Tag Archives: transparency

Growing Case for Parametric Coverage

Sadly, the insurance-focused news outlets are starting to overflow with references to who is suing whom over certain types of coverage related to the COVID-19 pandemic. There is a growing regulatory and legislative outcry for the insurance industry to pay out in instances where there is no specified coverage or where coverage is actually excluded. Both business and personal lines customers do not fully understand where they are (and are not) covered. It is a pretty dismal picture, and it is going to take a long time to sort all this out. In the meantime, a growing trend provides a glimmer of hope in all this chaos – parametric insurance.

Parametric insurance covers a specific event that can trigger a claim payment based on metrics from a recognized source such as the Richter scale for earthquakes or the number of hours a plane is delayed. While parametric insurance isn’t new – it has been available in emerging nations over the years – usage has been limited and sporadic. During 2019, there were undoubtedly some launches of more mainstream products such as Swiss Re’s Quake Assist product and Sompo’s flood product. However, this month, there have been at least four notable launches or expansions:

  • AXA Climate – AXA partnered with Dutch satellite technology firm VanderSat to derive triggers linked to soil moisture levels, enabling drought-related parametric insurance. The same soil reading technology can determine excess moisture, as well, triggering payment in either direction.
  • Global Parametrics/Arbol – Global Parametrics, a parametric and index-based disaster risk transfer company, teamed up with Arbol, a technology-driven marketplace that uses blockchain and smart contracts to provide weather risk insurance coverage to smallholder coffee farmers in Costa Rica.
  • Parsyl – Parsyl Insurance launched a suite of connected cargo insurance solutions for perishable goods, called ColdCover. Parsyl’s quality-monitoring and risk management platform leverages smart sensors and data analytics to manage the supply chain as well as loss control. The featured product within the company’s new suite is called ColdCover Parametric, which includes customized quality triggers and payout levels.
  • Understory – Understory initially launched its Hail Safe product for auto dealerships this past November but rolled it out to a significant number of additional states in April. The product coverage is triggered through the use of Understory’s proprietary hail sensor. Understory partnered with international weather risk manager MSI GuaranteedWeather to bring the product to market.

These examples are stated simply for brevity. But the scenarios are not that simple. For example, the Global Parametrics and Arbol example also includes an ecosystem of related parties in the transaction. And Parsyl provides services and an extensive risk management system so that cargo and fleet owners can manage exposures. From an education perspective, it is worth getting further details on all four scenarios. However, for purposes of this blog, the particularly hopeful note is that all this has happened in one month – the cycle of innovation and response is speeding up.

See also: Keeping Businesses Going in a Crisis  

Insurers and technology providers are coming together to find opportunities to create products that have specificity in terms of coverage and payment amounts. This is a very good thing! Insurers need to continue to seek opportunities to innovate in this area. Clearly, not all product lines are appropriate for parametric policies. However, in more instances than not, bringing sensors, aerial imagery, weather data and science to insurance products across all product segments can only help create transparency both in coverage creation and in loss settlement. This needs to be a goal for all insurers.

Health Insurers Must Open Up on Pricing

From one way of looking at it, the big carriers are caught in the middle, between the providers that aggressively raise their prices each year and the employers or individuals who are starting to realize that there’s no bottom to the pit into which they throw their premiums and deductibles each year.

On the other hand, no one in the U.S. healthcare system has been better-positioned to use their combined purchasing power to force delivery organizations to finally focus on the value of the services they provide than those same large carriers. Yet, over and over, they’ve been happy to pass those escalating prices on to the people paying their premiums – with just enough of a markup to ensure their own profits aren’t at risk.

Part of problem is semantics. As Vitalware CEO Kerry Martin recently said, there is an important difference between healthcare “costs”/“charges” and healthcare “prices,” but the lines between them are often blurred. People say, “healthcare costs are increasing” when it’s more accurate to say “healthcare prices are increasing.”

Think of it this way: Healthcare costs are what it costs hospitals to perform certain services. These haven’t really gone up over the years, evidenced by the fact that cash prices – what people who forgo insurance and choose to self-pay – have seen few fluctuations.

What has gone up are the prices that carriers negotiate off those costs/charges to turn a profit. Prices are increasing, with no added benefit to beneficiaries. Perhaps, health benefits should be renamed health detriments

It’s a broken system, ripe for disruption by upstarts that can attack the areas of biggest waste, while the incumbents focus on protecting their legacy service bundles.

A recent JAMA study pinpoints those areas with the greatest opportunity for change. The greatest source of wasteful healthcare spending, accounting for $265.6 billion of the estimated $760 billion to $935 billion industry total, came from administrative complexity, defined as “waste that comes when government, accreditation agencies, payers and others create misguided rules.” Complexity by design is the root cause. Thomas Sowell put it well, “People who pride themselves on their ‘complexity’ and deride others for being ‘simplistic’ should realize that the truth is often not very complicated. What gets complex is evading the truth.” 

The second-greatest source of waste, accounting for between $230.7 billion and $240.5 billion, the authors identify as pricing failure, or “waste that comes as prices migrate far from those expected in well-functioning markets, that is, the actual cost of production plus a fair profit.” Essentially, this is waste that comes from the cost versus price loophole carriers, and hospital executes have historically taken advantage with a devastating impact on the working and middle class. There is no bigger contributor to 20 years of wage stagnation and decline than hospital profiteering. 

See also: Pricing Right in Life Insurance  

This gap, historically too opaque for consumers to notice, is now quite salient, thanks to all the news coverage that surprise medical billing got in 2019. Many informed consumers are no longer afraid to give their medical bills a long and hard review, questioning not only why they would pay an arbitrary price, but also the quality of care they’re buying. They’re aware that, despite the high prices they may be paying, there’s often little return on their healthcare investment, and as a result are becoming pickier and picker about the providers they choose.

Some in high-deductible health plans are even going so far as to research what their providers’ cash prices are, and if they’re less than what they’d pay prior to hitting their deductible, are making the conscious decision to ignore insurance. That can be a smart approach.

If carriers don’t change, it’s likely government will soon change them. The Centers for Medicare and Medicaid Services’ (CMS) hospital price transparency final rule, which would require hospitals to “establish, update and make public a list of their standard charges for the items and services that they provide,” comes into effect this time next year. Carriers can continue to keep the prices they negotiate with hospitals secret for now, but not forever.

Being upfront and transparent about how and why they’ve come to agree on certain prices for certain services or procedures isn’t just the right thing to do, it’s the inevitable. And those that get a head start on that now will be the ones to have a leg up on their competitors in the not-too-distant future.

How Startups Disrupt Health Insurance

It’s no secret that the healthcare system is a mess. When was the last time you went to the doctor and knew how much you would pay for your treatment? Probably never.

It isn’t just a mess for patients. Employers, hospitals and brokers are all suffering from the same dilemma. So should we just keep accepting it?

Unfortunately, there isn’t just one problem to fix. Even just identifying the underlying issues can be challenging, and this allows the chaos to continue.

The Falling Benefits and Rising Costs Challenge

While HR departments everywhere try to tackle the problem, it continues to reign. Here are some stats:

  • A 7% annual increase means costs double every 10 years.
  • A 15% annual increase means costs quadruple every 10 years.

This isn’t sustainable for any business. Employers are already contributing a huge percentage of spending on healthcare, and most won’t be able to sustain themselves with rapidly increasing costs.

See also: Insurance: On the Cusp of Disruption  

Fortunately, this is where startups are stepping in to help fix healthcare. Here’s how they are doing it.

Providing More Transparency

This is a top priority among many startups. Imagine if you could walk into your next doctor’s appointment already knowing what the price is going to be.

What? That’s crazy!

Well, there is actually a startup that does allow you to walk into your appointment knowing what the cost will be.

How does this affect you? Now patients are able to better budget for their healthcare expenses. You no longer will be wondering what kinds of bills will come in the mail six months from now.

This startup would also affect hospitals. When patients are able to accurately budget for medical costs, hospitals will have fewer accounts receivable. When a larger percentage of patients can pay their medical bills, this can result in lower prices and better care because there is a larger percentage of the population paying for their treatments.

Fewer Interactions Between Provider and Payer

One of the reasons transparency is very difficult to attain is the numerous third-party interactions that provide little to no value.

Health insurance isn’t a typical transaction. In most other service industries, the payer selects a product or service and then pays a price directly to the provider that has been agreed on by the two parties.

In health insurance, a web of people lie between the patient and provider who each get a cut. This increases costs dramatically and is responsible for a number of transparency issues.

What many health insurance startups are doing is creating a transaction closer to what we experience with any other product or service. While there are times when a third is party necessary, communicating directly with the payer and provider drastically decreases costs.

More Efficient Processes

Another massive problem with the standard health insurance process is slow and inefficient processes.

Fortunately, most startups are investing in modern technologies, like cloud computing and data sharing, that allow easier access to documents and drastically shorter processing times. Processes that used to take weeks can now be done in hours.

This also helps employers because the onboarding process with most health insurance startups is drastically (sometimes up to 75%!) shorter. This allows for companies to move faster and implement savings faster.

See also: Who Will Win: Startups or Carriers?  

The fewer hours that HR has to spend on implementation, the more hours they can win back so they can do more important work for the company.

The Future of Healthcare

While we still have a long way to go, startups are finally beginning to unravel the mess of health insurance complexity.

We see a future of healthcare where the patients and providers are back in control and better communication and transparency are a norm.

3 Insurtech Trends Accelerating in 2019

2018 was a breakout year for insurtech companies, as the insurance industry has been long overdue for innovation and disruption. The year attracted both talent and funding to the industry. FT Partners Research announced insurtech’s quarterly financing volume for Q3 2018 totaled $1.2 billion, which is up from $749 Million in Q2 2018. The excitement increasingly surrounding insurtech indicates that 2019 promises to be an even more meaningful and game-changing time for the insurtech space.

Here are three insurtech trends you should keep an eye out for in 2019 and beyond:

Sophisticated Analytics

Any successful insurtech startup is not only passionate about transforming the current insurance model to be more cost-effective and automated but is invested in exploring the role that data analytics plays at the core of this process. Intelligent and productive data aggregation, integration and analysis are crucial in achieving this.

When it comes to data analytics, the insurance industry’s antiquated business model has much room for improvement. Insurtech is modernizing insurance as we know it by implementing advanced big data analytics to optimize insurance products and services. And investors are taking notice. Significant investments are being made in data analytics and modeling techniques to improve nearly every part of the business. By embracing data analytics, your business can gain a competitive advantage by finding “new revenue opportunities, enhancing customer service, delivering more effective marketing and improving operational efficiency.” Over time, this rise in digital innovation is sure to bring significant opportunities for a more efficient, competitive and sustainable progress for insurtech as a whole.

See also: 10 Insurtech Trends at the Crossroads  

Transparency

The vast and complex insurance industry has long awaited simplification. Insurers’ underwriting models have historically been a black box for consumers. Easy comparisons of complex data have been reserved for the experts. Transparency is critical to earning the trust of customers, especially in this digital age. People are now accustomed to online shopping, and they want procuring insurance plans to be less complicated — similar to shopping for and purchasing other high-ticket items such as homes and financial products. Consumers desire that their pricing and product information not only be transparent but comparable as “apples to apples” so they can make smarter choices. Users can access online marketplaces to compare prices and benefits of different plans side-by-side.

Partnerships between carriers and innovators

There is a deepening need for laser-focused investments and partnerships between carriers and innovators as insurtech has now matured into an everyday business. Insurance executive and insurtech dealmaker Stephen Goldstein argues that “the team is what is ultimately going to make an insurtech initiative a success,” meaning that incumbents and insurance leaders executing partnerships with insurtech companies are part of the recipe that is going to provide a positive ROI and make insurtech as an industry thrive. While 2018 was a year of exploring and experimentation for insurtech, 2019 will be the year of engaging and deepening those relationships.

At the start of 2018, insurance professionals predicted that the number of partnerships and collaborations between carriers and innovators would only gather momentum over the next year. And in June 2018, the Digital Insurer reported that partnerships remained a priority where insurtech was concerned. Insurtech companies are actively enabling new technologies that are used to provide increased efficiency and the ability to execute new tasks and analyses. These technologies are changing the industry on a fundamental level, all the while causing more incumbents to adopt these capabilities through investments or partnerships to compete effectively. The possibilities alone suggest that there will be expected growth in partnerships throughout the end of 2018 and well into 2019.

See also: Insurtech: Revolution, Evolution or Hype?  

Conclusion

2018 proved to be a massive year for insurtech, with a dramatic increase in funding from Q2 2018 to Q3 2018. There has been demand for skillfully acquired and implemented analytics, transparent experiences for consumers and mutually beneficial partnerships. All three trends are being successfully observed in 2018 and are believed to gather more momentum to lead us into 2019 and later.

Agents Must Become ‘Discussion Partners’

The insurance industry is going through a revolution, and too many carriers, brokers, agents and team members are failing to keep up with the rapid pace of change.

Customers have grown accustomed to convenience, a plethora of information and unending choices in whatever they buy, and this applies to the purchase of insurance products and services, too. People expect it to be easy, efficient and understandable.

The insurance industry as a whole is miles behind in the race to deliver unrivaled service to customers. To keep up with the radical transformation, insurance professionals must earn the trust of existing clients and new prospects and become their gateway to everything related to insurance and financial services.

The path to this transformation is for the insurance agent or representative to become a “discussion partner” — a trusted advisor who guides customers toward optimum financial decisions by offering them every possible insurance and financial services product while disclosing exactly how his or her superior advice works.

See also: Important Perspective for Insurance Agents

The goal is to convert everyone into discussion partner clients who do not want to be sold or told; rather, they want a consultant who will advise them on the best products, protection and asset-accumulation guidance they need for their families.

Looking closely at the not-too-distant future, here are just a few ways the insurance industry will evolve:

  • There will be total transparency about coverages and pricing. Customers will know all the details when they purchase property and casualty products, financial services products, life insurance products and more, in much the same way financial services and securities are sold today.
  • There will be a convergence of distribution models. Local storefronts will welcome the use of the omnichannel experience, such as digital, after-hours 800-number call centers; claims service; and 24-hour customer self-service through technology or telephony.
  • Technology will streamline processes. The local storefront housing brokers/agents and their teams will still provide service and sales at the point of personal interaction, but they will also leverage the power of digital technology and call centers.
  • Collaboration will become commonplace. Open architecture — a financial institution’s ability to offer clients both proprietary and external products and services — in both technology and service will force the insurance industry not only to adapt but also to move quickly toward radical transformation.

The key to agents’ survival is that they must provide unrivaled service at the highest level. Nothing else will be acceptable if the local insurance provider is going to be a part of the consumer’s purchasing and reliance on service in the new world.

See also: Use Insurtech to Help, not Replace, Agents  

So how can carriers, brokers, agents and team members evolve to the “discussion partner” model of unrivaled service? Here are eight strategies for making the transition:

  1. Focus everything you do on the customer. The customer is at the apex and the center of every decision, every system and process. Agents must be hyper-focused on meeting our customers’ needs — everything they desire and have every right to expect. This begins with providing unrivaled service as a discussion partner.
  2. Create a team of experts. This is usually referred to as specialization, teaming or collaboration of experts. Agents must build a larger and stronger local team through hiring, mergers and acquisitions and strategic relationships.
  3. Collaborate with expertise partners. Not every broker or exclusive agent is going to have access to every market today. In the future, with open architecture, everyone will have a view into the competition’s coverages and rates. Until then, creating collaborative arrangements is important. If clients do need and want specialized products and services, referring them to someone else will not be prudent any more. Agents must have relationships with experts in many areas. Agents must be quarterback, sitting in on the coverage presentation and purchase. This means getting to know experts in various fields and working with them, although agents might not always make a commission. Build partnerships before you need them.
  4. Embrace and retool all technology. Agents need to assess current capabilities in the area of technology. Everything is moving at light speed due to artificial intelligence. The things once innovative are now commonplace. Agents need to embrace new technologies and use them to create a seamless experience for customers in the front room. Open architecture will introduce new technologies that discussion partner agencies must embrace as they move forward.
  5. Control every step of customer service and the purchasing process. This is the foundation for a successful business model in the future. Insurance professionals need to assume the role of the gateway to everything related to insurance and financial services and guide clients through every step of the process. Agents need to remind clients what they do for them and assure them that they are worrying about the details so the clients don’t have to.
  6. Help clients declutter. Insurance agents must be the only financial adviser their clients will ever need. Professionals don’t just refer clients over to other experts any more; they make everything easier. An agent’s job is to declutter clients’ paperwork, declutter how many people they are working with and make their lives easier. Life is complicated enough.
  7. Be open to change. The tsunami of change happening in the insurance industry is affecting everyone, from the carrier to the broker/agent to the local team member providing service to clients who have never needed it more.
  8. Agents should embrace change, not fear it. Yes, they will lose some clients to technology, such as robo-advisers. But we didn’t lose the entire banking industry because of the ATM. The typical client still wants someone to hold his or her hand through the maze of madness in this world.