Focusing on the customer has resulted in increased sales and cross-sales, improved brand reputation and improved customer satisfaction and retention for insurance carriers. The use of generative artificial intelligence (AI), as well as large language models, low-code and no-code (LCNC) software and machine learning are increasingly a part of this new customer paradigm. These technologies have allowed carriers to refine, refocus and prioritize the customer experience (CX) more quickly and effectively. They have also had an impact on adviser/agent relationships where carriers have been able to improve working efficiencies across distribution channels. 

The use of AI in CX initiatives will also affect the broader business objectives of carriers, such as revenue growth, market differentiation and long-term sustainability. AI speeds and simplifies time-consuming efforts like underwriting processes and claims processing. And it doesn’t end there. Other areas AI may be able to affect include: 

• Web applications
• Order entry platform upgrades
• Digitized licensing and appointments 
• Mobile personalization
• Business process reengineering
• Sales enablement programs
• Robotic process automation projects 
• Business enablement optimization (paperless)

A steady move to digital, AI and the cloud, while gathering and analyzing existing data sets and running periodic testing of ideas and asking for feedback, is a prudent strategy for carriers looking to accelerate their digital transformation. This will help to identify risks, product misconceptions and process bottlenecks along the way, thus driving higher loyalty and customer satisfaction and advocacy. Understanding how data can give carriers information they need to make informed decisions is key, but AI won’t draw accurate conclusions on its own.

See also: 5 AI Trends You Can't Ignore in 2024

From a distribution viewpoint, advisers and agents have fully embraced the digital world. Many have actually become dependent on digital tools and see this trend continuing to improve customer engagement. They have a desire to do more for their clients and seek improvements in online applications, online illustrations and calculators, new business submission, tracking, performance reporting, policy delivery, transaction reporting and administration. The emphasis should be to collaborate with financial professionals to provide a simple but effective partner experience and build capabilities that help them to better engage with their clients, increase their productivity and enable new business opportunities.

Of course, distribution is still people-focused. For example, referrals are critical for new business, and many financial professionals depend on seminars and webinars. They use social media, email, television and radio to recruit for these events. Advisers and agents prefer these face-to-face meetings, either in their offices or in clients’ homes or online, to develop relationships. Can AI help here, too?

Digital tools proliferate, and most customers are tech-savvy. Smartphones, smart pads and tablets, smartwatches and other mobile devices are part of the modern landscape. AI may be able to help carriers fully benefit from them and keep up with advisers, agents and their customers. AI can be a market research resource for monitoring the sales cycle and determining what products are selling and why, and for mining customer data for insights on what their journey with a carrier’s brand is like. This research could be coupled with automated, AI-driven marketing programs that seek to engage customers, and their advisers/agents, and deliver more personalized solutions. Leveraging data, analytics and AI together could provide near-real-time contextualized insights to financial professionals that augment the personalized client experiences and improve cross-sell/up-sell.

Carriers have largely been compelled to explore this new technology. There wasn’t really an option. Celent, a research and advisory firm focused on technology for financial institutions globally, recently said the competitive gap established by early adopters could be persistent (due to a generative AI model’s inherent ability to learn and improve). So doing nothing comes with its own risk—and that risk exists across the board, from operational efficiency to customer engagement.

See also: 3 Key Uses for Generative AI

With all these potential improvements, risks have to be considered to balance enhancements with customer protections. AI has multiple challenges that need to be addressed to defend against reputational and brand risks. Among the concerns:

• data security
• data accuracy and misinformation (called hallucinations)
• privacy (such as in cyberattacks or misuse)
• functional limitations with creativity, ethics and common sense
• inherent bias or stereotypes
• copyright and consent issues

Don’t forget the human element! 

AI is a tool to assist in, not define, outcomes. It offers numerous capabilities that can assist insurance carriers in gathering both distributor and customer insights and feedback, interpreting findings and even implementing engagement efforts. But insurance is still a people-first business, and carriers need to keep a balance between AI and the customer/adviser/agent that are at the center of their strategic initiatives. This balance allows for a refined and refocused customer experience.

The only thing better than having smart friends is having smart friends who've been around a little while, gaining perspective.

In my case, the smart friend often turns out to be Chunka Mui, whom I've had the pleasure of working with for more than 25 years and with whom I've written four books. He recently published some sharp insights on how the lessons from the dot-com bust of the early 2000s should shape our thinking about today's boom in generative AI, and I'll summarize for you here.

Chunka knows whereof he speaks. He was one of the pioneers of digital strategy back in the mid-1990s--I first heard the term from his lips when we were partners at Diamond Management and Technology Consultants. He was also co-author of "Unleashing the Killer App: Digital Strategies for Market Dominance," a best-seller that has been described as the bible of the internet boom. 

Diamond became known as "the killer app firm," and he advised on loads of projects. After he and I published "Billion Dollar Lessons" in 2008, on what to learn from major corporate failures, we consulted with major companies on how to tell whether they had a killer app or a killer flop, before they risked tens of millions of dollars.

So Chunka has seen the good, the bad and the ugly in major innovation efforts, like those companies are considering for generative AI.

A couple of his six pointers are tricky. He tells you to be aggressive but not too aggressive. Good luck with that, right? But even there, he explains how to sense if you're straying from a winning path.

Let's have a look.

Chunka begins his column on LinkedIn with a tight summary of the major successes and failures of the dot-com era, showing that both are possible, with results that measure in the trillions of dollars -- yes, trillions, with a "t."

"On one hand," he writes, "this Cambrian-like explosion of the commercial internet led to enduring successes such as Salesforce, Google, Netflix, Amazon, Apple and Meta," which have a combined market cap of more than $7 trillion. "On the other hand, this exuberant period also produced notable failures like Webvan, Pets.com and the AOL/Time Warner merger. The total investor losses from the peak of the boom to the bust are estimated to exceed $8 trillion (adjusted for inflation)."

How do you make sure you're on the plus side of one of those big numbers? Here are Chunka's pointers:

• Don't Mistake Investor Enthusiasm for Market Dynamics
• Resist the FOMO Trap
• Don't Mistake Complacency and Denial for Thoughtful Deliberation
• Sustainable Business Models Do Matter (Really)
• Integrate Digital With Traditional Business Strategies
• Think Big, Start Small, Learn Fast

1. Don't Mistake Investor Enthusiasm for Market Dynamics

This pointer especially resonates with me. I couldn't tell you how many times during the initial internet boom that someone acted as though a stock market valuation was conclusive proof that some startup was the wave of the future. But stock prices are merely bets about the future. Many turn out to be wrong. That's the nature of bets. And when a company that, say, has a shot at being more or less the operating system of the generative AI wave -- a la Microsoft for PCs, Apple for smartphones and Google for search -- turns out to have no shot, the stock price can plunge from a stratospheric number to zero overnight.

Chunka cites the failure of the AOL-Time Warner merger as an example of what can go wrong when you base strategic decisions on stock market euphoria, AOL acquired Time Warner in a deal valued at $350 billion when it was announced in 2000, right before the internet bubble burst. Shareholders in the upstart AOL got 55% of the stock in the combined entity, while shareholders in Time Warner, a media behemoth at the time, received only 45%. The value of the combined entity soon fell to $20 billion, and AOL, after steadily shrinking, was sold to Verizon in 2015 for just $4.4 billion. In a final indignity, Verizon sold what was left of AOL plus what was left of Yahoo -- another dot-com high flyer, valued at more than $110 billion in April 2000 -- to a private equity firm in 2021 for $5 billion. 

Chunka's words of warning:

"Remember this each time you see venture capital data or short-term market value blips used as prompts for strategic action."

2. Resist the FOMO Trap

This is the don't-go-too-fast part of Chunka's advice. In the research for "Billion Dollar Lessons," we found plenty of companies -- impressive companies -- that fell into the FOMO trap. For instance, FedEx got suckered by fax machines in the 1980s. It decided that "absolutely, positively overnight" would be even better as "absolutely, positively that afternoon," so it spent hundreds of millions of dollars to roll out a fax-based service at a time when few businesses had their own machines. A driver would come to your office, pick up a document and take it to a FedEx store, where it was faxed to the FedEx office nearest the recipient, so a driver could then deliver the fax. The problem, of course, was that every business soon had slews of fax machines, and FedEx wrote off the whole value of the business it rushed into existence. 

Chunka's advice:

"Prioritize strategic patience and thorough market analysis over the impulsive pursuit of the herd. Resist the urge to jump on the AI bandwagon without a clear understanding of how it aligns with specific business problems and real value propositions in your industry and market."

3. Don't Mistake Complacency and Denial for Thoughtful Deliberation

On the other hand, you can't be too slow -- and many companies moved far too slowly in the dot-com days, kidding themselves that they were simply being prudent. I so remember interviewing the CEO of Sears in the late '90s in his office in what was then still known as Sears Tower and having him tell me that the company was carefully studying the internet but saw no need to do anything just yet. Now look at the company. You don't see much evidence of it anywhere, certainly not in what's now Willis Tower. 

Chunka cites the examples of Borders, Kodak and Blockbuster from the dot-com days. Borders actually outsourced its online sales to Amazon, handing the future over to an omnivorous rival. Kodak invented the sensor for digital cameras but never really committed to turning that into a business. Blockbuster so misread the future that, among other missteps, it passed on a chance to buy Netflix early on.

Chunka's recommendation:

"Embracing new technology requires careful consideration, but this should not be confused with inaction or denial of evolving technology and market realities. As Voltaire observed, perfect is the enemy of good. Strategic deliberation involves actively evaluating new technologies, understanding their potential impact and integrating them into the business model where appropriate."

4. Sustainable Business Models Do Matter (Really)

This reality seems to have set in in the world of insurance over the last year or so. When money was basically free, with interest rates near zero, startups could afford to invest in growth at all costs and worry about profitability later. With interest rates far higher now, companies have to show that they can generate profits and cash for the long term. 

As Warren Buffett has said, "Only when the tide goes out do you discover who's been swimming naked" -- and the tide eventually goes out for every business. 

Chunka cites the dot-com era failures of Pets.com and Webvan. Pets.com had high-profile marketing (an old friend of mine was the chief marketing officer responsible for the much-mocked sock puppet Super Bowl ad; true story) but never had a real business model. Webvan burned through $800 million before it even paused to test the viability of its business model -- there's that FOMO again -- and the model didn't work.

Chunka's summary:

"As AI technology evolves, it's tempting to focus on the technology's novelty and potential for (eventual) disruption. However, success lies in building businesses that are not just technologically innovative but also strategically viable. This requires ample focus on revenue generation, cost management and market demand, ensuring that the business model is robust enough to withstand investor pressures, market shifts and continued technological advance.

5. Integrate Digital with Traditional Business Strategies

This recommendation reminds me of something Matteo Carbone said recently in a webinar we did on the prospects for the Internet of Things (IoT). He said he had made the mistake of initially thinking of the IoT as a product for insurance companies, when it's really a capability that should be incorporated up and down the product line.

The internet has certainly turned out to be an enabler, rather than a separate business, and Chunka cites Walmart as a prime example of a company that blended the new capabilities into the established business. He says the blending "included developing a robust e-commerce platform, employing data analytics for inventory management and enhancing customer experiences through technology. This strategic integration helped Walmart compete effectively, even as Amazon grew at a prodigious pace and demolished many other retailers."

For those innovating with today's AI, he recommends "ensuring the technology complements rather than overrides established operational processes."

6. Think Big, Start Small and Learn Fast

This has been our mantra since our days at Diamond, one we cover at length in our 2013 book, "The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups." In our experience, companies miss out if they don't imagine all the possibilities of a breakthrough technology like generative AI. But then you have to test inexpensively -- the big pilots and the rollouts need to wait until you actually know what you're up to. You also have to learn as quickly as possible, which means killing the little tests that aren't proving fertile.

My brothers, both former professional poker players, tell me that amateurs lose much of their money because they look at the two down cards in Texas Hold 'Em and think, "Well, these might turn into something," even though the odds are long. That approach may be okay in a neighborhood game, but businesses need to be far more disciplined about how they spend their time and money.  

Chunka cites Microsoft and Nokia as examples of companies that didn't think big enough on smartphones and acted too incrementally, leaving the field open for Apple.

He mentions Kodak and Borders as companies that waited so long to try to innovate that they gave themselves no time to start small. They had to swing for the fences when they finally realized they were in trouble, and they missed. I'd add Blockbuster, which was positively floundering toward the end. With Netflix banging on Blockbuster about its late fees, Blockbuster announced that it would end the hated fees -- without even taking the time to realize that it wouldn't turn a profit without them.

Chunka's final advice?

"The key lies in striking a balance: leveraging the potential of AI for innovation and progress while remaining grounded in provable business strategies and market realities. By applying lessons from the past, businesses can not only surf this technological wave but also create enduring, successful ventures."

I can't say it any better.

Cheers,

Paul

KEY TAKEAWAY:

--Insurance software solutions add meaning and value to the new, less linear customer journey in five ways: workflow optimization, improved policyholder experience, self-service capabilities, personalized risk mitigation services and omnichannel communication.

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Although customer journeys are perpetually evolving, the rate at which they have changed in the insurance sector is nothing short of phenomenal. With the digital maturing of the industry paired with the shift toward customer-centricity, modern-day insurance customers or policyholders enjoy richer and more engaging experiences. In such a dynamic environment, cloud-based insurance software has been a blessing in keeping operations afloat. Such software for insurance companies lends agility to the business and keeps them resilient even in changing times.

Here’s a deep dive into how insurance industry software solutions enhance customer journeys.

See also: Tips for Improving Customer Experience

How Has the Insurance Customer Journey Transformed?

When it comes to the insurance industry, the traditional marketing funnel took prospects from initial product awareness to the point of purchase, drawing inspiration from nearly identical customer decision journeys. Traditionally, the usual customer journey adhered to a linear course and involved stages of awareness, familiarity, consideration, intent, decision and loyalty. Customers typically purchase insurance policies by researching potential brands and then narrowing down the options until they find the one that best meets their needs. 

However, modern customers now have a number of ways to discover, research and purchase policies. As a result, the customer journey has become less linear. The new purchase experience of empowered customers renders the traditional "sales funnel" obsolete. The modern customer journey consists of 5 broad stages: 

• Awareness: Prospective customers realize the need to get insurance as insurance companies use tools and channels such as websites, email and social media. 
• Initial Consideration: Potential customers consider various options based on brand position and recent interactions.
• Active Evaluation: Customers research different insurance options and compare policies, coverage details and premiums across various websites and comparison platforms. 
• Purchase: Modern customers use quote comparison websites and other tools to get instant quotes from different insurance companies. They select a suitable policy and complete the purchase, often without the involvement of any agent.
• Post-Purchase Experience: Customers experience the insurance product or service and form an opinion or expectation. Post-purchase customer engagement is a crucial component of the modern customer journey.

5 Ways Insurance Software Improves the Customer Journey

We have different categories of insurance software considered by carriers and brokers depending on their usage. Some of them are: document management software, customer relationship management software (CRM), insurance workflow automation software, policy management software, claims management software, mobile apps for different stakeholders, etc. The following are five ways in which insurance software solutions add meaning and value to the customer journey.

1. Workflow Optimization

Insurance software streamlines the entire policy lifecycle, from creation and issuance to cancellation and renewals. Customers can use the portal to check the policy details and modify them as needed. A comprehensive software for insurance company management also automates a number of tasks such as quoting and policy approvals. This results in faster service for customers and improves customer journeys. Automation also streamlines customer onboarding.  

2. Improved Policyholder Experience

Self-service portals improve transparency and empower insurance policyholders. Policyholders can use the portals to find relevant information, resolve queries and get suitable suggestions. As such, the best insurance software solutions offer self-service portals to improve convenience and customer satisfaction.

Further, the data stored in insurance software can be used for personalizing each interaction with customers, right from marketing communication to customer support interactions. It improves customer engagement and boosts loyalty. 

3. Self-Service Capabilities

Insurance software can provide customers with intuitive self-inspection or self-service tools integrated into user interfaces or mobile apps. These tools guide homeowners through the process of conducting self-inspections by providing step-by-step instructions, checklists and visual aids. Such features facilitated by modern software for insurance companies help customers assess their property's condition, safety measures and potential risks, ensuring they provide comprehensive and accurate information to insurers.

4. Personalized Risk Mitigation Services

By harnessing insights obtained from telematics and connected devices, insurance industry software can offer tailored suggestions to reduce risks. For example, telematics can offer alerts to improve the safety of drivers and homeowners. Insurers can recommend specific safe driving practices to alleviate risk, potentially leading to perks such as discounted premiums. 

5. Omnichannel Communication

Insurance software enables insurers to manage interactions with current and prospective customers across multiple channels such as email, social media, chat and chatbots. This enhances communication flexibility. Insurance industry software also integrates with other tools to unify customer interactions across different platforms. Having a consolidated view of all customers enables insurers to offer consistent and personalized experiences at each stage of the customer journey. 

See also: Computer Vision Means Satisfied Customers

Conclusion

Customer journeys are changing rapidly in the insurance sector. Whether it is the diversification of communication channels or the need for personalization, such demands have been a driving force behind challenging the status quo. Most importantly, this transformation will not stop right when such needs are met; new ones will mushroom in due time.

Such a state of flux calls for capable and feature-rich insurance software tools that can handle such requests and implement appropriate solutions to elevate organizational capabilities and product or service offerings. 

While traditional methods of risk management have served well, there is an increasing need for innovation, driven by a deeper understanding of employees along with the advent of new technologies. 

A significant factor that often goes unnoticed in decision-making is the influence of biases. Our brains, unlike computers, use mental shortcuts to make decisions quickly. This is advantageous for efficiency but can lead to skewed perceptions and choices. 

Some common biases in risk management can include confirmation bias: seeking information that aligns with pre-existing beliefs, often reinforced by what we choose to consume and see daily. Availability bias: relying on immediate, easily accessible information, leading to a narrow view of options. Hindsight bias: overestimating our ability to have predicted past events. Negativity bias: giving more weight to negative information or outcomes. Anchoring bias: relying too heavily on the first piece of information encountered. Lastly, sunk cost fallacy: continuing investment in a failing product due to past investment.

Recognizing these biases is the first step toward understanding their impact, enabling more balanced and strategic decisions. 

See also: Building an Effective Risk Culture

Peter Hollins, in “The Art of Strategic Decision Making,” suggests simplifying complex decisions. This involves understanding transaction costs and managing decision fatigue. Effective strategies tend to include making decisions when fresh and rested and delegating or simplifying minor decisions. Additionally, it’s important to allow ample time for important decisions. 

Often, a reliance on luck or superstition is the default method. However, as amusing as that practice might be, it is not a substitute for a well-thought-out strategy. Effective risk management is about applying solid principles and strategies, not leaving things to chance. 

A pros and cons list is useful. By assigning a value to each pro and con based on personal or organizational priorities, we can quantitatively evaluate the weight of each factor in a more structured and less-biased way. If you want to overcome bias and make your list more realistic, you will add a third choice, as many risk decisions aren’t black and white.  

The most successful companies practice fanatic discipline and maintain consistency in actions, values and long-term goals. These companies also rely on realistic evidence rather than opinion or whim. Productivity paranoia is used to prepare for the worst and maintain vigilance even in good times. Another effective strategy is SMAC (specific, methodical and consistent) practices. 

The landscape of risk management is evolving, and so must the approaches to decision-making. By understanding and mitigating biases, simplifying the decision-making process and learning from successful companies, businesses can navigate the complexities of today’s environment more effectively. Taking an innovative approach to risk management not only enhances the decision-making process but also prepares organizations for a future where uncertainty is the only certainty.

KEY TAKEAWAYS:

--Modernizing legacy systems and accelerating as many manual steps as possible is crucial. Legacy systems can often be a bottleneck, as they can be slow, difficult to update and prone to errors.

--Another important way to accelerate processes like claims is by automating some of the necessary communication with policyholders.

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The need for speed in the insurance industry is evident, especially when it comes to claims. According to a recent report by Insurance DataLab, the claims management process still draws the highest number of complaints from policyholders. In fact, more than 80% of complaints about each of the top five insurers over the last five years were about the claims process. 

So why is assessing and approving claims still so time-consuming and complex? 

The short answer is that there are still too many manual steps involved. Imagine a scenario where a policyholder submits a claim for a car accident. With traditional legacy systems, the insurer has to go through the physical evidence, manually input the claim details into their system and then assess the claim’s validity. This process can take days, if not weeks, leading to frustration and dissatisfaction for the policyholder.

These legacy systems can often be a bottleneck for insurance companies, as they can be slow, difficult to update and prone to errors. This is why modernizing legacy systems and accelerating as many manual steps as possible is so important. Accelerating claims processing times is not only essential for staying competitive but also for driving growth and profitability. 

See also: Making the Claims Process More Efficient

Putting claims underwriting on the fast track

The good news is that digital platforms and tools are making it easier to accelerate many of the manual processes insurers deal with every day, including claims underwriting. 

With these digital platforms, policyholders can submit their claims online or through a mobile application, and insurers can instantly receive all the necessary details and supporting documentation. Once a claim is submitted, advanced algorithms and artificial intelligence (AI) can accelerate the process even further, for instance in assessing the validity of the claim or detecting fraud. These algorithms can analyze various factors, such as policy coverage, accident reports and historical data, to determine the appropriate amount of compensation to be paid. 

According to a PwC study, insurance companies typically allocate 70% of their IT budget toward maintaining legacy systems. Before diving into full automation with AI, upgrading legacy systems to accelerate as many manual steps as possible is a priority that insurers shouldn’t overlook. As these systems age, the cost of upkeep increases, but this cost is often surpassed by the missed opportunities and higher expenses incurred from manual processes.

By modernizing existing systems, insurers can be confident that any new technologies they wish to introduce, such as AI, will integrate seamlessly with their existing infrastructure and data and put them on the right path toward faster, more accurate underwriting decisions and a better customer experience.

Making space for more customer self-service solutions

Another important way to accelerate processes like claims is by automating some of the necessary communication with policyholders. Instead of time-consuming phone calls, insurers can use online portals or mobile applications to provide updates on any claim’s status. Policyholders can easily track the progress of their claims, eliminating the need for constant follow-ups and reducing frustration. 

Today’s consumers expect to receive immediate support when they need it, and providing exclusively in-person or phone support no longer meets these expectations. Additionally, it’s not just the younger generations that prefer digital options. Among customers 55 and older, 71% prefer processing claims through digital platforms like video or chat.

By providing these self-service options, insurers can empower customers to initiate claims or manage their policies independently, reducing the time and effort required. This not only accelerates the claims process but also boosts customer satisfaction and fosters loyalty.

See also: 5 Ways Generative AI Will Transform Claims

Moving into the era of automation 

Accelerating the manual steps involved in claims is crucial for insurers to maintain efficiency and customer satisfaction overall. Modernizing legacy systems is a critical first step in achieving this goal. It's not just a technological upgrade but a strategic move toward future-proofing the business and seamlessly transitioning into the era of AI and automation.

The world is a hot mess – literally. We're facing unprecedented weather patterns fueled by climate change, uncertainty stemming from financial volatility and worsening business results.

All while carriers struggle to determine which AI solutions (among thousands) to choose. It’s enough to make you want to shut the doors and windows and turn on the TV.

Speaking of TV …

Ted Lasso represents the finest television ever created; fight me! And in its honor, I’ll share my top three insurance Lasso-isms for this year.

Be a Ricky Bobby

“Who wants to go fast?” In Talladega Nights, Ricky Bobby raises his hand, hops in that sweet Laughing Clown Malt Liquor car and finishes third overall in his first race.

Our constant – and sometimes ridiculous – encounters with AI feel like the plot of a silly yet epic movie. However, there’s truth in the fiction. There’s opportunity in the madness.

According to a global survey of 2,000 IT decision makers by Blackberry, 75% of organizations are considering or implementing bans on ChatGPT.

You can’t win the race if you’re not in the car.

By one McKinsey estimate, generative AI tools can add $50 billion to $70 billion in value for insurers globally. So be a Ricky Bobby and get in the race. Raise your hand and say, “I want to go fast!”

See also: The ABCs of Agency Planning for 2024

Be a sloth

In periods of ludicrous change, “Go slow to go fast.” Sloths can move fast – and be efficient – when it matters most. Like when they poop.

That’s right, nature’s butt-of-everything apathy joke is a polished example of efficiency that only goes to the bathroom once a week. It really does raise the question of how something so slow has survived for 64 million years (insert insurance joke here).

Critics often describe the insurance industry as inefficient, myopic and slow. That’s OK – there are advantages to careful consideration, especially when it comes to technological innovations.

In the Deloitte 2024 Global Insurance Outlook, adapting technology to create a more customer-centric focus also includes embracing culture to “close the trust gap that has often undermined the industry’s credibility.”

Insurers will only have a handful of opportunities to meaningfully adopt AI. Trust is everything in the insurance business, and a rushed maladaptation can make a mess pretty fast.

Own your notoriously frustrating sluggishness and go fast when it counts.

Be a snowflake

Every snowflake is different, and each risk is unique. Segmentation only goes so far in matching risk to price.

Actually, behavior will win the day in pricing (or rate making) – the global telematics market is projected to reach $12.7 billion by 2030. The Insurance Journal reported on a recent study that found more than 70% of commercial auto insurers offer usage-based insurance products (UBI). Yet adoption with agents and brokers falls between 10% and 15%.

We must close this gap.

The same publication cites a TransUnion report that shows a 33% increase in the number of consumers who are using telematics as a way to lower premiums and offset the impacts of inflation.

But telematics is just the tip of the iceberg. Technological innovation should be in pursuit of the “good life.” For insurance, it’s not just about lower rates; it’s about using technology to transform the industry’s value proposition from indemnification to prevention.

As AI evolves, data consumption increases and model training accelerates.  Behavioral analysis, in turn, can provide deep, individualized insights that translate to loss avoidance and reduction.

Here’s an entire podcast series on predicting and preventing losses from The Institutes.

Insurers and consumers no longer have to accept categorization in their insurance journey. We can demand more. Say no to segmentation and be unapologetically you!

See also: Biggest Business Trends for 2024

The big finish

People need insurers now more than ever. Swiss Re reports the global protection gap has now reached $1.8 trillion, an all-time high, and 43% of risks are uninsured.

The unfortunate reality is our most vulnerable populations are being pushed fast and first into this chasm.

Insurance is a noble profession. We exist to protect what matters most in the direst times. We can all agree something has to change, and it starts with us.

Where do we start?

My advice is let’s look ahead, think different and work together: Lasso-isms and all.

Cybercrime continues to evolve at a rapid pace, but not in the way you might think.

Companies are demonstrating an increased resistance to ransomware, yet 2023 was one of the most financially damaging years ever for digital extortion. Upon evaluation of cyber insurance claims data from our customers at Resilience – alongside data from ransomware incident response company Coveware, blockchain analytics firm Chainalysis, cloud security firm Zscaler and security provider Sophos – one thing is clear: We’re entering a new era of ransomware, and companies need to keep up.

Following a dip in 2022 that correlated with the escalation of the conflict in Ukraine, ransomware re-emerged with a vengeance in 2023. We found that ransomware incident notifications for our clients reached 100% of 2022 levels halfway through 2023. But while ransomware notices may be up, the second quarter of 2023 saw the overall success rate of extortion payments fall to a record low of only 15% for our clients, and to 40% across the industry. Through factors such as more investment in ransomware defense and pressure from law enforcement, we are seeing that companies are increasingly avoiding making extortion payments. 

But cybercrime is a business, and ransomware actors are once again adeptly reacting to a change in their market. Despite lower success rates overall, companies still handed out nearly $900 million in extortion payments in 2023 – one of the most expensive years for ransomware on record. This points to a return of “big game hunting” tactics for ransomware gangs. As extortion becomes less effective as a tactic, cyber crime groups are emphasizing quality over quantity and focusing their efforts on bigger targets that can afford larger payouts – with some even setting minimum ransom demands. The shift appears to be working: According to a recent report, the average cost of an extortion incident nearly doubled from 2022 to 2023, and victims paid out higher demands (>$1 million) at a rate nearly 4X that of 2022. 

See also: Cybersecurity Turns Attention to IoT

Bigger targets don’t always mean bigger companies, though. As part of the shift toward big game hunting tactics, threat actors are increasingly targeting third-party vendors. This strategy allows them to attack vendors with the same level of access to data as victims themselves, while circumventing many known ransomware controls. As evidenced by the widespread effectiveness of the MOVEit attacks in 2023, ransomware groups can leverage the trusted access of third-party vendors to scale their extortion attacks to hundreds – if not thousands – of companies in a single maneuver. While the majority of victims in a given attack will likely elect not to pay extortion, some will, and often in large sums. 

In tandem with ransom demands growing in size and hackers increasingly targeting upstream vendors, we’ve identified a notable transition to more nefarious extortion tactics. Encryption-less extortion attacks – which provoke payment by threatening the release of sensitive or regulated data – have increased dramatically over the past year. These attacks bypass counter ransomware strategies, like immutable data backups, and ultimately result in faster and larger profit margins for ransomware gangs. They are also far less resource-intensive compared with traditional encryption-based attacks, as well as much harder to detect. Combined with the expansive access to downstream victims afforded by third-party vendor breaches, this attack vector creates a perfect storm for cybercrime actors – with devastating consequences for organizations.

See also: The Latest Trends in Cybersecurity

With this new focus by cybercriminals on third-party vendors, executives can do several things to make their organizations more resilient:

1. Perform thorough cybersecurity due diligence when selecting third-party vendors.
2. Continuously monitor intelligence on vendors before, during and after an incident. 
3. Regularly practice your incident response plan (IRP) with executive and cybersecurity staff.
4. Prioritize security investments based on financial analysis of your organization’s cyber value-at-risk.
5. Work on connecting organizational silos across risk management, cybersecurity and financial leadership to align strategic objectives that focus on business goals. 

Many of the incidents Resilience tackles for customers could have been avoided or severely limited with organizational changes that improve cybersecurity governance. These are business process issues, not technical security challenges.

The data paints a clear picture: We’ve entered a new landscape for ransomware. As cybercriminals and their tactics continue to evolve, organizations must do the same. It’s no longer advisable – or even feasible – to attempt to effectively secure against all possible threats. Instead, organizations must shift their focus toward understanding the changes in cybercriminal business models and use that information to prioritize investments that are most likely to limit their financial loss. Only then will they be able to achieve true resiliency amid the constant evolution of the modern threat landscape.

KEY TAKEAWAY:

--A new report by Capgemini finds cloud migration has surged from 37% in August 2020 to 91% in August 2023. 85% of P&C companies are using the technology today, compared with just 29% of companies in 2020. Few, however, are leveraging cloud computing at a scale to reap its full benefits. More than half of the companies surveyed have moved just a fraction of their core applications to the cloud. 

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In the post-pandemic era, businesses face heightened pressure to continually innovate and meet customers' escalated expectations for a more connected and digitally advanced world. 

Across insurance, the expectation is no different. Today’s customers prefer to shop around. They want to evaluate and buy insurance digitally, seeking flexible policies that meet their various needs. 

However, many traditional insurance operations struggle with offering a fully digital experience. They require labor-intensive workflows for tasks such as new submissions, renewals, underwriting and claims.

See also: The Cloud: Connecting the Insurance Ecosystem

Digital core is pivotal for insurance carriers

The key to overcoming business challenges and unlocking growth lies in delivering superior customer experiences and achieving operational excellence. In 2022, the average Net Promoter Score (NPS) of the banking and insurance sectors ranged from 26 to 31. However, new-age players had a much higher (~2.5X) NPS score than established financial services companies. For example, Lemonade earned an average NPS score of 80, leading to significant customer growth. Why? Superior customer experience enabled by composable platforms that leverage cloud technology allows new-age players to respond quickly to customer demands and changing behaviors. 

While new-age players and digital subsidiaries offer superior customer experience (CX), incumbent banks and insurers seek to leverage their business scale advantage to boost customer experience and raise NPS scores. However, the inability of banks and insurers to deliver personalization and seamless multi-channel engagement, self-service access, consistent customer support and quick response time impedes the capabilities to provide customer satisfaction on the level of new-age players. In addition, this inability limits their readiness for the open finance era, where they have to be a part of a complex and intertwined ecosystem. 

A cloud-enabled CX strategy can help resolve these issues. Cloud technology is known to drive strong customer satisfaction, innovation, productivity and scalability. It's not solely about migrating to the cloud but also the enhanced customer experience and operational excellence it facilitates. In the financial services sector, a new report by Capgemini finds cloud migration has surged from 37% in August 2020 to an impressive 91% in August 2023. Looking across the P&C insurance sector, we see 85% of companies are using the technology today, compared with just 29% of companies in 2020.

In fact, a strong majority (91%) of carriers have started moving their core business applications to the cloud, though few are leveraging cloud computing at a scale to reap its full benefits. More than half of the companies surveyed have moved just a fraction of these core applications to the cloud. 

See also: Why Cloud Platforms Are Critical

Charting the path to success

The adoption of cloud technologies stands as a critical milestone for industry players seeking to stay ahead in the digital era. A company's cloud maturity model serves not just as a measure of readiness for cloud services but as a strategic guide for navigating the complexities of digital transformation. 

Cloud-enabled digital core ecosystems offer tremendous potential for insurance firms to optimize their combined ratios. These ecosystems can improve customer retention, satisfaction, premium growth, prospect conversion, among other benefits.

Legacy insurers typically are in one of the following stages in their cloud transformation journey:

At the initial stages lies the "aspiring" phase. Here, the exploration of cloud technologies is complemented by maintaining fundamental digital access to customer policies, claims and billing. However, challenges persist as operations remain siloed, hindering the creation of a holistic customer view. New facets such as rates, forms and coverage are treated as IT projects, and partnerships are constrained.

Insurers at this stage must craft a robust cloud strategy. Initiating the migration of core infrastructure and applications to the cloud, coupled with a carefully designed integration road map, becomes imperative. Aligning with industry best practices and anticipating future customer engagement and distribution opportunities are critical.

Advancing into the "mature" stage marks a strategic integration of cloud capabilities into the fabric of insurance operations. Mature insurance organizations find themselves digitally connected to customers through user interfaces, simultaneously serving as providers of embedded insurance products via third-party channels and ecosystems. Integrated data empowers them to glean business insights with unprecedented ease.

This stage signifies a shift from merely exploring cloud capabilities to strategically leveraging them for enhanced operational efficiency and customer engagement. The mature phase establishes a robust foundation for innovation and adaptability.

As an example, AXA Mansard Insurance, a part of the AXA Group, has used a cloud-based mobile platform called MyAXA Plus since May 2021. Customers can manage their insurance policies and file claims through one interface. This provides customers with a more personalized, seamless and satisfying experience.

In the "innovative" stage, insurers ascend to the pinnacle of digital prowess by embedding the digital ecosystem into every facet of their operations. The cloud becomes the catalyst for innovation and transformation, propelling the insurance company into a realm where the digital ecosystem shapes sales, products and customer service.

Insight-driven enhancements, agile market plays, rapid rule and rate changes and swift product launches become the norm.

As the insurance industry undertakes this transformative journey through cloud maturity, each stage represents not only technological evolution but a strategic shift toward staying relevant, competitive and resilient in the face of unprecedented change. 

As one executive recently told me, “Without cloud, there is no future for financial services firms.” Every organization needs the right cloud-enabled ecosystem to gain a competitive edge. When it comes to cloud, it’s not just the journey – it’s what the journey makes possible.

Over 60% of Americans under 65 have healthcare coverage through their job. But traditional employer plans have seen premiums climb faster than inflation and wages over the past decade. This points to a need for more flexible, affordable options to lower risks. One promising approach that's emerged is insurance connected to hourly wages.

The Evolution of Risk Mitigation Strategies

The standard employer health insurance model has used set yearly premiums. It is based on guessing how many employees will sign up and what coverage levels they'll need. But this approach has started to crack under growing pressure. In the last 10 years, the cost of job-based health plans has increased 54%, nearly double the 28% inflation over the same period.

Employing an hourly salary calculator, innovative models tailor insurance coverage based on an individual's specific income and working hours.

See also: "Intelligent Decision-Making" Is the Future

Analyzing the Mechanics of Hourly Wage-Driven Insurance

The hourly wage-driven insurance model introduces dynamic pricing of premiums based on actual hours worked instead of fixed costs. Premium amounts are calculated in real time and adjusted based on payroll data. Premiums go up or down whether employees work more or fewer hours in a pay period. 

In 2022, the yearly premium cost for employer's insurance averaged $7,739 for individual coverage and $22,463 for family plans -- a huge expense. With hourly wage insurance, this cost variability shifts from the employer to the insurance provider. The employer's percentage contribution can stay fixed, while the insurance partner handles adjusting premiums in real time.

For employees, there is flexibility to keep continuous coverage even if their hours change week to week. Deductibles and out-of-pocket costs also sync up to their income patterns rather than a static plan structure.

Case Studies: Success Stories and Challenges

Real-world implementation of hourly wage models highlights both opportunities and challenges.

A restaurant chain adopting this model saw a 5% drop in their overall health insurance costs. It allowed them to expand employee coverage despite business uncertainties from the pandemic. A retailer needed help to integrate their cumbersome legacy payroll system with the new insurance model. This resulted in payment delays and compliance issues, showcasing the need for automation.

A shift toward hourly wage alignment can be beneficial if the execution aligns with business infrastructure.

See also: Premium Leakage Due to Legacy Systems

Comparative Analysis With Traditional Insurance Models 

Hourly wage insurance provides the agility to link insurance costs to business performance, which improves cost savings and risk protection when business volumes swing up or down. For remote work and gig economy jobs, the model provides coverage that fits on-demand needs rather than one-size-fits-all packages.

Overall, the model has demonstrated greater cost-effectiveness, flexibility and risk protection capability compared with traditional insurance.

Integration With Modern Business Practices

Certain structural shifts in today's economy make hourly wage insurance models suitable, if not essential. The rise of remote, freelance and gig work has led to more fluidity in employer-employee relationships. Models based on static wages fail to provide effective coverage under these circumstances.

Payroll integration enables seamless tracking of insurance costs in real time. This allows for instant adjustments and forecasting, creating an integrated HR-insurance infrastructure.

Regulatory and Compliance Aspects 

As hourly wage models are new, regulations differ across states, which can create compliance challenges. Definitions of qualifying wages and hours become especially critical for proper policy pricing. Companies looking to adopt this model need rigorous assessment.

Future Prospects and Innovations

In the future, massive leaps in payroll automation and application programming interface (API) integration will likely expand adoption of hourly wage insurance. As more states enact accommodative policies, regulatory barriers will decline.

Nevertheless, cyber risks from payroll integration and privacy concerns will need to be addressed. Overall, the stage seems set for hourly wage insurance to disrupt the market in coming years.

See also: Building Resilience for Future Generations

Conclusion

Insurance tied to hourly wages gives a fresh option beyond traditional risk management strategies. As work and business get more dynamic and fluid, solutions that can flex along with them become critical. Even though it's early days, hourly insurance has huge potential to balance value for employers and workers.

Its focus on adaptability and integration make it a standout innovation for affordable risk mitigation. As this model gains traction, it could be a game changer for providing coverage that fits the modern workforce and economy.

While traditional employer plans still dominate, innovators are already pioneering alternatives that align with the future. As the landscape evolves, expect to see more out-of-the-box thinking that expands choices and accessibility.

FAQs

How does hourly wage insurance differ from traditional models?

Unlike fixed premiums, hourly wage insurance adjusts premiums up or down based on real-time payroll data. This links insurance costs dynamically to income flow.

What are the key benefits for businesses?

Hourly wage models provide enhanced cost control, reduced risks from income fluctuations and automated administrative management of premiums.

Which industries benefit the most from this model? 

Industries with irregular income flow like retail, transportation, healthcare and food service derive the most benefits from flexible and adaptable risk protection.

Cyber incidents such as ransomware attacks, data breaches and IT disruptions are the biggest worry for companies globally in 2024, according to the 13th annual Allianz Risk Barometer, an annual business risk ranking incorporating the views of 3,069 risk management experts in 92 countries and territories, including CEOs, risk managers, brokers and insurance experts. 

The closely linked peril of business interruption ranks second. Natural catastrophes (up from #6 to #3 year-on-year), fire, explosion (up from #9 to #6) and political risks and violence (up from #10 to #8) are the biggest risers.

Results for the U.S. mirror the global results, with cyber topping the risks, followed by business interruption and nat cats.

Large corporates and mid-sized and smaller businesses are united by the same risk concerns – they are all mostly worried about cyber, business interruption and natural catastrophes. However, the resilience gap between large and smaller companies is widening, as risk awareness among larger organizations has grown since the pandemic, with a notable drive to upgrade resilience. Conversely, smaller businesses often lack the time and resources to identify and effectively prepare for a wider range of risk scenarios and, as a result, take longer to get the business back up and running after an unexpected incident.

See also: 5 AI Trends You Can't Ignore in 2024

Trends driving cyber activity in 2024

Cyber incidents (36%) rank as the most important risk globally for the third year in a row – for the first time by a clear margin (give percentage points). It is the top peril in 17 countries, including Australia, France, Germany, India, Japan, the U.K. and the U.S. A data breach is seen as the most concerning cyber threat for Allianz Risk Barometer respondents (59%) followed by attacks on critical infrastructure and physical assets (53%). The recent increase in ransomware attacks – 2023 saw a worrying resurgence in activity, with insurance claims activity up by more than 50% compared with 2022 – ranks third (53%). 

According to Scott Sayce, global head of cyber at Allianz Commercial, “Cyber criminals are exploring ways to use new technologies such as generative artificial intelligence (AI) to automate and accelerate attacks, creating more effective malware and phishing. The growing number of incidents caused by poor cyber security, in mobile devices in particular, a shortage of millions of cyber security professionals and the threat facing smaller companies because of their reliance on IT outsourcing are also expected to drive cyber activity in 2024."

See also: Biggest Business Trends for 2024

Business interruption and natural catastrophes 

Despite an easing of post-pandemic supply chain disruption in 2023, business interruption (31%) retains its position as the second biggest threat in the 2024 survey. This result reflects the connectedness in an increasingly volatile global business environment, as well as a strong reliance on supply chains for critical products or services. Improving business continuity management, identifying supply chain bottlenecks and developing alternative suppliers continue to be key risk management priorities for companies in 2024.

Natural catastrophes (26%) is one of the biggest movers at #3, up three positions. 2023 was a record-breaking year on several fronts. It was the hottest year since records began, while insured losses exceeded $100 billion for the fourth consecutive year, driven by the highest-ever damage bill of $60 billion from severe thunderstorms. 

Regional differences and risk risers and fallers

Climate change (18%) may be a non-mover year-on-year at #7 but is among the top three business risks in countries such as Brazil, Greece, Italy, Turkey and Mexico. Physical damage to corporate assets from more frequent and severe extreme weather events is a key threat. The utility, energy and industrial sectors are among the most exposed. In addition, net-zero transition risks and liability risks are expected to increase as companies invest in new, largely untested low-carbon technologies to transform their business models. 

Unsurprisingly, given conflicts in the Middle East and Ukraine, and tensions between China and the U.S., political risks and violence (14%) is up to #8 from #10. 2024 is also a super-election year, where as much as 50% of the world’s population could go to the polls, including in India, Russia, the U.S. and the U.K. Dissatisfaction with the potential outcomes, coupled with general economic uncertainty, the high cost of living and growing disinformation fueled by social media, means societal polarization is expected to increase, triggering more social unrest in many countries. 

However, there is some hope among Allianz Risk Barometer respondents that 2024 could see the wild economic ups and down experienced since the COVID-19 shock settle down, resulting in macroeconomic developments (19%) falling to #5 from #3. Yet economic growth outlooks remain weak – well below 1% in the major economies in 2024, according to Allianz Research.

In a global context, the shortage of skilled workforce (12%) is seen as a lower risk than in 2023, dropping from #8 to #10. However, businesses in Central and Eastern Europe, the U.K. and Australia identify it as a top five business risk. Given there is still record low unemployment in many countries around the globe, companies are looking to fill more jobs than there are people available to fill them. IT or data experts are seen as the most challenging to find, making this issue a critical aspect in the fight against cyber-crime.

To view the 2024 Allianz Risk Barometer, please visit: Allianz Risk Barometer.