Tag Archives: InsurTech

COVID-19 Highlights Gaps, Opportunities

Months into the global COVID-19 crisis, it is evident that the insurance industry failed to step up to the plate with actions that could have helped the community cope with the new situation. In a time where both individuals and businesses need support — more than ever — one would have hoped to see a more coordinated response or a strategic act from such a powerful industry. Instead, the pandemic and the response to it have highlighted significant gaps in industry offerings that are yet to be resolved. 

As soon as the pandemic started, a lot of the major legacy insurance companies simply stopped selling policies for certain kinds of coverage, and some of them still aren’t selling them. In an attempt to manage the expectation of their customers, they put up disclaimers on their websites about not covering COVID-19-related losses. We have gotten used to seeing these disclaimers during natural catastrophes to deter fraud, but the outcome for consumers is still grim, at a time when they need protection and support. 

Even now, there is still a large amount of uncertainty and posturing between the insurance industry and regulators about who should have been covered by existing policies that may or may not have explicitly excluded pandemic-related losses. As a result, many customers who were affected by COVID-19 and already held insurance policies — like travel insurance, which explicitly has blanket exclusions for pandemics — remained unclear as to whether they will be paid. 

In the past decade, we have seen huge growth in the number of gig economy contract workers, but they generally aren’t treated as employees, meaning that they do not have sufficient benefits or insurance for loss of income. It has become evident in this period that almost 40% of the U.S. workforce don’t have the support they need.

Herein lies a valuable opportunity: to adapt and provide better fundamental support to businesses and their workers, which in many cases have proved to be essential during these difficult times.

See also: Strategic Planning in the COVID-19 Era

The good news is that there is a huge opportunity for insurers to harness technology to create products and means of getting these products into the hands of people who need them, which will put insurers in a better position to support communities when the unexpected happens again. 

First and foremost, we need new products: customized, robust and agile solutions that provide actual protection during times of need. The cookie-cutter products that traditional insurers have been offering have not proved to be beneficial. Simply bundling-in pandemic coverage to every single insurance policy is not the answer, as it would raise policy prices for a lot of consumers. This is where product innovation can really make a difference. For example, general availability for “loss of income protection” for gig economy workers would have taken some of the burden off the government, while also helping the community stay resilient. Adaptable and responsive insurance coverage options for these people or the small business community could ensure they maintain the appropriate level of insurance as their income or businesses fluctuate. The exclusions for a pandemic in insurance policies are fairly broad, so there’s clearly a need for explicit pandemic coverages — either as embedded coverages, or sold separately. And of course, parametric products of some type should be developed and made available to kick in when different types of events happen. 

As the economy starts to reopen, some businesses can only operate at a 30% capacity. Will they be able to claim for their losses under existing insurance policies? Will they have access to coverage for a liability resulting from an infection that happens inside a small business? For small and medium-sized businesses (SMBs), all of these situations could mean going bankrupt. Innovative products don’t have to be all-encompassing as far as losses are concerned. Relatively affordable insurance products that provide a basic level of financial support to businesses to navigate difficulties — even if it’s just to enable them to keep the lights on for a while — have a demand in the market right now. 

Second, we need to change the way in which insurance products get distributed. As an industry, we need to help people get the right coverage when they need it. Generally speaking, one of the drivers of underinsurance in the community is the fact that insurance is complicated to understand and purchase. In most scenarios, people have to go out and search for protection, and most just opt out of that task. Others don’t understand what they are buying, don’t get the appropriate coverage or are simply underinsured. Giving consumers the opportunity to get covered, if they want to, is important. Making protection available and offering it in the right circumstances, as a product or add-on at the point of purchase, is a big opportunity for the industry.

The role of technology is to use data that exists from platforms like payrolls systems or e-commerce websites to better understand the level of risk and offer customers the right level of insurance at the right time. Reducing friction on the front end ensures that the level of insurance is adequate and will drive down the volume of underinsurance in communities, which provides a lot more resilience in the event that a pandemic happens again. 

See also: 4 Post-COVID-19 Trends for Insurers

It will be a long time before the insurance industry has a feel for the scope and the scale of the losses that have and will be incurred by businesses, individuals and insurers as a result of COVID-19. The pandemic will have a big impact on coverage and pricing, and it still remains to be seen if the industry will get together to support the community by making insurance available to those who are affected. 

We should all join hands and step up to ensure our communities are protected. We need to use the power of technology to really innovate with new insurance products and distribution methods that guarantee people are properly protected and safe when things go wrong.

Another Reason for Insurers to Embrace AI

Did you know that artificial intelligence (AI) technology first sounded the alarm on COVID-19?

An algorithm developed by BlueDot, a Canadian AI firm, scoured news reports and airline ticketing data to detect the outbreak on Dec. 31, 2019 in China. On the same day, HealthMap, a Boston Children’s Hospital website using AI, spotted a news report of a new type of pneumonia in Wuhan, China, and alerted global health officials. HealthMap was also the first to notify Chinese health officials that COVID-19 was expanding outside of China.

Over the past decade, U.S. tech firms have made significant advancements in AI, and smart robots are making it far easier to automate tasks and functions across industries. AI’s ability to efficiently analyze large, diverse and unstructured data sets is now proving beneficial in the fight against COVID-19.

We examined the myriad ways AI can benefit P&C insurers in a three-part blog series that ran through February. Now we’re picking up where we left off, but with a focus on a timely and important application for workers’ compensation carriers and other P&C carriers. (A more comprehensive article will be published later in the summer.)

AI in the Fight Against COVID-19

AI is improving the speed and manner in which the world identifies, contains and combats infectious disease outbreaks. Its unparalleled ability to rapidly analyze massive amounts of unstructured data has already proven to be an early detection and warning tool for seasonal influenza.

The CDC, recognizing the potential value of AI, holds an annual competition for AI firms and academic institutions. The participants develop AI algorithms to help identify and predict the severity of future influenza outbreaks. Many of these participants are now leveraging their technology and data sets to fight COVID-19.

See also: And the Winner Is…Artificial Intelligence!

AI alerts have played and continue to play a critical role in detecting and controlling future outbreaks.

Chart 1

In the wake of the global pandemic, AI technologies are offering hope and promise in the fight against COVID-19. MIT’s Watson AI Lab is funding a research project for early detection of sepsis, a deadly complication of COVID-19 affecting at least 10% of COVID-19 patients. The project aims to develop a machine learning system to analyze white blood cells for signs of an activated immune response against sepsis. MIT is also developing an AI tool to help doctors find optimum ventilator settings for COVID-19 patients. Shorter ventilator treatments will limit lung damage and free ventilators for other patients.

U.S. research hospitals are developing AI solutions to improve the speed and accuracy of their COVID-19 diagnoses. Mount Sinai, a leading New York research hospital, was the first in the U.S. to develop an AI solution that could quickly and accurately analyze chest scans of patients and detect early signs of COVID-19 on par with highly trained and experienced radiologists.

The world’s leading tech firms and academic institutions are partnering with governments and hospitals to limit the spread of COVID-19 and to protect healthcare workers. Boston Dynamics and MIT developed Spot, a smart robot, to deliver medicine and monitor vital signals of COVID-19 patients. With the help of its leading tech firms, China created a smart field hospital in Wuhan to relieve and protect overtaxed medical professionals.

AI technology is also accelerating vaccine development in such efforts as the collaborative work between Harvard and the Human Vaccines Project. Given the lengthy time to create, test and approve a COVID-19 vaccine, academic institutions and AI firms are working with scientists to identify FDA-approved drugs for repositioning to treat or contain COVID-19. BeneloventAI, a U.K. tech startup, has already applied its drug discovery platform for this purpose and identified a drug for a COVID-19 clinical trial.

Why It Matters to P/C Insurers

Many AI advances are aimed at protecting the health and safety of medical professionals – doctors, nurses, EMTs and all those employed in hospitals. That protection extends to patients and visitors who do not have COVID-19. As a result, hospitals and healthcare facilities that quickly embrace and implement these new AI technologies should prove to be more attractive risks for workers’ compensation and professional lines specialty carriers.

The adoption of AI and smart robots in healthcare is especially critical given the advent of workers’ compensation COVID-19 presumption statutes and executive orders designed to protect healthcare workers and others on the front lines of the COVID-19 pandemic. Specifically, those legal efforts shift the burden of proof from the employee to the employer and reduce or eliminate the evidentiary requirements to establish a claim. While these developments are well-intended, many workers’ compensation carriers expect to see a rise in claims in states taking this action. If AI can significantly improve the safety of medical professionals, we hope it can offset the rise in claims from the new COVID-19 presumption laws.

See also: 3 Steps to Demystify Artificial Intelligence

To the extent that AI can help reduce illness or its spread, the need for extensive quarantine measures will be reduced, and all sectors of the economy will benefit. Main Street businesses and manufacturing facilities will be able to operate more safely, and that can mean fewer business interruption and premises liability claims during future infectious disease outbreaks.

Insurers do not need a global pandemic to appreciate the economic and health value of AI. Smart robots, AI and automation will continue to significantly improve workplace safety and employee health for all types of businesses even after we have tackled COVID-19. Gen Re continues to monitor these trends and looks forward to helping you understand and navigate the AI landscape.

You can find this article originally published here.

Reigniting Growth in U.S. Life Insurance

Catastrophes can often be catalysts for how society manages risk. For instance, World War II transformed the U.S. into a highly industrialized economy and put us in a position of global economic leadership. As a result of the COVID-19 pandemic, the U.S. life & annuity insurance industry is at such an inflection point.

Life insurance has endured flat to declining sales for over a decade. Put simply, sales have by and large not kept up with the growth of the population, and younger generations are not seeing insurance as a product that belongs in their financial portfolio.

But as the world shut down seemingly overnight, interest in life insurance has come roaring back, and COVID-19 is now accelerating sector adaptation. Electronic application (eApp) submissions are up by 20% year over year, and e-policy deliveries by 52% YOY, according to recent insight from iPipeline. At Ensight, we have seen a dramatic shift toward the virtual sales experience, with growth of 155% in just the last three months. This agile sector response to COVID-19 bodes well for returning the sector to long-term growth and wider financial protection in society.

However, this resurgence will be short-lived if the life insurance industry doesn’t use this moment of opportunity. Younger generations will not tolerate antiquated illustrations or the absolute need for an in-person sale. When we take a step back, COVID-19 is very likely to drive the following three transformations within the life insurance sector: 

  • Greater focus on the transformation of the sales experience
  • A broader, accelerated shift to more holistic financial planning by advisers
  • Increased consumer understanding of the importance of life insurance

These are potentially simultaneous tectonic shifts. And the potential long-term positive implications for life insurance sales are significant. 2020 may therefore represent the long-awaited inflection point for the U.S. life insurance industry.

So, what are insurance carriers doing well today? More importantly, what additional gaps must be closed to ensure long-term growth?

See also: Will COVID-19 Spur Life Insurance Sales?

The Current Frontier – Tackling the Application Pain Point

Over the past decade, the principal transformation agenda has been on addressing the pain point and cost inefficiency of the life insurance application process. Insurance carriers have largely focused on shifting to electronic applications (eApps), as well as implementing new accelerated/simplified underwriting programs.

This shift is critical. However, insurance carriers need to remember that eApps and accelerated underwriting programs will drive little long-term competitive advantage, because everyone will have them.

The next chasm to cross for the sector is product accessibility. Without it, we will not return to a vibrant life sector in the next decade.

Crossing the Chasm – Addressing Product Accessibility

In 1991, Geoffrey Moore wrote “Crossing the Chasm,” which quickly became the bible for entrepreneurial technology marketing. “Crossing the Chasm” focused on how to drive the introduction of innovative products from early adoption, to finding product market fit and ultimately to wider adoption.

To truly cross the chasm and reignite significant sector growth through broader understanding and belief in the value and application of insurance products, life and annuity carriers should prepare to address digitalization of sales and distribution.

Complete digitalization of the point of sale

Even with eApp growth, the permanent life insurance point of sale experience continues to be rooted in paper. Whether it is PDF brochures heavy on the compliance language or the 40-page illustration, the point of sale has simply not adapted to the 2020 expectation threshold. 

Consumers today – with the fintech movement transforming everything from banking and investing to mortgages – expect a digital, intuitively visual and easy-to-understand experience. These are the prerequisites for selling your products successfully – especially in the world of Amazon.

Life and annuity carriers need to transform the entire sales lifecycle – not just the application pain point. This means addressing everything from digital presentation of the product by financial professionals, to interactive training and to a consumer-oriented in-force web experience. Policy statements sent via snail mail are out of date. 

And financial professionals, for whom 50% of client engagements are now virtual, should be enabled with an interactive, digital experience to explain products to clients. Clients should be able to interactively play with products online to better understand how they might perform, for instance under different market scenarios. This is now par for the course.

Change distribution mindset and prioritize technology “platform plays”

Silicon Valley venture capitalist Marc Andreessen said, “Software is eating the world.” A corollary in financial product distribution could certainly be: “Technology platforms are eating distribution.”

Life and annuity distribution has traditionally been focused on relationships and traditional distribution partner platforms (i.e., people plus services). There is an unprecedented shift happening today – the introduction of distribution technology platforms and the elevated importance of the platform experience.

Insurance carriers will need to open their distribution mindset and strategy to prioritize “platform plays.” This means not only reevaluating whether they are delivering a modern, Intuit-like illustration experience for different types of personas, but also consider how they are enabling new technology platforms to drive premium growth.

See also: Fundamental Shift in Life Insurance?

Increasingly it will be the “platform plays” that will drive premium growth. And without addressing the challenge of “product accessibility,” the life and annuities market will never truly “cross the chasm” and return to long-term, sustainable growth.

Fintech is evolving our world and creating experiences that a growing portion of our potential client base have come to expect. While insurance has gained some renewed interest during the pandemic, we are now at the inflection point that will determine how well we can adapt and grow over the next decade.

Wildfire Season Off to Perilous Start

It is only the beginning of the 2020 wildfire season, and already there have been 20,351 U.S. wildfires between Jan. 1 and June 12. Compare this with 16,630 fires during the same period in 2019, according to the National Interagency Fire Center (NIFC).

As many as 90% of wildfires in the U.S. are caused by people, according to the Department of the Interior. Some are caused by unattended campfires, burning of debris, downed power lines, negligent discarding of cigarettes and arson.

In many cases, wind causes fires to spread over greater distances, creating exponential expansion. Fire spreads from hillsides to various points in the valleys, creating spot fires with no relationship to the main wildfire body. Examples of late season fires being compounded by extreme winds include several Southern California fires in 2019.

When One Disaster Follows Another

Across the U.S. and Canada, the scale of forest fires has increased to the degree that the fires themselves are now contributing to the rise in greenhouse gas emissions. Some fires are even creating their own weather systems, making winds more erratic and conditions too dangerous for firefighters to protect people and properties. These fires are often called megafires, and they are becoming more common. Some bushfires in Australia created powerful pyrocumulus clouds that led to smoke-infused thunderstorms. The lightning from these storms threatened new fires, which sometimes developed into fire tornadoes.

Warmer temperatures do more than just dry out the land. They also heat up the atmosphere, where clouds hold on to more moisture for longer periods, causing severe drought and fire. This is often followed by crushing rains that can’t be absorbed by severely dry lands. When floods and mudslides destroy property where fires blazed nearby, a cycle of what scientists call “compound extremes” – one climate disaster intensifying the next – makes recovery more difficult.

See also: Wildfire Season: ‘The New Abnormal’?

Evacuations and Blackouts Made 2019 Unique

While 2019 was not as active as 2018 in the U.S., disruption was still significant, leading to the evacuation of over 200,000 people and the declaration of a state of emergency in California. 

One of the most notable aspects of the 2019 California wildfire season was the introduction of scheduled intentional power outages by utility companies when fire conditions were forecast. This was meant to minimize or eliminate ignition risk from downed powerlines. These preemptive power shutoffs occurred in approximately 30 counties in California for approximately 23 days total, by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. The shutoffs initially affected around 800,000 customers, or about 2 million people. Stanford University’s Michael Wara, an expert on electricity policy in California, estimated the total costs of the blackouts were somewhere between $1.8 billion and $2.6 billion.

The shutdowns drew widespread criticism from residents as well as government officials. Many businesses and residents complained of either being misinformed or not informed when shutdowns would occur. California developed programs to protect utility companies and consumers in the advent of future wildfire events. The state legislature passed a bill that created a $21 billion state-run insurance pool to act as a cushion for utility companies against future wildfire claims.

Wildfire Modeling 

Wildfires are a rapidly growing challenge – and businesses need better tools to manage this risk. Predicting wildfire-related risk requires understanding more than just fire history, frequency and severity. Using solutions that are scientifically supported and peer-reviewed can provide powerful insights into wildfire mitigation, monitoring, reporting and response.

At Allianz, wildfire modeling is approached from a loss- prevention perspective:

  • Fire frequency, history and severity: Quantifies how often and how severe wildfires are expected to be, based on the history of a specific location
  • Ember loss and smoke damage: Scores the risk of a fire breaking containment via drifting embers and the projected path of those embers
  • Structure-to-structure ignition: Considers the proximity of houses and structures in each zone and the projected risk of fire jumping from structure to structure
  • Urban conflagration: Uses fire shed analysis incorporating the risk of a wildfire’s transition into urban areas, including structure-to-structure loss, ember scoring and accumulated risk
  • Correlated risk zones: Uses interactive maps to correlate and understand risk of single-fire events in specific areas

Reinsurance and risk modeling experts have begun using terms such as “megafires” and “the new abnormal” as they have identified several contributing trends of interest:

  • Increase in property development in and adjacent to wildland urban interface (WUI) areas 
  • Increase in fuel loads on the ground, including dead standing trees due to drought and insect infestation, along with a decrease in fuel moisture content as a result of prolonged arid conditions 
  • Increase in weather volatility from year to year, including several years of drought interspersed with a few very wet winters, as well as longer dry seasons extending later in the year when intense seasonal wind patterns are most likely to spread fires 
  • Changes in fire behavior, with rapid expansion becoming more explosive in terms of quickness and distance, due to a confluence of extreme conditions, including high temperatures, low humidity, strong winds, high fuel loads (vegetation and structures) and steep, hilly terrain; fires have consumed up to 70,000 acres a day and traveled over 15 miles in a few hours, with embers blown across multilane highways into developed areas within city limits  
  • Multiple fires have erupted at the same time and often in close proximity, stretching the availability of fire-fighting resources and their capability for aerial drops of retardants due to massive smoke plumes that reduce visibility

See also: Some Hope in the Face of the Wildfire Threat

COVID-19 Challenges

The 2020 fire season presents new challenges related to COVID-19. The pandemic has raised the stakes at the worst possible time, forest managers say, and is forcing firefighters, officials and communities to rethink how they combat blazes. One such consideration is firefighters moving from blaze to blaze in camping groups while not on the front lines. This previous practice is now considered a dangerous incubator for COVID-19. Also, the combination of smoke inhalation and the novel coronavirus complications greatly expand respiratory risks for first responders.

The continued spread of the coronavirus, as well as the economic paralysis that has accompanied health restrictions, has affected every aspect of wildland firefighting. With fires beginning earlier in the spring and persisting later into the fall, communities may have to contend with the dual risk of COVID-19 and wildfire for several months.

Helping Insurers Get a Handle on Wildfire

“California is the lab for managing exposure to wildfire risk,” according to Lynn McChristian, a professor of risk management at Florida State University. If carriers and reinsurers can make it there, they can make it anywhere.

The past several years have seen a steep increase in the severity of wildfires, with the 2017 and 2018 seasons causing $24 billion in insured losses in California alone. Rates are climbing there, and coverage is dropping—there is clearly insufficient wildfire coverage to meet market demand, especially in high-risk, wildland-urbane interface (WUI) communities. 

These historic losses, combined with insufficient solutions for managing wildfire risk, mean insurers are trying to get a handle on their wildfire portfolio accumulations and gather perspective on relative risk. Simply put, the old way of doing things has been proven not to work—and insurers are demanding better. 

The flaw with historical wildfire risk management: Fires don’t burn in a circle

The California wildfires illuminated that many companies do not have clear best practices around managing wildfire risk, primarily because it has often been considered part of wider policy terms.

One solution is to limit accumulations between highly correlated areas of wildfire risk. Historically, insurers have looked at their concentrations of wildfire risk at the county level, along with using ring accumulations as a tool to assess risk. But fires don’t burn in a circle, and they don’t know postal code boundaries. Now, RedZone, a wildfire modeling company, has used millions of wildfire simulations to identify burn patterns across the landscape to create areas called “correlated risk zones.”

See also: Parametric Solution for Wildfire Risk

These zones are essentially regions that look completely separate but, statistically, burn together. They provide a logical and credible alternative by which to manage portfolio risk accumulations, alongside traditional loss modeling techniques. A more consistent approach to managing capacity can also improve risk-based pricing.

Solving a portfolio-scale problem requires changing the way we think

“Models have focused on risk at specific locations, but this is a portfolio-scale problem,” RedZone CEO and founder Clark Woodward says. 

The above screenshots show RedZone’s models for use in portfolio-level analysis. On the left is RedZone’s burn probability layer. When combined with the image on the right, which is RedZone’s hazard control zones, you can develop a firmer understanding of portfolio composition when it comes to accumulations and likeliness to burn. 

Accumulation analysis involves defining zones of correlated risk—where properties are likely to be damaged by the same event in the same year—and estimating the probable maximum loss (PML) within each zone. By evaluating accumulated wildfire risk, insurers can assess where additional properties may be insured with minimal increase in exposure to extreme losses. 

Reinsurance broker Willis Re has also brought to market a new methodology for wildfire underwriting and customer-specific portfolios. By helping carriers understand not only individual risk selection but geographic areas that are driving up their PMLs, Willis Re can, in turn, help them diversify their portfolios and drive down reinsurance costs.

Practical innovation that can be deployed now  

It’s taken a beat—and a harsh reality check—but better wildfire risk management strategies are now coming to fruition. Providers like RedZone, Willis Re and Insurity are working collaboratively to create solutions, like the correlated areas of risk discussed here, that provide better, more logical ways of managing wildfire accumulations.

This technology can be quickly deployed and implemented alongside traditional risk management strategies. This allows insurers to avoid disruption while employing a consistent approach to managing capacity across both underwriting and portfolio management and, ultimately, better serve and protect insureds against wildfire risk.