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Long Live the Claims Adjuster!

Decades ago, a refrain began that predicted the death of the insurance agent. The internet was going to cut out the middleman! Disintermediation would result in the demise of the traditional insurance agent! But here we are – years later – and distribution intermediaries such as agents, brokers and wholesalers are not only surviving, they are thriving. I believe that claims adjusters, and claims professionals in general, are starting on a new and improved journey.

The pandemic has served as a catalyst for putting digital transformation across insurance on the fast track, and claims is one of the areas that is primed for implementing digital capabilities. As more claims information is captured and managed digitally, new opportunities to leverage AI technologies arise. This leads to a vision of full automation, high levels of straight-through processing and (logically) a diminishing role for claims professionals. These themes are explored in a new SMA research report, “P&C Claims in the Post-Pandemic Era: Emerging Stronger, Accelerating Transformation.” There is tremendous momentum for leveraging technology to automate and enhance the claims process, but that does not mean that the role of the adjuster will become obsolete… and it brings to mind the old Monty Python gag, where an old man is flung onto a heap of bodies, only to announce that he is “not quite dead yet.”

So it may be with the claims adjuster. As a matter of fact, the stage is set for claims roles to be elevated as they focus on high-value activities. And the phrase “not quite dead yet” doesn’t really do the situation justice, for these roles as they are very much alive and evolving. The key lies in exploring the complexity of the claims landscape.

There is no question that many simple claims are best handled in automated fashion, with digital workflows, connections to restoration partners and AI-based decision-making. The ability to reduce cycle times and settle claims faster benefits everyone, especially the claimant.

But there are many complex claims, especially those where serious injuries have occurred, where large commercial properties are affected or where insured vehicles or property are related to industries with unique risks. Add to that the vital areas of fraud detection and investigation, litigation, medical management and recoveries. It becomes clear that human expertise and experience will still have important roles to play.

All these areas will benefit from automation, and claims experts will be aided by AI capabilities. However, the need for human-to-human connection, expressing empathy to claimants and applying judgment in complex, multi-faceted situations will always be needed and will remain the hallmark of good claims organizations.

See also: How to Recruit Claims Adjusters

For more information on the evolution of P&C claims, see our recent research report, “P&C Claims in the Post-Pandemic Era: Emerging Stronger, Accelerating Transformation.” This report identifies how insurers have responded throughout the pandemic and how claims technology plans have changed over the past 18 months. Digital transformation and AI technologies are also addressed, based on SMA surveys of P&C executives. Finally, a vision of the future of claims is presented, including the role of the claims professional. Far into the future, we are still likely to be saying: Long live the claims adjuster!

Economy Outlook: Recovering but Beware

Insurers looking ahead into 2022 are likely to be concerned about an economic and investment environment that offers a lot of uncertainty. There are new highs in stocks, cycle lows in bond yields and spreads, recurring waves of virus variants, central banks in apparent disarray and political turmoil everywhere. Despite all these danger signs, we are guardedly optimistic that the current recovery will continue well into the new year.

2021 has been a transition year. Reflation, i.e., the building back from the 2020 depression, was good in Q1. Inflation, the big fear in Q2 and Q3, threatens to be bad. Across the globe, we see a transition from a goods recovery to a services recovery, with the U.S. and China leading the way.

What’s next? Do we maintain growth or face stagnation? Either way, is it with or without the scourge of high inflation? [See the “Growth-Inflation Matrix” below.]

Many are reading the “up” cards (i.e., the current facts) that show some economic growth indicators slowing while inflation is rising. The Delta variant has prompted mask mandates to re-emerge in some areas, and returning to school is challenged too; it’s logical that the mood of the consumer has been dampened. Further, stress in the Chinese property sector highlighted by default concerns regarding Evergrande threatens global stability. However, we should look at a few of the “down” cards (i.e., unresolved areas of concern.)

We believe the rollover from recovery to expansion in the U.S. is well established, built on strong pre-pandemic fundamentals, fueled by substantial central bank support and lavish government spending. Roughly 70% of economic activity in the U.S. is consumer spending. While the U.S. consumer pulled back some over the summer, most recent data show that Delta is nearing its peak. Employment data continues to improve, and supply chains appear to us to be on the mend. We expect the slower third quarter growth will prove to be temporary.

Fiscal Spending: Beyond the Necessary? 

After long-standing requests from central bankers for fiscal help, the Biden administration is definitely complying, rolling out several significant spending bills running in the trillions of dollars. This is being called “stimulus,” but the “down” cards here may be the unintended consequences. And we expect there will be many, given that the final bill appears likely to be between 5,000 and 10,000 pages of mandates, taxes and regulations. 

A number of market observers have expressed concerns with all this spending, but Conning’s main concern isn’t inflation – it’s the crushing of incentives and stifling of production. In the end, that may kill the recovery, as on the margin it discourages very productive people from producing more and less productive people from improving. 

Yet the spending continues, with calls for more. 

Paying for It All at the Cost of Growth

What could break the cycle? Perhaps figuring out how to pay for it. The flip side of spending in terms of fiscal policy is taxation. Some observers say the current proposals amount to the biggest tax increase in more than 50 years; regardless, they don’t appear to us to be pro-growth.

Some policymakers who subscribe to Modern Monetary Theory (MMT) believe the central bank should be able to support all the spending we need through monetary policy. But the world’s central bankers appear confused, oscillating between easing and tightening as they try to decide which is faster: growth in virus variants or economic activity. The U.S. Federal Reserve itself is not immune from the opinion split: About half a dozen of FOMC voting members see no rate increases through 2023, another half dozen expect to raise rates up to four times by then, and the remainder expect one or two increases.

Two old sayings combine to form a powerful deflationary force in the economy: “Necessity is the mother of invention” and “practice makes perfect.” We think production will do what production always does when demand spikes (absent government interference): expand, build back and repair itself to meet demand. The need for new and better processes can spur innovation and creativity, such as the advances that led to the recent U.S. energy independence. The incentives and competition of the free market make us better and better at those advances, lowering their costs and improving their efficiencies.  

See also: Biggest Risks to an Economic Recovery

Regulatory Role May Decide Recovery’s Strength 

That “government interference” part, however, is a significant qualifier given this administration’s regulatory proclivities. Conning believes the likelihood of many policy changes is reduced by the current divided government along with President Biden’s falling approval numbers in national polls, so the momentum we’ve built will likely carry us through with good growth into 2022. But the threat of slowing the expansion still looms, as regulatory burdens are not transitory.

Does that mean “stagflation”?

Stagflation is stagnant growth with high concurrent consumer price inflation. We think we will continue to have good growth, so stagnation is not the base case. But stagflation has an evil twin, what some have called “Japanization,” given the two lost decades of Japan’s economy – long-term economic stagnation without inflation despite expansionary monetary and fiscal policies.

In the U.S., we now see increasing regulation, especially in energy, banking and climate-targeted mandates, proposals for higher taxes and “free money” via MMT. If, thanks to these policy developments, we don’t sustain the recovery, we think the near-term risk feels more like Japanization than stagflation.

We have, and we expect to continue to have, a robust recovery from the economic doldrums of 2020, but, needless to say, rerouting trillions from the private sector to the government can easily derail it. Should some version of the massive spending, tax and regulatory bill make it through the House, only two Democratic senators, each from the largely Republican states of Arizona and West Virginia, would stand in its way. It bears watching but, for now, we think there’s a good chance to continue our sustainable expansion that will support current market valuations.

Growth-Inflation Matrix

© 2021 Conning, Inc.

Forward-looking statement disclosure: These materials contain forward-looking statements. Readers should not place undue reliance on forward-looking statements. Actual results could differ materially from those referenced in forward-looking statements for many reasons. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying any forward-looking statements will not materialize or will vary significantly from actual results. Variations of assumptions and results may be material. Without limiting the generality of the foregoing, the inclusion of forward-looking statements herein should not be regarded as a representation by the investment manager or any of their respective affiliates or any other person of the results that will actually be achieved as presented. None of the foregoing persons has any obligation to update or otherwise revise any forward-looking statements, including any revision to reflect changes in any circumstances arising after the date hereof relating to any assumptions or otherwise.

Future of Digital Insurance Claims

What’s driving your digital claims transformation programme: COVID? Competition? Or cost? Whatever the answer, we could be in danger of leaving the customer out of the equation in the rush to digitize and automate insurance processes. 

This is the warning ringing out from a recent research report from IT analyst Forrester, which found that consumers don’t trust “black box” digital claims processes and would much rather speak to a human being. You heard that right. 

Throwing Technology at the Problem

That observation has implications for insurers that have invested significantly in digitizing claims processes to alleviate the cost of call centers and replace manual processes with automated ones. Digitizing was the prevailing advice to insurers from the big consultancy and tech firms, which have argued that digitization leads to improved efficiency and better customer service.

Organizations are rapidly introducing piecemeal tech features to solve a problem, such as chatbots, online customer self-service and photo apps, but from a technology — rather than a human — perspective. While these additional services can certainly bring efficiencies to the claims handling process, it is vital to give your customer service agents, loss adjusters and claims managers what they need to provide the human touch. 

It could be time to take a more user-centric approach, reimagine the customer journey and find out what customers actually want. 

Reaching Out

While insurers have been busy adding self-service features for elements such as first notice of loss, the adjustment process and payment, Forrester found that 56% of survey respondents prefer to work with a person rather than use digital self-service tools. 

In fact, customers may well file a claim online using self-service, only to follow up straightaway with a phone call to confirm that the process has worked. This undermines the point of the digital enhancements, which are meant to lessen the load on claims and contact center resources, Forrester says. And it also means the features are not necessarily saving the business money but doubling up on customer touchpoints.

Even the most tech-savvy customers call to follow up, says Forrester principal analyst Ellen Carney, who co-wrote the report. This is mainly because they want somebody to explain what is going on behind the scenes regarding the insurer’s decision-making and process. 

The Human Touch

Claimants crave the human touch, Forrester notes, perhaps after experiencing a traumatic event: a fire, flood, accident or loss, and this desire should prompt a rethink. 

It isn’t an argument against claims process automation, or AI features that speed up claims assessment, such as natural language document screening and virtual assistants, or data analytics that improve risk, fraud and post-claims reviews. 

However, the kinds of capabilities you may need to prioritize are the ones that enable your people to be more effective in delivering an empathetic experience and being more human. These could be where you make your efficiencies, speed up your processes and build trust and relationships that are profitable in the long-term.

See also: Designing a Digital Insurance Ecosystem

A User-Centric Approach

The end-to-end (E2E) claims process is clearly larger and more complex than simply the part the customer sees. This is a key reason why customers choose to call the insurer as well as communicating online. However, it’s not enough just to streamline and automate those internal processes. Insurers need to take a user-focused approach and prioritize and identify the areas that need investment.

The goal may be to bring greater transparency to opaque internal systems, or to dramatically improve and humanize the elements of the claims process that matter to the customer. You can then build the other parts of your services around the IT intervention in a way that supports and enhances the whole process.

For many insurers, the E2E process is held over multiple systems, with no single point where they can add value to a customer interaction. So, to enhance and free up staff to focus on the “golden moments” of the process will mean investing significantly in systems and processes in multiple areas. 

There is an alternative, however, and that is to design the E2E process by centering it on the user and aligning your business to respond quickly to changes in customer needs.

Move Fast, Fix Things

Amazon founder Jeff Bezos talks about a Day 1 philosophy, which is that the organization should always have an entrepreneurial, start-up mindset. This enables it to make high-quality, high-velocity decisions. The mindset also provides the flexibility to avoid a one-size-fits-all decision-making process, and the ability to pivot quickly. 

“You need to be good at quickly recognizing and correcting bad decisions. If you’re good at course-correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure,” Bezos advises. 

Incorporate Design Thinking 

A more human-centric, responsive and personalized approach could involve incorporating design thinking from the start, where you first empathize with the user and research their requirements; then define their needs and problems, create ideas, prototype your solutions and finally try them out. Design thinking could make the difference between presenting your customers with an opaque black box claims system, and one that is more interactive, transparent and customer-centric.

Adopt an Agile Approach 

Defining a new process up front and then trying to build it into everyday operations rarely works, and the customer needs are ever-changing. What works today may change in a year. Your approach must be able to respond to change, so you need an approach with agile thinking at its core. This is as much about a mindset and approach as it is about development techniques and technologies. 

Make Streamlined Decisions

At WORTH, one of the biggest blockers we find working with clients is the processes they use to make decisions. However, we find that when they are prepared to change their approach to decision-making, and perhaps incorporate multi-discipline teams, flatten their decision-making structures and empower individuals to decide and act, businesses are open to course-correcting and can take a transformed approach to innovation. 

Technology should always be a means to an end, rather than an end in itself. Let’s humanize the insurance claims process and take the industry to a new level of customer-centricity.

Boldly Insure Where No One Has Gone

Executive Summary

Space today has become big business that will only expand thanks to the excitement and focus driven by the likes of Bezos, Branson and Musk.

In the last decade, the space sector has seen over 50% growth in commercial space initiatives. The commercial portion of the space ecosystem saw $200 billion of investment in 1,500 companies.

The marketplace for space insurance today revolves around policies for physical assets, in particular satellite coverage. Coverage includes pre-launch testing and facility exposures, launch and orbital protection, as well as coverage for ground support services. For the nascent space tourism industry, the current practice is that all passengers sign a waiver of liability and assume full risk themselves. This is serving as a bridge until the insurance market can provide a solution.

An emerging insurance concern is that current policy language may not be contract-certain regarding space exposures. Even though there was never intent to provide space coverage, gray areas create Black Hole Risk. Agents, brokers, carriers and policyholders who may soon be participating in the space ecosystem must all pay attention.

Insurers need to prepare now for the exponential growth in this market segment and the growing needs of individual and corporate customers.

A Call to Action for the Insurance Industry

More crewed orbiters, payloads and satellites will launch, and space station construction is underway. By 2022, private citizen expeditions to the International Space Station (ISS) are planned, and in 2025 mobile space equipment will be launched. Space commercialization is not a theoretical concept, it is a reality. Insurance carriers must take the following steps now:

  • Review policies for Black Hole Risk.
  • Modify existing policies and procedures to ensure underwriting intent is clear for current products.
  • Review legislation to determine where commercial insurance may be needed.
  • Engage with and listen to the thousands of private entities providing infrastructure, distribution and application solutions for space as well as their brokers and agents to understand their future product needs.
  • Determine long-term capital planning to sustainably enter the marketspace.
  • Examine how participation in space insurance aligns with corporate environment, society and governance (ESG) goals.
  • Partner with experts in science, technology, engineering and mathematics (STEM) and health fields as well as reinsurers to build actuarial data and insurance models to create products.
  • Work with regulators to be at the forefront of shaping space insurance paradigms.
  • Educate and upskill underwriters, adjusters, brokers and other stakeholders for this new insurance ecosystem revolving around space commerce.

A Galactic Opportunity

The present insurance market generates $6.3 trillion in annual premiums (life & non-life) supporting a world economy of $94 trillion. The space economy is expected to reach $1 trillion by 2040, and the colonization of one million people in two centuries has been credibly proposed. With all the same insurance needs on Earth being required in a new ecosystem, the celestial insurance market could reach $67 billion GWP. This is a once-in-a-generation opportunity for the insurance industry, and preparation and leadership must occur now.

Introduction

Exploration is one of the loftier birthrights of humanity, and the desire to discover the uncharted, a driving motivation. Over time, we’ve emerged from the cave, crossed vast oceans and now we reach for the stars. The modern insurance industry has played a critical role in this bold and adventurous heritage. Since the humble beginnings in a small coffee shop in London, insurance has supported those willing to leave safe havens and venture into the tempestuous unknown.

66 years ago this month, the first space race began when the U.S. and the Soviet Union each announced, within four days of each other, their intentions to launch satellites into space. This month marks the beginning of the second space race. Instead of two national superpowers, we have witnessed two commercial superpowers, in Richard Branson and Jeff Bezos, who, in aiming for the stars, have ushered in the commercialization of space. Their celestial ambitions are accelerating the pace of innovation and a surge of growth in the private side of the space sector. As investment in the space industry proliferates, insurance professionals must prepare today for space and near-Earth insurance solutions.

The space economy is approximately $450 billion, according to the Space
Foundation. The sector incorporates infrastructure such as satellite and
rocket production; distribution, which includes Earth-based companies that
connect cosmic networks; and applications, which are services that support
enterprises reliant on satellite and other orbital systems.

There will be short-term, medium-term and long-term opportunities, which must be supported by carriers, reinsurers and brokers alike. Insurance, as an industry, has always enabled and supported innovation. The space industry will be at the epicenter of invention and advancement for decades to come. Though some of the necessary solutions can be built upon traditional coverages, avant garde approaches will also be required to mitigate more contemporary risks. This second space age will test the limits of the insurance industry, but as it has done since its founding the industry must rise to the occasion as humanity strives to expand existing limits and traverse the universe.

The Space Insurance Market Today

The marketplace for space insurance today revolves around policies for physical assets, in particular satellite coverage, which is predominantly dominated by a handful of European insurers. Coverage includes pre-launch testing and facility exposures, launch and orbital protection and coverage for ground support services. Additionally, other specialty coverages such as manufacturer’s warranties, broadcast service and other business interruption are also available. Lloyd’s of London estimates that the space insurance market is about $500 million annually for satellites and non-human cargo. With respect to pre-launch, it is estimated that only $10 million to $15 million in premiums are generated annually, indicating that the majority of risk and premium occurs post-launch, considering the value of a lost satellite can range from $200 million to $400 million.

Interestingly, space insurance is not triggered until launch. Prior to liftoff, the insured assets are earthbound and therefore covered under any inland marine policies in force. As with all current pre- or post-launch insurance, it is property-related, as human passengers have been minimal. Even in the case of NASA astronauts and payload specialists, their occupational injuries are covered by the TREAT Astronauts Act.

The current practice witnessed on the most recent flights is that all passengers must sign a contract agreeing they are fully liable for their own safety. This is serving as a bridge until the insurance market can provide a solution. According to the New York Times’ DealBook, both Jeff Bezos and Richard Branson flew into space without purchasing any liability insurance. Neither of the corporations provided comment or further detail.

See also: ITL FOCUS: Catastrophic Weather

Black Hole Risk

An interesting topic within the insurance industry the last several years has been the discussion around “silent cyber.” The term refers to the risk that policies that were not intended to cover cyber liability may in fact do so because the risk is not expressly excluded. In essence, there is a lack of contract certainty with respect to cyber liability. In this new space race, insurance companies may find their policies are not contract-certain regarding space exposures even though there was never an intent to provide such insurance. We call this situation Black Hole Risk, and it should not only be a concern for carriers but for policyholders who may soon be participating in the space ecosystem. Agents and brokers also need to consider Black Hole Risk, as policyholders who have claims denied will turn to their insurance advisers and question why they have no coverage. Insurance stakeholders should consider the following actions:

  • Review life insurance applications and policies to determine if space travel is expressly excluded.
  • Determine if the biological effects of space travel could be considered a pre-existing condition that would materially affect a health or workers’ compensation claim.
  • Ask if the worldwide coverage endorsement on a products liability policy includes space if a manufacturer’s component part product was used beyond the Karman line and a loss occurred. These are gray areas all participants within the insurance industry need to contemplate now.

The Regulatory Basis of Liability in Space

To prepare for the complexities of insuring commercial expansion in space, carriers must understand the regulations on which liability surrounding space exploration is based. Early international regulations for space exploration include the 1967 Outer Space Treaty and the 1972 Liability Convention for Damage Caused by Space Objects. The 1967 treaty contains two primary arms control provisions, including the agreement that no countries can use nuclear weapons or weapons of mass destruction in orbit or in outer space, as well as prohibiting the installment of any type of military base or related structure on any celestial body. In addition, the treaty outlines international liability for damage caused by objects launched into space and establishes jurisdiction and control as being tied to the state party that launched the object. The Liability Convention of 1972 expanded on this concept by clarifying the responsibility of the launching state and liability for compensation due to damage from space objects as well as outlining procedures for the settlement of damages.

However, there is no clear indication that the Liability Convention intended to include or even contemplated liability related to commercial passengers of space objects. The Liability Convention states that the launching country is liable without consideration of fault for damage on or to the surface of the Earth as well as to aircrafts in flight, and may be liable if found at fault for damages occurring elsewhere, such as to another space object. The liability for passengers traveling on the space object itself are not specifically represented in either of those scenarios. In addition, the launching state nationality and passenger state of citizenship may be different, which may affect the applicability of these liability standards. Further, when the Liability Convention was drafted, private sector companies were not in the market of independently conducting space launches or space flight, so the determination of the launching state was more obviously tied to a government entity or country, while today responsibility may be less clear. It is important to understand the ramifications and applicability of these regulations when considering policy language.

In the U.S., the commercial space transportation industry was once regulated by the Department of Transportation, but oversight was transferred to the Federal Aviation Administration (FAA) in 1995 with the formation of the Office of Commercial Space Transportation. The purpose of this organization is to provide regulation for the U.S. commercial space industry, maintain compliance with international regulations, protect public and national security and support commercial space activities within the private sector, lobby for changes in regulations and procedures and strengthen the space transportation industry in the U.S. As a regulatory body, the FAA sets financial responsibility requirements for commercial spaceflight in the U.S. (see, Licenses & Permits: Commercial Space Transportation (faa.gov) for details). The FAA requires that commercial launches are protected by third party liability and government property damage insurance, which provides coverage for injury to the public or damage to government property. The Commercial Space Launch Act Amendments of 1988 provide alternative methods to meet financial responsibility as well as government backing for third-party claims above the insurance requirements, up to $1.5 billion. The Space Act of 2015 affirms this government backstop but only until 2025.

The 2004 Commercial Space Amendments Act excludes regulation of onboard passengers and instead requires informed consent and a signed waiver of liability. However, as insurance professionals are aware, exculpatory agreements are not fool-proof, and negligence by an operating party may still result in a lawsuit. In the case of space travel, this has yet to be tested in the courts. Insurance providers have stated that regulators will soon require liability policies for trips into space. Data on such trips is limited, and this makes the current product difficult to underwrite and price. There is a historical death rate for space travel of around 3%, but the volume of persons in space is a small sample size (553) in comparison with the insurance underwriting and actuarial approaches for these liability policies, and a large portion of this sample population is from decades ago, so using the historical number might not adequately account for changes in technological improvements.

The U.S. government has been supportive of a robust commercial space industry, and several codes and acts are dedicated to furthering the future of commercial space exploration. Many other countries have their own form of space regulation, which are submitted to the U.N. and can be viewed online: Space Law: National Space Law Database.

Industry Outlook

The space industry’s immediate economic outlook remains speculative, yet optimistic. Opportunities exist, but there must be a willingness to plan and prepare now, for success years into the future. The U.S. Bureau of Economic Analysis wrote in December 2019 that the global space industry was $414.8 billion and employed 2.6 million workers in the U.S. in 2012. However, the space industry is not immune to the global effects of COVID-19. PricewaterhouseCoopers suggests that being “heavily tied to institutional budgets and overall wider public agendas, the space sector is expected to be impacted by changing government priorities and agendas.”

According to Morgan Stanley, “the global space industry could generate revenue of more than $1 trillion or more in 2040, up from $350 billion, currently.” The company also suggests that there is a growing partnership between public entities and private interests. Combining the forces of public institutions with private investment could result in more public interest that would push humanity deeper into space.

The word “unknown” is used to describe space not only in terms of science and understanding, but also with regard to the economic portion of the equation. The overall outlook is unknown, but many are predicting that untold riches can, and will, be made in outer space.

The extraordinary profits could be from any number of different outcomes, but there is a growing optimism about space mining. The space mining industry is currently not producing any economic gains. However, the market could grow to astronomical proportions if there is a feasible and practical mechanism to bring back elements from outer space to Earth that have the energy capacity to power all of New York City, or a new element that could cure cancer. Physics World published an article that outlined the ability to mine space by arguing that “legally, nobody can own an asteroid, but the US Space Act of 2015 allows companies to own the materials they mine from bodies in space.” Some companies are ready now to use satellites to find mining deposits undiscovered on Earth, according to an article written for the Wharton School of Business. But the same article indicates that “for decades, relatively easy access to space and the big profits to go with it have dangled elusively just over the horizon,” thus adding to the unpredictable future economic outlook overall in the space industry.

See also: Digital Revolution Reaches Underwriting

While these initiatives are not fully commercialized yet, they are not just theoretical either, and the insurance industry needs to begin addressing these very real needs. During the July 11 broadcast of the Virgin Galactic flight on Bloomberg TV, commentators provided the following insights:

  • 2018 saw 2,000 satellites in orbit, which will be 100,000 in 15 years
  • All data centers will be in space, and internet and cell cover will be uninterrupted worldwide 24/7 in 15 years
  • 600 to 700 people have already paid $200,000 for suborbital Virgin Galactic flights, which are scheduled to take off in 2022
  • Axiom plans to have all-inclusive 10-day space excursions to the International Space Station in 2022 for citizen astronauts

Insurance as a Space Facilitator

Insurance professionals must prepare today for needed space and low-orbit insurance solutions. New insurance products will enable continuous innovation within this evolving market, providing a safety net for costly assets and precious lives. However, for the insurance industry to support human expansion into space, it will need supportive partnerships, regulatory clarity and sensitivity to environmental and social issues.

Payload Share

As this world looks beyond its limits for new resources, the insurance industry can play a pivotal role in facilitating these complex expeditions. As rare earth resources become more scarce and the mining industry continues to pollute the air and land while using dangerous chemicals in its process, we are entering an unsustainable cycle. Asteroid mining could bring to Earth nearly unlimited resources relative to what is available here and do so in a more environmentally viable manner. Asteroid mining is not possible today, but as space travel technology continues to evolve and the cost becomes cheaper, we have the opportunity to turn this into a reality. This is where the insurance industry has the opportunity to partner. These projects will obviously be quite large and expensive, especially initially, so a new product or payment mechanism can be created. Aside from just a large premium on the front end, which could potentially hinder these efforts, insurers could instead use a payload share as part of the compensation for transferring these risks. Coverage limits for failure would be provided, but upon successful mission the insurers would receive a percentage of the value of the haul in lieu of or in combination with premium. Such an arrangement would align interests and aid the space mining industry in creating a safer and more sustainable environment.

Enhanced Satellite Coverage

Current single satellite launch coverage has a policy period from launch vehicle separation to establishment of intended orbit plus one year. In-orbit coverage protects the asset typically for up to 15 years. With newer satellites that can have life expectancies of 18 years or more, there may be an increasing need for extended life coverage. Additionally, satellites will be launched with increased frequency as part of a constellation of orbiters. Multiple satellites may be launched together or separately over a period. New coverage will be needed to cover not just the individual satellites but the operation as a network as well as the elongated period required to position the constellation as single satellites are added to the ecosystem.

Space Debris Abatement Coverage

As activity in both low-Earth orbit (LEO) and geospatial equatorial orbit (GEO) increases, more space debris will accumulate. As on Earth, it should be expected that commercial enterprises will be liable for space pollution. It is estimated that there are already over 750,000 pieces of space junk in orbit. Coverage for pollution legal liability or contractor’s liability insurance to support abatement companies will be needed. The European Space Agency (ESA) has already signed the first contract with ClearSpace to develop the Space Claw, a debris removal space vehicle that is expected to launch in 2025. Japan’s answer to space junk is to develop wooden satellites, which would burn up on re-entry. This poses additional insurance considerations, as the outer limits are developed, regarding the possible myriad of building material and composite options that could be used and their lifespan before failure.

Space Technology Wraps, Warranties, Construction Bonds and Product Liability

Terrestrial off-shore space sports, stellar space stations, galactic resorts, O’Neill cylinders, and colonies on the Moon and Mars, in addition to mining asteroids for minerals, water and other natural resources, will require incredible levels of ingenuity and resultant technology to develop this infrastructure. Performance bonds for technology installations and construction developments will be crucial. Extended warranty coverage on both the life of the technology as well as its optimal operational efficiencies will be sought-after protections, too.

Even less technology focused, more traditional companies may need new protections soon. Consumer products manufacturer Procter & Gamble announced in July 2021 a partnership with NASA to develop fully degradable Tide brand detergent that can be used on extended duration trips to the Moon and Mars. We will see more of this innovation from non-space focused corporations, and new products consumed in new environments will require for-the-moment coverage.

Space Catastrophe Annuity Program

While we are experiencing heady days after two successful crewed launches by Virgin Galactic and Blue Origin, inevitably there will be setbacks and tragedy. Should such events occur too early in the days of this new space age investment, interest could wane. Consideration should be given to developing a long-term, public-private insurance partnership to share in the cost of a space catastrophe. Sharing of risk between governments and commercial partners would ensure the sustainability of the drive to space. As mentioned, the SPACE Act of 2015 provides a loss back-stop for catastrophic launch events, but with a sunset provision in 2025. A longer-term concept was developed in the 1950s to encourage the growth of the nuclear industry. A space cat annuity program modeled off the Price-Anderson Nuclear Industries Indemnity Act of 1957 could serve as a more sustainable solution.

Space Tourism Travel and Accident Coverage

With space tourism quickly becoming a reality, there will soon be a market for space travel and accident coverage. As of July 9, 2021, it has been reported that approximately 600 people have reserved tickets for future space flights with Virgin Galactic. The numbers will likely increase as successful trips are completed, competition increases and prices start to decline.

Short space flights may not result in some of the more debilitating long-term effects of extended space travel, but the launch process itself creates a unique experience for the human body that could result in death or injury. Astronauts train extensively for space travel, but tourists will not be able to dedicate the same amount of time and effort to prepare. In addition, during an emergency in space it is unlikely that the vessel will have adequate medical equipment or the freedom of movement to provide medical attention to passengers in distress. In the event of a medical emergency in flight, extraction from the landing site may need to be arranged if it is remote or not near a medical facility. It is also possible that a space vessel could veer off course due to emergency, and unexpected travel may be required to return a passenger to the planned landing location. These items may be addressed with space tourism travel and accident coverage.

Reviewing a risk for insurability will rely heavily on knowledgeable underwriters who understand the mechanics of space flight, regulatory requirements and medical considerations for the screening and training of passengers. Due to the complex and specialized nature of space travel, insurers should seek partnerships with external experts who can guide underwriting requirements and train future space insurance experts to have a holistic view of the risks at hand.

Citizen Astronaut Life, Accident and Health Coverage

Additional insurance considerations include Citizen Astronaut Life, Accident and Health coverage, which pose interesting hurdles as, in many cases, coverages particular to these exposures are largely being constructed or non-existent. Which is not to say that they are not carefully being considered or sought after. For example, NASA has “called for responses from the industry for its plans for a liability framework for privately funded missions to the ISS. NASA’s plans include requiring private astronauts to buy life insurance.” There are also questions raised about which coverage types apply with regard to space tourism and whether space tourism falls under aviation or space insurance. This is particularly important in the case of death, as rules surrounding airline responsibilities have had rules and precedents established in the case of passenger fatality. The same cannot be said of space tourism.

As government employees, NASA is able to grant certain benefits and coverages to its astronauts, including FEGLI (Federal Employees’ Group Life Insurance); however, the same is not necessarily the case with private or citizen astronauts. Carriers have historically shied away from providing coverages to those in high-risk professions, and in many cases even list specific excluded professions. In the U.S. private sector, workers’ compensation coverage is required in most cases. Companies may soon have employees traveling into orbit to help with space infrastructure development, which would be a new exposure not currently contemplated in underwriting.

Similarly, accident and health policies are largely provided by employers to employees in the case of sickness, accidental injury or accidental death. With space tourism, a new version of these policies may be needed to more specifically address space-specific exposures.

Satellite-Supported Data Centers

With cyber risk being one of the most prevalent risks on the minds of top executives through the global economy, everyone from the C-Suite to the regulators to the end customer is wondering how companies are going to be protecting their data. Companies today are already looking at data centers in orbit, by building servers into satellites. These companies will be providing services to the entire commercial space industry, which will be supporting trips to the Moon, Mars and beyond. The concept of “Space Infrastructure as a Service” or satellite Internet of Things are terms with which all insurance professionals looking into space insurance should begin to familiarize themselves.

Satellite Enhanced Cat and Climate Modeling

Back on Earth, satellite imagery has long been a part of catastrophe modeling. As the number of satellites launched into space skyrockets and the technology on each satellite continuously improves, insurers will have access to a much greater availability of observational data. Insurers will be able to use this data to more quickly and accurately assess loss in affected areas. The greater coverage being provided by the great number of satellites will allow for markets to be opened up that were previously untapped or incorrectly underwritten or modeled. With more consistent, higher-quality data, insurers will be able to insure the entire globe better. If the costs get to an extremely affordable level, do we see insurers or CAT modelers launching their own proprietary satellites into orbit that allow for further differentiation within the property insurance market?

See also: A Quarantine Dispatch on the Insurtech Trio

Partnerships

Massive undertakings such as these certainly require work and collaboration from various groups, including industry trade associations, reinsurers and commercial partnerships.

As far as trade associations, there are numerous organizations engaged. The American Astronautical Society compiled a substantial list that contemplated various sub-categories such as international federations, institutes and professional associations, international space agencies, international space education organizations and U.N. organizations. This demonstrates that there is significant engagement on a global scale.

Regarding reinsurers, many large carriers are currently participating. A few notable companies include AXA XL, Hannover Re and Munich Re. Additionally, there are space products coming out of Lloyds of London, which are backed by as many as 18 syndicates, including Brit and Hiscox.

Commercial partnerships are also playing a critical role in driving space activities forward. Currently, there are three primary players in this space: SpaceX, Virgin, and Blue Origin. Backed by iconic billionaires Elon Musk, Jeff Bezos and Sir Richard Branson, these organizations have already committed to continuing their missions. Interest and demand in this area continue to grow. Richard Branson recently said that, in addition to the keystone organizations already mentioned, there is room for 20 space-tourism-centered organizations to compete for space-tourism passengers.

Finally, these partnerships depend on the support and participation of scientists and academics, without whom none of these accomplishments or goals could be accomplished.

Regulatory Outlook

In the regulatory environment, we can expect some big changes as the U.S. and other countries see greater opportunities for the commercialization of space. We believe that more clarification will emerge regarding liability and standards of care for civilians traveling on spacecraft. There will be more definition around liability stemming from launch site location/control and clarification in regard to questions on whether citizenship plays a role in liability determination. The U.N.’s Office for Outer Space Affairs will continue to advocate for the peaceful use of space and will continue supporting their core guidelines, including:

  1. Setting policy and regulatory framework for space activity
  2. Promoting the safety of space operations
  3. Encouraging international cooperation, capacity-building and awareness
  4. Promoting scientific and technical research and development

Environmental Considerations

This new space age coincides with an increased focus on environmental, social and governance (ESG) issues. As commercial enterprises push into space endeavors, their insurance partners need to consider how they align their support of policyholders with their own corporate ESG values.

The most obvious issue in this area is the pollution of space. As mentioned, a problem with space junk already exists. Carriers can promote environmental safety by supporting the innovations of space debris abatement technologies. Space initiatives also provide the opportunity to mitigate climate change here on Earth. Space mining has the potential to eliminate the need to extract fossil fuels from the Earth as well as create additional supplies of water. On CNN, during the Blue Origin launch broadcast, Adam Frank of the University of Rochester commented that space mining could allow for one million people to live in space in the next 200 years. These advancements would reduce global warming, and with more jobs and new places to live could also address income inequality and overpopulation. Insurance companies that back these industries would be doing so aligned with their ESG aspirations.

Conversely, however, an exponential commercialization of the outer limits would have more satellite constellations in orbit, more space traffic and a higher likelihood for collision, creating more junk in space and possibly debris falling to Earth. We also must recognize that, while colonization of space could be attainable in the next century, in the meantime, with billionaires speeding to the Karman line, there is the potential for a widening of inequities.

Insurance carriers therefore not only have to weigh the financial aspects of risk vs. reward when deciding if they want to deploy capacity in support of this new space age, but also how their method for choosing whom to support aligns with their corporate values.

Key to striking this balance is a robust governance framework. As discussed, partnering with stakeholders from investors, customers and regulators, to technology experts, reinsurers and in many cases government agencies on national security matters is critical as insurance companies decide to enter this industry sphere.

Conclusion

There is no way to know what will eventually come out of this new great space race. Throughout the history of NASA, many products have been discovered or invented that have become extremely commercially viable. These items include; camera phones, scratch-resistant lenses, CAT scans and radiography, LED lights, athletic shoes, non-detonation land mine removal techniques, water purification systems, the dust buster, ear thermometers, home insulation, jaws of life extraction tools, wireless headsets, memory foam, freeze dried food, adjustable smoke detectors, baby formula, artificial limbs, the computer mouse and the portable computer. While NASA did not set out to create likely commercially successful products, the research and ingenuity required to propel humankind into the unknown and unexplored made all of these examples possible.

This is a once-in-a-generation opportunity for the insurance industry to provide a social good to an entirely new celestial biosphere. Since its early days, the industry has supported innovation, provided security and defused and distributed risk so human endeavors are achievable. The time is now for the insurance industry to prepare and show leadership in this New Age of Space.

Insurtech Is Much More Than Just Hype

Two weeks ago, during an on-stage conversation in Las Vegas with Munich Re board member Lisa Pollina, Chubb CEO Evan Greenberg commented that insurtech’s promises of transformation are “just hype.” With that, Greenberg put a spotlight on a debate that has been percolating since the term “insurtech” was coined around 2010, when Germany-based Friendsurance created a peer-to-peer insurance community.

There is no way to know whether Greenberg’s comments were meant to provoke and engage the audience – made up mostly of entrepreneurs, insurtechs, investors and insurance industry leaders  – or whether he meant exactly what he said as dismissively as it sounded.

Either way, he was mostly wrong – and a bit right. 

Insurtech Confusion

Not only does our industry use the word “insurtech” inconsistently, but we can’t even agree on how to spell it – “insurtech” or “insuretech” and whether to capitalize it. (Regardless, let us agree that insurtech refers to the use of technology innovations designed to significantly reduce cost, increase efficiency and improve customer experience in legacy insurance industry models.) 

“Insurtech” is a combination of the words “insurance” and “technology” and was inspired by the earlier term “fintech,” which has now spawned an entire generation of “____tech” abbreviations, including in our own industry: ClaimTech, PropTech, MarTech and more. 

Entire global ecosystems have emerged to finance, support and service the global insurtech industry, from accelerators, incubators, college programs, conference and networking events and dedicated media sites and publications to new investment funds and models.    

Evidence That Insurtech Is Real

Saying something is hyped implies a misleading exaggeration of something’s importance or benefits. The insurtech phenomenon is many things but definitely not hype. Insurtech is a movement, and it is very real and highly transformative. One good measure of its importance is the success of the very event where Mr. Greenberg offered his comments: InsureTech Connect. Over 6,000 of the faithful braved the lingering risks of a pandemic to make the pilgrimage to Las Vegas to attend ITC. 

The underlying conviction driving founders and backers of insurtechs is that the insurance industry is ripe for innovation and disruption. Insurtechs explore opportunities that large conventional insurance firms are less interested in or equipped to exploit, such as offering hyper-personalized insurance policies, usage-based insurance and parametric insurance and using the new volume of data streaming from IoT-enabled sensors and devices to price premiums more dynamically and contextually.

Included in the ITC audience were a healthy number of current and potential insurtech investors whose industry is wagering tens of billions of dollars of capital on the prospects of insurtechs. 

In fact, according to a July 2021 McKinsey report titled “Insurtechs are increasingly ripe for insurer investments and partnerships,” the analysis of 2,000 global insurtechs reveals rapid growth, evolving product focus and a growing crop of innovative opportunities. The report also describes how rapidly insurtech funding has grown, identifying 1,719 deals from 2010-2021 totaling almost $25 billion globally.

Insurtech Categories

In a March 2021 Gartner report titled “Top Trends in Insurtechs for 2025,” analyst Kimberly Harris-Ferrante identified two distinct categories of insurtechs – challenger insurers and emerging solution providers – and predicted that both “will continue to gain traction and reshape the insurance industry through 2025.”  

One might argue that the challenger insurer category includes some insurtechs that do not yet pose a real threat to conventional insurers; Root, Lemonade, Metromile and even Hippo come to mind. To date, their stock market performance has been disappointing, and this could well be the category of insurtechs for which Mr. Greenberg’s comments were intended.

However, the insurtech category of emerging solutions providers has not for the most part disappointed. Many of these companies have provided attractive exits to their founders and private equity and venture capital investors as they have taken themselves public, merged with competitors or been acquired by conventional insurers. 

See also: Boosting Cyber Hygiene With Insurtech

Greenberg Was Right, But Only in Part and Only for Now

If Greenberg meant that technology and hype do not change the fundamental fact that insurance is at its core the art and science of taking risk, then perhaps he was right – in part. It’s hard to argue that a company formed in the past 10 years or less could have the depth and breadth of experience of one that has been in the business for a century, or that it can meaningfully compete with one of the largest and best-capitalized competitors in the industry.

Consider that only days after Greenberg’s comments, Chubb announced the acquisition of Cigna’s Asia business to increase their A&H market reach for $5.75 billion in cash. Conventional insurers are certainly best at the “art” aspect of risk taking.   

But as far as the value of experience in the “science” part of risk taking, legacy approaches and models could actually become the Achilles heel of incumbent carriers. New technology-enabled information sources such as connected cars, homes and people coupled with artificial intelligence and machine learning are replacing previously retrospective underwriting and pricing models with real-time, contextual and dynamic data models that enable insurers to price risk more accurately, fairly and ultimately more competitively and profitably. 

The insurtech movement is real and important and exciting and valuable and is quickly evolving. It can be described in many ways – but not as mere hype.