General

The home insurance sector is frequently perceived as a “follower” of innovation in comparison to other insurance verticals, such as auto. Specifically, touchless claims—a procedure in which the adjuster and customer do not interact face-to-face—have skyrocketed in the number of vehicle claims but are still mostly considered as aspirational goals for house insurance in general.

Since the COVID-19 epidemic four years ago, there has been a significant and rapid increase in homeowner claim technology, virtual inspection choices, and the desk adjuster model. This has resulted in an urgent demand for innovation. Property claims were being handled and resolved without an adjuster or other contractor present for inspection or evaluation on-site often in the history of our sector.

While the pandemic was mostly responsible for the positive digital revolution, not all the results were ideal. Adjusters were occasionally left to oversee a disorganized system of vendors, procedures, and tools despite the industry’s adoption of new tools and technology.

Recently, more difficulties have surfaced on top of previous difficulties. It’s commonly known that the pandemic caused inflation, and the sector was negatively impacted by labor shortages and supply chain problems.

Data indicates that the homeowners’ insurance industry has seen rising claim severity for seven years running, even in the absence of the pandemic. According to CoreLogic statistics, recent hail damage shattered previous records at every National Weather Service office. Lastly, JD Power reports that in just two years, repair cycle durations have increased by 33%, or around six days.

In the face of these challenges, adjusters are expected to perform greater duties and process claims at a historical rate.

Collaboration is essential in identifying the optimal blend of claim touchpoints to enhance efficiency and accuracy, benefiting homeowners, adjusters, and insurers alike. The realm of homeowners’ insurance stands at a pivotal juncture, with the industry prioritizing swift and fair settlements.

Because each home is unique, many claims pertaining to residential property will never be “touchless.” Evaluating the damage and repairability of a home can be a complicated process. However, there are several chances to “touch less,” which leads to a seamless homeowner experience, an optimized adjuster workflow, and an effective carrier claims management program.

Insurance companies that successfully handle low touch claims usually have the following characteristics, albeit the exact number of touchpoints will depend on the specifics and requirements of each claim.

Streamlining decision-making through ‘touchless’ processes

Homes aren’t standardized, as was previously mentioned, but that doesn’t mean decision-making can’t be. Large volumes of data are managed or at the disposal of homeowners’ insurance firms, ranging from policyholder and claim history to material availability and cost.

The advancement and settlement of claims can be standardized with the use of such data. For example, centralized or third-party analysis can reliably respond to questions about repairability, pricing, material availability, and timing following the first collection of measurements and photos of damage. All of that can happen without the requirement for a follow-up visit or other additional touchpoints. More significantly, though, is that it enables carriers to handle claims more uniformly, regardless of their location or level of severity.

Embracing embedded intelligence through ‘touchless’ processes

It goes without saying, but it must be acknowledged that modern technology can also work in our favor. It could be revolutionary to combine massive data sets with digital technologies that expedite our ability to make informed judgments.

There is much talk about artificial intelligence (AI) and machine learning, and these technologies are becoming more and more important in automating claims. There are also interesting new ways that the industry is utilizing “big data.” Although most property disputes will probably never be managed entirely by this technology, it will speed up procedures without compromising accuracy.

Though technology is undoubtedly important, as everyone reading this tale knows, it can also be harmful. A disorganized and confused process will result from adjusters and homeowners investing in an excessive number of different tools and resources. If intelligence justifies the trouble and any negative effects on adjuster workflows, then investing in strong data and decision-making assistance is worthwhile.

Our sector must embrace consolidation and integration as it works to create a culture and practices that support “touchless” claims. Rather than adding steps to an already complicated process, we should seek ways to integrate data and intelligence into current workflows.

Internal alignment

Without the cooperation of every employee, no organization will be able to implement the change. Although difficult, change management is essential, particularly when one approach has long been “the way”. However, you can use your statistics as a very effective instrument to gain support.

Utilize the data to demonstrate how a better strategy will make day-to-day operations easier and more productive. For example, illustrate how the number of adjuster touchpoints and average claim cycle times are related.

Although the settlement amounts for cars and homes will never be the same, there are some similarities that can assist homeowners’ insurance enter a new, more precise, and more efficient era of claims processing. Although it’s unlikely that a totally touchless ecosystem will ever be achieved, developing a less touch process can be a catalyst for industry stabilization and the creation of a bright future.

An enormous transition from the last 35 years of worldwide mass production of products and services back to fragmented, protectionist production networks and supply chains is a challenge that the property and casualty (P&C) insurance sector has never faced before.

It’s true that carriers know how to endure bad times. Upon a calamity, the insurance sector steps in to restore what has been destroyed. Utilizing dispersed worldwide production systems has allowed them to accomplish this at a high rate of speed, volume, and (relatively) cheap cost.

But there is a limit to this period of consistent, inexpensive abundance.

Currently, interruptions in the supply chain are having a profound effect on everyone, including insurance. In January and February of last year, for instance, trade volumes in the Panama Canal decreased by 32%, while trade volumes in the Suez Canal decreased by 50% over the same period. Insurance is impacted by these and similar situations.

Imagine that a community is attacked by a powerful storm. That occurs frequently. 88.5% of American counties saw the declaration of a natural disaster between January 2013 and January 2023. In those situations, the demand for various personal property goods, auto components, and building supplies and tools quickly spikes. When such materials are in short supply, what happens? All in all, insurers still have contractual obligations to fulfill, and as a result, expenses rise, losses mount, and claimants endure protracted delays. Everyone is at a disadvantage.

The two main factors influencing supply chain changes are nationalism and demographics.

China is facing a dropping birth rate that could influence its labor force, and the country’s population fell by 2 million in 2023 alone. As major hubs for global industry, South Korea, Japan, and Germany all have fast aging labor forces; as a result, their working populations will decline, and their output will decline as well. Other nations are following suit. For instance, the U.S. population will peak in 2080 and then begin to fall, despite significant positive immigration flows.

On the other hand, a new era of geopolitical instability has been brought about by the rise of nationalism, current conflicts like the wars in the Middle East and Ukraine, anti-globalization sentiments in the United States, and “de-risking” in Europe. A fragmented world of protectionism and conflict threats is replacing the formerly uncontested supremacy of a global commercial network. In addition to reverting to historical norms, this also represents a radical reconstruction of contemporary supply chains that have enabled the widespread, reasonably priced replacement of insured items during the past few decades. Both the industry and its clients will be impacted.

These difficulties are made worse by the disparity between the overall demand and supply for insurance. The need for coverage is rising in tandem with the frequency of losses. The inability of certain authorities to permit appropriate pricing in conjunction with these losses limits insurers’ ability to take on comparable risks. Disruptions in the supply chain and rising claims settlement expenses intensify this disparity, forcing insurers out of the market while the need for insurance rises.

Strategies for insurance companies to adapt

Though difficult to implement, the answers are easy to explain. Carrier commitments to manage this changing environment include:

1. Quick, smart adjustments to underwriting and pricing
2. Effective yet affordable risk-reduction techniques
3. Agreed upon supplier chain terms

With enough focus, the following can be accomplished.

• Accelerated underwriting speed

Climate change, supply chain problems, and legislative barriers can quickly render certain geographic areas or risk categories uninsurable. In certain situations, insurers need to be able to respond with eligibility steps accurately and promptly.

• Price reflecting speed

2020’s experience has shown us that we must react to risk and pricing fluctuations far more quickly. However, we need to use the data available with greater sophistication. Insurance prices are skyrocketing, and those who cannot quickly incorporate new, highly predictive characteristics into their ratings may face adverse selection. Years used to be the measure of speed; today, it’s months, and for top insurers, it’s weeks.

• Balance of managing risk

Options for reducing risk are always growing. In a post-globalized environment when replacement costs are higher and replacement timelines are longer, risk mitigation as opposed to loss replacement is looking more and more appealing from an economic standpoint.

• Oversee supply chain contracts

Manage the claims ecosystem proactively to guarantee preparedness in high-risk locations and for high-demand commodities. This might involve creative approaches to inventory management, such as storing essential parts to prevent shortages, or hedging techniques with vendors of products for regions.

The globe is shifting because of deglobalization. It won’t be simple for insurers (or other businesses) to adjust to this shift, even with their tools. All-out effort, strategic planning, and a proactive, open-minded mindset will be needed.

The earliest form of insurance involved people pooling their resources into a common fund to compensate those facing specific losses like funeral expenses, which were relatively easy to prove.

Over time, insurance evolved to cover more complex risks involving numerous people, activities, and properties. This transition led to the need for an independent party to conduct risk assessment and investigate claims, resulting in the creation of contractual policies governing the process.

With technology advancing rapidly, peer-to-peer (P2P) insurance has become a reality in today’s world.

How does peer-to-peer (P2P) insurance look today?

In P2P insurance, policyholders contribute premiums to a shared pool, which is used to pay out claims when a member experiences a covered loss. Any surplus funds may be returned to members or donated to a chosen charity.

Advanced technologies like Artificial Intelligence and Blockchain enable the implementation of P2P insurance among a diverse group of individuals with varying needs and risk tolerances, while minimizing reliance on a central governing party.

Notable examples

Lemonade

Often hailed as the world’s first P2P insurance company, Lemonade utilizes a full-stack carrier approach, combining technology with a peer-to-peer business model to streamline insurance processes and deliver value to customers.

Through its platform, Lemonade has revolutionized the insurance experience, offering transparent pricing, quick claims processing, and a commitment to social impact by donating excess premiums to charitable causes.

To date, Lemonade is the only company that still implements P2P insurance. Others have tried implementing it once but with limited success, leading to their downfall (or lack of implementation thereof).

These include:

Friendsurance (2010)

Friendsurance, a groundbreaking German startup, disrupted the insurance landscape with its social network-based model. Users banded together with friends or family, sharing coverage and incentivizing risk prevention.

The online platform provided a range of policies, from electronics and bikes to household and liability, while offering users rewards for damage reports and claims.

Xiang Hu Bao

Introduced by Alipay in 2018, Xiang Hu Bao represents a milestone in online mutual aid platforms in China, boasting over 100 million participants. Its mission is to foster inclusive health protection, particularly for lower-income and rural individuals.

Members contributed approximately $4.25 annually which was deducted from their Alipay accounts. Coverage extended up to $40,000 for specific illnesses, with claims processed via blockchain technology.

The platform levied up to 8% commission from the claims pool, and complex cases were adjudicated by a jury comprising of platform members.

Teambrella (2015)

Teambrella, a Bitcoin-based peer-to-peer (P2P) insurance platform, seeked to revolutionize the insurance industry by eliminating the need for traditional insurers.

Founded by Russian entrepreneurs Alex Paperno, Eugene Porubaev, and Vlad Kravchuk, Teambrella allowed users to provide coverage to each other without intermediaries.

Users formed teams and contributed funds to a shared Bitcoin wallet, providing coverage for various risks. Claims were processed through a voting system, which incentivized honesty and transparency.

Final thoughts

The evolution of insurance from its earliest forms of communal pooling to the modern era of peer-to-peer (P2P) insurance showcases how technology and innovation can work together to create a disruption in the insurance space.

However, despite the promises of P2P insurance, several challenges persist. One major challenge is the risk of moral hazard, where insured parties may alter their behavior to take advantage of the shared risk pool.

Add to that, the decentralized nature of P2P insurance platforms introduces vulnerabilities to fraudulent activities like false claims or identity theft.

Lastly, regulatory compliance and legal complexities pose ongoing challenges for P2P insurers operating in various jurisdictions, as many countries still lack formal legislation to govern them.

Addressing these challenges requires continuous innovation, robust risk management practices, and effective regulatory oversight, the lack of which has seen many insurtechs like Friendsurance, Teambrella, and many others that made headlines in the 2010s failing to materialize results.

Which technologies are North American life insurers investing in and finding appealing?

Top corporate priorities in 2024 will include innovation, digital acceleration, and cybersecurity. These will also influence how life insurers will approach their fintech investments. Technology leaders at life and annuity companies, both individually and collectively, are closely assessing how their business and investment objectives mesh with their IT requirements, as reported in the Celent research Dimensions: Life Insurance IT Pressures & Priorities 2024: North American Edition. The following highlights findings from a survey conducted among chief information officers of life insurance companies.

Finding equilibrium in investment priorities

Growth is still impacting IT spending overall, and insurers are optimistic about the industry’s state. This trend shows that the industry is embracing tech investments as a catalyst for success, demonstrating that it has not just recovered from the economic hardships faced in the years following the pandemic. Insurance companies are concentrating on cost containment and reduction at the same time, which means that there is more control over expenditure than there was during the previous three years.

The goal of insurers is to achieve a balance between innovation (pursuing new technologies) and legacy (maintaining basic systems). A little under half of IT spending is allocated to the upkeep and improvement of current systems, both new and old. Additionally, insurers are putting their recent investments into practice.

It is evident that the insurance business is pursuing a dual-purpose investment strategy to uphold established institutions and take advantage of the disruptive opportunities presented by new technologies. The distribution of an IT budget across the primary activities—greenfield projects, innovation, and transformation, deploying new and upgraded systems, and maintenance and upkeep of existing ones—depends on the company’s size (small, midsize, or large).

Projected expenditure analysis

North American life insurers’ IT spending has returned to pre-pandemic levels, indicating a reduction in IT budgets and an emphasis on cost management in comparison to the preceding three years. Chief information officers are closely reviewing IT spending and how it fits with priorities and economic conditions after years of digital investments.

While 2023 IT budgets were lower than 2022 budgets, most insurers anticipate raising their 2024 budgets; nonetheless, one-third of insurers plan to either cut or freeze their budget. The average predicted increase for insurers of all sizes is expected to be 8.9% this year, with an average budget of 4.6% of premiums expected by 2024.

Many budgetary resources are going toward improving and implementing recent purchases. Most CIOs’ expenditures are devoted to sustaining their present systems.

Some notable points are as follows:

• Insurance companies prioritize investing in technologies that enhance the customer experience and increase agent productivity. Policies and distribution partners’ policyholder portals, distribution management, and illustration/quoting systems are among the front-end components for which significant expenditures are anticipated.
• The most notable improvements are being made to the back-office functions of underwriting. While not at the same levels as the previous two years, policy administration and servicing (PAS) systems remain a major area of investment. New digital capabilities for billing are replacing repetitive payment mechanisms.
• The primary motivation behind investments in data and analytics is the necessity to preserve and improve current systems, with the most notable improvements being in the areas of data management, MLOps, and open data integration.
• Because so many CIOs find the cloud’s value propositions—security, scalability, and accessibility—to be enticing, cloud deployments are expected to increase across all systems. Small insurers are less likely than their bigger counterparts to be expanding their use of the cloud, with a third of major carriers significantly increasing their use of the cloud for fundamental backend systems and more than four out of five midsize insurers using it for data and analytics.

Cybersecurity is one notable area where spending has surged. Cybersecurity has risen from fourth place to the top this year, with spending being driven mostly by this priority. Today, over 90% of insurers rank cybersecurity as a major or high concern, mostly because of the increasing risks posed by ransomware and computer breaches. The amount of the budget allocated to cybersecurity in 2023 (6.9%) does not commensurate with the importance of tackling cyber hazards, notwithstanding the claimed priority. According to Celent’s projection, the amount spent on cybersecurity would rise by 8.6% in 2024 as insurers search for the right instruments to combat emerging risks. To completely stop the ever-evolving cyber threats, nothing has been successful. There will be a need for additional investment.

Welcoming the era of artificial intelligence

Large language models (LLMs) and generative artificial intelligence (GenAI), though they have been a hot topic for the past year, are not yet being actively employed by life insurers in North America, but many of them plan to use them and are developing use cases for them. While just 5% of respondents claimed that GenAI/LLM technologies are now being produced, 75% stated that they had budgeted for GenAI/LLM projects that are either planned for 2024 or are already in the research stage. This suggests that these technologies are being actively pursued.

In life insurance, the areas where GenAI and LLMs are regarded to be most valuable are customer experience (CX), onboarding, marketing, code development, servicing and operations, underwriting, and rating. Two AI application cases that are now being used in many different industries are automated data science pipelines and speech-to-text processing. Relatively speaking, based on reports, the AI use case that the property and casualty insurance side of the business is now adopting the most is geographical analysis or picture recognition. This demonstrates how AI technologies and use cases that are most suited for their specific needs are being adopted by the insurance sector.

The ease of access to the data, the quality of the data, the data/information repositories, and the auditability of the data are all factors that insurers must carefully consider as they prepare to adopt GenAI use cases. Ensuring the data is viable for GenAI activities and addressing any shortcomings requires well-thought-out plans for data infrastructure and governance.

Addressing present and future demands

To meet their immediate and long-term requirements, insurers must carefully consider their investments in technology, whether it be new or old. Successful implementations will require a strategic evaluation of fast shifting factors, ranging from the possibility of AI-driven solutions to the impact of cyber threats.