Tag Archives: p&c

The Finish Line Keeps Moving

Much has been written, and much has been done in the past decade regarding the customer experience in P&C. Progress has been made in understanding customer needs and journeys, implementing digital solutions for mobile and self-service capabilities and improving interactions with agents and policyholders. However, anyone involved in strategies and improving the CX in P&C is likely to admit that the industry is still in the earlier stages of the journey. It is clearly a marathon, not a short term, once-and-done project. But now, as a result of the pandemic and the momentous events of the last year, the race has changed.

A new SMA research report, Customer Experience in P&C: Transformation in the Pandemic Era, assesses the journey of P&C insurers. Companies covering the personal lines, small commercial and mid/large commercial market segments are profiled based on a survey of executives and SMA’s analysis of customer experience projects with insurers.

About one-quarter to one-third of insurers are in broader rollouts of customer experience strategies, with the personal lines segment being the most mature. There is a correlation between the status and maturity of CX officers and the level of overall segment maturity. There are two categories of CX-related projects that are vital to track: those that are strategy/organizational in nature and those that are oriented around technology capabilities. For example, flipping the lens from a customer service to a customer experience orientation and establishing a customer-centric culture are the top two project areas, signaling a recognition that these are foundational elements of a good CX strategy.

See also: Lessons on Reaching Customers Remotely

The project plans recognize the change that is underway. While it may be hyperbole to say the pandemic changed everything, the pandemic and all that it has entailed altered customer expectations and caused insurers to rethink and reprioritize plans. The short-term focus has been on enabling and improving self-service, digital payments and digital intake for both sales and service. Improvements will continue, but, in the meantime, P&C insurers have been taking stock of their customer experience journey – and this is where they are running a marathon. What once was movement at a steady pace has now taken on steadily increasing momentum. Virtually every insurer is accelerating digital transformation, and customer experience is an important element.

However, now that the expectations of agents and policyholders have risen, the finish line for the marathon has been pushed out. It is not as if there was ever a firm finish line where a company could claim it was “done” with customer experience. But the race is now taking some new turns, will require adaptability and may require a longer sustained effort to remain competitive.

P&C Commercial Lines in 2021

The unexpected, unprecedented events of 2020 have turned the world upside down. Like every business sector, commercial lines insurance has had to adapt and adjust throughout the year. Many commercial lines insurers have experienced significant financial hits from the pandemic due to increased claims, lower business volumes and the decreasing payrolls of their customers. Large reserves have been set aside, but the continuing uncertainty means that there may be long-lasting negative impacts to financials far into 2021. How much has the economic environment affected insurers’ strategies and plans for 2021?

SMA’s recent research report, 2021 Strategic Initiatives: P&C Commercial Lines, provides insight into how strategies are shifting. All indications are that the transformation that began several years ago will continue in 2021. However, some significant changes are occurring in strategies as insurers consider the new realities of the business environment, the risk landscape and shifts in the workforce. Prior to 2020, insurers focused primarily on level one transformation, aimed at business optimization and innovation in the context of existing business models. As 2020 approached, leading insurers were moving to level two transformation, emphasizing true innovation via new business models, new products and bolder strategies. Then the pandemic hit.

As commercial lines insurers plan for 2021, there is a movement back to level one transformation. Our research shows that business optimization continues to be the top driver of strategies, as it has been for the last several years. Innovation had risen to become a major reason for tech investment, but it has fallen significantly, and fewer executives cite it as a strategic driver. In terms of major projects, core systems and business intelligence initiatives continue unabated. These foundational systems are too important and have too much momentum to slow down. In addition, all types of digital projects are moving forward, and some are accelerating. And the increased emphasis on improving the agent/customer experience remains critical.

One of the most important things to explore in analyzing 2021 commercial line strategies is how the priorities differ for companies focused on the small commercial market and the mid/large markets. For example, those focusing on both small and mid/large markets still seek growth through their existing products, channels and markets. But insurers focusing on small commercial are more apt to seek growth through new lines and markets than those in the mid/large sector. Another example lies in distribution strategies, where small commercial is further along in expansion plans, while insurers serving the mid/large segment are still in earlier strategy stages.

See also: AI Investment in Commercial Lines

While everyone hopes for a more predictable, stable year in 2021, the prospects look uncertain, at least for the first part of the year. The scaling back on some of the more ambitious plans and concentration on operationalizing strategies from existing projects will serve the industry well in any scenario. At the same time, it is evident that leading insurers still plan to pursue the level two transformation as they tackle bolder strategies in distribution, product, underwriting, claims and operations. There are also likely to be new partnerships and new business models launched into the marketplace in 2021. All in all, the next year will be interesting and require regular monitoring of the external forces and the ability to adapt strategies and plans for success during these turbulent times.

P&C Claims: 4 Themes for the Future

Property and casualty claims is already one of the most dynamic, exciting and important areas of the insurance business. Whether we are considering personal or commercial lines, or the auto, property or casualty/medical areas, there is a lot going on. In the next decade, claims will transform more than any other area of insurance.

The extraordinary events of 2020 have placed new demands on claims that have accelerated the area’s digital transformation. Four major themes have emerged: 1) Automating operations, 2) AI for insight, 3) Augmenting human experts and 4) Associating with new ecosystems.

Automating Operations

Efficiencies in claims have been an imperative for decades – managing loss adjustment expense (LAE) to reasonable levels will remain important in any era. But now, technologies like robotic process automation and natural language processing for document intake enable us to get to new levels. Expanding digital connections into new networks also automates workflows. 

AI for Insight

The claims environment receives a lot of data from a lot of sources, making it a prime candidate for leveraging various AI technologies to gain more insight. Recent research from SMA reveals the areas in which claims executives believe AI technologies will provide the most value. Three areas demonstrate AI’s potential in claims:

  • Reporting the claim – Half of personal lines and 39% of commercial lines respondents said that AI will transform reporting. Examples would be the use of chatbots or AI-guided interviews for data collection.
  • Triage/assignment – There appears to be great potential here, especially for commercial lines, where claims can be more complex. Intelligent triage facilitates the shift to more no-touch claims and getting the right resources involved as soon as possible.
  • Damage assessment – About half of the respondents see much potential here. Even though the tech is still immature, there are already solutions and pilots in the marketplace that use computer vision and machine learning to detect damage, identify replacement parts and develop an estimate.

Every other area of the claims process will benefit from AI technologies. There are important use cases for reserving, litigation, recovery and CAT response. But fraud detection is still the number one area of potential for AI, with many implementations already in use.  

Augmenting Human Experts

There will always be a spectrum of claims handling that ranges from no-touch to high-touch. Automating operations and using AI for new insights has led many to leap to the conclusion that adjusters won’t be as valued or needed in the future. But two trends are changing the dynamics of the workforce and the claims environment.

The first is workforce change driven by natural demographics. With retirements and fewer young people coming into the claims environment, the result is a natural decline in the number of claim adjusters and professionals. The second is the effect of the automation and AI, which will result in a higher percentage of no-touch or low-touch claims. Together, these two factors will serve to elevate the role of the adjuster to focus on more complex claims. With AI tools to augment decision-making, there will emerge a different type of experienced, specialized claims adjuster that uses the technology of the future, and there will be new support roles for data/AI experts.

See also: P&C Distribution: What’s Old Is New

Associating With New Ecosystems

Property and casualty claims departments have always had complicated ecosystems – they must work with many parties for damage estimation, restoration, settlement, litigation and recovery. But now there are new players. Many offer technology-based solutions: digital payments, connected devices for rapid response to accidents/incidents, coordination of repair and restoration efforts and tapping into specialized expertise.

At its core, claims will have the same value in the future as it does today, and the mission won’t change – that is the responsibility to meet customers at their greatest time of need.

Even with all the automation and artificial intelligence, the personal connection will not lose its importance. Empathy will still be essential. And efficiently and effectively managing the process for the benefit of the carrier’s bottom line will remain vital. 

But technologies are now available to transform the roles of professionals and the products and services related to claims. The combination of operations automation, insights from AI, human expertise augmentation and advanced ecosystems will result in winning scenarios for insurers, claims professionals and claimants.

P&C Distribution: Blending Models

A great deal of activity is underway by insurers investigating or implementing new distribution channels. For every line of business across P&C, there are compelling reasons to expand distribution beyond the tried and true channels. This is not to say that agent/broker channels or the direct distribution models are less important or going away. It is more about reaching new segments, addressing new customer expectations and meeting customers at their point of need.

There are two important dimensions to the strategies: 1) determining the right mix of channels for each company, and 2) managing those channels, including any related channel conflict. SMA addresses these two dimensions in a new research report, P&C Distribution R(evolution): Blending Old and New Models

Determining the Right Mix of Channels

Depending on how you count, there are at least eight different models for distribution in P&C, and variations within each of those. There are the models most in use today – captive agents, independent agents and brokers, MGAs and, in some segments, the direct model (call center/web). Then there are those that have been around for a while but are experiencing a surge in interest, such as selling through affinity groups or bundling insurance with the product to be insured. Even worksite marketing, which has been primarily the province of voluntary benefits and life/health, is an option for P&C distribution.

Now, introduce some of the digital age models like the creation of a digital brand or selling through emerging ecosystems like smart homes or connected vehicles. And, of course, there are many insurtech distribution players now in the mix, either in the form of digital agents or MGAs, new digital brands or new affinity or ecosystem partnerships. As with many strategy options in the digital age, there is no shortage of choices. More than ever, the key is to take an outside-in view to identify more discrete customer segments, the risks unique to those segments, and the best channel to reach those customers with products that serve their needs.

See also: Best AI Tech for P&C Personal Lines

Managing Channels, Including Channel Conflict

Some insurers will stick with one primary channel and work to strengthen the relationships and the technology capabilities supporting that channel. However, many are expanding by offering new channel options. When this occurs, there is often an issue of channel conflict, especially when an agent channel has been the primary channel. This is nothing new – insurers have been dealing with this since the early days of the internet, when it became apparent that new distribution models would emerge. However, our findings indicate that the agent/broker community, in general, now accepts the notion of multi-channel distribution. It does not necessarily mean that they are happy about it, but most understand it is the reality of the P&C world today. The key for insurers is finding the right approach to differentiation.

The Future of Distribution

We expect to see a more varied mix of distribution channels for P&C. There will likely be all manner of channels. As connected world ecosystems continue to evolve around property, vehicles, farms and other areas, the paths to the customer will expand. New technologies are likely to increase exposures in some areas (such as cyber) and introduce unexpected risks that need insurance coverage. And, yes, in the midst of all this change, there will still be agents and brokers playing a key role in insurance distribution in the future.

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.