Insurance Vision for the Future

At the 2020 Insurance Information Institute Joint Industry Forum, a panel discussed the future of insurance.

Insurance is undergoing a transformation that will make ours a truly customer-driven business that delivers responsive products, processes and service to greatly improve the lives of all policyholders. This conversation explored the impact and likely outcomes this data-driven revolution will have on insurance organizations’ employees, business culture and bottom line. The speakers were:

• Moderator: David Sampson, President and CEO, American Property Casualty Insurance Association (APCIA)
• Vincent (V.J.) Dowling, Managing Partner, Dowling and Partners

• Hayley Spink, Head of Global Operations, Lloyd’s

Using information is not a new thing. The industry has been relying on data for years in pricing policies since it’s inception. In fact the insurance industry was well ahead of other industries in how it used data. What is changing is the amount and type of data that is now available. The enhanced data can allow us to pay claims faster and lead to higher customer satisfaction.

There is much talk about how insurtechs will “disrupt” the insurance industry. This is just not true. Spreadsheets were more “disruptive” than anything that these companies have introduced. Most of these companies had little understanding of the industry and how it operated. While there is opportunity for incremental change to enhance processes, this highly regimented and regulated industry will not be disrupted by technology.

Lloyds has an innovation lab where they are matching up screened insurtech companies with insurance companies in the marketplace who are interested in improving their processes and innovation. This lab provides the opportunity to try new ideas to see what has traction and what does not.

AM Best has said they are going to add an innovation score to their rating of insurance companies. Some question whether they are qualified to make such an evaluation and whether it is an appropriate measure of an insurance company. Innovation for the sake of innovation makes no sense. It has to deliver value to the clients, company, and the shareholders.

There is no question there will be changes to delivery models and ways we communicate with policyholders and claimants. However if you cannot easily integrate technology into the company processes and culture you cannot truly have innovation. Change is a process and it takes time. This is not something that happens quickly in an industry like insurance that has well established legacy systems and proven processes.

Artificial Intelligence (AI) can make us more efficient if applied appropriately. However you are making a mistake if you try to force it into a process inappropriately.

One area of technology that has been very useful is drones. Insurance adjusters can quickly assess damage to a property and get the claim paid much faster than ever before.

Today with inexpensive and plentiful data and sufficient capital available for growth, it is easier for carriers to enter new markets and be successful. Established carriers in the marketplace no longer have an insurmountable advantage because of their data.

Because insurance is so highly regulated, any new technology must ultimately be approved by the regulators. Increasing data privacy laws like GDPR in the EU and CCPA in California are challenging how insurance and other industries collect and utilize data. The insurance industry in particular collects a significant amount of data and shares that data with others. If these new privacy laws limit that it will be a big challenge for the insurance industry. In fact, some of these privacy laws are in direct conflict with record retention regulations imposed on the insurance industry.

Another challenge for the insurance industry is that regulators are increasingly focused on whether different ethnic groups, neighborhoods, etc are paying more for insurance and have their claims treated differently, Disparate impact is the buzz word that regulators are focused on. It doesn’t matter if the difference in pricing and outcomes is unintentional and is simply the result of factual information that the models produce. The reality from the carrier side is that every person and every neighborhood is not the same level of risk. This simple fact is increasingly incurring the wrath of regulators especially in places like New York and California because they view it as discriminatory.

Some feel that climate change is a significant disruption for the insurance industry. This may be over-stated. If you look back in time, climate change has been constant throughout human history. We have never been in static weather and climate patterns. Record weather extremes can be seen throughout recorded history. The insurance industry has always had to adapt to evolving weather models and the “worst case” exposure is constantly redefined by new events.

Social inflation is a trend that has been very harmful to the insurance industry. Jury awards keep going up to levels never seen before. Actuarial models cannot accurately keep up with these trends. Litigation financing is an industry that has arisen and has completely changed the model for claims handling because more claims are being filed and they are taking much longer to resolve because of the financing in the background.