Tag Archives: travelers insurance

Is Insurance Ready for Virtual Reality?

Virtual reality (VR) is no longer a technology reserved for the gaming industry. The applications are manifold in industries such as education, engineering, healthcare, insurance, sports and telecommunications. But, unlike other technology disruptions such as telematics, IoT, mobile, digital and cloud, which I have outlined in a previous blog, VR is yet to catch up in terms of adoption by insurers.

However, there are some applications from which the early adopters of this technology have started benefiting and others from which they could soon start benefiting.

Current Enterprise Applications

The Applications: VR simulation of car crashes – Insurers better understand what happens in a car crash for a safety demonstration

The Benefits: Improvement of driving behavior by creating awareness on safety and reducing accident claims

The Early Adopters: Australian insurer NRMA Insurance built a car crash simulation in collaboration with an ad agency and a film production studio and provided the experience to customers through an Oculus Rift headset in a crashed car showroom exhibit.


The Applications: Training – Safety experts and workers in manufacturing plants and warehouses are trained on safety practices and risk handling by creating a virtual world with various scenarios

The Benefits: Immersive and effective training experiences

The Early Adopters: Travelers insurance is working with AppliedVR in developing a VR mobile application aiming at industrial safety


The Applications: Advertising – Ad campaigns in VR gaming and on other platforms

The Benefits: Connecting better with the tech-savvy audience

The Early Adopters: Axa partnered with Google Niantic Lab Ingress to protect the gamers in a virtual real world using Axa Shield.


Ideas Insurers Can Explore

The Applications: Risk Assessment – Underwriters can look at all the possible risk hazards in a building without actually visiting the building.

The Benefits: Cost saving on travel and hiring

The Early Adopters: Insurers can steal ideas from the travel industry and see how they can customize VR for their needs. Marriott Hotels “teleports” guests to places like Hawaiian beaches and downtown London with sensory experiences.


The Applications: Analytics – Data scientists can analyze and visualize large dynamic datasets in VR, and executives can interact with the dashboards and take decisions

The Benefits: Quick and informed decision-making, scenario analysis

The Early Adopters: Insurance industry can draw inspiration from solutions developed for power, oil and gas and logistics industries. Space-Time Insight has recently demonstrated the capability of big data analytics and VR for power substation maintenance using Oculus Rift.


As an array of companies such as Google, Facebook, Samsung and Sony beef up their investments in VR and the number of enterprise applications spread across industries, the technology will soon prove to be disruptive for the insurance industry. Though customer experience, product demos and employee engagement are the key applications for the insurance industry, the ideas could be limitless as the technology matures. The day when we will compare the insurance product, take a driving test, purchase by interacting with an agent and talk to the customer care executive for claims, all through VR, is not too far away.

3 Warning Signs of Adverse Selection

The top 25 insurers consume 70% of the market share in workers’ compensation, and, as the adoption of data and predictive analytics continues to grow in the insurance industry, so does the divide between insurers with competitive advantage and those without it. One of the largest outcomes of this analytics revolution is the increasing threat of adverse selection, which occurs when a competitor undercuts the incumbent’s pricing on the best risks and avoids writing poor performing risks at inadequate prices.

Every commercial lines carrier faces it, whether it knows it or not. A relative few are actively using adverse selection offensively to carve out new market opportunities from less sophisticated opponents. An equally small crowd knows that they are the unwilling victims of adverse selection, with competitors currently replacing their best long-term risks with a bunch of poor-performing accounts.

It’s the much larger middle group that’s in real trouble — those that are having their lunch quietly stolen each and every day, without even realizing it.

Three Warning Signs of Adverse Selection
Adverse selection is a particularly dangerous threat because it is deadly to a portfolio yet only recognizable after the damage has been done. However, there are specific warning signs to look out for that indicate your company is vulnerable:

  1. Loss Ratios and Loss Costs Climb – When portfolio loss ratios are climbing, it is easy to blame market conditions and the competition’s “irrational pricing.” If you or your colleagues are talking about the crazy pricing from the competition, it could be a sign that your competitor has better information to assess the same risks. For example, in 2009, Travelers Insurance, known to be utilizing predictive analytics for pricing, had a combined ratio of 89% while all of P&C had a combined ratio of 101%.
  2. Rates Go Up, and Volumes Declines – As loss ratios increase along with losses per earned exposure, the actuarial case emerges: Manual rates are inadequate to cover expected future costs. In this situation, tension grows among the chief decision makers. Raising rates will put policy retention and volumes at risk, but failing to raise rates will cut deeply into portfolio profitability. Often in the early stages of this warning sign, insurers opt to raise rates, which makes it tougher on both acquisition and retention. After another policy cycle, there is often a lurking surprise: The actuary will find that the rate increase was insufficient to cover the higher projected future losses. At this point, adversely selected insurers raise rates again (assuming their competitors are doing the same). The cycle repeats, and adverse selection has taken hold.
  3. Reserves Become Inadequate – When actuaries express signs of mild reserve inadequacy, the claims department often argues that reserving practices haven’t changed, but their loss frequency and severity have increased. This leads to major decreases in return on assets (ROA) and forces insurers to downsize and focus on a niche specialization to survive, with little hope of future growth. The fundamental problem leading to this occurrence is that the insurer cannot identify and price risk with the accuracy that competitors can.

Predictive Analytics Evens the Playing Field
The easiest way to prevent your business from being adversely selected is starting with the foundation of your risk management — the underwriting. Traditional insurance companies rely only on their own data to price risks, but more analytically driven companies are using a diversified set of data to prevent sample bias.

For small to mid-sized businesses that can’t afford to build out their internal data assets, there are third-party sources and solutions that can provide underwriters with the insight to make quicker and smarter pricing decisions. Having access to large quantities of granular data allows insurers to assess risk more accurately and win the right business for the best price while avoiding bad business.

Additionally, insurers are using predictive analytics to expand their scope of influence in insurance. With market share consolidation on the rise, insurers in niche markets of workers’ compensation face even more pressure of not only protecting their current business, but also achieving the confidence to underwrite risks in new markets to expand their book of business. According to a recent Accenture survey, 72% of insurers are struggling with maintaining underwriting and pricing discipline. The trouble will only increase as insurers attempt to expand into new territories without the wealth of data needed to write these new risks appropriately. The market will divide into companies that use predictive models to price risks more accurately and those that do not.

At the very foundation of any adversely selected insurer is the inability to price new and renewal business accurately. Overhauling your entire enterprise overnight to be data-driven and equipped to utilize advanced data analytics is an unreasonable goal. However, beginning with a specific segment of your business is not only reasonable but will help you fight against adverse selection and lower loss ratio.

This article first appeared on wci360.com.

Five Workers’ Compensation Myths

Travelers Insurance, which recently passed Liberty Mutual to be the largest workers' compensation insurance carrier in the U.S., published a list of five common workers' comp myths, from a small employer's perspective:

  1. “I only have a few employees, so I don’t need comp insurance.”
  2. “My employees won’t sue me.”
  3. “Comp insurance is too expensive, so I’ll just pay out of my pocket if an injury occurs.”
  4. “I provide a safe workplace, so my employees won’t get injured.”
  5. “Medical costs in the workers' comp system are just too high.”

While these myths are prevalent, I often see an additional five beliefs from my perspective as a workers' comp defense attorney that are as mythical as a mermaid:

1. Every injured worker needs an attorney.

While it is true that many injured workers do need to hire an attorney, there is certainly no need for most to obtain counsel. Most states have systems to resolve the claim directly with the injured worker without the time and expense associated with the claimant's hiring an attorney and filing a formal claim.

The complaint against injured workers representing themselves is what gave rise to that old joke: “A person who acts as his own attorney has a fool for a client.” I agree that most claimants don’t know as much comp law as does the average claimant’s attorney. That shouldn’t come as a shock to anyone.  But that doesn’t mean every injured worker needs an attorney. 

Most comp claims are compensable, so the only issue is the nature and extent of impairment. 

Is the final settlement for an unrepresented claimant always the same as for those who retained counsel? Obviously not, but that doesn’t mean the claimant gets less money. Remember that, in most jurisdictions, the claimant’s attorneys take between 20% and 33% of the final settlement as a fee. Add in a few thousand dollars for an IME report and discovery costs, and you can see how the fees and expenses go up faster than the winnings on Wheel of Fortune. If the claimant resolves the permanent partial disability portion of the claim on his own, he can still take home roughly the same amount as if he had retained counsel and paid fees and expenses out of a larger final settlement.

There is also the time value of money to consider.Claims where the injured worker is represented often take years to resolve, not weeks or months. Which is better to receive: $10,000 today or $12,000 three years from now? Most people would chose the former, and injured workers who don't hire an attorney are virtually guaranteed to get their money faster than if they retain counsel.

2. Injured workers are entitled to compensation for any painful condition that arises during working hours.

While this may be somewhat true in a few states (New York, California, Illinois), in most states this is simply false.

There are various philosophical theories that underlie the workers compensation statutes of a particular state, such as the “positional risk doctrine,” the “mutual benefit doctrine” and the “scope and course of employment” doctrine. Nevertheless, in most states there must be some connection between the injury and the employment for a claim to be compensable. Merely feeling pain at work is not enough.

It doesn’t surprise me that many claimants believe otherwise. What is surprising is how many small business owners believe this same myth.

I often talk to business owners who tell me stories that generally follow this path: “My employee says his arm hurts, and he wants me to take care of it. That’s all I know.” One doesn’t have to be that sunglasses-wearing guy from CSI: Miami to ask a few questions of the claimant, such as, “How did you hurt your arm?”; “Did the pain start while you were doing something in particular?”; or “When exactly did the pain start?”

3. The jurisdiction for a comp claim is where the carrier wants it to be.

This is a myth that is pervasive among adjusters and safety directors.

If employee works in State A but is in State B for a work-related purpose and is injured in State B, which state has jurisdiction over the claim? In most instances, the employee can choose to file his claim in either State A or State B, or even both! Yet, I have a conversation almost weekly with claims professionals who tell me: “Brad, I want this claim to be in State A, so please have the claim dismissed from State B.”

If a state says it has jurisdiction over a claim, the basis for asking for a dismissal cannot be: “Judge, my adjuster simply doesn’t want the claim to be here.” I would obviously have a more reasoned position upon which to base my request, but the result is often the same: The judge denies the request.

4.  Employers have workers' comp insurance so they can let the carrier worry about their claims.

This is basically the same as believing that if I stick my head in the sand bad things can’t happen to me. Employers should manage and monitor comp claims as if the money being paid to the claimant is their own money. Wanna know why? BECAUSE IT IS THEIR MONEY!

Comp insurance works just like automobile insurance — more claims always equates to increased premiums. Sure, an employer may have one or two claims that won’t affect premiums. However, with the cavalier attitude toward claims that underlies this myth, it’s only a matter of time before the premiums get higher than a surfer locked in a medical marijuana facility. 

5.  Most workers comp claims are fraudulent.

For claims professionals who handle comp claims on a daily basis, it often seems as if most comp claims are fraudulent. However, statistics simply don’t support this conclusion. A recent study from the University of Michigan concluded that only 2% of claims are fraudulent. I would think that the actual number is a bit higher than 2%, but certainly a far cry from 100%.

The danger in believing that most claims are fraudulent is that employers and carriers can face steep penalties for failing to provide legally required comp benefits in the absence of a valid reason to deny the claim. Additionally, employers and carriers that develop a reputation for denying claims without a valid reason often face higher awards from judges and arbitrators.

I like the approach used during the missile reduction talks with the Soviet Union during the 1980s: “Trust, but verify.” If we treat most claims as compensable while always being on the lookout for evidence of fraud, it creates opportunities to prevail at trial rather than opportunities to reinforce an employer stereotype as one that denies all claims.