Since the pandemic hit, it’s almost impossible to name a business or industry which has not been affected, and had to make drastic changes to adapt to the “new normal”. From touchless claims processing to thousands of agents and other staff working full time from home, the insurance industry has not escaped the winds of change.
Surprisingly, the insurance industry—one which is both historic and historically resistant to change—has adapted remarkably well, and continues to do so as we see a glimmer of hope at the end of the COVID tunnel. So how did it happen? What techniques did they use to pivot an industry steeped in tradition? What trends emerged that will carry through the post-pandemic world?
This blog is based on “How Insurers are Turning the Lessons of COVID into Tomorrow’s Business Advantage,” a webinar presented by Carpe Data’s Chief Product Officer Robert Burns and EVP and CIO of Homesteader Life and former Iowa Insurance Commissioner Nick Gerhart, for AM Best’s webinar on March 30th, 2021. You can view a recording of the full presentation free here.
Is data a new trend because of the pandemic?
Carriers were aware of the potential advantage of emerging data sources before the pandemic hit, and started to adopt them into their models and processes. Why? Because these new data sources are the only place where the industry will be able to find the answers they need—consistently, effectively, and confidently. “But the sleeping giant on the data side is looking at new dimensions of data,” remarked Robert Burns. “In terms of data points we’ve categorized, companies with poor reputations have demonstrably poorer outcomes, and there are many versions of that kind of predictability.” And the pandemic has brought this predictability into stark relief, in regards to how many businesses have been able to actually survive and how that survival could have been predicted due to their good reputation, size of their customer base, and ability to manage their online presence.
What do we want? DATA! When do we want it? …Now?
There is a preponderance of APIs on the market that are available to anyone who wants them, making it look like there’s plenty of data easily accessed. But finding good sources of data is the key, and then the challenge is making sense of it. And while recency is a selling point for these new sources of data, it still needs to be brought in-house for validation, proof of accuracy, and to insure consistency. This is a significant contrast from how the industry has traditionally looked at data up until now, which was looking at retrospective data in big data sets.
So, do we need real time data? “I think the answer is really in the middle; [you] have to have the data set in house, [you] have to reconcile the differences in all that data, but you have to refresh it at the interval in which it tends to change,” Burns explained. “So it’s a blend of a little bit of the old model with new data.” Nick Gerhart added, “Data has always been a focus, but now it’s definitely THE focus for many carriers. Data is the ‘new gold’, a fertile ground where carriers can take this new data and do things with it they couldn’t in the past.”
The model ate my homework
Not surprisingly, Gerhart has thought often about how regulators should look at data issues across the different lines of business. “I think you should,” he affirms, explaining that looking at a big corporate account is much different than a mom-and-pop business and even more so from a home, auto, or health policy. “I’ve always said that consumers really don’t care how you use the data, as long as it benefits them,” Gerhart said. “If they realize they can’t get a claim paid, or their rates go up, that’s when it changes. Until then they’ll share data til it hurts.” But he also stresses that the answer comes down to transparency, a knowledgeable trail for regulators to follow and see how it’s used—carriers need to explain the decisions they are making. “The idea that ‘the model ate my homework’ is not going to fly,” Gerhart jokes.
Where’s your SOC?
Both carriers and insuretechs need to understand each others’ basic nature to succeed. Gerhart recommends that insuretechs should believe in their product and value proposition, especially if they are solving real problems. But they also need to understand what carriers’ pain points are, that their sales cycle could be months or years, and to perhaps start with the smaller and medium-sized carriers. “They are more agile, they’re not trying to turn the Titanic around in a swimming pool,” quipped Gerhart.
Carriers, on the other hand, need to understand that insuretechs are mostly startups, and to check their tolerance for dealing with a business that is not mature. “Some carrier people will say ‘Oh, they’re not even SOC compliant!’ And I say “They’re not even wearing socks!” responded Gerhart. “They’re going to need to lean on you for some resources, but if you’re willing to treat them like a partner instead of a vendor, you can find success.”
Watch the entire webinar to hear what Robert and Nick have to say about:
- the digitization trends that you mentioned earlier, can you talk about the specifics of those impacts on underwriting and pricing
- Are there lines of coverage that benefit more—or less—from new data insights
- Will data digitization and automation create a “winner takes all” world?
- How should regulators balance the requirement for them to understand how policies are specifically priced against the confidentiality of proprietary methodologies being used