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Insurance Information Institute’s Laura Favinger

Laura Favinger, chief administrative officer of the Insurance Information Institute, talks about the III’s historic mission and the importance of thought leadership to continue to inform and educate consumers on how technology and innovation can help insurers mitigate new risks.

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Even in Big Data Era, Relationships Count

If the buzz of the P&C insurance conference circuit is to be believed, whizbang new technology and “big data” analytics provide the answers to every problem the industry has ever experienced. More precise risk projections, streamlined customer service functions, 24/7 automated support, claims investigation – they’re all getting better with new technology, and the industry is investing heavily to keep pace.

However, while there is no question that carriers need to build better technology and secure better data, neither technology nor data alone will fundamentally improve the customer experience.

According to findings in the 2018 U.S. Property Claims Satisfaction Study from J.D. Power, a positive customer experience isn’t driven by which carrier has the slickest photo app, uses drones to survey properties or has streamlined the first notice of loss (FNOL) process to be highly efficient. Instead, customers want to feel their carrier has their back in a time of stress or crisis. Customers simply want to understand that everything is going to be okay; they want to know how the claim process will run; and they want someone to care enough to keep them informed about their loss. Technology can fill some of these customer needs, but before the technology or any type of enhanced processes can be effective, someone must set the right expectations.

See also: 3-Step Approach to Big Data Analytics 

Consider the Insurance Information Institute’s evaluation of homeowner claims from 2011 to 2015, which indicates that one in 15 insured homes has a claim each year. Excluding catastrophes, the claim frequency for homeowners is quite small, which means most customers have no idea what to expect when they have a loss. Beyond their lack of claim experience, there is also the emotional toll a homeowner loss takes on a customer. The empathy and guidance provided when a customer reports a claim can truly determine whether the customer’s claim experience will be successful.

Regardless of the severity or nature of the loss being reported, the carrier must set the right expectations at the beginning of the process. The customer needs to understand what will be covered, how the process will work and how long the claim process will take. Once these expectations have been set, the carrier must effectively manage the process to ensure the schedule is being met and communicate with the customer about whether the process is on track, or, if it isn’t, communicate even more frequently and in more detail. J.D. Power research on property claims has found that customers whose claim took more than 18 days to settle – which would normally create a very low customer satisfaction score – are more satisfied with the process than are those customers whose claims were settled in less than five days. The difference in satisfaction scores is based on having met customer expectations (in fact, the customer satisfaction delta in the 2018 J.D. Power study between meeting customer expectations and missing them is more than 100 points). Creating a speedy process without setting the right expectations does not improve customer satisfaction. If anything, a speedy process can hurt.

Setting the right expectations leads to creating the right experience. To a claim professional, a simple fast-tracked water claim may be part of their daily routine, but for the customer, such a loss could be the worst thing that has happened to them in a long time. Without showing empathy for what the customer is going through, the process might be efficient, but it likely won’t be effective. Artificial intelligence technology can certainly help align the right adjuster to the kind of loss being reported, as well as scrub the claim for potential fraud, help align reserves or even trigger a faster payment. However, there also must be a human element to the process.

For many carriers, the agent is the source for this empathy and is generally the one to set the level for customer expectations. Yet, as more claim operations move to a direct digital or customer care center, the FNOL process is shifting from the agent (who normally has a personal relationship with the customer) to a faceless website or a call center, where in many cases the process overrides the personal experience. A digital FNOL or a call center is not necessarily a bad approach. Indeed, quite a few carriers have successfully used these channels to handle claims, and digital with a call center or chat function is certainly the wave of the future. But without some personal way to create a level of empathy, the resulting lack of concern and guidance creates a customer who does not feel comfortable with what is happening. When such a customer doesn’t feel at ease, customer satisfaction suffers. Even Gen Y customers (who embrace technological transactions more readily than older customers) find a personal touch at the time of the loss to be a more satisfying experience than using a digital FNOL process.

Throughout the claim process, the carrier must maintain a clear, active line of communication with the customer. Simply sending a text notifying the customer that something has changed with a claim is not a sufficient level of communication if the carrier wants to provide a high level of satisfaction. Such a text needs to be informative by letting the customer know what has changed, as well as include what effect it might have on the claim (either good or bad), and it must provide enough information so that the customer doesn’t feel the need to call the agent or the carrier.

See also: Strategies to Master Massively Big Data  

J.D. Power’s insurance industry research affirms that carriers with the most successful claim operations understand how to balance the customer experience with the need for internal efficiencies. Using technology and data analytics as tools to reduce the level of stress and effort for their customers is a clear pathway to developing not only a strong customer experience, but also an enhanced return on investment.

New Approach to Cyber Insurance

The most active players in the fledgling but fast-growing cyber insurance market are hustling to differentiate themselves.

The early adopters and innovators are doing so by accelerating the promotion of value-added services—tools and systems that can help companies improve their security postures and thus reduce the likelihood of ever filing a cyber damages claim.

As more businesses look to purchase cyber liability policies, insurance sellers are striving to dial up the right mix of such services, a blend that can help them profitably meet this pent-up demand without taking on too much risk.

The incentive is compelling: Consultancy PricewaterhouseCoopers estimates that the cyber insurance market will grow from about $2.5 billion in 2014 to $7.5 billion by 2020. European financial services giant Allianz goes a step further with its prediction that cyber insurance sales will top $20 billion by 2025.

This anticipated growth in demand for cyber liability coverage—coupled with the comparatively low level of loss claims—has created strong competition in this nascent market.

The Insurance Information Institute estimated last year that about 60 companies offered standalone cyber liability policies. In total, more than 500 insurers provide some form of cyber risk coverage, according to a recent analysis by the National Association of Insurance Commissioners.

“There are quite a few players, so they are looking for ways to differentiate themselves and find competitive edges,” says David K. Bradford, co-founder and chief strategy officer for Advisen, an insurance research and analysis company.

Insurance companies make adjustments

Insurance carriers hot after a piece of this burgeoning market are beginning to offer value-added services to make their cyber offerings stand out.

See also: 8 Points to Consider on Cyber Insurance  

Rather than growing these services in-house, most are partnering with vendors and consultants that specialize in awareness training, network security and data protection. Services that boost the value of cyber policies are being supplied for free, or offered at a discount.  Typical cyber insurance valued-added services include:

  • Phishing and cyber hygiene awareness training
  • Incidence response planning
  • Security risk assessments
  • Best practices web portals and software-as-a-service tools
  • Threat detection services
  • Employee and customer identity theft coverage
  • Breach response services

One measure of value-added services gaining traction comes from the Betterley Report, which recently surveyed 31 carriers that offer cyber policies. Betterley found that about half offered “active avoidance services,” while nearly all offered some sort of pre-breach planning tools.

Rick Betterley, president of Betterley Risk Consultants, which publishes the Betterley Report, says there is still a long way to go. “There’s much more that can be done to help the insureds be better protected,” he says.

Betterley is a big proponent of adding risk-management services to cyber policies. He calls the approach Cyber 3.0, adding that it’s akin to the notion of insuring a highly protected risk in a property insurance policy. Cyber value-added services, he says, are the equivalent of fire insurance companies requiring sprinklers.

“It’s not required that insurance companies provide the services, but it’s required that they help insureds identify what services are likely to generate a reduction in premiums,” Betterley says.

Sector faces new challenges

That said, the cyber insurance sector is still finding its way. With auto crashes, fire or natural disasters, losses are well defined and fully understood. Cyber exposures, by contrast, are hard to pin down. Network vulnerabilities are extremely complex and continually evolving. And historic data on insurance claims related to data breaches remains, at least for the moment, in short supply.

An added challenge, Betterley says, is that insurance companies are unable to satisfactorily measure the effectiveness of security technologies and services in preventing a data breach.

Advisen’s Bradford agrees. “It’s a rapidly evolving area that changes day to day, and underwriters are definitely wary of recommending a particular vendor or approach,” he says.

Eventually, the insurance industry will figure out how to make meaningful correlations and separate the wheat from the chaff.

“In bringing in these value-added services, we can help shore up some of those areas where we’re seeing human error,” observes Dave Wasson, cyber liability practice leader at Hays Cos., a commercial insurance brokerage and risk management consultancy. “We’ll be at a point where we’ll know what makes a difference, and we can put our money, time and efforts into those solutions.”

Eric Hodge, director of consulting at IDT911 Consulting, part of IDT911, which underwrites ThirdCertainty.com, concurs. One ironic result of the recent spike of ransomware attacks aimed at businesses, Hodge says, is that more hard data is getting generated that is useful for calculating loss profiles.

See also: Another Reason to Consider Cyber Insurance  

Along the same lines, settlements of class-action lawsuits related to breaches of high-profile retailers, such as Target and Sony, is helping amass data that will help the industry flesh out evolving actuarial tables.

“Losses from cyber attacks and data breaches are becoming easier to quantify,” Hodge says. “And market forces are absolutely lining up to reward the wider use of these activities. It’s harder to ignore the fiscal argument for an insurer to go the extra mile in helping the insured organizations make sure that a costly breach doesn’t occur.”

AIG blazes trail

One notable proponent leading the way is multinational insurance giant AIG, which is nurturing partnerships with about a half-dozen cybersecurity vendors.

AIG services—some of which are offered to policyholders at no cost—range from threat intelligence and cyber risk maturity assessments to active detection and vulnerabilities assessments.

RiskAnalytics, one of AIG’s partner vendors, provides threat intelligence services, including a service that detects and shuns blacklisted IP addresses. Any AIG insured with a minimum $5,000 policy can participate at no additional cost.

The company’s partnership is exclusive to AIG, and appears to be very popular.

“We’re bringing in multiyear contracts, and the average sales price is on an impressive trajectory,” says RiskAnalytics Chief Operative Officer Kurt Lee. “It’s all born out of (customers) using that (introductory) service through the policy.”

Recognizing the trend, more vendors are seizing the opportunity to market their services to insurance carriers.

Vendors are willing to jump through the many hoops because a partnership with an insurance company is an opportunity to get a soft introduction to a potential client, says Mike Patterson, vice president of strategy at Rook Security, a managed security services provider (MSSP) that is reaching out to carriers.

Dismantling roadblocks

As with any new approach, broad adoption of cyber insurance value-added services isn’t without hurdles. One major obstacle is the “’this-isn’t-how-we’ve-always-done-it’ way of thinking,” says IDT911’s Hodge. “It’s like trying to change our election processes—people resist altering a system that has been in place for a couple hundred years.”

Another barrier is cost. Insurance companies tend to reserve free or discounted added services for heavyweight clients that spend small fortunes on annual premiums, says John Farley, vice president and cyber risk practice leader at insurance brokerage HUB International.

“Carriers can’t give away a lot of resources, so the smaller premium payers are not getting a lot of these services,” Farley says. “But if they can streamline and automate resources and figure out how to get customizable, usable information to the insurance buyer, that insurance carrier will probably stand out.”

Brian Branner, RiskAnalytics’ executive vice president, says that’s exactly one of the benefits that AIG derives from their partnership.

“If we can get the insureds to use the services we provide, we should lower AIG’s loss ratio because they’ll be safer organizations, and AIG should receive less claims,” he says.

Hidden costs of a breach can affect a large enterprise for years, and prove catastrophic to a small business. So insurance companies in the vanguard are looking to find business clients that are taking information security seriously.

See also: The State of Cyber Insurance  

As more companies buy cyber policies, and use any attendant services, the result could be a halo effect, says IDT911’s Hodge.

“This is certainly something that the insurers are counting on,” Hodge says. “A more secure buyer is a lower actuarial risk to the insurer.”

Meanwhile, policyholders should steadily become better equipped to securely do business in an internet-centric economy riddled with evolving exposures.

Hodge says: “In my experience, the buyer is often pleasantly surprised by the improvement that can come about quickly in terms of knowing their risk, being compliant with their industry standards and being able to indicate to the marketplace that they are taking good care of their customer’s information.”

This post originally appeared on ThirdCertainty. It was written by Rodika Tollefson.

Should You Allow Bowser in the Office?

More employers than ever are allowing dogs into the workplace. Big companies like Google and Amazon allow employees to bring their dogs to work – as do 8% of American workplaces, according to a 2015 Society for Human Resource Management survey.

Because this decision brings risk into the workplace, it’s a good time to revisit the issues employers face when making this choice. Every year, National Dog Bite Prevention Week is “celebrated” to educate and remind us about how our furry friends conduct themselves around humans. The Insurance Information Institute also published recent dog-bite statistics. Any employer making a decision on pets in the workplace should consult both of these resources.

My Experience With Dogs in the Workplace

The publication of this data reminds me of an event that is permanently etched in my memory. A while ago, I was introduced to business owners by their CPA. The owners were dissatisfied with their current insurance broker relationship and were considering a change. We set an appointment so I could learn more about their business and their needs.

When I walked through their office door, I was immediately met by two medium-sized pit bulls. Both were showing their teeth, growling and barking at me in a very aggressive manner.

See also: A Proposed Code of Conduct on Wellness  

I have always been a dog lover. I’ve had two pet dogs who became loving members of our family. When meeting dogs for the first time, I’m usually successful in establishing a rapport with them, but this meeting required the owner’s immediate intervention.

The employees in the office reacted with smiles and remained seated at their desks. My guess is that this type of greeting was common.

Why Employers Allow Dogs in the Workplace

In my discussions with employers, they cite the following as reasons why they or their staff bring pets to the workplace:

  • The pet experiences anxiety by being left at home alone
  • Dogs provide additional protection for the employer and employees
  • The pet is a “service animal” to assist the employee with mental or physical disabilities
  • They just like having the dog around them

The dog-bite statistics tracked by the Insurance Information Institute show the total number and cost of dog bites, but they don’t include dog-bite incidents or injuries in the workplace.

This lack of business-specific data certainly doesn’t detract from the potential legal and financial issues employers can create for their businesses if they allow dogs on their premises.

What Can Go Wrong?

A look at the statistics shows how dog bites continue to be an expensive problem. At least 4.7 million people are bitten by dogs annually, resulting in an estimated 800,000 injuries that require medical attention. Those numbers increase each year.

The problem also affects employers who send their employees out into neighborhoods or homes with unrestrained dogs. For example, the employees of the U.S. Postal Service who deliver mail continue to have problems with dog bites, and they are usually armed with a spray to protect them from aggressive dogs.

Commercial insurance carriers typically don’t ask whether dogs will be present at a business, unlike the personal insurance companies that provide homeowners insurance. However, if you’re an employer considering allowing dogs in your workplace, it’s a good idea to consult a list of some “unacceptable” dogs that personal insurance companies frequently refuse to insure. You’ll notice some familiar breeds here, including pit bulls, Rottweilers, German shepherds, huskies and malamutes.

Considerations for Employers

Before you allow dogs into your workplace, take the following into consideration:

  • If it isn’t necessary, why create more potential liabilities for your business? There are many workplace hazards that can cause injury to your employees. Why bring in another opportunity for injury if that can be avoided?
  • Be aware of those dog breeds that have a history of aggressive behavior.
  • If an employee requires a “service animal,” and you have confirmed the animal is truly a “certified service animal,” you will most likely need to accommodate your employee. To confirm certification, have the employee provide a letter from a doctor. Work with your HR professional so the process of consideration and accommodation is performed in accord with employment laws.
  • Dogs can be a distraction and slow efficiencies in your company’s workflow.
  • Some people have a fear of dogs. How are you going to deal with this issue?
  • Some people have allergies that can be aggravated by the presence of animals in the workplace before, during or after the employee’s work hours.
  • When the dog bites an employee, in addition to reporting this to your workers’ compensation company and getting medical treatment for the employee, you must decide what to do with the dog and how to manage employees’ perceptions of this event and possible future incidents?
  • Do you want customers and other guests to potentially experience what I did when they come to your business?

If you do decide to allow dogs in the workplace, your HR professional will need to update your employee manual. Set guidelines as to how and where the pet may be located. Set guidelines for acceptable animal behavior. Create clear guidelines about the owner’s productivity and responsibilities. Establish how other employees may interact with the pet.

These are just a few of the questions you’ll need to answer before implementing any new policies.

See also: States of Confusion: Workers Comp Extraterritorial Issues

With the potential risks involved in workers’ compensation, HR and general liability, should dogs really be in the workplace?

Are Market Cycles Finally Ending?

The property/casualty industry has been characterized by its market cycles since… well, forever. These cycles are multi-year affairs, where loss ratios rise and fall in step with rising and falling prices. In a hard market, as prices are rising, carriers are opportunistic and try to “make hay while the sun shines” – increasing prices wherever the market will let them. In a soft market, as prices are declining, carriers often face the opposite choice – how low will they let prices go before throwing in the towel and letting a lower-priced competitor take a good account?

Many assume that the market cycles are a result of prices moving in reaction to changes in loss ratio. For example, losses start trending up, so the market reacts with higher prices. But the market overreacts, increasing price too much, which results in very low loss ratios, increased competition and price decreases into a softening market. Lather, rinse, repeat.

But is that what’s really happening?

What’s Driving the Cycles?

Raj Bohra at Willis Re does great work every year looking at market cycles by line of business. In one of his recent studies, a graph of past workers’ compensation market cycles was particularly intriguing.


This is an aggregate view of the work comp industry results. The blue line is accident year loss ratio, 1987 to present. See the volatility? Loss ratio is bouncing up and down between 60% and 100%.

Now look at the red line. This is the price line. We see volatility in price, as well, and this makes sense. But what’s the driver here? Is price reacting to loss ratio, or are movements in loss ratio a result of changes in price?

To find the answer, look at the green line. This is the historic loss rate per dollar of payroll. Surprisingly, this line is totally flat from 1995 to the present. In other words, on an aggregate basis, there has been no fundamental change in loss rate for the past 20 years. All of the cycles in the market are the result of just one thing: price movement.

Unfortunately, it appears we have done this to ourselves.

Breaking the Cycle

As carriers move to more sophisticated pricing using predictive analytics, can we hope for an end to market cycles? Robert Hartwig, economist and president of the Insurance Information Institute, thinks so. “You’re not going to see the vast swings you did 10 or 15 years ago, where one year it’s up 30% and two years later it’s down 20%,” he says. The reason is that “pricing is basically stable…the industry has gotten just more educated about the risk that they’re pricing.”

In other words, Hartwig is telling us that more sophisticated pricing is putting an end to extreme market cycles.

The “what goes up must come down” mentality of market cycles is becoming obsolete. We see now that market cycles are fed by pricing inefficiency, and more carriers are making pricing decisions based on individual risks, rather than reacting to broader market trends. Of course, when we use the terms “sophisticated pricing” and “individual risk,” what we’re really talking about is the effective use of predictive analytics in risk selection and pricing.

Predictive Analytics – Opportunity and Vulnerability in the Cycle

Market cycles aren’t going to ever truly die. There will still be shock industry events, or changes in trends that will drive price changes. In “the old days,” these were the catalysts that got the pendulum to start swinging.

With the move to increased usage of predictive analytics, these events will expose the winners and losers when it comes to pricing sophistication. When carriers know what they insure, they can make the rational pricing decisions at the account level, regardless of the price direction in the larger market. In a hard market, when prices are rising, they accumulate the best new business by (correctly) offering them quotes below the market. In a soft market, when prices are declining, they will shed the worst renewal business to their naïve competitors, which are unwittingly offering up unprofitable quotes.


Surprisingly, for carriers using predictive analytics, market cycles present an opportunity to increase profitability, regardless of cycle direction. For the unfortunate carriers not using predictive analytics, the onset of each new cycle phase presents a new threat to portfolio profitability.

Simply accepting that profitability will wax and wane with market cycles isn’t keeping up with the times. Though the length and intensity may change, markets will continue to cycle. Sophisticated carriers know that these cycles present not a threat to profits, but new opportunities for differentiation. Modern approaches to policy acquisition and retention are much more focused on individual risk pricing and selection that incorporate data analytics. The good news is that these data-driven carriers are much more in control of their own destiny, and less subject to market fluctuations as a result.