From insurtechs that only sell online to less traditional insurance options like parametric, embedded and usage-based insurance — we'll look at these new options and see how insurers and policyholders are using them to provide additional coverage, manage exposures created by exclusions and the benefits involved in their use.
Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Patti Harman (00:08):
Good afternoon and welcome to our Transformation Forum, Changing Times Today's New Coverage Options. I'm Patti Harman, editor in chief of Digital Insurance, and I'll be your host today. Insurance coverage is constantly evolving to keep up with customer needs, new technology, and emerging risks. As carriers change their coverage options, pull out of high risk areas or identify new exclusions, policy holders are looking for different insurance options to help mitigate their exposures. Joining me today to discuss some of the newer types of insurance on the market and their adoption is Mark Breading, senior partner at ReSource Pro, who is extremely well known for his insights on various aspects of the insurance industry, particularly when it comes to distribution strategies in, InsurTech, and innovation. Mark, I have been following you for years and I'm really excited to have you here today. Thank you so much for joining us.
Mark Breading (01:10):
Patti, I'm delighted to join. I'm looking forward to the conversation.
Patti Harman (01:14):
So you've been covering and monitoring the insurance industry a little bit longer than I have, but I'm going to say probably not much longer. Over that time, what have been some of the biggest changes you've seen? And I'm thinking in terms of maybe risks that are covered or policies, the use of technology, customer expectations, those sorts of things.
Mark Breading (01:40):
Well, first of all, I have to say I love the insurance industry. It's why I've been around the industry for a long time, and it's been really a privilege to see the industry evolve and to be part of that evolution, part of that journey. I do go back a long way, and on the one hand I would say so much has changed. I can think of, honestly, I can think of describing to insurance carriers a new thing called the internet and that they should be thinking about websites and the early days of things like telematics and just kind of the big picture is we have implemented so much automation, so many technologies, we have really evolved how we think about the customer experience, even who is the customer.
(02:33):
And a lot of the topics we're going to talk about today, parametric insurance, embedded insurance, usage-based insurance, these kinds of things, they may have been conceptual way back when, but they're real and they're happening and that's what we're going to discuss today. So what's interesting though is on the other hand, the fundamentals of the industry have not changed. I mean, we still have fundamentally the same types of products. We think of lines of business the same way most insurance is still sold through agents. Despite all the digital options we have, we still go through an underwriting process. We still think about the law of large numbers and the way that we address the risks of the world. And so that's the paradox, right, is huge change. Every dimension of the business has changed. On the other hand, the fundamentals still remain.
Patti Harman (03:36):
That's a really great way to describe it. Kind of looking back, are there developments that have surprised you, whether it's the rapid escalation of cyber attacks or even the adoption of AI and gen AI by the industry? Because for so long we've had this reputation of being a little bit behind the times technologically. So what has surprised you?
Mark Breading (04:04):
I would say for the most part, there's not a lot that has surprised me. I mean, some of it has to do with the pace of change in the industry, just the nature of the industry is cautious. And so adoption is gradual, has been gradual of not just technology but trends, thinking about new coverages, thinking about new distribution options or how the customer is wanting to be interacted with. So not a lot has really come out of the blue and surprised me. However, I will say that the rapid advancement of generative AI has as I think it has surprised most people, and I mean this is from a person who was experimenting with insurers with AI, early AI technology in the 1980s. So AI has been around for a long time, at least in some of its earlier forms. And we've seen gradual adoption over time.
(05:06):
But really the industry, just like the world at large, I think was taken off guard by November, 2022, the introduction of Chat GPT, and then things have moved so fast since then that that's the one thing that's surprised me. I would say one thing that hasn't surprised me that I think has surprised others is that there's always been these predictions of the death of the agent. We're digital, we're internet, we go direct to customer. And I never really bought into that. I always thought that the agent, the human intermediaries, were going to have a central role in the industry and still do.
Patti Harman (05:54):
I agree, those relationships are really important. They might change a little bit and how we interact might change a little bit, but I agree that that's still a very important aspect of the industry. How has the increased use of technology affected carriers' ability to kind of pivot as risks and customer expectations have changed?
Mark Breading (06:18):
Yeah, I think I would say in the last decade or so, the industry has turned its attention more to customer experience and particularly the policyholder. We used to have conversations 10, 15 years ago where carriers would just say, the customer is the agent. Don't tell me anything about direct to policyholders. We don't need to know about the policyholder. And that has certainly changed dramatically. And some of it has just the evolution of customer experience in the marketplace in general, and insurance is adopting and catching up. So I think I wouldn't describe it as a pivot. I think it's just an evolution. I do think insurers and the insurance industry understands customer journeys better, thinks more from let's say an outside in viewpoint about how the customer interacts with them and has been changing processes, technology approaches to how they interact with whoever that customer is. It could be the agent or the policyholder or a claimant or whoever it might be.
Patti Harman (07:35):
Right? You're right, there could be multiple customers for an insurer. Are there areas where you think insurers are adapting their technology more effectively? And we've been talking about the customer experience, but also in terms of claims or sales or underwriting, and are there areas where you think they still need to maybe invest more time and resources in order to have an impact?
Mark Breading (08:04):
Well, we typically see this pattern where personal lines is further ahead in terms of adopting technology and thinking about customer experience and those kinds of things, personal lines, and I would say small commercial have done a really good job of straight through processing, automating a lot, and then elevating the role of the humans in the loop so that they're involved where they need to be, where high levels of expertise are needed or exceptions or empathy is needed if it's claims, for instance. But there's a lot of no touch, low touch underwriting in small commercial and personal lines, but a lot of the business is more complex. It's work comp, it's middle market, commercial lines, specialty lines, large national accounts. And so there have been certainly a lot of improvements there in the way we automate and use AI for insights, but there's so much more that can be done. So I think that there's a lot ahead in terms of how those more complex parts of the business will leverage technologies.
Patti Harman (09:17):
I think there are a lot of opportunities for them. We ran a story this morning that was just looking at the use of apps for insurance and the role that they play because that's changed how insurers even communicate with their policyholders and their customers because it makes information almost instantaneous, I think, sometimes for them.
Mark Breading (09:38):
Yeah, I mean, if you look at things like some of the great pricing tools in the market that are AI based and the way we're using machine learning for fraud detection and the way we're using aerial imagery for catastrophes, for claims, I mean, there's just so much that's going on that we still have great opportunities ahead for the industry.
Patti Harman (10:02):
Yes, I totally agree with that. So with the advent of technology, I think sometimes the coverage options have changed with the advent of things like embedded insurance and parametric insurance and usage-based insurance. So I thought it would be helpful if we broke down these different types of coverage a little bit more. And I'll start with usage-based insurance for policy holders hoping to save money on their, let's say auto insurance user-based insurance is certainly an option. Have you seen this type of insurance have a rapid adoption across the industry, and is it really that more affordable option that policyholders seem to expect?
Mark Breading (10:51):
Well, it's been really interesting to watch the evolution of telematics and usage-based insurance because the first live implementation occurred in the late nineties in the Norwich Union which is in the UK. And I was involved actually in that project, and it kind of grew slowly over the first decade of this century. Obviously, Progressive had multiple attempts there or multiple phases, and they were the leader, but there was a slow adoption until it got to the point where maybe there was an eight to 10% penetration in the personal auto market. And then we hit this plateau and for a long time we were stuck. We couldn't get past that. And then the pandemic occurred and a lot of people were saying, wait a minute, my car is sitting in the garage. I'm not even using it. Why am I paying this insurance premium? So we saw a spike and we're kind of on this upward track and we're in the range of 20%, 20 plus percent adoption for telematics now. And then likewise, on the fleet side of things, the commercial fleet side of things, there's an increase as well.
(12:10):
But if you take the big picture view, so it's been 25 years and we've only gotten to that level of penetration. And so now there's this whole discussion around how the whole mobility environment is changing because we have telematics and usage-based insurance, but we've got EVs, we've got autonomous vehicles that are continuing on the path. And so there's going to come a point maybe 10 years out when all this merges and just automatically all the data will be collected from every vehicle and can be used for insurance. But right now it's kind of a mix.
Patti Harman (12:56):
Do you see user-based insurance maybe increasing going forward at some point? Or do you think, like you were saying, everything is not kind of going to, there'll be a confluence of things coming together. Where do you see this going forward?
Mark Breading (13:13):
Well, it's kind of interesting that usage-based insurance has really primarily been applied to vehicles to commercial auto, personal auto. But the concept can be applied anywhere. And if you start to look at some of the on-demand insurance options that are out in the marketplace now, and as we start to think about some of the gaps in coverage in the world, risks that people or businesses that have never been covered, it really is kind of a usage-based insurance. You get the insurance for that period of time or that event or whatever it is that you need. So I definitely see it increasing over time.
Patti Harman (13:55):
That's true, especially with event insurance, wedding insurance, that sort of thing for very specific finite aspects. So parametric insurance has been around since the 1990s, so it's not exactly new either, but it seems to be playing a much more prominent role in the insurance industry these days, especially when it comes to underwriting specific risks. It also allows claims to be paid faster because of the reliance of the predetermined data points to confirm the occurrence of a covered event. So I wanted to know where, and I'm thinking about this in terms of lines of business or even geographic locations, where are you seeing the greatest adoption of parametric insurance and do you see that its usage expanding, especially I'm thinking in California or Florida or Texas where some of the more traditional types of insurance are less available?
Mark Breading (14:57):
So first of all, the reason that parametric insurance is starting to take off is now we have the data, right? Because by the nature of it, it's driven by externally measurable, verifiable data, and that triggers a claim. So there's so much data related to everything and anything that we ensure as an industry that it's a lot easier to create new coverages, new products that are parametric oriented. So what I find interesting is a lot of the discussion around parametric is on personal line side, earthquake insurance, not for the structure, but for incidentals because there's earthquake insurance and travel insurance is another one. It's been around for a while and there's a lot that relate to individuals, but I think what's going to be more earth shattering is how parametric insurance is changing the whole alternative risk market related to cat bonds and reinsurance. So for instance, I just was reading that one of the sponsors of the Olympics got 120 million worth of parametric insurance to cover if a pandemic occurred or some event occurred to disrupt their coverage of the Olympics. And there's a lot of examples like that these days. And by the way, it's not all weather related. A lot of parametrics is weather related, but there's a company called Parametrics with an X
(16:44):
Place and they've just provided a large U.S. retailer with parametric insurance for cloud outages. If their Amazon web service goes down, it's going to be a disruption for that retailer and so they can get covered. So I'm really high on parametric insurance. I think parametric insurance, I think we're just only limited by the imagination as to what new types of risks we can cover.
Patti Harman (17:14):
What are some of the benefits and the drawbacks that you see to its usage then?
Mark Breading (17:21):
Well, one thing is you have to think about how you sell it, how it gets distributed. So if it's something that's very large, like the Olympics example I just gave you, of course you can have brokers that are going to sell that. If it's something that is a small, like the earthquake insurance, it's more than 5.2 in the Richter scale, so you get a thousand bucks, you're not going to get an agent to sell that as an individual product. So then you have to figure out how do you bundle it with other products.
Patti Harman (17:55):
Okay. So let's move on to another kind of insurance. And we recently ran an article that you wrote about some innovative uses of embedded insurance. And I actually interviewed somebody else on this a couple of days ago, and I was just so fascinated by this type of insurance. And when I first started covering this aspect, I thought, oh, it's just associated with traditional types of coverage like auto purchases or high-end jewelry or electronics. But it really seems to have kind of expanded beyond these areas. And I was wondering if you could share with our audience what are some of the more unique cases of embedded insurance that you've seen?
Mark Breading (18:41):
What's interesting is I've started experiencing them myself. Maybe you have. So one of the things I do is I do races, and recently I've noticed when I sign up for a race, I get these insurance options. If for any reason I have to cancel a race because I'm sick or whether or something like that, I get my registration feedback. It's not a lot of money, but it's very easy. It just pops up, you click a button and you get the coverage and it's a few bucks. Another thing I just experienced was moving experience moving insurance. I recently moved, and so when I engaged the movers, I found out that I had to value my furniture and my belongings, but it's automatically 60% of the value is automatically covered just as an embedded insurance coverage. And then I can actually click a button if I say, well, no, I really want it to be a hundred percent, so I'll pay a little bit more. So I just think there's lots of examples like that. And then air parametric, if you're familiar with that. MGA, it's an InsurTech MGA. They have an offering for heat stress for dairy farmers. And actually I happen to have a niece who they own a large dairy farm with a couple thousand dairy cows. And so it turns out that if a temperature rises above a certain amount, the dairy cows don't produce milk or at least they don't produce as much. So you can measure that.
(20:27):
So it's a parametric insurance product, the triggers, but you're only going to sell that via embedded insurance, right? Again, you're not going to have an agent go just probably sell that insurance policy. So I mentioned that example because I think there are a number of cases where parametric insurance and embedded are actually combined.
Patti Harman (20:53):
And that makes a lot of sense. Do you think this type of insurance is going to continue to grow in adoption then, or do you think it'll plateau at some point?
Mark Breading (21:08):
I think it's going to grow. And what I find interesting is that once you get beyond the options that are related to existing big lines like selling auto insurance in an embedded mode or some of the big cat bond oriented offerings or those kinds of things that I was mentioning, a lot of this is very small. It's very small premium, very high volume, which means that there're probably going to be specialists that focus on it. Unless if you're a large tier one global player, unless you have a hundred or 200 different offerings, it's not going to move the needle for you. But you can be an MGA or a small player and say, you know what? I'm a specialist in this area, even though the premium's only 10, 20, 50 bucks, whatever it is, I can just focus on that drive high volume and have run a very profitable business. So I think that's how it's going to grow.
Patti Harman (22:22):
Okay. And that makes a lot of sense if you think about it in terms of it being a point of purchase sale. So whatever it is that I'm buying, I can immediately buy coverage to protect that item or my use of it or whatever it is. I can see where that would make sense. And also one of the reasons why I buy it a lot of times is it's just like $5 or it's like $15 to buy coverage for whatever it is. This week I've made two purchases and they were like, do you want to buy insurance for this? I was like, yep, you know what I do. So I can totally see why that would grow.
Mark Breading (23:00):
I think we're going to see that more and more. And then the question becomes who's offering that insurance? Is there actually an insurance carrier behind underwriting it or is it actually the provider of the product or the service that sees a new revenue stream and they're the ones that are offering the insurance?
Patti Harman (23:19):
Very true. So what opportunities do you see ahead for the insurance industry as risks and customer expectations change and technology just continues to develop?
Mark Breading (23:32):
Well, I'm very bullish on the insurance industry. I think there's a bright future. The world's getting increasingly complex. There's new risks that are emerging. Cyber is just exploding cyber risk, and it's not going to go away. It's going to get worse. And even though we have these technologies that help us to reduce risk, if we get to the world where we have completely autonomous vehicles on the road, we're not going to engineer away our risk. We're just going to introduce new risks. And so I think that the industry is going to continue to be as resilient as it's always been and expand beyond most of the traditional lines that we've covered. You're still going to need auto insurance, you're still going to need property insurance, but there's going to be more and more. So there might be certain areas where we're ending up seeing a little bit more government role because it becomes too, just like we have in the past with flood in some other areas, might be too hard for the industry to cover. But overall, I think the industry is just going to continue to grow and play a great role in the world in terms of providing indemnity for individuals, businesses, and governments.
Patti Harman (24:56):
Yes, and what you said kind of leads into my next question, which is what concerns you about any of these developments or changing or evolving risks in new technologies in the industry at this point in time?
Mark Breading (25:12):
I would say there's three things. The first is governing ai. So many of the conversations, I'd say most of the conversations we've had with our clients over the past couple of years have not been about the technology of AI or gen ai, but it's about how do we govern this, how do we manage it, how do we ensure that we're using it fairly and in compliance with laws and all that? So the industry, can we the world actually control the usage of AI in a way that's good for the world? So governing AI is one thing. Geopolitical risks are a concern, just what's going on in the world right now. And then just the fact that everything is digital, everything. We have so much data and the more data we have, the more cyber risk we introduce and the more criminal activity related to data and the digital world.
Patti Harman (26:21):
So you mentioned earlier about being a huge proponent of the insurance industry. I am too, to the point where I think sometimes my friends' eyes glaze over as I start talking about what's going on in the industry. But I want to know what excites you about working in and covering the industry at this point in time?
Mark Breading (26:41):
Well, I do a lot of work in the distribution space, helping companies think about distribution strategies. And I think that we are already reaching new customers in new ways, not only with the things we talked about today, but the whole channel picture, what I call the path to the customer, how an insurance company or MGA is developing new coverages and finding a way to reach a customer segment. So that's one thing is reaching new customers. The second is I really think we are elevating the role of humans, of human experts in the industry. And if I were an adjuster or an underwriter or a producer or whoever, I would be excited about being able to use my skills and expertise and do less of the kind of mundane kind of activities. So I think that's a good thing. And then what we've already talked about addressing new exposures in the world,
Patti Harman (27:42):
So we've covered a lot over the last half hour or so. Is there anything that I haven't asked you that you think our audience needs to know or be watching in the industry, let's say just over the next year or so from your perspective?
Mark Breading (27:56):
Well, I'm really high on our ability to be more proactive in helping customers manage their risks. So we haven't even really talked about the internet of things and all the devices that are out there gathering data, but there's a lot of really positive developments and how to manage risk better and understand real time what's happening to properties and vehicles and people. And so I think there's great opportunities there in the way that we work together with customers to help manage risks.
Patti Harman (28:32):
I agree. I think it's really exciting to see what's going to be happening. And you and I have both been covering this industry for a long time, and I think just watching how it has evolved and changed just over the last five to seven years has just been fascinating. And I used to ask people and I would say, oh, give me your perspective. What do you see in the next three to five years? And now I take that down to what are you seeing in the next 12 to 15 months? Because that's how fast things are changing. The technology, the ideas, the customer expectations, all of those things just seem to be constantly evolving at a much faster speed, I think.
Mark Breading (29:15):
Great. It's a great place to be.
Patti Harman (29:17):
Yes, it is. I agree. Thank you so much, Mark, for joining us today and sharing your insights on the insurance industry evolving coverages and risks to watch. I also want to thank our audience for joining us today, and please join us for our next Transformation Forum when we look at how technology is affecting workers' compensation coverage. I'm Patti Harman for Digital Insurance, and please enjoy the rest of your afternoon.
