The what and why of achieving a goal -- also known as strategy -- are the easy part. It is in the how, or execution, where the hard work comes in and where success is ultimately determined.

It is therefore no surprise that while the goal of modernizing data and analytics operations in insurance is nothing new, advancing along this path has remained elusive for many re/insurers. Legacy challenges, resource constraints and inefficiencies in organization and infrastructure all conspire to limit progress. Fortunately, RGA's journey proves that data modernization can indeed be achieved and that the resulting efficiencies make it well worth the effort.

Collaboration: Setting the Stage for Transformation

A vital first step to this data transformation is collaboration between business and IT teams. By understanding the roles and responsibilities required for successful decision making between the two teams, insurers can create a collaborative environment fostering innovation and sustainable growth. The business owner is tasked with defining problems and success criteria and dedicating analytical resources to develop solutions, including a self-service model. In parallel, IT owners propose suitable tools, manage technology partner resources and execute the company's technology strategy.

At RGA, this partnership model enabled the business side to set expectations early for a desired future state and IT to make proposals around approaches to get there. This ensured alignment and facilitated allocation of necessary resources such as dedicated IT staff -- a common challenge for emerging technology initiatives. At the same time, our IT teams were challenged to ensure consistency with the broader enterprise architecture when proposing solutions to foster end-to-end organizational alignment and integrated, sustainable upgrades. Bringing the business and IT teams together has led to collaboration beyond the initial scope of the project scope and elevated continuing business-as-usual interactions.

See also: Characteristics of an Effective Change Agent

Overcoming Legacy Challenges

Legacy data systems in life insurance are often plagued by duplication, inconsistent tooling and inefficient processes. Combating this starts with constructing datasets at their most basic level, thus curtailing the need for subsequent aggregation and enabling scalability to accommodate future analytical needs and prevent data redundancy. It is also important to clarify data ownership roles by installing functional data leads and data owners, ensuring responsibilities transfer smoothly across functions while aligning with internal policy, regulatory obligations and contractual arrangements. Finally, tool selection must focus on an end-to-end architecture that benefits the entire organization.

At RGA, data modernization began with acknowledging that legacy issues hindered adaptability to analytical demands. We redefined data ownership, invested strategically in technology tools and phased out legacy systems in favor of scalable solutions that considered downstream integrations to maximize the reusability of analytical code. Key principles guiding this modernization process included:

• Source of Truth: Establishing a single source of truth for core datasets at the most foundational level, devoid of premature aggregation, ensures all downstream processes are fed uniformly and accurately.

• Self-Service Analytics: Empowering business units with tools and capabilities to independently access and analyze data reduces dependency on IT and accelerates decision making.

• Scalability: Prioritizing scalability in technology investments to meet future demands diminishes current limitations and unlocks the potential business value.

• Active Monitoring: Continuously tracking expenses, usage and process efficiency enables iterative improvement and fosters formalization of repeatedly used processes.

Advancing Data Centricity

The resulting framework at RGA integrates data from multiple sources through a "data fabric," a centralized repository for curated datasets for which access is managed and secured, yet readily available as needed. The data fabric supports a robust analytical database that enables self-service and the generation of business processes by users other than IT, supporting ad-hoc initiatives while also monitoring expenses and usage. Layered on top of this are advanced analytical capabilities and business intelligence, leveraging the speed and efficiency provided by the underlying analytical database to derive insights.

Just as important as the technology is the realignment of roles within the organization. RGA introduced data leads within key functions, such as operations and underwriting, to outline the analytics strategy for their respective domains. The data operations (Data Ops) team executes these strategies, ensuring seamless integration and coordinating cross-functional initiatives. Overseeing it all is the chief data officer, who works with senior leadership to align the overarching data strategy with the company's vision and to ensure investment generates desired business value. These roles are complemented by partnerships with IT, change management, legal and other technology partners.

See also: Winning Back Reinsurers' Confidence

Avoiding Pitfalls and Achieving Success

As with any transition, life re/insurers must navigate potential pitfalls in their modernization journey, and RGA was no different. Challenges encountered that can now serve as a guide for others include:

• Environment Integration: Migrating from on-premises to a cloud environment demands careful planning to ensure seamless co-existence and transition.

• Strategic Alignment: Technology investments should align with the broader business strategy.

• Comprehensive Solutions: Integration must be end-to-end, avoiding piecemeal approaches that can lead to systemic incongruence, while enabling a future state of accelerated technology enhancements.

• Expense Management: Monitoring expenses can help avoid unexpected cost overruns and enable the retirement of unused processes.

• Change Management: Prioritizing and investing in change management, focused on both systems and the people who interact with them, facilitates adaptation and uptake.

Despite the typical challenges of any major technology enhancement, RGA's modernization journey proved well worth the effort. Resulting efficiencies yielded significant improvements in system run times -- often 10 to 100 times faster. The process also produced a much stronger relationship between IT and the business, with clearly defined roles for data and analytics leads. Expense management and enhanced approval processes are now embedded in day-to-day operations. And an advanced security model further safeguarded the transformation, empowering business units to operate autonomously and securely. Teams now devote less time to constructing analytical models and datasets and more time to interpreting them for business insights.

Conclusion

For life insurers contemplating a path toward data modernization, RGA's journey offers a potential blueprint. It emphasizes early and clear expectation setting, fully funded and business-aligned IT proposals and a symbiotic business and IT collaboration. This blueprint underlines the importance of overcoming data challenges, investing in scalable and agile systems and continuously monitoring and refining processes.

Through data modernization, life insurers can achieve data fluency, drive business value and pave the way for an analytics-driven future. The key lies in an unwavering commitment to innovation, robust planning and a collaborative spirit that stretches across organizational functions.

Michael Reilly is a managing director in Accenture's insurance strategy. He has more than 20 years of experience helping insurance companies around the world transform underwriting operations and organizations. He has led large-scale commercial insurance transformation programs in underwriting, policy, business intelligence and mergers and acquisitions. He has also co-written and presented multiple articles on underwriting, analytics and knowledge management.

Paul Carroll

Of all the things you’ve written, perhaps the most startling to me was based on some work you did with The Institutes, ITL’s parent. You wrote that underwriters only underwrite about 30% of the time. The rest of the time is spent on paperwork and on sales-related work. Is that still pretty much where we are?

Michael Reilly

Yes. We just did a survey with a client, and the numbers are tracking around the same 30% to 40%. It varies a bit by carrier, but that’s about what is spent on the core risk evaluation. There's a lot of other stuff that underwriters spend time on that is, quite frankly, administrative or data prep that they shouldn't be spending time on.

Paul Carroll

What would a reasonable goal be?

Michael Reilly

A reasonable goal is closer to 60%. There are now technology solutions that help the underwriter focus and do their evaluations faster. There's no reason why I can't get unnecessary tasks off their plate.

Paul Carroll

Someone used a new term with me the other day: “digital paper.” They said that, sure, insurance had made progress toward being paperless but that we now have digital paper: PDFs, spreadsheets and other documents that, while in electronic form, still require all the manual flipping through and drawing data from that we’ve always done with paper. How do you get beyond digital paper and all the way to digital?

Michael Reilly

This is a favorite topic that I talk about all the time. I joke that underwriting hasn't changed in 300 years.

Sure, 300 years ago it was done in a coffee shop. Someone came down the street with the application, the junior underwriter popped out and got it and the underwriters created a file folder that they passed back and forth while they did their work. In modern times, we started to mail documents back and forth, then we FedEx-ed them, then we had fax machines and, congratulations, today we do email. But those emails include PDFs, so they aren’t really digital data. The information is still locked away. And what do we do with those emails? We put them in file folders. They’re digital file folders, but they’re still file folders.

I'm old enough to remember an underwriting space where you had these Manila file folders with seven parts. The first part had correspondence. Then you had your application. You had your loss runs, your statement of values and so on. Now go look at today’s electronic files. You have the same seven parts. It’s like you just took the old system and moved it over.

People are pushing around digital pieces and saying, ooh, we have digital workflow. Digital workflow has replaced the mailrooms, but that’s about it.

While there’s a bit of variation, a core kind of commercial submission document for property/casualty probably has about 500 useful pieces of information. Our core rating system and policy systems carry just enough information to get the rate done and get the policy issued. All of that other risk data stays locked away in those PDFs, so the underwriter has to look at it individually. At a renewal, you'll see the underwriter with two PDFs on two different screens trying to figure out what's different.

Today, a carrier might send the submission to an operations person or maybe offshore, where someone types in 100 pieces of data. That's nice, but I left 400 behind, and the 400 I left behind are the stuff that tells the story that the underwriter uses to make their decision.

But technology tools now let me digitize all that data and ingest the whole thing, not just the 100 fields, and show it to the underwriter at the key decision points.

The magic of an underwriter is that they’ve seen an awful lot of these things before. So we rely on the underwriter to make a judgment call. Is this average, below average, above average? But what if I could use data and show you exactly where this submission is average, below average and above average? I can look at the claims frequency, at the cost per square foot, at the number of employees, and I could show you compared with a peer group exactly where this one is, without your having to dig through the PDFs.

I can set up an analytical view from a triage perspective. What's our probability to win this? Are there flags on this building that mean I should spend more time evaluating it? From a negotiating perspective, what’s our experience with this broker? At renewal, I can do a side-by-side digital comparison of what's changed year over year, to focus the underwriter’s attention on exactly what's different so they can figure out what to do.

I can make the underwriter incredibly more efficient if I break that cycle of paper documents and move from PDF to digital to true digital. That's the vision we're talking about.

Paul Carroll

I'm sold. Why hasn't this happened yet?

Michael Reilly

Several reasons. One is the ingestion technology is relatively new, and carriers are just getting their arms around the tools. Some work better than others, and there have been some false starts. Digitization takes some time, and, quite frankly, a lot of carriers are short-sighted. They only think to digitize the same data they use today in their policy and other systems and aren't taking the extra leap and thinking what else they can do. Some also just lack imagination.

The technology is there. There’s not a technology limitation any more. The issue is just, Do you have the imagination to actually picture a digital underwriting path and then drive to that path?

Insurers like to be fast followers. They don't always like to be first doers.

But we're starting to see pockets of experimentation here and there. Two years ago, it was only pilots for ingestion. Last year, a couple players became more serious about ingestion and did a little bit of playing with the analytics, though mostly for the management team, not the frontline underwriter. That's another problem we see: Carriers get focused on Google, with all this cool data for the managers, and don’t recognize that the real value of the data is in giving it to the front line.

I describe underwriting systems sometimes as three generations. The first was a policy system. The second was our workflow system. The third is these big data platforms and stuff. You're seeing some new players, like Federato, at maybe level 2.5 or 2.7. They’re not quite a level 3, but they're definitely pushing the boundaries.

Paul Carroll

How long would it take me, if I'm a good-sized carrier, to go full bore on these sorts of ingestion and analytics capabilities? Are we talking about a two-year effort, a five-year effort?

Michael Reilly

It varies a bit, but on the extraction side I can tell you that, for a project we started over a year and a half ago, we had the first submission extraction going for North America in three months. In four more months, we were extracting all North America submissions for APEX submissions, all U.K. submissions, and we're getting ready to do Europe.

So could you be extracting all the data within a year? Yes, you could. The complexity is putting that data into your systems, but the cleaner you have the landscape on the extraction side, the faster you can go.

There are still some challenges. We’re running at 95% or 96% accuracy, so not necessarily 100%. You still need to plan for some humans in the loop and some bit of correction, but you can still be way more efficient than you are today.

Paul Carroll

I'm really curious about this idea of the dark data. What's lurking in those 400 pieces that you don't have?

Michael Reilly

Maybe you don’t see that computer equipment is in the basement in a flood zone. Wildfire zones change year to year, and policy documents aren’t smart enough to match the changes against the locations of the properties being covered. We saw that when wildfires hit California. Good carriers had a better view of what their current book was. It’s not that other carriers didn’t have the right data within their walls; the data just wasn’t accessible within their walls.

Paul Carroll

Are there any things I haven't asked about that are top of mind for you about underwriting that I should have asked about?

Michael Reilly

There are two other hot topics. One is AI, which everybody gets excited about. I think we're too excited, to be honest, in some degrees. It can be applied in the tooling and in the preparation but not necessarily in the core underwriting decision until there’s more transparency about how it makes decisions. I’m making $100 million decisions. I'm not trusting the AI to do that yet.

There's still too much nuance, especially in the commercial space. There's a wonderful commercial bakery near us. But they also let the public come in, and you can get a hot roll right out of the oven. So now it’s a commercial bakery and a retail bakery. Oh, by the way, they bought the best deli in the area and put one of the shops actually in their bakery, with the other one down the street. Now you get the hot roll off the conveyor belt, walk it over and have them make a sandwich for you. Best sandwich in the world.

An underwriter can interpret all those different exposures and figure out how to balance everything. AI is very good at looking at homogeneous risks and seeing the patterns of a homogeneous risk, but commercial insurance isn't homogeneous. AI won’t replace the underwriter, but it can make the underwriter smarter by putting the data in context.

Paul Carroll

The other hot topic?

Michael Reilly

You're seeing this more in Europe than we are in the U.S., but there is the green element coming in, and carriers need to consider that from the risk perspective. Carriers need to figure out what their commitments to becoming green by a set time mean, not just for their investment portfolios but for their underwriting. Do I cover those businesses or not cover those businesses?

Paul Carroll

Super. Thanks so much for your time and your insights, Michael.

Farm Bureaus are so much more than insurers – they’re considered the voice of farmers and ranchers nationwide. Between advocacy at federal and local levels, educational programs, and the general empowerment of farming families, Farm Bureaus are actively building a sustainable future of safe and abundant food, fiber, and renewable fuel for our nation and the world. 

At the center of every Farm Bureaus’ mission are its members, those who have dedicated their lives to farming and ranching. In its simplest form, the aim of Farm Bureaus is to meet its members where they are today and empower them to keep running day-to-day operations while focusing on the future. 

One operational piece that’s critical for both members and Farm Bureaus is paying (or collecting) insurance premiums. And in a world where the modern consumer can make one-click purchases on Amazon or easily pay other bills online, outdated or manual payment processes can be a major source of frustration for your members.

By offering easy paths to self-service, Farm Bureaus can cater to both traditional preferences and the more modern preferences of next-generation farmers coming up today. This begins by providing a seamless customer experience where it matters most.

What do members want out of their payment experience? 

To help billers stay aligned with customer payment preferences, InvoiceCloud conducts an annual survey of ~2,100 bill payers nationwide to determine the current state of online payments. Data from our most recent survey (available for download December 2022) indicates several overarching trends that should give you a sense of the payment experience your members are expecting: 

1. Digital: In general, digital insurance payments have increased across the board since 2020. Mobile and online portals were the two most popular and preferred payment channels, but mobile took the top spot as the most used and most preferred for the first time. 
2. Convenient: The #1 word selected when respondents were asked how they would “describe their ideal payment experience.”  
3. Automatic: There’s been a 5% spike in automatic payment enrollment since last year, especially among folks aged 60 and older. 

All of these descriptors apply to the needs of farmers – they required quick, easy ways to get their Farm Bureau premiums paid every cycle, so they can spend more time on the countless other daily operations that should be taking precedence. Even from the Farm Bureau perspective, leveraging an online payment portal streamlines manual tasks and offers bureau employees more time to focus on critical member issues and needs. 

So, what would your member’s ideal digital payment experience actually look like? Here are a few examples of how to identify a truly frictionless payment experience: 

• One-time payments: This frictionless payment options allow members to pay quickly with only their member number, policy number, or account number – no passwords needed. 
• More Ways to Pay: Members should be able to choose from multiple payment channels (online portal, mobile device, text message, etc.) and methods (credit card, Apple Pay, ACH, etc.), and each option should be as easy to use as the next. 
• Payment Reminders: Farm Bureaus should allow members to opt in to email, text, calendar, and phone reminders so they never miss a bill again. 
• Review and Store Invoices: Members enrolled in paperless billing should be able to receive and review invoices online any time they’d like. 
• Automatic Payments: Allow members to “set it and forget it” with easy automatic payment enrollment capabilities. 

Options like these are crucial to helping Farm Bureaus remove friction from their payment experience, therefore making life more convenient for members and staff alike. 

Why Georgia Farm Bureau partnered with InvoiceCloud 

In the spring of 2022, Georgia Farm Bureau Insurance selected InvoiceCloud as its next online payment solution. The goal was to give its 250,000 members a variety of frictionless options for securely paying bills electronically. 

George Monk, General Manager of Georgia Farm Bureau Insurance, shared that the decision stemmed from the organization’s responsibility to meet members where they are today. 

“Our members rely on us as partners in everything that they do, so it’s essential that every interaction we have with them, be it in-person or via automated means, be as personable and pleasant as possible. The convenience and sophisticated payment options that come with InvoiceCloud give our members the options, intuitive experience, and peace of mind they’ve come to expect as part of a larger organization designed to improve the lives of our members.” 

– George monk, Georgia Farm Bureau Insurance General Manager

Want to learn more about how InvoiceCloud can help improve the high-value member experience of receiving bills and making payments? We’d love to connect and understand more about your goals! Schedule a no-obligation call here or watch the video below to hear a little more about who we are.

Sponsored by ITL Partner: InvoiceCloud

Originally Posted By InvoiceCloud

Many insurance organizations share common pain points when it comes to collecting premium payments – but what’s the biggest, top-of-mind challenge that keeps insurers up at night? We wanted to know, so we asked 106 insurers who attended a recent live webinar the following question: 

Which objective is most important for your insurance organization? 

• Decrease payment-related phone calls 
• Decrease inbound paper checks 
• Decrease print and mailing fees 
• Reduce late premium payments and cancellations 

With 62% of the vote, the majority of insurers asked selected “reduce late payments and cancelations” as their most critical organizational goal. This makes perfect sense, considering that late or delinquent payments often lead to policy cancellations, spikes of policyholder churn, and a negative impact on your organization’s revenue flow. 

How can you reduce late premium payments and cancellations? 

Since delayed payments are such a major concern for so many insurers – perhaps yourself included! – we wanted to offer 4 ways your organization can utilize online payment technology to combat late premium payments and prevent policy cancellations. 

1. Provide flexible payment options

The past year has seen a tremendous shift if the way customers are making payments, and it’s more important than ever to offer policyholders flexible payment options.

For example, “pay later” mobile wallet options enable your customers to pay their bill over time and can even safeguard your collections in the process. Options like PayPal’s Pay in 41 and PayPal Credit2 allow your organization to get paid upfront while offering your customers the flexibility they need. Giving customers the ability to schedule payments in advance can help drastically, too. While this feature may not be right for all customers, for payers who are experiencing a sporadic flow of income, scheduling payments ahead of time may allow them to make payments while income is consistent.

2. Prioritize communication with policyholders

In all relationships, communication is key. This is especially true for insurance organizations and their policyholders. Clear communication doesn’t just ensure for consistent collections, but can also greatly improve your customer’s experience, which can boost CSAT scores and online adoption rates. 

One great way to communicate with your customers is through Outbound Campaigns —messages that your organization can send to customers to remind them of upcoming bills, late payment notices, and much more. These campaigns not only establish a consistent channel to communicate with your customers but also are critical to preventing late and/or canceled premium payments.

3. Remove roadblocks from the payment process 

A stellar policyholder experience is critical to the success of your organization, so making the premium payment process a simple and seamless is one easy way to reduce late premium payments. Your organization can simplify the payment process by removing any roadblocks to an effortless, completed payment. 

For instance, not requiring customers to log-in or register each time they need to make a payment; an optimized guest checkout route is not only efficient, but can encourage your customers to pay online more frequently. In fact, a recent Invoice Cloud survey found that 38% of respondents said ‘convenience’ was the number one reason they chose to make a payment online, and forcing your customers to register or log-in is the opposite of convenience. 

Pay by text and “one click” payment options (like Invoice Cloud’s OneClickPay) are also great for streamlining the payment process.  

These features not only increase online adoption rates but result in more consistent payments overall. If customers are offered a simple way to pay a bill, they’re more likely to make a payment sooner than later — improving internal efficiencies and giving your organization peace of mind knowing most premium payments will be paid on time each billing cycle.

4. Drive to self-service enrollment 

Encouraging policyholders to enroll in self-service payment options like AutoPay and paperless billing are key for locking in consistent payments. Your organization can do this effectively by offering customers a payment solution that is designed to encourage policyholders to enroll in these options at every customer touchpoint, including: 

• On their bill 
• On the payment screen 
• In the confirmation email after a payment has been made 

Ready to get started? 

Evaluating and, subsequently, innovating your organization’s premium payment experience is undoubtedly the quickest way to improve premium consistencies and reduce cancelled policies. 

Luckily, Invoice Cloud has everything you need to start offering a better premium payment experience. Download our free content package, The CIO Toolkit: Resources for Insurance Chief Innovation Officers, and you’ll receive: 

• Research report: Keeping Up with Millennial Policyholders 
• Podcast: PC360’s Insurtech Center Podcast Series – How technology is supercharging CX in the insurance industry 
• Infographic: Customer Experience in Insurance 
• On-demand webinar: Novarica + Invoice Cloud – Embracing Positive Disruption: How Technology is Transforming the Insurance Industry 
• Case study video: California Mutual Insurance Company 
• BONUS WORKSHEET: The Insurance Innovation Checklist 

Sponsored by ITL Partner: InvoiceCloud

Originally Posted By InvoiceCloud

As is true across all industries, customer expectations are constantly evolving for insurance providers. While the wants and needs of customers may change, one thing remains the same — policyholders will not renew policies with insurance providers that don’t meet their expectations.

One McKinsey study shows that satisfied customers are 80% more likely to renew their policies. However, only 15% of customers are satisfied with their insurers’ digital experience.

The fact that insurance carriers who provide best-in-class customer experiences generate 2 to 4 times more growth in new business and 30% higher profitability than carriers with an inconsistent customer focus demonstrates just how critical satisfactory customer experience truly are.

Exceed expectations with true SaaS for insurance

Software as a Service (or SaaS) is a software delivery model that provides all the benefits of a single software interface for all of your core systems, without the need for continuous updates by your IT department. Translation? Your organization enjoys all of the benefits of owning software without the trouble of managing and maintaining it.

For insurance companies in particular, SaaS is ideal because it’s secure, customizable, scalable — all of which works to increase policyholder satisfaction and retention. This delivery model also empowers insurers to digitally transform while allowing employees to place emphasis on core business functions rather than IT maintenance.

When choosing a SaaS vendor to work with, however, it’s important to make sure you’re signing up for a true SaaS solution. Sometimes, companies practice what’s called cloudwashing, or running traditional software on a cloud instance and marketing it as a “true SaaS” solution. In a cloudwashing scenario, multiple versions of the software still exist, as opposed to a cloud native solution, where only a single version or platform exists.

Take Netflix, for instance. As a true SaaS platform, Netflix has one single instance solution that all subscribers have access to. When a new show or movie comes to the platform, users will automatically have access to the program on any channel they use to stream.

Cloudwashed solution, however, require users to undergo costly and time-consuming customizations every time a new functionality is available. This can not only interupt daily operations, but frustrate policyholders and strain finite resources in the process.

What does cloudwashing look like?

It’s crucial for insurance companies to be able to identify true SaaS solutions from those that are cloudwashing. To ensure you’re choosing a true SaaS solution, be sure to ask yourself these questions: 

• Are all of your customers on the same codebase or are they on variations of a common codebase? True SaaS is a single-instance, multi-tenant platform, meaning all clients are on the same base software code and platform, but others can simultaneously use the same code. 
• How much time and effort goes into updating your system? Are internal IT resources being overextended to manually update software? True SaaS software would automatically update when a new feature and functionality was available.
   
• Does your software provider’s website accurately depict what they provide?  If a provider’s website promotes “SaaS-based” solutions instead of “true SaaS,” it’s most likely cloudwashing. 

So, what do policyholders expect? 

Most importantly, it’s important to understand that hosted solutions, even if they are cloudwased, cannot futureproof user experience to consistently meet policyholder expectations. Research shows that 45% of policyholders are looking to switch providers within the next year, which means it’s never been more important for insurance organizations to evaluate the customer experiences they’re providing.

In order to keep up with these expectations, insurance companies first need to understand exactly what their policyholders expect. In a recent webinar, the InvoiceCloud team unveiled the results of a recent survey to explore what policyholders want and how insurers can leverage this data.

A few of their key findings include: 

• Digital payments are table stakes: Only 6% of policyholders prefer to pay bills by mail. By far, more people preferred to pay either online or via mobile device 
• Make digital payment options frictionless: 89% of non-digital payers would be willing to make online payments if they were easier to find and use. 
• Leverage targeted communications: Policyholders are less likely to miss a premium payment if a reminder (or reminders) catered to their preferences is sent.

Overall, it’s clear that policyholders have high digital expectations, which insurers can fail to meet. Leveraging true SaaS solutions enables insurance organizations to consistently meet changing expectations, while reducing internal workloads.

Don’t take our word for it, see it for yourself! Watch the video below to learn how Ellington Mutual enhanced its policyholder experience with InvoiceCloud’s true SaaS engagement and payments solution.

Sponsored by ITL Partner: InvoiceCloud

Why make the same mistakes that others have been making for years? Why not learn from those mistakes and avoid them? 

That may seem like an obvious point, but the vast majority of business literature focuses on success stories. It seems people like reading about successes more than they like reading about failures. People certainly like talking about their successes more than they like focusing on their failures.

But, being a contrary sort, I've focused on lessons to be learned from failures for going on 20 years now, in conjunction with Chunka Mui. He and I have written one book, "Billion Dollar Lessons," based on voluminous research into corporate failures and have published two others that build on those lessons. 

Drawing from those books and his consulting work, Chunka recently wrote a piece on seven key lessons to be learned from others' failures on innovation efforts. I'll share those here, along with some commentary from me to tailor those lessons to what's happening in insurance. 

What's happening in insurance is real progress, as far as I can see -- and I'm seeing a lot through the application process for the Global Innovation Awards, which ITL and the International Insurance Society hand out annually. (Yes, that's a plug for you to consider applying for an award, which you can do here.)

But mistakes still get made, of course, and generative AI creates loads of opportunities for companies to either succeed big or to let those same old, same old mistakes creep in. 

Let's have a look at how Chunka phrases the key mistakes to avoid. 

Chunka's essay on LinkedIn lists these seven admonitions:

--Don't think like a venture capitalist.

--Don't aim low.

--Don't put all your eggs in one basket.

--Don't spread your leadership too thin.

--Don't underestimate the corporate antibodies.

--Don't quit too early.

--Don't get too invested in an idea.

1. Don’t think like a venture capitalist.

I watched IBM try to be a venture capitalist in the '80s and '90s and Intel try in the '90s and aughts. The companies thought their insights into computers and processors would let them identify winners. They thought the investments would provide cachet to the startups, too, and incorporated their products and services into the portfolios of the IBM and Intel sales forces. 

Didn't work. IBM and Intel didn't pick many winners, and their attempts to help tended to smother the start-ups.

Chunka explains why venture capital isn't even the right game to be playing for innovators. 

"Despite the allure of Silicon Valley," he writes, "don’t conflate corporate innovation with venture capital. There are major differences. Large company innovators are not financiers. Their primary objective should not be to maximize return by investing in a large portfolio of start-up companies." 

Even a successful venture capital portfolio won't move the needle much for a major insurer, and a VC effort could very well distract companies from what really matters: innovating (alone or with startup partners) in ways that will make a difference across the enterprise.

I haven't seen many insurers making the VC mistake in recent years, but the temptation will be there with generative AI, especially as some startups go public and valuations pop.

2. Don’t aim low.

Chunka writes, "Meaningful innovation and true business model reinvention can only arise from aspirations of the kind that took Amazon from books to AWS cloud services, and Apple from Macs to iPhones." 

That claim may not resonate so much in insurance, where companies like Lemonade that tried to reinvent the industry haven't been faring so well. But companies still need to think big, even if they're just exploring how, say, generative AI can be used in distribution, underwriting or claims. You can start off imagining reinventing the agency, having continuous underwriting or moving to straight-through processing of claims, even if you know you won't get there overnight and know you won't be reinventing the business model of the whole company. 

3. Don’t put all your eggs in one basket.

When the CEO or even the head of a unit has an idea for innovation, it tends to become THE idea. Everyone working for the CEO or unit head tends to quash any objections and does their utmost to make the idea pan out. But even a really good idea -- and many ideas aren't that great -- often fails, so it's important to have a portfolio of potential innovations. 

"Given the uncertainty of technological change, it doesn’t make sense to have only one alternative," Chunka writes.

4. Don’t spread your leadership too thin.

But, but, but... don't have too many alternatives percolating at any one time. 

As Chunka says, "In corporate innovation, the constraining resource is management attention, not capital. There’s only so much of it available. No one can keep track of one or two dozen nascent businesses while still running a company day to day. The head of the business can’t delegate the work, either," for any project that could have a transformative effect. "It's impossible to neutralize naysayers, build the necessary alignment, or guide the organization through the necessary transitions. Our experience is that the right number of killer options is usually three or four, and no more than five."

5. Don’t underestimate the corporate antibodies.

"Almost every organizational bias favors protecting the status quo," Chunka writes. "People are going to find every possible way to make a radically new idea fail. They’ll try to steal the money or poach the people. They’ll throw up technological obstacles.... So, perhaps corporate innovators’ most difficult but important job is to block the antibodies long enough that [innovations] get every means to prove themselves. Having a manageable number of options and the right level of CEO support is critical."

6. Don’t give up too early.

I've written many times that our mantra about innovation is Think Big, Start Small, Learn Fast, and I may seem to be contradicting our admonition to kill ideas the very moment you know they won't work. But this point of Chunka's is different. It's about being willing to make an investment and stick with it -- barring those clear signs of failure -- even if your bet is a long shot.

Chunka explains: "Take a lesson from the concept of pot odds in poker. The notion is that you don’t just figure out whether you have a better-than-even chance of winning a pot. You calculate what it will cost you, now and possibly after future cards, to compete for a pot. You compare that number with the size of the pot, then compare that ratio to what you think your odds of winning are. If you have to bet $1,000 to have a shot at a $10,000 pot, even a 20% chance of success might justify the risk. In other words, evaluate the size of the additional investment against the size of the potential market as you evaluate whether to renew" an innovation effort.

7. Don’t get too invested in an idea.

This is one of the hardest issues to sort out. When do you fish, and when do you cut bait? 

The best way we've come up with is to set the rules ahead of time. Otherwise, proponents and opponents of an idea will arguing about the rules and complicating the discussion while you're trying to make an important decision. 

As Chunka puts it, "Set up regular reviews, agreed to ahead of time, [to decide] whether to continue funding. The analysis has to be done afresh each time, so you don’t get carried away by the amount of money already invested. The question has to be: How much additional money will we need to invest, and might the bet be worthwhile? When a bet no longer looks good, set it aside, regardless of how much financial and emotional capital has been poured in."

******

Innovation is tricky, but you can at least increase your chances of success if you absorb the mistakes that others have made before you. 

Cheers,

Paul

In 2023, four massive floods in the U.S. caused more than $1 billion in damage each. From California to Florida to the Northeast and East Coast, they struck in different seasons and geographies but were united by a common thread: Their intensity defied the expectations of many experts. 

In addition to these billion-dollar catastrophes, the U.S. endured numerous smaller but still destructive floods. Whether the source was surging high tides in coastal communities or relentless atmospheric rivers that overwhelmed storm drains, the floods destroyed homes, disrupted businesses and endangered lives.

The U.S. isn't alone. Globally, flooding affects more people than any other natural peril. While floods have traditionally been considered secondary perils – the kind that happen relatively frequently but generate modest losses – climate change is super-charging their impact by making them larger, less predictable and costlier, more like primary perils such as Atlantic hurricanes or typhoons. 

A major challenge in understanding and preparing for evolving flood threats has been that maps used to assess and quantify flood risk often haven't kept pace with a changing climate. One government assessment concluded that U.S. flood hazard maps, for decades a key resource for communities to set building standards or determine flood insurance premiums for vulnerable properties, "didn't reflect the best available climate science." 

See also: AI, Aerial Imagery Can Help Spot Flood Risks

Hazard intensification

As one of the world's largest reinsurers, Swiss Re has long tracked natural catastrophe loss trends, including from floods. While urbanization, population growth and accumulation of assets in exposed regions have historically been main drivers of insured losses, our experts have determined that changing climate will become an increasingly important factor in rising future losses.

And with climate change contributing to intensifying hazards like extreme rainfall or powerful ocean storm surges that harbor potential to cause bigger floods, access to powerful tools to understand these evolving risks is growing more urgent. Simply put, we must get better at predicting what's to come, especially when a warming planet makes the past a less-reliable guide to future threats.

Fortunately, powerful tools are becoming available. For instance, this month, Swiss Re Reinsurance Solutions, our division focused on delivering data-driven risk insights to clients, achieved a milestone when we integrated independently validated, high-resolution U.S. flood maps into CatNet. This is our risk assessment tool that insurers and companies may rely on to analyze exposures to natural catastrophe risks. 

These U.S. flood maps were developed by our subsidiary Fathom, the U.K.-based water intelligence company that Swiss Re acquired last year to supply clients with dynamic flood risk assessments. Founded in 2012 by scientists at the U.K.'s University of Bristol, Fathom's hydrologists, software engineers, modelers and geographic information system (GIS) developers have created the most accurate digital terrain model of the U.S., with a resolution of 10 meters per pixel.  

See also: Property Underwriting for Extreme Weather

One platform, multiple risk models

Reinforcing modeling resources with maps supports insurers and companies to create more sophisticated climate-driven flood risk scenarios, instead of relying on historical data alone. Multiple flood-risk models on a single platform allows simultaneous comparisons, enabling more comprehensive risk assessments.

Beyond visualising flood risks more accurately, insurers can integrate data into their underwriting models to assess and price risk more confidently. Thus equipped, they can pinpoint and address exposures to vulnerable regions, adjust terms and conditions and exclusions to reflect evolving risks and even identify new, promising geographical areas to pursue growth.

Similarly, U.S. flood maps can help companies determine where their biggest risks will emerge, informing adaptation strategies aimed at avoiding losses today and tomorrow. Communities can leverage mapping technology to better understand how and where to grow, to protect citizens and economies. Fathom already provides flood data via the World Bank to help 16 climate-vulnerable countries future-proof themselves against disaster.

The U.S. suffers the largest absolute annual economic losses from natural catastrophes of any nation. With climate change, it faces increased exposure to rising weather-related losses, including from floods like those in 2023. This January, for instance, San Diego County, California, became the latest place to be declared a federal disaster area after rainfall eclipsed records, damaged hundreds of homes and washed cars away. 

While residents described being taken off guard by what some called a 1,000-year storm, climate change actually means such events can no longer be considered anomalies. To prepare and adapt for this new reality, flood maps that keep pace with the forces of a warming world are an essential tool.  

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The U.S. Cybersecurity and Infrastructure Security Agency (CISA) has a list of bad cyber practices, all of which are common among insurance agencies:

1. Use of unsupported or end-of-life software
2. Use of known, fixed or default passwords and credentials
3. Use of single-factor authentication for remote or administrative access to networked systems

Carriers and agencies cite competing priorities, expense and problems with operational interruptions as reasons for not implementing crucial cybersecurity measures. These objections can be short-sighted in view of the high severity of a breach. 

IBM’s “Cost of a Data Breach Report: 2023” says, “Organizations with fewer than 500 employees reported that the average impact of a data breach increased from $2.9 million to $3.3 million,” a 13% increase from 2022. Organizations of more than 25,000 employees saw a 2.5% decrease in average losses from a data breach, to $5.4 million in 2023, the report states. Still, the financial hits for large companies are painful, with regulatory and reputational consequences, as well.

The risk of system shutdown from ransomware attacks and the potential costs of liability for the dissemination of proprietary information far outweigh the expense of protection. Happily, there are steps carriers and agencies can take that are comparatively inexpensive that will also improve efficiency in transactions.

Unsupported software

An average agency does business with 10 to 12 carriers, and a large agency could have as many as 30 carrier partners. It is very likely that each carrier has a different update cycle for its software. A breach to the weakest link, maybe because a security patch was not applied, could affect all the other carriers an agency is doing business with. 

Each carrier will say it has a robust authentication process. However, do all the carriers the agency connects to have an equally strong process? A common and secure method to authenticate system access can reduce the breach risk for all participants.

See also: Risks, Trends, Challenges for Cyber Insurance

Use of known, fixed or default passwords and credentials

It is difficult to remember even one complex password. How many 15-character passwords with uppercase, lowercase, numeric and symbols requirements can you remember? It’s not surprising that agency representatives use the same password across multiple carriers to increase efficiency. It makes sense if convenience is the primary concern. 

Independent agents may log in to each carrier multiple times in a day. This requires switching between authentication credentials – ID, password, multifactor authentication (MFA) – with each access request. As CISA indicates, using a fixed or default credential across accounts increases the breach risk. Once one carrier is compromised, use of a common password also puts the other agency carrier partners at risk.

Even worse, in some agencies, there is a single, shared login for all users to simplify access. Use of this practice means a cybercriminal has to gain the credentials of only one user for all account data to be compromised, and potentially open a gateway to carrier systems.

To solve the cybersecurity issue and improve efficiency, carriers, technology partners and agents must work together. MFA will help the entire independent agent channel be more secure. For example, our SignOn Once makes it operationally easy to enable the agency management system to be a single authentication point. The agency management system generates a unique token for a user at login, and that acts like a key to unlock entry into carrier agent portals. It isn’t shared, and it changes every day. Cost for carriers is about $1 for each of their agencies for the year. 

Use of single-factor authentication

Multifactor authentication – where login with an ID and password is verified by input of a secondary piece of information – is becoming an industry standard. This additional information can be a code or clicking on a link delivered to a secondary device, such as a cell phone. With the rise in cyberattacks, both regulators and cyber insurers are advocating for or, in some instances, mandating its use. MFA prevents a bad actor from entering a system with just a stolen ID and password. It’s an incredibly important deterrent to cybercrime.

Crowdstrike says that “80% of all breaches use compromised identities.” Because totally preventing access to user IDs – and even associated passwords – may be impossible, especially with the burgeoning abilities of artificial intelligence, having that second layer of protection provided by MFA is essential.

See also: How to Combat the Surge in Ransomware

Carriers can lead the way on cybersecurity

With the increasing threat of cybercriminals, taking the simple step to protect access to systems at the agency level would seem to be a no-brainer. Moreover, the impending threat of AI-generated audio and email fakes that replicate the voice or tone of a trusted source suggests hackers may gain even greater access to login credentials. Affordable cybersecurity measures are needed ASAP.

Carriers can, and should, take the lead by working together to protect all industry stakeholders. Security is not an area for carriers to compete. Ask your carrier partners to invest $1 in your agency each year to strengthen your security posture and increase operational efficiency.

In the digital world, where risk postures and behaviors are changing and new risks are emerging, actuaries need to function as business strategists, looking beyond historical data and increasing agility in rate filings.

Disparate data stores and lack of granularity across the enterprise, coupled with legacy systems, have forced actuaries to spend significant effort on data processing. This affects their work in core activities, such as 

• Reserving Studies
• Rate Filing
• Risk Analysis
• Profitability Studies

Also, traditional generalized linear models (GLMs) may not be able to handle very large or high-dimensional data sets and unstructured data (telematics, sensors, images, etc.), limiting their accuracy or effectiveness to capture behavioral changes, forecast claim cost trends and revise their assumptions. Heavy reliance on spreadsheets for rating and lack of governance and traceability pose delays in filing rates and responding to audit inquiries. 

Generative AI as a companion for actuaries

The advancements in AI can be leveraged to alleviate the burden on actuaries and serve as a companion to improve their productivity and agility. Below are some applications where Gen AI can assist actuaries in streamlining workflows and enhancing capabilities:

• Data Processing for Experience Analysis: A significant amount of time is spent in cleansing and preparing data for analysis. AI can be leveraged to automate tasks such as pattern recognition, data correlation, outliers, transforming data into formats suitable for modeling (model input file generation, etc.) 
• Data Enrichment: Based on pattern recognition and data correlation, a synthetic data generator can be leveraged to fill in the missing values in applicable scenarios, such as claims processing. Experience analysis can be enriched with additional socioeconomic, health or financial data, allowing the insurer to build up a more granular understanding of policyholders and factors that lead to differences in experiences across various cohorts.
• Code Conversion for Models: As part of actuarial transformation and tech debt reduction, organizations are increasingly migrating their code base from legacy technologies to R and Python, etc. Gen AI can analyze existing code, capture the tacit knowledge or business logic and create baseline code that serves as a jumpstart for modernization.
• Model Documentation: From a model governance standpoint, documentation plays a critical role to enable transparency and maintainability, but documenting complex actuarial models is time-consuming. In this context, Gen AI can analyze the model code and automatically create baseline technical documentation in natural language based on format, structure, etc. provided as input as part of prompt engineering. Quality can be enhanced by integrating prompting language and a retrieval augmented generation (RAG) process.
• Scenario Analysis: Scenario analysis is critical for assessing the risk exposure and defining mitigation strategies. In this context, digital twin (an AI-driven, multi-model, simulation-aided platform) can be leveraged to construct hypotheses, run various “what-if” simulations and determine the impact to the portfolio. The explainability component of digital twins enables actuaries to make informed decisions.
• Operational Efficiency: As part of the monthly or quarterly close, operations often face challenges manually traversing through various linked spreadsheets to identify and prepare inputs or references for the model run. An AI model can be used to analyze and document the upstream and downstream links relevant to a specific spreadsheet, process or output report. 

These applications help to automate repetitive tasks, improve accuracy and increase efficiency and enable actuaries to focus on the core, as a business strategist.

See also: Balancing AI and the Future of Insurance

Human + AI Partnership

To realize the true value of human/AI partnership, governance and guardrails are the foundation, and Gen AI needs to be leveraged responsibly and aligned to ethical standards and regulations. As part of its evolution, Gen AI will play an assist and augment role, and actuaries (human) will still be responsible for defining model parameters, interpreting results, driving strategies and ensuring twin objectives are met. Re-imagined actuaries in collaboration with data scientists will drive innovation in continuous underwriting, loss reserving, product innovation, sustainable investments, personalized pricing and profitability, transforming the insurer.