General

Today, AI tools like ChatGPT, Midjourney, ElevenLabs, and FaceMagic have made it alarmingly easy to create deepfakes—realistic but fake images, videos, and voices. What’s even more alarming is that you no longer need to be a tech expert to whip up a convincing fake.

This rise in accessible AI tech has sparked serious concerns about how it can be misused, especially when it comes to creating deepfakes that can impersonate real people. These AI-generated deepfakes bring with them a host of risks, including identity theft, fraud, and a growing distrust in digital content.

Identity theft and fraud

Deepfakes are becoming a go-to method for bypassing biometric security systems. Imagine someone creating a fake version of your face or voice—this could be used to trick security systems into thinking it’s really you.

That’s how fraudsters can gain access to sensitive info or accounts without breaking much of a sweat. This isn’t just a minor nuisance; it’s a significant threat to both personal and organizational security.

Earlier this year, fraudsters used deepfake technology to impersonate the CFO of a multinational company during a video call. As a result, a finance officer was tricked into transferring $25 million. The entire meeting, which the employee believed was with real colleagues, was composed of deepfake recreations, according to Hong Kong police.

Erosion of trust and misinformation

One of the most concerning issues with deepfakes is how they can erode public trust. When you can’t tell if what you’re seeing or hearing is real, it becomes easier for people to be manipulated.

With this, even reputable media and news platforms are losing their integrity.

In March 2023, an AI-generated image of Pope Francis wearing a Balenciaga coat, created by Midjourney, went viral on social media. Many users, including reputable media outlets, initially believed the image was real before it was revealed as a fake.

Deepfakes could be used to create fake news or impersonate public figures, especially during crucial moments like elections. This makes it even more critical to develop ways to detect and regulate these deepfakes.

How can we tackle these risks?

 1. Advanced detection algorithms

To stay ahead of the game, we need to build and constantly improve AI-driven detection systems. These systems can pick up on subtle telltale signs of deepfakes—like weird facial movements or digital glitches—that might slip past the human eye.

However, this can turn into a cat-and-mouse game between AI detection developers and deepfake creators. As detection methods become more sophisticated, so too do the techniques used by those generating deepfakes.

This ongoing struggle requires constant innovation, where developers must anticipate and counteract the next wave of deepfake advancements before they become widespread. To effectively combat this, collaboration between researchers, technologists, and policymakers is essential, ensuring that detection algorithms evolve rapidly and are deployed widely.

 2. Blockchain technology

Since its onset in 2009, blockchain has had a number of practical uses due to its nature and functionality.

By embedding a unique digital signature in original media and recording it on a blockchain, any tampering or faking becomes much easier to spot. This could help ensure that what you see online is the real deal.

 3. Biometric security enhancements

Strengthening biometric security is another key move. We could start using systems that combine different types of biometric data, like facial and voice recognition, making it harder for deepfakes to fool security measures.

On top of that, enhancing liveness detection—ensuring that the person being scanned is real and not just a video—can help tighten security.

An example of a company already doing this is Apple. Apple’s Face ID not only uses facial recognition but also incorporates depth sensors and infrared imaging to ensure that a live person is being scanned, rather than a photo or video.

This combined with other security measures like multi-factor authorizations used by Google and Microsoft makes it even harder for fraudsters to gain access to systems using deepfakes.

 4. Regulatory frameworks and legal measures

Governments need to step up with laws that crack down on the malicious use of deepfakes, especially when they’re used for identity theft or spreading misinformation.

Another good idea that we see being implemented today would be requiring AI-generated content to be clearly labeled, so people can tell if something’s fake from the start.

 5. Insurance products

Cyber insurance policies could be expanded to cover losses from deepfake-related incidents, like identity theft or reputational damage.

Coalition Insurance has introduced a new AI coverage option to its Cyber insurance policies. This endorsement broadens the definition of a data breach to encompass incidents involving artificial intelligence, acknowledging AI as a potential security risk in computer systems.

Insurtech start-ups could also offer services to help detect and respond to deepfake threats, helping businesses bounce back quicker and limit their losses.

Bottom line

As deepfakes continue to evolve, so too must our defenses. AI-driven detection systems, enhanced biometric security measures, and specialized insurance products are all critical components in the fight against this growing threat. However, this is not just a technological challenge; it’s also a matter of collaboration and adaptability.

Insurance companies, particularly those in the insurtech space, have a unique opportunity to lead in this battle by offering products that not only provide financial protection but also contribute to prevention and response strategies. By working together—across industries and sectors—we can create a more secure digital landscape, where the risks of deepfakes are mitigated, and the benefits of AI are harnessed for good.

The insurance sector can no longer defend itself against these risks using the same old tactics.

Legal misuse in the insurance business is a long-standing problem that has been slowly spreading throughout the sector for many years. It is neither new nor particularly recent. Currently known as social inflation, the consequences are worse and the concept of “tort reform” appears illusive.

As per a study carried out by Munich Reinsurance America, Inc. (Munich Re U.S.) and the American Property Casualty Insurance Association (APCIA), approximately 86% of Americans concur that state and federal lawmakers ought to tackle the malpractices in the legislation. The insurance sector can no longer afford to ignore this issue and pass on the accompanying costs to policyholders, nor can it continue to rely on present methods and solutions.

A look back at the evolution of ‘social inflation’

In a 1977 letter to Berkshire Hathaway stockholders, Warren Buffett utilized the term “social inflation” for the first time, defining it as “a broad definition by society and juries of what is covered by insurance policies.” In a 2010 whitepaper, reinsurer PartnerRe clarified the definition, explaining that social inflation is the rise in insurance losses brought on by:

The following factors have been observed: higher jury awards; wider mistrust of large corporations; more liberal treatment of workers’ compensation boards; increased use of social media; growing attorney involvement in claims; social developments that impact jury members and result in very high jury awards; and widening income disparities.

Today’s operating climate has gotten much tougher for carriers, on top of the abuses that have all continued to get worse. Consumers and regulators are starting to fight back after record rate rises in 2022 and 2023. To reduce costs and boost growth, an increasing number of insurers have stopped renewing property and vehicle policies in unprofitable states and, in certain situations, have pulled out of the market altogether until rates drop.

The longer tail of liability claims hangs over multi-line carriers like a dark cloud as they brave the anticipated more active hurricane season of 2024 and step out from under the shadow of general cost inflation. Considering the long-tail effect casts doubt on reserve accuracy.

One of the many effects of social inflation is pressure on settlements to increase, such as fear of unfavorable trial verdicts. Higher plaintiff awards generally and jury verdicts of $10 million or more, dubbed “nuclear verdicts,” can force insurers to settle disputes more frequently and for larger sums than they have historically, which can alter both reserving and loss payment trends.

According to AM Best, the insurance industries most impacted by social inflation include commercial auto, directors’ and officers’ liability, professional liability, and product liability.

Challenges posed by litigation funding

Around 2015, lawsuit funding emerged, adding to the financial difficulties already posed by the aforementioned. By using a third-party funding organization, litigants can pay their litigation or other legal fees in exchange for a sizable share of any award or settlement. This technique is sometimes referred to as litigation funding or legal financing.

Funding for litigation has the impact of promoting cases and higher settlements that might not have been possible otherwise. A recent RAND Research Report lists the following as some outcomes of this trend:

• A rise of 10% in 19 states’ yearly new court filings per capita between 2012 and 2019.

• In 2019, a significant proportion of cases (64%) resulted in a verdict in the plaintiff’s favor, an increase from 53% in 2010.

The funding for lawsuits has grown dramatically in the last few years. There have been an estimated $15.2 billion invested in commercial litigation in the United States alone, making it a multibillion-dollar sector globally.

Numerous finance companies, some supported by private equity investors, are active worldwide. They can be classified as public or private. At a compound annual growth rate (CAGR) of 13.2% through 2028, the global litigation funding market is projected to reach a valuation of $18.2 billion in 2022. By 2032, the market is expected to have grown to $24.7 million from $13.7 million in 2023, according to some estimates.

Wisconsin, West Virginia, Indiana, and Montana are the only four states with legislation pertaining to litigation financing.

According to survey results released in March 2024 by Munich Reinsurance America, Inc. (Munich Re US) and the American Property Casualty Insurance Association (APCIA), most Americans are unaware of the detrimental effects plaintiff lawyers’ strategies—such as deceptive advertising and the use of third-party litigation funding—have on their household expenses through the “tort tax,” regardless of whether the household is involved in civil litigation. Over 2,000 American individuals were interviewed for the poll, which was carried out by The Harris Poll.

Many Americans are also unaware, according to this research, that the plaintiff lawyer keeps a sizable portion of settlement or judgment awards, with a substantial portion going to investors who have no connection to the claimant and are only looking to benefit from their misery. After realizing this, most Americans (86%) concur that state and federal legislators ought to address the injustices inside the American judicial system.

Role of attorneys

Due to their large advertising budgets, plaintiff law firms that focus on personal injury lawsuits are growing across the country and bringing on new customers. With over a thousand attorneys and locations throughout all states, Morgan & Morgan is the biggest law practice of its kind in the nation.

Trial lawyers in the United States invested almost $2.4 billion on regional print, radio, billboard, and television advertisements last year. Not long after even a small accident, claimants are deluged with lawyer cold calls. Since they often receive between 30% and 50% of settlement funds, plaintiff attorneys have strong financial incentives.

One important indicator of changes in the average claim settlement value is the percentage of claims filed with an attorney. Increased legal fees contribute to higher claim costs in several ways, such as longer claim cycles, larger defense expenditures, and eventually higher settlement sums. These instances tend to inflame the situation by drawing attention to the benefits that consumers may receive from suing insurers in this way.

According to a research study conducted in 2023 by LexisNexis Risk Solution, of those who employed an attorney in connection with motor insurance claims, 57% decided to do so before filing the claim, and 71% stated the attorney pushed them to pursue further care.

According to a Sedgwick survey, 55% of commercial auto claims that are litigated had an attorney involved either prior to or on the same day as the report to carrier date. Just four years ago, this measure was 43%. In the meantime, lawyers become involved in 67% of disputed cases within the first 14 days of filing.

How the insurance industry is responding

When all these issues come together, carriers can no longer afford to watch helplessly as their profitability declines and the company becomes unviable. Increasing numbers of lawsuits, jury verdicts, and the intensity of claims all drive up liability expenses. Premiums are how consumers and businesses are made aware of all of this.

To distinguish social inflation from other contributing components, further research is necessary due to a complex interplay of forces. Any coordinated sector reaction against litigation misuse is still lopsided by a large margin, even though the insurance business has led the charge on tort reform laws in multiple states.

However, different business executives have different opinions about the best ways to counteract it. The chair and CEO of Chubb, Evan Greenberg, has stated that one of the main causes of the skyrocketing expenses of jury verdicts is societal attitudes that pit small businesses against large American enterprises.

At the S&P Global Ratings 40th Annual Insurance Conference, Greenberg told insurers, “We are not the sympathetic face to show” to change those sentiments. He noted that there will not be a federal solution to social inflation and stated that corporations are now driven to spearhead wars that will be fought state by state and county by county.

What’s next: A call for action

The insurance business can’t continue to absorb and pass on the associated costs to policyholders, nor can it rely just on present tactics and solutions to this challenge. Tort reform is a laborious, sluggish process that does not address the trends of today.

More carriers are anticipated to step up and start implementing fresh, all-encompassing short-term tactics to actively tackle societal inflation. These initiatives will probably involve taking steps to hinder the plaintiff bar in troublesome areas, preventing litigation from the start, strengthening legal defenses in their entirety, and possibly assuming greater risk via trials.

The APCIA and other insurance industry associations will be crucial in enabling carriers seeking to implement best practices to share information with one another and in broadly endorsing legal tort reform as a means of securing the industry’s long-term health and sustainability.

Now is the best time of all to get started.

“To err is human, to forgive, divine.”

This famous quote by Alexander Pope captures the essence of human fallibility—a quality that, for centuries, has influenced our decisions, actions, and the systems we create.

Yet, in the age of Artificial Intelligence (AI), where machines take on roles once reserved for human judgment, the notion of error takes on new dimensions. AI, with its promise of precision and efficiency, is not immune to mistakes, nor is it free from the biases and ethical dilemmas that arise from its very design.

These days, artificial intelligence finds use in many fields, including insurance. From redefining underwriting practices to streamlining claims processing and enhancing policy administration, insurance companies have utilized – and will continue to utilize – AI in their operations.

Biases

Humans are inherently flawed but that’s actually a good thing. AIs on the other hand are designed to be perfect. Perfect isn’t necessarily good.

One instance is when AI doesn’t consider all relevant information when making a decision. AI systems are usually trained on vast sums of historical data. While it wholly makes use of this, this can lead to overgeneralization and the perpetuation of existing biases.

Consider the example of an Applicant Tracking System (ATS) powered by Artificial Intelligence designed to screen job applicants. The AI, trained on historical data, might perfectly match candidates to past successful hires, leading to a biased selection process. If the historical data reflects past biases, like favoring certain demographics, the AI could end up perpetuating those biases without considering a candidate’s potential to break new ground or bring fresh perspectives.

Here, the AI’s “perfect” decision-making is flawed because it lacks the human ability to see beyond data and recognize the value of diversity and innovation.

Privacy and consent

Data privacy is also another issue that sees lawmakers at odds with several tech firms.

Cerebral, a telehealth Insurtech was fined over $7 million over reports that it revealed user’s personal information to third parties while recently T-Mobile was fined over $60 million for a data breach that exposed sensitive customer information during its merger with Sprint back in 2020.

When Artificial Intelligence systems are trained on or use improperly secured data, it not only breaches privacy but also erodes customer trust in the provider. These concerns are further compounded by not knowing how AI systems are trained or where their data comes from.

Companies often provide vague statements, such as “general public information” or, even worse, “from the internet,” without clearly disclosing how the data is collected or how it will be used.

Lack of accountability

Determining who is accountable when Artificial Intelligence systems make errors or cause harm is a challenging ethical issue.

When an AI-driven decision in insurance leads to an adverse outcome – such as the denial of a legitimate claim or the inappropriate cancellation of a policy – who should be held responsible? Is it the insurer, the AI developer, or the data provider?

A similar conundrum was observed during the CrowdStrike Saga last month.

Imagine an AI system that incorrectly flags a life insurance policyholder as deceased, leading to the wrongful termination of their policy. In such cases, the affected individual might face significant difficulties in restoring their coverage. The question of accountability becomes murky—should the insurance company take full responsibility, or should the blame be shared with the AI developer who provided the flawed algorithm?

Impact on employment

The integration of AI into insurance operations is also reshaping the job market, albeit negatively.

Roles traditionally held by underwriters, claims adjusters, and customer service representatives are progressively being automated, leading to job displacement.

Where do we draw the line between maximizing profits and preserving the livelihoods of those whose jobs are at risk?

Back in October last year, GEICO laid off 2000 of its employees, which accounted for a 6% reduction in its workforce.

“This would allow the company to become more dynamic, agile, and streamline its processes while still serving its customers,” the company memo from CEO Todd Combs stated.

Bottom line

As Artificial Intelligence becomes more entrenched in the insurance industry, the ethical issues surrounding its use demand careful consideration.

Today, AI’s precision and efficiency are very much celebrated. However, it’s crucial to remember that perfection, while desirable, is not always the goal. The flaws present in human judgment – while often seen as imperfections – contribute to creativity, empathy, and the nuanced decision-making that machines struggle to replicate.

The quest for flawless technology must be balanced with the recognition that human fallibility brings valuable perspectives and innovation. The future of insurance, and many industries, will hinge not only on the capabilities of Artificial Intelligence but also on our ability to address these ethical challenges with integrity and foresight.

The insurance process was once sluggish and paper-based. But things have altered in recent years. Technology has transformed countless industries, and insurance is no exception. Today, the sector is going even further. A new breed of insurers is emerging – digital-only companies promising speed, convenience, and lower costs. These startups challenge traditional insurance giants by operating entirely online. But can they deliver on their promises? Are these digital-only insurance companies the future, or just a flash in the pan? Let’s get into it.

The rise of digital-only insurance

Over the last decade, we’ve seen a steady rise in online-only insurance companies. It used to be that everyone would choose from a select few familiar insurance companies, but today the picture couldn’t be more different. Whether it’s auto, home, or even pet insurance, the options available to consumers have exploded. This increased competition has led to a more dynamic marketplace with a wider range of policies and prices to choose from. But how did we get here? Several factors contribute to this trend of more insurance providers, particularly more online-only insurers.

Firstly, the modern consumer is increasingly tech-savvy and demands quick, convenient services. Digital-only insurers cater to this demographic by providing seamless online experiences, from obtaining quotes to filing claims. This aligns perfectly with the expectations of a generation accustomed to digital interactions in other areas of their lives.

Secondly, technological advancements have significantly reduced the barriers to entry for new insurance players. Advances in artificial intelligence, big data, and cloud computing have created powerful tools, reducing the need for large teams of specialists and lowering the overall cost of building and running an insurance business. In the past, building an insurance company required significant capital investment in physical infrastructure, such as offices, claims processing centers, and a large workforce. Not today. Cloud computing allows insurance companies to operate without the overhead of maintaining physical data centers, while artificial intelligence can automate many routine tasks, such as claims processing and customer service inquiries.

Economic pressures also play a role in the rise of digital-only insurance. Traditional insurers often grapple with rising operational costs and claims expenses. In contrast, digital-only models tend to have lower overhead, allowing them to offer more competitive premiums. This cost advantage has attracted a growing customer base.

So that’s why we see more online-only insurers, but what benefits do they offer, exactly?

Benefits of digital-only insurance

Digital-only insurance companies offer a new approach to buying insurance. These online-only providers claim several advantages.

  • Lower costs: No longer burdened by the costs of physical branches and large staff numbers, digital insurers may be able to offer more competitive premiums. With lower overheads, they can pass some of those savings on to the customer.
  • Speed and efficiency: Quicker quotes, policy purchases, and claims processing are often touted benefits of digital platforms, saving customers time. As to why – digital platforms usually eliminate paperwork and manual data entry and aren’t held back by legacy systems, like many traditional insurers.
  • Improved customer experience: Many focus on providing a seamless online experience with features like 24/7 access and mobile apps. Intuitive interfaces and user-friendly design make it easy for customers to manage their policies. This includes updating information, renewing policies, and tracking claims status.
  • Data utilization: Digital insurers can leverage data to understand customers better and potentially offer more relevant products.
  • Flexibility: Digital insurance platforms often offer flexible payment options, allowing customers to pay premiums monthly, quarterly, or annually, and to choose from a wide range of coverage levels.

Drawbacks of digital-only insurance

While digital-only insurers offer certain advantages, there are also potential drawbacks to consider.

  • Limited human interaction: Not all insurance queries are straightforward, and sometimes it’s easier to speak to a real human to sort out the problem. This is often more difficult with only online providers, and sometimes it’s almost impossible.
  • Technological reliance: Digital insurers are heavily dependent on technology. System failures or cyberattacks can disrupt services, leaving customers without coverage or facing delays.
  • Data privacy concerns: Handling sensitive personal and financial information online carries risks. Customers must trust that digital insurers have robust security measures in place to protect their data. With many of these companies being start-ups, they may not have the longevity or maturity to know how to handle data securely.
  • Lack of physical presence: Without physical offices, customers may find it inconvenient to handle certain matters, such as inspecting damaged property or discussing complex insurance needs in person. This can be a real problem if the insurance company disputes digital evidence (photos) but won’t allow another avenue of verification.
  • Potential for algorithm bias: Some decision-making processes, like underwriting or claims assessment, may rely on algorithms. There’s a risk of bias in these algorithms, leading to unfair outcomes for customers.

Will digital-only insurers replace traditional insurers?

Digital insurance companies are changing how we buy insurance, but they probably won’t completely replace traditional insurers. Instead, they are forcing incumbents to adapt and evolve.

Traditional insurance companies possess several inherent advantages. Their established brand reputation, extensive customer base, and deep financial reserves provide a solid foundation. Additionally, complex insurance products often require in-person consultation and personalized service, areas where traditional insurers excel. Many customers are always going to prefer the security that comes with a well-established company, especially when dealing with potentially large financial risks. These customers will choose an insurer with real humans they can speak to, even if it means paying more.

However, the pressure to compete with digital-only rivals is driving significant changes. Traditional insurers are investing heavily in technology to improve customer experience and efficiency. Online quoting tools, streamlined claims processes, and 24/7 customer support through chatbots are becoming commonplace. Moreover, many are developing hybrid models that combine the best of both worlds, offering digital convenience alongside the option for face-to-face interactions.  

Here’s the bottom line. While digital-only insurers are reshaping the insurance landscape, the industry is not a zero-sum game. Traditional insurers, by embracing digital transformation and leveraging their strengths, can coexist and thrive alongside their digital counterparts. The future of insurance lies in a hybrid model that caters to the diverse needs and preferences of customers.

Today, you can have a doctor’s appointment, receive medical advice, and even get prescribed medication—all from the comfort of your home. Telehealth, once primarily used to serve rural and underserved populations, has now become an essential part of modern healthcare.

The COVID-19 pandemic, which saw much of the population under quarantine, along with consumer demand and rapid technological advancements, has accelerated the adoption of remote diagnosis and treatment. What was once considered a temporary solution is now the new standard in healthcare delivery.

This shift is transforming the healthcare landscape, influencing not only patient experiences but also how health insurance integrates with emerging technologies.

Let’s explore the growing role of telehealth and what it means for the future of health services.

What is Telehealth?

Telehealth is harnessing modern technology to deliver healthcare services remotely, fundamentally changing the way patients interact with healthcare providers. This approach includes a wide range of services, from virtual consultations and diagnostics to continuous monitoring.

In the past, telehealth was primarily targeted at those in remote locations—people who were out of the physical reach of hospitals and healthcare centers.

However, that’s not the case anymore.

Advances in technologies like Virtual Reality, 5G, and IoT-enabled devices like smartwatches have made it easier than ever to offer healthcare to anyone and everyone, right from the comfort of their home.

This convenience has broadened telehealth’s appeal, making it accessible to anyone, even healthy individuals who want to manage their health proactively.

Components of Telehealth

Telehealth comprises various elements that work together to create an integrated and seamless healthcare experience:

  • Video conferencing: Enables real-time, face-to-face interactions between patients and healthcare providers.
  • Remote monitoring systems: Allows continuous tracking of a patient’s vital signs and health metrics from a distance.
  • Telehealth applications: Provide patients access to medical advice, appointment scheduling, and prescription refills via smartphones or computers.
  • Digital communication platforms: Tools like secure messaging and email facilitate ongoing communication between patients and providers ensuring that care is continuous and responsive.

Together, these components bridge the gap between patients and healthcare providers, eliminating the need for physical presence. At the same time, this also maintains the quality and effectiveness of care.

Notable examples

As telehealth gains traction, several healthcare and insurance companies in the U.S. are leading the way by incorporating these services into their operations:

 1. Amwell

Amwell partners with healthcare providers and insurance companies to offer telehealth solutions. Large health systems, like the Cleveland Clinic, use Amwell’s platform to reach patients who may not be able to visit in person.

This approach improves patient access to care and helps manage healthcare costs by reducing the need for in-person visits and hospital admissions.

 2. Anthem Blue Cross Blue Shield

Anthem has integrated telehealth services into its health plans, giving members access to virtual care for non-emergency conditions.

Through partnerships with companies like LiveHealth Online, Anthem offers 24/7 consultations with doctors, prescriptions, and regular virtual check-ins to manage ongoing health conditions.

 3. Cigna

Cigna has introduced a virtual-first health plan that prioritizes telehealth visits as the initial point of care. This plan aims to reduce unnecessary in-person visits and provide members with a more convenient and cost-effective way to manage their health.

Cigna’s approach enhances patient engagement and improves health outcomes through the use of digital health tools and remote consultations.

 4. Oscar Health

Oscar Health, a health insurtech, has integrated telehealth into its core offerings. Members can schedule virtual visits directly through its app.

Oscar’s model caters to a tech-savvy population that prefers digital interactions over traditional healthcare models, emphasizing ease of use and accessibility.

To sum it up

The integration of telehealth into healthcare delivery isn’t just a trend; it’s a crucial part of modern medical practice.

By enhancing accessibility and efficiency, telehealth is revolutionizing how we receive and manage healthcare, establishing itself as a cornerstone of future health services.

Looking ahead, emerging technologies may bring even more practical applications to healthcare. For example, drones could simplify the delivery of prescribed medications directly to patients’ homes, while artificial intelligence, combined with advanced analytics, could be used to analyze viral strains and recommend effective treatments.

The recent CrowdStrike saga has shown that even the most reliable and widely used products can be prone to vulnerabilities.

This incident has sent ripples across various industries, including the insurance sector. Parametrix, a leading cloud monitoring expert, estimates losses by companies between $540 million to upwards of $1.4 billion, but only up to 20% may be recovered by businesses through cyber insurance. Planes were grounded, surgeries were halted, and emergency services became non-responsive.

While the loss figure doesn’t include Microsoft itself, CrowdStrike lost nearly $11 billion in market value almost overnight.

What really happened?

CrowdStrike, a leading cybersecurity firm from Austin, Texas, found itself at the center of controversy when a routine software update led to a catastrophic failure.

On July 19th, 2024, a configuration update for CrowdStrike’s Falcon software aimed at Microsoft Windows systems caused a major “logic error.”.

This error, stemming from a coding bug, resulted in millions of users encountering the “Blue Screen of Death,” leading to massive disruption across various sectors from healthcare, aviation, banking, and even emergency services.

In layman terms, a faulty Windows update led to over 6,500 flight cancellations and critical services disruptions.

CrowdStrike’s shares plummeted, with the stock closing at $256.16 on Friday, July 26th, down from $343 on July 18th before the issue arose. As of last Friday, the shares stood at $217.89.

Though logic errors are not something new, the devastating outcome was brought about by insufficient quality assurance and control of the software update. Simply put, there was not enough testing of the patch in various environments before it was released.

The role of cyber insurance

Cyber insurance has emerged as a critical tool for managing the risks associated with cyber threats. By providing coverage for financial losses resulting from data breaches, cyber-attacks, and other cybersecurity incidents, cyber insurance helps businesses recover and mitigate the impact of such events.

For insurance companies, offering cyber insurance policies is both a strategic move and a responsibility.

As the demand for cyber insurance continues to grow, insurers must develop comprehensive policies that address the evolving nature of cyber threats. This coverage provides compensation for costs related to business interruption, data recovery, legal fees, and even reputational damage.

Insurance companies must also consider partnering with reputable cybersecurity firms to ensure their systems are protected against the latest threats. These partnerships can provide access to cutting-edge technologies and expertise, helping to safeguard sensitive data which also maintains customer trust.

To stay ahead of the curve, advanced tech like artificial intelligence (AI) and machine learning (ML) can be leveraged. AI and ML can boost threat detection and response by quickly analyzing large volumes of data to spot unusual patterns and alert us to potential security breaches in real-time. This proactive approach allows insurance companies to respond swiftly to threats before they strike.

No accountability?

The CrowdStrike saga serves as a stark reminder that even the most trusted systems can be vulnerable.

Microsoft, one of the most reputable and valued companies for decades, fell prey to a faulty security update that rendered over 8 million of its machines useless.

Despite this, no accountability or disciplinary measures have been taken by either software company. For a disaster of this magnitude, product manufacturers like smartphone makers, food producers, and others would have faced significant fines.

Back in 2016, during the Galaxy Note 7 battery overheating fiasco, Samsung was not directly fined for the incident. However, the company lost over $5 billion in potential profits, along with a huge damage to its reputation. The amount was significant enough that Samsung began implementing an 8-Point Battery Safety Check, an improved and extensive quality assurance and control test for its batteries.

Earlier this year, Apple was fined $1.95 billion for violating anti-competition laws related to music streaming. Although Apple’s actions were intentional, this does not excuse the negligence exhibited last month by CrowdStrike and Microsoft.

While the fine print may protect CrowdStrike from liability in lawsuits brought by Delta, small businesses, and even some of the startup’s shareholders, regulatory authorities must take compliance action to prevent future oversight by other companies.

Thomas Parenty, a cybersecurity consultant and former U.S. National Security Agency analyst, summed up this ignorance perfectly:

“Until software companies have to pay a price for faulty products, we will be no safer tomorrow than we are today.”

Now, we should ask ourselves: How much did CrowdStrike really lose, and is that amount significant enough to deter it and other software companies from future negligent practices?

Climate change, with its intensifying storms, rising sea levels, and unpredictable weather patterns, is dramatically reshaping the risk landscape. It means higher premiums for property owners in flood zones, increased coverage exclusions in regions susceptible to wildfires, and more frequent and severe payout triggers for weather-related insurance claims. And that’s just home insurance. For car insurance, climate change could lead to higher rates due to increased weather-related accidents, more costly repairs, and greater total losses in areas prone to flooding or severe storms.

In short, as the frequency and severity of climate-related disruptions surge, the insurance sector finds itself at a pivotal moment. Will insurance carriers be able to keep pace with these accelerating risks? And most importantly, how can technology be harnessed to pave the way for a sustainable future?

Consumers want eco-friendly products

There’s a strong consumer appetite for environmentally friendly products and services. For example, a recent Solera survey of 10,000 drivers and 500 claims experts found a significant interest in ESG considerations within the car insurance sector. This aligns with broader consumer trends. The World Economic Forum reports that 65% of consumers try to make purchasing decisions that contribute to a healthier planet.

However, widespread accusations of ‘greenwashing’, where a company makes a product appear more environmentally friendly than it is, have eroded consumer trust in these schemes. Greenwashing can come in many forms. Some common examples include advertising a product as “recyclable” when it’s not widely accepted for recycling or claiming to be carbon-neutral without providing clear evidence of their offsetting efforts.

In other words, to succeed insurers must demonstrate genuine commitment to sustainability through tangible actions, not just marketing rhetoric. And one way to do this is through technology that’s proven to work. Let’s look at some of these technologies.

Telematics & Usage-Based Insurance (UBI)

Insurers are using devices that monitor driving behavior to encourage safer, more efficient driving habits. This not only helps in reducing accidents but also lowers carbon emissions, as smoother driving leads to less fuel consumption. Policyholders can benefit from lower premiums by demonstrating safe driving habits, thereby promoting environmentally friendly behavior.

Additionally, insurers can leverage data to inform customers about vehicle emissions. By analyzing vehicle data, insurers can identify models with lower emissions and offer incentives like premium discounts to encourage policyholders to choose greener options. Essentially, insurers can help support the transition to a more sustainable transportation sector.

Smart home technologies

Increasingly, we’re seeing insurers partnering with smart home technology providers. These technologies can help reduce risks and promote better sustainability practices. For example, smart thermostats can adjust heating and cooling based on usage patterns and weather forecasts, reducing energy consumption. Smart sensors can detect leaks or electrical faults that could lead to more severe damage if left unattended, thus preventing waste and promoting sustainability.

AI & Machine Learning for risk assessment

Advanced algorithms are revolutionizing risk assessment in the insurance industry. By analyzing vast amounts of environmental, climatological, and socio-economic data, AI can predict natural disasters with greater accuracy, enabling insurers to proactively manage risks associated with climate change. This includes designing insurance products that encourage building in safer, more sustainable locations and offering incentives for climate-resilient property modifications.

AI can also assess individual risk profiles with unprecedented precision. By analyzing driving patterns, claims history, and telematics data, insurers can identify low-risk drivers and reward them with lower premiums, fostering a culture of safe and environmentally conscious behavior. This data-driven approach also means insurers can develop products tailored to specific customer segments, such as electric vehicle owners or those living in high-risk areas.

However, as is always the case with AI, insurers need to proceed with caution. AI algorithms can contain bias and sometimes exacerbate existing inequalities. This is a big topic in itself, but to touch on it briefly here – insurers need to ensure they’re not punishing people living in high-risk areas who can’t relocate.

Blockchain for transparency & efficiency

Insurers can leverage blockchain to create more transparent and efficient processes in insurance. Blockchain sounds complicated, but at its core, it’s simply a decentralized and immutable database. This means fraud becomes almost impossible and insurers can more easily and reliably go paperless.

Blockchains can be used for all sorts of things. For example, initial policy issuance can be streamlined, with smart contracts automatically generating policies based on customer inputs. Claims processing can be accelerated, with blockchain providing an irrefutable record of events and reducing the time it takes to verify information. Even reinsurance processes can be simplified, as blockchain allows for secure and transparent sharing of data among multiple parties.

Green building incentives

Some insurance companies offer reduced premiums for buildings that meet certain environmental standards or use sustainable materials and technologies. For example, an insurer might provide discounts to homeowners with energy-efficient appliances, solar panels, or green roofs. These structures are often more resilient to natural disasters such as hurricanes and wildfires, resulting in fewer claims and lower overall costs for the insurance company. By incentivizing sustainable building practices, insurers can help promote a greener built environment while also benefiting their bottom line.

Additionally, some insurers offer premium reductions for buildings certified by green building rating systems like LEED or BREEAM. These certifications provide a standardized measure of a building’s environmental performance, allowing insurers to assess risk more accurately and offer appropriate incentives.

Investing in green technologies

Insurers are increasingly investing in renewable energy projects and green technologies as part of their asset management strategies. This helps in offsetting the carbon footprint of the companies themselves and supports wider industry shifts towards sustainability.

Final thoughts

Technology impacts almost every facet of our modern lives, and the insurance sector is no exception. Technology is now a necessity for the insurance sector. By harnessing the power of data and automation, insurers can mitigate climate risks, drive sustainable behaviors, and offer products that align with consumer values. The future of insurance is green, and technology is the key to unlocking its potential.

In an earlier article, we looked at how Augmented Reality (AR) and Virtual Reality (VR) are impacting the insurance industry. VR places users within a digitally simulated environment, while AR overlays digital information onto the real world, enhancing users’ perception and interaction with their surroundings.

Digital Twins take this a step further by creating digital replicas of objects and systems, enabling insurers to make precise predictions about these objects.

These predictions enhance insurance functions from risk assessment, distribution and marketing, to claims settlement and more.

What are digital twins?

Digital twins, which are virtual replicas of physical objects, systems, or processes, are revolutionizing the insurance industry. They use real-time data, advanced modeling, and simulations to create dynamic digital counterparts of real-world entities.

This allows insurers to gain deeper insights into risk management, asset monitoring, and customer behavior, driving more informed decision-making and enhancing operational efficiency.

Insurance is inherently data centric. Traditionally, insurers relied on historical data to assess risks and set premiums. However, the advent of digital twins offers a transformative shift.

By simulating various scenarios, from everyday incidents to rare disasters, insurers can predict and evaluate risks more accurately. This proactive approach enables better preparedness and response strategies, ultimately benefiting both the insurer and the insured.

How digital twins transform the insurance sector

The integration of digital twins and the Internet of Things (IoT) is propelling the insurance sector toward a new paradigm. Traditional insurance models, which focus on compensating for damages, are evolving into assurance models that emphasize risk prevention and mitigation.

Real-time risk mitigation

Digital twins, combined with IoT, enable continuous monitoring of assets and environments. For example, consider a cargo ship equipped with IoT sensors. If a digital twin detects an approaching storm, it can simulate the impact on the ship and suggest optimal actions, like altering the route.

This proactive measure prevents potential damage and reduces the likelihood of claims.

Enhanced customer expectations

Customers now expect insurance companies to adopt technological advancements swiftly. Digital twins facilitate this by providing more personalized and efficient services. For instance, smart homes and connected vehicles generate vast amounts of data that can be fed into digital twins.

With this data, digital twins can predict and prevent potential issues like poor conditions and bad weather that could lead to road accidents. This enhances customer satisfaction and loyalty.

Organizational efficiency

Insurance companies can also create digital replicas of their operations, known as Digital Twins of Organizations (DTOs). DTOs simulate internal processes, predict client behavior, and optimize workflows, leading to improved efficiency and better service delivery.

Examples of digital twins in insurance

Let’s look at some real-world examples of how digital twins are being used in the insurance industry:

  • State Farm Ventures: A subsidiary of State Farm, has invested in the computer vision startup Nexar. Nexar uses a vast network of dash cameras to collect and contextualize trillions of images using AI, creating a digital twin of US roads and their surroundings. This AI digital twin platform provides cities, transportation departments, and automotive and insurance companies with real-time updates regarding work zones, road signs, road markings, potholes, and other elements related to road safety.
  • Cerebri AI: This startup focuses on seamless integration, handling raw data and engineered features to create model-ready datasets in real-time, and scoring Key Performance Indicators (KPIs) and actions almost instantly.
  • Donan Engineering: With a dedicated flood team that monitors catastrophic weather events in real-time, Donan Engineering ensures quick and efficient mobilization of resources and personnel when needed.

Bottom line

Digital twins are transforming the insurance industry by enabling more accurate risk assessment, enhancing claims processing, and improving fraud detection.

By leveraging real-time data and advanced simulations, insurers can provide more personalized services through precise customer profiles, better manage risks, and improve operational efficiency.

 

Previously, we explored the evolution of the insurance distribution model from traditional standalone products to the embedded model we see today.

Insurance is no longer driven solely by physical agents and incessant spam. Cold calling is outdated and now gives the industry a negative image.

We discussed how insurtechs and consumer brands partner to offer insurance products seamlessly alongside primary purchases, enhancing convenience and relevance for customers.

While this approach simplifies the insurance process, ensures timely coverage, and introduces innovative products like on-demand ride-sharing insurance and event ticket insurance, it also faces challenges such as scalability, regulatory compliance, and data security.

Building on this foundation, lets now delve into how advanced technologies are further transforming embedded insurance

 1. Artificial Intelligence and Machine Learning

AI and ML enable real-time data analysis and predictive modeling, revolutionizing how insurance products are offered. These technologies can sift through vast datasets to identify when a customer might need insurance and what type would be appropriate.

For instance, AI and chatbots from Allianz can suggest travel insurance now of flight booking while others offer extended warranties for new electronic purchases.

Impact: This predictive capability ensures that insurance offers are timely and pertinent, increasing purchase likelihood and enhancing customer satisfaction.

 2. Blockchain technology

Blockchain offers a secure and transparent way to handle insurance contracts and claims through smart contracts—self-executing contracts with terms directly embedded in code.

This technology automates underwriting and even the claims process, which reduces the need for insurance intermediaries like agents and brokers.

Impact: Blockchain enhances trust and transparency while cutting administrative costs and mitigating fraud, which ensures that customers can confidently make their insurance purchases through digital channels without needing assistance

 3. Internet of Things (IoT)

IoT devices gather real-time data that can be leveraged to offer personalized insurance products. For example, telematics in cars can monitor driving behavior, providing real-time insurance quotes based on driving patterns. Likewise, smart home devices can offer data on home security, leading to customized home insurance policies.

Impact: IoT enables highly personalized and dynamic insurance offerings, aligning premiums with actual risk and usage, making insurance fairer and more efficient. This is particularly useful for embedded insurance since it allows for innovative solutions such as travel insurance customized to the actual travel distance or trip insurance per ride.

 4. Cloud computing

Cloud computing supports the scalable and flexible delivery of insurance products. It allows insurers to manage large volumes of data and provide real-time processing capabilities, crucial for the seamless integration required in embedded insurance.

Impact: Cloud computing facilitates the rapid deployment and scaling of embedded insurance solutions, ensuring they can handle high transaction volumes efficiently.

 5. Advanced analytics

Advanced analytics helps insurers understand customer behavior and preferences at a granular level. By analyzing purchasing patterns, insurers can pinpoint the optimal times to offer insurance products, ensuring relevance and value for the customer.

Impact: Advanced analytics drives efficiency in marketing and sales strategies, leading to higher conversion rates and an improved customer experience.

According to a study by McKinsey & Company, companies that leverage advanced analytics in their marketing and sales strategies report improved customer satisfaction scores, with an average increase of 15-20%.

An increase in margin of more than 10% is always good news for an insurance business, especially given that many premiums are offset by fewer claims.

Future prospects

Ernst & Young (EY) predicts that more than 30% of all insurance transactions will take place within embedded distribution channels by 2028.

As these technologies evolve, they will enable more sophisticated and personalized insurance offerings. Ongoing advancements will also spur new business models and partnerships, reshaping the insurance industry landscape.

A concerning 73% of owners of small businesses reported cyberattacks in the previous year. Small and mid-size businesses (SMBs) are the target of approximately 43% of cyberattacks. What’s even more alarming is that only roughly 50% of SMBs have cyber insurance policies or coverage because it’s an additional cost that many cannot afford.

SMBs are more vulnerable since they lack the means to protect themselves effectively. Consequently, no one is “too small” for today’s cybercriminals. Nevertheless, even with constrained resources, SMBs may significantly strengthen their cybersecurity posture by combining efficient change management with artificial intelligence (AI), the most talked-about emergent technology available.

SMBs’ cybersecurity weakness: The pitfall of overvaluing compliance

Although it’s not always the case, many SMBs assume they are secure if they follow industry laws. Cybercriminals target different access points and data kinds during a breach, for instance, even though Payment Card Industry (PCI) compliance is a crucial tool to ensure the proper handling of credit card data and client information.

For this reason, small businesses must adhere to PCI compliance rules for protecting digital payments or risk fines from their payment processor. However, a yearly compliance action alone does not ensure a comprehensive adequate security posture.

SMBs typically lack the resources—time, manpower, and expertise—to develop, deploy, and manage their own cybersecurity capabilities. As a result, they tend to concentrate only on adhering to PCI compliance requirements rather than taking the essential actions to become more widely cybersecure. This is because a merchant’s digital environment may contain other areas that are open to cyberattacks if they choose to only implement PCI compliance in the card data environment.

SMBs need to be aware of numerous industry laws and best practices, including PCI Data Security Standard Version 4.0, which went into effect on March 31, 2024. Other frameworks that address general merchant cybersecurity for all industries and organizations, regardless of their size or level of cybersecurity skill, including the NIST Cybersecurity Framework and the FCC’s Cybersecurity Tip Sheet.

SMBs will have more work to do to maintain their cybersecurity and compliance posture because of hackers utilizing cutting-edge technology like artificial intelligence (AI) in addition to the growing use of mobile payments and contactless transactions. Sensitive consumer data was compromised by 39% of small firms in the past year, and more are sure to come given that cybercrime is predicted to cost the global economy $10.5 trillion by 2025. SMBs who don’t integrate their cybersecurity and compliance efforts run the danger of joining the 60% of small firms that shut down because of cyberattacks.

AI technology can be used by small firms to bridge this gap and lessen the strain of maintaining cyber resilience in the face of scarce resources.

AI: The key to uncovering hidden blind spots

AI is leveling the playing field for cyber resilience by assisting SMBs with limited funding and cyber knowledge in strengthening their security postures through:

Cutting through the clutter

What you cannot see is unassailable. To put it another way, 25% of workers at small businesses believe they lack the knowledge and resources necessary to recognize possible cyberthreats in the workplace. They lack the resources and knowledge to map out all digital assets at risk within a business, identify which vulnerabilities require patching, and determine which networks are most likely to be the next in line for attack. AI comes into play here.

Artificial Intelligence (AI) facilitates this process by giving small teams instant access to relevant information about vulnerabilities, possible security incidents, and remediation activities. This greatly expedites threat detection and response, enabling firms to remain ahead of the curve.

Though it’s not the sole tool, artificial intelligence (AI) is a potent one for SMBs, and its use will only increase with time. To provide a multi-layered strategy to identify cyber risks, AI solutions should expand upon the organization’s existing cyber tools (firewalls, endpoints, and vulnerability scanners that input security data to the AI model). The image of cyber danger becomes a high-resolution, color image when AI is used in conjunction with current cyber technologies.

Integrating compliance and cybersecurity measures

Due to PCI requirements and business needs, cybersecurity protection is becoming more necessary for SMBs in all sectors and regions. No longer can maintaining cardholder data security and preventing disruptions from cyberattacks be a “point-in-time” endeavor, as PCI and other compliance measures have historically been.

Businesses with little to no cybersecurity experience can put the necessary policies and procedures in place with the aid of industry best practices included in the NIST Cybersecurity Framework and FCC guidance, but these basic suggestions are insufficient to promote continuous cyber resilience.

Without requiring technical expertise or internal resources, AI technologies enable SMBs to quickly and effectively assess their cyber risk as part of the compliance process. AI solutions that integrate cybersecurity and compliance should be considered by SMBs. This will guarantee “always on” cyber defense in addition to adherence to industry rules and suggested baselines.

Eliminating the uncertainty

As generative AI (GenAI) chatbots advance, even non-technical staff of small and medium-sized businesses can more successfully establish and uphold cyber resilience and compliance with new industry requirements. Because every user has a different level of cybersecurity experience and different online and compliance security contexts, new GenAI chatbot capabilities can adjust the terminology, complexity, and level of detail of cyber events. This reduces the possibility of error by enabling everyone, regardless of skill level, to quickly identify their weaknesses and discover methods for mitigating risk.

Anticipating the future

Understanding where cyber threats are and how to best address each one necessitates a multi-layered strategy to SMB cyber risk management, comprising a combination of technology and process enhancements. Even though the dangers associated with cybersecurity and compliance are greater than ever, only 33% of SMBs have added new technology or processes to guarantee security in the last year. SMBs require assistance in the battle against cybercriminals, and AI is the co-pilot required to produce outcomes despite the leadership’s possible lack of experience and time.

AI isn’t just for big businesses; SMBs can also benefit from tools that help them prioritize which vulnerabilities to patch, recommend the best course of action for fixing those problems, and make sure they comply with crucial industry requirements like PCI. For SMBs, compliance and cybersecurity must become mission vital, or else they run the danger of being caught in the crossfire of cyberattacks.