For insurer’s, Earth and its inhabitants have always been in the ‘risk lab’
By Denise GarthMs. Garth is senior vice-president of marketing for Majesco, industry consultants with over two decades of experience in providing technology solutions, products and services for the insurance industry across lines of business – Life, Annuity, Health, Pensions, and Group & Worksite Benefits insurance & P&C. Reprinted with permission. For more information, please visit here.
Has COVID-19 generated the greatest global impact of any event within our lifetimes? It is certainly possible. No industry, business or individual has been left untouched in some way. Even now, its impact is reaching far out into our future, forcing us to think of things differently — reordering our lives and rewriting our business plans.
One of the most fascinating and thought-provoking discussions surrounding COVID-19 is the area of long-range impact. While too early to see the impact, there are early indications and views based on the extraordinary impact it has had on every person and every business.
How COVID has impacted lives, businesses and insurance today and in the future, is crucially important to understand and assess so that we can begin to plan and create a post-COVID future. In this way, COVID-19 has launched a newly-opened learning and innovation lab for what happens when all rules and business assumptions of interaction, products, businesses, supply and economy change overnight.
Insurance: Back to the Lab
For insurers, Earth and its inhabitants have always been in the risk lab, under the microscope of actuarial scrutiny. Our industry has used every science under the sun to learn more about the planet and its potential impact upon businesses and people. We can determine the odds of sickness, failure, accident or act of God. We use data … lots of data … to rate, underwrite and service.
We use psychology to predict fraud, anthropology to predict social behaviors and meteorology, seismology, and epidemiology to round out the rest of the risks. Most insurers can confidently say, “We know our stuff.” COVID-19, however, is dragging us back to reality. We don’t know it all. There are lots of unknowns in the world. We still have questions to answer. We will always have something new to learn. And, we will always have a new future to vision and create.
In our previous two blogs, four of us from the InsurTech Top 50 Influencers discussed what COVID-19 means to insurers from both a near-term and a mid-range view. Joining me in the conversation were Sabine Vanderlinden, Co-Founder & Investor, Startupbootcamp InsurTech, Chris Cheatham, CEO of RiskGenius and Mike Connor, Co-Founder and CEO of Silicon Valley Insurance Accelerator. You can read those blogs here, or listen to our conversation in a recorded Webinar, “The Future of Insurance Post-COVID-19: Insights, Learnings & Recommended Actions from Top 50 InsurTech Influencers.”
What To Expect
Our conversation shared some great insights about expected outcomes coming out of COVID-19. Much of what was shared, however, was less about predicting the small details and more about how insurers can develop a new kind of thinking that will enhance the outcomes of our experiential learning. What we offered were some “lab guidelines” that might help insurers to re-conceive insurance as broader, more service-oriented, better connected and highly relevant.
The guidelines included some insights surrounding:
- A new protective paradigm that optimizes predictive capabilities
- A concerted effort to tackle “big picture” issues
- A culture of creative innovation within a framework for digital transformation
The Protective Paradigm and Predictive Capabilities
I began this phase of the conversation by asking the group if we could see some different exposure from a CAT perspective related to various COVID hot spots.
“Much of the supply chain is being disrupted with COVID 19. Pharma and drugs are not able to be deployed where they need to be,” said Sabine, “and a focus on COVID 19 drugs means that others are not being produced. Insurers are looking for a way to estimate how their customers’ value chains are going to be affected.”
Insurance, of course, deals in predictability. Part of the learning lab must necessarily focus on how we predict the impact of events like this using data we have access to. In most cases, this means learning about which points of data actually tell us something worthwhile, then analyzing and structuring that data to feed it back into our predictive models. Sabine gave a great example of this in action.
“Are people with certain behaviors at a higher propensity to actually catch the pandemic? Some people who caught it were less affected and others got it really bad. How do we provide better sources of information, even at the cure stage, to work on prevention and better protection?” This thought can help insurers ask themselves two crucial questions. How do we turn predictability into prevention? How do we innovate and create a future that is very different than where we are today — because this event is disrupting current business and operating models?
Mike gave a formula for the future of insurance in light of Sabine’s assessment of supply-chain risk.
“The future of insurance is going to move from a paradigm that focuses on getting a premium check in and sending out a claim check when something bad happens, to one that really creates value in the marketplace.”
The “new” insurance will incorporate value added services that:
- Make risk more transparent,
- Predict that risk at multiple levels,
- Prevent that risk when possible,
- Mitigate that risk when it occurs,
- Help people recover from that risk when they are impacted.
“We’re going to see an acceleration of people looking to bring in those kinds of value-added services by tapping into the digital ecosystems surrounding the insurance,” said Mike. “Can we gather information from the supply chain and the risk associated with that? What can we do to predict, mitigate, prevent, and recover? I think insurers are perfectly positioned to aggregate and provide (these services), assuming that they step into the domain of innovation.”
Chris took one more step outside of the box and considered what it might look like for insurance to acknowledge uncovered risks.
“The insurance industry saw a pandemic coming,” said Chris. “SARS hit in 2002 and as a result, viruses were excluded in 2006…so insurance saw it coming. Most businesses did not. I wonder if there was an opportunity there and if there might be an opportunity here to move to a service-oriented advisory-related insurance model. Is there any way going forward, when the insurance industry sees these big catastrophic events in the future, to help companies manage the risk that they are not insured for?”
Chris then pointed out that the model already exists in a different format:
“We are kind of seeing this already. Carriers or brokers are providing services to try to stop future cyberattacks by doing penetration testing, so I think there is a lot of opportunity as the industry starts thinking more ‘long-term and bigger picture’ about these larger losses. How can more be done to help insurance companies address those issues that are not a part of the insurance policy?”
The Industry’s Effort to Tackle “Big Picture” Issues
From Majesco’s standpoint, I pointed out that we have always said that insurance is about a risk product, the experience, and value-added services – the combined value. Sabine pointed out that the industry has a unique opportunity here to tackle big picture issues in more of an altruistic manner — an effort with the end result that benefits everyone, including insurers. If insurers will prioritize the experiences and the services, they may find a more valuable formula for success.
“When looking at the future, how do we use insurance as a force for good?” asked Sabine. “This should not just be about the production (supply) side…how do we start addressing the variety of products, services and policies that do not exist right now to satisfy the needs of that 25% of the population which is underserved. Otherwise you will see this knee-jerk reaction, where people are going to focus on process and structure related activities which are not aligned with tomorrow’s requirements, and seek to test (old) business models to see if they are deficient; then try to deploy the right digitization and automation capabilities with limited understanding of what will truly fulfill customer needs.”
“I think there are valuable experiences and benefits from what we are experiencing now. We will hopefully experience the arrival of some new ventures and enabling new tech able to show us how to create the right impact while also (dealing with) some of the big things we need to start working on (e.g. climate change, sustainable eating, etc.). Lots of us are forgetting about these issues because we are focused on today’s problem. But I think there is going to be a lot of learning coming out of this crisis. We are going to have a new normal, and we have a great opportunity to become more digitized and low-touch for the long-term.”
“I think this is a call to action to really have government, regulators, and the insurance industry sit down and map out a future where we can create and provide business models, product models, and services that address this level of global event — not only at the pandemic level but also for global warming and other issues. Rather than just reacting, let’s talk about opening the door to that innovation.”
Chris pointed out that the government’s reaction will certainly have a bearing upon the industry’s future.
“Watch closely what happens over the next 6 months or so around property policies in business interruption. We have an election coming up at the end of the year and I’m watching for how politicians respond in the coming months. Is a politician going to blame the insurance companies for not paying out on their policies even though clearly viruses were excluded?”
“In the long-term, (for insurers) this is clearly a call to move digital. You can’t rely on paper — it just doesn’t work anymore.”
Blending a culture of creative innovation with a framework for digital transformation
If the paradigm is shifting, with prediction and protection “rising to the occasions” to do more than pay claims, and if insurers are finally ready to tackle big-picture issues with digital transformation and a new definition and philosophy of insurance, then what are the right steps to take them to the future? Mike Connor had a few closing thoughts.
“I think culture triumphs over everything in this scenario.” Mike’s recommendations tie three future-focused threads together.
- Support rising, future-focused leaders. Leaders will start to emerge in companies. These are people who understand what the future needs to be. They have outside-in thinking that is different. Companies traditionally shut these innovators down. It’s time to step in and support them and remove the barriers between them and where you need to go.
- Keep the focus on the customer. Broaden the definition of who that customer is, what their needs and requirements are and what we can do as an industry or company to become wiser and find ways to bring a suite of capabilities to them.
- Embrace and support external partners, like InsurTechs. “Double down” on those and you’ll speed up the process dramatically.
Adapt To Survive & Thrive
We are in the middle of an unprecedented new normal. We are going to see a lot of dramatic restructuring from an economic, commercial, social, and a business perspective, and it’s going to significantly reshape how we live and how we work and how we use technology. Companies that reinvent themselves based on these shifts will disproportionately succeed.
Regardless of what that currently unpredictable new normal future is, the table stakes for any insurer that expects to thrive in it are simple. You have to move culture, strategy and infrastructure to an agile footing. A footing that works outside in. One that defines business, product, and process models based on the major trends reshaping our world and society and rapidly changing customer needs. One that actively identifies and leverages the services and resources being created to address those needs. From a product and a technology standpoint, it is time to “double down” on digital transformation and innovation.
Technology can’t solve every issue, but digital ecosystems can provide us with data to learn and the digital engagement that can help insurers help customers weather the storms of circumstance. I would like to thank my fellow InsurTech Influencers for the wealth of insights they provided. And I encourage all of you to keep the discussions going so that together we can reshape the future of insurance.
To hear the full conversation, tune into The Future of Insurance Post-COVID-19: Insights, Learnings & Recommended Actions from Top 50 InsurTech Influencers, and make sure to catch our newest webinar, Rethinking Auto Insurance: From a 120 Year-Old Policy Transaction Focus to a Next-Gen Mobility Customer Experience.