Sponsored Content by Milliman

Will You Survive the Great InsureTech Disruption?

An abundance of data and analytics technology creates both threats and opportunities for insurers.
By: | July 6, 2017 • 5 min read


In insurance, whoever holds the data, holds the power.

That’s because data is the key to effective risk assessment and underwriting.

Big Data and analytics are forcing insurers to adjust their processes when it comes to collecting and using data. With the expansion of the Internet of Things, sensor technology, machine learning and artificial intelligence, there is more information available than ever before.

The abundance of data – and the technology used to capture it – is driving profound disruption in the relationship structure of the insurance industry. As the traditional gatherers and guards of massive amounts of data, insurers face threats from new, tech-savvy competitors who can adapt to changes more quickly.

“There are very powerful trends coming together to cause serious industry disruption. That can be a big threat, but if insurers start responding now and embracing the change, it could also be a big opportunity,” said James Dodge, Senior Consultant, Advanced Analytics & Data Solutions, Milliman.

InsureTech Overturning the Status Quo

James Dodge, Senior Consultant, Advanced Analytics & Data Solutions

Technologists, data scientists and their deep-pocketed capital backers are jumping in with both feet. Though lacking insurance expertise, they see the vast opportunity to harness the data that insurers need. In doing so, they present a threat to traditional insurers, especially smaller and mid-size companies who lack their own large data stores.

“Not a lot of Insuretech companies actually want to be in insurance,” said Robert Meyer, FCAS, MAAA, Principal, Consulting Actuary, Milliman. “It’s a highly regulated industry that requires a lot of capital, and few have actually jumped into the pool of taking on risk. But they are positioning themselves as the purveyors of data.”

Distribution is a key area of focus for many Insuretech startups. Specifically, the new players think they can disintermediate brokers for small and mid-size accounts.

But there are other ways that technology can profoundly change insurance distribution.

Original equipment manufacturers (OEMs), especially in the case of IoT-enabled ‘connected cars,’ are one example of a new competitive threat to traditional distribution. Instead of providing auto coverage through a traditional carrier, they may try to capture more margin by partnering with an InsureTech startup.

“Say, for example, a young InsureTech firm builds a great app and sells it to a reinsurer. The OEM may decide they want to offer that as a value-added bundled offering to their customers,” Meyer said. “In doing so, they bypass the middleman, save costs, and create a more modern, digital experience for their customers.

“Insurers will then have a disintermediation problem, along with a new emergent competitor they never thought was their competitor before.”
Other insures could take a similar tactic by white labeling their products and selling them through InsureTech firms to trim expenses and expand their market share.

Insurers who are too slow to digitize or update their process could be pushed out altogether. They’ll lose customer loyalty to competitors who have refined their customer experience and engagement and fall behind those competitors who reduce their costs faster.

Opportunities Emerge

Robert Meyer, FCAS, MAAA, Principal, Consulting Actuary

The flipside to the threat of competition is that insurers who manage to stand out from the crowd win over customer support.

Small insurers, for example, are better positioned to adopt new technology and build ecosystems that are flexible enough to adapt to shifting trends and further technology advancements. Large insurers relying on legacy systems will have a harder time making that change and staying up to date.

But larger insurers can leverage their resources by directly investing in or acquiring InsureTech firms. Even if they can’t build the platforms themselves, partnering with InsureTech companies provides a closer look at their infrastructure and allows them to reap the benefits of access to data without storing or managing the data themselves.

“Using these firms as a stand alone data vendor also helps insurers avoid some regulatory overreach,” Dodge said.

Regulatory obstacles in the use of data science in underwriting often leave insurers unsure of how to apply new data sets, and therefore hesitant to embrace the new, interconnected technologies that help collect it. It’s a fear based on a limited view of data analytics.

“Insurers really do six major things. There’s product design, marketing and sales, pricing, underwriting, claims, and services,” Dodge said. “Regulators may not allow data science in setting rates if they perceive it as discriminatory, but you can absolutely still apply data analytics to the other five processes.”

Carriers can target marketing and distribution with demographic data, enhance their claims experience with user-friendly portals, improve claims handling through predictive analytics, and perhaps most importantly, incorporate data into the underwriting process.

“If regulators will not allow data to dictate pricing, you can achieve a similar effect in underwriting, outside of the rate structure,” Meyer said. Collecting data about a potential client’s financial reliability, exposure to different types of risk, and risk mitigation strength can guide underwriters to, for example, offer premium discounts for positive marks, or perhaps reduce sub-limits for higher-risk insureds.

“By taking in as many data elements as you can and applying them in other areas of your business, your organization will learn an awful lot about managing a high volume of data, learning from it, and then acting on it,” he said.

Digitize or Die

To reap the benefits of data and analytics technology, insurers have to act now. Taking a reactive instead of a proactive approach could do irreparable harm long term.

But throwing the latest technology at a problem without adjusting an accompanying process isn’t the answer.

“Clients are asking how they should embark on their own digital transformation. Not only do we have expertise in managing large data sets, but we can also advise on how to adjust relationship management within the industry along the way as the market undergoes continual disruption,” Meyer said.

Milliman is focused on working with both Insuretech players and traditional insurers to create a technology ecosystem built to adapt to continuing changes. They have dedicated themselves to staying at the leading edge of technology and the Insuretech trend.

“We are branching out from actuarial work and consulting into Big Data, machine learning, and analytics. We’re not focused on client-facing platforms, but rather building ways to combine human and machine learning to get the best outcome,” Dodge said. “We can help clients take advantage of the opportunities and plan for the future as changes continue.”

To learn more, visit http://us.milliman.com/.

SponsoredContent

BrandStudioLogo

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Milliman. The editorial staff of Risk & Insurance had no role in its preparation.




Milliman is among the world's largest providers of actuarial and related products and services. Milliman serves the full spectrum of business, financial, government, union, education, and nonprofit organizations. In addition to our consulting actuaries, Milliman's body of professionals includes numerous other specialists, ranging from clinicians to economists.

Emerging Risks

Stadium Safety

Soft targets, such as sports stadiums, must increase measures to protect lives and their business.
By: | January 10, 2018 • 8 min read

Acts of violence and terror can break out in even the unlikeliest of places.

Look at the 2013 Boston Marathon, where two bombs went off, killing three and injuring dozens of others in a terrorist attack. Or consider the Orlando Pulse nightclub, where 49 people were killed and 58 wounded. Most recently in Las Vegas, a gunman killed 58 and injured hundreds of others.

Advertisement




The world is not inherently evil, but these evil acts still find a way into places like churches, schools, concerts and stadiums.

“We didn’t see these kinds of attacks 20 years ago,” said Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services.

As a society, we have advanced through technology, he said. Technology’s platform has enabled the message of terror to spread further faster.

“But it’s not just with technology. Our cultures, our personal grievances, have brought people out of their comfort zones.”

Chavious said that people still had these grievances 20 years ago but were less likely to act out. Tech has linked people around the globe to other like-minded individuals, allowing for others to join in on messages of terror.

“The progression of terrorist acts over the last 10 years has very much been central to the emergence of ‘lone wolf’ actors. As was the case in both Manchester and Las Vegas, the ‘lone wolf’ dynamic presents an altogether unique set of challenges for law enforcement and event service professionals,” said John

Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services

Tomlinson, senior vice president, head of entertainment, Lockton.

As more violent outbreaks take place in public spaces, risk managers learn from and better understand what attackers want. Each new event enables risk managers to see what works and what can be improved upon to better protect people and places.

But the fact remains that the nature and pattern of attacks are changing.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility, in terms of behavioral patterns or threat recognition, thus making it virtually impossible to maintain any elements of anticipation by security officials,” said Tomlinson.

With vehicles driving into crowds, active shooters and the random nature of attacks, it’s hard to gauge what might come next, said Warren Harper, global sports & events practice leader, Marsh.

Public spaces like sporting arenas are particularly vulnerable because they are considered ‘soft targets.’ They are areas where people gather in large numbers for recreation. They are welcoming to their patrons and visitors, much like a hospital, and the crowds that attend come in droves.

NFL football stadiums, for example, can hold anywhere from 25,000 to 93,000 people at maximum capacity — and that number doesn’t include workers, players or other behind-the-scenes personnel.

“Attacks are a big risk management issue,” said Chavious. “Insurance is the last resort we want to rely upon. We’d rather be preventing it to avoid such events.”

Preparing for Danger

The second half of 2017 proved a trying few months for the insurance industry, facing hurricanes, earthquakes, wildfires and — unfortunately — multiple mass shootings.

The industry was estimated to take a more than $1 billion hit from the Las Vegas massacre in October 2017. A few years back, the Boston Marathon bombings cost businesses around $333 million each day the city was shut down following the attack. Officials were on a manhunt for the suspects in question, and Boston was on lockdown.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility.” — John Tomlinson, senior vice president, head of entertainment, Lockton

“Fortunately, we have not had a complete stadium go down,” said Harper. But a mass casualty event at a stadium can lead to the death or injury of athletes, spectators and guests; psychological trauma; potential workers’ comp claims from injured employees; lawsuits; significant reputational damage; property damage and prolonged business interruption losses.

The physical damage, said Harper, might be something risk managers can gauge beforehand, but loss of life is immeasurable.

Advertisement




The best practice then, said Chavious, is awareness and education.

“A lot of preparedness comes from education. [Stadiums] need a risk management plan.”

First and foremost, Chavious said, stadiums need to perform a security risk assessment. Find out where vulnerable spots are, decide where education can be improved upon and develop other safety measures over time.

Areas outside the stadium are soft targets, said Harper. The parking lot, the ticketing and access areas and even the metro transit areas where guests mingle before and after a game are targeted more often than inside.

Last year, for example, a stadium in Manchester was the target of a bomb, which detonated outside the venue as concert-goers left. In 2015, the Stade de France in Paris was the target of suicide bombers and active shooters, who struck the outside of the stadium while a soccer match was held inside.

Security, therefore, needs to be ready to react both inside and outside the vicinity. Reviewing past events and seeing what works has helped risk mangers improve safety strategies.

“A lot of places are getting into table-top exercises” to make sure their people are really trained, added Harper.

In these exercises, employees from various departments come together to brainstorm and work through a hypothetical terrorist situation.

A facilitator will propose the scenario — an active shooter has been spotted right before the game begins, someone has called in a bomb threat, a driver has fled on foot after driving into a crowd — and the stadium’s staff is asked how they should respond.

“People tend to act on assumptions, which may be wrong, but this is a great setting for them to brainstorm and learn,” said Harper.

Technology and Safety

In addition to education, stadiums are ahead of the game, implementing high-tech security cameras and closed-circuit TV monitoring, requiring game-day audiences to use clear/see-through bags when entering the arena, upping employee training on safety protocols and utilizing vapor wake dogs.

Drones are also adding a protective layer.

John Tomlinson, senior vice president, head of entertainment, Lockton

“Drones are helpful in surveying an area and can alert security to any potential threat,” said Chavious.

“Many stadiums have an area between a city’s metro and the stadium itself. If there’s a disturbance there, and you don’t have a camera in that area, you could use the drone instead of moving physical assets.”

Chavious added that “the overhead view will pick up potential crowd concentration, see if there are too many people in one crowd, or drones can fly overhead and be used to assess situations like a vehicle that’s in a place it shouldn’t be.”

But like with all new technology, drones too have their downsides. There’s the expense of owning, maintaining and operating the drone. Weather conditions can affect how and when a drone is used, so it isn’t a reliable source. And what if that drone gets hacked?

“The evolution of venue security protocols most certainly includes the increased usage of unmanned aerial systems (UAS), including drones, as the scope and territorial vastness provided by UAS, from a monitoring perspective, is much more expansive than ground-based apparatus,” said Tomlinson.

“That said,” he continued, “there have been many documented instances in which the intrusion of unauthorized drones at live events have posed major security concerns and have actually heightened the risk of injury to participants and attendees.”

Still, many experts, including Tomlinson, see drones playing a significant role in safety at stadiums moving forward.

“I believe the utilization of drones will continue to be on the forefront of risk mitigation innovation in the live event space, albeit with some very tight operating controls,” he said.

The SAFETY Act

In response to the terrorist attacks on Sept. 11, 2001, U.S. Homeland Security enacted the Support Anti-Terrorism by Fostering Effective

Warren Harper, global sports & events practice leader, Marsh

Technologies Act (SAFETY Act).

The primary purpose of the SAFETY Act was to encourage potential manufacturers or sellers of anti-terrorism technologies to continue to develop and commercialize these technologies (like video monitoring or drones).

There was a worry that the threat of liability in such an event would deter and prevent sellers from pursing these technologies, which are aimed at saving lives. Instead, the SAFETY Act provides incentive by adding a system of risk and litigation management.

“[The SAFETY Act] is geared toward claims arising out of acts of terrorism,” said Harper.

Bottom line: It’s added financial protection. Businesses both large and small can apply for the SAFETY designation — in fact, many NFL teams push for the designation. So far, four have reached SAFETY certification: Lambeau Field, MetLife Stadium, University of Phoenix Stadium and Gillette Stadium.

Advertisement




To become certified, reviewers with the SAFETY Act assess stadiums for their compliance with the most up-to-date terrorism products. They look at their built-in emergency response plans, cyber security measures, hiring and training of employees, among other criteria.

The process can take over a year, but once certified, stadiums benefit because liability for an event is lessened. One thing to remember, however, is that the added SAFETY Act protection only holds weight when a catastrophic event is classified as an act of terrorism.

“Generally speaking, I think the SAFETY Act has been instrumental in paving the way for an accelerated development of anti-terrorism products and services,” said Tomlinson.

“The benefit of gaining elements of impunity from third-party liability related matters has served as a catalyst for developers to continue to push the envelope, so to speak, in terms of ideas and innovation.”

So while attackers are changing their methods and trying to stay ahead of safety protocols at stadiums, the SAFETY Act, as well as risk managers and stadium owners, keep stadiums investing in newer, more secure safety measures. &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]