall in Texas early Monday. The storm killed at least four, knocked out power for millions of people and caused vast damage to homes and other property. 

But there are plenty of other catastrophes, too. Wildfires have created much more devastation than normal for this time of year. Heat domes have caused severe distress throughout North America, India and other parts of the world. Floods have hit the Middle East and parts of the U.S. Unusually severe storms have also crushed areas with heavy winds, hail and lightning. 

And we seem to just be getting started. In particular, Hurricane Beryl's appearance as a Category 5 hurricane so early in the season -- drawing energy from water in the Atlantic that is far warmer than normal -- suggests that all the dire forecasts about hurricanes this year may, sadly, play out.

As a recent headline in Bloomberg read, "The Era of Super-Wild Weather Is Already Here."

The Bloomberg article, from June 19, opens:

"Wildfires in Canada that burned continuously for over a year. Floods that brought Dubai to a standstill. Deadly heat blanketing the streets of New Delhi.... 

"Florida is in its second week of battling torrential rainfall so intense near Sarasota that it has odds of occurring just once in 500 to 1,000 years. Damages could top $1 billion."

The article continues:

"The weather is no longer an even roll of the dice. It’s more like throwing loaded dice that have sixes on three sides — or sevens and eights, says Katharine Hayhoe, a distinguished professor at Texas Tech University who studies climate impacts. The term 'global warming' itself suggests a kind of predictability that may no longer suit the times. 'These days I think it’s much more appropriate to call it ‘global weirding'.... Wherever we live, our weather is getting much weirder.'”

Since that article came out, headlines like these have landed in my inbox: "California's Early Explosive Wildfire Season Is Nearly 1,500% Ahead of Last Year," "Extreme Heat Deadlier Than Wildfires, California Insurance Regulator Says" and "Much of New Mexico Is Under Flood Watch After 100 Rescued from Waters Over Weekend," The Triple-I reported that claims paid for lightning strikes, which surged in 2023, totaled $1.27 billion in the U.S.  

As bad as those headline are, what really worries me is what comes next. 

The Washington Post tallied records set by Hurricane Beryl:

"Beryl became the Atlantic’s strongest June storm on record. Its intensification from tropical depression to a Category 4 storm within 48 hours was unprecedented for the time of year. When it gained Category 5 strength July 1, it did so earlier than any other Atlantic hurricane on record.

"And when it struck Texas, it became just the 10th hurricane on record to make landfall there during the month of July, according to Colorado State University hurricane researcher Philip Klotzbach. No other Atlantic hurricane in the past decade has made landfall on U.S. shores so early in tropical cyclone season, which began in June."

An article in Carrier Management says:

“'Beryl is unprecedentedly strange,' said Weather Underground co-founder Jeff Masters, a former government hurricane meteorologist who flew into storms. 'It is so far outside the climatology that you look at it and you say, ‘How did this happen in June?''”

And worse can be expected because the water in the Atlantic is so warm that it provides unprecedent fuel for major storms. 

The Bloomberg article warns that we should start thinking beyond individual catastrophes and start imagining "compound events," "where multiple disasters — natural and manmade — occur at the same time or place, exacerbating their combined impact. A prime example can be found in Texas, where high temperatures contributed to the state’s largest-ever wildfire. Abnormally dry conditions in the Canadian province of Alberta translated into an early start to fire season.

"In other cases, impacts spread across borders. In March, Saharan dust storms blew north, turning skies yellow and orange in Sicily and degrading air quality from Greece, through Italy, to France, which also saw intense rain. Spiking food and energy prices have also overlapped with harsh weather conditions, for example, magnifying the consequences of the years-long drought in Syria, Iraq and Iran."

The only short-term advice I can muster comes from my sailing days: Batten down the hatches. 

But in the medium- and long-term we need to do some serious thinking to prepare ourselves and our clients for more "global weirding."

Cheers,

Paul

We had a doozy of red ink recently that is now ready to be smothered in black.

As we get ready for 2Q2024 earnings season, which I expect to be a whopper for personal auto, let’s take a look at an excerpt from the NAIC March 4, 2024, news release focusing on personal auto: “Total private passenger auto insurance has the largest amount of direct premiums written reported as of March 4th, 2024, at $314,788,570,644, which is about 33% of all written premiums.”  

That implies that at a 65% pure loss ratio target, there is more than $100 billion allocated to running the business and profits.  After massive layoffs and writing restrictions in the past several quarters, profits will be eyepopping this summer, again.

It’s no secret that insurance companies are for-profit operations, whether they are organized as private companies, public companies, mutuals, captives or any other form of risk transfer. And anyone who makes a living on a percent-of-premium basis is wondering when there’s going to be a knock on their door, asking, “What are you doing for me next”?  

[Full disclosure, I help insurance companies improve profits and experiences.] 

See also: Modernizing Commercial Auto Insurance

As an industry veteran agent-of-change, my constant quest to unravel old ways of working, to hunt down and incorporate new data and to segment existing levels of analysis to create threads with deeper understanding and transparent explanation of contribution to loss has made me simultaneously respected and reviled, not always in equal parts. Everyone hates change, even when change is the only solution. 

A big culprit in the red ink phase we have experienced was not so much that used car values soared. It is that the industry pricing for vehicle physical damage is uncoupled from the actual cash value of a vehicle while industry claims practices are tied to actual cash value.

Since the 1950s, the tradition has been to use the base value of the manufacturer’s suggested retail price (MSRP) for setting prices, using a starting suggested value at risk that treats all the makes and models (and more recently trim levels and other standard equipment) as though there are no possible upgrades.  

The tradition goes on to predict the future value of every vehicle using a single depreciation factor table as though every vehicle depreciates in the same manner. That depreciation prediction slowly goes down from year 1 until flattening out typically between 45% to 35% of base price new between 10 and 15 years after the vehicle was originally available for retail sale. 

After 10 to 15 years, that flat prediction of value will last as long as the vehicle is insurable, unless that specific vehicle becomes “collectable” and is required to be a scheduled valuable like a collector car.

We witnessed historic red ink when actual vehicle values sharply diverted from predicted values at risk - it was like a stock market meltdown where “naked call options” were suddenly cashed in and money to cover the spread was due on demand. The obvious analytic pursuit then is to question both the current process to set the value at risk and the way we predict the future value at risk.

Who would guess a $300 billion-plus industry with over 250 million vehicles under risk management would write insurance without keeping exacting tabs on the cash value of those assets?  As we dig into the structure of the existing framework, we see many areas of being data poor (the 1950s era) and what that means in regard to recent rate taking and what comes next for the change agenda.

See also: Reducing Auto Claims by Embracing Sustainability

Spoiler alert: 

• For newer vehicles with optional installed equipment, policyholders get “free insurance” -- the predicted scheduled insurance value is less than the actual value. 
• For older vehicles still in operation at the flat part of the factor table, as the actual cash value trends to zero, the ratio of insurance value to actual value becomes large.

What this means in respect to the recent base rate increases:

• Vehicles with total MSRP above base MSRP still get “free insurance.”
• Older vehicles pay higher rates than their value suggests they should.
• Price accuracy declines as the predicted versus actual values diverge up/down.
• Price accuracy can be radically improved by just looking up the actual value as needed. (Homeowners carriers use insurance-to-value accuracy methods already).

What’s next?

• Breakthrough innovations revolve around using data more than technology.
• Every data process can be segmented for capturing more value -- more accurate predictions, easier task accomplishment, improved choices, cheaper costs and improved margins.
• Newer data frequently creates the largest scalable impact, but deeper levels of refined analytics are the catalyst for the most rapid value creation.

No good deed goes unpunished when there are hundreds of billions of dollars in play, yet ultimately what is good for customers ends up being good for companies and shareholders. Especially at auto insurers -- they have unique traditions from other lines of insurance, but 100 years of tradition unhampered by progress is coming to an end.