Tag Archives: cpa

New Tool: Cognitive Process Automation

Much of North America is seeing lower interest rates across the board, which bodes well for consumers making large purchases but puts the insurance industry under intense scrutiny. Carriers with bond-heavy portfolios may see a decline in returns and, as a result, lower profit margins. Despite the insurance industry’s overall acceleration toward technology in 2020, carriers of all lines of business will need to move much more quickly – or risk falling even further behind their profit margin.

Insurers should cut unit costs, but not corners.

Insurers must cut costs; however, with more consumers requiring personalized attention from their insurance company, insurers must walk a fine line. Reducing expenses may be necessary, but insurance companies must be careful not to lose their existing customers in the process. Automation — especially a newer form, called cognitive process automation (CPA) — allows for reducing costs while still providing the service that customers require.

In some departments, such as underwriting and billing, insurance companies should prioritize responsivity for a more convenient customer experience. This can be done by using process automation to streamline communication between the carrier and the policyholder.

In other departments, such as claims, policyholders will appreciate careful and attentive human interaction. While responsiveness is still paramount, customers will have more trust in the company’s claim-handling process when they have access to a dedicated claims adjuster. 

Where resources are scarce, technology is a viable solution.

Even prior to the impact of COVID-19, carriers like Protective Insurance had begun implementing CPA, a more advanced version of robotic process automation (RPA).

Many carriers have at least discussed the features and capabilities of RPA. However, RPA and even intelligent process automation (IPA) products are primarily limited to structured data. 

CPA is the new disruptor in both the insurance and automation industries. Combining the repetitive abilities of traditional RPA with artificial intelligence (AI) and machine learning, CPA relies on bots that capture data and scan documents via optical character recognition (OCR) but that also do much more. The bots can fully automate entire underwriting and claims processes, from start to finish, with minimal human intervention.

See also: 20 Issues to Watch in 2021

As an example, policy underwriting has traditionally been considered a manual undertaking, but CPA has demonstrated that underwriting can be largely automated — everything from policy submission to risk rating and underwriting to issuing declinations and binders. Using CPA, insurers can write more new business, streamline the renewal process and even detect cases of potential fraud with minimal human supervision.

Claims departments can significantly reduce the manpower needed for largely repetitive processes. Bots programmed with CPA can fully automate the first notice of loss (FNOL) process, fraud investigations, benefits calculations and even payments. In fact, time-consuming processes like claims communications can be automated up to 95%

Employees can instead focus on more engaging tasks and provide better service on edge cases.

Increased efficiency is more remunerative than reduced overhead.

In cutting expenses, the matter of efficiency is sometimes overlooked. If time is money, shouldn’t carriers condense time-consuming processes, as well?

Automation saves time and money. Whenever carriers optimize a process by implementing an automation solution, a precious resource has been created: time

As the policyholder mindset continues to grow in favor of more personalized experiences, cognitive automation allows insurance carriers to use their best asset – their human workforce – to focus on retention efforts, customer satisfaction and even cross-selling additional lines of business. At its heart, insurance is a people-focused business, and even tech-friendly consumers prefer personalized human interactions.

The takeaway

With lower interest rates threatening profit margins, insurance carriers must target cost reductions – and sooner rather than later. Companies can use new process automation tools, such as RPA and CPA, to cut redundant work often found in underwriting and claims departments. Insurers are then able to reprioritize the focus of their workforce on customer retention, or even scaling for growth.

Why CX Must Trump Efficiency

There isn’t an insurance business in the land that isn’t talking about digital transformation. Whether talking about AI, robotics or platforms, the majority of the industry is confident it’s heading toward a brightly lit, digital future.

The motivation for transformation? We are told customers are demanding a better experience: an interaction that is quick, clean and gets the job done with minimal fuss.

But, for all the effort made, the customer experience in insurance is fundamentally the same as it was 10 or 15 years ago – it’s still based on call centers. I think that is because, while the stated driver for digital change may be the customer, its primary purpose has been to reduce costs.

That efficiency-first approach has resulted in many organizations looking to webforms to digitize their customer-facing processes.

Webforms do a decent job leveraging digitalization to automate the beginning of processes normally done manually. Yet any claim coming from a webform still requires the capable hands of an operations employee, who will perform the rest of the process and communicate the outcome to the customer. In addition, webforms can’t converse — reducing them, essentially, to digital monologue. While customers want a quick, hassle-free experience, many want that done through conversation of some kind. Conversations are comforting, familiar and create a sense of engagement that a static form can never replicate. 

A true digital experience is one that takes all the benefits of a one-to-one conversation and automates it using conversational process automation (CPA). That is the world that webforms were trying to create but failed to produce because of the focus on efficiency.


CPA leverages a chatbot conversational interface to deliver an efficient customer experience, thinking about the customer first while saving cost. It allows for the execution of high-value, customer-facing processes, integrated into insurance platforms and systems and complying with security and audit requirements.

CPA will, I believe, bring the digital change that so many seek. They can replicate the conversational style and effectiveness of a human call handler for the vast majority of recurrent insurance interactions – from quote and buy through to claim notification. 

CPA has the capacity to handle call volumes that only a very large, very expensive call center could match. Of course, there are limits to what CPA can currently do, but it is improving all the time — getting smarter at predicting queries, reacting to something that doesn’t fit into the box and leading the customer through complex processes. Webforms, for all their value, can never do that. 

As we collect more and more data through CPA, performance becomes more accurate and, according to a report from IT advisory firm Gartner, by 2022 70% of white-collar workers will interact with conversational platforms on a daily basis. 

See also: Insurtechs’ Role in Transformation

The combination of process automation and superior customer experience will drive efficiencies. A recent report by McKinsey estimates that, in the claims process alone, automation could reduce the cost of that journey by as much as 30%.

For insurance to be part of that digital future and to reap its rewards, the industry has to have customer experience as its main motivator, replicating all the value that a one-to-one conversation brings and putting the customer in control of the experience while keeping costs to a minimum.

If we persist in letting costs saving alone drive transformation, we are going to end up with fancier, more expensive tools than webforms that will deliver marginal efficiency while continuing to leave customers frustrated. And that would be a failure of purpose and progress.

Lowering Costs of Customer Acquisition

Customer acquisition costs are a familiar problem throughout the business world. On average, businesses spend five times more to acquire a new customer than to keep an existing customer, according to Khalid Saleh at Invesp. Companies focus more attention on acquisition than retention, too: About 44% dedicate themselves to acquisition, while only 18% focus on retention.

For insurers, customer acquisition is even pricier. “The insurance industry has the highest customer acquisition costs of any industry. It costs seven to nine times more for an insurance agency to attract a new customer than to retain one,” says Lynn Thomas, president of 21st Century Management Consulting.

While customer retention strongly affects insurers’ bottom lines, new customers are essential to maintain a steady pace of growth and build a competitive edge. Controlling costs while still attracting new customers presents a challenge for insurance companies.

How Expensive Are New Insurance Customers?

When you compare the high price of customer acquisition with the low net margin of property and casualty insurance — which hovers between 3% and 8%, according to Mary Hall at Investopedia — It’s easy to see why acquisition costs are a concern.

Direct insurers have had an advantage in this area for quite some time. As early as 2014, William Blair & Co. analyst Adam Klauber determined that direct insurers like Progressive and Geico paid an average of $487 to acquire a customer. Meanwhile, captive insurers like State Farm and Allstate paid $792 on average.

See also: Who Is Your Customer; How Is the Experience?  

When independent agents were added to the mix, Klauber said, the average cost of customer acquisition rose to $900 per customer.

One reason new customer costs are so high in insurance is that the industry has lagged in adopting digital technologies that meet the expectations of today’s insurance shoppers, say Tanguy Catlin and fellow researchers at McKinsey.

Customers want simplicity, 24/7 availability and quick delivery. They also demand clarity about pricing, value and services designed for the digital age, no matter what they’re shopping for. “They have the same expectations whatever the service provider, insurers included,” according to Catlin et al.

Improving technologies also helps transform customers’ perception of insurance as an outdated, unapproachable industry to one that is personalized and consistently present. When insurance is easier to access, customers are more likely to see it as a valuable and important facet of their lives.

KPIs in Customer Acquisition

It’s important to differentiate between customer acquisition cost (CAC) and cost per acquisition (CPA). While they sound similar at the outset, Proof’s Drew Housman outlines the difference: “CPA measures the cost of an action, CAC measures the cost of acquiring a customer.”

For example, if you want to measure the effectiveness of clicks on a digital ad or buy button, use CPA. To factor in every click a customer makes on the way to completing the transaction, use CAC.

Tracking both CPA and CAC is important, however, because not all methods of acquiring new customers yield results in the same period, says Gordon Donnelly at WordStream. For instance, combining SEO and content marketing with Google and Facebook advertising results may make insurers think their SEO is overperforming while their advertising is underperforming. This is because SEO and content marketing “typically take longer to yield results,” Donnelly says.

While a good customer acquisition cost varies by the type of insurer, one way to track CAC effectively is to balance it against customer lifetime value (CLV), Jordan Ehrlich at DemandJump says. Customers who offer a higher lifetime value may be worth more to acquire at the outset.

Ideally, the ratio between CLV and CAC will always show a higher number for the former metric: A customer’s overall value will always be higher than the cost to acquire the customer. “The less it costs you to acquire a single customer and the more overall value that customer represents, the more profit you stand to make,” Donnelly says.

Treating customer acquisition, retention and value as three facets of the same goal can improve insurers’ ability to attract, retain and profit from customer relationships. “Since new policyholders immediately become current policyholders, your improved customer experience increases the likelihood that they will stay with your company, refer you to others and so on,” Patricia Moore at One Inc. says.

How to Lower Costs Without Losing New Customers

Cutting customer acquisition costs won’t help an insurance company if it also results in fewer new customers. Fortunately, there are several effective methods for reducing these costs while improving the quality of new customer relationships.

1. Use Incidental Channels

Incidental channels are products or services that deliver value separately from insurance but that build a customer relationship and gather data that ultimately support an insurance relationship, says Kyle Nakatsuji, principal at American Family Ventures.

These channels can help lower customer acquisition costs and improve engagement by demonstrating value to customers early in the process. Customers are more amenable to an eventual insurance purchase because they’ve already received value from the service and have perhaps considered how insurance could further improve that value. These services can also perform data-collecting functions, making it even simpler for new customers to choose and purchase coverage, Nakatsuji says.

2. Leverage Retention by Seeking Referrals

An added benefit of incidental channels is that they make it easier for your current customers to recommend your insurance services to potential new customers, says Srikumar Rao, author of Happiness at Work.

For example, imagine an app that helps homeowners identify and mitigate the most common causes of household fires. When a loyal customer uses the app, benefits from it and recommends it to others, that customer “is no longer a supplicant when she draws the attention of her contacts to you. She is the enthusiastic and proud bearer of a gift. She has bounty that she will bestow on the deserving,” Rao says.

Not only have you made it easier for your loyal customers to refer their associates to your company, you’ve made it gratifying to them to do so.

3. Recognize Why Loyal Customers’ Referrals Matter

Customer retention has a profound effect on the bottom line. When customer retention increases by only 5%, profits increase by 25% to 95%, according to research by Frederick Reichheld at Bain & Co.

Nurturing relationships with existing customers builds trust, allowing companies to offer additional products and services with a lower chance of rejection, startup adviser Yoav Vilner says. It also increases the chance of attracting new customers through referrals — by far one of the least expensive methods of customer acquisition.

Referrals, or word of mouth, account for 20% to 50% of all purchasing decisions, say Jacques Bughin, Jonathan Doogan and Ole Jørgen Vetvik at McKinsey. Experiential word of mouth, in which existing customers share their own firsthand experiences with a product or service, is perhaps the most powerful. It’s also the most common: 50% to 80% of word-of-mouth marketing is based on a consumer’s personal experiences.

Loyal customers are more likely to speak highly of their insurance company when services exceed their expectations, according to Bughin and fellow researchers. As a result, insurance companies that underpromise and overdeliver stand a better chance of generating praise and referrals from their existing customer base.

When should insurance companies ask for referrals? Sooner is better, says Eric Wlison, national account director at Kaplan. Waiting until a customer’s transaction is finished increases the chances that something might go wrong, spoiling the customer’s inclination to speak positively of the insurance company to friends and family.

“Remember that it is human nature to want to help others succeed. If you don’t ask for referrals you’ll likely get zero, and if you ask and get zero you are still at the same spot as if you hadn’t asked,” Wilson says.

4. Embrace Digital Tools That Promote Loyalty

Here is where customer loyalty and technology intersect to drive down the costs of acquiring new customers.

Nearly every consumer-facing industry has grappled with how to meet evolving customer expectations. Any fast food restaurant will offer bundled meals as well as a la carte menu items from which customers can choose. Even change-averse airlines and cable providers have learned to offer customizable levels of service because that’s what their customers have demanded.

See also: The Missing Piece for Customer Experience  

This is the point the team at McKinsey is making when they say insurance customers want simplicity and quick delivery. Today’s customers want to be able to choose from any and all available product lines, regardless of which carriers provide them.

This is what the BOLT Platform facilitates. Our users are able to offer and sell their own products alongside bundled products from other carriers because, ultimately, customers only care about getting the coverage they need. The best way to meet this need is to become a one-stop-shop for your customers.

Insurance companies that embrace this will earn increasing customer loyalty. And, as new potential customers come forward, it will require less time, less money and less effort to convince them to buy.

Thinking on Core Systems Is Backward

Insurance technology spending is high. In April 2015, Celent estimated that global insurance technology spending would top $181.6 billion by the end of 2016. This spending will include a combination of standard modernization, keeping legacy systems alive and well, supporting infrastructure projects and (increasingly) building digital and data frameworks.

Many insurers remain focused on upgrading or maintaining their core systems. The common internal debate is whether the insurer should maintain the legacy system or start over by adopting a modern solution. This debate almost completely ignores the proper approach to determining the answers to technology decisions, placing the cart squarely ahead of the horse. If one accepts the basic premise that core new business, policy, claims and billing management systems are really just table stakes, why not focus on the business — improving growth, increasing market penetration and improving both the combined ratio and profitability?

If we do this, we are likely to achieve all of these things AND construct a technology framework that fits now and is flexible for the future. For the sake of conversation, I have come up with three areas where business focus will lead to the right kind of modernization and transformation.

The first two are concrete business goals: reduce the cost per acquisition (CPA) and increase customer retention. The third is less concrete and more philosophical: embrace change by improving an understanding of the opportunities it may provide.

Reduce Cost Per Acquisition

The CPA is the largest cost in the current insurance business model (outside of claims). It is currently under pressure because of the rise in aggregators and comparison sites that are forcing insurers to sell standardized products for the least amount they can. The result is a market designed to churn because of a continual focus on price.

See also: 4 Benefits From Data Centralization  

How can insurers break out of this cycle, reduce the cost per acquisition and use the savings to remain competitive? Here are a few ideas:

  • Insurers should consider a cloud solution for core systems/back-office administration. U.K. insurers have, unfortunately, been slow to adopt shared services and technologies when they are proving themselves in other industries and geographies. Now is the time to consider cloud solutions if they fit with cost reduction objectives and if they can sustain or improve service levels.
  • The industry should use a permission-based consumer data storehouse. Churning policyholders benefits no one and costs all of us a great deal of time and effort. What is needed is a true permission-based marketing model, where consumers grasp the benefit of letting insurers see relevant profile information. This would enable the direct-to-consumer or small-business framework where insurers would provide a digital front-end that “pre-fills” the quote with existing data on the customer or other third party data, streamlining the process. It would also enable insurers to better match tailored products to prospects, instead of having to offer standardized products.
  • Insurers should hone data-driven target marketing. Today’s data sources and analytics allow for much more granularity and fine-tuning in the marketing process. With the right tools, insurers can now use consumer-provided data and detailed third party data to provide qualified offers to only those consumers and small businesses that fit a certain product’s risk profile. This would reduce CPA and improve risk selection.

Increase Customer Retention

With a high cost per acquisition, customer retention becomes an increasingly critical metric for insurers, particularly because initial acquisition costs are recouped over multiple years. The increasingly price-sensitive market has reduced the number of multi-year policyholders. Industry studies have shown a clear correlation between a customer having multiple policies with a single insurer and their retention rate. Yet with the exception of multi-car policies, there has been little effort in creating an overarching combined personal lines product with auto, homeowners put forward by U.K. general insurers. This is in stark contrast to insurers in the U.S. market that have been focusing on the customer relationship with a goal of a multi-policy environment and customer retention business processes.

Most U.K. insurers’ core insurance systems are legacy systems built around the product, not the customer. Realigning technology choices, process reengineering and customer-centric product development will result in the ability to offer multi-risk and multi-year policies (and discounts) and preventive risk management services. These will help to build loyalty and retention.

Embrace Change and New Ideas

Technology is enabling exciting changes in insurance. Whether it is innovative new products, new customer relationship business models, implementing modern core insurance solutions, leveraging new data sources or embracing new technologies — each offers an opportunity to begin the journey to a new future that is rapidly unfolding in the industry.

New technologies will give insurers improved data, better analytics and lower transactional costs through self-service. Consumers will benefit with services closer to an “Amazon experience” with a greater level of insurance understanding.

See also: How Technology Breaks Down Silos

To capitalize on the opportunities presented right now, insurers must embrace new ideas and change before new entrants do so and disrupt the industry. Insurtech is the conceptual umbrella containing insurance ideas and technologies that are rewriting the rules of insurance and helping insurers succeed. Internal education on the highlights of today’s insurtech landscape may be an excellent catalyst for change within your organization.

Preparing for change should still include conversations about the core insurance solution. The core can serve as a catalyst for change instead of an inhibitor to market potential. Discussing even a small part, such as the financial benefits of core change, can fuel both creativity and a desire to create and capitalize on a new model. Nothing will pull leadership together faster than a plan for real growth and solid change where efforts are directly tied to outcomes. Those are healthy approaches to core conversations.

So where do we begin?

To begin, focus on business priorities. If you do this, your organization will end up with the right technology solutions and a core system that fits and supports the business. You’ll make technology investments, not expenditures. Your costs will be lower. Your customers will be more loyal. You’ll recruit better businesses. And you will keep the horse in front of the cart, enjoying the way systems and processes and people work in unity to accomplish goals.

Blockchain: No More Double-Entry Books?

My day job at Ribbit.me keeps me insanely busy. Too busy, unfortunately, to spend enough time thinking about one of the more exciting and disruptive impacts of blockchain technology: the breakdown of double-entry bookkeeping. In a previous life, I was a CPA, and I’ve been wanting to put some thoughts out there for a while. I still see very few people talking about the effect on blockchain on bookkeeping despite its potentially bringing into doubt the effectiveness of the most fundamental foundation of commerce today. 

Tried and True Double-Entry Bookkeeping

Double-entry bookkeeping is the basic foundation of how we account for value today. For 2,000 years it has served as an unquestionable given in commerce. There are two columns, the debit column and the credit column. There are two entries — the first entry is to record what you have, and the second entry is to record how you got it (e.g. debit cash and credit sales). If these aren’t equal, we know counterparty exposure has not been properly accounted for, prompting an audit and a correction. It mandates the accounting of counterparty exposure for every single movement of value. It is a beautiful system in its simplicity and effectiveness.

See Also: What’s In Store for Blockchain

But, what happens if the counterparty exposure is not known? What if we don’t know who owns, or is liable for, the value of assets recorded on a ledger? In the old paradigm, this was simply an impossibility. Counterparty claims to assets were always known, because, to receive or send an asset of value, it must be received by or sent to a counterparty! It seems so basic and fundamental, someone would think this could never be questioned. Until now.

Permissionless and Permissioned Blockchains

Enter blockchain. A blockchain is a single-entry bookkeeping ecosystem. Well, technically a permissionless blockchain is a single-entry bookkeeping ecosystem. A permissionless blockchain is an ecosystem where, obviously, permission is not required to participate.

On the other hand, there is the permissioned blockchain. My company Ribbit.me uses a permissioned ledger as its platform. In the permissioned blockchain ecosystem, permission is required for a user to participate. The degree of permission can vary from ecosystem to ecosystem. Permissioned blockchains have come about to facilitate enterprise adoption of blockchain technology. If you want to know why, it’s all about counterparty risk.

A pure permissionless blockchain ecosystem is a type of distributed autonomous organization (DAO). In a DAO, there is no central authority running the show. Control is decentralized across anonymous users in the distributed network, and anyone can participate as a user. The blockchain does not know or care who the users are. It introduces the real potential for true universal and global financial inclusion.

This is great! But, wait, the road to utopia isn’t that simple. An ecosystem of anonymous users means transactions with counterparties of unknown identity. In other words, it means we no longer know the identity of who has ownership of or who has creditor claims to the assets on the ledger.

Double-Entry Bookkeeping in Legacy Banking

When we deposit money into a bank account, we are transferring value to the bank as custodian of our asset. We still own the asset in our account and, at some point, the bank is required to return the asset to us. On the bank’s ledger, this transaction will result in a debit to cash, an asset account on the left hand side of the ledger and a credit to demand deposits (a liability account on the right hand side of the ledger). Easy-peasy double-entry bookkeeping! 

Single-Entry Bookkeeping in a Permissionless Blockchain

When a user acquires access to (not ownership of — keep reading to know why) a permissionless blockchain native token, it is effectively doing the same thing as what was described above. It is transferring or depositing value into a ledger wallet. In this case, the bank is replaced with network nodes performing as custodians of a distributed ledger. The depositor and the custodians can also be anonymous. On the permissionless-blockchain-distributed ledger, this transaction is recorded as a debit to the user’s wallet, an asset account on the left side of the ledger and a credit to… what?

To answer that question, we need to figure out who is actually liable for the distributed ledger. Well, the network nodes should be, as they are our custodians of the ledger and, therefore, of the value contained within it. Furthermore, since every network node is of equal importance and authority, in theory, every node should equally share the custodianship liability of the assets recorded in the left hand column of the ledger.

Anonymous Counterparties

We have two problems here. In this ecosystem, both the users and the network nodes are anonymous. And because it is a DAO, there is no centralized owner/operator of the ledger to approach for access to network node identities.

The Introduction of Single-Entry Bookkeeping

Because the user’s network node counterparty is anonymous, it is impossible to record it as the entity liable for the asset. A search for ledger ownership in the form of a capital account will not be any more fruitful. Remember, this ledger is a DAO. By definition, no single entity owns or operates it. And, just like that, with nobody to attribute liability to and nobody to attribute ownership to, the right hand-side of the credit column disappears. Double-entry bookkeeping collapses. What is left behind is a single-column ledger in a single-entry bookkeeping ecosystem.

I omitted one part of the bank-deposit example out of this blockchain example: “We still own the asset in our account, and, at some point, the bank is required to return the asset to us.” This was omitted because there is a possibility that the user can never really own value embodied as a blockchain native token. First, the user’s identity may be anonymous. Second, even if the user chooses to reveal its identity, the value it claims ownership of always resides within the blockchain ledger. It is literally impossible to have physical possession of the value. To do so would require a counterparty to request the returning of the user’s value to it.

Paradoxically, the deeper one’s understanding of double-entry bookkeeping, the more difficult it may be to understand all of this. More than once, I’ve spent more than an hour trying explain this to university accounting professors and professional-practicing CPAs. They are so close to double-entry bookkeeping that asking them to question it is something akin to asking a physicist to question gravity. It’s like they say: Don’t try this at home, kids!

Entirely New Challenges and Risks

Cognitive dissonance aside, blockchain has introduced a new age of single-entry bookkeeping. This has opened a Pandora’s box of entirely new challenges and risks that are brought about by undefinable asset ownership/liability and unquantifiable counterparty risk. These are not just new challenges and risks for the transaction counterparties but for the regulators mandated to oversee it all.

See Also: What Is and What Isn’t a Blockchain?

Challenges for Enterprise Adoption

If the user is an individual, as sole proprietor of its person, it can make decisions regarding risk exposure on its own behalf. But can a corporate director? Can a corporate director authorize the use of shareholder capital for an anonymous counterparty transaction in a single-entry ledger ecosystem without violating its fiduciary duty to those shareholders? Can a regulator determine (with confidence) that a regulated entity in the same transaction is not in violation of KYC/AML or anti-terrorism financing laws? These are very important questions that have yet to be answered and that risk managers must demand answers to.

Entirely New Accounting Standards Are Needed

Once considered the boring bedrock of commerce, accounting as a discipline is now entering an era of uncertainty at the most fundamental level. This will force us to redefine how value is accounted for. This brings new opportunities — as we will soon see, single-entry bookkeeping will emerge as a new discipline of study and research.

There will be a real market need to innovate standards that allow us to account for value in the new paradigm. This probably terrifies the accountants out there. But in reality it is good, as it is human innovation itself that is true source of wealth creation.

If I have sparked an interest, feel free to reach out! You may very well be a pencil-pushing geek just like me.