Insurance: back to the drawing board
In many ways the status quo of the insurance ecosystem has suited every player involved with the sector, from insurers and those they insure, to the criminals whose activities result in many a claim being made.
Insurers benefit because, as it’s a new frontier in the sector, cyber-security underwriting cannot rely on any historic data, and the market’s volatility defies traditional risk modelling. Some analysts also suggest that in this emerging market insurers could also achieve better loss ratios (insurance claims paid per total premiums) than, for example, in the traditional property and casualty line of business.
Extortion and cyber-insurance in general – the latter also including data breaches and financial scams – have been a hit with businesses because they offer a discounted alternative to cyber-risk management. Instead of building firewalls, filtering emails and scanning for malware, all businesses need to do is take out an insurance policy and throw any cyber-security concerns to the wind.
Cyber-criminals have set great store in both finding the most suitable victims – preferably ones with an extortion payment policy – and demanding ransoms in alignment with the company’s financial stature. Charities are, for example, easier to hack but can, for obvious reasons, pay relatively modest amounts.
As the payment of a ransom, unless the payees are terrorists, is not illegal in the UK, insurers have gone out of their way to create an all-inclusive service that not only reimburses the amount of the ransom but also frees victims from having to negotiate with cyber-criminals or convert fiat currencies into cryptos, primarily bitcoin, to ensure untraceability. And similarly to how insureds have found it easier to pay a premium rather than putting all the aspects of a strong cyber-security posture in place, it has been more advantageous for insurers to haggle with cyber-criminals and deal with crypto-exchanges than paying extortionate compensations for business interruption and remediation.
There has recently been a lot of pressure on insurers to break the vicious spiral that has led from five-digit ransoms to seven-digit ones. In May, Colonial Pipeleine, the largest fuel pipeline in the US, confirmed that it had paid $4.4 million (£3.1 million) to an Eastern European hacker group to minimise the disruption to critical infrastructure – although recovery from the attack took two weeks even with the fast-lane option of paying the ransom.
AXA, whose American subsidiary AXA XL, was one of the underwriters of Colonial Pipeline’s cyber-risk, has probably stopped its cyber-extortion payment line primarily in response to pressure coming from French justice and cyber-security officials.
However, the fact that slowly rising premiums have failed to keep up with the scale of ransom payouts and the standalone cyber-security loss ratio soared from 34.3 per cent in 2018 to 72.8 per cent in 2020, have also been negatively impacting underwriting performance to the point of making the arrangement unsustainable in its present form.
The duty to mitigate
Although AXA’s announcement to stop reimbursing cyber-ransom payments triggered a similar attack on its Asian offices, its withdrawal only applies to new policies underwritten by its French operation, and even there, AXA emphasised, it won’t affect coverage for responding and recovering from ransomware attacks.
AXA’s move, if copied by other leading insurers, has the potential to take ransomware, as well as cyber-insurance, back to the drawing board. According to the “duty to mitigate” principle, unless the insured takes every reasonable step to avert or minimise its loss, it won’t be able to recover any damages.
Taking out insurance instead of making a cyber-defence system impregnable, at least in theory, is clearly an approach that goes against the principle to mitigate. Bringing an analogy, no insurer will pay out on any home insurance if you only have a rusty padlock on the front door – an equivalent of obsolete anti-malware software.
If businesses large and small were nudged to invest more in improving their security posture, resilient cyber-security systems combined with employee education and the 3-2-1 backup rule – always store three copies across two different media, keeping one copy off-site – could surely cut the ground from under the feet of bad actors.
Critics of insurers have managed to put their fingers on the stakeholder key to tackling the ransomware pandemic. But the solution to the problem is not refusing to pay the extortion money, but going back to the drawing board and redesigning cyber-security policies in accordance with the time-tested rules of mainstream insurance.
That could also have the bonus of sparing national and federal governments the laborious legislative effort of banning ransomware payments.
Engineers and economists prize efficiency, but nature favors resilience – lessons from Texas, Covid-19 and the 737 Max
There is a trade-off between efficiency and resilience. Efficiency requires optimal adaptation to an existing environment, while resilience is an ability to adapt to large or sudden changes in the environment. Society’s emphasis on short-term gains has long tipped the balance in favor of efficiency.
However, the relentless pursuit of efficiency removes hurdles to the speed and reach of transactions, hurdles that also serve as buffers against shocks. Buffers provide resilience in the face of ecological, geopolitical and financial crises.
As a computer scientist, I look at how algorithms provide a way to test assumptions about resilience, even as the field of computing itself shares the bias toward efficiency. Three recent crises – the 2021 winter storm in Texas, the Covid-19 pandemic and the Boeing 737 Max software failure – highlight the cost of valuing efficiency over resilience and provide lessons for bringing society into balance.
Economists and engineers ❤️ efficiency
Free-market advocates argue that through individual self-interest and freedom of production and consumption, economic efficiency is achieved and the best interests of society, as a whole, are fulfilled. But this conflates efficiency with the best outcome.
The intense focus on efficiency at the expense of resilience plagues not only business and economics but also technology. Society has educated generations of computer scientists that analyzing algorithms, the step-by-step instructions at the heart of computer software, boils down to measuring their computational efficiency.
“The Art of Computer Programming,” one of the founding texts of computer science, is dedicated to the analysis of algorithms, which is the process of figuring out the amount of time, storage or other resources needed to execute them. In other words, efficiency is the sole concern in the design of algorithms, according to this guide.
But what about resilience? Designing resilient algorithms requires computer scientists to consider in advance what can go wrong and build effective countermeasures into their algorithms. Without designing for resilience, you get efficient but brittle algorithms.
A storm, a plague and some bad software
Brittle systems are more likely than resilient systems to break down when crises strike. Cold temperatures and blackouts during Winter Storm Uri killed nearly 200 people in February 2021 in Texas. The storm damaged the power grid and water systems, which lacked the weatherproofing features common to utility infrastructure in much of the rest of the country.
The harsh economic consequences of failing to prepare for a pandemic, despite many early warnings, provoke questions about whether the obsessive pursuit of efficiency, which has dominated standard business orthodoxy for decades, has made the global economic system more vulnerable to disruptive changes.
A stark example of a system designed for efficiency and not resilience is the flight-control algorithm for the Boeing 737 Max. Boeing retrofitted the 737, a passenger aircraft first produced more than half a century ago, with more efficient engines. This retrofitting caused some flight instability, which the flight-control algorithm was designed to overcome.
But the algorithm relied on data from a single sensor, and when the sensor failed, the algorithm incorrectly determined that the plane was stalling. In response, the algorithm caused the plane to dive as an emergency measure to recover from a stall that wasn’t happening.
The result was two horrific crashes and hundreds of the aircraft being grounded for nearly two years. In retrospect, the engineers overly optimized for fuel economy and time to market at the expense of safety.
The price of anarchy
If brittle systems are prone to disasters, why is society filled with them? One explanation is that, short of disasters, systems that emphasize efficiency can achieve a kind of stability. A fundamental theorem in economics states that under certain assumptions a market will tend toward a competitive balance point, known as the Pareto-optimal equilibrium, in which economic efficiency is achieved.
But how well does such an equilibrium serve the best interests of society? A team of computer scientists studied how beneficial or detrimental equilibria can be from a computational perspective. The researchers studied systems in which uncooperative agents share a common resource, the mathematical equivalent of roadways or fisheries.
They came up with a ratio between the worst possible equilibrium – traffic congestion or overfishing – and the social optimum, a ratio dubbed the “Price of Anarchy” because it measures how far from optimal such uncooperative systems can be. They showed that this ratio can be very high. In other words, economic efficiency does not guarantee that the best interests of society are fulfilled.
Another team of researchers asked how long it takes until economic agents converge to an equilibrium. By studying the computational complexity of computing such equilibria, the researchers showed that there are systems that take an exceedingly long time to converge to an equilibrium.
The implication is that economic systems are very unlikely ever to be in an equilibrium, because the underlying variables – such as prices, supply and demand – are very likely to change while the systems are making their slow way toward convergence. In other words, economic equilibrium, a central concept in economic theory, is a mythical rather than a real phenomenon. This is not an argument against free markets, but it does require a pragmatic view of them.
When sex is best
It is interesting to consider how nature deals with the trade-off between efficiency and resilience. This issue was addressed in a computer science paper titled “Sex as an Algorithm.” Computer scientists know that search techniques allowing individual steps that are less than optimal but could lead to an overall better solution are, in general, computationally superior to search techniques that mimic natural selection by creating “offspring” of previous solutions and adding random mutations.
Why, then, has nature chosen sexual reproduction as the almost exclusive reproduction mechanism in animals? The answer is that sex as an algorithm offers advantages other than good performance.
In particular, natural selection favors genes that work well with a greater diversity of other genes, and this makes the species more adaptable to disruptive environmental changes – that is to say, more resilient. Thus, in the interest of long-term survival, nature prioritized resilience over efficiency.
Car insurance and climate change
The bottom line is that resilience is a fundamental but underappreciated societal need. But both computing and economics have underemphasized resilience. In general, markets and people are quite bad at preparing for very low-probability or very long-term events.
For example, people have to be forced to buy car insurance, because buying insurance is not efficient. After all, in the aggregate, the insurance business is profitable for the insurers, not for the insured. The purpose of insurance is increased resilience. This example shows that ensuring resilience requires societal action and cannot be left to markets.
The economic impact of the pandemic shows the cost of society’s failure to act. And Covid-19 may be just the warmup act for the much bigger impending climate crisis, so focusing on resilience is becoming more and more important.
There seems to be a broad recognition that the incalculable suffering and trauma of Covid-19 offers societies ways to change for the better. Similar lessons can be drawn from Winter Storm Uri and the Boeing 737 Max.
Focusing on resilience is a way for societies to change for the better. In the meantime, the steady flow of news events – like a pipeline company that appears to have underinvested in security – continues to underscore the cost of prizing efficiency over resilience.
The future of insurance – is risk pooling a thing of the past?
When we talk about the future, we often conjure up images from science fiction novels: flying cars and cities in the clouds, interstellar space travel, and medical technology beyond our wildest imagination. After all, this was the future we were promised as children.
However, when I think of the future of insurance, while technology does and should play a role, I think we need to focus on some of the harsher realities at play in the market and really engage with these challenges alongside the more exciting and novel opportunities it brings.
The context of the past year helps to focus on one area of growing concern within the market and that is the issue of insurers moving away from risk pooling and continuing to focusing on individual risk-based pricing models. Aside from the pandemic, and the economic impact it has had on individuals and businesses alike (to say nothing of the social and health-related impacts), there is a growing trend of people falling outside of ideal risk profiles. As we see greater refinement of actuarial models and the use of technology to better identify degrees of risk, it would not be a stretch to suggest more people will find themselves beyond the realm of market appetite.
So how do we answer the concerns of the public while also balancing these against business decisions? I do not believe there is an easy answer, and the topic itself needs a collaborative approach from professionals and firms alike; however, there are certain things that need to happen if we are ever to resolve these issues amicably.
Firstly, the purpose of insurance needs to be re-examined and we need to properly articulate whether it has fundamentally changed. For example, we have seen a more risk-averse mindset bed in and a greater focus on mitigation measures take hold. While a focus on moral hazard and loss prevention measures is not new, it moves the market away from insurance and indemnification and instead focuses on how to reduce or retreat from insuring certain risks.
Secondly, I think there is a wider debate that needs to be had in society as to where social policy ends and private insurance begins. If we can answer what risks can and should be picked up by the market – those that either need direct state intervention or a public or private partnership – we are better at articulating which risks are insured and which are uninsured, and where that leaves consumers.
Thirdly, although in a similar vein to the above, when identifying whether we need some form of government intervention, there needs to be a comprehensive discussion of how that should work, asking difficult questions around whether we truly are at the limits of market capacity and innovation in solving those key challenges and meeting those risks. This is particularly important, as there is a comprehensive list of risks that could fall into this category. It includes future pandemics (with both the associated economic and political risks); climate change and the wide-ranging impacts it is having on our planet and on people (flooding being a good example); and broader concerns surrounding risk-based pricing for individuals with medical conditions, disabilities and even those from low-income households and “riskier” geographic locations, who are priced out of the market with little to no ability to mitigate or change their circumstances.
The much greater ability to access and analyse data, and the continual regulatory pressure to be fully in control of risk, are issues that have no simple solution. What matters is that we don’t slowly and unconsciously find ourselves at a point of no return. There is a marked shift away from traditional risk pooling (as noted in the recent report from the IFoA, The Great Risk Transfer) and we need to be able to answer these difficult questions if we wish to build trust with the public. We mustn’t lose sight of the good that insurance does for society, whether it’s through personal protection, business protection or even insuring some of the riskier elements of our economy. We should certainly be proud of the support it has been able to provide during the COVID-19 pandemic.
The future of insurance is one that can effectively articulate what it can do, honestly engaging with the limits of its capacity, with transparency and clarity on what its products and services provide. Ultimately, the brightest future is one where we proactively engage in ensuring everyone has access to some form of protection, even if it has been provided by or in partnership with the government.
For more information, please visit www.cii.co.uk
How insurance firms can come out of the pandemic stronger
James Harrison, Head of Insurance UK & Ireland, Dun & Bradstreet
Insurance, like almost every industry, has suffered from the disruption caused by Covid-19. But for all the irreversible changes to our lives and livelihoods, there have also been invaluable lessons learned – and insurers have an opportunity to emerge stronger from the pandemic than they were before it.
By investing in and embracing the right technologies – and successfully implementing them in firms – insurers can enhance operational efficiencies and re-establish their value proposition. And leveraging the capabilities of digital and data insurers can also lead to a better understanding of the needs and desires of customers.
Continued digital transformation of the insurance industry
Covid-19 quickly made it apparent that firms that had embraced digital technologies were better placed to navigate the pandemic’s prolonged challenges. But the onus is now on the whole industry to invest in digital technology, enhance operational efficiency and move forward as one.
For insurers, digital can remove significant cost and reduce time-consuming manual work. Increased focus on the suitability of smart contracts can also offer significant benefits to policyholders by streamlining the overall claims process, cutting down on delays and reducing uncertainty in the event of a loss.
By embracing emerging technologies such as blockchain, firms can also reduce unnecessary paperwork. Automation and artificial intelligence (AI) will also play a pivotal role in the development of smart contracts to prevent fraud, as well as freeing up staff to focus on more fulfilling and business-critical tasks.
Insurance firms to take on a more advisory role
There’s an opportunity now for insurers to demonstrate their added value to customers. One such way is by taking on an educational, advisory role, whereby if a claim doesn’t occur in a policy lifecycle, customers can still expect to feel that they’ll get what they paid for.
Cyber-security insurance is one area where this is already happening, with firms advising clients on preventative measures to avoid a breach in the first instance and then, where needed, responding to individual incidents. Ultimately, it’s about being proactive rather than reactive and informing behavioural change in an organisation to help prevent loss of products.
Operating in this way means firms can build better relationships with customers and meet their evolving needs. Advising customers also supports loss prevention rather than loss indemnity, which is beneficial because not only does it give customers more control to reduce premiums, crucially, it also helps to improve claim ratios and insurer profits.
Data must be used in a more structured way
Data is central to the running of any successful insurance firm, from helping to better understand customers, to risk assessment and analysing the full extent of a claim. If insurers hope to improve their value proposition to attract new customers (and retain old ones), leveraging insights from enhanced data analytics will be the key to becoming more customer-centric.
To achieve this, however, first-party data alone is no longer enough. Insurers, like banks, have valuable information on their customers, but most of it is their own internal data – and that’s just half of the picture. In response, insurers should be looking to combine this with external data sources to develop a complete view of customers.
Once you have this high-resolution view of consumers, it can breed operational efficiencies across the value chain, from onboarding quicker and enriching experiences with fewer questions for customers to answer, to understanding their wants and needs and knowing exactly what innovative products and services are required to meet them.
Become more data-driven and customer-centric with D&B
The insurance sector today has a unique opportunity to leverage the capabilities of digital and data, to drive innovation and become more customer-centric.
Get in touch today to learn more about how D&B’s world-leading business decisioning data and insights can help you to proactively meet customer demands, seize the digital opportunity and emerge stronger from the pandemic.
The data transformation of insurance
The use of data, analytics and technology to better predict and understand insurance risk, not just to help calculate a premium but to do more for the customer and make insurance something they really value, is set to grow significantly. Customer needs and expectations have shifted, risks are changing and insurance providers need to keep pace through data.
With 40 years’ experience as a trusted custodian of consumer and business data, LexisNexis Risk Solutions is assisting the insurance market through its data transformation.
Consider the advances in vehicle safety technology and the impact this is having on accidents and claims, or think of the changes in our climate, with weather events becoming the norm rather than the exception. The way we live and work has also altered in the past year and some of those shifts may become permanent.
Live feeds on floods and storms, vehicle-build information and data from connected assets are part of a growing number of data sources that will help insurance providers understand these changes to deliver the types of insurance products and services consumers and businesses want.
It’s no longer enough to sell a policy and pay a claim – data can help ensure the right cover is offered at the right price and empower insurance providers to help their customers mitigate risks through the lifetime of the policy.
It starts at application: data prefill solutions are cutting the questions set and making the process less time-consuming for the customer while improving data accuracy for the insurance provider. This is proving particularly valuable in home insurance, known for its lengthy application process.
The next step is an industry-wide home claims database that has the potential to eliminate questions customers need to answer around past claims and give much more understanding of the past claims for a property. This will also support pricing and enable insurance providers to understand a new claim in the context of any past claims.
When it comes to quotes, data enrichment solutions are helping the insurance market understand more than a company’s own data could tell them about the person, property or vehicle being insured. With this information injected directly into the quote process, insurance providers now have access to a wide range of data for faster, more accurate decisions through the LexisNexis® Informed Quotes platform.
For home and commercial property insurance, this means they can build the clearest view of the property, its environmental risks, the resident or business owner to make the most rounded assessment of the risk, at speed. The same principle applies in motor insurance, with increasing access to vehicle-centric data such as MOT and valuation available to help support fairer pricing.
Data on the vehicle itself is also on its way as UK insurance providers test LexisNexis® Vehicle Build. This will help them to factor in the safety features on a vehicle, fitted both as standard and as optional extras, so that consumers have the opportunity to benefit from the investment they have made in their car’s Advanced Driver Assistance Systems (ADAS) features.
Part and parcel of the quote process is undertaking checks for ID fraud, which can leave innocent motorists exposed. Here the policy history and quote data we have collected over the past six years, along with email address intelligence through LexisNexis® Emailage® Rapid, are helping insurance providers price more accurately and identify potential application fraud.
Going beyond the point of quote, “live” and connected data can help insurance providers and customers mitigate risks – and maybe even prevent claims. The use of mapping tools such as LexisNexis® Map View using near real-time data direct from the Environment Agency now puts insurance providers on the front foot to alert those set to be affected by floods and storms and offer advice on how to protect themselves and their possessions.
We must also recognise the role connected car data is set to play in offering more personalised insurance, opening the opportunity to offer drivers immediate support if they have an accident. A data bridge between insurance providers and car manufacturers has been created to give consumers the choice to access insurance based on their connected car data.
Creating a better claims experience also comes down to having the most cohesive view of the customer. Linking and matching technology using our unique identifier LexID® for Insurance will help the market build that single customer view. Having a single view of the customer benefits the market on so many different levels – from marketing through to claims – but most importantly it unlocks the massive potential of the data insurance providers already hold.
We all want swift, accurate, personalised insurance quotes, and we want to know our insurer has our back – not just when we make a claim but from the moment we become a customer. Data insights that contribute policy history, quote and claim data, property data, vehicle data, live and connected data and more are helping insurance providers meet these expectations.
by Jeffrey Skelton, MD for Europe, LexisNexis Risk Solutions, Insurance.
Helping insurers break away from legacy systems with future-ready technology
John Brisco, CEO and Co-founder, Coherent
The pandemic has placed a spotlight on the need for insurance, but it has also raised many systemic issues within the industry that need to be addressed urgently. Social distancing rules mean agents cannot sell insurance to customers face-to-face, and customers’ increasingly individualistic demands mean insurance products need to become more modular and tailor-made in order to meet their needs. Additionally, increased competition such as D2C virtual insurers mean incumbents need to streamline their processes and push propositions out to market faster.
At Coherent, our platforms are developed to help insurers work faster, smarter and simpler across four key stages of the insurance business:
Our platforms can be deployed and used independently for immediate results, or they can be experienced as a full ecosystem for more holistic benefits.
All our platforms are powered by our core proprietary technology, Spark, our logic and rules engine that can handle complex logic and run hundreds of thousands of calculations per second on a single processing unit.
Because of Spark, our platforms can run consistently in all operating environments. It’s easy to scale and replicate with Spark, meaning insurers can update and reuse models without time-consuming development and redeployment. Spark is continuously learning as it gathers more data, so you can operate with richer insights and at faster speeds as you keep using our technology and platforms.
Spark also enables our platforms to integrate easily with any insurer or third-party system through API, making it easy for insurers to migrate from legacy systems at a pace they’re comfortable with.
In light of Covid, we helped AIA Indonesia create its first end-to-end digital journey by leveraging Coherent Connect to deliver its “Buy One Love One” campaign, where customers can purchase life insurance and protect their loved ones for free, with policy information sent back to them via WhatsApp.
As people become more conscious about saving for a rainy day, we helped Sun Life Hong Kong roll out its online retirement calculator and journey planner to educate people on the importance of saving and investing early, using Coherent Explainer.
The pandemic has clearly become a catalyst that has prompted insurers to transform their business for the post-Covid future, and those who act fast will ride this wave and come out on top.
Create an insurance experience customers will enjoy
Compared with other shopping experiences the buyer relationship with insurance is a particularly unique one. Namely because people buy insurance products in the hope that they never actually have to use them.
This creates a commodified marketplace where customers have very simple needs. Shoppers want to buy their insurance quickly. They want it as cheap as possible, and they want it to cover everything they expect it to cover.
To address this demand, the past few decades have seen a huge growth in comparison websites. These marketplaces successfully service a customer base who find very little joy in trawling through various providers to find the best deal.
The process on the surface appears quite simple. The customer fills out a form that generates an array of options, and then – more often than not –they pick the cheapest option which covers all their needs.
The issue with the insurance customer experience
For insurance, the issue seems to manifest itself in certain scenarios. First, customers abandon forms before submitting them to find a quote. This could be due to distractions, unclear questions or complicated terminology. Recapturing these abandoned forms is no easy task either. Customers will often revisit the buying process later, but there is no guarantee they’ll see the same quotes they did last time.
Second, customers can purchase what they think is the perfect package for them, only to find that the cover they thought they had doesn’t exist. This leads to major fallouts when it comes to the event of a claim for which customers aren’t covered and are hit with losses and the sunk cost of inadequate insurance. This negative experience will likely end the customer relationship with the insurance provider, as they naturally associate the insurer with low transparency and poor coverage.
Finally, customers in certain cases accidentally submit incorrect or inaccurate information which makes their insurance policy null and void. Although at times a deliberate attempt for the customer to lower their quote price this can still be an honest mistake. This again makes for a disastrous claiming experience if the need arises.
Most of these issues stem from the fact that insurance isn’t something most shoppers fully understand. They don’t spend time shopping on each site, or hours perusing policy terms and legal permutations on the off-chance they need to make a claim.
Insurance shopping is rarely fun, and neither is it frequent. Compare this with buying food, something an average shopper does every day, or buying a car – something many find a pleasant and exciting purchase.
Co-browsing is becoming standard practice
With the rise of online insurance comparison websites insurance buyers have become well versed in looking online for insurance as opposed to calling a broker. However, the online experience is still not where it needs to be, and customers still don’t see shopping for insurance as a straightforward purchase. This is where tools such as live chat and co-browsing can come in.
Co-browsing is effectively a better version of screen-sharing, particularly useful for online customers looking to complete jargon-filled transactions. Using tools such as Upscope, insurance support agents – either on the phone or via live chat – can jump on a co-browsing session and assist customers’ online journey as if they were sitting next to them.
Through a simple integration, insurance support agents use co-browsing to help high-value transactions reach completion and lower abandonment rates. Customers don’t accidentally fill out forms incorrectly, voiding their policy, nor do they sit there confused by jargon when an agent can highlight and quickly explain terminology in a way that each individual customer can understand.
For lower-end insurance, the time cost of co-browsing with prospects, for the most part, doesn’t achieve a return on investment. But those at the higher end of the insurance spectrum who regularly deploy support agents to help fulfill quotes can use co-browsing as a tool to provide an exceptional customer experience.
Co-browsing can also be used to help customers understand the fine print and legalities when it comes to claiming and what they’re entitled to. This may help alleviate any issues and complications when it comes to the already stressful process of making a claim.
Click here to see how companies such as Delta Dental (California) use Upscope to help their customers select the best dental insurance policy possible.
by Cameron James, Head of Marketing, Upscope
Combatting climate change starts with real-time data
Mick Noland, Executive and General Manager of Insurance Solutions, CoreLogic
As climate change continues to force the insurance industry to adapt to new conditions, severe natural catastrophes such as hurricanes, wildfires and floods are becoming more frequent and more challenging to predict.
At the same time, consumers, now expecting seamless and integrated experiences from their digital products, have growing expectations, while insurers are being hit with higher losses and lower margins. Without having access to the latest data and technology, insurers encounter unpredictability and the consequences of an unprofitable business model. Insurers that are not adapting or being proactive in how they change their processes are falling significantly behind.
To navigate this challenge, insurers are increasingly turning to data providers with real-time, accurate and actionable information on properties, geography and weather. Having information with depth and breadth is key to increasing the number of data points and resulting intelligence on any given property.
CoreLogic helps clients find, buy and protect the homes and businesses they love. As the only provider of intelligence solutions across the property-buying journey, CoreLogic is able to incorporate deep data insights into insurance processes that many carriers do not have access to today. Not only does this provide clients with new views of risk, but also new profitable customers to target. With more comprehensive data and analytics, insurers can better evaluate risks, better understand exposures and provide a better overall customer experience.
While there are many great insurance solutions in the industry, vendors often sell only point solutions to insurers and walk away. Insurers are left with a myriad of solutions to navigate with minimal integration capabilities. What insurers need is a one-stop shop where all of these solutions can be effortlessly combined.
CoreLogic’s Digital Hub, a single API integration, allows for seamless connectivity between 50 different InsurTech solutions. This includes solutions from every side of the insurance life-cycle, whether it’s new business, underwriting or claims. By leveraging the same set of data in quoting and all the way through the claims cycle, clients experience a seamless integration process, helping them to lower their expenses, create more efficient business models and expand their revenues.
To learn more about CoreLogic’s insurance solutions, please visit the CoreLogic website.
Insurance firms: the digital branch
Insurance firms play a vital role in helping people prevent loss and recover from catastrophe. With their core mission being to deliver peace of mind to their clients, firms must do everything they can to accommodate client demands. This means providing an accessible, dependable and deeply personalised client experience. Implementing the right digital strategy by bringing everything together in one readily accessible platform is crucial to those goals.
Given how important insurance is to clients, customers expect full visibility of their policies and accessible engagement with representatives. This means being able to interact through a wide range of digital channels promptly and reliably.
Today’s insurance firms must prioritise omnichannel experiences to accommodate the rapidly diversifying range of demands. This now applies throughout every stage of the buyer journey and to every interaction between the client and the firm thereafter. Client satisfaction depends on having a connected and accessible digital presence across all the channels they use. Insurance firms should establish virtual firms that provide instantly accessible one-stop experiences to all their clients. This should be available across all devices and platforms.
One of the biggest challenges facing the insurance sector is establishing a single, consistent and persistent relationship with clients who engage representatives across multiple channels. Digital transformation is helping firms unify and streamline these experiences by bolstering their technological capabilities. This lets them perform a large number of functions in a way that’s convenient to clients.
At the same time, an over-reliance on certain digital technologies, particularly things like chatbots and autoresponders, comes with the risk of dehumanising business-to-client interactions. In a sector that depends heavily on taking a personalised approach to clients, it’s more important than ever to focus on humanising technology. In fact, digital transformation is as much about connecting and engaging people and processes as it is about technology.
A successful digital transformation strategy enables persistent client relationships across the full range of mediums today’s customers use, including text messaging, video meetings and document-sharing. Insurance is a high-touch service that depends on all these features.
Managing and protecting secure interactions is critical in any digital transformation, so creating a protected space with a one-stop app allows firms to offer their clients a private digital channel wherever they are with bank-grade security for confidential documentation and communications. Firms need to maintain full visibility into their data, including every customer interaction, to ensure regulatory compliance and confidentiality. In an industry that’s built on trust and integrity, insurance firms must place information governance at the top of their digital transformation strategies.
Digital transformation revolves around building and maintaining a complete and auditable trail of data, which includes every customer interaction. Moxtra’s OneStop Portal unites things such as document-sharing, customer messaging, collaboration, task management and meetings to help simplify information governance and reduce risk. For brokers, it means a tethered connection to corporate headquarters for notifications and communications, and for clients, this greater visibility means faster delivery of service.
Perhaps the most common misconception about digital transformation is that it’s a destination: a singular project with a beginning, middle and end. But given the rapid pace of technological advancement and the changing consumer habits that come with it, this approach doesn’t suit any business well in the longer term. Rather, digital transformation is a continuing strategy, a journey that exists as long as the organisation itself exists. It’s about scaling with and adapting to future demands, rather than risking succumbing to obsolescence later on. Deploying a digital strategy on a platform that is built to scale is crucial, as building an application from scratch could be obsolete in a few years, given the rapid pace of technological innovation.
A key concept of digital transformation is business resiliency. It’s about adapting to constant change through continuous improvement and regular testing. There’s no better way to ensure business continuity than by establishing a one-stop digital destination for your business that incorporates every aspect of a physical firm and is vastly more convenient for today’s customers.
Moxtra helps insurance companies deliver premier service to their customers through secure, branded web and mobile portals. Get started with your OneStop Portal today.
Header image from Getty Images 689071039
Let’s make insurers great again
The insurance of the future will be connected, fair and personalised, and it will engage policyholders in risk prevention. Insurtech will make the insurance sector stronger and more likely to achieve its strategic goal: protecting the way people’s lives and organisations work.
I wrote about this subject in Business Reporter’s Future of Insurance in 2017. Despite the industry’s progress over the past few years, today I feel the need to reconfirm my belief in insurers’ relevancy in the future of our society.
Insurtech has come of age in 2021. We currently have numerous listed firms and even a dedicated index (HSCM Public InsurTech Index), which monitors the performance of US players. Established insurance incumbents such as Swiss Re are presenting the results of their insurtech initiatives to the financial community and demanding an adequate valorisation of these assets.
Unfortunately, a large number of the people talking about insurance innovation are generalists – who barely distinguish a loss ratio from a combined ratio – or people who don’t like insurance and see it as a necessary evil. Both categories of people miss the old days when insurtech was supposed to be only a disruption.
It is more and more frequent to hear them predicting a future where insurance will be invisible. You can even read articles where it is said that people will be insured without even knowing it: one of the less customer-centric thoughts I’ve ever heard. This seems like an archetype of miss-selling, which I doubt will be allowed by regulators.
They frequently even add a recommendation to insurers: not to waste money and effort trying to interact with the policyholders, because nobody wants to interact with an insurer. This perspective directly descends from their dislike for insurers. Moreover – to complete their “memento mori” for the insurance sector – they typically highlight the risk mitigation potential of technology.
I’m recognised in the sector for being a non-conformist. I’ve dedicated my career to insurance innovation, and I love the insurance sector. I love the insurance incumbents: they are my clients, and I want to see them thrive. But I don’t like the scenario described above where insurers are destined for extinction like dinosaurs. Moreover, I don’t think it is going to happen.
My beliefs don’t come from a crystal ball; they are based on real initiatives and results that some insurance players have already achieved around the world. I’m in the privileged position of having advised insurers and reinsurers in more than 20 different insurance markets around the world. In the first four editions of my IoT Insurance Observatory, I served and learned from four of the top five reinsurers, 11 of the top 15 European insurance groups, eight of the top 15 US P&C insurance groups and over 40 major tech players. Moreover, I had the opportunity to exchange with more than 100 insurance professionals, tech executives and leading academics across all insurance business lines and geographies, collaborating with The Geneva Association on research about risk mitigation and prevention services for the past 12 months.
I believe the insurance of the future will be connected, fair and personalised, and will engage policyholders in risk prevention.
Insurance will be connected. In the future, downloading an app that tracks your driving behaviour will be the standard, just as today it’s normal to download an app to have food delivered at home. The IoT Insurance Observatory research shows that last year 21 million cars sent telematics data to an insurance company, and 35 per cent of those were through an app. In commercial lines, any company will share the real-time data from its equipment with the player insuring it. Axa XL has already introduced a Digital Risk Engineer programme, which provides clients with a gateway that retrofits the existing facility management system and allows the loss control team to deliver recommendations more efficiently.
Insurance will be fair and personalised. The fusion of IoT and contextual data will normally be used for a more accurate continuous underwriting – managing claims better – and tailored insurance proposals. The South African insurer Discovery has used dynamic pricing in life insurance for decades, with premiums accurately reflecting the policyholder’s risk level at each renewal. Italian insurers such as UnipolSai and Generali use auto telematics data in each phase of the claim: assuring a quicker settlement where only the right amount is paid and better protecting policyholders against any fraudulent third-party claims made against them. In commercial lines, Argo Risk Tech for the general liability portfolio helps supermarket owners in demonstrating reasonable care, so providing them with lawsuit-ready protection. The French digital broker My Risk Committee is providing risk managers with real-time personalised alerts about the evolution of their risk exposure and the gap due to the current insurance coverages.
Insurance will engage policyholders in risk prevention. All the insurance coverages will come with real-time risk mitigation solutions and behavioural change programmes that are able to reduce the probability of the occurrence of problems. Insurance solutions will be characterised by a constant but discrete presence of the insurer and proactive actions when needed. In personal auto, Tokio Marine introduced an AI-enhanced camera that provides real-time warnings to the driver. Auto insurers such as Allstate and Discovery have successfully introduced advanced telematics-based behavioural programmes with daily interactions with the policyholder and rewards for safe driving .
In commercial property, Church Mutual’s investment for equipping the insured property with an IoT solution – based on the detection of water leaks and frozen pipes, and real-time alerts to the insured to mitigate non-weather-related water losses – has shown the ability to protect the policyholders and a robust return for the insurance company. Moreover, in workers’ compensation, StrongArm Technologies’ wearables are already used by tens of thousands of employees to enable insurers to reduce expected losses, both directly with real-time alerts and indirectly with data-driven recommendations delivered by the loss control teams.
There are already some insurance best practices that have achieved a 40 per cent daily active users ratio in their IoT-based initiatives, which is not so far from the 60 per cent achieved by social media players. This demonstrates to the insurers that engagement is an achievable target, and they can evolve from the historical zero interaction (excluding the annual request to pay the premium) approach.
All the pioneers described in the article have already started creating the future of insurance. This is demonstrating to the sector the feasibility of this business transformation, and their achievements will push more and more players to invest in developing the necessary capabilities for innovating the way they are doing business. We have already seen this happening in the personal auto telematics in the US, with Warren Buffet acknowledging the relevancy of telematics and commenting on Geico’s investments in order to close the gap with competitors.
This should give a sense of urgency to all insurers. Although a competitor’s product can be replicated in a few months, capabilities require time to be built and internalised in the organisation. A capability gap will require years to be closed.
by Matteo Carbone, founder and director of the Connected Insurance Observatory and a global insurtech thought leader.
Daniel Kahneman on 'noise' – the flaw in human judgement harder to detect than cognitive bias
Imagine two doctors presented with identical information about the same patient giving very different diagnoses. Now imagine the reason for the difference is because the doctors have made their diagnosis in the morning or afternoon, or at the beginning or the end of the week.
This is “noise” – the reason human judgements that should be identical vary – which Daniel Kahneman, one of the world’s best-known psychologists and winner of the 2002 Nobel Prize in Economics, tackles in his latest book, Noise: A Flaw in Human Judgment.
Kahneman won his Nobel prize for his pioneering work with fellow Israeli psychologist Amos Tversky on how cognitive biases shape judgement. Their work, beginning in the late 1960s, laid the foundation for the new field of behavioural economics, which challenged the economic orthodoxy that decisions are rational.
Kahneman’s previous book Thinking, Fast and Slow, published in 2011, brought much of this work to the attention of a broader audience and cemented his reputation as a foundational figure in the understanding of human behaviour.
In Noise, co-authored by Olivier Sibony and Cass Sunstein he explores a different phenomenon to cognitive bias.
Bias is a psychological process, and can be detected in individual judgement, the genial 87-year-old explained to me when I interviewed him (via video) for the UNSW Centre for Ideas. “But we cannot identify noise in a particular judgement.” Instead we must look at sets of judgements to identify noise.
Noise is a statistical concept
Kahneman’s new book presents several compelling cases from business, medicine, and criminal justice in which judgments appear to vary for no “good” reason.
One example is fingerprint analysis, with the same analyst making different judgements about the same print at different points in time. If the analyst has only the fingerprint to look at – and no other information about the case – and decides on one occasion it is a match and on another it is inconclusive, that’s noise.
If, on the other hand, the analyst changes their mind because of extra information (for example they are told ballistics evidence suggests a different conclusion), that’s bias.
Both are a problem, Kahneman says. But because noise can only be identified in statistics, it is more difficult to think about, and so tends to go undiscussed.
Noise in system judgements
Kahneman’s book discusses many different types of noise, but the most significant discussion relates to system noise – the variability in decisions arising in systems meant to produce uniform judgements.
There are lots of situations in which diversity of opinion is highly desirable. “Noise is the variability where you don’t want it,” Kahneman said.
Think of the judicial system producing sentences, or the underwriting system to set insurance premiums. Such systems are meant to speak with “one voice”. We want judicial sentences to reflect the crime, not the judge that happens to hear the case. We want two underwriters with exactly the same information to calculate the same or similar premiums.
The challenge, then, is to identify unwanted variability and then do something to mitigate it.
The trouble with intuition
On this, the book offers a key insight that you can apply to your own decision making: resist “premature intuition” – the feeling you “know” something even if you are not sure why you know.
In some cases intuition is very useful for making instant decisions. In other, less time-critical situations, Kahneman says judgements based on intuitive feelings need to be disciplined and delayed.
Act on intuition only after you have made a balanced and careful consideration of evidence, he advised. As much as possible gather that evidence from diverse sources, and from people who have made their own independent judgement of the evidence.
Without this, Kahneman said, noise can easily be amplified.
Turning to artificial intelligence
One response to the prevalence of noise in judgements is to turn to machines, and let computers decide.
Kahneman is not yet an enthusiast. He believes artificial intelligence is going to “produce major problems for humanity in the next few decades” and is not ready for many of the domains in which judgement is required.
In the longer term, however, he does see a world in which we might “not need people” to make many decisions. Once it becomes possible to structure problems in regular ways and to accumulate sufficient data about those problems, human judges could become superfluous.
Until then there is plenty to do in reducing human error by improving human judgment, rather than eliminating it by outsourcing decisions to machines.
Knowing about noise (and bias) will help with that goal.
A recording of Daniel Kahneman’s full conversation with Ben Newell is avaiable on the UNSW Centre for Ideas’ website.