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Conversion of insurance guarantees Helps insurers to serve customers

When we think of non-life insurance, we often associate it with protection against natural disasters, such as forest fires, hurricanes or other catastrophic events. But in 2006, the Marsh Global Risks Report sounded the alarm about pandemics and other health-related risks. In 2020, the threat of a pandemic became real.

We are now seeing increasing environmental, societal and technical risks that potentially cut and significantly disrupt people’s lives and activities. Marsh Global Risks Report 2021 notes that for companies, the economic, technical and reputational pressures are currently at risk of a disorderly shake-up, which threatens to create a large cohort of workers and companies that remain in the markets of the future.

Increased extreme weather events and natural disasters have an unprecedented and increasingly significant impact. According to the National Oceanic and Atmospheric Administration, the United States experienced 20 separate unique weather and climate disasters worth billions of dollars in 2021

, placing it second after 2020 in terms of disasters, 20 to 22, and third in total costs of $ 145 billion, after 2017 and 2005. [1]

Increased risks affect the insurance’s profitability. Earlier this year, AM Best indicated that an increase in losses and expenses was responsible for the non-life insurance sector’s net loss of $ 4.1 billion in 2021 and a weakened total expense ratio of 99.6%.[2] AM Best estimated that the catastrophic losses in 2021 accounted for 7.7 points on the total cost percentage.

As early as 2022, the Marshall fire in Colorado is expected to amount to $ 1 billion in losses, with nearly 1,000 homes destroyed and hundreds more in need of repair. Tornadoes in Kentucky and elsewhere devastated both homeowners and businesses. Rising construction costs, strained supply chains and a shortage of construction workers are driving up the costs of rebuilding, which means that many insured persons risk not having sufficient insurance cover and insurance companies risk not knowing their total risk portfolio.

The lack of adequate coverage has grown in recent years due to the rapid rise in housing prices when people moved or applied for home to support alternatives to work from home. In November 2021, it was reported that the median price of existing single-family homes rose to 99% of the 183 markets tracked by the National Association of Realtors during the third quarter, with double-digit price increases of 15% -30% on average or even higher.[3] With a competitive housing market, many properties are not inspected, leaving unidentified risks unknown to the insured and the insurer. I know this personally because my daughter bought a home without inspection and had many costly repairs that could have resulted in risks to the house. Luckily we found out and fixed them!

Unfortunately, this is not the case for everyone. With all these changes, many property owners are underinsured, which means a potential customer experience and challenge with reinsurance coverage for insurers. As the cost of insurance increases and profitability is affected, insurance companies need to look at their broader portfolio and find ways to assess potential losses, predict their impact and initiate loss prevention strategies more accurately and accurately. And while there is not much customers can do to avoid disasters, other risks and potential losses can be preventable, offering an opportunity for insurance companies to create more value and trust with customers.

How should insurance companies adapt to these increased risks? How can they better understand their total risk within a portfolio? How can they serve their customers better? Through the next generation of digital underwriting.

Underwriting Digital Transformation

As we all know, non-life insurance is the heart of the insurance business. And the key to guaranteeing transformation is the use of digital technology.

Over the past decade, insurance discipline has focused on automating workflow to achieve efficiency. But now issue guarantees are making great strides to change how this is done by utilizing access to more data sources to gain new risk analysis insights for the specific risk and portfolio while creating significantly improved agent / broker and customer experiences.

Technically and operationally, this requires a combination of digital business solutions – including next-generation core, digital loss control, digital underwriting workbench, AI / ML models – and the ability to bring in a range of customer data sources, including unstructured video, geospatial, social, IoT devices and more to create real-time risk management and insights.

Unfortunately, there are large gaps between today’s operations, business capacity and technology required to compete and drive profitable growth in an increasingly complex risk world. Exploring the gaps requires an assessment of today’s reality and the potential for not only operational improvements, but strategic innovation that sets leaders apart from others in the market.

Risk management strategies and solutions – Focus on preventable losses

The old adage “control what you can control” is now at the heart of insurance companies as they look at new risk management strategies as a crucial component of their next-generation insurance and customer experience strategy. Industry leaders are increasingly focusing their time and resources on better assessing risks and preventing losses, impact on the portfolio and how it affects risk appetite, which together affect insurance profitability and customer experiences.

Insurance has always been a data-driven business, but access to new data sources with AI / ML redefines the industry. Likewise, a transition from paying the claim is to minimizing or avoiding the claim at the top of the minds of insured and insurers. Today’s increased disasters, market environment and pressure on profitability require a greater focus on preventable losses and better results through insurance profitability, proactive risk reduction to minimize or eliminate claims and improved customer experiences.

To achieve these results, intelligent digital underwriting, digital loss control and AI / ML solutions increase investment priority for insurance companies, which is reflected in Majesco’s 2022 Strategic Priorities research. Between 25-30% of insurers have implemented, or are in the process of implementing, digital underwriting workbench, digital loss control and AI / ML, and almost 50% of insurers are considering or planning on them – reflecting a significant increase in digital risk management strategies and solutions (Figure 1).

Figure 1: Insurers’ digital issue priorities

To support digital insurance, insurance companies are focused on utilizing new data sources. In our research on strategic priorities in 2022, we found that data sources could be categorized into table inserts, approaching table inserts, appearing and incubating, based on usage levels. The results show expansion from customer data to unstructured data, such as loss runs and loss control reports, to new digital data sources from devices, video, photos, text, telematics, geospatial and more, which is reflected in Figure 2 below.

Figure 2: Data sources’ stages of adoption

Risk management, underwriting and loss control all involve the collection and use of data needed for AI / ML models to properly assess, identify, manage and reduce risks by providing differentiated customer service. An increased focus on loss control has increased the volume, variation and speed of structured and unstructured data sources. Loss control has shifted from surveys conducted by adjusters with questions, checklists and photos, to utilizing real-time data from smart devices, video, images of labels and more through self-surveys and video-guided surveys. Insurers can use richer data captured with advanced AI / ML for improved risk assessment, appetite analysis, issue guarantees and pricing.

More importantly, by identifying hazards and making recommendations from the information gathered, insurers can create more value and trust with the customer by proactively addressing issues and making recommendations to help them reduce or eliminate risks, creating a new, compelling customer experience.

For decades, the creation and development of insurance markets and products developed at a slow and steady pace. But today’s increasing risk environment in combination with an outdated business model for issue guarantees and technical approaches does not respond to market changes or opportunities, especially given the disruptions and the need for innovation.

Should only high-quality properties be assessed? Only with actual adjusters in place? What if you could do your entire portfolio digitally through self-examination or video? Imagine what a better risk assessment you would have for your portfolio and to negotiate your reinsurance! And what if you used the risk assessment to offer access to new services to your customers, create a new commitment and potential revenue opportunity that can drive trust and loyalty, which improves customer balance?

Anyone would agree that innovation and disruption are related topics. Innovation is about creating a completely new approach that provides some added value. Disruption is about accepting the reality that something new will change our current approach.

Your competitors are adapting to a new world of risks. They adopt the next generation of digital business models and digital technology. Are you?

Your customers demand and expect it.

[1] Smith, Adam, “2021 billion US dollars in weather and climate disasters in historical context,” NOAA Climate.gov, January 24, 2022, https://www.climate.gov/news-features/blogs/beyond-data/2021 -oss -billions-of-dollars-weather-and-climate-disasters-historic

[2] Baker, Katie, “US Non-life Insurance Industry Reports Net Loss of $ 4.1 Billion in 2021: AM Best,” Reinsurance News, March 25, 2022, https://www.reinsurancene.ws/us-pc-industry-records-4 -1bn -net-underwriting-loss-in-2021-am-best /

[3] Bahney, Anna, “78% of the US markets were affected by double-digit house price increases”CNN Business, 10 November 2021 https://edition.cnn.com/2021/11/10/homes/home-prices-increase-third-quarter-feseries/index.html

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