Insurers Rethink Best Way to Assess, Manage, and Prevent Emerging Risks


By David DeMoss

As agents, brokers, and business owners in the insurance industry, the main purpose of our job is to reduce risk and protect people from the uncertainties in everyday life. With that being said, what’s defined as a “risk” or “uncertainty” can change very, very fast. 

Imagine someone in early 2019 telling you that a worldwide pandemic would cross international borders in 2020, forever changing business processes, health systems, and the technology that developed along the way. In the property and casualty sector, these unexpected and unprecedented changes have a direct and overwhelming effect on our job to help protect against risk. 

In the article below, Mamta Rodrigues explains how these changes are forcing insurers to rethink the way they evaluate, control, and avert risk.

Pandemic aside, premium volume declines related to wildfires engulfing the Western United States are at their highest. Scientists are claiming the region’s recent fires are the worst in 18 years. Losses from third-quarter California wildfires and Hurricanes Laura and Sally combined are now estimated at over $20 billion, according to Fitch Ratings. The lingering impact of COVID-19, however, has introduced a new level of uncertainty for underwriting performance that is expected to continue throughout 2021.

Stay-at-home orders and business contractions, coupled with insurance relief measures such as payment deferrals, are mounting pressure on premium levels. The notably high unemployment rate means firms are subject to increasing workers’ compensation and a further reduction in premium volume. The significant shift to remote working is also positioning cyber fraud as one of the most prevalent exposures to emerge from the crisis, with malicious online attacks impacting both individuals and corporations. And, as we turn the corner of COVID-19, digital is here to stay, which means solutions that leap-frogged during the pandemic will further expand and also necessitate incremental controls.

These unforeseen and extreme risks are calling for a recalibration of how firms premeditate, assess, manage and ultimately prevent risk. For years, P&C has largely been stagnant in terms of its digital transformation, burdened with inflexible back-office operations and legacy systems. Insurers are now left with little choice but to innovate, not only as a means of improving predictive and reactive capabilities but also delivering the highest quality customer experience, improving cost performance and expanding in digital transformation.

Capturing risks

Implementing emerging technologies into the traditional insurance model has been rendered imperative. Currently, 96% of insurance executives report the pace of innovation is accelerating due to these technologies, meaning those who fail to adapt will likely lose out on a competitive advantage.

Across the entire insurance operations lifecycle, providers are looking to capitalize on the increasing accuracy and sophistication of artificial intelligence (AI) and advanced analytics. Capable of collecting rich information about the physical world, these technologies capture patterns that offer insurers the ability to better understand (and predict) changing risk and avoid preventable losses. By calculating the likelihood of a new event being insured against and flagging early warning signs for possible exposure, firms can improve their prediction engines and accurately match customers with the right policies. Like most other industries, the more data available, the more personalization businesses can offer. In this case, in the form of tailored premiums and more relevant products for individual customers.

Managing risks

One of the by-products of the pandemic involves the heightening expectations for carriers to become digitally enabled throughout the end-to-end journey. Coverage has become highly commoditized, with purchasing decisions almost entirely informed by price. Customers also have been encouraged to use these digital channels through the pandemic for financial transactions and thus expect the same in other facets of their day-to-day as well. Yet, not understanding the real value of their policies, consumers — with unlimited access to social media and comparison sites — increasingly demand a simple, convenient, yet educational experience via the digital platform they choose. The vast majority (71%) of insurance customers now prefer conversational AI and messaging experiences, namely to conduct routine activities, and would trust a company more if given the option. Customers may also urgently want answers to: “Will I be covered if my business is still unable to open next month?” Or “Will my policy be excluded due to the virus?” As challenger InsurTechs gain a firmer grip on market share, more established insurers will need to digitally disrupt or be disrupted. InsurTechs, while remaining a threat to incumbents, can also serve as a catalyst to speed up this needed transformation.

To respond to fluctuating demands from concerned policyholders and claimants, providers should be creating mobile and web-based platforms and promoting easier-to-use self-service capabilities. AI-powered chatbots in the front office can reliably handle most basic queries, from the claims function to billing, and eliminate the need to manually review thousands of insurance claims. To deliver an effective omnichannel experience, customers need access to different applications to check the status of their claim, but also trust firms to tackle complex, language-based tasks, such as insurance plan drafting. As firms plan to bring workers back to the office on a limited basis, building this distributed virtual workforce will help to ensure consistent customer communications in a hybrid environment.

Insuring risks & driving agility

Natural language processing (NLP) is optimizing capacity and allowing likely overstretched operations staff to home in on that critical human outreach. Capable of recognizing the intent within data, NLP is revolutionizing how firms streamline processes when grappling with masses of data — typically found in the form of emails and chat logs. More than 80% of the industry’s entire value chain is represented by unstructured documents, rendering the analysis of policies a huge challenge, prone to human error. The time taken to find only relevant information, respond to spiking customer queries, and ultimately settle claims can be shortened — translating into faster and fairer claims resolution and a more agile business model. In the instance of a new event or risk — even one as unforeseen as COVID-19 — insurers with structured documents will know what exposure they have or can seamlessly find out by accumulating files that have a clear virus exclusion.

Cyber risks

As the American workforce transitioned to work-from-home, the cyberattack risk factor consequently expanded. Almost half (41%) of businesses encountered at least one threat last year, signaling P&C insurers must demystify coverage positions on digital platforms, much like they do more traditional risks such as fire. The likelihood of business interruption, physical damage and liability exposure — as a result of data breaches — means insurers should now be offering cyber insurance as standard coverage. With over one-quarter of firms estimated to continue working remotely this year, insurers that fail to vocalize whether cyber risk is covered via standard policy forms may have to pay out for claims not originally accounted for.

Future-proofing the industry

The fast-moving risk and fraud landscape, induced largely by pandemic pressures, has been quick to expose the traditional P&C operating model as one losing economic relevance. The near-term impact of recent catastrophes is undeniably huge, forcing insurers to pay out billions in claims. With no end in sight for pandemic recovery, insurers must now use the emerging risk landscape as an opportunity to innovate to safeguard customers while their brands face heightened competition from InsurTechs. The increasing need for pre-emptive risk analysis and seamless communication of information to customers is spurring a race to digitally transform before the next big risk. There is an opportunity to pivot quickly, and the disruption, well, it’s here to stay.

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