Over the past year, generative AI (or GenAI) has hijacked the technology agenda in every industry—including P&C insurance. Given its ability to generate virtually any form of content based on the inputs it's trained on, a potentially endless number of GenAI use cases in P&C insurance span distribution, underwriting, claims and beyond.

The enthusiasm is palpable. Today, 59% of large insurers are actively experimenting with GenAI, with most running up to 15 different proofs of concept or early-stage prototypes. The payoff could be huge: According to McKinsey, generative AI could help unlock up to $1 trillion in annual value for the insurance industry worldwide. 

Yet as the transition from conceptual to operational accelerates in the months ahead, insurers will face formidable challenges. GenAI-enabled fraud, increased government scrutiny and any number of legal complications will threaten progress. Yet many carriers will discover the most significant hurdles will stem from the practical realities of supporting and leveraging generative AI to its fullest potential.  

For some, these obstacles could derail their efforts to harness GenAI to their competitive advantage. For others, the hype surrounding this technology will give way to a more pragmatic approach that enables them to make full use of what is arguably the most consequential technology of the next decade. 

P&C Joins the GenAI Revolution 

To understand the dynamics in play, let's start with the basics. generative AI is a subset of deep learning that leverages sophisticated algorithms to digest vast amounts of structured and unstructured data, learn patterns and generate original content—including text, audio, images, video and code. If early signs are any indication, generative AI has the potential to unleash a whole new level of human productivity. 

GenAI isn't new—its foundations and the large language models (LLMs) it uses trace back to at least the 1960s. The public release of OpenAI's ChatGPT in November 2022 catapulted generative AI into the popular imagination. By December 2023, a survey found that 76% of personal lines and 79% of commercial lines carriers were either studying or piloting GenAI applications in their operations. What they're learning is eye-opening. 

See also: 4 Key Questions to Ask About Generative AI

Generative AI Use Cases: Unlimited

According to Celent, 84% of senior insurance executives expect to gain a sustainable competitive edge from their investments in this technology. But that's predicated on identifying the most compelling use cases for GenAI, from transforming distribution and underwriting processes to revolutionizing claims handling and more. 

Coaching or "co-piloting" agents through the sales process for complex products like cyber or summarizing submission data to streamline underwriting workflows have emerged as some of the most promising applications. So has synthetic claims analysis to identify opportunities for new lines or potential enhancements to existing ones. But as many carriers are learning, identifying advantageous use cases is one thing. Implementing the requisite infrastructure and data ecosystems to support them is another. That's where the reality check comes in. 

The Critical Role of Cloud-based Infrastructure

Infrastructure considerations are paramount to leveraging generative AI's full potential. For one thing, diverse and continuously refreshed datasets are required to train GenAI for use cases throughout the insurance life cycle. As Forbes reports, a single model must often span multiple servers and accelerators to execute a trained language models that may have billions of parameters. 

This level of complexity requires an average 4X improvement in hardware computing performance and a 50X increase in processing workloads. Most organizations won't have the appetite for the investments and overhead needed to support that kind of performance on their own. Nor is it likely they'll be successful if they did. 

According to Deloitte, a modern, cloud-based infrastructure is required to support and scale the computational demands of GenAI applications. Insurers will need one that combines core, data and digital to integrate with and interpret data from an expanding ecosystem of data partners and make it actionable. 

Governance Takes Center Stage

As the industry navigates the complexities of GenAI adoption, governance will become the linchpin in ensuring effective and responsible deployment. Establishing frameworks for data privacy, security, transparency of training data and compliance with evolving regulatory mandates will be business-critical. 

In view of these needs, look for more insurers to establish centers of excellence (CoE) to oversee GenAI implementations. For each use case, the CoE must define factors such as: Who is the user? What is the user experience? What data and functionality are they permitted to access—and why? 

There's also another critical dimension. Making GenAI truly effective and empowering means giving the people using it—employees, customers, partners—an understanding of how it's being used and what data serves as its inputs. In coming months, look for regional insurers to learn that, like their major carrier brethren, they must tap multiple large language models simultaneously to corroborate output details and prevent AI "hallucinations" that can reinforce biases or lead to errors.  

See also: 5 Ways Generative AI Will Transform Claims

Human + GenAI: The Future of the P&C Workforce

GenAI's most promising P&C use cases should showcase another reality: This technology isn't about replacing human roles. It's about empowering them. Humans with domain expertise are needed to identify use cases and develop, test and deploy GenAI-enabled applications. A human-in-the-middle must also vet AI-produced output for factual errors and bias. 

According to McKinsey, leaders must take a broad view of GenAI's capabilities and deeply consider its implications for workforce needs. Training and upskilling will be required. So might new roles such as AI trainers, interpreters and ethicists. 

According to a recent study published by Harvard Business School, it's well worth the investment. Designed to measure the impact of AI on knowledge work, the study found that teams using AI completed 12% more tasks on average, completed them 25% faster and produced 40%-higher-quality results than those not using AI. Better still, workers with the lowest scores before the study saw the most significant jump (43%) in performance when they could use AI—suggesting the technology works as a skills leveler. 

The Road Ahead: Embracing a Pragmatic Approach

As the industry moves forward, a checklist approach can guide insurers in refining their strategies for generative AI: 

• Get Smart: Keep abreast of advances in generative AI, incorporating new insights and technologies into your strategic road map.
• Modernize Your Infrastructure: Implementing and scaling generative AI use cases isn't possible with legacy systems; if you haven't deployed a modern, cloud-based insurance platform, now is the time. 
• Start Experimenting: Identify significant use cases with a clear and low-stakes path to success. 
• Establish a Center of Excellence: Develop robust governance frameworks to ensure data privacy, security and regulatory compliance as new GenAI-enabled applications are introduced and scaled safely. 
• Invest in Skills Development: Define and deploy training initiatives to develop the expertise and capabilities needed to deploy, manage and refine GenAI applications.
• Prepare for the Unexpected: Anticipate and plan for potential obstacles, including ethical considerations, technological complexities, evolving data requirements and market dynamics. 

The transition from irrational exuberance to reality will not be easy for some carriers. But it will be necessary. With more than $1 trillion in annual value at stake, insurers that refine approaches, focus on governance and foster human-GenAI collaboration won't just safely navigate the near term—they'll shape the future of insurance. 

Just as homeowners insurance premiums in the U.S. seem to be catching up with soaring claims, early signs are emerging that the hurricane season in the Atlantic may range between awful and truly horrific.

The El Niño and La Niña weather patterns typically create countervailing effects on the severity of a hurricane season. El Niño raises temperatures across the U.S., meaning there's more energy in Atlantic waters that can turn into severe hurricanes, but the weather pattern also causes wind shear that can break up storms as they start to form. La Niña cools temperatures, but it also reduces the wind shear, letting more storms form.

This season is thus far looking like the worst of both worlds. 

We are currently in an El Niño pattern that has temperatures in the Atlantic at levels usually not seen until July, and they will only get worse. Last year, the heat from El Niño alone was enough to turn what was expected to be a below-average season into one that was about 20% worse than normal. 

And El Niño is expected to give way to La Niña by late summer or early fall, reducing wind shear and making it more likely that heat-driven winds can turn into major storms.

Weather predictions are always uncertain, especially this far ahead, and no one is even trying to guess how many hurricanes will make landfall or how destructive they'll be, but as a former ocean sailor, I suggest we get ready to batten down the hatches.

The Washington Post quoted one meteorologist as saying: “Basically, it is the perfect recipe for hurricanes to form and strengthen.”

Another told the Post: “There’s plenty of time ahead before we get to the meatiest part of the hurricane season. But a lot’s going to have to change … for forecasters to feel much more comfortable going into hurricane season.”

The dire forecast comes as the homeowners insurance industry was finally getting some good news. After posting underwriting losses for six of the past seven years, insurers in the U.S. homeowners market were expected to see profitability improve in 2024 because of rising rates and stricter underwriting, according to Fitch Ratings.

But how much can the home insurance sector's combined ratio come down 2023, when the Triple-I estimates it was 112.3, the worst since 2011?

A lot will depend on catastrophe losses, so all eyes will be on the Atlantic hurricane season.

Here's hoping something changes the current trajectory.

Cheers,

Paul

 

 

Inefficient data collection processes often impede the smooth handling of insurance claims, resulting in delays and inaccuracies that can frustrate both insurance companies and policyholders. The urgency to streamline these processes and enhance efficiency has never been more pressing. 

As an insurance adjuster, you understand the importance of accurate and timely information in assessing and resolving claims effectively. But traditional methods can no longer keep up with the demands of the modern insurance landscape. 

Your claims management can be significantly streamlined by leveraging advanced technology solutions, such as automated data capture tools and secure cloud-based platforms. 

But navigating the complexities of claims management requires a keen understanding of the challenges that often arise. Let's delve into the key hurdles faced within the industry.

Comprehensive Data Collection 

Before, during and after incidents, the inefficiencies in gathering detailed information hinder accuracy and speed. Without a complete picture of the situation, insurers may struggle to assess claims accurately, leading to delays and potential disputes. 

Documenting Work 

The importance of meticulously documenting workflows cannot be overstated. Incomplete or inadequate documentation of processes can create bottlenecks in the claims handling process, causing delays and increasing the likelihood of errors. Clear and detailed documentation is essential for ensuring transparency, accountability and efficient resolution of claims. 

See also: Role of NLP in Claims Management

Capturing Data With Speed and Efficiency 

An essential aspect of claims management is the ability to capture data swiftly and efficiently. However, traditional claims processes often fall short. Timely data capture is crucial for expediting the assessment, cleanup, repair and estimation of insurance claims, enabling insurers to provide timely assistance to policyholders in need. 

Data Security and Ownership 

Protecting policyholder data is paramount in claims management. Ensuring secure data handling practices not only preserves data integrity but also safeguards policyholder privacy. With data breaches on the rise, maintaining robust security measures is essential for upholding trust with policyholders and complying with data protection regulations. 

As an insurance adjuster, By staying informed and addressing key pain points, you can elevate your expertise and deliver optimal outcomes for both insurers and policyholders. 

Role of Technology in Claims Management 

In the fast-paced world of claims management, technology plays a pivotal role in revolutionizing processes and enhancing efficiency. Let's explore the key technologies. 

AI-Powered Claims Processing  

AI algorithms can quickly analyze claim documents, extract relevant information and even predict the likelihood of fraudulent claims. This not only speeds the claims settlement process but also reduces errors. 

Blockchain for Secure Data Management  

Blockchain technology creates an immutable ledger of all claim-related activities. By using blockchain, insurers can enhance data security, prevent fraud and enable seamless information sharing among stakeholders. 

3D Virtual Tours and Floor Plans  

Incorporating 3D virtual tours and floor plans can significantly improve the accuracy of property damage assessments. Adjusters can virtually inspect properties, assess damages more precisely and expedite the estimation process, leading to faster claims resolutions. 

Predictive Analytics for Claims Forecasting  

Predictive analytics tools analyze historical data to forecast claim trends, identify potential risks and estimate claim costs accurately. By using predictive analytics, insurers can manage claims, allocate resources effectively and make data-driven decisions to optimize claims outcomes. 

In the dynamic realm of claims management, embracing cutting-edge technologies is no longer a choice but a necessity. By harnessing the power of technology, you can navigate the complexities of claims handling, setting new benchmarks for industry excellence. 

See also: Making the Claims Process More Efficient

Addressing Key Challenges 

In claims management, leveraging technology to overcome key challenges is essential.  

Process Optimization Through Technology 

Automated workflows and real-time tracking enable you to handle claims swiftly and accurately. Data can be processed seamlessly, leading to quicker resolutions for policyholders. 

Enhancing Communication With Policyholders 

Technology enhances communication channels. Policyholders are kept informed throughout the claims process, through automated alerts, personalized updates and interactive platforms. 

Standardization of Claims Procedures 

Standardizing claims procedures is crucial to ensure consistency and reduce confusion. By using technology-driven platforms, insurers can create uniform processes that align with industry regulations and best practices. This standardization not only enhances operational efficiency but also instills confidence in policyholders by providing a clear framework for claim resolution.

By leveraging advanced tools and software, you can streamline processes, reduce manual tasks, and enhance accuracy in claim assessments. This boosts efficiency and improves the experience for adjusters and policyholders.

Embracing innovative solutions is no longer an option but a necessity to address challenges effectively and provide timely and accurate resolutions. 

KEY TAKEAWAYS:

--The demand for volcano catastrophe models has been tepid, meaning many insurers may not fully recognize the eruption-related risks to which they are exposed, which include direct physical damage as well as indirect effects such as supply chain disruption.

--The "what if" methodology of downward counterfactual analysis probes the outcomes of near-miss incidents, assuming they had escalated adversely. These insights can enhance preparedness and reduce the impact of similar future events.

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Volcanic eruptions are relatively uncommon when compared with the frequency of other geohazards, such as earthquakes. But volcanic unrest occurs much more often.

Volcanic unrest is signified by precursors such as seismicity, ground deformation, release of volcanic gases and increased heat flow. Unrest can last for months or even years. For example, in the 1930s, there were several years of unrest on the Caribbean island of Montserrat. There was no eruption following the unrest in the 1930s, nor in the 1960s, when there was further major unrest on the island. But both periods of unrest warned of the potential for an eruption, which eventually began on July 18, 1995, claiming 24 lives and destroying nearly two-thirds of the island.

Could Montserrat and the insurance industry have been better prepared? Reflecting on the unrest in the previous decades, could a deeper analysis of "what could have been" - employing downward counterfactual thinking -  have spurred more robust preparations?

See also: Parametric Insurance Can Tackle Climate Risks

Tepid demand for volcanic risk modeling

Costly disasters in the 1990s, such as Hurricane Andrew, highlighted the inadequacy of existing risk management practices and catalyzed the emergence of the catastrophe modeling industry. But while models for weather-related and seismic risks gained traction, volcanic risk models did not enjoy comparable adoption, even in the wake of the Montserrat eruption. 

The rarity of volcanic events and the absence of significant historical losses have led to a tepid demand for models in the insurance sector, especially when compared with more frequently occurring perils such as wildfires, floods and windstorms. The absence of volcanic catastrophe models means that many insurers may not fully recognize the eruption-related risks to which they are exposed, which include direct physical damage as well as indirect effects such as supply chain disruption.

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

Reimagining the past to prepare for the future

The "what if" methodology of downward counterfactual analysis probes the outcomes of near-miss incidents, assuming they had escalated adversely. The aim is to harness insights from these hypothetical worst-case situations to enhance preparedness and reduce the impact of similar future events. 

For a given period of volcanic unrest, it is possible to reimagine the past by considering a range of plausible eruptive scenarios and estimating their likelihood of being realized. Currently, there is unrest at the Campi Flegrei caldera near Naples in the form of ground deformation, continuing since 2004, and more recent seismic activity. 

An Mw4.2 earthquake occurred on Sept. 27, 2023, the largest in 40 years, which should prompt a re-analysis of past unrest to help prepare for possible future outcomes. Between 1982 and 1984, there was a volcanic crisis at Campi Flegrei, which caused building damage and triggered the evacuation of tens of thousands of people. 

A downward counterfactual analysis of this crisis could consider the building damage consequences of future seismicity clustered under different towns within the caldera. Unrest at Campi Flegrei, a densely populated area, poses a significant risk to life and infrastructure in the event of eruption, but impact on the insurance industry would likely be limited due to low insurance take-up in Italy. In contrast, the U.S., Japan and New Zealand are countries with areas of high insurance exposure that are subject to significant volcano risk. 

The eruption of Eyjafjallajökull, Iceland, in 2010, caused enormous disruption to air travel and temporary closure of European airspace. The International Air Transport Association stated that the total loss to the airline industry from the eruption was around $1.7 billion. 

When rare events such as this occur, thoughts turn to how such losses might have been mitigated. These are upward counterfactuals, but risk managers need also to be mindful of downward counterfactuals, such as the triggering of an eruption of Katla, the big sister volcano of Eyjafjallajökull. Cascading events, where one event triggers another, can be very difficult for risk modelers to anticipate but devastating if they do occur. Identifying such compound scenarios for historical events is an objective of downward counterfactual analysis.

Incorporating downward counterfactual analysis into risk management practices is not just an academic exercise but an essential strategy for ensuring financial robustness and strategic foresight. By reimagining worse outcomes than those historically observed, insurers can anticipate and prepare for events that, while rare, have the potential to cause catastrophic loss. 

Recognizing these near misses allows for more refined pricing, customized coverage options and adequate capitalization. As the world faces increasing uncertainty, integrating downward counterfactual analysis for volcanic risks ensures that the insurance sector remains prepared in its role as a safeguard against the unexpected.

As America watched the game a couple weeks ago, the servers in our clouds went into overdrive unleashing the power of artificial intelligence (AI) to optimize game outcomes and our viewing experience. Teams that adopt these advanced technologies are seeing a competitive advantage and increasing revenue.

There is much to learn about how AI was used while we were eating buffalo wings and chips during the big game. Here are four ways the NFL most likely used AI and how they relate to the insurance industry:

Player Performance Analysis: Teams are using AI to analyze each player’s performance and injury risk. Machine learning can go above and beyond simple averages and evaluate vast amounts of data from games, practices and training sessions to identify patterns and trends that might not be apparent to human analysts.

Using AI for the insurance industry’s core underwriting and claim processes gives our insurance managers — aka coaches — the tools to increase revenue and lower loss costs.

See also: Can AI Solve Underlying Data Problems?

Injury Prevention and Rehabilitation: AI is employed to monitor player health and detect early signs of potential injuries. Wearable devices equipped with AI algorithms track players’ movements, biometrics and physical condition to provide real-time insights. Additionally, AI-powered rehabilitation programs can personalize treatment plans for injured players, speeding their recovery.

How are we treating our injured workers? Are we sending them to the best providers to get the best treatment, like an NFL star? AI improves the health outcomes of claimants involved in a casualty claim. The carrier will save medical expenses, and the claimant will return to health faster. Our incentives are aligned!

Recruitment and Drafting: AI algorithms assist teams in scouting and recruiting players. These systems can analyze player statistics, game footage and other relevant data to identify prospects who fit the team’s needs and playing style.

How are we finding the best new insurance recruits? Insurance executives across the board are talking about the pending brain drain as the workforce ages. AI can assist and find the right talent, but more importantly, it can be trained with data from insurance systems to emulate our top performers and assist our teams with decision support.

Fan Engagement: AI-powered chatbots and virtual assistants provide fans with instant access to information, ticket purchases and interactive experiences. Social media monitoring tools use AI to analyze fan sentiment and engagement, helping teams tailor their marketing strategies accordingly.

Like the NFL, your marketing and customer service teams can use AI to improve customer sentiment. AI eliminates mundane tasks for agents, underwriters and adjusters to provide an empathetic experience for customers — aka fans. Showing empathy for front-line employees and improving their work experience produces improved renewals, captures market share and boosts employee retention.

See also: Why Brokers Should Embrace AI

In 2022, the revenue of all 32 NFL teams totaled $18.6 billion. This is a small fraction of the $1.48 trillion size of the U.S. insurance market.

Large insurance players have begun investing and are seeing massive returns with payoff periods of less than a year. Investment in these systems of intelligence is becoming paramount for any carrier looking to compete.

Every executive across the insurance industry needs an AI playbook, just like Patrick Mahomes and Brock Purdy!

As first seen in Insurance Innovation Reporter.

Data privacy is a sprawling, multi-faceted, complex and controversial issue that means different things to different audiences but has serious implications for businesses and consumers alike. And the issue is sure to continue to grow in importance given the explosive adoption of data-driven technology and digitization, which will drive ever greater levels of information capture and use. Meanwhile, concerns about how personal data is captured, managed and exploited are intensifying, with the emergence of more data breaches, hacking, identity theft and ransomware crimes.

Our focus in this piece is fairly narrow – namely the unauthorized use of personal information in the auto insurance claim reporting, damage evaluation and collision repair process. While this is just a subset of the broader data privacy issue, the implications are quite serious and affect millions of consumers, insurers and their supply chain partners and present exposure to hundreds of supply chain participants. These events occur more than 20 million times a year across a multibillion-dollar ecosystem.

Data Privacy

Data privacy generally means the ability of a person to determine for themselves when, how and to what extent personal information about them is shared with or communicated to others. This personal information can be one's name, location, contact information or online or real-world behavior. This includes personally identifiable information (PII).

If you are uncertain about what types of data make up your PII and how this relates to the subject of data privacy, you are not alone. But as technology adoption and complexity is accelerating at hyper-speed, ever increasing amounts of personal data are being collected and exchanged. As technology applications become more invasive, so do the uses of the associated data, including yours.  

PII is any information connected to a specific individual that can be used to uncover that individual's identity, such as their Social Security number, license plate number, vehicle identification number (VIN), full name and physical or email address. In the context of this article, it includes details regarding an individual’s auto insurance claim, vehicle identification, damage description, accident and repair estimate.

See also: Risks, Trends, Challenges for Cyber Insurance

Personally Identifiable Information (PII)

Despite existing rules and regulations, and the general expectation of privacy by consumers involved in this process, some of the PII captured and transmitted digitally during a claim is being used commercially in ways not anticipated or approved by claimants or the businesses involved in such claims, primarily auto insurers and collision repairers.

The implications and the damage done by these unapproved uses of PII extend beyond just the violation of consumers’ rights to include potentially significant economic cost to the victims and legal, compliance and reputational damage exposure to auto insurers and collision repairers.  

PII in the Auto Insurance Claims and Repair Process

In simple terms, what is happening is that information concerning the damaged vehicle and its owner flows digitally through claims software used by insurance companies to record claim-specific information and populates third-party collision estimating software, which in turn is integrated into collision repair body shop management systems and is frequently shared with numerous other supply chain partners.

This PII is being captured, with and without the knowledge of consumers, by third-party vendors that repackage and sell it to information brokers, including vehicle history reporting services that use it to earn hundreds of millions of dollars from a wide variety of users. Among these, ironically, are auto insurers that purchase the data for auto insurance underwriting purposes and collision repairers that use the data to promote their services to competitors' customers both domestically and internationally. 

One significant use of the data is the creation of vehicle history reports, which are sold or provided to consumers and automotive dealers and which identify the prior claims and repair history of specific vehicles. The disclosures often reduce the value to the seller. It is not uncommon for the vehicle owner to blame their insurers for divulging the information, which they consider private and confidential. At a minimum, this dispute can create reputational damage for the carrier. It could also lead to legal exposure for damages. Of critical importance here is that the vehicle owner likely never gave their permission to any party for the release of this personal information and had the right to expect all involved parties would protect it.   

Privacy Laws: Federal and State Level

The U.S. does not currently have a national comprehensive privacy law, despite efforts to enact one. In 2022, the U.S. House considered the American Data Privacy and Protection Act (ADPPA), the first bipartisan and bicameral bill to protect consumer data collection and privacy across nearly all sectors. It has still not been passed.

As a result, U.S. states have had to act independently. The most comprehensive state privacy law is currently in place in California, where voters enacted PII regulations through Proposition 24, known as the California Privacy Rights Act (CPRA), in 2020 and which took effect Jan. 1, 2023. Many other states have followed California’s lead by enacting similar or slightly weaker versions of CPRA, including Colorado, Connecticut, Virginia, Utah and Texas. Legislation has been approved and is pending effective dates between 2024 and 2026 in Oregon, Montana, Delaware, Iowa, Tennessee and Indiana. Vermont, Oklahoma, Kentucky, New Hampshire and Hawaii are considering data privacy bills.

All these laws are slightly different, however (in defining thresholds, fines, cure periods, impact assessment, opt-outs, sensitive data and consumer rights), which can be very challenging for multi-state operators and consumers to navigate. 

See also: The True Cost of Big (Bad) Data

Call to Action

Several industry associations and organizations have and continue to call for solutions. In 2012, three industry groups issued their Joint Statement Regarding the Collection and Reporting of Repairer Business Data. These are: Society of Collision Repair Specialists, (SCRS), Alliance of Automotive Service Providers (AASP) and Automotive Services Association (ASA).  

The statement included this call to action: “This statement serves as a public request from the collision repair industry to Audatex, CCC, Mitchell and other technology firms who collect data. The industry seeks removal of contractual clauses within End User License Agreements which require permissive access to aggregate and collect end‐user data as a point‐of‐sale requirement to purchase those programs. Further, we believe that if a business is to permit their data to be mined, they should be entitled to access to an annual report specifically indicating where that data was used, and a list of parties that received reports utilizing data from the user’s system. We believe the ability for businesses to choose participation in the data collection process is a reasonable solution, and we look forward to your response.”

Today, the Collision Industry Conference (CIC) has a separate committee working on this problem to help collision repairers manage the pirating of customer information 

Implications, Risks (and Opportunities) to Auto Insurance Ecosystem Participants

Software solutions have come to market such as Secure Share from CCC Intelligent Solutions (CCCIS), which allows collision repairers to securely share estimate data with third-party applications. Last month, CCCIS introduced enhanced data security feature for collision repairers writing estimates on their estimating software, which redacts the last six digits of a VIN and certain PII. 

Also in January, DataTouch announced the launch of VINAnonymize, a technology that prevents collision repair estimate information from being used by VIN reporting services such as CARFAX and AutoCheck. In addition to VINAnonymize, DataTouch offers Data Analyzer and Data Auditor for use by collision repairers to secure PII and repair data to meet regulations and protect repair data from being sold. 

These early-stage solutions represent an encouraging start but still require broad industry adoption to make a real impact.      

For auto insurance carriers, these and other future data privacy regulations could represent an obligation to protect the private information of policyholders and ensure that their auto claims supply chain partners are adhering to all federal and state laws – no small certification compliance challenge. However, industry support and greater compliance would engender greater trust and loyalty from policyholders.  

For collision repair facilities, this recent growth in state privacy regulation highlights the need for end-user license agreements and data collection/use consumer disclosures sooner rather than later, if not already in place. As custodians of PII, collision repairers that take additional care to protect it can elevate their brand and reputation among auto owners. 

For information providers and other supply chain partners, while their exposure and risks relative to existing and emerging privacy laws may currently be opaque, what is crystal clear is that this is an opportunity to be on the right side of regulators, consumer advocacy groups and the ultimate customer of every company involved in the auto insurance and claim process – the policyholder.

For those information providers that traffic in the unauthorized use of PII, including claims data, to produce vehicle history reports, now would be a good time to develop an alternate business model, one that complies with the spirit, intent and requirements of this growing amount of data privacy regulation. Failure to do so could cost more than it is worth.

KEY TAKEAWAYS:

--In addition to reducing the building sector’s carbon footprint, mass timber brings significant cost and quality-control benefits, as well as reduced construction time.

--But there are hazards and challenges, including fire, natural catastrophes, water damage, manufacturing, supply chain and faulty workmanship issues, as well as termite infestation.

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The emergence of mass timber as a sustainable construction alternative represents a significant opportunity for the building sector to reduce its carbon footprint while satisfying a demand for a material that is more cost-efficient but as durable as steel and concrete. However, in any industry, deployment of new materials or processes can result in new risk scenarios, potential defects or unexpected safety consequences, as well as bringing benefits, and mass timber is no different. 

A new Allianz Commercial report, Mass Timber: Emerging Risk Trend Talk, examines the challenges and loss-prevention measures to consider that could help to mitigate the risks of mass timber as an increasingly popular construction material.

1. Fire

Mass timber is still wood, and fire is the primary hazard, with this risk needing to be considered through all the life stages of a building – design, construction and operation. Fire is already the most expensive cause of all construction/engineering insurance losses, accounting for more than a quarter (27%) of the value of 22,000 claims analyzed over a five-year period, according to Allianz. The risk of collapse during the cooling phase of a fire may be particularly critical for timber elements, while buildings with combustible elements are at the highest risk of fire during construction. Once a building is in operation, the risk of fire can increase depending on factors such as the type of occupancy, storage and interior fittings. Research and testing are being conducted to further develop a methodology for evaluating the performance of structural elements during the entire duration of a fire. This includes comprehensive studies of the heating and cooling phases, as both phases are crucial for evaluating the behavior of timber elements and ensuring optimal fire safety.

2. Natural hazards

Damage from natural catastrophes is already the second-most expensive cause of construction claims, Allianz analysis shows. Extreme wind forces, especially during tornadoes or hurricanes, can affect beams, columns and panels, posing a risk of widespread damage, while floods, including river floods, flash floods and storm surges, pose a significant risk to timber buildings. Timber buildings exposed to floods may require structural controls, drying and repairs, affecting expected operating losses.

See also: Building an Effective Risk Culture

3. Water damage

Similarly, water damage is already a major source of loss across the construction sector. Mass timber is highly vulnerable to water damage, including flood, water ingress and plumbing leaks. To mitigate water damage, mass timber elements can be manufactured with reduced moisture content and stored in controlled atmospheres. Water management and high-quality analysis are crucial for ensuring the durability of structures.

4. Manufacturing, transportation and supply chain issues

Mass timber construction has a unique supply chain and manufacturing process that differs from traditional concrete and steel framing. Factors such as the need to have specialized production facilities, as well as just-in-time delivery, means thorough logistical planning and management of building materials are essential to avoid costly project delays.

One significant disadvantage of the assembly line manufacturing process is the potential for a serial loss scenario. If a particular batch of mass timber elements has a defect, multiple elements in a structure or across project sites may be affected. Defective products are already the third-costliest cause of construction /engineering insurance claims, according to Allianz.

See also: Emerging Risks for Shipping Industry

5. Faulty workmanship issues and repair costs 

Construction firms may face challenges in finding experienced work crews for mass timber construction projects, given its nascent status. This can result in productivity issues and safety concerns as crews navigate the learning curve of working with mass timber. Inadequate installation can result in damage, which can have significant financial implications for repairs or replacements, while in some cases the cost of repairing or rebuilding mass timber structures could be significantly higher than those made with conventional construction materials. 

6. Termite and insect infestation

While not common in all areas of the world, termites and other wood-boring insects may pose a significant threat to mass timber buildings, potentially causing extensive structural damage. Given that termite infestation usually occurs gradually, the exposure of notable damage during the construction phase is low compared with the operational phase. However, as termites are most likely to attack decaying timber in buildings, it is important to ensure timber does not have long periods of contact with water by implementing sufficient protective measures.

To view the full report, please visit: Mass Timber: Emerging Risk Trend Talk.

I was minding my own business last Thursday when I drove smack into a truck blockade outside Mexico City that brought back memories of how unexpectedly and powerfully what we benignly refer to as "geopolitical risk" can derail business expectations.

Because I think of myself as pretty sophisticated on geopolitical risk, based on many years of living in multiple countries outside the U.S. and on decades as a journalist, the fact that I could be caught unawares makes me want to sound an alarm: All sorts of things can go wrong in all sorts of ways.

The blockade arose because of one of the sorts of disputes that I followed when I led the Mexico City bureau for the Wall Street Journal from 1993 to 1996. The tensions were always there. The question was just whether, and how, they'd turn into incidents or even movements that would affect real people in real ways.

In this case, a large group of truckers argues that the federal government isn't doing enough to protect drivers, one or two of whom are being killed by criminals each month, according to the group. The federal government says it's working with the truckers to improve security, but the truckers say the government isn't acting in good faith and has decided to use public pressure. (While I have a lot of history here, I don't know enough about this dispute to offer an opinion on who's right and who's wrong, and assignment of blame isn't even all that important for my point about how geopolitical risk can surface suddenly.)

I blundered into the blockade because I had flown to Mexico City to help my older daughter, Shannon, celebrate her 30th birthday. She was born there, but we left before she turned two, and she hadn't been back. Shannon had long expressed interest in exploring her Mexican roots -- as a blonde with blue eyes who speaks nearly fluent Spanish with a native accent -- so she, her sister and I decided to mark the milestone birthday there. We had driven to San Miguel de Allende, a lovely town a few hours north of Mexico City, for a couple of days and were heading back to do our part for the Mexican economy by having a decadent lunch at Quintonil to mark Shannon's big day.

Then traffic just stopped. And this wasn't a let's-jockey-for-position-to-get-around-the-crash sort of stop or even a let's-wait-for-the-ambulances-and-police-cars sort of stop. This was a full stop. This was an everybody-turn-off-your-engines-and-sit sort of stop. 

And the stop went on for more than four hours.

It was also just one of nine that blocked freeways heading into and out of Mexico City that day, meaning that commercial traffic for one of the world's five biggest cities was essentially halted. (For the record, the blockade that caught me was the largest and most painful -- and not just because my daughters and I couldn't get to Quintonil for lunch... or even that I was losing my hefty deposit.) 

Now, occasional strikes aren't necessarily all that big a deal for business, in general, and for insurers, in particular. When I ran the editing operation for the Wall Street Journal/Europe in the 1980s, we used to sometimes miss deliveries because truckers, especially in Italy, were on strike, but readers stuck with us.

The blockade in Mexico, though, summons memories of the sort of risk that can derail whole industries, even economies.

When I was offered the position of Mexico City bureau chief, it was a real departure from my time covering the computer industry, but there were some "known unknowns" that intrigued me. NAFTA was being implemented in the fall of 1993, and a presidential election was going to be held in 1994, an event that often triggered major changes (even more than in other countries, for a host of reasons). But I wasn't even close to plumbing the depths of what the story turned out to be.

Mexico woke to New Year's Day in 1994 with the news that a Marxist group had occupied the capital of the state of Chiapas. In March, the presidential candidate who was all but guaranteed to win the election was assassinated, ending a moratorium on such political violence that had lasted for six decades. Two high-profile kidnappings followed. In September, the head of the ruling party was assassinated -- leading to a too-tangled-to-be-believed saga that sent the president's brother to prison for 10 years, before his conviction was overturned. 

And all that was just leading up to the main event: a devaluation of the currency. 

Carlos Salinas de Gortari, who served as president from 1988 to 1994, had embarked on a bold economic plan that intrigued much of the developing world. He renounced the country's socialist history, privatizing banks, the telecommunications system, the television monopoly, etc. He campaigned for foreign investment to modernize the Mexican economy, promising, in return, that he'd support the value of the currency and protect those investments. And the shock therapy seemed to be working... until 1994 came along and steadily eroded investors' confidence.

When the new administration devalued the currency in December 1994, it tried to portray the move as a minor adjustment, but the bottom fell out. The peso went from roughly three to the dollar to 10 to the dollar, almost overnight. Foreign investors, feeling betrayed, pulled out of the country. The Mexican economy cratered. Other Latin American economies with strong ties to Mexico teetered, creating enough of a threat to even the U.S. economy that the Clinton administration orchestrated a bailout for Mexico.  

And I foresaw none of that -- not Chiapas, not the assassinations, not the kidnappings, not the devaluation that undercut a major trend in the economic progress of the developing world.

Nor did anyone else. In fact, my reporters and I -- as surprised as we were -- were so far ahead in our reporting about the loss of foreign confidence in 1994 and in our analysis of how the devaluation would play out that the WSJ nominated us for a Pulitzer Prize for our coverage in 1994. As part of a larger effort at the WSJ, we were finalists for the Pulitzer for our coverage in 1995. 

The world has certainly learned a lot about the potential dangers of unknown unknowns in recent years. Almost no one saw a pandemic coming. A Russian invasion of Ukraine was barely a possibility for just about all of us. An attack on the U.S. Capitol? No way. 

So there's certainly more humility about knowledge of geopolitical risks than there has been. The inflationary spikes that resulted largely from supply chain disruptions have also given us far greater appreciation of the potential fallout.

But I wanted to underscore the need to look past the general idea of geopolitical risks and get to the specifics. Perhaps the problems will just turn out to be surprising, like my four hours fidgeting on a Mexican freeway last Thursday. But the problems could also turn out to be massive both for businesses and those that insure them, as happened when I was in Mexico in the '90s. 

"Geopolitical risks" is a fine term, but it can be considered at a 50,000-foot level. The view from 1,000 feet -- or five feet, the distance that separated me from the bumper of the car ahead of me -- can be a lot scarier... and far more instructive.

Cheers,

Paul

P.S. The fine folks at Quintonil worked us in for dinner the night after the blockade blew up our lunch reservation, and the food was glorious.  

 

Paul Carroll

Based on what you’ve written for us, I gather that the first thing an agency or brokerage should do in setting strategy is to think about carriers’ expectations. Could you tell me a little bit more about how that plays out in real life?

James Keane

it's probably a little different this year than it has been in the past. Carriers’ expectations have changed so much, so fast.

In the past, their expectations were simple. They wanted you to write business, they wanted it to be profitable business, and they wanted you to write as much of it as you could, as often as you could. Now, their appetites are changing. But how quickly are they changing? How are their appetites different now than they were three or four or five months ago? Appetites are continuously evolving. Being able to have those conversations with your carrier partners is critical so you know exactly what's changing throughout the year.

And you have to be able to measure everything so you understand what you're trying to accomplish. If your goal is to write X number of policies from new business, are you able to build that in backward by saying, If I want to write 100 policies, and I have a 50% close ratio, that means I need to quote 200 policies? So what do I need to do to quote 200 policies? How many leads do I need to speak to get to those two hundred quotes?

And what's the value of a policy? Even though your goal might be to write 100 policies, what if you can write 50 policies that are each twice as profitable? Is that better?

Understanding all the numbers is super critical for your agency to evolve and grow throughout the year and stay nimble.

Paul Carroll

Homeowners is one that we're reading a lot about. It's very much in flux. Auto rates are certainly going way up. Cyber is undergoing significant changes, too. Are those areas that you're talking about that might have different carrier appetites, or are there others, as well?

James Keane

When you think about personal lines, auto and homeowners, carriers have been trying to get the rate that they needed for the last couple of years and certainly in the last 12 months. They're getting closer and will be able to write business more freely. The issue is obviously very state-specific. California comes to mind as state where there have been challenges with rate adequacy because there are a significant number of high-value homes, major wildfires and more over the years. We're starting to see some pieces around the auto market stabilize: Used car prices are decreasing while inventory is increasing.

But all those services that are insurance-adjacent – the mechanics and body shop folks who are working on cars, the contractors who are working on houses – well, all of their payrolls have gone up, and will reset at a new normal.

Cyber is interesting, because you have more people working at home with computers that are not in a protected network. That is still such a new class of business.

But while cyber is definitely seeing more policies initiated, more insurance folks are still putting more focus on auto and home because that's what has always paid their bills.

The second point you make strikes me as more of a general one. Inertia is a powerful force, and you're saying people have to commit to really thinking about doing things differently rather than just coasting. If you talk to a lot of insurance people, many will continue to run their business the way they always have. It’s worked for them forever.

But if you think about our industry, there has been more change in the last three years than probably in the 10 or 15 years before that. A lot of that change was by necessity. If you want to continue to grow, and rapidly, what are you going to continuously do differently? Are you evaluating everything that's going on in your agency to determine what is working well and what can be improved on? What do you need to continue doing versus what should you stop doing?

So it’s the “Start, Stop, Continue.”

I ask people a lot about what they are doing in their business and why. Often, they respond, "Oh, this is what I did last year. And this is how I got to where I am." A lot of times people are saying they're in a wonderful place in their agency and in their career, but if you're trying to get to somewhere different and if you're trying to have exponential growth, what are you doing differently to really get that momentum going?

The answer could be how you manage your people, or perhaps how you're prospecting. It could be how you're marketing, or it could just be the market that you're going after.

We need to be ruthless about how we evaluate those processes to say: What do we need to start? What do we need to stop? And what do we continue doing so we can, again, accelerate?

Paul Carroll

That sounds absolutely right. I've long found that stopping stuff is even harder than getting things going. There's this inertia that develops. Having written a few business books in my time, I'm waiting for the opportunity to write the book that says what not to do. A lot of books tell me what to do. I want to tell you what not to do.

James Keane

When you ask a sports coach or instructor why they did something, a lot of times they say, Well, that's how I was taught. Then you ask them when that happened. Were you taught that 30 years ago when you were in high school? Well, things have changed over 30 years.

Certainly the basic tenets of our business have stayed the same. Relationships matter. Relationships with your agents matter. Relationships with your consumers matter. Relationships with your staff matter. All of those things are super critical, but they've changed. Twenty years ago, you interacted with your clients via phone, fax or in person. Now, you have a whole range of new options. Are you adjusting, or are you doing things the old ways just because that’s how you’ve always done them?

The old ways might still be right. But there should be a current reason for using them. It shouldn’t just be because that’s how you were taught. And, yes, stopping is always so hard.

Paul Carroll

Twenty-plus years ago, I interviewed a guy who had been No. 2 at Cisco and had made a whole mess of money. Then his mom died of ovarian cancer, and he got ticked off that ovarian cancer was so hard to detect. He started a foundation seeded with about $100 million of his own money to improve the detection of certain cancers, and he managed to get a Nobel Prize winner in medicine to lead it. He told me that he rather sheepishly told this guy, “I have to admit I got a C in high school biology,” and the Nobel Prize winner said, “That's okay. Everything they told you was wrong anyway.”

James Keane

Things change, right? I started my career in the early 2000s The industry was different then. Not better or worse, just different. Things evolve.

Back in 2004, nobody would have predicted that for a year, basically every agency was going to be fully remote due to a pandemic. But in 2020, we had to learn to interact differently. We used to do our banking in-person. Now I don't remember the last time I went to the bank.

So the relationships still matter. But how can you change that relationship so that the time you spend in-person is more meaningful? Get the transactional things out of the way so that you can have the conversation around: “Hey, listen, I took care of all the transactional things. I have your home covered. But let's talk about your next steps. Let's talk about where you want your business to go so that we make sure we can protect. Let's talk about what your goals are for your personal life so we can make sure you’re protected as your assets continue to grow."

Paul Carroll

You’ve also written about how people sometimes do not write down goals. That’s a pet peeve of mine, because the lack of a record means people can kid themselves about how accurate their planning was.

James Keane

Early in my career, somebody told me that if you don't write down your goal, it's a dream. And that's not really a good plan. You actually have to write down something so you can aim for it.

To me, a goal doesn't necessarily need to be something like, "I'm going to hit this very specific dollar number." It can be a variety of things. But when you create that goal, you want to share it. Nobody wants to try and achieve something but only do so internally, because you want to be able to share that success when you hit it.

Let's say your goal is to write 10 policies a week. For the overwhelming majority of people, it's pretty powerful to start ticking off the numbers, then see how far over that goal you can reach. When you have that written goal, you also can't back away from it. Perhaps you want to go from two policies per household to 2.3 policies per household. As you start building your action plans out, you can evaluate: Do they help me reach that goal or get in the way?

By the way, when we hit the goal, we're going to have a party. We're going to celebrate this achievement. You should celebrate, not just as a business owner, but as an entire staff. Take them out, have a party and enjoy it.

Paul Carroll

Certainly with big companies, which is where I've tended to live for the last four decades, there's a tendency to assume that things only go upward, that you're going to maintain that baseline you have and then add to it. There's a tendency not to realize that, oh, the other guys are smart, too. The other guys are working hard, too, and they're going after our business at the same time we're going after theirs. I think that understanding certainly needs to get incorporated into planning.

Now that people have set their goals and worked backwards to understand what they need to do, how should they approach marketing?

James Keane

The first question should be, What does success look like for marketing? How do you measure it? Lots of online tools let you track things like open rates and click-through rates. You need to know, ultimately, when people come to you, how did they hear about you? What campaigns are working?

Think back to the days of the phonebook; everybody advertised in the phone book because they had to advertise themselves. Does anybody know what the phonebook actually did to help their business?

When you build out your strategies, you must start thinking about your consumer. Who is the consumer you're trying to get to? And is your marketing strategy going to target them? If you're going after a multi-line, mass-affluent type of client, you can't look for them in a place that mass-affluent people don't go.

You also must build your agency staff toward that goal. You must have the staff to follow up on your marketing.

Paul Carroll

You’ve also talked about the need to look for outside help.

James Keane

I'm a huge believer in getting other people's opinions. Consultants can be great. Mentorships can be great. People in the same business and in the same place as you are great. Remember, none of us need to know everything. We need to be able to talk through ideas and figure out how we make things that work for the business.

A nice thing is that consultants and networks have a bias in your favor. If you grow, they look good. If you don’t, they don’t.

At the end of the day, our business is to help our clients and to be there when our clients are having a really bad day. What can we do to create value for them so that they want to continue to see us when they're not having a bad day? What can we do to ensure our clients trust us to give them good advice and to provide them good solutions so that when a bad day does happen, we're able to help them out?

So we have to constantly question and test. If something isn’t right, change it. Move on. Ask questions to get better.

Paul Carroll

I agree totally. I really appreciate your taking the time to speak to me today.

A theme has emerged in some of the recent pieces that thought leaders have written for me at Insurance Thought Leadership on the world of agents and brokers: that it's especially important this year to know the risk appetites and goals of your carriers. 

That's hardly a new idea. To work effectively with carriers, you have to be sending them the sort of business they want to write. What's different is that those goals and appetites have been changing, sometimes rapidly, and likely will continue to change as the year progresses.

We've seen this most dramatically in homeowners insurance, where some carriers have pulled out of big markets because wildfires, convective storms or hurricanes have made them money-losers. It's wasted effort for everybody if you send prospective business to a carrier right before it leaves a market. 

We've also seen rapid changes in auto insurance – though rates are catching up with costs faster there than in homeowners – as well as in cyber and many other lines. And who knows where we go from here?

To get a handle on how to plan for 2024, I turned to James Keane, a vice president at SIAA, a national network of independent insurance agents, and asked him to update us on a smart piece he wrote for me on the topic in November. 

He says:

Things are "probably a little different this year than... in the past. Carriers’ expectations have changed so much, so fast. In the past, their expectations were simple. They wanted you to write business, they wanted it to be profitable business, and they wanted you to write as much of it as you could, as often as you could. Now, their appetites are changing. But how quickly are they changing? How are their appetites different now than they were three or four or five months ago? Appetites are continuously evolving. Being able to have those conversations with your carrier partners is critical so you know exactly what's changing throughout the year.
"And you have to be able to measure everything so you understand what you're trying to accomplish. If your goal is to write X number of policies from new business, are you able to build that in backward by saying, If I want to write 100 policies, and I have a 50% close ratio, that means I need to quote 200 policies? So what do I need to do to quote 200 policies? How many leads do I need to speak to get to those two hundred quotes?

"And what's the value of a policy? Even though your goal might be to write 100 policies, what if you can write 50 policies that are each twice as profitable? Is that better?"
He lays out a very thorough road map. I think you'll find the interview enlightening.

Cheers,
Paul

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