Tag Archives: personal lines

How Will Strategies Change in 2021?

Individuals with strategy and planning roles have had a busy time in 2020 adapting to the evolving realities of the pandemic and economic uncertainties. 2021 is likely to be more of the same for people in these roles. Entering into 2020, personal lines insurers were on a transformation path. Innovative and bold strategies and headline-grabbing news about new initiatives were becoming common. Every insurer recognized the need to build a strong foundation with a modern core, accelerate digital transformation and become more aggressive in areas like expanding distribution and improving the customer agent/experience. Many had moved toward parallel transformation paths – operationalizing strategies and new target operating models to optimize the business while simultaneously driving breakthrough innovation with new products, new business models and new distribution approaches. However, the events of 2020 caused many to change course.

SMA’s recent research report, 2021 Strategic Initiatives: P&C Personal Lines, provides insights 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, risk landscape and workforce shifts. Some of the big themes for 2021 include: 

  • Cost management and optimization dominate: In uncertain times, the first reaction is often to double down on expense management and operational efficiencies. To a certain extent, these areas are always a part of the equation. But in 2021, they will play a larger role as companies position for the post-pandemic environment.
  • The leveraging of transformational technologies forges ahead: It may seem counter-intuitive that companies are going back to the basics, yet at the same time are looking to implement new technologies like machine learning, bots and computer vision. But these technologies have the potential to contribute to operational efficiencies as well as provide insights to improve profitability.
  • Foundational initiatives like core modernization and business intelligence (BI) remain vital: All signs point to a constant level of high activity as personal lines insurers advance their core and BI projects. These large, mission-critical projects become even more important as companies recognize the need to have a strong foundation.

It would be erroneous to imply that innovation and “big news” type events will not occur in 2021. Even during this pandemic year, we have seen astounding IPOs, acquisitions, new products and new partnerships. Leaders will never stop innovating and looking for advantage. This will probably be the case throughout 2021, as well. In fact, bold leaders often see times like these as an opportunity to position for the next wave of growth and get even further ahead of their competitors. However, it is just as likely that most mainstream companies in the industry will be laser-focused on cost management, business optimization and successfully completing and executing projects that are already in motion. One thing is sure: Entering into 2021, personal lines insurers will continue to closely monitor development related to COVID-19, the economy, customer behavior patterns and many other dimensions that affect risk, claims and business opportunities. It will not be surprising to see adjustments to strategic initiatives happening throughout the year.

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

The Future of Blockchain Series Episode 1

Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities

A key benefit of the technology, providing a single source of truth kept up to date in real time and accessible through permissions by all stakeholders, has huge implications for the insurance and risk management industries. This webinar begins by exploring blockchain’s promise, then dives into the technology’s use in personal lines, highlighting two production-ready use cases. The adoption of this technology could save the industry $1 billion a year.

Watch to learn:

  • Where blockchain is about to make a big impact  
  • The road map for the future of blockchain
  • The status of active use cases and their testing schedule
  • How to start preparing to reap the benefits

Don’t miss this free on demand panel discussion.


Christopher McDaniel 

The Institutes’ RiskStream Collaborative

Christopher McDaniel is President of The Institutes’ RiskStream Collaborative, an unprecedented, industry-led consortium collaborating to unlock the business potential of blockchain and other insurtech technologies across the insurance industry. 

He has 30-plus years experience in the financial services industry, including in organizational transformation, process improvement, roadmap development, project management and all facets of operations and technology. He has extensive experience in Property and Casualty, Reinsurance and Life and Annuity.

Most recently, before joining The Institutes, McDaniel was a Specialist Leader in Deloitte Consulting Insurance Practices, specializing in Strategy and Operations. Before Deloitte, he was the SVP of Operations & Technology for the Insured Retirement Institute.

Patrick G. Schmid, PhD

Vice President
The Institutes’ RiskStream Collaborative

Patrick G. Schmid, PhD, is the Vice President of The Institutes’ RiskStream Collaborative, a risk management and insurance blockchain consortium. Dr. Schmid coordinates RiskStream’s consortium of insurers, brokers and reinsurers and collaborates with industry participants and technical partners. Together, the consortium develops production-ready applications that can lower costs, improve the customer experience and drive efficiency across the insurance industry. 

Dr. Schmid formerly served as the head of The Institutes’ Enterprise Research department, where he led a team of data scientists and researchers in developing analytical solutions and market insights. Prior to working in the insurance industry, he worked as an economist for Moody’s Analytics.

He was the 2018 recipient of the International Insurance Society’s Leaders of Tomorrow award.

Paul Carroll

Insurance Thought Leadership

Paul is the co-author of The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of Big Blues: The Unmaking of IBM, a major best-seller published in 1993. Paul spent 17 years at the Wall Street Journal as an editor and reporter. The paper nominated him twice for Pulitzer Prizes. In 1996, he founded Context, a thought-leadership magazine on the strategic importance of information technology that was a finalist for the National Magazine Award for General Excellence. He is a co-founder of the Devil’s Advocate Group consulting firm.

Additional Information

Blockchain has long been seen as having great promise, but somehow just over the horizon. The benefits have now become tangible and are about to start rolling out across the insurance industry. This webinar lays out the broad promise, then dives into personal lines, where blockchain will soon go into production — and where just the two use cases covered here could save the industry as much as $1 billion a year.

Who should watch:

  • Executives at P&C companies, especially in personal lines, or any executive involved in innovation
  • Technologists
  • Operations executives focused on driving down costs

Is Transformation Losing Steam?

Technology adoption in personal lines has been going on for a long time. Because of the early advent of personal auto data standards, technology adoption has been fairly easy (always a relative term). Many insurers have staked their industry competitive advantage on data and analytics – Progressive comes to mind. Others have been early adopters of advanced payment technologies – USAA is a great example. So, is it time for transformational technology adoption to plateau or even dip in the personal lines segment?

SMA has been conducting a survey on this very topic over the past decade. As one would expect, early results showed a good deal of learning and strategizing, with cautious investment. Over time, investment ramped up, as did implementations. But what about current results? Is the hype wearing down conviction?

Without reservation, we can state that adoption is not losing steam. The recently released SMA report Transformational Technologies in P&C Lines: Insurer Progress, Plans and Projections reveals that transformative technology interest and application is strong. In particular:

  • New user interaction (UI) – Chatbot technology and text messaging technology are keeping this area high on everyone’s list.
  • Artificial intelligence (AI) – Given all the iterations of AI in the marketplace, the possibilities for adoption are almost limitless, and insurers are definitely keeping initiatives in motion.

Now, I don’t think that anyone reading this blog is stunned that UI and AI are still rolling in personal lines. They both will be for a long time due to the opportunities that keep arising and the strong bottom-line impact. However, the survey does show some noteworthy things – and not for their “rolling along” status.

  • There is a good news/bad news scenario developing in the UI/AI results. Many insurers are putting all their investment eggs into these two baskets and ignoring – or at best shortchanging – other transformational technologies. It is very hard not to run toward one or two areas that are delivering early value. However, insurers need to have an even view of all the transformational technologies that affect customers.
  • The SMA survey asks responders to identify the business areas that transformational technologies will affect. One of the choices is claims. Anyone who has read my recent blog Claims – Caught Between a Rock and a Hard Place – No More! will understand that I am a huge fan of claims workers. They have a super-hard job, one that is at the very heart of what insurance companies are all about. The troublesome thing is that survey results show that claims impact was sometimes fairly low in areas where it should not be.

See also: Commercial Lines Embracing Change  

In all, the personal lines transformational technology report covers 11 technologies. It also provides a view of the impact of these technologies on 12 business areas. The trick is keeping the technologies and business impact areas in balance in terms of strategies and investment. Not every insurer will find business value in all 11 technologies; the key to keeping inertia at bay will be making conscious and well-considered decisions.

Foundational Tech for Personal Lines

The personal lines segment of the insurance industry is quite active today, with many initiatives and projects underway across the value chain. For many, the objective goes beyond incremental improvements to positioning the company for fundamental transformation. The many projects planned or in progress fall into three categories: Digital Enablement, Core Transformation and Data/Analytics. A newly published SMA research report, Foundational Technologies in Personal Lines Insurance, details the projects and initiatives underway in 2019 and beyond.

One of the major challenges we observe in personal lines is the struggle to balance the need to establish a modern, competitive foundation with incorporating new technologies to position for the future. Most insurers have very long lists of projects for things like enhancing portals; replacing or upgrading policy, billing or claim systems; and modernizing business intelligence solutions. These are the types of projects that SMA terms “foundational,” precisely because modern solutions in these areas are table stakes for success today. Incorporating innovative solutions from insurtechs and incumbent tech providers that leverage machine learning, the IoT, wearables, virtual payment technologies and more are highly desirable but difficult to build into operational plans. These advanced types of solutions are what SMA calls “transformational technologies” and will be the subject of a SMA research study and report.

See also: Emerging Technology in Personal Lines  

All the excitement and visibility tend to center on the transformational technologies, and there’s no question that there is tremendous potential for innovation that can create competitive advantage. Yet the No. 1 task for insurers today regarding technology is to ensure that the foundational technologies are in place to provide the levels of efficiency and effectiveness needed to compete while establishing a flexible base to build on. This is not to imply that insurers should wait to engage in any activity related to transformational technologies. On the contrary, it is imperative that insurers monitor, learn and experiment with new technologies that are most relevant for their business. Thus, the challenges of finding the right balance!

One other aspect of technology strategy and plans should be explored: the need to implement foundational technology solutions that already have some embedded transformational tech. Policy systems can leverage chatbots and AI. Billing solutions can begin to accommodate more advanced payment methods. Claim systems should already be leveraging solutions that use machine learning for fraud. Many other examples could be cited, as well.

Over time, the various transformational technologies will become foundational as many in the industry begin to incorporate them into their organizations. One by one, the advanced technologies will become table stakes, only to be replaced by a new set of transformational technologies, or at least by new, more sophisticated levels of the existing technologies.

See also: Insurtech and Personal Lines  

There are a wide variety of strategic choices that senior leadership teams must make today. Allocating scarce resources and budget dollars is as difficult as it ever has been, if not more so. However, the successful personal lines insurers in the digital age will be those that find the right blend of technologies of all manner to create flexible, responsive organizations.

For more information, see the SMA research report, Foundational Technologies in Personal Lines: Investment, Adoption, and Business Areas.

Where Will Unicorn of Insurtech Appear?

We are seeing a flurry of advances in the insurtech space, be it product innovations, reimagined service experience or reduced premiums for customers. A question I often get asked is why personal lines in insurance is blazing ahead of commercial lines when it comes to innovation. The easy answer is to just follow the money, specifically the funding trail.

Venture capitalists whose metric for early-stage startups is growth have rushed to personal lines as it is easier to show the volumes. Personal lines insurtech startups have focused on the distribution side of the problem – lowering the premium to increase the volume of transactions. Their lever for this rapid growth is a slick UI and a digital broker; betting on increasing throughput, consequently the adoption. In the subsequent rounds of funding, when the motive of the investors shifts from growth to profit, insurtech companies will realize that distribution is only one part of the equation, and not the core of the problem.

Insurtech companies are amazing, and they all solve a part of the problem. However, to solve systemic problems, companies need to attack improvements in the loss ratio (i.e. the product problem, not the distribution problem). More than the profitability of the insurer, the ripple effect across the insurance industry and other adjacent industries is massive (for example, think of the impact on workplace safety as opposed to underwriting workers’ compensation). So, for systemic industrial change, I think the commercial industry is better-placed than personal, even though it will take longer.

What Does the Anatomy of a Commercial Insurtech Unicorn Look Like?

Like all quick analyses, I look at this in two dimensions:

  • The opportunity
  • The execution needed  to deliver on the opportunity

Both of these point to commercial as a better option.

Opportunity Driven by Sharing Economy

The sharing economy is drastically reducing asset ownership, with car ownership in urban areas the most-cited example. This is a loss for personal auto and a gain for commercial auto (the car is going to be a computer, and cyber risk from the manufacturer will likely become the highest coverage). This trend exists in other areas, including home ownership, renting of equipment, physical storage, cloud computing etc., but it is not talked about as much.

The second shift I see happening is a fundamental change in the product structure from static to dynamic. Across all lines, the change in what you need to know upfront and what you will know throughout the life of the policy will change. The usage-based policy (sort of pioneered in parts in personal auto) will start to become the norm in commercial, despite having only a minuscule footprint currently (remember, these are exponential changes, and the initial doublings are not noticeable – think of the 0.01 megapixel camera becoming a 0.02 megapixel camera).

See also: 3 C’s for Commercial Brokers in 2018  

Executed With IoE and Machine Learning

Let’s have a look at how you can execute on these trends:

First, the current 1.5 to two touch points a year with the carrier become 365 touch points at least. The key touches in this sense are not human touches but data-driven touches. Both the upfront and post-bind data, the certainty and access of data on commercial is better, with access to personal lines data prone to consent due to privacy reasons (at least until DNA sequencers take privacy out of the equation). Meanwhile, in commercial, even if you were to replicate the existing forms (which you should NOT!) you can probably find 50% to 60% of the data — general company, financials, locations and parts of workers’ compensation, commercial auto, general liability and the directors and officers — to be as little as their names and addresses.

However, under a usage-based policy, even knowing 100% of the upfront static data is not enough; it is the dynamic IoE (Internet of Everything) data that shifts the paradigm. These IoE solutions that I talk about have already reached a level of maturity in industries such as mining, manufacturing and construction. They have been deployed in cutting machines, heating/cooling equipment, cranes, thermal cameras, traditional cameras, forklifts, trains and guided vehicles for years. This has enabled a level of sophistication in IoE solutions, which has data from running mission-critical systems (PLCs, data loggers, historians, etc.)

But why would a manufacturer or a construction company give a carrier this data?

Come to think of it, the true financial incentives to increase safety and decrease risk have never existed before! This has to come in to create a win-win scenario between the insured, its employees and the carrier. Despite the commercial insurtech not taking as much premium upfront, it will get to unlock many other opportunities, simply due to the data and touch points it has.

As you may have realized by now, other than driving loss prevention, what a commercial insurtech really does is switch the insurance from someone/something like the insured (“broad risk pools”) to someone exactly you (i.e. “pool of one”). One can argue this can be achieved on the wellness side with device data, but the industrial automation data has been collected and proven across many industries for 20 years now. The wellness data is just starting.

Disintermediation – Stating The Obvious

So far, we have got to the shape of this active, personal commercial insurtech unicorn. However, it would be remiss of me to not briefly talk about its distribution structure.

A traditional carrier spends around 30%-plus of direct written premium (DWP) between expenses and commissions to “touch” an insured 1.5 to two times a year. Now, if you want to be able to continuously “touch” an insured, both the acquisition, retention and renewal structure has to be re-imagined bottom up for it to scale. One thing is for sure that in a world of IoE and machines, “human” intervention is minimal; people simply will not be able to handle the volumes and variety of data. So, there is no chance a commercial insurtech unicorn will be intermediated.

None of this is just gleeful optimism; I will admit to there being regulatory hurdles. Despite having regulatory “sandboxes” setup, it is a massive step up for traditional regulators who are grounded in easy-to-regulate forms and structured data to switch to on-the-fly decisions, price adjustments made by machine learning algorithms and data flowing from the IoE devices. I see the legal and regulatory skills needed to maneuver the commercial insurtech company to being a unicorn to be as big, if not bigger, than the technology and algorithmic skills. This cannot be underestimated. My hope here is that ultimately any regulatory body remembers who they are regulating for: the insured.

See also: New Era of Commercial Insurance  

To Sum It Up

You can see an outline of what a potential commercial insurtech unicorn would look like. Instead of being reactive, impersonal and intermediated, the successful company will likely target loss ratio improvement with active, personal service, powered by a large network of data partners, commercial IoE partners and machine learning partners. To operate at a global scale, this unicorn will have to have low cost per digital touch, and hence it will likely be disintermediated.

There is already a large (and growing) opportunity for an insurtech to target major commercial segments in commercial packages, commercial auto and workers’ compensation. The solution options are massive, but the problem space is even bigger. As a word of caution, it isn’t just about technology here; the ability to carefully guide the company through the many regulatory hurdles is also essential.

I look forward to seeing the first commercial insurtech unicorn. I wonder who it will be?