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Insurance companies are increasing their focus on loss control to improve risk forecasts

Let’s talk about money risk for a moment. I saw many of them on vacation this year in Gulf Shores, Alabama every day!

In a world filled with risks of all kinds, shapes and sizes, the jellyfish is a little hard to pin down. For some, the risk may seem insignificant, invisible or formless – much like the jellyfish itself. We don’t see them that easily, so they fly under the radar. It’s not a scary dorsal fin sticking out of the water.

Still, the risk of jellyfish posing is real and growing. Approximately 150 million people are stung by jellyfish each year and hundreds are killed.[i] In fact, you might be surprised to know that more people die each year from jellyfish stings than from shark attacks. In the Philippines alone, 20-40 people die from jellyfish stings every year.[ii] And no… I didn̵

7;t get stung by one!

“Well, that’s a life insurance statistic,” you might be thinking.

However, jellyfish spread the risk around. Casualty insurance companies may be interested to know that jellyfish can damage jet skis. They can disrupt water-based businesses. Annually they close 2-3 power plants by clogging water filtration systems. They have almost caused meltdowns at nuclear power plants.[iii]

Higher overall ocean temperatures likely due to climate change are causing jellyfish to roam further away from their common habitats. The growth of new breeding grounds, such as offshore wind farms, oil rigs and oyster beds, has allowed jellyfish to gain a foothold in more northerly tidal areas. In short, jellyfish thrive, and the jellyfish hazard is a real thing.

Do the insurance underwriters keep track of global jellyfish trends?

The risk world is changing faster than we can learn.

It may still seem trivial to us, but the jellyfish is a good example of risks that exist and grow, but no one tracks because no one, except marine biologists, really has time to track jellyfish or the risk consequences. However, each risk is trending in some direction. The risks are growing. Risks are combined. The risks are shrinking. Some risks remain the same. How can we see what we don’t recognize as a risk until it creeps up on us too late? What other risks are changing due to climate change that we are not aware of? How can we predict what might happen to that risk in the future?

Like it or not, the world is changing faster than we can learn about new risks and risk trends. At the same time, we have technologies that can track almost any risk with data, improved methods and AI/ML. In Majesco’s latest thought leadership report, Underwriting and Loss Prevention to Tackle Rising Insurance Costs, we take a look at some of these risk changes and take a closer look at the technologies that should be used to manage risk and lower costs for insurers to become proficient on learning as fast as the world changes. In today’s blog we are thinking about timing. Should insurance companies try to address today’s underlying risks, or can they start gathering what Majesco would call, “tomorrow’s insights today?”

Is the unpredictable really predictable?

Today, we now see increasing environmental, societal and technological risks that have the potential to cut and significantly disrupt people and businesses. The Marsh Global Risks Report 2021 for Business notes that the financial, technological and reputational pressures prevailing today risk a disorderly shakeout, threatening to create a large cohort of workers and businesses left behind in the markets of the future.

For example, increased extreme weather events and natural disasters are having an unprecedented and increasing impact. According to the National Oceanic and Atmospheric Administration, the United States experienced 20 separate unique billion-dollar weather and climate disasters in 2021, placing it second only to 2020 in number of disasters, 20 vs. 22, and third in total costs at $145 billion, only behind 2017 and 2005.[iv] Forest fires seem to be increasing, and with them also property losses. Recent tornado damage has increased, and the traditional tornado paths appear to be expanding.

In a converging trend, construction costs are increasing due to supply chain issues, increased material costs due to inflation and construction worker shortages. The rapid increase in housing prices and high demand has left many properties uninspected (buyers agree to forego inspection as a “freaking out” for sellers). A family member did, and within weeks we had to replace not only the furnace and air conditioner, but also the electrical panel that was recalled several years ago due to fire risk – a significant unknown risk. The result is likely to be unidentified risks and underinsured properties for both the insurer and the insured – creating significant risk gaps that have financial, customer experience and reputational implications. Claims prevention strategies must change if insurance companies are to remain stable and grow.

Insurance companies must adapt. The only way the unknown risks become part of the business strategy is if underwriting takes into account changes that are in constant flux, using variables as diverse as climate change and construction prices. In many ways, both of these elements are predictable. Climate change is certainly moving in a certain direction while labor and construction costs have actually been rising fairly consistently for over a decade, with a major bump in the last year. (See Mortensen’s Construction Cost Index here.) While risk may seem to be growing faster than we can learn, the reality is that we may simply need to use technology to learn faster.

Limits the element of financial surprise

Whether or not insurers can learn about risks quickly enough, the lack of effective price adjustment will come back to bite them with high loss ratios and unprofitable books. The insurance companies do not need to control the uncontrollable world. They need to understand it in a way that helps them adjust pricing before financial results cause unwanted surprises. Granular details are no longer about “getting in the weeds”. It is about preventing the loss that comes from a lack of risk knowledge and price application.

Operationally, this requires a combination of digital business solutions including the next generation

core, digital loss control, digital underwriting workbench, AI/ML models and the ability to ingest a range of customer data sources, including unstructured, video, geospatial, social, IoT devices and more, to create real-time risk management and insights .

Insurance companies are increasingly focusing their time and resources on how to better assess risk and prevent losses to improve insurance profitability and customer experience.

Insurance has always been a data-driven business, but access to new data sources with AI/ML is redefining the industry. Today’s increased catastrophes, market environment and pressure on profitability require a greater focus on preventable losses and better results through underwriting profitability, proactive risk mitigation to minimize or eliminate claims and improved customer experiences.

Majesco’s 2022 Strategic Priorities research shows that insurers are increasingly investing in intelligent digital insurance, loss control and AI/ML solutions.[v] Insurers are expanding data sources from customer data to unstructured data such as loss runs and loss control reports to new digital data sources from devices, video, geospatial and more, as shown in Figure 1 below. All these efforts have one thing in common: the reduction of financial surprise through efforts through faster learning.

Figure 1: Data sources used for Business & Analytics

The new and vastly improved role of data – teacher, facilitator and communicator

An increased focus on loss control and other data has resulted in increased volume, variety and velocity of structured and unstructured data sources. Loss control has moved from investigations with

questions, checklists and photos; leveraging real-time data from smart devices, video, label images and more through risk technology companies, customer self-surveys and video-guided surveys.

Insurers can use the richer data loss control and other data captured with advanced AI/ML for improved risk assessment, appetite analysis, underwriting and pricing. Advanced AI/ML enables insurers to analyze data in real time to drive intelligent decision making. By identifying hazards and making recommendations as data is captured or collected, carriers and suppliers can now create more value by proactively addressing issues and making recommendations in real-time.

This significantly broadens the role of underwriting and loss control in an organization. Suddenly, instead of just pricing with greater clarity, new data and analytics along with loss control can educate insurers on how best to respond to risk trends. Combined with the new digital customer service tools, we can help educate the insured on how to avoid risks, and then communicate the impending risks as quickly as they are discovered. It shortens the time period between data capture, predictive analysis and rapid communication.

Letting the past teach the future with the help of the latest technology

We may not have an accurate picture of what jellyfish will do next year, but we have a pretty accurate understanding of the damage they have done recently and in the past. In this way, one can get a better grasp of the real effect with some certainty. The past can be effectively applied to the future.

Loss control techniques, such as those offered by Majesco, have this method in mind.

As fast as the future is changing, insurers are still understanding the outcome of harmful and catastrophic consequences. In the case of structures and properties, they can get a fairly accurate picture of which properties are at risk.

In Majesco’s latest blog, “Is It Time to Hire New Data?”, Patrick Davis explains how Majesco clients can now access loss control data from 16 million property surveys, including 200 million photos. As insurers plug new photos into loss control software, machine learning takes over and analyzes the risks within an electrical panel, a hot water tank, a roof, a backyard, etc.

Risk characteristics contained in the database allow Majesco to create models that can determine how much risk there is for almost any specific property. It’s a great example of how technology can help insurance companies deal with a world that’s changing faster than we can learn.

Your next step now

Insurance companies have been excellent providers of risk products for a very long time. But as the future seems to come faster and unpredictable risks like jellyfish seem to appear out of nowhere, insurance companies need to stay ahead of the future in every way they can. They need technologies that can work holistically to ingest large amounts of data, analyze different types of data, learn what’s in front of them, and communicate it both internally and to policyholders.

The “next generation” of insurance uses today’s technology in a way that helps insurers understand and manage future risks before they happen.

To read more about loss control, be sure to download Underwriting and Loss Prevention to Manage Rising Insurance Costs. The report includes a brief case study on how the techniques described have helped a commercial real estate operator improve profits with better data and fewer trips and staff hours.

And remember…watch out for the jellyfish!

To learn more about Majesco’s Underwriting 360, Loss Control, Data & Analytics and P&C Core Suite solutions, visit the Majesco website today.

[i] Chabin, Michael, How to deal with the worldwide jellyfish threat, The Washington Post, 5 July 2019

[ii] Law, Yau-Hua, jellyfish almost killed this scientist. Now she wants to save others from their deadly poison, Science.org, Nov. 8, 2018

[iii] Izadi, Elahe, How jellyfish have become nature’s ultimate guerrilla protesters against power plants, The Washington Post, July 7, 2015

[iv] Smith, Adam, “2021 US Billion Dollar Weather and Climate Disasters in Historical Context,” NOAA Climate.gov, 24 Jan. 2022, https://www.climate.gov/news-features/blogs/beyond-data/2021-uss -billion-dollar-weather-and-climate-disasters-historic

[v] Majesco, “2022 Strategic Priorities Report”

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