Tag Archives: propertycasualty

Blockchain: What Role in Insurance?

Blockchain is a revolutionary technology that could fundamentally change the way business is conducted and result in the restructuring of major industries. At least, that is the view of some prognosticators. Others believe that there are important implications for the technology, but that it will not be truly disruptive. What about insurance? Will blockchain be a major force in the industry, and, if so, when?

New research by SMA sheds some light on these questions. The short answer is that blockchain is likely to play a major role in the reshaping of insurance – but the big implications are two to three years out.

Blockchain has burst onto the scene. Many in insurance are still just becoming aware of its importance and are in learning mode. At this stage, slightly more than half of property/casualty insurers are aware of blockchain and are beginning to understand its implications, while only about 20% of life/annuity insurers surveyed know about the technology. What makes blockchain so powerful is the wide range of potential use cases. As a foundational technology, it becomes an enabler for peer-to-peer insurance, micro-insurance, digital currencies/payments, smart contracts and the exchange of all manner of sensitive documents. None of these require blockchain, but, in every case, blockchain makes the transactions more secure, improves efficiencies and makes new business models more feasible. L&A insurers see the exchange of sensitive documents with prospects and customers as the top potential use case for blockchain in the next few years. P&C insurers are looking to a wider range of use cases with high potential, such as micro-insurance, peer-to-peer insurance and digital payments.

See also: How Will Blockchain Affect Insurance?  

All sectors of the insurance industry increasingly see blockchain as important and potentially transformative. However, the level of investment and projects are still relatively low. About one in eight P&C insurers are developing strategies with blockchain in mind and moving to pilot projects. Only 3% of L&A insurers claim to have any activity regarding blockchain. Several of the global insurance players are participating in blockchain consortiums, investing in startups or implementing live projects with blockchain. Another important consideration is the emergence of more than 20 insurtech firms anchored by blockchain.

Blockchain does show great promise for the insurance industry. There are likely to be more projects, investments, consortiums and production implementations based on blockchain over the next two to three years as the industry gains experience with the new technology. Then it will not be surprising to see a wave of many blockchain-based initiatives ripple across the industry and become a contributing force to industry transformation.

For more information on the insurtech startups, business use cases and insurer blockchain projects, see the new research report Blockchain in Insurance: Insurer Progress and Plans, which is available at this link.

Data and Analytics in P&C Insurance

Often, it seems like the insurance industry moves slowly when it comes to technology improvements. The way insurers manage data and leverage analytics capabilities is no exception. But steady progress is being made. SMA’s recently released research report, Data and Analytics in P&C Insurance, highlights the progress as one of the key themes. The progress is observable in three areas: organizational changes to increase the focus on data/analytics, enhanced technology capabilities and the breadth of usage across the enterprise.

On the organizational front, more insurers are treating data, business intelligence and analytics as a functional area of the business, akin to finance or human resources. One-third of P&C insurers now have centralized units at the enterprise level outside of the IT function. These units are increasingly being staffed with a blend of business and technology professionals who are focused on the disciplines of data and analytics. Chief analytics officers, chief data officers, data scientists and others are becoming more common, as quantified in our research report.

See also: Data Science: Methods Matter (Part 4)

Technology capabilities also continue to advance — with significant investments continuing to be made in traditional business intelligence — while more companies invest in advanced analytics and big data. Big data is a game-changer for a number of business areas, with significant percentages of insurers now citing applications such as pricing, customer segmentation, actuarial analysis, fraud, etc. as big opportunities.

BI and analytics usage is now penetrating every area of the business. Pilots and projects from the 2014 time frame are now in production — with areas such as customer segmentation, underwriting profitability and new business analysis now implemented. The next wave of business projects are in progress in areas like customer lifetime value, underwriting operations and CRM.

See also: Analytics and Survival in the Data Age  

The trends, projects and investments featured in this research report are important for insurers to consider because data and analytics are increasingly becoming a primary source of competitive advantage. Data has long been considered a strategic asset by insurers, but now the scope of the data is expanding, the technologies and tools are becoming more sophisticated and the expertise of individuals is advancing.

Insuring a ‘Slice’ of the On-Demand Economy

In our emerging on-demand economy, Blue Ocean strategy will abound for P&C and life and annuity (L&A) In this post, I will focus on the Blue Ocean strategies that are needed in the P&C insurance industry.

The essence of Blue Ocean strategy, as discussed in W. Chan Kim’s and Renee Mauborgne’s 2005 book Blue Ocean Strategy, is “that companies succeed not by battling competitors but rather by creating ‘blue oceans’ of uncontested market space.” Society’s expanding on-demand economy is generating newly uncontested P&C insurance markets.

These new insurance markets are being formed from the blurring of consumer and corporate exposures that have historically been considered separate exposures by insurance companies, intermediaries, regulators and customers.

My objective in this post is to discuss the emergence of a new insurance player, a licensed insurance intermediary, that offers insurance that the Transportation Network Company (TNC) drivers—specifically Uber and Lyft drivers—should purchase to protect themselves, their ride-share vehicles and their passengers.

TNC drivers have insurance requirements for all three time periods

From the moment they “tap the app on” to the moment they “tap the app off,” Uber and Lyft drivers generate a fusion of personal and commercial automobile insurable exposures. The fused automobile insurable exposures are in play throughout three three time periods during which drivers need to protect themselves; their personal vehicles being used as ride-share vehicles to pick up, transport and drop-off their passengers; and, of course, their passengers.

The three time periods are:

  1. Time Period 1: This period begins when an app is turned on or someone logs in to the app but when there is no ride request from a prospective passenger. The driver can be logged into Uber, Lyft or both, but the driver is waiting for a request for a ride.
  2. Time Period 2: This period begins when the driver is online and has accepted a request for a ride but has yet to pick up a passenger.
  3. Time Period 3: This period begins when the driver is online and a passenger is in the car but has yet to be dropped off at the destination.

No, your personal automobile insurer probably does not cover the ride-share

It would be foolhardy (at best) and extremely costly (to the ride-share drivers) to assume the insurance policy that covers the driver’s personal automobile would also cover the exposures the driver generates as a TNC driver throughout the three time periods.

However, there is an expanding list of personal automobile insurers that:

  • cover time period 1 for ride-share drivers—TNC companies do not provide coverage during this period; and
  • will not cancel a driver’s personal automobile insurance policy if the driver tells the insurance company she is using the vehicle as a ride-share vehicle while driving for Uber or Lyft.

But the fact remains that there is a paucity of insurers that cover the personal and commercial automobile risks for people using a vehicle as a ride-share vehicle during all three time periods.

Further, drivers could very well find themselves with insufficient coverage even if the TNC provides coverage during time periods 1 and 2.

The paucity represents Blue Ocean uncontested market opportunities

The opportunities are the drivers’ need for insurance coverage to:

  • the fullest amount possible given the requirements of each state and each driver’s situation (i.e. the cost to repair the vehicle will differ by vehicle and state where the driver operates)
  • fill the insurance gaps between 1) the driver’s personal automobile coverage; 2) what Uber or Lyft provide during time periods 2 and 3; and 3) what each state requires.

Simply put, depending on the type of vehicle the driver is using as the ride-share vehicle and the state where the driver is operating, it is entirely possible that whatever insurance the TNC provides—even if it meets the minimum requirements of the state—is inadequate to financially help the driver (Note: this is not meant to be an exhaustive list of financial requirements):

  • remediate/restore the ride-share vehicle to its pre-damaged condition;
  • pay for physical rehabilitation for the driver, passengers or pedestrians who are injured in an accident caused by a ride-share driver or a third-party;
  • pay for property remediation caused by the ride-share driver
  • pay the lawsuit of ride-share vehicle passengers who claim the driver attacked them;
  • pay for the lawsuit of ride-share drivers who claim a passenger attacked them; and
  • make payments in lawsuits brought by passengers or pedestrians injured or killed, or owners of property destroyed or damaged by the ride-share driver.

Slice emerges to provide hybrid personal and commercial P&C insurance

Slice Labs, a new player in the insurance marketplace based in New York City, is emerging to target this specific uncontested market space by providing Uber and Lyft drivers with access to hybrid personal and commercial automobile insurance for all three time periods. In a March 29, 2016, press release, the company announced it secured $3.9 million in seed funding led by Horizons Ventures and XL Innovate.

I truly appreciate and personally respect Slice for taking the time to enter this Blue Ocean market space in the “right way” by first becoming licensed in the states where the company wants to operate. Currently, Slice is licensed to conduct business for Uber and Lyft drivers in seven states: California, Connecticut, Iowa, Illinois, Pennsylvania, Texas and Washington.

Getting licensed

Moreover, Slice’s business model is to operate as a licensed insurance intermediary with underwriting and binding authority. The intermediary has become licensed as insurance agents for personal and commercial P&C, excess and surplus (E&S), and accident and health (A&H) insurance. Slice also has managing general agency licenses in the states where that license is required to sell the hybrid insurance coverage. Slice is taking this path of licensure because it is using a direct model and doesn’t plan to distribute through agents (intending instead to distribute through the TNC platforms and directly to the drivers).

Further, because this is a hybrid personal and commercial automobile insurance opportunity, Slice is designing and filing the requisite policy forms in each state where it wants to operate.

Slice is underwriting the risk, but it is not financially carrying the risk. For that, Slice will be working with primary insurers and reinsurers. Slice has not yet reached the point where it can identify which (re)insurers are providing the capability. Obviously, without having the insurance financial capacity, Slice can’t operate in the marketplace (unless Slice plans to use its seed financing and future investment rounds for that purpose—assuming that is allowed by each state where Slice wants to operate).

It is also important to know which (re)insurers are providing the capacity. I hope Slice releases that information very soon.

Conducting business with Slice

A driver purchases the hybrid policy by registering on the Slice app (registering is the process of the driver receiving and accepting the offer to apply for insurance), which triggers Slice’s underwriting process. At the completion of the underwriting process, Slice generates and sends the driver a price for the policy that will cover the driver’s fused personal and commercial automobile insurance requirements for each cycle of turning on and off the Uber or Lyft app.

Once the driver purchases the policy, Slice sends the driver the declaration page and policy in a form required by each state. Slice will send the DEC page and policy digitally if that is allowed by the state. Moreover, the Slice app will show the proof of insurance, the time periods the insurance policy is in effect and the amount of premium being charged during the time period from “app on to app off.”

If there is a claim, the driver will file the first notice of loss through the Slice app. Although Slice plans to work with third-party adjusters to manage the claim process, the driver will only interact with Slice until the claim reaches a final resolution.

What do you think?

Will this uncontested market space remain uncontested for very long? I sincerely doubt it. The addressable market is huge: every Uber and Lyft ride-share driver who does not have the requisite insurance or doesn’t have sufficient insurance (the two are not necessarily the same animal).

What do you think of Slice, of this market opportunity and of other on-demand economy opportunities that reflect a fusion of personal and commercial insurance exposures?

Next Generation of Underwriting Is Here

Have you ever seen footage from old auto shows that showcase the “car of the future”? It always seems to be some sleek looking vehicle slowly spinning on a turntable, and everyone at the show can’t wait to get one. Examples from past eras include the Cadillac Cyclone, Ferrari Modulo and Ford Nucleon.

Only problem is, those concept cars never get built. Some features may get incorporated into production vehicles, but, in reality, that shining vision of the future never materializes.

Some people see underwriting technology the same way. “Sure,” they say, “the features and functionality of a modern underwriting system sound really cool, but the promise of underwriting technology that truly transforms business results is just a fantasy.”

See Also: The 5 I’s of Underwriting 

In reality, the next generation of underwriting technology is already here. It’s in production, it inspires real business value and a good number of forward-looking insurers are enjoying the ride!

Property/casualty insurers are more engaged than ever in innovation initiatives, and strategy meets action (SMA) research ranks underwriting as one of the most highly targeted areas for investment. That’s because today’s underwriting technology—especially in the form of dedicated underwriting workstations—is actually delivering on the promises of data-driven, workflow-optimized risk evaluation processes. Underwriting workstations are streamlining the underwriting process, making underwriters more efficient and helping to increase collaboration with producers. And, most importantly, underwriting workstations are giving underwriters access to a host of data and tools for better risk decision making, all while lowering loss ratios and driving profitability.

Underwriting is often referred to as the engine of property/casualty insurance. The more underwriting operations are consistent, optimized and streamlined, the better the outcome. As insurers look to innovation strategies to advance their businesses, SMA’s outlook on industry trends indicates that underwriting workstation technology is playing a vital role in reshaping the underwriting process. Underwriting workstations stand out as a winning innovation investment because the real-world experiences of insurers that have already embraced the technology are a solid indicator of the benefits.

Today, insurers continue to face challenges with legacy underwriting processes. From long processing and turnaround times to agent and underwriter communication delays and manual or paper-driven workflows, operational pain is often a standard fixture in conventional underwriting. Such restrictions actually discourage an environment for innovation, keeping underwriters from what they are meant to be doing: making the best possible risk evaluation decisions, as quickly as possible.

The business and technology justifications for investing in advanced underwriting technology are plentiful. In fact, insurers are investing in modern underwriting technology and data environments as a foundational layer for business transformation. It is increasingly possible to make smarter, more informed risk evaluation decisions by using responsive, dedicated underwriting workstations that are connected to new sources of data and predictive models. The ability to access, assemble, manipulate and interpret risk information from a centralized, connected system is creating new opportunities for better and more consistent underwriting.

More than ever, insurers are able to leverage modern underwriting workstations to offer the best coverages or exclusions at the right price. Those insurers with underwriting workstations in place have seen high returns on their investment. They experience growth in direct written premium, improved quote efficiencies, accelerated submission appraisal and see a boost in risk assessment productivity.

Underwriting workstations sharpen the focus on actual risk evaluation, eliminating low-value tasks and the need to hunt for information. The solution increases the level of consistency, discipline and knowledge-sharing across the enterprise, through built-in rules, check lists and required supporting documentation before an application is allowed to move forward.

Insurers may have aging technologies that perform key functions satisfactorily but, at a minimum, mandate underwriters access multiple systems (CRM, policy, billing, claims, loss control, etc.). The deployment of underwriting workstations insulates underwriting teams from having to maneuver in multiple systems to fulfill their tasks. Instead, data from diverse platforms can be made available to underwriters in the single, stable user interface of the underwriting workstation.

It is a popular notion that policy systems alone can efficiently support the underwriting workflow. But the need for increasingly complex and data-driven risk evaluation precision—particularly by commercial and specialty lines insurers—indicates that a more sophisticated underwriting technology platform is required. Indeed, underwriting workstations can have the highest value when integrated with modern policy systems. The combination establishes a strategic and scalable enterprise platform, adding previously unattainable capabilities such as multi-line proposal workflows, full insured/account views and team-based underwriting.

See Also: AI’s Huge Potential for Underwriting

Workstations also give agents and brokers access to the full underwriting process, making for easy collaboration and faster turnaround times. Producers and underwriters can share documents, notes and e-mail, providing real time visibility into the submission process for new business, renewals and endorsements.

With underwriting workstations, managers gain support for regulatory and compliance requirements with systematic audit trails, and executive management gains deep insight around entire books of business. The organization also gains new strategic capabilities such as multi-line, account-based underwriting and becomes positioned to rapidly scale and expand products or lines of business.

As data sources predictably grow and become more available, underwriting workstations allow insurers to leverage new sources of risk information. SMA research shows that more than 50% of property/casualty insurers are currently using data and analytics for underwriting and risk management, with more than 10% piloting data and analytics solutions and 25% planning to use those solutions in the next three years. The research indicates an increased reliance on varied and external data—such as geospatial models, catastrophe models, telematics and other sources—to support underwriting decision making, and it is helping increase profitability by eliminating risks that may currently be indiscernible in the underwriting process.

While the ability to fully incorporate new data into business workflows continues to evolve, one key imperative for insurers is to improve their technologies and tools in a manner that informs and improves the underwriting process but does not further overburden underwriters with having to locate and integrate risk data. Insurers that capitalize on analytics in risk decision-making are able to accelerate growth and improve profitability. Therefore, data and analytics capabilities must be integrated within the underwriting workflows, and they must provide contextual analytics based on the risk being evaluated by the insurer. Underwriting workstations facilitate integration of multiple data sources and analytics, and they provide context based analytics at the point of the underwriting decision.

So when insurers are looking for next generation technology to improve underwriting efficiency and boost the precision of risk evaluation, they don’t have to wait or compromise. Unlike those concept cars of the future that never see the road, underwriting workstation solutions are already here and are tearing up the tracks.

2 Key Tools for Innovation in P&C

Imagine this: two separate kingdoms, the kingdom of P&C insurers and the kingdom of agencies and brokers. Within each kingdom, each insurer and agency is represented by its own little house, and every little house has a door. Each door can open both ways and represents a way to communicate and share data – and these kingdoms need to share lots of data.

The only way to send data between houses is to build deep trenches. Building a trench is difficult, expensive and time-consuming. And the P&C insurer must dig the trench to each agent or broker, then knock on every agency’s and broker’s door to see if they will open it and allow data to be shared.

In the world I have described, insurers are very busy building these trenches to the agencies and brokers. Insurers spend a great deal of time, money and resources. Yet, when the insurers finally get to knocking on all the doors, they find that some agencies have their doors wide open and are ready; that some will open their doors eventually; but that others have no desire to ever open their doors.

What’s more, many insurers won’t fund the trench digging, so agencies may want a connection but are left without the trench.

For the kingdoms of the insurers and of the agents and brokers, the system is not built for success.

What I just described is reality. Insurers and agencies have to share data for policies, billing and claims. But the cost, risk and payback are deterrents. Even the will to communicate is not always there.

The formalities and costs to share data are what I described as trenches. Missing or incomplete “trenches” result in missed opportunities, inefficiencies, misinformation and misunderstandings. For example, what an insurer might view as a small book of business not worth investment might be a huge book for some agencies. Sometimes, the lack of understanding between the two “kingdoms” can be astounding.

Yet we continue to go down this path, just as we have for many, many years.

We have an opportunity to rethink our situation. Two key tools of innovation can bridge the gap between insurers and agents: ideation and crowd sourcing. These may sound like buzz words, but, by allowing varied groups to have a voice in solving challenges, ideation and crowd sourcing can allow decision makers to see data trends across segments of organizations. More importantly, ideation and crowd sourcing can offer solutions to challenges for little to no investment through the ideas of people who wouldn’t otherwise necessarily have “a seat at the table.”

We know what we hear from agents: that, as we described in the “two kingdoms,” sometimes there are agent houses with no trenches even being built to them. We also know that insurers sometimes find that, even after all the work of establishing trenches, some agents keep their doors closed. Utilizing innovation tools to communicate these pain points and search for a better method of business is a great step forward.

But what can insurers do right now to solve the challenge of the two kingdoms?

In the short term, insurers can demand that all leading vendors of agency management systems and policy administration, billing and claims management systems have adapters built in and ready for plug and play for all lines of business and transactions. This would improve implementation time, reduce investments and essentially remove the “closed doors” problem facing insurers.

In the long term, invest in ideation and crowd sourcing to redesign the connections between insurers and agencies. Listen to the pain points and notice trends. Crowd sourcing will offer powerful data to build a better system. Start posing questions to your own organization like, “How do we leverage the cloud and big data concept to rethink the 40-year-old point-to-point integrations?”

You’ll be surprised at the results and how meaningful making small changes can be. Let’s do it.