Forced Innovation: A Catalyst for Insurtech Adoption?

Once upon a time, when colleagues gathered together for their morning coffee, took frequent breaks at the water cooler, or would perhaps sneak out early to grab a beer on Thursday afternoons, working from home was thought to be a “luxury.” Flash forward a mere two months, and the world has changed before our eyes. Restaurants and bars have closed their doors, the only shopping we know is done online, and basic human interaction takes place virtually, on platforms and portals we didn’t know existed. Even weekly happy hours now take place through a screen. Perhaps this really may be the “new normal.” But maybe this adjusted way of living will push the insurance industry in the direction it’s slowly been treading. It could be a catalyst for change—expediting a real digital transformation we have been talking about in the world of insurance for years. We call it “forced innovation.”

Current global work from home trends are expected to have long-lasting effects on how and where we work going forward. According to Global Workplace Analytics, based on historical trends, “those who were working remotely before the pandemic will increase their frequency after they are allowed to return to their offices. For those who were new to remote work until the pandemic, we believe there will be a significant upswing in their adoption. Our best estimate is that we will see 25-30% of the workforce working at home on a multiple-days-a-week basis by the end of 2021.”

Beyond established market leaders like Zoom and Webex are penny-pinching startups just trying to survive. Surely some will fall by the wayside in the wake of COVID-19, but for others, it’s time to step up to the plate and play ball. This theory of “forced innovation” is not only about providing the tools allowing your staff to work from home more effectively, it’s also about rapidly digitizing business processes and removing inefficiencies through tools that were previously readily available, but optional and underutilized.

But forced innovation in not all-encompassing. While some tech companies are “cutting payroll, slashing marketing budgets to $0, eliminating perks, asking vendors to extend payment terms, and scratching for additional capital,” others “even those who have reduced staffing, are still moving ahead with growth plans, either through hiring or the launch of new digital products. In other words, they’re adapting,” according to an article from Carrier Management.

Distribution

Many leading broker-focused insurtechs confirm increased activity on their platform, but it hasn’t been easy for everyone. “Insurtechs, like many other tech industries, are going to see some great start-ups fall by the wayside due to just plain bad timing,” explained Adam Kiefer of Talage, an agent-friendly distribution platform for small business insurance. “Companies with weaker value propositions will be naturally weeded out. If capital tightens up, companies that were well-funded with some runway prior to this fallout are obviously going to be the most well positioned to ride this wave and likely come out stronger.”

Similarly, Ilya Bodner, CEO of Bold Penguin, agreed that “though we are likely to see a slowdown of new funding activity, I think the insurtechs that are well-positioned and adding value in the space will continue to grow post COVID-19.” Bodner continued, “There is no question that small commercial is one of the hardest hit right now with government mandated quarantine closures, but we’re also seeing a renaissance of creativity and new business models.”

Not only will many of these companies “come out stronger,” some are already seeing an uptick in utilization. Despite recently reducing its staff to “adapt to new business volume expectations,” Bodner explained to Leader’s Edge, “we are seeing a significant increase in BOP quoting activity, with volume tripling in the last 6-8 weeks.” He explained that although distribution had an “immediate and significant impact” as brokerages closed shop last month, some were more prepared than others. Though this impacted all organizations to a degree, some offices were prepared to make the shift, while others scrambled to adjust. “Agencies with robust multi-channel marketing strategies and tech partnerships were able to quickly pivot to alternative prospect streams while those without existing tools and processes were left to build them out in crisis mode.”

Insureon, one of the world’s largest digital brokerages for micro and small commercial, has already seen an increase in Business Interruption (BI) interest, despite the lack of coverage for COVID-19 losses, said Jeff Kroeger, EVP of strategy and development. “[Business Interruption] is obviously widespread through business insurance, and micro-small commercial is no different. These can be difficult conversations since there isn’t coverage provided,” Kroeger explained. Insureds that only had General Liability (GL) coverage, “are now asking for a BOP with a limited amount of BPP [Business Personal Property] in order to obtain the BI (generally on an ALS basis).” Insureon has also been working with its clients and carriers to address changes in operations, relaxed payment options and exposure reductions. Kroeger explained that most national carriers have been “excellent in flexing underwriting guidelines mid-term,” and providing relief by offering “60 to 90-day grace periods and changes to payroll billing.”

“Cyber – the attention to enhanced ransomware and hacking in the ‘new normal’ has gotten to insureds,” said Kroeger. “They know their PII is vulnerable and are looking for protection.” He continued, “Our digital front end has provided a tremendous advantage at a time when traditional agencies can’t knock on doors, make cold calls, or sometimes even contact business owners for new business or renewals. Our agency can be found 24/7 online, and I think carriers, agents, and brokers will now prioritize this capability.”

For Lloyd’s, which shuttered the doors to its underwriting floor weeks before the U.S. felt COVID’s strain, work during the pandemic similarly pushed the sector to seek technology solutions on the distribution side. Since Lloyd’s closed its underwriting floor, the first time in its 333-year-old history, brokers and underwriters were forced to explore solutions beyond the market’s old way of face-to-face trading.

Lloyd’s electronic trading platform, PPL, has since seen positive momentum, “already having seen some 70% risks bound in the first quarter of 2020,” according to a recent article. PPL, once described “not particularly user friendly,” reached record levels of trade earlier in April, “with placement soaring to 5,600 marking an increase of 2,000 placements, or 55%, on the previous weekly high.” Since this exponential growth in digital trading at Lloyd’s, many believe it’s here to stay as “document-based trading will be a thing of the past even when social distancing measures are lifted,” predicted Matthew Wilson, CEO of Brit Insurance.

Brokerage Ops

Operationally, for an industry known as being tech laggards and resistant to change, many are pleasantly surprised by brokerages’ ability to transition to this new normal. “We continue to be amazed at the work brokers have put in to reassure and guide their customers in these chaotic times,” explained Dan Hurwitz, CRO of TowerIQ, a broker-focused tech platform that provides digital collaboration tools between carriers, brokers, and their insureds. “Adjusting to this environment hasn’t always been smooth, and I think that is why some infrastructure that was optional three months ago is going to be the new norm going forward.”

Obviously, there are varying degrees of “digital readiness” in the broker community, and this transition is not a one-stop shop. “The coronavirus pandemic has certainly exposed brokers’ level of digital readiness and heightened their urgency to digitize,” explained Cheryl Matochik, managing director of Third Horizon Strategies. “One timely example is AI-based software to automate evaluation of policy wordings to help identify where brokers could have exposure. Those that have already this capability are on their front foot. One of the key questions going forward will be: does this experience change the stomach of brokers to prioritize this and invest more proactively?”

But what about now? While many agree there’s been heightened interest around digital distribution channels, where do brokers currently stand operationally? What changes have already been made?

“I’ve been incredibly impressed with the industry’s warp-speed response to this crisis,” said Bodner. Within the first few weeks of shutdown, he saw small agencies to top 10 carriers creating virtual processes for their workforce and distribution essentially overnight. “In an industry known for its slow, methodical approach to change, this was truly remarkable.”

“We’ve certainly seen an uptick from agents and brokers that are trying to connect with clients and underwriters digitally,” explained Hurwitz of TowerIQ. “The inability to kick off and close renewals face to face has had a material impact on brokers that have reached out to us looking for solutions. For example, a number of our clients are having us digitize their entire 2020 renewal books today, to ensure they have the data they need regardless of their physical location.”

In a recent Leader’s Edge interview with Amy Zupon, CEO of Vertafore, Zupon described brokerages’ readiness to transition as…mixed. “There are brokers and agencies that are ready to turn on proactive communication,” and they’re now realizing “they should have turned on this productivity station a long time ago,” she said. “At the same time, I think you have an agency saying I know I need to be doing that, but I’m not set up to do that. I don’t have a digital platform. I’m not set up with a communication mechanism. I think those folks see it and they’re looking for help, and for ways to do that.”

Mike Furlong, CEO of Indio Technologies, explained they have already seen a significant uptick of brokers and their insureds leveraging technology to facilitate the submission process in commercial lines. “Specifically, there has been a 50% increase in brokers leveraging our online portals to streamline communication with their customers in a secure, remote manner,” Furlong said. Brokers are utilizing Indio’s digital forms to capture renewal information, and they’ve seen a 25% increase in brokerages using their e-signature technology to get forms, documents, and applications signed remotely.

For those not as prepared, many brokers are looking for assistance around transitioning to remote operations, while simultaneously increasing the level of customer service. “Many brokers are asking for guidance on leveraging and implementing technology that can improve communication and logistics,” Furlong explained. “They’re asking for advice on incorporating remote work into their business continuity plans. Now more than ever, brokerages are working around the clock to advise their clients, especially their commercial clients, and technology is a key factor in that.”

Some tools are easy and quick to implement in day-to-day business processes, as brokerages have been able to swiftly adopt online communication tools, Furlong said. Further, Hurwitz explained, brokers are looking for ways to get documents signed and renewals processed faster, without impeding the insureds who are working desperately to keep their own businesses operating.

Looking Forward

What’s to come in the wake of COVID-19 remains to be seen across the industry, but that’s not to say there are not speculations on long-lasting impacts from this pandemic. Where to invest is a question brokers have seemed to struggle with prior to COVID-19, and many think the urgency of this pandemic may help expedite those decisions. Digital contingency plans and the tooling necessary to support those plans will be part of every brokerage, according to Hurwitz. “Collaborating with clients and underwriters digitally is going to be the expectation.”

As for the winners and losers, this is inevitable. Furlong explains the real winners will be technologies that make implementation easy, fast, and simple for brokers to adopt and allow them to provide 24/7 around-the-clock support. “Making quick changes to technology that impact a team’s operations and workflow can be challenging, so those companies that can make that transition easier will be the long-term winners.” Those that help brokers remove inefficiencies and streamline communication are already set up for success and should thrive – assuming they have the resources to maintain a high degree of customer support.

If we see a contraction in the economy, Kiefer of Talage explained, and in turn a contraction of written premiums, operation efficiency and new sales tools will just become that much more vital. “Doing more with less is not new to the broker community, and we’ve been through this before. The difference between now and 2008 is that now there are tools for agents and brokers, and the ones [who] are willing to capitalize on these tools will come out on the other side.”

Although it is hard to imagine a silver lining coming from this current pandemic, many are optimistic this forced transition will lead to further adoption of broker-focused tools and solutions. “Insurance has historically been an industry that’s been resistant to change, some of internal culture, some of it through regulation,” explained Kiefer, “but in times like these, when governments are looking for ways to recover and recover quickly, there is opportunity to move quickly with innovation, and I think you’ll see people and governments become more willing to try new things. While nobody knows exactly what that new way looks like yet, I think we can all agree it won’t be the same for a long time, if ever. Like Zoom being able to virtually close the physical gap between people, companies who can help close the gap being created between insurance companies, agencies, and policyholders with technologies that make us feel closer, are finding a market ready for solutions.”

“I hope this is one sliver of a positive that we can take away from this incredibly challenging time,” Bodner said. “The adage ‘adapt or die’ has never been more relevant. I see a potential for the pandemic to accelerate the existing trends that were already playing out—the need for insurance to meet changing consumer expectations and needs. As we’ve seen over the last few years with the explosion of insurtech/incumbent partnerships, timely adoption of new technology is a critical component of long-term success.”

Hurwitz agreed that stakeholders are opening up to the tech ecosystem, explaining it’s “unfortunate that such a catastrophe has forced these growing partnerships, but in the end, the entire industry will come out of this much stronger technologically.”