Hyper-Automation in Insurance: What Does It Mean and What Are Its Upsides?

By: Piyush Gupta | July 18, 2021

Piyush Gupta is a Vice President, Technology, Virtusa. He can be reached at [email protected].

During these unprecedented times, significant challenges have ascended to the top of the insurance industry’s agenda and left many carriers puzzled about how to navigate the road ahead.

Insurers need to focus on retention of their legacy of data and relationship-based selling while at the same time adjusting to a world with a growing millennial workforce and the rising digital demands that come with that.

To address these challenges, the answer for insurance companies lies in hyper-automation.

What Is Hyper-Automation?

From a technology perspective, it’s the continuous integration of automation into business operations using artificial intelligence (AI) and machine learning (ML).

From an insurance perspective, it is the key to businesses remaining viable in an industry that is growing increasingly more competitive.

There are many factors that have emerged and brought with them a new urgency to the insurance industry and the need for hyper-automation.

Some of the key drivers include:

1) Increased Competition

There has been a sharp growth in competition with new players such as Lemonade, Gusto, Next Insurance, and Oscar.

These businesses have given policyholders new choices, specifically when it comes to exploring other providers offering customized products and services.

For incumbents, this represents a threat, and to retain existing customers while onboarding others, they must begin offering delightful experiences.

2) Operational Efficiency

Insurers are grappling with marginal growth and reduced interest rates. If this wasn’t bad enough, their loss ratios have also substantially increased, which has further reduced the operating margin.

In response, insurers must leverage the business and technology nuances to address the challenges.

3) Millennial Demands

In the U.S., 22% of the 328 million population — almost 72 million — are millennials who expect a flawless customer experience when engaging with a brand.

According to Zendesk, 53%of millennials said they cared more about the quality of a company’s customer service in 2021 than they did the previous year.

4) Elastic Imperatives

In crises, there is often a surge in customer service requests in specific categories and a downturn in others.

This was on full display during COVID-19 when, for example, automobile accidents dropped while there was an increase in business interruption service requests.

To succeed, insurers must have flexibility in both process, and products to scale up or down in accordance as needed.

Next Steps

Now that we know the drivers, where does a company begin the “reimagining the business model” journey?

The answer is the core functions.

Today a major portion of an insurance company’s costs come from its core functions. For example, in its “Digital disruption in insurance: Cutting through the noise” report, McKinsey estimates that property and casualty and life and annuity carriers derive about 30% to 40% of business costs from the top 20 to 30 core end-to-end processes.

Today, many of these processes are running on legacy platforms and are slow to digitize.

This is where digitization and hyper-automation efforts need to begin.

In these areas, speed is critical, and hyper-automation delivers in several key areas, including:

1) Document Ingestion

Teams can process the documents received through various channels, extract, recognize and interpret the information and context using self-learning models to hand over for further processing accordingly.

Downstream processes can also be automatically routed to the requestor, providing the human representative with information to provide timely and accurate responses regardless of volume.

2) Accelerated Underwriting

Traditionally, underwriting takes time, so much so that many prospects end up leaving for other companies that offer better deals and faster response times.

Hyper-automation auto ingests applications, using intelligent models that triage the applications and assign them to the underwriter.

This has made insurers almost 10X times more efficient.

The process gets even more interesting when underwriter workbenches integrate with multiple data sources, which provides pre-scoring analytics on the applications.

This enables the enterprise risk managers to get a view of the impact on the overall exposures and powers an interactive experience where underwriters, enterprise risk managers and brokers can collaborate and accelerate the quotation cycle time.

3) Claims Automation

A policyholder’s claims experience can determine their loyalty to their insurer.

With hyper-automation, the auto ingestion of claim documents, intelligent segmentation and assignment are all automated. In addition, low-value and high-value claims are auto-adjudicated, and payments are made instantaneously.

This simplifies the entire process while making it more efficient and consistent.

Insurtechs, such as Lemonade, have used these technologies to achieve hyper-automation, extending their market share.

What’s Making Hyper-Automation Possible

At this point, let’s examine the innovative elements of hyper-automation that are making all of this possible.

As with other industries, technological advances have been the catalyst to business model transformation. Hyper-automation integrates many of these technologies together to offer a connected experience that have made it possible for insurers, intermediaries and insured to adapt to the changing landscape.

1) Data

The services for structured data (i.e., customer profile) or unstructured data (i.e., social media interaction) range from data cleansing, transformations, migration and use of data lakes and data marts.

Industries are also experimenting with synthetic data generation to create AI/ML models that bypass the long cycle time to procure real field data.

In hyper-automation, this data and the various data services are pivotal to the success of the business model evolution.

2) Analytics

Analytics is a term very widely used that overlaps with multiple different data functions.

In this context, we specifically call out the reporting-related analytics, trends and patterns observed from the business intelligence perspective. This includes descriptive analytics, predictive analytics and prescriptive analytics based on statistical models.

The various aspects of analytics in insurance are: marketing analytics, agent or broker analytics, channel analytics, product analytics, underwriting or pre-scoring analytics, risk analytics, claims analytics, call center analytics, customer experience analytics, compliance analytics, etc.

3) Intelligence

Advances in AI, ML and deep learning models using neural networks have evolved, allowing insurers to learn from historical data and blend that with multiple data sources and analytics.

The data sources could come from third parties, IoT-enabled data from health bands or automotive vehicles, social data from social conversations, and more.

AI examples in real applications today include risk assessment, product recommendations, premium calculation, loss estimates and fraud identification, to name a few.

4) Devices

Insurers are working with multiple providers to achieve the connected experience using hyper-automation.

In P&C home insurance, businesses use devices to proactively alert insurers and policyholders about events such as leakage in pipes, possible flooding, required services for the home and equipment.

In fleet insurance, devices can provide insight into the distance, travel, duration of the day and driving patterns —valuable information that can be used for underwriting, policy servicing and claims.

5) Process

We cannot talk about hyper-automation without mentioning process mining and process optimization.

These are the precursors to process automation. It began with business process modelling, which evolved to the use of business rules and more sophisticated AI models that provided the next-best-action in the process.

Processes mining is an analytical discipline for discovering, monitoring and improving processes, by extracting insights from event logs.

6) Computing

The big buzz words here are “digital” and “cloud.”

While the cloud is viewed as the key to reducing total cost of ownership, infrastructure costs, and the like, the advances in devices and device-based computing are what bring in a distinction between what gets done in the cloud and what gets done at the edge. Today insurers are leveraging these through their use of APIs/microservices wrapped to the legacy core systems.

Looking Ahead to Innovation

With these business drivers pushing the envelope for insurers and the technology enablers bringing together a connected experience, hyper-automation is going to put insurers in the position to revolutionize the industry.

The response of the insurers to the pandemic is a great example of the resilience and adaptability of the industry. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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