Market View

‘The Third Wave of Innovation’ Brings Growth Opportunity for Brokers

Aon Benfield cites growth opportunities as technology becomes more and more integrated into the industry.
By: | October 12, 2017 • 5 min read

A new report from Aon Benfield points to the on-demand economy, cyber risks and Insurtech as areas of potential growth opportunities with big impact on brokers, insureds and their clients going forward.

Insurance On-Demand

Have you ever headed out to the airport or for a night on the town in the care of your friendly neighborhood Uber driver? Perhaps you skipped the vacation tourist traps and spent your last getaway in a quaint cottage you found through Airbnb.

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If so, you’re part of the on-demand, or gig, economy — a sector that presents opportunity and disruption to the traditional insurance model, according to Aon’s report, entitled “Global Insurance Market Opportunities: Re-Imagining Risk Management.”

As more of these on-demand services populate the marketplace, insurers will need to rethink how assets such as cars or homes are covered under a policy, said the report.

The industry projects that, by 2020, 40 percent of the total U.S. workforce will be independent workers in the gig economy. The increasing commercial use of cars and houses enables insurers and reinsurers to start developing new and enhanced products and to engage more creatively in the thought process behind insurance product development.

“The true transformation will happen as we re-imagine risk management altogether,” Paul Mang, Aon’s Global CEO of analytics, said in a statement released alongside the report.

Consumer trust, safety, consistency in service quality and data privacy pose risks to the on-demand worker and business. On-demand transactions are temporal, episodic and small compared to traditional insurance, and insurance products are geared toward specific coverages.

Paul Mang, Global CEO of analytics, Aon

Aon Benfield believes the insurance industry can play an important role by promoting standards for security and risk mitigation across on-demand economy platforms. Technology, the report said, plays an important role in addressing on-demand insurance.

Mang said that collaborations, or “open architecture innovations,” will be key in creating net new growth, even though it may be difficult to streamline in the current insurance environment. This type of system, Aon suggests, would set operating standards while allowing for a great deal of flexibility and permutation.

Take Google Play and the Apple Store for example. These platforms, while servicing different industries, are held together by a set of rules and norms to provide sufficient security to their many buyers. Aon believes successful insurance agencies would treat open architecture in much the same way — servicing individual clients while remaining invested in a set security model.

Cyber Risk Spreading

Cyber, the report said, is a “far-reaching, enterprise-level” risk. Despite best efforts and effective security programs, hackers continue to infiltrate companies via the digital, connected world. A most recent example would be Equifax’s data breach in late May, which compromised Social Security numbers, driver’s license information and credit scores for nearly 143 million Americans.

Aon reports 45,000 known cyber incidents this year alone. Cisco Systems detects 1.5 million different kinds of malware daily. According to AM Best, insurers wrote more than $1.35 billion in cyber insurance policies in 2016 — a 35 percent increase from 2015.

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In the past, cybersecurity has been viewed primarily as a technology issue. But cyber impacts every avenue of a business — from finance, operations and human resources to customers, brand and regulatory compliance. Therefore, Aon suggests a holistic approach to managing cyber risk and a move toward cyber resilience; traditional means will not cut it.

“Cyber risks continue to evolve, and insurance coverages keep changing along with them,” reads the report. “This continued evolution creates challenges for modeling, and nowhere is this more important than in the work of aggregation management.”

Cyber risks, casualty catastrophe risks and pathogen risks become increasingly insurable through collaborations with Insurtech companies, said the report.

The Move Toward Insurtech

CB Insights, which collects and analyzes data to predict emerging trends, has dubbed the current era of technological advances the ‘third wave of innovation,’ citing that the industry will likely see more change in the next 10 years than it saw in the last 100.

“The pressure on insurers to innovate is clearly growing and capital is flowing into the insurance sector as investors see an opportunity to disrupt the more than $5 trillion marketplace.” — “Global Insurance Market Opportunities: Re-Imagining Risk Management,” 12th Edition, Aon, September 2017.

The first wave came with the creation of the Internet, connecting people from across the world and supplying users with knowledge at their fingertips. Next, the birth of fintech democratized financial data, making it easier for businesses to utilize tech when creating better financial services for consumers. Now, we are turning to Insurtech.

“The pressure on insurers to innovate is clearly growing and capital is flowing into the insurance sector as investors see an opportunity to disrupt the more than $5 trillion marketplace,” read the report.

In the Insurtech realm, the report highlights that this fast-growing entrepreneurial segment could act as an enabler rather than a disruptor of traditional insurance. In 2016, more than 200 Insurtech startups gained $9 billion in investment. The report noted that today more than 550 Insurtech startups attracted nearly $14 billion in investment.

Insurtech utilizes technological innovations, such as artificial intelligence or wearables, to insure “ultra-customized” policies. Using data from Internet-enabled devices, Insurtech startups are able to price premiums according to observed behaviors.

In other words, Insurtech uses technology to save as much as possible.

Of course, growing technology brings its own share of growing risks. But the Aon Benfield authors believe that this uncertainty of technology acts as a driver of industry growth.

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“We know that the insurance sector is facing challenges in the current macroeconomic environment, so we should expect leading organizations in the industry to drive change,” Mang said in the statement. “We are already using technology to make us more efficient as a sector and to expand into emerging risk markets.”

In addition to cyber, Insurtech and the on-demand economy, Aon points to autonomous vehicles as another area for both growth and disruption. U.S. motor pure premiums are expected to decrease more than 40 percent by 2050, the same point at which driverless cars are expected to be fully integrated.

The report projects that the driverless technology may transfer accident liabilities from the owner to the manufacturers and software providers. &

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]