In 2024, "model benchmarking" is set to be one of the emerging trends in AI adoption, particularly within the insurance sector. Enterprises have struggled to address the persistent challenge of "POC purgatory," where promising AI solutions often become stalled in the proof-of-concept (POC) stage and struggle to scale across the organization.

To combat this issue, specific benchmarking criteria will gain prominence. These benchmarks will serve as essential metrics to evaluate progress during the development and deployment phases, enabling businesses to make informed decisions on whether to scale, ultimately streamlining the AI implementation process.

Understanding Model Benchmarking

Model benchmarking involves assessing AI solutions based on their performance and impact. There are two main categories:

Technical Benchmarks:

These benchmarks employ various metrics, such as precision, accuracy, recall and F1-score, to gauge how effectively the model performs specific tasks. These metrics help assess the model's ability to make correct predictions:

• Precision: The ratio of correctly predicted positive observations to the total predicted positive observations.
• Accuracy: The ratio of correctly predicted observations to the total observations.
• Recall: The ratio of correctly predicted positive observations to all actual positives.

See also: 4 Key Questions to Ask About Generative AI

Product Value Benchmarks:

Unlike technical benchmarks that focus on model metrics, product value benchmarks assess the real-world impact of AI solutions on end users and businesses. These benchmarks measure how the AI solution affects user experiences and business outcomes. They include:

• Retention rates: The percentage of customers/users who continue to use a product over a specific period.
• Churn rates: The rate at which customers stop using a product or service.
• Engagement metrics: Various user activity indicators such as daily and monthly active users, time spent on a platform, interactions per user, etc.

Product value benchmarks are crucial, as they showcase the practical significance of the AI model's performance. A high-performing model may not always translate to valuable business outcomes if it doesn’t improve user engagement or retention or reduce churn rates.

By considering both technical benchmarks and product value benchmarks, insurance companies gain a comprehensive understanding of an AI model's effectiveness. This holistic approach ensures that the AI solutions not only perform well technically but also improve the end-user experience and help with business objectives.

Challenges in Scaling AI Solutions

Despite the potential, insurers struggle with challenges in scaling AI solutions beyond the POC stage. The industry has witnessed a “POC purgatory” scenario where only a meager 10% of tested AI models in financial organizations progress to production and scalability. 

Complex workflows and legacy data architectures are major hurdles. The interdependence of workflows heightens the risk of error propagation across systems. Legacy data silos obstruct efficient access to unified data, essential for machine learning (ML) model training and fine-tuning. The lack of human adoption of AI tools adds another layer of complexity. Even highly proficient and accurate AI tools fail to deliver lasting value if not embraced within an organization or by customers.

To navigate these challenges, insurers can establish stage gates and success criteria, creating specific milestones for AI projects. For example, an agile governance board, employing benchmarks as guiding tools, can aid in decision making, ensuring alignment with strategic objectives and customer needs. Involving key stakeholders early in the process fosters buy-in and enhances the viability of AI solutions.

See also: AI: Beyond Cost-Cutting, to Top-Line Growth

Deciding on AI Implementation and Future Outlook

When considering scaling AI use, insurers must evaluate if AI is necessary or if other approaches suffice. Compliance use cases might better suit rules-based algorithms due to their explainability. Examining the current infrastructure and data architecture determines the feasibility and scalability of AI implementations.

Looking ahead into 2024, generative AI will continue to headline discussions. However, there is already a shift toward specialized, smaller language models tailored for specific insurance use cases. Vision algorithms, like OpenAI's ChatGPT with vision, promise more accurate visual assessments, such as claims estimates. These developments are indicative of a future where AI's integration aligns seamlessly with insurance processes, paving the way for enhanced efficiency and better customer experiences.

KEY TAKEAWAYS:

--Digital performance marketing involves a partnership with an individual, a company or a network that delivers high-quality leads to insurance agents on a commission basis. More cost-effective options are becoming more directly accessible to agents in 2024.

--In looking for a partner, agents should focus on: getting inbound leads, having exclusivity on the leads, receiving multiple lead types, having flexibility about the pacing of the leads and, of course, working within a budget.

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If you aren't consistently finding and going after qualified leads, your agency’s sales will suffer, but finding good leads in the insurance space is much more easily said than done. While you may always try to have your finger on the pulse when it comes to finding leads, several factors are working against you that remain out of your control. 

With big corporate brands gatekeeping their leads from captive agents, a lack of clarity around the sources of purchased leads and questions about whether leads are being resold to other agents, generating worthwhile leads can (at best) feel like a time-consuming pain in the neck and (at worst) be an almost unconquerable roadblock. 

Fortunately, digital performance marketing is becoming a more accessible, more reliable way for agents  to find high-quality leads and grow new business. 

What is digital performance marketing? 

Digital performance marketing involves a partnership with an individual, a company or a network that delivers high-quality leads to insurance agents on a commission basis. Because these partners only get paid when they offer good leads, this practice is extremely low risk for agents.  

Traditionally, the most accessible way for agents to buy leads would be to purchase the contact information of a potentially interested consumer with little to no information about where the lead came from, its exclusivity or the likelihood that the lead would convert into a new policy. While there are still merits to this practice (if you have the right partner), it is far from perfect, and it’s no wonder agents have become frustrated. 

This new wave of digital performance marketing is different because agent and partner co-exist in a  symbiotic relationship. They both benefit from the success of the other.  

See also: Digital Underwriting Now a No-Brainer

Pay-per-click lead generation 

While generating leads with a pay-per-click strategy is far from new (think advertising on search engines such as Google and Bing), more cost-effective options for pay-per-click are becoming more directly accessible to agents in 2024. This kind of lead generation happens when an agent works with a partner to display an advertisement or recommendation on a website with a relevant  audience – like an insurance comparison site or financial news outlet – and pays each time a consumer clicks on the ad and visits the agent’s website. 

If a pay-per-click campaign is thoughtfully crafted, it can offer agents several benefits, including cost control, an increased likelihood of reaching their target audience and relatively quick results. 

Additionally, pay-per-click lead generation offers agents the ability to measure and track the overall performance of their advertisements. This guarantees that they are spending their money the right way.  

Pay-per-call lead generation 

Pay-per-call lead generation offers many of the same benefits as pay-per click. With a pay-per-call strategy, an agent receives in-bound phone calls from prospective customers and only pays their partner if the call lasts for a predetermined amount of time. 

This type of lead generation has the potential to have a higher conversion rate because, oftentimes, leads who make a phone call are further along in the insurance shopping process and will be looking for an agent more seriously than those who opt to click on an advertisement. 

This type of generation allows for the agent to engage directly with the potential customer and begin to foster a relationship.  

See also: An Insurance Agent's Guide to SEO Marketing

How to effectively implement a performance marketing strategy  

One of the main benefits of performance marketing is that agents can run the campaign directly, with little management necessary. After finding the right partner and finalizing the strategy, they will have access to a consistent stream of interested leads that they can trust and control.  

When it comes to finding the right partner, there are several important things to look for:

1. Inbound leads 

First and foremost, it is important to partner with an organization or individual who can offer inbound leads. These are the most effective leads because the consumer has opted in, called themselves or requested more information, so they are already warmed up when they get to the agent.  

2. Exclusive leads 

Finding a partner that does not sell the same lead to multiple different agents increases the chances of  that lead converting because the agent is not in direct competition with anybody else.  

3. Multiple lead types 

Agents should also look for a partnership that offers them multiple lead types. These include clicks, calls and lead forms. This allows for a more encompassing overview of the marketing portfolio and gets agents' offer in front of more consumers, increasing the likelihood of a conversion. Additionally, having access to multiple forms of lead generation will offer insights into the best-performing strategy for an agency. With this information, you can easily determine where the best place to spend your money is.  

4. Flexibility 

Next, finding a partner that offers flexibility of hours and volume of leads is essential. If an agent is running a pay-per-call campaign, but the partner is having too many calls come in during one period, the agent will not be able to properly invest in each lead, and there will likely not be a great conversion rate. Being able to customize the hours, pacing and geographies a performance marketing campaign is targeting will ensure that an agent can stay on top of all their inbound leads. 

5. Budget 

Finally, it is important to keep your budget and pricing limitations top of mind. The right partner will offer you competitive pricing that fits within your budget while providing high-quality and qualified leads. 

Impact on ROI

Through the use of digital performance marketing, agents can control their own lead flow as well as the type of leads they are receiving. At Rate Retriever, we have seen this result in a higher ROI and the continued growth of insurance agencies.  

Lead generation will always be a necessary component of being an insurance agent, and with a good partnership and a performance marketing plan that is customized for the business, agents can succeed.

What a difference a year makes. The "Great Market Reset" of 2023 changed the reinsurance landscape for the better. A focus on underwriting profitability and tighter terms and conditions created a much-needed change that has led to a healthier and a more sustainable trading environment. 

As a consequence of the hard market, the 2023 full-year results from the reinsurance sector are expected to be record-breaking -- with many combined ratios sitting not just under 100 but down well into the 80s. 

In 2024, the first three quarters are set to be just as profitable, setting the tone for the 1/1/25 renewals. 

Further highlights include:

• 2023 was a record year for catastrophe bonds. This trend is set to continue into 2024.
• For the first time in years, investors will receive good news and handsome profits from their insurance-linked securities (ILS) managers.
• Existing and new investors in the reinsurance sector are poised to enjoy the rewards from the reset.
• Lloyd’s will continue to flourish after a number of initiatives to attract new investors and a strict focus on underwriting profits. 
• Brokers will continue to innovate using all the tools in their armory to produce creative solutions for their clients. This will result in clients being better served by the industry. 

Reflecting on the frantic and stressful 2023 renewals

The January 2023 reinsurance renewals were some of the most difficult and grueling in recent memory, resulting in dislocated reinsurance protection as the industry contended with multiple issues. 

The over-supplied and ill-disciplined "tenties" left us with a marketplace that was fragile and ultimately unsustainable. As an industry, we have had to contend with multiple "grey swan" events and not enough fuel in the system to meet the new norm, which was global aggregate insured catastrophe losses of $100 billion-plus versus the previous average in the decade 2012 to 2021 of $85 billion in aggregate.

Opportunity knocks in 2024 as we return to a balanced and sustainable market 

Nobody wanted a repeat of the rancorous negotiations from last year. The market worked together to ensure there were no surprises and a better alignment of expectations. 

There were still some tensions and vigorous discussions around pricing and attachment points. The relationship "dance" among broker, insurer and reinsurer is based on nuanced and established relationships, and a consistent rhythm to discussions returned. 

The words “stability” and “orderly” have been used to describe negotiations in the run-up to the renewals, and this was an accurate and welcome alternative to the frantic and stressful environment experienced last year. 

Specific pockets of some portfolios faced rate increases and restriction of capacity where results have been less favorable due to territories and perils having been affected by losses (for example, Midwest U.S., Turkey, Australasia). However, more capacity entered the traditional P&C markets.

See also: Why Brokers Have a Leg Up in Insurtech

Driving creative solutions into a more stable and secure environment

What does 2024 have in store?

Investors are providing more capacity as confidence returns to the reinsurance market. Investors returning or entering reinsurance for the first time will find a stronger market following the 2023 industry reset, and a highly disciplined environment that will now present the opportunity for incumbents, returnees and providers of fresh capital to achieve long-term value. 

Meanwhile, Lloyd’s of London has opened the door to more investors via more flexible initiatives such as: London Bridge, the Standards Board for Alternative Investments (SBAI) and Syndicate-in-a-Box.

This has resulted in new structures and products coming to markets – such as the recent $100 million property catastrophe bond from Lloyd’s syndicate Beazley transacted via the London Bridge mechanism. This proves that Lloyd’s is a great place for institutional investors to gain access to global insurance and reinsurance risk. 

The Great Reset of 2023 provides the platform for innovation via new technology, enhanced portfolio management tools, lower distribution costs and increased fuel in the system via investment that will lead to a more robust and less fragile market environment. Brokers can continue to develop creative solutions where investors will have the chance to deploy capital into specific programs or market sectors where there are measured opportunities.

There has always been a power struggle for who holds the reins in reinsurance negotiations. There has to be a finely balanced right pecking order, with buyers at the top, brokers responding with service and innovation and the sellers seeking to protect and grow their capital. 

The 2024 outlook is positive for the reinsurance sector, particularly for investors who been calling for a more secure and profitable environment. The industry-wide reset has created a more sustainable market with long-term relevance and new opportunities. 

This has paved the way for entrepreneurial talent to continue to set up their own shops and target the specialist business lines. As a result, the delegated authority and managing general agents (MGA) space is likely to receive a boost as the offering is clearer and more compelling than in previous years. The growth of the U.S. E&S market is set to provide investors and capital providers with opportunity to grow in niche territories and products. Underwriting talent matched with technology will also continue to drive change in the market.

From destructive wildfires and hurricanes to epic snowstorms and floods, 2023 was the worst year on record for billion-dollar disasters. Natural disasters are not only happening more often, but they are also more severe, devastating homeowners and driving up insurance rates. People who live in Lake Arrowhead, California, for instance, pay high premiums because the city is considered at high risk from wildfires and earthquakes. This is the same area where homeowners and tourists were trapped by a severe snowstorm last winter.

The increase in natural disasters is a major contributor to the challenges facing the insurance industry. There is also a widening gap in health insurance coverage, retirement savings and life insurance -- adding up to a $1.4 trillion shortfall in coverage in the U.S. 

With today's digitally savvy consumers, many insurance companies have started their digital journey with AI and data analytics through intelligent automation (IA), business process management (BPM), chatbots and customer experience (CX) portals to meet customer and market demands for speed and convenience at low costs. Many insurance companies are also using new underwriting models and distribution channels to appeal to new customers.

While the increase in adoption of AI-driven policy calculators and application processes demonstrates a shift in mindset for the industry, some firms struggle with implementing a comprehensive approach to using advanced technologies. According to a recent Deloitte survey, of 100 U.S. life insurance and annuity chief information officers whose firms have begun their core system modernization, fewer than a third have completed some (20%) or all (12%) of their initiatives. Just over two-thirds have projects currently underway or in the planning stage.

Intelligent automation provides an enterprise road map to more efficient business processes while enabling insurers to offer personalization of services to attract and retain customers by enhancing the customer experience. AI and BPM are key ingredients of intelligent automation, along with robotic process automation (RPA) and other complementary technologies that can enact change for your organization.

Intelligent automation creates efficiencies using your existing structure and systems, while lifting the burden from your workforce and allowing employees to focus on work with more impact.

Technologies designed to work together are key to achieving the productivity gains promised by digital transformation. There are three steps you can take to help you navigate and understand these technologies, see how they fit into your operation and deploy a model of best practices for implementation.

See also: Automation 2.0: What's After RPA

Step 1

Establish an ideal outcome and return on investment (ROI) target for your intelligent automation, whether that be revenue, cost savings, error reduction, employee satisfaction, customer experience or compliance. Once you have your objective clearly laid out, it will be easier to deploy your automation where it will be most effective.

It is important to have a robust strategy that empowers employees from business and IT to work together to deliver a clear plan. The Gartner Avoiding the 10 Most Common Mistakes in Financial Services Automation report provides insights into how financial services companies can achieve long-term value from their investments. A digital operations center of excellence is essential for a structured approach to automation because it focuses on governance, technology selection and choosing the right automation to deliver business outcomes.

Step 2

Identify bottlenecks or inefficiencies in your operations. One way is through process mining, which analyzes your current processes to determine where improvements can be made. From there, you will be able to set goals, from the quick wins of routine task automation to the orchestration of long-running processes and augmenting intelligent decision-making capabilities to evolve those processes.

Step 3

Deploy an automation operating model, ROM2, that meets your business change management needs to scale automation and orchestration. Using proven methodologies and orchestration management empowers you to establish a solid foundation that enables you to customize, sustain and expand your intelligent automation program. With BPM and RPA, you can coordinate processes and avoid human errors during manual data input, which is especially important in financial services. Errors can cost you and your customers money and lost investment opportunities.

BPM excels at orchestration, but it cannot directly interact with legacy systems. RPA, on the other hand, is great at automating any user interface but struggles with long-term case management. Combining the two creates a complete solution that can tackle end-to-end processes. Robotic process automations are managed with BPM software, using automation wherever possible.

Humans are still accountable to ensure they sign off with the BPM system's delegation and coordination of tasks and processes across human and digital workers. The operational transformation will reverberate across the organization because of the scalability of BPM and RPA used in tandem within an intelligent automation platform.

This setup positions you to manage roles and rules while gathering insights on operational analytics. With both, your business model will mature and help guide you in everything from efficiency to enrichment to total reinvention.

See also: Digital Self-Service Is Transforming Insurance

Manage and mitigate financial risk

There are many reasons why insurers are looking to harness the power of automation and digitization to become more agile and achieve economies of scale. As natural disasters such as hurricanes increase in intensity, it becomes more difficult to predict how severely places will be affected, and officials and residents have little time to prepare. In addition, with diminishing investment returns, vast workflows and growing data volumes, competitive encroachment from non-traditional players, changing customer expectations and rapid advancement of new technologies, it is clear the insurance marketplace is transforming and is looking for digital advancements.

Service diversification is also required as a preventative measure to help reduce customer risk and build customer loyalty, while safeguarding reputations. Intelligent automation platforms and tools enable organizations to improve employee effectiveness and deliver a differentiated customer experience. They help you target strategic priorities, close the digital gap, unlock the full potential of orchestration and digital workers to deliver the necessary transformational business value needed today.

Throughout most of 2023, there was a notable decline in overall marketing spending across personal lines insurance. While there are a number of reasons, including strategic moves by insurers to mitigate the impact of elevated loss ratios brought on by inflation and other economic factors, what has emerged is a deeper investment in digital marketing. 

In fact, through the first nine months of 2023, paid social spending increased by nearly 30%, and online video increased by 3.9% year over year, according to Comperemedia. Though online video advertising was only slightly up in the first nine months, in the third quarter spending was up more than 50%, signifying momentum that should continue through 2024. Perhaps the most notable digital metric comes from TikTok, where P&C insurers increased paid spending almost 200% in Q3 2023, year over year. All of this has occurred despite budget reductions, which have included not only marketing cuts but operating cuts.

What Does This Mean?

First and foremost, let me decry the death-to-direct-mail song that many have sung in recent years. Direct mail is still a pivotal channel in insurance marketing and will remain so for the foreseeable future. In addition, some of the investments toward digital channels can be attributed to the budget cuts many firms have made, because their use can be easily tied to customer conversion and they are seen as more efficient and agile. 

However, the growth in insurance digital marketing in 2023 is not transitory and reflects the larger consumption of digital media overall. In many ways, today’s insurance media mix serves as a precursor to more sophisticated omnichannel strategies. And while direct mail will remain a formidable acquisition tool, over time it will likely be leveraged more as a way to pivot consumers to other channels and less as a bottom-funnel marketing tactic. 

See also: Underwriting in the Digital Age

How Can Insurers Boost Their Digital Strategies?

Several key tips will help insurers as they build out their digital strategies in 2024. They include:

Establish Authenticity

Authenticity is crucial for digital marketing, especially across social media platforms. Insurers looking to maintain authenticity on social channels can do so by first staying true to who they are as a brand while also staying true to the cadence and decorum of the specific platform they are advertising on. This means using TikTok, for instance, in a way that does not disrupt the usual experience for the customer. There is also opportunity to leverage mascots or visual logos to make the brand more personable and “real” on social channels. For brands that don’t use mascots, broadcasting real customer testimonials to play up a network effect would help increase credibility. This route also highlights the quality of a brand’s products, acting as a differentiator in a market that is grappling with high shopping rates and waning consumer satisfaction.  

Develop a Short-Form Video Strategy

Short-form video has become a highly leveraged marketing tool in recent years, as platforms such as Instagram and TikTok have grown in popularity. The momentum behind short-video consumption growth led YouTube to develop its own short-form ad features in 2022 and 2023. Mintel data also shows that video ads are the most recalled ad type on digital channels. Therefore, short videos that are more product-focused are attractive for consumers in the consideration stage of the customer journey and have a downstream effect on conversion. 

Use Digital for Brand Awareness

While many insurers still lean on performance marketing to grow their books, the opportunity for brand awareness marketing will remain strong in 2024, especially as insurers continue to try to boost profitability. Companies should use digital channels to differentiate their brands and show the value they offer customers. Social media remains an effective tool for brand awareness, as 98% of internet users visit social media sites regularly, according to Mintel. However, efforts to boost brand awareness can be incorporated across channels, and firms should remember that using their native social media account is a great, low-cost approach.

Create a "Phygital" Experience

Direct mail still maintains a notable share of overall insurer marketing spending and can be leveraged to direct customers to digital channels. Therefore, by leveraging both physical mail alongside digital channels (phygital), insurers can get the most bang for their marketing buck. Insurers have the opportunity to move customers to digital channels via QR codes or social media handles placed within direct mail pieces that help answer or simplify consumer questions or concerns when purchasing a product. Insurers that rely heavily on direct mail can slowly introduce more digital engagement to test and learn. Adding an entertainment element could also be an effective strategy that casts the insurer in a new light. 

See also: Top 10 Challenges for Insurers

What Will Digital Marketing Look Like in 2024 and Beyond?

Digital marketing has helped carriers as they wrestle with growing their book of business profitably, and this will continue into 2024 as they look to maintain consistent brand awareness and engagement. 

Mintel projects advertisers across all industries spent $257.7 billion on digital advertising through the end of 2023 (up 13% from 2022), and insurers will continue to play their part. Additional factors, such as the growth of television streaming, podcast listenership and gaming across generations, create even more opportunities for insurance marketers. Finally, the rise of AI in marketing will allow for deeper and more sophisticated targeting and personalization, further boosting the digital marketing boom.

In an era dominated by digital transformation, the demand for cyber insurance has surged as organizations grapple with the evolving threat landscape. As underwriters strive to stay ahead, they face a myriad of risks, emerging trends and formidable challenges in crafting robust policies. This article explores the intricacies of underwriting cyber insurance policies, shedding light on the evolving landscape.

Rising Risks in Cyber Insurance Underwriting:

1. Cybersecurity threats evolution:

Exhibit 1: Source McKinsey & Co.

The ever-evolving nature of cyber threats poses a considerable challenge for underwriters. 

According to a report put out by the U.S. government, over 4,000 ransomware attacks happen every day. This makes it the most prominent method of malware to date.

As cybercriminals become more sophisticated, underwriting must adapt to anticipate and mitigate risks associated with advanced persistent threats, ransomware attacks and other malicious activities.                                     

2. Data Privacy Regulations: 

The tightening grip of data protection regulations worldwide adds a layer of complexity to underwriting. Insurers must navigate the intricacies of compliance with laws like GDPR and CCPA, considering the potential financial impact of non-compliance for both the insured and the insurer.

3. Supply Chain Vulnerabilities: 

With the increasing connectedness of businesses, the risks associated with third-party vendors and supply chain partners are on the rise. Underwriters must scrutinize the cyber hygiene of connected entities, as a security lapse in one can have cascading effects on others.

See also: Cyber Insurance Market Hardens

Trends Shaping Cyber Insurance Underwriting:

1. AI and Predictive Analytics: 

Leveraging artificial intelligence and predictive analytics is becoming pivotal in underwriting. By analyzing vast datasets and identifying patterns, underwriters can better assess risk profiles and price policies more accurately, staying one step ahead of potential cyber threats.

2. Parametric Insurance Models: 

Parametric insurance, which pays out based on predefined parameters rather than actual losses, is gaining traction. This innovative approach can streamline the claims process, providing faster payouts and better aligning with the fast-paced nature of cyber incidents.

3. Cybersecurity Assessments and Audits: 

Insurers are increasingly incorporating cybersecurity assessments and audits into their underwriting processes. This approach helps in understanding an organization's cybersecurity posture, enabling underwriters to tailor policies to specific risk profiles.

Challenges in Cyber Insurance Underwriting:

1. Lack of Standardization: 

The absence of standardized frameworks for assessing cyber risks makes underwriting challenging. Differing methodologies and criteria among insurers can lead to inconsistencies in risk evaluation, hindering the establishment of a cohesive and transparent market.

2. Limited Historical Data: 

Unlike traditional insurance, cyber insurance lacks a robust history of claims data. The scarcity of historical data makes it difficult for underwriters to accurately predict and price cyber risks. Developing models that can effectively navigate this uncertainty remains a significant challenge.

3. Dynamic Regulatory Environment: 

The rapid evolution of data protection and privacy regulations globally poses a continuing challenge. Underwriters must stay agile to adapt policies to comply with ever-changing legal landscapes, adding a layer of complexity to an already intricate process.

See also: Cyber Insurance at Inflection Point

Mitigating Risks and Meeting Challenges:

1. Collaboration and Information Sharing: 

Collaborative efforts among insurers, businesses and cybersecurity experts can enhance collective resilience. Sharing threat intelligence and best practices can help create a more informed underwriting process, fostering a united front against cyber threats.

2. Continuous Learning and Adaptation: 

To stay ahead in the cyber insurance landscape, underwriters must embrace a culture of continuous learning. Regular training and updates on emerging threats and technologies can equip underwriters to make informed decisions in an ever-changing environment.

3. Technology Integration: 

The integration of cutting-edge technologies like blockchain and machine learning can enhance the efficiency of underwriting processes. Blockchain, for instance, can provide a secure and transparent platform for managing policy data, while machine learning can improve risk assessment accuracy.

Conclusion:

Navigating the complex world of cyber insurance underwriting demands balancing understanding evolving risks, embracing emerging trends and overcoming formidable challenges. As the digital landscape continues to transform, underwriters must evolve their methodologies, leveraging technology, collaboration and continuous learning to craft policies that provide effective protection against the ever-growing specter of cyber threats. Only through an adaptive approach can the insurance industry effectively manage and mitigate the risks associated with the digital age.

It’s a tale as old as time. 

An insured is in need of a surety bond, and when they go to fill out an application, they are prompted to input their Social Security number. Confused, they reach out to their insurance agent for clarification on why this information is required. 

“Why do I need to provide my Social Security number on an insurance application?”, they ask their agent. Now, unless the agent is attuned to the intricacies of surety bond underwriting, their answer will probably be, “Because the insurance company requires it.” Unsatisfied with this answer, the insured still provides this information (because they need the bond), but the question lingers in both the minds of the agent and their customer.

Alternatively, the insured may enter a state of blind fury, immune to rationality and reason, and abandon the application process altogether. A few days later, the insured admits defeat and begrudgingly provides the information, although dissatisfied with the entire process. 

We see variations of these conversations every day, and to help your agency better explain this unique requirement to your customers, we’ve put together this article answering the age-old question of why surety companies sometimes ask for Social Security numbers. 

A Process Unlike Any Other 

To be fair, wondering why the surety company needs a Social Security number is entirely reasonable. Traditional insurance products don’t require applicants to provide this information, so what makes surety bonds so special? 

A lot, actually. 

Unlike other types of insurance, surety bonds (excluding fidelity bonds) do not protect the person who purchases the bond but rather the person or entity requiring it. For example, auto dealers need to obtain a bond as a prerequisite to receiving a business license. However, the license bond does not protect the dealer but rather the state Department of Motor Vehicles and the dealer’s customers. Additionally, and this point is key, if a claim is made against the dealer’s bond they are required to repay the surety company for all claims and claims handling expenses (a provision known as indemnification). 

All surety bonds are indemnified, meaning all principals (persons who purchase a bond) must repay the surety company for valid claims. Claims made against surety bonds are completely avoidable and only occur if the principal commits fraud or engages in unethical conduct.

In essence, think of surety bonds as a line of credit that the principal must pay when and if it is used. 

See also: Commercial Underwriting: Risk Factors That Matter

It’s All About the Risk 

The unique nature of surety bonds compared with other types of insurance requires a similarly unique underwriting process. When underwriters determine whether to issue a bond, they are considering two factors: 

1. The likelihood the principal will repay the surety company for valid claims

2. The likelihood that a valid claim will occur 

Aside from a review of a person’s financial statements (which surety companies do for high-risk bonds), what better way is there to determine the likelihood of getting repaid than to examine the applicant’s credit history? Unless you know the person dearly, the answer is there isn’t one. 

Surety companies run soft credit checks (that don’t affect the applicant’s credit) on applicants to assess the risk that the applicant won’t repay them in the event a valid claim occurs. 

The Moment You’ve Been Waiting For 

To run a credit check, surety companies need the applicant’s Social Security number. This is because credit bureaus use individuals’ Social Security numbers when generating the report as a means to identify the individual and their loan/payment history. 

And there you have it, the long-awaited answer to the question that’s been eating at the curiosity of insurance agents and their customers since time immemorial. Surety companies don’t require Social Security numbers simply because they feel like it, but rather because they need to run credit checks on applicants to determine if they qualify for the requested bond.

See also: The Future of Insurance Fraud 

What About the Second Point? 

To determine the likelihood that a claim will occur, surety companies will: 

1. Consider the claims history of the bond as a whole 

2. Examine whether the applicant has had any valid claims made against a previous bond 

3. Determine the applicant’s years in business 

Those factors help surety companies make informed decisions on whether issuing an applicant’s bond will result in claims. This is why your customers oftentimes must input their years in business on bond applications (so the surety company has proof they are reputable), and it also explains why the same applicant may pay more for the same bond type in different jurisdictions. (If one jurisdiction has a history of high bond claims, the surety company will consider the bond riskier.) 

Surety companies consider the factors outlined in this article when determining an applicant’s premium rate and eligibility. Applicants with good credit and multiple years of business experience often get the best rates, while those who don’t typically pay higher rates or get declined altogether. 

Why Do Some Bonds Not Require Credit Checks? 

Certain surety bonds are considered so low-risk that surety companies are able to issue them to all applicants at the same price without conducting any underwriting. These bonds are categorized as “instant issue,” and the process for providing them is: 

1. Your customer submits an application 

2. The carrier/broker copies this information onto the bond form 

Whenever you or your customers are not required to provide a Social Security number, then the bond being applied for is an instant-issue bond that has no underwriting criteria. 

The Truth of It All 

What often happens within the surety industry is companies advertise their ability to write these instant-issue bonds as a sign of their technological prowess and innovative solutions. 

What these companies don’t tell you is that whenever you or your customers need a higher-risk bond subject to credit and financial underwriting, they will have to manually review the submission, review the credit report and financial statements, wash their hair, clean their car read "War and Peace" and finally, after what feels like an eternity, provide you and your customer with a quote. 

With this in mind, make sure your agency is partnering with companies that are capable of automated credit and financial underwriting.

Labor shortages are growing in the insurance sector, making it increasingly hard to recruit anyone, let alone knowledgeable, experienced and compassionate professionals. However, despite labor economy fluctuations, a few innovative companies have identified the secret weapon to scaling their workforce strategically ahead of the Medicare annual enrollment period, a critical stretch for medical beneficiaries and insurance organizations alike. 

Managing this staffing initiative is no simple task. Each year, organizations not only need to hire exceptional insurance talent en masse but also add these professionals to their payroll well before enrollment starts, to ensure they're prepared to help Medicare beneficiaries find the best coverage possible. So what strategy is helping teams scale so seamlessly? The secret lies in creative marketing. 

See also: Overcoming the Talent Crisis in Underwriting

Starting Early Is Key

Amid labor shortages, starting the search early is more important than ever. This will allow you enough time to thoughtfully recruit and thoroughly onboard someone without making it stressful. In fact, if you implement a pipelining element to your recruiting efforts, you can add people to your applicant tracking system year-round to tap into whenever you need. 

This is one way SelectQuote, a pioneer in direct-to-consumer insurance shopping, found much success in recent years. The SelectQuote recruitment team starts prepping for the next enrollment season shortly after the previous enrollment season ends to ensure they can recruit, pipeline and onboard compassionate insurance professionals in time. A full year has proven to be the perfect timeframe for this team to scale for the anticipated need for the next season. 

However, it wasn't always like this. Before deploying creative recruitment marketing tactics, the company rarely made recruitment quotas. Now, the team receives so many candidates that they have to strategically narrow them down to the compassionate insurance pros with the problem-solving skills needed to guide Medicare beneficiaries through the complexity of open enrollment. 

Creative Recruitment Marketing for Insurance

Innovative companies that want to attract top talent in the industry should think like a chief marketing officer to reach a wider breadth of potential candidates. For example, companies should be using a combination of branding channels and direct response marketing. Branding channels often consist of owned social media channels and the company's career site and can be used to show the benefits of working for the company, including company culture. This is where having trusted external partners, like a creative recruitment advertising agency, can help. 

See also: The Next Generation of Talent

Direct-Response Marketing

Direct response marketing focuses on eliciting an immediate reaction out of the target persona. The most common use for this type of marketing can be seen in consumer advertisements urging viewers to "call now" or "click here," but it is often used in recruitment marketing on sites such as job boards. For instance, if a company is primarily focused on driving applicant volume, direct response channels such as Indeed and ZipRecruiter would be a great place to allocate budget. 

With local insurance companies, it's especially common to ensure job posting content and locations are optimized when using direct response advertising. This helps capture the highest volume of quality and realistic applicants. For example, it wouldn't benefit a company in Utah to be advertising to potential candidates in Florida. However, we have seen success when leveraging "statewide" targeting for some insurance roles where candidates don't have to be based in a specific location -- such as field agents. 

Incorporating advertising into recruitment strategies can assist companies in reaching a more extensive talent pool. But the platforms on which companies should advertise remain elusive.  

Let's Talk Platforms

Some sourcing channels that have shown the most success in the insurance industry include LinkedIn, Indeed Resume, SeekOut and Handshake -- especially for early career job seekers. Those direct, personalized touchpoints can help source passive candidates for hard-to-fill insurance roles.

Recruitment advertising partners might also recommend consumer advertising channels as a complement to direct response advertising to help promote a client's employer brand in addition to specific job openings. That means that on top of placing ads on career-related sites such as Glassdoor and LinkedIn, it might also behoove companies to experiment on sites like Forbes, Weather.com, ESPN, Reddit, Facebook and even TikTok. In fact, streaming audio sites are also common among insurance clients, such as Spotify, Pandora and iHeartRadio. 

Your company can expand the available talent pool amid talent shortages by going beyond the job boards to target passive candidates with direct-response marketing on a mix of career and consumer sites. Additionally, implementing a recruitment strategy with a pipelining element can also ensure you have talent whenever you need it, especially if you have cyclically busier times of the year. 

It may have started with changing the plastic straws at restaurants to paper ones, but sustainability is expected to continue trending in a much bigger way in the new year driven by consumer demand. Not only are consumers shifting behavior to embrace sustainability in the retail sector, but we’re also starting to see the popularization of B2B companies prioritizing sustainability. In fact, a global survey by Solera recently found that 75% of drivers are willing to switch insurance providers for a greener policy. While some companies might look at this finding as a challenge to overcome, it’s more aligned with a golden opportunity for insurance companies to prioritize sustainability goals and, contrary to popular belief, improve their bottom line.

See also: We Need to Rethink the Future of Cars

Challenge vs. Opportunity

While 99% of insurers recognize the importance of prioritizing sustainability, they are up against some seemingly large hurdles. For example, there is a misconception that it will require a larger budget to invest in sustainable solutions. However, by understanding the cost-reduction benefits associated with adopting sustainable practices, especially in auto claims and repair, this myth can be easily dispelled. Even small things like switching office lights to be more energy-efficient or implementing a recycling initiative can start to accrue cost reduction over time.

On a larger scale, sustainability is becoming a much heavier regulatory requirement with the E.U. Corporate Sustainability Reporting Directive (CSRD) set to take effect in 2024, among other sustainability initiatives across the globe. Stateside, we’re also seeing regulations like Senate Bill 261 in California apply pressure to companies to report climate-related financial risk. In fact, as these changes begin to mount, a sizeable 61% of insurers don't consider themselves "very well prepared." Staying proactive can help avoid large fines and any potential blows to your company’s reputation, which can result in decreased revenue. 

However, staying proactive is made harder with the lack of available data to leverage in the insurance industry, auto insurance specifically. For example, Scope 3 emissions measures indirect emissions occurring in the organization's value chain, such as those produced in the vehicle repair process. Despite it being a critical metric, only 53% of auto insurers surveyed across Europe currently monitor Scope 3 emissions. This could indicate a glaring gap in knowledge of a company’s carbon footprint.

Better tracking and management of emissions data can provide the information needed to make informed sustainability decisions, which can in turn reduce cost if done effectively. For example, using green parts can reduce cost in repairs for vehicle owners and their insurers while also cutting down on CO2 emissions in the manufacturing process. 

Good Intentions Only Go So Far

While demand for eco-friendly practices in auto claims and repair is certainly surging, good intentions alone won't suffice. The future is sustainable, so it’s imperative companies make moves toward sustainability, especially if they want to stay ahead of impending regulations. Fortunately, there are things that can be done to get a head start. 

See also: The Journey to Sustainable Aviation

Start by implementing a recycling process or, even better, a paperless process altogether. This can help reduce waste while saving money and improving the user experience. Companies should also seek out a partner to help reduce carbon emissions in their auto claims and repair process. There are also tools available to improve measurement of metrics like Scope 3 emissions, which can make a huge difference in implementing effective carbon footprint reduction initiatives. 

It is obvious there has been a significant shift in consumer preferences and a pressing need for insurance companies to align with sustainability goals. Embracing sustainable practices is no longer just a responsible choice but also a necessary one. The future is green, so the sooner companies hop on board, the better. 

U.S. insurers appear to be optimistic about investment conditions for 2024 (see Figure 1) and expect to take on more investment risk, according to a recent survey of 300 investment decision makers in the U.S. insurance industry commissioned by Conning.

And while insurers expect their investment risk tolerance may rise, higher yields in traditional public market fixed-income sec- tors have made those one of the larger areas of expected portfolio increases. Other sectors that insurers expect to allocate more to include private equity, private credit and private placements, and real assets including infrastructure and real estate.

Insurers also said that, despite their concerns about use of artificial intelligence (AI) and machine learning (ML) tools in the investment process, they believe the benefits of the technology outweigh the risks (see Figure 2) and have already begun to incorporate the tools into their investment processes.

The responses suggest U.S. insurers remain resilient and ready to embrace new challenges following a year of significant inflation, falling bond portfolio values as interest rates rose and the rapid growth of AI technologies. (The survey was conducted prior to the U.S. Federal Reserve’s December outlook suggesting multiple interest rate cuts in 2024.)

The growing complexity of managing insurance portfolios may also lead more insurers to consider outsourcing some or all investment duties, and the survey probed insurers’ considerations in these decisions.

See also: Building an Effective Risk Culture

Optimism Is High – But Inflation Remains Top Concern

Survey respondents showed significant optimism about the 2024 investment environment.

Across all company sizes and sectors, “optimistic” was the leading sentiment versus “pessimistic” – in most cases by significant margins. Insurers managing assets internally (about half of our respondents) were more optimistic than those that outsourced some or all of their assets (86% to 73%) while those outsourcing were more pessimistic (18% to 7%). Very few respondents were “unsure what to expect”; the largest “unsure” group (20%) was insurers with less than $500 million of assets.

Inflation remained the top portfolio concern in the next two to three years, consistent with our two previous surveys (see Figure 3), but its relative level of concern has been declining. Market volatility remained a leading concern. The impact of monetary policy reappeared as a top concern in 2023, not surprising given how interest rates rose significantly during the year. It is also a prescient response given the recent news that rates may soon head in the opposite direction. Fiscal policy remains another high-ranking area of concern among insurers, given the significant level of federal and local government spending, as well as the potential for policy changes in a presidential election year.

Meanwhile, investment yields, regulatory changes and geopolitical concerns have been consistently among the lowest of insurers’ worries during the past three annual surveys. These issues may signal troubles ahead for insurers but appear less of a concern than events with more immediate portfolio impact.

Domestic politics and AI were added to Conning’s latest survey as potential concern responses. Domestic politics was the second-most important concern to insurers, while impact of AI was sixth.

See also: From Risk Transfer to Risk Prevention

Adding to Risk

Insurers also strongly believe their investment risk will rise during 2024 (see Figure 4). Their risk expectations generally rose with the insurer’s asset base, although firms with $5 billion to $10 billion in assets were most in agreement with the sentiment.

Firms outsourcing asset management had lower expectations for rising risk in their portfolios versus firms that manage assets internally (57% versus 68%) but as noted previously expressed less optimism about the investment environment (73% versus 86%).