Tag Archives: six things

Heading Off Surprises

Who had “giant cargo ship” on their bingo card for possible disasters at the start of 2021? What about “derecho in Iowa” in 2020? “Global pandemic” at the outset of 2020?

Few of us foresaw any of those specific disasters. I certainly didn’t. I didn’t even know what a derecho was until the massive wind storm whacked Iowa, causing $7.5 billion of damages and some $5 billion of claims against insurers — more damage than in most hurricanes.

But some at least entertained such possibilities. And it’s time that we all broadened our thinking by returning to the too-often-neglected discipline of scenario planning.

Bill Gates warned us of the possibilities of a pandemic during a TED Talk in 2015, based on thinking akin to scenario planning — which involves developing stories about possible futures that, while not necessarily probable, are at least plausible and would require drastic action. Gates even got the contours of COVID-19 right, warning of a virus that could be spread through the air and that would have people infecting others before they knew they had contracted the disease. Gates said the world was woefully unprepared and recommended what he called “germ games,” the medical equivalent of war games, in which governments would simulate responses to a hypothetical virus and spot their vulnerabilities (in this case, their very many vulnerabilities).

Others have worried about potential disruptions to supply chains as trade has become more global, which makes something like the Suez Canal a choke point. Still others have raised concerns about the effects of climate change, such as may have contributed to the derecho.

But we keep getting caught flat-footed, with serious implications for both clients and insurers.

Now, I’m not suggesting that anyone should have predicted that a ship as long as the Empire State Building is tall would wedge itself athwart the Suez Canal for six days, holding up $10 billion of cargo a day and causing many ships to be rerouted around the Cape of Good Hope, adding weeks to their journeys.

Still, scenario planning has shown itself to be an effective tool for gaming out problems, stemming back to the pioneering work that Royal Dutch/Shell did beginning in the 1970s. According to a 2003 article in Strategy + Business, “Scenario planning alerted Shell’s managing directors (its committee of CEO equivalents) in advance about some of the most confounding events of their times: the 1973 energy crisis, the more severe price shock of 1979, the collapse of the oil market in 1986, the fall of the Soviet Union, the rise of [Islamic extremism] and the increasing pressure on companies to address environmental and social problems.”

That’s a pretty good set of warnings.

The article adds: “The method has since become widely popular outside Shell, not just in corporations but in some governments. In South Africa, for example, scenario planning played a major role in the peaceful transition from a system of apartheid to a stable multiracial government.”

I’m no expert on scenario planning, but I’ll try to seed the discussion with some classic articles on the topic.

Here is a Harvard Business Review article from 2013, which explains the history of the work at Royal Dutch/Shell and argues that, even when scenarios don’t play out as imagined, “a sustained scenario practice can make leaders comfortable with the ambiguity of an open future. It can counter hubris, expose assumptions that would otherwise remain implicit, contribute to shared and systemic sense-making, and foster quick adaptation in times of crisis.” 

Here is a 1995 article from the MIT Sloan Management Review that lays out the methodology in detail. The article says that scenario planning doesn’t just lay out lots of data about how the future might play out but “goes one step further. It simplifies the avalanche of data into a limited number of possible states. Each scenario tells a story of how various elements might interact under certain conditions…. A detailed and realistic narrative can direct your attention to aspects you would otherwise overlook. Thus [in a scenario developed for mountain climbers] a vivid snowdrift scenario (with low visibility) may highlight the need for skin protection, goggles, food supplies, radio, shelter, and so on.”

It seems that we should at least be laying out scenarios related to the possible effects of climate change — hurricanes, wildfires, derechos and other wind storms, surprising freezes like the one that shut down the electric grid in Texas, etc. (I encourage you to read this recent article from Francis Bouchard on other ways that we as an industry should respond.) The potential for civil unrest seems to be rising worldwide. Solar storms that could fry the grid? Weapons of mass destruction? A crisis with a natural resource — perhaps water?

There’s a lot to do. I’m hoping that we as an industry can both prepare better ourselves and can help clients at least be ready to adapt when the next bit of craziness happens.

In the meantime, we can celebrate that a whole lot of hard work, plus a “supermoon” full moon and high tide on Monday, freed the 220,000-ton ship blocking the Suez Canal.

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

Pioneering Use Cases for IoT in Insurance

Several early adopters of the IoT have already concretely demonstrated the potential of using this technology in the insurance sector.

Insurance Ecosystems: Opportunity Knocks

nsurers must apply unfamiliar skills – customer intelligence, speed and coordination – but can achieve benefits of scale without asset intensity.

COVID-19 Is NOT an Occupational Disease

If workers’ comp becomes responsible for common conditions that affect millions every year, it is no longer meeting its designed purpose.

Unlocking the Power of ‘No-Code’

We’ve all seen how complex and costly enterprise software can be. “No-code” tools let non-experts quickly build the systems they need.

Key to Better CX: Think Like NTSB

Airlines are rarely held up as exemplars of customer experience, but in one important respect the industry deserves such recognition.

Tip the Sales Scale in Your Favor

Yes, relationships matter, but they’re only a tiebreaker. The key lies elsewhere. And, no, it shouldn’t take two to three years to develop a client.

Time for Optimism?

In the first full week of spring, green shoots are starting to poke through the metaphorical ground in the U.S. economy, as well. It may be time to start planning for a robust rebound late this summer or in the fall, both in terms of what needs to happen as insurance employees increasingly return to the office and in terms of what will happen for clients’ and prospective clients’ businesses.

My optimism hinges, in particular, on a survey of chief financial officers that Deloitte released last week. While straws have been in the wind for weeks now as the vaccine rollout has accelerated in the U.S., I was struck that only 13% of CFOs considered the North American economy to be bad in the first quarter, down from 26% in the fourth quarter and 60% in the third. 29% said current conditions are good, up from 18% in the fourth quarter. (Only 7% consider the European economy good; 48% view it as bad, and 1% as very bad.)

We could still take a hit if capital markets reset — 83% of CFOs consider equity markets overvalued. But 57% said they feel somewhat more optimistic about their company’s financial prospects, and 10% are significantly more optimistic. Only 3% are somewhat or significantly less optimistic.

In terms of when companies will return to normal operations — whatever “normal” turns out to be — 37% of CFOs say their company is already at or above its operating level before the pandemic. 16% of CFOs expect to hit that mark in the third quarter, and another 16% predict their companies will get there in the fourth quarter.

The new normal will likely include less travel: 73% expect travel expenses post-pandemic to be between 50% and 80% of where they were before. Just 12% see travel at 81% to 100% of pre-pandemic levels, and only 2% project an increase.

While the CFOs weren’t asked about the likely working environment for their companies, in general, they provided some feedback on their function that may be instructive for others. Only 31% expect the majority of their finance staff to work four or more days on site post-pandemic; 45% expect the on-site work week to be three days.

When you step back and look at the implications for the insurance industry, I’d say that most clients, outside of those involved in business travel, will snap back — as long as a company has managed to stay in business. The hunger is there — literally — for meals at restaurants and for other social outings. (The first thing I’m going to do when I get vaccinated is hop on a plane and fly to Pittsburgh to give my nearly 91-year-old mother a hug, having not seen her except on Zoom in 14 months.) Schools will reopen, and, while the lost year in the classroom will cause problems for a long time, the rhythms of life will return for parents with school-age kids.

But I’d guess that the office environment, both for the insurance industry and for clients, will take time to sort out. There were clearly lots of advantages to working from home — I fill up my car about every six weeks — but I miss the camaraderie, and academics argue that creativity drops when people and ideas don’t bump into each other.

I’d guess that most businesses will more or less follow what the CFOs predicted, that people will come to the office three or four days a week — perhaps coordinating so that members of a group are likely to see each other — but will have much more freedom to keep doing those Zoom meetings. Perhaps keep an eye on Microsoft, which said this week that it is starting to call employees back to the office as it rolls out a hybrid model of work in the office and at home. A recent essay in Fortune offers advice on testing hybrid models — mostly on mistakes to avoid. The author reports that employee time spent on collaboration declined to 27% in 2020 from 43% pre-pandemic and says that trend needs to be reversed for a host of reasons.

In any case, having to sort out a hybrid work environment is a nice problem to have after a year hunkered down. I’m just delighted to be finally feeling optimistic. See you soon, Mom.

Stay safe.

Paul

P.S. I was also struck by an article over the weekend in the Wall Street Journal about how Blackstone has shifted its investment focus from value-based investments to growth companies. If even Blackstone sees more opportunity in growth than in spotting undervalued companies and wringing inefficiencies out of them, that has to be a good sign, right?

I’d actually argue that it’s a good sign for the economy but not for Blackstone. If it’s switching from a tried-and-true formula that has the firm with more than $600 billion under management, then the firm is running out of opportunities to work its formula. You just don’t stop minting money unless you have to.

Expertise in hyper-efficiency and in the sort of sophisticated financial tools that private equity uses don’t relate much to success in spotting and nurturing high-growth companies, so I’ll bet anybody a nickel that within a couple of years we’ll see Blackstone retrench. But I don’t have a stake in Blackstone, so I’m simply pleased that it and its hundreds of billions of investment dollars will chase growth and encourage everyone to innovate, at least for now.

P.P.S. Here are the six articles I’d like to highlight from the past week:

Transforming Auto Claims Appraisals

While the benefits of claims automation are indisputable, delivering a truly “touchless” experience will require a technological evolution.

Straight-Through Processing in 2021

Straight-through processing of claims is likely to become more common, especially in personal lines and individual life.

Analytics That Lower Spending on Claims

The secret is to unlock the potential of the large quantities of unstructured data streaming through the claims function.

Premium Leakage Due to Legacy Systems

A recent study shows that 5% to 10% of insurance premiums vanish every year due to the inefficiencies caused by legacy systems.

Geomagnetic Storm for Insurance?

A geomagnetic solar storm could create havoc; the recent freeze in the Deep South showed how disruptive a failure of the electric grid can be.

Lessons on Reaching Customers Remotely

Tech companies have mastered digital communication because they have always sold products and services to customers remotely.

Breakthrough Technologies for 2021

The MIT Technology Review’s list of technologies to watch is always intriguing, and this year it’s even more portentous than normal.

The list begins with developments in messenger RNA, which has not only delivered vaccines against COVID-19 but which may allow for other breakthrough vaccines and may even create novel treatments for cancer.

The Review also describes two developments in AI that will greatly broaden its capabilities, plus a potentially much more precise version of GPS, among several other things.

Many, if they pan out, would ripple through society and, thus, through the world of insurance. Let’s have a look.

The MIT Technology Review article begins with the startling array of possible applications for the mRNA technology that allowed for the Pfizer-BioNTech, Moderna and other vaccines for COVID-19. While the technology had never been used in humans before, the success of the vaccines shows that it can be used in highly precise, targeted ways.

There is now hope for developing vaccines for HIV and malaria, each of which kills about a million people a year worldwide and which have resisted previous attempts at producing a vaccine. The fatty nanoparticles that protect the mRNA as the vaccine is injected into a person may also be able to deliver other microscopic “tools,” such as those used for gene-editing, which might be able to cure genetic diseases such as sickle-cell anemia and remove conditions that can cause cancer and heart attacks.

The medical breakthroughs may not come for some time, so they may not be of urgent concern to health and life insurers, but it’s hard to know. Moderna designed its mRNA-based vaccine within two days of getting the full genome of COVID-19 — before the U.S. even had its first diagnosed case — and had actual vaccines ready for testing in animals within six weeks.

(Amid today’s discussions about what value will come from having people return to offices, I find it intriguing that Katalin Kariko and Drew Weissman, the two researchers who developed the basic technology for mRNA-based vaccines, began their collaboration after they met while standing in line to use a copy machine at a lab at the University of Pennsylvania in the late 1990s.)

The two developments that the Review singled out in AI likely won’t find their way into the world of insurance quickly, but they’re still fascinating.

First is OpenAI’s GPT-3, which can mimic human writing. It has its issues but can also be scary good. For instance, a Review article says that a human provided this to the AI as a prompt:

“In a shocking finding, scientists discovered a herd of unicorns living in a remote, previously unexplored valley in the Andes Mountains. Even more surprising to the researchers was the fact that the unicorns spoke perfect English.”

The AI was asked to continue the story, and it added: 

“They also were found to have perfectly coiffed hair, and wore what appeared to be Dior makeup. 

“‘We were shocked to discover the unicorns,’ said anthropologist Daniel St. Maurice. ‘They were like nothing we had ever seen before. We had heard legends of the unicorns, but never thought they actually existed.’

“When the scientists first arrived in the valley, the unicorns were surprised and startled by the presence of humans, but were also excited. The unicorns welcomed the researchers and explained that they had been waiting for them for a very long time.”

Whoa, right?

The second AI development is progress in combining language capabilities, like those provided by GPT-3, with sensing capabilities like machine vision to give AI a more natural understanding of the world. A Review sidebar says a “multimodal” AI drew a picture based just on the words in a caption. In time, the new approach could lead to devices that would take a far wider variety of verbal directions than is possible now.

That would mean everything from nice-to-haves like new forms of Alexa in the home, to more sophisticated robots in factories and other workplaces that would reduce workers comp claims. A more aware form of AI would also help in areas where AI is currently being applied, including claims and underwriting.

As for the developments in GPS, a more precise version is already being deployed via new satellites and will take us from today’s accuracy (generally within five to 10 yards) to accuracy of within one to three yards by 2023, but that’s just the beginning. Already, a Chinese system based on satellites, ground stations and a network of sensors can detect movement of ground at the millimeter level — roughly the size of the tip of a sharp pencil — from 13,000 miles up in space.

I tend to think of better GPS as improving the directions I’m given or, in the intermediate term, allowing drones, robots or automated vehicles to deliver things to me more easily, but the new GPS systems will tackle far more important problems than whether a drone delivers my pizza while it’s still hot. For instance, a Review sidebar described how the Chinese system spotted surface sliding following days of heavy rain last summer and evacuated 33 villagers days before a massive mud slide wiped out their homes. Such warning systems could greatly reduce the losses in many natural disasters.

The Review also describes a new type of battery that may accelerate the adoption of electric cars, plus a move toward “data trusts” that could blunt the control that Facebook and other social media platforms have over users.

If you’re a tenth as interested in the future of technology as I am, the list of breakthroughs is worth a look. It’ll broaden your horizons — and maybe scare you a little.

Stay safe.

Paul

P.S. Here are articles I’d like to highlight from the past week:

Pressure to Innovate Shifts Priorities

Strategic planning needs to be bold enough to match the velocity and magnitude of the changes the industry faces.

How AI Will Define Insurance Workforce

If data analytics and AI become staples in modern business, how do they solve the human resource problem? The answer is threefold.

Claims Development for COVID (Part 1)

This first article will cover COVID-19 claims data. Part 2 will provide more details on long-term medical effects.

7 Ways to Innovate With Purpose

Now is the time to ask the basic question — “what is our purpose?” The answer will align strategy, people, capital and other resources.

5 Things to Know When Integrating AI

It can be challenging to see which provider actu

Insurance Outlook for 2021

It may feel like the end of the pandemic is in sight, but the shock waves created by 2020 will reverberate for years.

Let’s Watch Our Language

During a podcast I recorded last week with Capgemini’s global insurance lead, Seth Rachlin, we went on at some length about a pet peeve of mine: the insurance industry’s archaic and often downright unfriendly language.

While I’ve hit this topic before (most notably here), I haven’t exactly seen much change in the past several years, so I’ll keep harping on the problem. I realize that not everyone focuses on language as much as I do — coming from a family with half a century as copy editors at the Wall Street Journal will shape your perspective — but I believe that insurance’s insular language limits our ability to entertain outside perspectives.

As the saying goes, “We shape our tools, and then our tools shape us.”

The particular issue that set Seth and me off is the notion of the “customer.” That’s hardly an archaic or unfriendly term — in normal use. But insurers often refer to brokers and agents as their customers. I love brokers and agents, but, sorry, they aren’t the customers. The people who pay the premiums, who face the risks, who file the claims — those are the customers.

At a time when we’re all supposedly focusing on the customer experience, how can we even begin to get it right if our language steers us toward serving those who sell rather than those who actually use our products?

Almost as bad: In just about every industry, interactions are handled by “customer service representatives.” Why can’t insurance use that term? Why send me an “adjuster,” whose title suggests that either the insurer doesn’t think I’m bright enough to get the claim right on my own or that I’m downright dishonest and need to be checked out? The adjuster can do exactly the same job as always. Let’s just give customers a friendlier term.

Or: Why are payments to customers referred to as “losses”? When a bank or mutual fund sends me money I’ve earned, it’s paying me interest or capital gains. Corporations pay me dividends. None of these firms talk about losses just because money has moved from them to me. So, why does the insurance industry refer to a payment on my behalf to a doctor as a “medical loss”? Why is a payment to help me recover from property damage in a storm a “catastrophe loss”? Why isn’t a “loss” called a “payment to a cherished customer to help the person/business recover in a time of need”?

Yeah, that’s a bit long, but surely “claims” or “paid claims” could replace “losses.”

Just changing three terms — “customer,” “adjuster” and “loss” — would go a long way toward reorienting the industry’s thinking and lead to a friendlier experience for customers, but let’s not stop there. Here are some other changes that the insurance industry should make immediately to its language to make it more accessible to customers:

  • Binder → temporary insurance
  • Rider → addition or supplement
  • Endorsement → amendment
  • Underwriting → pricing risk
  • Excess lines, surplus lines, subrogation, capitation, inland marine (inland marine!) → something that is meaningful to the customer….
  • What else? (I’d welcome thoughts in the comments section here or on LinkedIn, where this will also be posted.)

I realize that jargon can make us seem like we have inside knowledge. When my closest childhood friend went to medical school, he told me that running straight down the middle of our torsos is a narrow bit of fibrous tissue that looks like a white line. “It’s called the linea alba,” he said. “You know what that means in English? The direction translation is, ‘white line.’ But you sound smarter when you say it in Latin.”

I also realize that those in the industry understand all the terms and thus feel no need to change. But if we’re really to get outside our own heads and see the world from the customer point of view, then fixing our language would be a great place to start.

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

The Next Wave of Insurtech

With automated claims processing, the turnaround time for settlement will be measured in minutes rather than days or weeks.

Insurance 2030: Implications for Today

How employees will be recruited, trained and retained will be quite different – and organizations need to start on that journey today.

Rise of ‘Product-ism,’ Fall of ‘Project-ism’

Firms struggle because they view AI initiatives as small projects rather than a product requiring continuing maintenance and investment.

2020 Catastrophes; Preview for 2021

If this spring La Nina holds together, the central plains could get back to seeing severe weather that was lacking last year.

Life Insurance Is Ripe for Change in 2021

Under the incoming administration, the focus on consumer protection regulation will rise for financial services, including insurance.

Increasing Regulation on Climate Change

In 2021, climate-change actions by U.S. regulators will create both challenges and opportunities for insurers.

A ‘Touch and Go’ Moment for the Industry

Sean Kevelighan, CEO of the Insurance Information Institute, said there was a moment in 2020 that was “touch and go” for the industry, in the face of the pandemic.

He and I were talking in advance of Thursday’s Joint Industry Forum, the III conference that is the first big event of the year and that sets an agenda for the industry (more on the forum in a bit), when he described how close the industry had come to being whacked with potentially hundreds of billions of dollars of business interruption claims. BI claims were obviously a potentially big deal, even though it was clear early on that few policies in the U.S. covered them, and I have seen that the issue faded, but I didn’t realize quite what a close call the industry had.

“The industry collaborated more than I’ve ever seen us do,” Kevelighan said. “Everyone has shown that the industry can come together and lead in a very disruptive time.”

Kevelighan said plaintiffs attorneys saw an opportunity early and won sympathy with state legislators, eager to help their small-business constituents. Some celebrity chefs formed a group to make the case publicly that they would go out of business if insurers didn’t cover their pandemic-related losses. Something called the Business Interruption Group even got businesses in Times Square to shut off their lights for a minute in May to dramatize the threat.

III countered with a campaign that made two main points. First, that the policies didn’t provide business interruption coverage for a pandemic and that rewriting contracts after the fact was unfair. Second, that a pandemic isn’t an insurable event. Yes, the industry had $800 billion in surplus, but covering all the potential BI claims would cost the industry $400 billion a month – so those small businesses could only be covered briefly by insurers, and then the money would be gone. Legislators would then have to face constituents who were hit by hurricanes, wildfires and so on and who had valid claims – but whose insurers couldn’t pay.

III got the word out through hundreds of media interviews, through email blasts to anyone who was in a position of influence and through a website. Kevelighan said the industry more than did its part as good citizens: providing more than $14 billion in rebates just in auto premiums, making $300 million in charitable contributions, paying claims in new and innovative ways and committing to keeping employees on the payroll. He says all parts of the industry are now hiring.

The situation was still touch and go until a hearing before a House subcommittee on May 21. But at the hearing, conducted via WebEx, the main plaintiff attorney didn’t even advance the idea that contracts should be rewritten to make insurers liable. Instead, he suggested that insurers could voluntarily cover business interruption and then, he hoped, be reimbursed by the federal government – an idea that went nowhere.

“Congressmen were very aggressive about defending their constituents – if a hurricane or wildfire hits, there needs to be money there,” Kevelighan said. “We all empathized with the customer. Sure, customers should be scared. But the response to a pandemic has to come from the federal government.”

He added that the quick mobilization in the face of such a threat “shows how nimble the industry can be.”

Building on that experience, Kevelighan said, the first panel at the Joint Industry Forum will comprise CEOs who will discuss other industrywide issues, including what the effects of the new Biden administration will be.

“You’re certainly going to see some things that were started in the last Democratic administration that kind of went by the wayside but that may well resurface,” Kevelighan said.

He cited the Federal Insurance Office and Consumer Financial Protection Bureau as potential examples. He added that “it’s been said that every part of the Biden administration has a climate change piece to it.

Kevelighan said the insurance industry can play a leading role on climate risk – which is the subject of the next panel at the Joint Industry Forum. He cited, for instance, a III project called the Resilience Accelerator, which is trying to drive behavioral change to reduce risks such as those from wildfires and floods.

“Risk never really comes into play in the property-buying process at the moment,” he said. “You go into the beautiful forests in California and decide you want to build there, but nobody talks to you about the wildfire risk. We’re trying to change that.”

He’ll close the brief event with a fireside chat with Richard P. Creedon, chairman and CEO of Utica National Insurance Group, that will, among other things, cover that old favorite: regulatory issues.

I’ve found these events to be very useful in the past and hope you’ll join me at this virtual event, then hope we’ll all see each other at what III expects will be an in-person event in Washington, DC, in June.

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

20 Issues to Watch in 2021

Presumptions for COVID-19 show how the line between workers’ comp and group health continues to blur.

Crowdsourcing 6 Themes for 2021

Trust in insurance has been dealt a double blow in 2020 — and resolving that must be a priority in 2021.

Despite COVID, Tech Investment Continues

Interest remains high in technologies like artificial intelligence and big data.

Did Biden Just Kill Wellness Programs?

Advisers need to be aware that many if not most clinical wellness programs now expose clients to employee EEOC actions.

What 2020 Taught Us on Selling Insurance

Insurance policies that are sold online need to be packaged and priced differently than those that rely on face-to-face sales.

Home Insurance for Those Needing It Most

Sugar, a startup in South Africa, provides home insurance even for shacks costing a few hundred dollars, and without a street address.