Tag Archives: covid

Pandemic’s Lessons for Auto Insurers

It’s impossible to deny the profound impact that the pandemic has had on every person and every business, and the U.S. automotive insurance industry was no exception. Previously mundane errands such as a trip to the grocery store became a battle for survival — and toilet paper — and once-gridlocked highways were replaced with barren stretches of asphalt. 

On a more serious level, the global health crisis sent shockwaves of financial uncertainty across the nation that was also addressing considerable emergencies on both the civil and environmental fronts. 2020 quickly cemented itself as a year for the record books, and not for good reasons. 

However, as tough as COVID-19 has been, there are hidden lessons in connecting and analyzing what would otherwise have been viewed as dissociated events. And when compared with years past, the auto insurance industry can turn these pandemic-led transformations into actionable insights for the industry to evolve and adapt to meet future disruptive events. Our recent Auto Insurance Trends Report focused on analyzing the “new normal” of consumer behavior, which has a direct correlation to critical carrier-related factors such as underwriting, claims and those actively participating in telematics exchanges or usage-based insurance programs. 

Here’s what we found:

Empty Roadways Bring Out Lead-Footed Drivers 

When looking at the initial timeline of the pandemic, the sweeping stay-at-home mandates and shutdown orders across the country created a drop in miles driven of over 40% from March to April 2020. Even normalized mileage hovered between 83% and 88% of 2019 levels for the second half of the 2020 calendar year.

The empty roadways, particularly at the beginning of the pandemic, enticed many lead foot drivers, who took the opportunity to turn highways into personal drag strips. The first spike in elevated speeding rates occurred around mid-March of 2020 and remained 110% of 2019 data recordings for much of the remainder of the year. With those open roadways, drivers favored their accelerators over their brakes, resulting in a drop in hard braking instances during that same observed period. 

See also: How Insurtech Thrived in the Pandemic

Gen-Z Drives DUI Trends 

As part of our generational data insights, where we examined driving behavior across multiple age brackets, we discovered a particularly troublesome trend among our nation’s youngest drivers, Gen Z. 

Classified as ages 22 and under, Gen Z drivers ranked the highest when observing violation data across DUI infractions, overtaking those in the Traditionalist age group (ages 76-plus) who were the highest offender the year prior. While restaurant and bar closures led to a potential overall reduction in total figures, the months of April and May 2020 indicated an approximate 50% increase of DUIs among Gen Z drivers. 

Collisions and Claims Down, Severity on the Rise

When looking at the onset of the pandemic in 2020, much like the reduction in total miles driven, the volume of collisions and subsequent claims experienced considerable drops. With a 19% drop compared with 2019, one of the emerging trends throughout the entire year and particularly heightened in October was the inverse relationship between lowered claims figures and increased bodily injury. Comparing the months year-over-year, 2019 saw 7.1% growth in severity, while, in 2020, that figure rose to 12.7% despite the fewer miles driven. 

Naturally, the onset and continuation of a global pandemic will profoundly influence consumer behavior, including driving patterns, creating new challenges for the businesses that are so closely related to such behavior. However, from those challenges, pandemic-led transformations such as enhancing virtual claims capabilities have shown how the industry can adapt and improve. 

Adapting to Tackle Future Disruption 

While telematics has been around for years, 2020 and the pandemic brought a new sense of urgency to better understanding driving behavior. For insurance carriers, leveraging telematics and deploying usage-based insurance programs provides an incredible solution to accommodate changing driving behaviors. By way of stronger analytics and timely data reporting capabilities, telematics programs assist in taking the guesswork out of how to accurately calculate the risk propensity of an individual. 

As drivers continue to show interest in pay-per-mile programs as part of fluctuating driving patterns, telematics and usage-based insurance (UBI) programs give consenting consumers the opportunity to be priced more accurately than a traditional risk pool would dictate. This can increase customer satisfaction and allow an insurance carrier to be a competitive differentiator with a way to stay ahead of the curve of future disruptive events. 

The same can be said for almost all data or analysis during this strange but insight-full period of history. Understanding the motivations and connections between such events and human behavior will highlight both vulnerabilities and opportunities to grow. The pandemic will continue to affect virtually every market imaginable, not just now but for months and potentially years to come. The important aspect to consider is how to best adapt and evolve for the road ahead.

Better Models for Next Pandemic

Natural catastrophe risk models have revolutionized the property/casualty re/insurance business over the past 30 years. They have allowed more efficient deployment of capital by providing a rigorous way of estimating potential losses, better quantifying the tail and increasing trust in the probabilities assigned to natural disasters and the damage and losses they produce.

All of these models have been developed from common assumptions: An event happens and produces impacts on a known (although somewhat uncertain) exposure (property or other fixed asset), which has a known (although, again, somewhat uncertain) vulnerability to the consequences (hazard) of the originating event. Using an intricate mix of physics (through natural science and engineering lenses) and statistics, such models produce insurance loss estimates that are, generally, robust and defensible.

As new systemic and non-natural risks have emerged, establishing the potential future loss range of perils, such as terrorism and cyber, has required the introduction of social science disciplines (and greater levels of uncertainty) but did not greatly disrupt the established logic of the cat model; the components and controls remained familiar.

Not so infectious disease models. First introduced to the insurance sector to capture excess mortality from global pandemics in the life insurance business, they began as a combination of stochastic elements of natural catastrophe models with a well-established form of epidemiological model, the Susceptible – Infectious – Recovered compartmental model (and its many and varied siblings).

Unknowns

From a traditional cat modeling perspective, there remained a lot of unknowns. For example, the two components of “hazard” – location and intensity – were both poorly understood, thanks to a very sparse and poorly documented experiential history and only a rudimentary understanding of the zoonotic viruses that are the dominant cause of epidemics and pandemics.

And the model architecture required was more Gaudí than Brutalism. There is no fixed exposure or vulnerability; both are dynamic and feed directly back into the model in its next time step. And exposure and vulnerability are not controlled by engineering equations, they are assumed impacts of political decisions and human behavior, of travel webs and social networks.

The Sars-CoV-2 virus has brought epidemiological modeling to our living rooms (many doubling as home offices). Previously obscure epidemiological modelers have become household names, and the concepts of reproduction numbers, non-pharmaceutical control measures and even herd immunity have become all too familiar. Covid-19 is by far the best-documented pandemic ever, but even after many months of live information being available (although to widely varying degrees and with a broad quality range) to calibrate forward-looking models of case counts and mortality, inconsistencies and uncertainties abound.

See also: Transformation of the Risk Landscape

Epidemic forecasting, by nature, is a tall order. In some cases, these model inconsistencies are due to different assumptions that necessarily change as new information becomes available. Another reason model outputs may not reflect future outcomes is because there is a feedback loop dynamic – models affect reality. If a model predicts a dire outcome, it may in fact prompt decision makers and even the general public to change their behaviors, thereby changing the final outcome.

Further challenges are found in the conversion of pandemic model outputs to the short-term economic impacts of interest to P&C re/insurers. The literature on the economic impacts of pandemics is extremely sparse (although this will change) and dominated by economic simulations that sit on top of epidemic simulations, rather than empirical data. The consequences of government policy responses (like lockdowns) and sociological dynamics (fear, social distancing) are generally not economic outputs from models but input assumptions driving the direction of the reproduction number and, ultimately, the outcome of the epidemiological event.

As one moves from modeling a single event to the full probabilistic modeling familiar to the re/insurance industry, additional challenges must be addressed.

We think near misses are frequent in real life and must be captured via counterfactuals in the modeling domain; two coronaviruses with very similar characteristics emerging in very similar locations can lead to very different global outcomes, at the whim of individual actions – by patient zero, a head of state or many people in between – impossible to fully capture stochastically. Big challenges remain in quantifying public policy and behavioral elements that shape the nature of risk; these, too, need to be mapped out as they evolve over time and then linked to biological and epidemiological modeling frameworks.

Lessons to learn

Progress is being made, however, and Covid-19 learnings will help, although the temptation to model to the last big event has to be closely managed. The next pandemic will most certainly be different in character.

There have been significant advances in our understanding of the nature and spatial distribution of zoonotic viruses that pose the greatest risk of spilling into human populations and igniting pandemics. Improvements in biosurveillance have also shed new light on the rate of spillover, which is critical to characterizing high-frequency events, as well as the tail.

There are also continuing advances in modeling methodology, ranging from the incorporation of socio-political factors to capturing population movements. And there is still work to be done. The assumptions required to construct a probabilistic pandemic model are hugely influential on outcomes but are now based on expert judgments that are art as much as science and vary (often in ways that are not readily quantifiable) from modeler to modeler. The use of structured expert judgment to quantify and constrain uncertainties in such assumptions – and thus in model outcomes – is an area of development that carries promise from successful deployment in other contexts and, alongside other innovations, will help to build a level of trust in pandemic models that approaches that found in nat cat models.

See also: Benchmarks, Analytics Post-COVID

Despite present and future scientific and modeling advances, the full benefits will not be realized if there is a failure among decision makers to effectively use data and analytical tools as part of their decision-making process, whether it be to inform preparedness or guide response activities.

In the context of the global re/insurance market, it must be recognized that while modeling infectious disease risk is challenging and will take time and resources to build the level of trust found in nat cat models, there are already pathways to gain an understanding of the risk. This present understanding is sufficient to support tangible innovation – policy experiments, insurance structures, refinements to preparedness and mitigation strategies – within both public and private sectors. Ultimately, further innovation will be necessary (and is entirely within our grasp) if we hope to better manage the financial and social consequences of future epidemics and pandemics.

Could COVID Help Life Insurance?

With vaccination programs rolling out across the globe, and cases beginning to fall exponentially, there is finally hope that the worst of COVID-19 may be drawing to a close. But while this may signal the imminent end of the pandemic itself, it is surely only the end of the beginning with regard to its long-term impact. In almost every area of life, from the political through to the economic, the transformative consequences will be felt for some time.

The world of life insurance is no exception. But while the impact of COVID-19 on many industries remains uncertain, to say the least, the big picture for the life insurance industry is a lot clearer.

Prior to the pandemic, the so-called generation gap when it comes to life insurance was a constant point of consternation for the industry. Back in the mid-20th century, life insurance policies were as common and ubiquitous as mortgages or car ownership – a standard rite of passage for younger households embarking on their journey into adulthood. This culture has almost entirely evaporated. Younger cohorts, especially the millennial generation – under new financial constraints and not necessarily catered to by traditional sales channels – had little awareness of or inclination to take out life insurance policies, and sales withered. 

Remarkably, though, the last year and a half has seen a dramatic reversal of this long-term trend. Despite a period of volatility around March and April 2020, coinciding with the initial swath of lockdowns, the MIB Life Index ended 2020 up 4% year-on-year, the highest annual growth rate on record. What’s more, this growth was driven predominantly by younger cohorts, with activity increasing in the 0-59 age range rather than 60+, in stark contrast to recent years, where any growth has been almost entirely driven by the latter group. Recent sentiment research underlines this turnaround; members of Generation Z are now significantly more likely to increase life insurance spending than other generations, with millennials following close behind.

Intriguingly, this shift started slightly before the pandemic came to America’s shores, in January 2020. Kobe Bryant’s death from a helicopter accident appears to have triggered a sharp uptick in demand for financial protection in the case of unpredictable tragedy. Then the pandemic understandably heightened awareness of mortality in generations previously unaccustomed to such perspectives. The economic hit also contributed – with many facing the prospect of losing employer group coverage.

This uptick of interest alone, however, will not be enough to bridge the generation gap in life insurance for the long haul. Consumer demand for life insurance has only ever been one piece in a larger puzzle. For some time now, the industry has been aware that re-engaging with younger market segments, while also continuing to serve its traditional customer base efficiently, will require a wholesale adaptation to more advanced technologies and digital forms of distribution. Technology and digitization – and taking full advantage of the new opportunities and business models they enable – will be key to taking long-term advantage of this renewed interest in life insurance.

It’s good news, then, that on the insurer side the pandemic has dramatically accelerated existing trends. As with many other industries, the chilling effect of lockdowns and other emergency measures on physical, face-to-face interactions has forced life insurers to dive headfirst into technology-driven approaches in underwriting and distribution methods. The transition to digital marketing, digital distribution and automated underwriting and digital policy insurance leveraging new forms of data was already inevitable before anyone had heard of COVID-19. But from early 2020, what was once a priority for future growth has become an immediate non-negotiable. New approaches to underwriting, business processes and distribution models made commercially viable by automation technology are higher up the insurance industry’s agenda than ever.

See also: 6 Megatrends Shaping Life Insurance

While nearly half of agents have reported a collapse in in-person business since the onset of the pandemic, life insurance companies across the industry have leapt headfirst into new digital technologies, tools and channels to compensate for the sharp drop in traditional methods of doing business. For example, embracing new technologies enabling real-time access to medical records and other forms of advanced data allow insurers to underwrite policies accurately even without face-to-face assessments or interactions. These advancements in the underwriting and distribution process are pivotal in future-proofing the industry, and in creating massive efficiencies at the same time.

The life insurance industry has always, by nature, been cautious in embracing technological change. But the pandemic has entirely removed the luxury of time from the equation. New technologies, new data sources and new approaches to automated underwriting that may have spent long periods in planning and testing are already live and gathering momentum. A transition to digital technology that prior to the pandemic could have spanned the next decade will now likely be complete in just a year or two.

This is no bad thing. If the industry is to take advantage of the new interest in life insurance among the young, as well as continue to service its traditional customer base in a more efficient and sustainable way, the sooner the better. The sector was already facing a challenge of modernization; COVID-19 is unlikely to change the future shape of life insurance.

What it does mean, though, is that the future is going to be here much earlier than expected. For those carriers keen to acquire first-mover advantage, the window of opportunity just became even narrower. The time to embrace new technology is now.

How Well Did Agents Cope With COVID?

How well have insurance-industry sales teams coped with Covid-19? In a complex industry, where brokers and carriers each have client relationships, have sales and service teams been able to maintain and expand relationships? We set out to explore those questions with a focused survey of brokers and carriers, conducted in March 2021. The full report, Insurance Relationships: Obstacles and Action Areas, written by AchieveNEXT’s Ed Wallace and Jennifer DeMello-Johnson, VP of agency services at Amerisure Insurance, can be downloaded here

Some headlines:

  • Both brokers and carriers give themselves high marks for the ability to retain and service existing policyholders, despite the disruptions of the pandemic year. 
  • A third say they are fully confident in this area, and a negligible 2.5% say they lack confidence.
  • Writing new business has not been as easy. One in 10 lack confidence, and just over a quarter describe themselves as fully confident of their capabilities. 

What accounts for the difference? Processes play a role. Much of the business of servicing existing clients is organized, automated and buttoned down. Selling is more often ad hoc and individualized and, respondents say, often inconsistently handled — a problem when work moves online. Technology also matters, especially when brokers and carriers use different systems that do not communicate with each other. Incentives are a problem. Nearly one in five — 17.5% — believe that sales compensation plans are actually misaligned with company goals, and there can be clear tensions between brokers and carriers. 

Compounding these challenges is the difficulty of establishing new relationships in a hybrid environment. That hypothesis resonates with what we have seen at AchieveNEXT, where we offer sales and business relationship training as part of a suite of human-capital services. My colleague Ed Wallace, co-author of the study and author of The Relationship Engine, says, “Across industries — and insurance is no exception — we see people who are superb at one-on-one selling or at working the room but are fish out of water when it comes to hybrid selling. At the same time, a lot of people who are great at selling online and on the phone need help turning transactions into relationships.” 

In fact, according to Jennifer DeMello-Johnson, “We are recommending that our agency partners adopt a 50/50 balance between one-on-one and virtual for the balance of 2021.” 

See also: ITL FOCUS: Agents & Brokers

One thing for sure is that legacy sales models will need to evolve in a way that works on technology, processes, and skills together, and that crosses broker-carrier borderlines.  

Click here for a copy of Insurance Relationships: Obstacles and Action Areas

Claims Development for COVID (Part 1)

The latest Out Front Ideas With Kimberly and Mark webinar brought together a panel of industry experts to explore current trends being seen in COVID-19 claims, as well as long-term medical complications and what risk managers should be monitoring in the future. 

Our guests were:

  • Teresa Bartlett, MD – senior medical officer, Sedgwick
  • Max Koonce – chief claims officer, Sedgwick
  • Tim Stanger – vice president – partner relations, Safety National
  • Alex Swedlow – president, California Workers’ Compensation Institute

One of the most significant challenges in analyzing workers’ compensation data is that a single data source that collects and analyzes all the data does not exist. Data is currently provided through multiple sources such as the National Council on Compensation Insurance (NCCI), independent bureaus, monopolistic jurisdictions and self-insured employers. The California Workers’ Compensation Institute (CWCI) and the Workers’ Compensation Research Institute (WCRI) also provide analyses around workers’ compensation data.

To fill in some of the major gaps in data, panelists from CWCI, Sedgwick and Safety National break down their individual data sources to provide a clearer picture of COVID-19’s impact on workers’ compensation.

CWCI Claims’ Data Trends

In tracking the various components of COVID-19, CWCI has developed studies and on-demand webinars that cover the history of presumption laws, early adjudication decisions and how the industry leveraged telemedicine as a response to shelter-in-place initiatives. In addition, webinars are now available regarding legislation. When developing early COVID-19 models, essential elements were considered, including:

  • Infection rate
  • Symptomatic/asymptomatic rates
  • Hospital admissions
  • Intensive care admissions
  • Mortality rate
  • Cost per claim

Early projections related to COVID-19 claims were skewed based on a lack of stability in data modeling. The earliest data contained areas like China, Iceland and Greenland, with infection rates that were much different than other parts of the world. Once data became available regarding COVID-19 in the U.S., it was clear that the U.S. held a disproportionately large percentage of worldwide infection rates and deaths. 

California alone currently accounts for 13% of U.S. infections and 9.6% of U.S. deaths. When studying workers ages 18 to 65 in California, they account for 78% of the state’s infections and 26% of the deaths. However, when looking at the number of workers’ compensation claims in the state, only 4.7% of infections and 5.6% of deaths have an accompanying claim.

As of January 2021, there have been 123,674 COVID-19 workers’ compensation claims reported. Projections show about 143,432 claims expected through the end of January 2021. Reported claims from March 2020 to January 2021 show a 12% drop in all non-COVID-19-related claims. However, projections show that by the end of January the overall decrease in claims frequency will be around 4%, with almost 20% of all claims being COVID-19-related.

See also: 9 Months on: COVID and Workers’ Comp

The occupational characteristics of COVID-19 claims have changed with the fall wave of the virus. From October 2020 to January 2021, the healthcare industry share of claims dropped around 10%, accounting for around 29% of all COVID-19 claims. First responders have seen minimal change over the year in terms of their percentage of the total claims. Claims for the transportation sector doubled in the fall, now accounting for 8% of COVID-19 claims. Skilled nursing facilities still share a significantly higher percentage of COVID-19 claims in health care. 

Safety National Claims’ Data Trends

As a leading provider of excess workers’ compensation for self-insured entities, Safety National has seen that around 50% of its accounts consist of three industries: public entities, health care networks and education. Self-insured data is missing from bureau analysis, making Safety National’s data unique.

Consistent with CWCI’s data, overall workers compensation claims for Safety National clients dropped around 26% in 2020 compared with 2019, excluding COVID-19 claims. When including COVID-19 claims, the drop is around 10%. There were roughly three peaks throughout the waves of COVID-19, including early April, early July and early December, with the December peak being the highest number of claims seen all year. 

By age, the 20-55 bracket accounted for 84% of Safety National claims, with the average claim cost being $4,300. When looking at workers over age 55, the average claim cost was more than three times higher at just under $15,000. 

63% of death claims were age 56 or older, 43% were between the ages of 56 and 66. 61% of deaths were male. 51% of death claims were in healthcare, and 22% were from municipalities (mostly first responders).

Among the COVID-19 claims with an incurred cost of over $100,000, 15% have incurred more than $1 million. Some claims have over $2 million incurred, including organ transplants, long intensive care stays and even paraplegia caused by renal failure. 

Sedgwick Claims’ Data Trends 

Sedgwick also carries many self-insured accounts, with 24% of its business being in the retail sector. Like the rest of the industry, Sedgwick’s claims also saw high volume during the three peaks of infection rates. Although healthcare only represents 11% of all of the company’s accounts, most COVID-19 claims were reported from that sector, accounting for just over 50% of all reported COVID-19 claims. The retail industry and the public sector round out the top three industries reporting COVID-19 claims. The top five states reporting COVID-19 claims are California, Texas, Michigan, Florida and Illinois. 

When it comes to the severity of the claims, Sedgwick created a model to project where claims would fall, grouping claims into buckets, including:

  • Cases that only required quarantine 
  • Cases that required nominal medical treatment
  • Complex moderate cases 
  • Complex severe cases, requiring ICU
  • Fatalities

These severity groupings have closely trended with original predictions, with fatalities, for example, accounting for just over .5% of all claims. Approximately 1.5% are severe cases involving ICU stays, 8% are moderate cases involving several medical treatment visits and 90% are mild cases involving very little medical treatment. When reviewing these claims’ value, 73% are valued under $5,000, and 85% are valued under $10,000. 

See also: 20 Issues to Watch in 2021

There has been a fairly even distribution of claims among the age groups due to various industries’ claims. However, the more severe claims that include ICU stays are trending in the over-60 age group. The healthcare industry is accounting for a higher rate of hospitalizations than the other industries, trending 3% to 4% higher than the rest.

Overall, Sedgwick saw a decrease in workers’ compensation and liability claims across the country due to economic shutdowns and various employers not operating at full capacity. Even retail clients deemed essential saw a decrease in overall claims, which could be due to a lower customer count within the stores and an overall increase in safety measures. There has been a slight increase in work-from-home claims due to ergonomic-related issues.

To listen to the archive of our complete COVID Claims Development: Workers’ Compensation & Beyond webinar and view a full list of FAQs from this session, please visit https://www.outfrontideas.com/.Follow @outfrontideas on Twitter and Out Front Ideas With Kimberly and Mark on LinkedIn for more information about coming events and webinars.