Tag Archives: underwriter

Group Insurance: On the Path to Maturity

The group insurance market shows real promise, but most carriers are still trying to determine the best path forward. Moving from being in a quiet sector to the front lines of new ways of doing business has shaken the industry and confronted it with challenges – and opportunities – that many could not have foreseen even a decade ago.

For starters, let’s take a look at where the market is right now. Three recent trends, in particular, are having a profound impact:

  • The Affordable Care Act, which has led health carriers to increase their focus on non-major medical aspects of the parts of their business that the legislation has not affected. In turn, this has led to intensifying competition.
  • Consumerism, which has resulted largely from workers’ increasing responsibility for choosing their own benefits. This has created disruption as employees/consumers have become increasingly dissatisfied with the gap between group insurance service, information and advice and what they have come to expect from other industries.
  • The aging distribution force, which means that experienced brokers/agents are leaving the work force and are being replaced by inexperienced producers at decreasing rates or are not being replaced at all.

Group players – which historically have been conservative in their market strategies – focus on aggressively driving profitable growth. To do this, they are concentrating on four key areas: 1) growing their voluntary business, 2) streamlining their operating models, 3) re-shaping their distribution strategies and 4) making significant investments in technology.

See Also: Long-Term Care Insurance: Group Plans vs. Individual

Group insurance is no longer a quiet sector of the industry but instead is in the front lines of developments in customer-centricity and technological innovation.

Growing the voluntary business – The voluntary market has been of interest to traditional group insurance carriers for more than two decades, but the success of the core employer paid group insurance business has resulted in a lack of robust voluntary capabilities. However, with employers shifting more costs to employees, voluntary products have become a key way to manage group benefit costs while expanding the portfolio of employee products.

Some carriers are expanding their voluntary businesses by offering a modified employer paid group product in which the employee “checks the box” to pay an incremental premium and receive additional group coverage (e.g., long term disability (LTD), life and dental). Other carriers are exploring models where employees can sign up for an individual policy at a special premium rate. The former example is a traditional voluntary product, while the latter example is a traditional worksite product. For most carriers, adding the traditional voluntary product is fairly straightforward because it is still a product that the group underwrites. However, more carriers are looking into the worksite product (which AFLAC and Colonial Life & Accident have executed particularly well) because, with the passage of the Affordable Care Act, some see a potential opportunity to reach small businesses that previously may not have been interested in group benefits.

Streamlining operating models – Group carriers also are trying to develop streamlined, cost-effective, customer-centric operating models. The traditional group insurance operating model has been built around product groups such as group LTD, short-term LTD, dental, etc. However, the product-based model is inefficient because it increases service costs, slows speed to market and fails to support the holistic views of the customer that enables carriers to serve customers in the ways they prefer.

Group insurers are now investing both time and capital to understand how to remove inefficient product-focused layers of their operations and streamline their processes to profitably grow. Many have focused on enrollment, which cuts across products and is a frequent source of frustration for everyone. Carriers are frustrated because they can spend days and weeks trying to ensure that everyone is properly enrolled in the right plan. Moreover, what should be a fairly straightforward, automated process often can require considerable manual intervention to ensure that employees are properly enrolled. In the meantime, employees are frustrated with recurring requests for information and the slowness of the enrollment process. Employers are frustrated by the additional time and effort that they have to expend and the poor enrollee experience. Producers become frustrated because the employer often holds them accountable for the recommended carriers’ performance.

Reshaping distribution strategies – In terms of distribution, private exchanges initially promised to connect group carriers with the right customers using extremely efficient exchange platforms. As a result, many group carriers joined multiple exchanges expecting that this model would put them on the cusp of the next wave of growth. However, success has proven more elusive than they expected, largely because they’ve spread themselves too thin across too many, often unproven exchanges. And, while private exchanges still offer great potential, many carriers have now begun to rethink their private exchange strategies with the realization that the channel is not yet a fully mature group insurance platform.

Investing in technology – Whether group carriers are focusing most on entering the voluntary market, streamlining operations or refining their private exchange strategies, successful in all these areas depends on technology. Group technology investments have lagged behind the rest of the industry. The reasons for this range from a lack of proven technology solutions that truly focus on the group market to downright stinginess and the resulting reliance on “heroic acts” and dedication of committed employees to drive growth, profits and customer satisfaction. However, viable technological solutions now exist – and they are probably the most critical element in the march toward effective data integration, efficient customer service and ultimately profitable growth. Every facet of the business –underwriting, marketing, claims, billing, policy administration, enrollment, renewal and more – is critically dependent upon technological solutions that have been designed to meet the unique needs of the group business and its customers. Prescient group carriers understand this and have been investing in developing their own solutions and partnering with on-shore and offshore solutions providers to fill gaps in non-core areas.

Whatever their primary focus – growth, operations or distribution – a necessary element for success is up-to-date and effective technology.

A market in flux

In conclusion, group insurance is in a time of transition. Major mergers and acquisitions have already started to reshape the market landscape, and existing players are likely to use acquisitions and divestitures as a way to refine their market focus. Moreover, new entrants are looking to exploit openings in the group space by providing the kind of focus, cutting-edge product offerings and service capabilities that many incumbents have not. These developments show group’s promise. The winners will be the companies that wisely refine their business models and effectively employ technology to meet the unique needs of new, consumer-driven markets.

Implications

  • We will continue to see group carriers focus on the voluntary market, especially traditional group-underwritten products. They will look to not only round out their product bundle by providing solutions that meet consumer needs, but also integrate their offerings with other employee solutions like wealth and retirement products.
  • Group insurers will continue to aggressively streamline processes to promote productive and profitable customer interactions.
  • Private exchange participation strategy needs to align with target markets goals, including matching products with appropriate exchanges. Focusing on participation means that group carriers avoid spreading themselves too thin trying to support the various exchanges (often with manual back-end processes).
  • Group carriers can no longer compete with antiquated and inadequate technology. Fortunately, there are now group-specific solutions that can make modernization a reality, not just an aspiration.

Insurance in the Age of the 12th Man

Brian Duperreault, chairman and CEO of Hamilton Insurance Group, told attendees at A.M. Best’s 23rd annual conference in Scottsdale, AZ, that the insurance industry has been an analog laggard rather than a digital leader, and that the clock is ticking on responding to the needs of a digital world. The address follows:

Thank you, Matt, and thanks for that wise review of the forces that have shaped the industry over the years.

Hearing that history line makes me feel pretty old. I lived through a lot of those highlights.

You’ve heard where we’ve been as an industry, and I’ve been asked to give you some thoughts on where we’re going.

The title I’m using is Insurance in the Age of the 12th Man. I’m sure most of you know what I’m referring to by the 12th man – any Seahawks fans with us today? – but in case you don’t:

The reference to a 12th man was first used more than 100 years ago to describe a really dedicated football fan.

It gained some significant traction at Texas A&M, and the Aggies still claim it’s theirs – in spite of what the Seahawks say.

The point is this: Fans can be so fanatically loyal to their team, it’s like having a 12th man on the field. Fans can shape the game and often affect a win or loss.

I’ve heard they can even make the earth move.

Last month, fans at a soccer game in the U.K. celebrated a last-minute goal so “enthusiastically” that it was recorded as a minor earthquake.

Why am I referring to the 12th man in a talk about the future of insurance?

Because we’re doing business in an age that’s profoundly different from anything we’ve ever experienced, and I believe it’s driven by what I’m going to call the 12th man phenomenon.

Virtually every industry has been redefined by an increasingly demanding customer, and it’s doing the same to ours. It’s the fan base – the collective 12th man – that’s driving how we develop, market and distribute our product.

And for many companies, there’s not much time left to figure out how to stay in the game.

PwC just released its annual CEO report and noted that access to digital technologies means that we’re more connected, better-informed and, in PwC’s words, “increasingly empowered and emboldened.”

This isn’t just a shift in market forces. The market has always been changing, and we’re used to that. This is something entirely different.

Given the digital world we’re living in and the impact of real-time communication through social media, the market’s voice is much more crystallized. There’s an immediacy, an intimacy that we’ve never had to deal with before. This is a voice that’s loud, clear and specific.

One of the best examples of the effect of the 12th man is Uber.

You probably know Uber’s story.

Its founders were so fed up with how hard it was to get a cab when they wanted one that they developed an app that puts a taxi at your fingertips. They didn’t just enhance the taxi industry; they blew the existing model apart.

They didn’t care what the regulations were. They just made it work – and it continues to work, because Uber gave customers what they wanted. AirBnB did the same thing to the hotel industry.

  • If you’re used to downloading apps to watch a movie, do your banking or order your groceries;
  • If you customize how, when and where you listen to the radio or watch TV;
  • And if this uncluttered, efficient, highly personalized way of living is what you’ve been used to since you could walk, then

There’s no reason that you’re going to expect anything less when you’re buying insurance.

Maybe this sounds like background noise to those of us who’ve been in the business for a while. After all, our industry has been resilient over the centuries. It’s been a safe bet for decent returns on investment.

But people my age see the world through an analog prism. This is our Achilles heel – because there’s a generation of 80 million Americans who see the world through a digital lens.

This is the workforce that Matt referred to earlier.

They’re going to be the buyers and sellers of our products. They’re going to run our companies. As the largest voting bloc in the U.S., they’re going to elect our governments.

They’re going to be a noisy and demanding 12th man. They already are.

This expectation for a streamlined and efficient buying experience is one of the main drivers behind my company, Hamilton Insurance Group. We believe that insurance has been an analog laggard, not a digital leader. We think we can do something about that.

As I give you thoughts on what will shape our industry over the next decade, I’m going to keep coming back to the 12th man.

I’ve seen lots of lists of future industry trends – some of them are mine – but I think it comes down to:

  • How to build a sustainable company
  • How to be smart about data and
  • How to strip waste out of our industry.

Let’s look at sustainability.

Traditionally, creating shareholder value in an insurance company has had two main components: investments and underwriting.

Right now, we’re between a rock and a hard place on both counts.

We’re in a prolonged zero-lower-bound period where interest rates dip in and out of negative territory.

In a traditional insurance company, there is no money to be made on the fixed instruments that most companies are required to invest in.

Having low-yield assets on a balance sheet for regulatory purposes virtually ensures little investment income.

What’s a CEO or CFO to do?

Well, you can shift your investment philosophy and invest in equities or alternative instruments with a higher yield. But you have to prove you can handle the additional risks that come with a different mix of asset allocations.

You also need an expert asset manager who’s well-versed in current regulations, as well as the commitment of your executives and board, to move to a riskier investment strategy.

You can bank on profitable underwriting – but in a market like this, that’s a grueling experience. Terms and conditions are tough, and margins on most lines of business are razor thin. You have to stay disciplined and resist the siren call to write discounted business. And it seems the days of large reserve takedowns are over.

You can look for M&A opportunities, which in many cases may delay the inevitable and add the stress and cost of effectively integrating what are likely to be legacy systems and cultures.

And while you’re grappling with investments, underwriting and M&A, you have to keep an eye on the rapidly changing digital world, which could render your company obsolete.

So what’s a sustainable business model look like in the age of the 12th man?

I think part of the answer lies in a flexible regulatory environment.

If you’re a company in Bermuda, where your regulator is the Bermuda Monetary Authority, you can establish an alternative investment strategy, as my company has done, in return for putting up additional capital, and work with a data-driven investment manager like Two Sigma, which manages Hamilton’s investments.

Almost a decade ago, the BMA embraced the Solvency II framework and then fought to get Solvency II Equivalency for Bermuda. Their persistence will be rewarded when official recognition of Bermuda’s equivalency takes legal effect on March 24.

I don’t think it’s a coincidence that virtually the day after Bermuda’s Solvency II Equivalency was announced, XL Catlin announced it was moving its company registration to Bermuda. I think others will follow.

Bermuda has reacted well — better than most — in recognizing that flexibility is key to staying solvent.

In the States, things are more complicated. Deloitte released a report last month that said one of the biggest challenges for today’s insurance companies is trying to comply with new capital regulations that were originally designed for banks and don’t provide much flexibility in modifying an investment strategy.

It’s an accepted tenet that regulation works best when it addresses market failures and protects insurance buyers. But regulation can over-correct: In some cases, states have been too slow to rewrite laws, some of which have been in place for almost 100 years.

Today’s regulator has to confront the effect that the digital dynamic is having on both the insurer and the insured. This creates the need for a delicate balancing act: defining the right regulatory regime in a market that’s morphing in front of our eyes.

A word about rating agencies – sometimes referred to as de facto regulators:

Some agencies, like A.M. Best, have been forward-thinking in broadening the factors they consider when assigning ratings. I applaud Best’s for undertaking the survey on predictive analytics that Matt discussed. This is a meaningful contribution to the dialogue. We need more of that from our regulators and rating agencies.

Best’s has also done the work to understand alternative assets. For example, at Hamilton, Best’s spent time onsite with our investment manager, recognizing that these complex strategies require some effort to understand.

Having said that, I’d like to urge rating agencies to put more weight on the 12th man’s voice. How you’re accepted by the market matters. The quality of the relationships you establish, the panels you’re on, the submissions you receive – that all matters.

I said investments and underwriting were traditional aspects of building sustainability. M&A can play a role, and technology definitely does.

However, in this second decade of the 21st century, there’s so much more to running an insurance company.

In addition to a vocal, demanding 12th man, we’re living in a world of extreme political polarization, exchange-rate volatility and social instability.

And against that fragmented, disrupted backdrop, there’s the expectation that a company’s commitment to purpose should be as important as its commitment to profit.

Almost half of the 1,400 CEOs surveyed by PwC feel that, in five years, customers will put a premium on the way companies conduct themselves in global society.

Building a sustainable company is one of most complex issues we’re going to face over the next decade.

Now let’s look at data.

A few years ago, we were all talking about Big Data. It was THE buzz word.

Looking back, I think it’s safe to say that most of us didn’t know what we were talking about.

But living with the effect of disruptive technology, we’ve been on a steep learning curve. We’ve begun to wrap our heads around what we can do with the massive streams of data available to us.

EY just released a study on sensor data. It’s worth a read if you haven’t seen it.

As lead director at Tyco, I have to declare my interest in the subject. We’re spending a lot of time looking at how streaming data can help us develop better products.

We’re taking a holistic, data-driven look at behavior across multiple channels to give our clients the insight that helps them optimize their performance.

EY says top-performing insurance companies are already innovating with telematics, wearable technology and sensor data. EY lists the competitive advantages of being smart about data this way:

  • You can assess risk more precisely
  • You can design products faster
  • You can connect with customers more directly
  • You can revolutionize claims handling
  • And – you can maximize profitability because of better targeting

The implications for what sensor data can do for our industry are remarkable.

We’re talking about sensors on people, on cars, on ships and planes, in offices and homes, on GIS systems that provide data about climate – pretty much anything on the earth, or in the sea and sky.

Understanding this voluminous amount of data, finding correlations and eliminating bias can help us develop policies that are better-written, more comprehensive and more relevant.

Being smart about data also helps us come to grips with emerging risks, particularly a risk like cyber.

At Hamilton, we’re taking a cautious position on cyber. We’re not writing it as a class until we’ve identified an approach that gives us comfort. We haven’t found one yet, mainly because there’s been a tendency to underestimate the interconnectedness of cyber risk.

Too often, discussion about cyber revolves around hacking. But if you put any credence in what I just said about the impact of sensor data, you have to believe that there’s data-based risk in everything we do nowadays. If that’s true, what are the implications for cyber?

Getting back to sensor data –

Access to this type of intelligence has some significant implications for our distribution partners. The role of the broker and agent has been evolving for years, but data analytics is one of the greatest threats – or opportunities – for the partners who help us develop and distribute our products.

Who owns the data? Who interprets it? Does the insurer or the insured need anyone to do that any more?

Then there’s the duality of the role that brokers and agents play. They represent the insurer’s interest as well as the insured or reinsurer. Serving two masters is never easy. How well can you do that in an age of colliding data sets?

I think the answer to whether there’s still value in an intermediary is a qualified yes – IF the broker or agent brings a level of expertise and counsel that far surpasses what the carrier offers or the client can determine by himself. This means setting the gold standard for manipulating and interpreting data.

A last comment on data –

One of my own learnings over the last year or so is that if a company is going to embrace data and technology, it has to be a company-wide initiative. It can’t be done in silos.

I don’t think it works to have an incubation or innovation lab where a dedicated team is exploring a new risk management frontier and the rest of the organization is conducting business as usual. You’ll have constant dissonance between the analog and the digital.

At Hamilton, one of the advantages of being a start-up is that we’ve been able to make technology a focus of our strategic plan from the beginning.

Last year, we bought a Lloyd’s syndicate that we’ve completely rebuilt. The benefit of not having any legacy has allowed us to create an end-to-end, integrated system with all reports coming from one centralized data warehouse.

We’ve already demonstrated the value of this model. When Lloyd’s moved to require its syndicates to report pricing data for gross rather than net performance, a lot of managing agencies struggled. We didn’t.

Finally, I’ll look at the last issue I listed in my opening comments – getting rid of the waste in our industry.

By waste, I mean the massive cost of doing business. I’ve been beating this drum since Hamilton was established a couple of years ago, and I’ll keep at it because, if anything puts our industry at risk, it’s the inefficient way we acquire business.

Thirty to 40% of every premium dollar goes to acquisition and managing the business. At Lloyd’s, it’s even higher, largely because analog data-gathering weighs on the market like an albatross.

The quest to make buying insurance easier and more efficient through data analytics is the DNA of our U.S. operations, where our focus is small commercial business.

We want to remove the pain of the rate/quote/bind experience and sharpen the underwriting. We’re blessed with employees who believe in our mission and who have moved mountains to make it real.

They’ve spent the last year stripping unnecessary questions from the forms used in the acquisition process. We know a lot of that data suffers from human bias or error, and much of it is available from public sources that are more reliable.  We use data that comes from dozens of different sources as part of our risk scoring and underwriting process.

Our long-term goal at Hamilton USA is to get the questions that an agent or broker asks an insured down to two: name and address. Smart data analytics, as well as more informed underwriting, will do the rest.

We’ve also created streamlined portals for quotes and are just weeks away from launching mobile-based technology that rates, quotes and binds business owners policies.

The small commercial segment that we’re working in has an average policy size of under $25,000. This is business with small margins and high transactions. Efficiency is critical if you want to make any money.

And there’s ample room for doing just that. In the U.S., this is a $60 billion market. It’s almost $90 billion when specialty risks are included.

You can see why speed to market can make a huge difference in profitability.

Speed to market doesn’t mean we’re cutting out the middleman.

There’s plenty of room at the table for brokers, agents and MGAs – as long as they want to align their systems and practices with our cutting-edge analytics.

We’re working with partners who are as excited as we are about the potential that data analytics represents. We’re being approached by many others who are interested in taking this journey together with Hamilton.

And there’s a generational component to all of this. Some older clients want to do business with a broker or an agent. It’s a relationship they recognize and feel comfortable with.

But remember that 12th man. There are 80 million of them for whom a middleman just gets in the way.

In closing –

I know that Matt was a keynote speaker at a conference earlier this month organized by Valen Analytics. I understand there was lots of good discussion and some fascinating stats underscoring the imperative to embrace data analytics.

Apparently, 82% of companies surveyed last year by Valen say that underwriters are resisting analytics. 30% worry about a loss of jobs. 30% don’t trust the data.

77% of underwriters and actuaries argue about pricing. The No. 1 reason? Underwriters dismiss data in favor of their own judgment.

While we continue to resist change, venture capital companies are looking at our industry and seeing dollar signs.

In 2015, VCs invested $2.65 billion in start-up insurance companies like Oscar, Gusto and PolicyGenius. Ten years ago, that figure was $85 million.

So the clock is ticking. There’s not a lot of time left to figure out how to build sustainable companies, be smart about data and be more efficient.

Above all else, we need to get over our inherent resistance to change. If insurance as we’ve known it was an ecosystem, large sections of it would be on the endangered species list.

But I’m an eternal optimist. I know we have bold people working in insurance and reinsurance. I know a lot of us get what needs to be done.

So let’s just do it – before that 12th man comes down from the bleachers and does it for us.

cyber insurance

Promise, Pitfalls of Cyber Insurance

Cyber insurance is a potentially huge but still largely untapped opportunity for insurers and reinsurers. We estimate that annual gross written premiums will increase from around $2.5 billion today to $7.5 billion by the end of the decade. Many insurers and reinsurers are looking to take advantage of what they see as a rare opportunity to secure high margins in an otherwise soft market.

However, wariness of cyber risk is widespread. Many insurers don’t want to cover it at all. Others have set limits below the levels their clients seek and have imposed restrictive exclusions and conditions – such as state-of-the-art data encryption or 100% updated security patch clauses – that are difficult for any business to maintain. Given the high cost of coverage, the limits imposed, the tight attaching terms and conditions and the restrictions on claims, many companies question if their cyber insurance policies provide real value.

Insurers are relying on tight policy terms and conditions and conservative pricing strategies to limit their cyber risk exposures. But how sustainable is this approach as clients start to question the value of their policies and concerns widen about the level and concentration of cyber risk exposures?

The risk pricing challenge

The biggest challenge for insurers is that cyber isn’t like other risks. There is limited publicly available data on the scale and financial impact of attacks, and threats are rapidly changing and proliferating. Moreover, the fact that cyber security breaches can remain undetected for several months – even years – creates the possibility of accumulated and compounded future losses.

See Also: Better Way to Assess Cyber Risks?

While underwriters can estimate the cost of systems remediation with reasonable certainty, there isn’t enough historical data to gauge further losses resulting from impairment to brands or to customers, suppliers and other stakeholders. And, although the scale of potential losses is on par with natural catastrophes, cyber incidents are much more frequent. Moreover, many insurers face considerable cyber exposures within their technology, errors and omissions, general liability and other existing business lines. As a result, there are growing concerns about both the concentrations of cyber risk and the ability of less experienced insurers to withstand what could become a rapid sequence of high-loss events. So, how can cyber insurance be a more sustainable venture that offers real protection for clients, while safeguarding insurers and reinsurers against damaging losses?

Real protection at the right price

We believe there are eight ways that insurers, reinsurers and brokers could put cyber insurance on a more sustainable footing while taking advantage of the opportunities for profitable growth.

  1. Clarify risk appetite – Despite the absence of robust actuarial data, it may be possible to develop a reasonably clear picture of total maximum loss and match it against risk appetite and tolerances. Key inputs include worst-case scenario analysis. For example, if your portfolio includes several U.S. power companies, then what losses could result from a major attack on the U.S. grid? What proportion of claims would your business be liable for? What steps could you take now to mitigate losses by reducing risk concentrations in your portfolio to working with clients to improve safeguards and crisis planning? Asking these questions can help insurers judge which industries to focus on, when to curtail underwriting and where there may be room for further coverage. Even if an insurer offers no stand-alone cyber coverage, it should gauge the exposures that exist within its wider property, business interruption, general liability and errors and omissions coverage. Cyber risks are increasingly frequent and severe, loss contagion is hard to contain and risks are difficult to detect, evaluate and price.
  2. Gain broader perspectives – Bringing in people from technology companies and intelligence agencies can lead to more effective threat and client vulnerability assessments. The resulting risk evaluation, screening and pricing process could be a partnership between existing actuaries and underwriters who focus on compensation and other third-party liabilities, and technology experts who concentrate on data and systems. This is similar to the partnership between chief risk officer (CRO) and chief information officer (CIO) teams that many companies are developing to combat cyber threats.
  3. Create tailored, risk-specific conditions – Many insurers currently impose blanket terms and conditions. A more effective approach would be to make coverage conditional on a fuller and more frequent assessment of the policyholder’s vulnerabilities and agreement to follow advised steps. This could include an audit of processes, responsibilities and governance within a client’s business. It also could draw on threat assessments by government agencies and other credible sources to facilitate evaluation of threats to particular industries or enterprises. Another possible component is exercises that mimic attacks to test both weaknesses and plans for response. As a result, coverage could specify the implementation of appropriate prevention and detection technologies and procedures. This approach can benefit both parties. Insurers will have a better understanding and control of risks, lower exposures and produce more accurate pricing. Policyholders will be able to secure more effective and economical protection. Moreover, the assessments can help insurers forge a closer, advisory relationship with clients.
  4. Share data more effectively – More effective data sharing is the key to greater pricing accuracy. For reputational reasons, many companies are wary of admitting breaches, and insurers have been reluctant to share data because of concerns over loss of competitive advantage. However, data breach notification legislation in the U.S., which is now set to be replicated in the E.U., could help increase available data volumes. Some governments and regulators have also launched data-sharing initiatives (e.g., MAS in Singapore and the U.K.’s Cyber Security Information Sharing Partnership). In addition, data pooling on operational risk, through ORIC, provides a precedent for more industrywide sharing.
  5. Develop real-time policy updates – Annual renewals and 18-month product development cycles will need to give way to real-time analysis and rolling policy updates. This dynamic approach could be likened to the updates on security software or the approach taken by credit insurers to dynamically manage limits and exposures.
  6. Consider hybrid risk transfer – Although the cyber reinsurance market is relatively undeveloped, a better understanding of evolving threats and maximum loss scenarios could encourage more reinsurers to enter the market. Risk transfer structures likely would include traditional excess of loss reinsurance in the lower layers, and the development of capital market structures for peak losses. Possible options might include indemnity or industry loss warranty structures or some form of contingent capital. Such capital market structures could prove appealing to investors looking for diversification and yield. Fund managers and investment banks could apply reinsurers’ or technology companies’ expertise to develop appropriate evaluation techniques.
  7. Improve risk facilitation – Considering the complexity and uncertainty surrounding cyber risk, there is a growing need for coordinated risk management solutions that bring together a range of stakeholders, including corporations, insurance/reinsurance companies, capital markets and policymakers. Some form of risk facilitator – possibly brokers – will need to bring together all parties and lead the development of effective solutions, including the cyber insurance standards that many governments are keen to introduce. Evaluating and addressing cyber risk is an enterprise-wide matter – not just one for IT and compliance.
  8. Enhance credibility with in-house safeguards – If an insurer can’t protect itself, then why should policyholders trust it to protect them? If the sensitive policyholder information that an insurer holds is compromised, then it likely would lead to a loss of customer trust that would be extremely difficult to restore. The development of effective in-house safeguards is essential in sustaining credibility in the cyber risk market, and trust in the enterprise as a whole.

See Also: The State of Cyber Insurance

Key questions for insurers as they assess their own and others’ security

From the board on down, insurers need to ask:

  • Who are our adversaries, what are their targets and what would be the impact of an attack?
  • We can’t defend everything, so what are the most important assets we need to protect?
  • How effective are our processes, assignment of responsibilities and systems safeguards?
  • Are we integrating threat intelligence and assessments into active cyber defense programs?
  • Are we adequately assessing vulnerabilities against the tactics and tools perpetrators use?

Implications

  • Even if an insurer chooses not to underwrite cyber risks explicitly, exposure may already be part of existing policies. Therefore, all insurers should identify the specific triggers for claims, and the level of potential exposure in policies that they may not have written with cyber threats in mind.
  • Cyber coverage that is viable for both insurers and insureds will require more rigorous and relevant risk evaluation informed by more reliable data and more effective scenario analysis. Partnerships with technology companies, cyber specialist firms and government are potential ways to augment and refine this information.
  • Rather than simply relying on blanket policy restrictions to control exposures, insurers should consider making coverage conditional on regular risk assessments of the client’s operations and the actions they take in response to the issues identified in these regular reviews. This more informed approach can enable insurers to reduce uncertain exposures and facilitate more efficient use of capital while offering more transparent and economical coverage.
  • Risk transfer built around a hybrid of traditional reinsurance and capital market structures offers promise to insurers looking to protect balance sheets.
  • To enhance their own credibility, insurers need to ensure the effectiveness of their own cyber security. Because insurers maintain considerable amounts of sensitive data, any major breach could severely affect their market credibility both in the cyber risk market and elsewhere.
InsurTech

Key to Understanding InsurTech

Digital transformation has become a major challenge for insurance companies all over the world. In Italy, this transformation is exemplified by the adoption of vehicle telematics. According to the latest data from IVASS (Istituto per la Vigilanza sulle Assicurazioni, or the Italian Insurance Supervisory Authority), black boxes became an integral part of 16% of new policies and auto renewals during the third quarter of 2015.

The insurance sector is seeing the same dynamics that have already been experienced in many other sectors, including financial services—with start-ups and other tech firms innovating one or more steps of the value chain that traditionally belonged to financial institutions. InsurTech has seen investments of almost $2.65 billion during 2015, compared with $740 million in 2014. Similar to FinTech in 2015, it’s now InsurTech’s turn to define what elements will be included in the observance perimeter, a main point of debate among analysts.

See Also: Where Are the InsurTech Start-Ups?

In my opinion, all players within the insurance sector will have to become InsurTech-centered in the coming years. It’s unthinkable for an insurance company not to question how to evolve its own model by thinking about which modules within the value chain should be transformed or reinvented via technology and data usage. Realizing this digital transformation can be achieved by building the solutions in-house, by creating partnerships with other players (both start-ups and incumbents) or through acquisitions.

Based on this view that all the players in the insurance arena will be InsurTech—meaning organizations where technology will prevail are the key enabler for the achievement of strategic goals—the way to analyze this phenomenon is via a cross-section view of the customer journey and the insurance value chain. This mental framework, which I regularly use to classify every InsurTech initiative, whether it’s a start-up, a solution provided by established providers or a direct initiative by an insurance company, is based on the following macro-activities:

  1. Awareness: Activities that generate awareness in the client (whether person or firm) regarding the need to be insured and other marketing aspects of the specific brand/offer;
  2. Choice: Decisions about an insurance value proposition, which, in turn, are divided into two main groups:
    1. Aggregators, who are characterized by the comparison of a large number of different solutions
    2. Underwriters, who are innovating how to construct the offer for the specific client, regardless of the act to compare different offers;
  3. Sales/Purchase: Focuses on innovative ways in which the act of selling can be improved, including the collection of premiums;
  4. Use of the Insurance Product: Clarifies three distinct steps of the insurance value chain: policy handling, service delivery—acquiring an ever-growing significance within the insurance value proposition—and claims management;
  5. Recommendation: This part of the customer journey has become a key element in the customer’s experience with a product in many sectors;
  6. The Internet of Things (IoT): Includes all the hardware and software solutions representing the enablers of the connected insurance (the motor insurance telematics is the most consolidated use case);
  7. Peer-to-Peer (P2P): Initiatives that, in the last few years, have started to bring peer-to-peer logic to the insurance environment, in a manner similar to the old mutual insurance.

Based on my interpretations of the evolution of the InsurTech phenomenon, I say:

On one hand, there is a tendency toward ecosystems where each value proposition becomes the integration of multiple modules belonging to different players.

On the other hand, the lines between the classical roles of distributor, supplier (even coming from other sectors), insurer and reinsurer are getting blurred.

The balance of power (and, consequently, the profit pool) among various actors is bound to be challenged, and each one of them may choose to either collaborate or compete, depending on context and timing.

How to Choose the Right CRM Package

Perhaps the most important thing an insurer can do to keep clients and brokers happy is to implement the right kind of customer relationship management system and process. CRM lets the insurer anticipate needs and communicate effectively. The most obvious benefits of a good CRM system are:

  • Accessible client information, with the ability to view it in multiple dimensions
  • An automated tool for reminders
  • The ability to document prospect and broker files

But those are just the baseline benefits. With a more comprehensive system, you get usability that exceeds these minimal expectations. It can bring an insurer to a whole new technological landscape that improves retention levels and increases efficiency.

Choosing the Right CRM

Before selecting CRM software, determine who’s considered a customer, because that will dictate the features the CRM software must have. Prospects and policyholders are certainly customers, but many insurers miss out when they neglect to recognize that brokers are customers, too. The CRM software chosen needs to serve them, as well.

For maximum efficiency, choose a CRM that has certain integration functions. It should connect with other sales technology systems that you and your brokers use often, because service is the key differentiator.

To take sales and service to the next level, the CRM system should allow for data to be entered once and then pushed out to other systems, including quoting and underwriting. Distribution channel and prospect information can then be populated into a sales and underwriting system. Not only is this a more streamlined way to conduct business, it also helps the process feel more personal and customized for each user. Every sales representative can have all her information immediately. It also provides for more effective self-service on the web.

One-time entry also makes selling much easier for brokers and sales offices of the insurance company, which will always have access to updated information. This, in turn, makes your products more accessible and appealing. An advanced CRM system will also make reporting and reviewing analytics easier, allowing insurers to identify issues more easily and respond to them more quickly.

Activity tracking is also an important feature. Having an accurate record of changes and updates is important in both relationship management and regulatory compliance. Regulators increasingly demand insurers be able to document compliance.

Finally, you want to make sure your CRM software has configuration options that will maximize its utility for your company and brokers. Every company is unique, and CRM software that forces you into its box isn’t useful. You should be able to tailor a CRM system to make it work more efficiently for you, not have to work around it.

CRM software isn’t just about tracking and storing information—it’s about creating a collaborative environment among product managers, brokers, carriers and clients. Let the data flow—in a well-organized, transparent way that treats every person as a distinct individual with her own needs and expectations.