Tag Archives: chubb

2018: A Look Back, Then Forward!

Feb. 14 will be the 45th anniversary of my first employment in the insurance industry. I’ve enjoyed the ride.

Here are two memories from my first three years in the business that I think personify the best and worst of our industry and, more importantly, suggest a path for differentiation and prosperity for those willing to transform.

“Different isn’t always better, but better is always different.” — Dale Dauten

On Feb. 14, 1973, I began employment as a claims adjuster at General Adjustment Bureau (GAB) in Baton Rouge, LA. Late that year, I handled a substantial burglary loss in the home of the manager of a major industrial complex. It was a legitimate loss, and in the adjustment process I never sensed any mischief or exaggeration by the claimant.

After interviewing the policyholder, visiting his residence, obtaining pictures of the damages, studying the police report and obtaining an inventory of the loss, I prepared my report and valuation on the loss to the regional claims manager (Vernon) for Republic Vanguard.

Vernon called to explain the “way we do things around here.” He said that, if the policyholder can’t produce a receipt on items lost, we’ll commence negotiations at 50% of actual cash value.

See also: Top 10 Insurtech Trends for 2018  

In my next report, I explained that the policyholder was a sophisticated businessman well-respected in the community and was making a legitimate claim. I explained that I believed that, if I acted as instructed, we’d be working through this claim with the insurance commissioner or a judge.

The day Vernon received my letter, he called my boss and said, “This boy is trying to trap me.”

I was not trying to trap him. I was trying to protect a policyholder and to “cover my a___ for when the s____ hit the fan.”

This company was known for ruthless claims handling. The modus operandus was to lowball the settlement offer made by the adjuster and, when things got ugly, blame the adjuster.

In the end, I was vindicated by a newspaper article on the front page of the Baton Rouge Morning Advocate that exposed the ruthless nature of this carrier.

This case was, in my opinion, an example of the “worst of times/behaviors” in our industry.

The “best of times” was demonstrated to me two years later.

I was a wide-eyed rookie producer working for an agency in Baton Rouge. We were the Louisiana administrator for the Professional Protector Plan (PPP) endorsed by the American Dental Association and underwritten by Chubb through Poe & Associates (the national administrator) in Tampa, FL.

This PPP was tailored to dentists, and the policy was written in the language of dentistry. The PPP included malpractice coverage and flood (physician and surgeon’s floater) coverage. It was a state-of-the-art product.

When I attended the annual state administrator’s program in Tampa my rookie year, Harry Chadwick with Chubb introduced himself to me at the cocktail party on the opening night. He was the senior executive in charge of this program. He was a gentleman. He volunteered to me the philosophy of Mr. Chubb and his company.

He said, “Mike, Mr. Chubb built this company on two principles:

  1. You deny the claim in the underwriting process.
  2. You interpret the policy based upon the ‘intent and not the content.'”

I represented that program for about eight years – Chubb lived the two principles. The only complaint I heard was when one dentist said, “They pay too much on claims.” This was after a slight rate increase. In my opinion, if every carrier was as “client sensitive” and honorable as Chubb, our industry brand would be more positive than suspect.

The 1970s were simpler times – the marketplace was local, comparative rating was still an experiment, batch processing was the norm, fax machines were still on the drawing board and agents were friendly competitors who divided up the markets among themselves. The vast majority of folks were sold a commodity (price-driven) or a product (price-sensitive, with a few added coverages). In today’s hyper-competitive and global markets, the ’70s were the good old days.

Here, in my opinion, is the lesson: Chubb provided an excellent buying experience. That included a quality product, fair pricing and superior customer and claim service. Chubb was then what only a few companies are now.

With the wisdom of 45 years of hindsight and reasonably good foresight, I offer the following admonition: To survive and prosper, agencies must:

  1. Be niche marketers – meet each group of people (even a niche of one) who, where and how they are.
  2. Be defined by clients and driven by them.
  3. Create, tailor and deliver the right client experience for the niche served.
  4. Leverage technology to ensure profitability as commissions “skinny down.”
  5. Use technology for admin and service – the staff will provide the intimacy with clients.

See also: 5 Predictions for Agents in 2018  

I’m not suggesting anyone agree with me. I’m suggesting that you project the future as you believe it will be, build the model to meet the clients and their needs in that future and leverage technology to ensure profitability regardless of how much commissions are reduced or policies are being quoted net of commission. Then live with the result.

Why #Insurtech Doesn’t Matter

Last week, I included my summary of what we do in Insurance:

Insurance is a business where we provide people with peace of mind, allowing them to know that there will be a monetary solution provided when they suffer a major loss/accident (or minor, depending on coverage purchased). This loss/accident can either in the form of health, death or to some sort of property, and the solution is at a time when a person typically needs it most. That is the core of our business. 

This summary also relates to the three pillars of Insurance, which I mentioned a few weeks ago:

  1. Pricing –  Was the policy I purchased priced properly to take care of the costs of the insurance company running its business, and will it have enough?
  2. Reserves – to pay my
  3. Claims – in a timely manner.

As with many of us, I read and follow a lot of news on insurance and insurtech. Every day, my LinkedIn feed and email inbox is flooded with insurtech news, including new investments in startups, new insurtech partnerships formed, expansion of startups into new markets/states, etc.

I love reading all of this – as it shows the growing level of awareness of how new technology solutions can enhance the customer experience and also help companies with operational efficiency.  I am a huge fan of what the future entails.

However, I am also cautious of the risks currently present in the world of Insurance (and the world in general!).

See also: Insurtech Innovator – CyberWrite  

Currently, the pace of change and adoption of insurtech solutions is faster than ever before. It seems there are no signs of slowing down. However, as with any good plan, it is important to have risk mitigation and contingency plans.

The new technology solutions that we are building for the insurance industry (i.e., insurtech), are just an enabler. It’s not that these solutions don’t matter…. But, if the risks are not managed properly and plans are not in place for these solutions, then the progress of the many insurtech initiatives may slow down, or in some cases, not be around to matter.

What are some risks as it relates to insurtech? I will focus on three, which have been themes in the news for the past couple of months. In fact, these are risks that exist in our industry regardless of insurtech.

By no means are these the only risks that need to be mitigated, yet I do see these as some of the big ones:

  1. Macroeconomics
  2. Weather/Natural Disasters
  3. Regulation

Macroeconomics

Since 2008, global stock markets have been on a tear. It’s no wonder that there is so much money pouring into insurtech investments.

What happens if there is a market correction and we go into another global recession? Will we see the same sort of investment in insurtech solutions as we have been seeing?

And that’s just the equities market. What about fixed income?

In this FT article from August, Chubb’s CEO Evan Greenberg warns about the low interest rate environment and its effect on insurers. He says, “Many companies are not earning their cost of capital — and many are losing money, or will lose money in the future.” This is a big deal. This may have an impact on an insurer’s ability to pay claims in the future. Obviously, insurers will have to keep their solvency requirements due to regulation, but if this continues, we could see massive premium increases for customers and withdrawal from certain product lines.

Stock markets and fixed income aside, the next big risk that could affect the progress in insurance and insurtech has to do with climate change.

Weather/Natural Disasters

Over the past few months, we have seen Hurricanes Irma, Maria and Harvey ravage much of the Southeastern U.S. and islands nearby. California has been blazing in fire. In other parts of the world, there have been many natural disasters, too. I’ve seen a number of articles on this subject. They range from “how to claim from your insurance company in wake of natural disaster” to “how much insurers will be out of pocket for weather-related claims.” With climate change increasing, the unknowns also grow. I’ll admit, I’m not an expert in catastrophe pricing, but I would suspect that this increasing factor will make it much more difficult to price products.

So, equities may fall. Interest rates may not come up. And natural disasters could be on the rise. These risks are big, but the last one could take the cake: regulation.

Regulation

President Trump has signed two executive orders – one that will allow customers to purchase cross state border and one that limits funding for Obamacare (though that has seemed to change course).

The impact that these have on the U.S. healthcare and insurance market is unknown for now. This is a topic that deserves its own write-up, and I plan to cover this sometime in the near future.

Regulation can really screw things up; if not looked at properly. I wrote about government collaboration a few weeks ago. Some governments are more open to collaborating with incumbents to better understand fintech and insurtech. However, for those of us who have worked with regulators, we know that their minds can change quickly, and knee-jerk reactions can be made, forcing our plans to change.

Different product lines have different opportunities and different risks

For some lines of insurance, mainly P&C, insurtech has a huge play, and there are many opportunities to disrupt and change the current Insurance value chain. If autonomous cars come into existence, the whole auto Insurance industry will change. For property insurance, smart homes and devices to monitor buildings will help to better optimize pricing and policies for consumers.

For travel Insurance, insurance to protect material objects (mobile phones, electronics, etc), UBI and insurance for the sharing economy, there will be opportunities to disrupt and enhance the customer proposition, too.

For life, health and catastrophe, it becomes a different story.  We see a lot of term life online, but what about whole life, universal life, annuities, etc? What about other, more complex products for individuals/businesses (disability, long-term care, commercial)?

See also: Innovation — or Just Innovative Thinking?  

My biggest worry comes from within these types of products. My years in insurance have primarily been on the life, health and annuities side. The pricing structures of these types of products have a longer tail than P&C. Health is annually renewable, but the cost of healthcare and frequency of visits to doctors have been increasing, which will make pricing more difficult.

So what can we do about this?

First and foremost, every startup and incumbent needs to have a risk mitigation strategy and contingency plan as it relates to their insurtech initiatives. It is easy to get caught up in the excitement of what we are doing, and talking about risk is not always the most fun. The risks above are just a few macro ones. Each company and each initiative will carry its own set of risks, which need to be assessed accordingly.

Second, collaboration continues to be key. Especially cross-border collaboration. We need to share best practices globally. Regulators will also need to continue to work with incumbents and startups to understand the solutions being put in place and risks to customers.

Third, actuaries need to get with it – quick. They need to use their skills of actuarial modeling and work with the data scientists out there to better understand all the data points available to them and how this can be incorporated into pricing models.

The marrying of actuarial pricing principles and data science will be one of the most powerful forces of change in our industry. Incumbents have been managing risk for hundreds of years. The nature of managing risk has changed with the explosion of data. It’s no longer about just looking at what has happened in the past and predicting what will happen. Let’s also get underwriters in this conversation.

We need to find opportunities to know what is working where, and what is also not working, so we can plan accordingly. We are all in this together, and we need to help enhance our industry together. We all have a collective responsibility, ultimately, for our customers.

This is a repost of my article on Daily Fintech. I look forward to reading your comments on this article and engaging in some discussion.

What’s Your Game Plan for Insurtech?

Over a year ago, Stephen O’Hearn, global insurance leader at PwC, predicted, “Insurtech will be a game changer for those who choose to embrace it.” Since then, the insurtech playing field has matured. Many insurers that have operated in the “good enough” zone are finding that it is no longer, well, good enough. The game has changed. Whether you’re in underwriting, claims or exposure management or are a CIO, insurtech will have an impact on you. There’s no option to stay on the bench.

So, what’s your game plan?

Partnership is the way forward

Right now, collaboration should be a part of everyone’s game plan — not just insurers, but everyone from commercial tech providers to managing agents and brokers. Insurance is a team sport and has been since its inception. Insurtech will not change that; it will only amplify the need to partner — quickly. Who insurers pick as their partners to accelerate transformation matters, and the technology they employ to transform matters.

See also: Insurtechs Are Pushing for Transparency  

In the last year, talk of “disruption” has turned to talk of “collaboration” as the insurance community is realizing the fastest way forward is through partnerships. A more mature conversation is happening. Insurers are realizing the benefit — and speed — of leveraging what insurtechs have to offer. Once labeled “disrupters,” insurtechs are now “enablers.” Fact is, the vast majority of insurtechs aren’t looking to oust incumbents. They’re looking to find a niche where they can succeed and leverage the sheer scale of their more established partners. As a recent InsurTech Bytes podcast observed, “Partnership is the way forward. Enablers are leading disruptors across the insurance sector, presenting an exciting opportunity for insurers to drive forward their digital transformation. Insurtech has developed (largely) with a view toward partnership rather than disruption.”

New digital opportunities are opening up more choice for consumers and businesses alike — think Internet of Things (IOT), vehicle telematics and, especially, advanced data and analytics. As customer expectations grow, an insurer’s data and analytics will need to keep pace in an effort to drive competitive differentiation. This includes the ability to hasten and streamline the quote process, more accurately price risk and mitigate and respond to claims. Insurers recognize data and analytics as a leading insurtech priority and, like other digital transformation priorities, are looking to either VC opportunities or partner integrations to accomplish this. In fact, in a KPMG survey of insurance executives, 25% of respondents said they already had a VC unit set up to make investments in technology companies. And 37% said a VC unit was in the works. Likewise, these same insurers are looking for partnerships to help accelerate transformation; three-quarters of respondents said they “will partner to gain access to new technology infrastructure.

Still, while some insurers are clearly making plays toward making insurtech investments a priority, others are still on the bench. Only 39% of insurers believe they are harnessing digital technologies successfully. And one in five property and casualty (P&C) insurers do not apply advanced analytics for any function. This last statistic is mind-blowing when you consider how intrinsic data and analytics is to insurance. So, what is holding a large percentage of insurers back from embracing digital transformation?

The gap between knowing and doing

In a recent column, Denise Garth talks about the gap between “knowing and doing.” She writes, “Even though most companies know they should respond to key internal and external challenges to create promising growth opportunities — and more importantly to ensure survival — many are still only thinking about doing something, at best. Why is there a gap between knowing and doing?”

The gap exists because the list of challenges is long: legacy systems and processes, lack of budget and downright risk aversion. Understanding where to start with digital transformation, and how, is critical for insurers that recognize the need to digitally transform. But the goal shouldn’t just be transformation. It should be to succeed — to lead and compete in ways that produce profitability, efficiency and innovation. However you measure success, integrating insurtech — whether IOT, blockchain or advanced data and analytics — should achieve those goals.

But where to start?

First, “see over the horizon”

Without doubt, insurtech is an epic climb. It’s not a bump in the road, it’s a mountain that will shape the future of the industry. If we’re to succeed, we must start climbing — only by doing can we compete and start shaping what’s next. However, you first must climb to the top and, as Jon Bidwell, former Chubb chief innovation officer and now SVP and underwriting transformation leader at QBE North America, put it, “see over the horizon.”

See also: 5 Insurtech Trends for the Rest of 2017  

SpatialKey is insurtech, and even we’re not immune from the need to digitally evolve. We’ve been providing geospatial insurance analytics since 2011, and we’re constantly evolving our own platform and product offerings to include the latest technology. Our role as an insight hub is to help shorten and accelerate the transformation that’s necessary for insurers to remain competitive. But, at the same time, our insurance clients are recognizing that not all digital transformation has to be hard. Technology integrations can be swift and painless with the right partner.

What is hard about insurtech is making the right choices, making the right investments, prioritizing the right transformation initiatives, collaborating with the right partners. It’s all a risk — but not as big a risk as doing nothing. There is no option to stay on the bench. No one knows what’s over the next horizon, but we all have an opportunity to shape it.

Insurtech Is an Epic Climb: Can You Do It?

“If you try to win, you might lose, but if you don’t try to win, you lose for sure!” —Jens Voigt, cyclist

Alpe d’Huez is a legendary climb, world-renowned by cyclists. A relentless 8.5 miles with 21 hairpin bends and an 8.1% gradient, it’s been a stage that can make or break the Tour de France for riders and determine the outcome of the entire race. What Alpe d’Huez is for cyclists, insurtech is for insurers.

See also: 10 Trends at Heart of Insurtech Revolution  

Right now, insurers are faced with an epic climb: insurtech. A new breed of insurance technology has changed the game and disrupted an industry that’s been largely status quo. A very large bump (actually, more like a mountain) has appeared in the road — making it more critical than ever to “see over the horizon,” according to Jon Bidwell, former Chubb chief innovation officer and now SVP and underwriting transformation leader at QBE North America. However, to see beyond the horizon, you first must climb to the top.

“When we look back at today, the winners and losers will be defined by those that did and did not embrace an insurtech digital implementation strategy.” —Insurance Thought Leadership, “Death of Core Systems.”

The only way to compete is with technology that evens the playing field.

Over the past 110-plus years, the Tour de France has gone from 40-pound, fixed-gear road bikes (and no helmets!), to sub-15-pound, carbon bikes and electronic drive trains. Innovation, technology and engineering have played a role in the evolution of the sport of cycling. Think about it: If the 22 teams that compete in the Tour didn’t progress with some equality in the equipment they employ, there would be a very large gap on the field. It would be abundantly clear who’s still pedaling 40-pound bikes up Alpe d’Huez.

Insurtech is a game changer. What worked in the past will not work in the future. Insurance technology and innovation is undoubtedly moving at race pace. And, what’s “good enough” for now will likely be a 40-pound bike in five years.

See also: Why AI Will Transform Insurance  

From the Internet of Things (IOT) to vehicle telematics and, especially, advanced data and analytics — which is fast becoming a key competitive differentiator — insurtech presents the opportunity to evolve and compete.

But if we don’t get on the bike and climb, there’s no possibility of winning, no possibility of moving the industry forward. With the right partner, or, in true Tour de France fashion, “domestique,” insurers can create a slipstream that accelerates the insurtech climb.

It won’t be long before we start seeing players screaming down the backside — trying to catch the next horizon.

M&A: the Outlook for Insurers

Mergers and acquisitions in the insurance sector continued to be very active in 2016 on the heels of record activity in 2015. There were 482 announced transactions in the sector for a total disclosed deal value of $25.5 billion. Deal activity was driven by Asian buyers eager to diversify and enter the U.S. market, by divestitures and by insurance companies looking to expand into technology, asset management and ancillary businesses.

We expect the strong M&A interest to continue, driven primarily by inbound investment.

With the election of a new president and the transition of power in January 2017 comes tax and regulatory uncertainty, which may temporarily decelerate the pace of deal activity. President Trump is expected to prioritize the repeal and replacement of Obamacare, tax reform and changes to U.S. trade policy, all of which have unique and potentially significant impact on the insurance sector. Further, the latest Chinese inbound deals have drawn regulatory scrutiny, with skepticism from the stock market regarding their ability to obtain regulatory approval.

Bond yields have spiked over the last few months and are widely expected to continue to increase. The increase in yields should improve insurance company earnings, which is likely to encourage sales of legacy and closed blocks.

Highlights of 2016 deal activity

Insurance activity remains high

Insurance deal activity has steadily increased since the financial crisis, reaching records in 2015 both in terms of deal volume and announced deal value. While M&A declined in 2016, activity remained high, with announced deals and deal values exceeding the levels seen in 2014. In 2015, deal value was driven by the Ace-Chubb merger, valued at $29.4 billion, which accounted for 41% of deal value.

See also: A Closer Look at the Future of Insurance  

Significant transactions

Key themes in 2016 include:

  • Continued consolidation of Bermuda insurers, with the acquisitions of Allied World, Endurance and Ironshore. Drivers of consolidation include the difficult growth and premium environment.
  • Interest by Asian insurers in continuing to expand their U.S. footprint — accounting for two of the top-10 transactions.
  • Expansion in specialty lines of business as core businesses have become more competitive. This is evidenced by (i) Arch’s acquisition of mortgage insurer United Guaranty as a third major business after P&C reinsurance and P&C insurance; (ii) Allstate’s acquisition of consumer electronics and appliance protection plan provider SquareTrade to build out its consumer-focused strategy; and (iii) the agreement by National Indemnity (subsidiary of Berkshire Hathaway) to acquire the largest New York medical professional liability provider, Medical Liability Mutual Insurance, a deal expected to close in 2017.
  • More activity in insurance brokerage, which accounts for two of the top-10 deals.
  • Focus on scaling up to generate synergies, as evidenced by the acquisitions done by Assured Guaranty and National General Holdings.
  • Continued growth in asset management capabilities, as exemplified by New York Life Investment Management’s expanding its alternative offerings by announcing a majority stake in Credit Value Partners LP in January 2017 and MassMutual’s acquiring ACRE Capital Holdings, a specialty finance company engaged in mortgage banking.

Key trends and insights

Sub-sectors highlights

Life & Annuity – The sector has been affected by factors such as Asian buyers diversifying their revenue base, regulations such as the fiduciary rule by the Department of Labor and the SIFI designation, divestitures and disposing of underperforming legacy blocks, specifically variable annuity and long term care businesses.

P&C – The sector has been experiencing a challenging pricing cycle, which has driven insurers to 1) focus on specialty lines and specialized niche areas for growth and 2) consolidate. We have seen large insurance carriers enter the specialty space. Furthermore, with an abundance of capacity and capital, the dynamics of the reinsurance market have changed. Reinsurers are trying to adjust to the new reality by turning to M&A and innovation in products and markets.

Insurance Brokers – The insurance brokerage space has seen a wave of consolidation given the current low-interest-rate environment, which translates into cheap debt. The next consolidation wave is likely in managing general agents, as they are built on flexible and innovative foundations that set them apart from traditional underwriting businesses.

See also: Key Findings on the Insurance Industry  

Insurtech has grown exponentially since 2011. According to PwC’s 2016 Global FinTech Survey, 21% of insurance business is at risk of being lost to standalone fintech companies within five years. As such, insurers have set up their own venture capital arms, typically investing at the seed stage, in efforts to keep up with the pace of technology and innovation and find ways to enhance their core business. Investments by insurers and their corporate venture arms are on pace to rise nearly 20x from 2013 to 2016 at the current run rate.

Conclusion and outlook

The insurance industry will be affected by the proposed policies of the Trump administration, especially on tax and regulatory issues. Increasing bond yields and the Fed’s latest signal about a quick pace of rate increases in 2017 are expected to improve portfolio income for insurers.

  • Macroeconomic environment: U.S. equity markets have been rallying since the election, with optimism supported by President Trump’s policies to boost growth and relieve regulatory pressures. However, the rally may be short-lived if policies fail to meet investor expectations. While the Fed is widely expected to raise rates in 2017, other central banks around the world are easing, and uncertainty in Europe has spread, with the possibility that countries will leave the euro zone or the currency union will break apart.
  • Regulatory environment: The direction of regulatory and tax policy is likely to change materially, as the president has campaigned for deregulation and reducing taxes. Uncertainty around the DOL fiduciary rule has been mounting even though President Trump has not spoken out on the rule; some of his advisers have said they intend to roll it back. His proposed changes to Obamacare will affect life insurers, but at this juncture it is hard to estimate the extent of the impact given the lack of specifics shared by the new administration.
  • Sale of legacy blocks: Continued focus on exiting legacy risks such as A&E, long-term care and VA by way of sale or reinsurance. In 2017, already, there have been two significant announced transactions, AIG paying $10 billion to Berkshire for long-tail liability exposure and Hartford paying National Indemnity $650 million for adverse development cover for A&E losses.
  • Expansion of products: Insurers will focus on expanding into niche areas such as cyber insurance (expected to be the fastest-growing insurance product fueled by a slate of recent corporate and government hacking). Further, life insurers are focusing on direct-issue term products.
  • Technology: Emerging technologies including automation, robo-advisers, data analysis and blockchain are expected to transform the insurance industry. Incumbents have been responding by direct investment in startups or forming joint ventures to stay competitive and will continue to do so.
  • Foreign entrants: Chinese and Japanese insurers have keen interest in expanding due to weak domestic economies, intent to diversify products and risk and hope to expand capabilities.
  • Private equity/hedge funds/family offices: Non-traditional firms have a strong interest in expanding beyond the brokers and annuities business to include other sectors within insurance, such as MGAs.