Tag Archives: property & casualty

Provocative View on Future of P&C Claims

Property/casualty claims is destined to transform more than any other area of the insurance business over the next decade.

Many may see that as a provocative statement, especially with all the attention on distribution and underwriting. After all, there are so many new entrants, insurtech startups and new technology solutions aimed at disrupting or transforming distribution and underwriting that it may seem difficult to justify the statement that claims will transform even more.

To be sure, distribution, underwriting and other areas of insurance are undergoing transformation and may look quite different a decade from now, with significant variations by line, of course. But, keep in mind that claims is already a complex and sophisticated part of the business, with high levels of expertise, extensive partner networks and major usage of technology. In addition, claims touch points are even more critical in today’s environment of heightened customer expectations and insurer focus on improving the customer experience.

See also: New Power Shift in P&C Insurance  

But back to the initial provocative statement – let me provide some rationale for why I believe claims will be very, very different a decade down the road. No one can predict exactly what claims will look like in 10 years, but here is a view on what is likely to change significantly – in some cases radically:

  • New Products: Insurers already have new on-demand, episodic, and parametric-type products in the market. The advance of technology continues to create new risks that insurers are covering (such as cyber risk). Managing claims for these products is often different. Many of the new small-premium, high-volume types of products will require fully automated claims processing, including those triggered by smart contracts.
  • Liability: Manufacturers of autonomous vehicles, IoT devices for property and other connected-world devices may choose to take on the liability of their products. In this case, the claims that do occur may be handled by the manufacturer, TPA partners or insurers that may be underwriting the risk. In addition, there are many uncertainties about which parties will be liable in complex new connected-world ecosystems.
  • Prevention and Mitigation: The real-time, connected world affords insurers the opportunity to assist customers with risk management. This means that there may be a fusion of loss control engineering and claims as the focus shifts from post-incident indemnity to prevention and mitigation.
  • Repair/Replace Changes: The physical objects that insurers insure are becoming more automated, and many new types of devices are appearing in homes, farms, vehicles and factories. This will affect damage estimates and approaches to repairing and replacing lost, stolen or damaged items.
  • Partnerships: Insurers are already quite experienced at partnering in the claims area. However, the supplier landscape is changing, and insurers must determine the best way to partner with new providers of connected devices, solutions and services.
  • Technology: AI and machine learning for automated damage assessment and fraud detection; visualization and location intelligence for CAT planning and real-time deployment; mobile, self-service FNOL for more types of claims; and other technologies like these will make major inroads into the claims environment.

See also: Keys to Loyalty for P&C Customers  

These areas will all warrant attention by claims executives. The drums of change are now beating – and real change will start to be felt in the next 12 to 18 months. When all these things are considered, I believe that major transformation is in store for claims. And for many insurers, it is going to be earth-shattering.

How Insurance Fits in Financial Management

There’s no better time than the present to shed light on an integral, yet commonly overlooked, aspect of financial planning: property and casualty (P&C) insurance needs.

New data from Chubb and Oliver Wyman finds that just 28% of financial advisers address their clients’ P&C insurance needs—leaving clients exposed to significant gaps in coverage and potential out-of-pocket costs. Yet, 77% of successful individuals want their advisers to provide this type of support.

This mismatch in expectations versus advisory services offered presents an opportunity for agents and brokers to build connections with financial advisers in pursuit of holistic wealth management strategies. Here’s how they can begin making in-roads.

Step 1: Articulate Why Holistic Wealth Management Matters

Advisers innately understand the importance of updating client financial planning strategies to respond to significant life changes—be it a new baby or new home purchase. But they often don’t know that failing to advise their clients to take the same approach with their insurance coverage can cost them millions.

Take Rick and Sue Smith. They recently moved into a new home and bought a backyard trampoline for their children but did not update their umbrella policy to reflect this purchase. One day, unexpected tragedy strikes—a friend of the Smiths’ children is injured while playing on their trampoline. Following a lawsuit, the Smiths must pay $2 million in damages.

Unfortunately, the Smiths’ standard umbrella policy only covers $1.1 million in liability—not including legal fees—and they’re required to pay the rest out of pocket. That means tapping into college savings and their nest egg. If the Smiths had an adviser who counseled them on insurance needs, they could have saved a substantial amount of money.

See also: The First Quarter in Insurtech Financials  

The unexpected will continue to happen, and it’s crucial that financial advisers ensure their clients are adequately protected. Helping them understand the P&C risk exposures their clients may face—many of which are often complex and difficult to grasp—is the best foundation on which to build a relationship.

Step 2: Explore the Roadblocks

Once advisers understand the role that P&C insurance plays in wealth management, the next step in the relationship is to help them grasp the three largest roadblocks that stand in the way of achieving holistic wealth management strategies.

First, many clients lack insurance products entirely or lack key coverages within the products they have. For instance, the Chubb and Oliver Wyman study found that, while most individuals have liability insurance, many don’t have high enough limits—similar to the Smiths. It was also shown that most Americans lack core insurance coverages, including for valuables like fine art (87%) or even flood insurance (76%).

Second, individuals who do purchase insurance often buy policies with the wrong features, largely due to using a standard carrier to cover their unique risk profile. As a result, these individuals could have an inadequate amount of coverage, overpay for features they don’t need or leave money on the table by not taking advantage of available discounts.

Third, and most importantly, clients are not receiving the right insurance advice from financial advisers. In fact, the same Chubb and Oliver Wyman research found that the driving forces behind sub-optimal client insurance protection is a lack of understanding of their risks and exposures, unpleasant prior experiences with insurers and little familiarity with insurance products.

No one expects financial advisers to become insurance experts. But, by understanding the core insurance challenges that clients face, financial advisers and agents and brokers can work together to build a holistic wealth management strategy tailored to each shared client.

Step 3: Explain the Business Benefits

Creating harmony between financial advisers and insurance agents and brokers doesn’t just benefit clients—there is also a business development case to be made.

As mentioned, more than three-quarters of Americans want their financial adviser to offer P&C support. If that isn’t convincing enough, 40% of successful Americans surveyed noted they’d consider switching to an adviser who does provide P&C support; 16% who would switch even if they had to pay extra fees.

See also: Why Financial Wellness Is Elusive  

There is clearly an opportunity for advisers to grow their business by working with agents and brokers (and for agents and brokers to increase their client base through referrals), while benefiting clients. The time for financial advisers and agents and brokers to act is now. Don’t wait.

Key Strategic Initiatives in P&C

Property/casualty personal lines are under pressure unlike at any other time in history. The risk landscape is evolving as some circumstances result in increased losses (distracted driving, increased catastrophes), while others hold the promise to dramatically reduce risk (autonomous vehicles, the IoT). Customer expectations and demands continue to change. Emerging technologies offer new opportunities to manage risk and improve operations. New competitors and partners are surfacing every day via insurtech startups and greenfield insurance ventures.

But the industry is not standing still. Personal lines insurers are pursuing a dozen strategic initiatives that are propelling them to a stronger competitive position.

The strategic initiatives include both traditional initiatives, such as business intelligence and core modernization, and new world initiatives like investments in insurtech and a digital strategy. Creating a unified strategy with the right blend of traditional and new world initiatives is the challenging task of senior leadership today.

See also: Insurtech in P&C: It’s Not About the Tech  

Three of the traditional initiatives are further along in the implementation and deployment lifecycle: core systems modernization, business intelligence and advanced data/analytics. In a sense, these are the most foundational capabilities needed by insurers for success in the digital age.

Two of the traditional initiatives are primarily in the strategy and planning stages: innovative products and services, and the restructuring of the workforce. Personal lines have not historically been known for product innovation, relying on tweaks to coverages and services for the same basic products for many years. Now, a new generation of opportunities is upon us with the advent of on-demand insurance, parametric insurance, episodic insurance and coverages for emerging risks such as cyber. From a workforce perspective, the industry is on the front edge of massive retirements of insurance professionals, leading to the need to introduce more technology to support the workforce (collaboration tech, AI), increase recruiting efforts and rethink business models.

While the traditional initiatives are vitally important and foundational, it is the new world initiatives that hold the promise for more competitive differentiation. Improving the customer experience and becoming more digital are the two initiatives that have been underway for several years at many insurers, and they continue to pick up steam. Newer initiatives such as investing in insurtech and emerging tech are earlier in the strategy and planning stages, but important activity is underway there nonetheless. Almost half of personal lines insurers are developing strategies to deploy new business models, an indicator of how much rethinking and transforming are actually underway.

This is a significant time of change and transformation for the personal lines sector. The next five to 10 years are likely to produce more than a few surprises, with new products, new competitors, new distribution options and the impact of insurtech and emerging tech reverberating across the industry.

EY’s Outlook for L&A, P&C in 2017

The coming year promises to be a year of continued disruption on several fronts for the insurance industry, including consumer demands, digital technology, cybersecurity and the shifting political landscape. The slow growth of the U.S. economy, coupled with market shifts, will also be prominent factors in 2017.

Insurers are looking at machine learning to make underwriting decisions. They are looking at all kinds of data, from medical to behavioral. They know they cannot take months to underwrite a policy. They need to do it in days – and, soon, even quicker.

This is an ideal time to make plans that take into account the future of the nature of work. Insurers now have the opportunity to introduce new technology, such as robotics, and more effective workforce management activities. By taking out repetitive tasks, they can produce an even more industrious and stimulating work environment for people.

See also: One Foot In Healthcare: Property And Casualty Payer Integration  

Below are the top strategic priorities from the 2017 EY U.S. life-annuity and property-casualty insurance outlooks.

Life-annuity strategic priorities

  1. Prepare for regulatory change. From rules on consumer protection and transparency, to financial solvency and cybersecurity – and now a potential shift in overall policy direction – the regulatory landscape for life insurers has never been more complex. Insurers should develop a strategy to comply with the new Department of Labor fiduciary rule, and be prepared to course-correct; as well as confirm that internal systems can keep up with regulatory change overall.
  2. Stay centered on the customer. The customer can be a valuable compass to companies mapping a strategy in changing times. Insurers should use this resource by applying analytics to gain deeper customer insights, creating a strong cross-channel customer experience and rethinking go-to-market approaches to meet changing investor needs.
  3. Re-evaluate strategies for a changing marketplace. With the industry in transition, and a new administration taking office, this is an ideal time for management teams to carefully asses their current market position and plan for where they would like to be, long-term. In addition to reassessing strategic positioning for the years ahead, insurers should also consider using M&A to improve competitive positioning and should also look to find the right insurtech strategy for the firm.
  4. Take digital transformation to the next level. 2017 will be a year of continued experimentation, and the focus of innovation will start to shift from reducing costs to reinventing products and business models. To do this, insurers should be prepared to enter the next phase of digital innovation by getting control of data across the enterprise and by using technology to improve current business approaches.
  5. Make cybersecurity a top strategic priority. Given the vast amount of personal and health data that resides in insurance firms, and their complex vendor relationships, building a robust data security system is both crucial and challenging. To do this, insurers should look to make cybersecurity a continuous business activity by drawing on technology and people to secure data.
  6. Close the talent gap. 2017 is the year to determine the critical workforce skills that insurers will need to drive the business forward. Insurers can build new talent management strategies by assessing whether the firm has the needed talent for the future and by creating clear pathways to transfer knowledge.

See also: 4 Mandates for Agents in Sharing Economy  

Property-casualty strategic priorities

  1. Focus on customer-driven innovation. To adapt to a fast-moving marketplace and differentiate themselves from competitors, insurers must stay laser-focused on the customer and adapt their go-to-market strategies. To do this, they can nurture a culture of innovation, which will help accelerate the development of new products and business models.
  2. Use technology to drive top- and bottom-line performance. In the face of shrinking returns, insurers will need to apply advanced analytics systematically across the value chain, as well as drive costs savings by drawing on robotics to automate insurance processes and build smart technology into future plans to remain competitive.
  3. Put cybersecurity high on the corporate agenda. As with life-annuity insurers, cybersecurity is also a key topic for property-casualty insurers. In 2017, cyber risks will increase exponentially as digital technology becomes more pervasive, and cyber-attackers more sophisticated. Insurers should prepare for the next stage of cyber-risk and implement an active defensive system to protect against attack.
  4. Rethink strategies to attract, develop and retain talent. With a large percentage of the workforce retiring in the years ahead, and digital transformation accelerating, 2017 will be a good time to take a hard look at future work needs. Insurers can start by understanding the millennial mindset and identifying the digital expertise they will need in the future.

Here are the complete reports:

2017 EY U.S. life-annuity insurance outlook

2017 EY U.S. property-casualty insurance outlook

Transformation of Roof Claim Processing

The property and casualty insurance industry is on the verge of a transformation. New sources of data are creating possibilities that were previously unthinkable and are changing ingrained business processes, but they are also overwhelming companies with data. One significant source of this coming inundation will be unmanned aerial vehicles and systems (UAVs and UASs, more commonly referred to as drones).

Soon, insurance companies will send drones to inspect roofs to determine P&C claims. Gone will be the days of adjusters risking personal safety while climbing and walking roofs to gather data and assess damage.

See also: Data and Analytics in P&C Insurance  

Much attention has been paid to the new methods of data collection and acquisition. Less attention has been paid to how industry will make efficient and economic use of the new data. The advent of new collection technologies necessitates the development of new data processing methods and processes. Merely adopting new methods for collecting visual data will not lead to significantly increased efficiencies or improved bottom lines. Data handling and business processing improvements must be coupled with new collection technologies.

The Constraints: Business, Technology and Regulations

The industry has been understandably cautious in adopting new technologies that will upset decades of established practice. There are numerous sources for this reluctance, the most important of which include:

  • Scale: With the drone industry in its infancy, insurance providers have expressed concern that few (if any) drone operators could meet demand within specific markets, much less across large geographic areas. Demand for inspections could potentially far outpace the supply of drones and drone operators and could require some firms to contract with multiple operators, thereby adding unwanted layers of complexity to operations.
  • Lack of confidence in the underlying technologies: There is also considerable concern that drone technologies have not yet matured sufficiently for widespread adoption. As an example, only recently has satellite imagery begun to be used more extensively. Adopting this technology so early in its development could expose companies to unpredictable downsides.
  • Lack of turnkey solutions: Drone operators have limited or no ability to provide analytics for the image data acquired. Insurance companies either need to develop their own image analytics technology or engage yet another third party to extract meaningful information from the data.
  • New technology supplanting drones: Some companies are concerned that tying themselves to drone technology providers will set them on a path-dependent course that may prevent them from adopting and profiting from unexpected developments of new technology.
  • Out with the new, keep the old: In many cases, the objection to adopting drones is that the old ways work. Insurance companies have weathered numerous technology changes through the years and are not eager to jettison tried-and-true processes and relationships.
  • Regulations: Another major concern has been the highly uncertain regulatory environment. The Federal Aviation Administration’s initial approach was highly restrictive, requiring pilot licenses for operators and effectively shutting the door to potential market entrants. The new round of regulations, specifically Rule 333 and Part 107, will reverse the overly restrictive pilot license rule and allow competitors to enter the market and drive down prices.

Most of these issues are temporary. The regulatory environment is maturing and stabilizing to allow the growth of a new industry. Over a relatively short period, the market will sort out issues related to scale and availability, maturity of drone technology and whether a newer, superior technology could quickly supplant drones. The market pressures to adopt new technology will make it increasingly untenable to resist innovation.

The issues that will continue to challenge the insurance industry are those related to analytics and business process integration, regardless of the regulatory environment, scale or specific data acquisition technology.

The How: AI, Machine Learning and Business Platforms

Drones are only the beginning of the story. They are merely the tool for collecting visual data, albeit with greater speed, safety, quality and depth than previously available. For an industry to make profitable use of this new source of data, however, visual data must be converted into meaningful information and must integrate seamlessly with all related business processes. Information must be extracted more efficiently from the data sources. Manually performing tasks such as damage detection will no longer be economically feasible given the volume of data and speed at which it will become available.

Companies that harness technologies such as artificial intelligence (AI) and machine learning will significantly improve operations and establish clear advantages. Powerful algorithms will automatically detect damage sustained by a structure (for example, hail damage on a roof) as recorded by drones. These algorithms will be faster and more accurate than any human adjuster, able to perform in mere minutes (or less) what requires hours for humans to do, and the algorithms will be self-training and self-improving.

However, data analysis still needs to be integrated with business processes such as settlement. A platform approach that combines data analytics with business processes, making the information instantly available to stakeholders, will be the most likely method of solving the problem. A fully integrated business platform would store, analyze and report data. It would eliminate reliance on multiple software applications and systems, bringing the full scope of business processes into a single, seamless package. In the case of roof damage claims, the platform approach would integrate detection of structural damage and determination of claim value, and it would issue a report and settlement payment for the homeowner, all with minimal human intervention and within minutes of receiving the visual data. Integrating advanced data analytics and business processes will allow companies access to real-time data and improve decision making with predictive analytics.

See also: 2 Key Tools for Innovation in P&C  

Platforms will also provide the infrastructure to connect insurance companies to drone operators, as well as policyholders. Platforms will provide a market exchange or job board for drone operators for hire across numerous markets, complete with their credentials and technical capacity. Insurance companies will be able to directly interact with their customers through platform technology.

The Why: Increased Competitiveness, Improved Customer Relations and the Bottom Line

The incentives to adopt new technologies are clear. Drones can acquire data more safely, faster, at lower cost and with higher quality than satellites or an army of adjusters. However, the industry will realize greater benefits from focusing on the analytics of the new data, rather than the specific method of collection and delivery of that data. Advanced analytics will drastically reduce the time to settle claims and will standardize the claims settlement process.

Those quick to adopt the new technologies will gain early competitive advantages and efficiencies relative to their peers. Combining analytics and a computing platform approach that harnesses AI and machine learning will simplify business processes—replacing inefficient, disaggregated tools, software applications and systems—and improve decision making. Those that make this leap earlier than their peers will have the clear advantage.

Faster, more accurate and more reliable claims settlement will lead to better business planning and risk management. Powerful computing platforms will allow insurance companies to employ predictive analytics that accurately and quickly determine business risks and provide tools for mitigating those risks.

Improving the claims settlement process will yield improved customer relations. Home repairs, especially significant ones like roof replacement, are a major source of anxiety for homeowners. Reducing the time to completion of repairs through increased processing speed and standardized claims estimates will increase customer satisfaction and loyalty.