Ransomware insurance and the long-awaited arrival of due diligence
Are there finally signs suggesting that ransomware insurance – which can be unorthodox and highly contentious - is slowly maturing?
The Covid-19 pandemic saw a surge in the number of cyber-attacks and the value of insurance pay-outs. This has rendered the original and rather unorthodox model of ransomware insurance unviable.
Attackers have crossed one red line after another, targetting critical infrastructure, schools and hospitals, and upping the ante with their demands. Bitcoin records show that the hacker group that attacked Colonial Pipeline made $90 million (£65 million) in ransom payments before it shut down its operations in May 2021.
There are several signs that the finely balanced ecosystem, built on the flawed logic of allocating resources for cyber-insurance rather than preventing cyber-incidents, is getting out of kilter.
In a recent article, the Claims Journal demonstrated the changing attitudes of insurers. It described a case where an American insurer took eight months to issue a coverage position. The insurer maintained that its client, who had no choice but to pay a $25 million ransom, failed to prove in a timely manner that the losses it incurred were directly and solely the results of a ransomware attack. The author of the article identified this as pure delaying tactics.
Other means that insurers resort to in order to minimise their losses include increasing premiums, narrowing policy terms and ramping up self-insured retentions.
While some insurers are trying to limit their liability to pay out, others are withdrawing from the ransomware insurance market altogether, the way AXA did in France. But new players keep emerging.
Chain of due diligence
As information security solution providers have become more confident about their products, they have started to offer the warranties that have been woefully missing from this segment of the market.
One of the more recent products is Deep Instinct’s warranty. This promises to pay up to $3million (£2.2 million) if its cyber-security solution gets breached. Their warranty also covers false positive rates in excess of the 0.1 per cent they guarantee in their SLA (the industry average of false positives is about 26 per cent).
It’s important to note that Deep Instinct’s warranty explicitly excludes paying ransoms on behalf of its clients.
Deep Instinct’s warranty is backed by an insurance policy they have purchased from Munich Re. The reinsurer – in line with established industry good practice – carried out extensive due diligence on Deep Instinct’s technology prior to insuring it.
The chain of due diligence, however, doesn’t stop with vendors. They in turn set their own conditions for eligibility among their clients.
Data security company Rubrik has recently launched a ransomware data recovery warranty of up to $5 million (£3.6 million). This pays out if the Rubrik solution fails to help clients recover data lost as a result of cyber-attacks or operational failures.
However, the generous warranty comes with strings attached. Rubrik promises to identify data that runs a high risk of exfiltration, to quarantine copies of infected data, and to air-gap (in other words, isolate) mission-critical data from other networks.
But they will only do this if the client undertakes regular and comprehensive health checks focusing on data health, user access controls, data encryption, application access, and API security.
While some insurers are decreasing their footprint in the ransomware insurance market, others are investing in their prospects’ cyber preparedness.
Aware that mid-sized companies’ resources for cyber security are limited, British risk management solution provider AON helps this business segment demonstrate that their security control maturity is appropriate, providing them with a springboard to increased insurability and cyber insurance placement.
While vendors’ warranties and AON’s cyber-security services look different on the surface, they can both be seen as alternative ways of channelling corporate clients into a more classical insurance model.
The old marketplace status quo was that the security posture of the insured had no bearing on eligibility or premiums. However, as ransomware attacks have become high frequency and high impact events, this approach can no longer be sustained.
Instead, as the market continues to evolve, everyone is increasingly doing what they might be expected to. Insured businesses take reasonable precautions. Cyber-security vendors, feeling confident about their products, provide warranties. And insurers exercise due diligence prior to writing cyber risks.
Pinpointing the role of climate change in every storm is impossible – and a luxury most countries can’t afford
Tropical Storm Ida recently left a path of devastation across the US, capping a summer beset by wildfires, heatwaves and floods which broke records around the world. The inevitable question after each of these extreme weather events is the same: to what extent did climate change make it worse?
This is normally where the science of extreme event attribution steps in and identifies whether and to what extent human-caused climate change altered the likelihood and intensity of the event. Event attribution studies have delivered clearer results partly as the methods and models that scientists use have improved, but mostly because the signal of climate change is becoming clearer with every extra tonne of carbon dioxide emitted into the atmosphere.
The added value of attribution science is taking the default answer of climate scientists – that extreme events are something we expect to see more of in a warmer world – and wrapping numbers around these changes. Attribution studies can provide detailed information on how much climate change has already influenced extreme weather and what that might mean for future warming. This helps government leaders understand whether recent disasters are a harbinger of what is to come and to what degree past efforts of minimising risks are working.
Because of rapidly conducted event attribution studies, we now know the deadly “heat dome” over the Pacific coast of North America in June 2021 was made more than 150 times more likely because of climate change. Meanwhile, the severe July floods in western Europe were between 1.2 and nine times more likely because of burning fossil fuels.
Both events were horribly destructive and made more intense and more likely due to climate change. But the speed of this change is almost always more pronounced for heat extremes when compared with other types of extreme weather.
Because the planet is warming at a rate of more than 0.2°C per decade, in addition to the 1.2°C already experienced, it’s becoming harder to analyse these extreme weather events before the next one arrives. It’s the scientific equivalent of trying to run on a treadmill while a finger is pressed firmly on the accelerator.
In the best-case scenario, a rapid attribution study of a simple extreme weather event – like an atmospheric river (a plume of warm and wet air) causing heavy winter rain in the UK – might take a week of continuous work from three to five scientists. And then only if they have done similar studies before with the right systems in place to perform the analysis.
Any event which is particularly severe or unprecedented – the June heatwave, July flooding and Ida all qualify – typically requires more time, more complex models and more expertise. For example, because the physical drivers of the recent western Europe floods were so complex, this analysis required the use of particularly high-resolution models for the first time. And so the study took more than five weeks of work to complete, even with a team of 39 scientists involved.
Inequality in attribution research
Because of the large amount of time needed to analyse just one event, coupled with the fact that event attribution science has not yet become routine within national meteorological service providers, it’s inevitable that the role of climate change cannot be assessed for all damaging weather events.
This is particularly true for extreme events which devastate communities outside rich countries. For many developing nations, and particularly those in the tropics, some climate models can struggle to capture the drivers of extreme weather, such as local monsoon dynamics.
Deciphering the role of climate change is also challenging in regions with large gaps in the quality and length of historical weather observations, partly due to a lack of financial support from wealthy governments.
At the same time, few local scientists have the time or access to the modelling data needed to rapidly analyse the impact of climate change on an extreme event after it takes place. This means that many of the most devastating events – like the ongoing drought in Madagascar, recent floods in Niger or wildfires in Algeria – aren’t analysed each year.
Pinpointing the role of climate change in each extreme weather event is an incredibly valuable source of information for politicians, as they try to recover and plan for the impacts of tomorrow’s storms. It’s also helpful for the general public, who can weigh the comparably small costs of mitigating and adapting to climate change against the enormous costs in lives and livelihoods from failing to act.
But access to this information is not equally available to all, and the increasing speed with which our climate is warming only makes these inequalities worse. This is yet another reason why it’s so urgent for the highest-emitting nations of the world to rapidly reduce their carbon emissions to zero.
Friederike Otto, Associate Director, Environmental Change Institute, University of Oxford and Luke Harrington, Senior Research Fellow in Climate Science, Te Herenga Waka — Victoria University of Wellington
Collaboration is key to unlocking future industry growth
Insurance is evolving at an extraordinary rate. Gone are the days of maintaining the status quo while speculating what the future of the industry may or may not look like. In the post-Covid market, proactive innovation and flexibility in line with constantly evolving consumer needs are paramount to success and should remain top-of-mind for industry leaders serious about change.
There are three future-gazing motor insurance insights to consider. The common topic and golden thread linking these together is collaboration. Without it, the industry is doomed to stagnate.
InsurTech is not a threat
The adoption of industry-leading technology is fundamental to future success, as has been evident with the rapid rise of InsurTech over the past year. This shift should not be seen as a threat to the traditional annual motor insurance model. Instead, it should be seen as an opportunity for collaboration to drive meaningful change in line with rapidly evolving consumer demands.
We know that various forms of lockdowns prompted consumers to reconsider whether annual insurance was still right for them, and they increasingly began to explore more flexible options. This overnight shift in consumer behaviour meant that the large annual insurers were encumbered by legacy systems that did not feature the flexibility or agility to respond accordingly.
InsurTech companies, which provide fully digital usage-based insurance (UBI) products such as temporary car insurance, were able to swiftly adapt to market changes and meet new consumer demand instantly. Large insurers generally lack the agility to respond swiftly according to unpredictable market trends, and this is where smaller InsurTech businesses can prove to be invaluable partners, as they are at the heart of the digital UBI product revolution.
They have the proprietary technology and skillset to create bespoke digital products for large insurers, thereby enabling them to keep up with the industry disruptors through collaboration rather than direct competition – all while satisfying ever-evolving customer demand at a competitive cost. This ultimately means that UBI products should be seen as a complementary add-on, rather than an outright replacement to the existing annual model, which still has an important role to play.
Of course, it’s a two-way street, and InsurTechs can also benefit substantially from collaborating with large insurers. By partnering with a widened portfolio of well-established underwriting partners, InsurTechs are able to expand their coverage options and acceptance criteria while ensuring they offer their customers a comprehensive choice of the most competitively priced policies in the market.
Data enrichment will optimise pricing
Greater collaboration with data enrichment service providers is another fundamental aspect of future success. As technology becomes more sophisticated, so do fraudsters. If insurers are not adequately prepared to tackle fraud with the latest real-time data available to them, they run the risk of implementing inefficient pricing models that negatively impact honest customers.
There are a number of ways to overcome fraud through data enrichment, such as accurately ascertaining the link between a bad credit risk and the likelihood to claim or identifying the risk of payment fraud based on credit data. This is especially important for short-term insurers as payment could potentially be rejected after cover has expired.
Another increasingly important aspect for all motor insurers is to use the most accurate data to legitimatise the validity of a customer’s ability to drive and qualify for any restrictions on driving offences. It also serves to dramatically reduce unnecessarily long and complicated question sets for the customer, thereby improving the overall user journey and customer experience.
Expanding partnerships offer greater value
Collaboration within the insurance space is paramount to future success, but the industry should be careful not to insulate itself from new opportunities that reach further and add greater value to the end-user. For example, an existing motor policy offering can be enhanced by partnering with a recovery service provider to add breakdown cover as an option for additional peace of mind.
Another option is for InsurTechs to partner with automotive retailers to offer temporary driveaway insurance policies as part of the purchase experience. This dramatically simplifies the process of how insurance is purchased and consumed as dealerships can offer customers a fixed-price insurance solution that is more transparent and user-friendly, thereby creating a more positive experience of getting a newly purchased car insured.
These insights only scratch the surface of what is potentially achievable through collaboration. One thing is for certain: the opportunities are endless, and so too are the future prospects for insurance.
InsurTech should be embraced, not resisted, by established players in the insurance industry. To find out more, visit tempcover.com
by Alan Inskip, CEO and Founder, Tempcover
How health insurance carriers can use insurtech to modernise, painlessly
Michael W Levin, co-founder and CEO, Vericred
Health insurance carriers are facing more pressure than ever to evolve how they distribute their products. The sheer volume of new technologies and distribution channels they’re being asked to support can be overwhelming, especially in an industry coping with ageing, and often siloed, legacy systems.
For carriers open to change, this is an exciting time that will enable them to expand sales, deliver a more personal service, and increase efficiency – all at the same time. Their challenge is to respond to the market today in a way that gives them the time to evolve their systems for tomorrow.
That’s exactly what a data infrastructure platform delivers.
Allow me to explain.
The health insurance market is simultaneously shifting in two ways. First, every participant in the health insurance distribution chain desires and expects the same modern experiences that they’ve come to rely on in other industries. Members want to manage coverage on smartphones. Employers want to manage health insurance through user-friendly human resources (HR) and benefits administration (benadmin) platforms. Brokers want to be freed from the carriers’ inflexible systems so they can reduce their administrative burden and focus on servicing clients. And the carriers themselves, of course, want to both enable and benefit from all of the above, as well as increase their own efficiency.
Secondly, sales and distribution are shifting away from means that carriers control to multi-carrier marketplaces, broker-quoting platforms and enrolment solutions. Starting with the launch of healthcare.gov as a part of the United States Affordable Care Act (ACA), carriers have had to adapt to an increasingly open and transparent market for their products. Since then, marketplaces have been built for consumers not covered by the ACA, including large group employees and Medicare participants. Some HR platforms offer comparison shopping for employee benefits. And even traditional brokers are using systems that compare plans from multiple carriers, saving them time while offering clients a more sophisticated analysis of their options.
In an industry accustomed to doing business with a limited set of partners, using manual processes, and sharing little information, the prospect of automated, multi-party, transparent distribution requires a substantial change in mindset. But as they consider the alternatives, many carriers are concluding that in the long run these new technologies empower them to expand their markets, improve efficiency and build deeper relationships with brokers, employers and members.
To embrace this vision, the carriers must also find an effective way to interact with the hundreds of tech companies that facilitate the quoting, enrolment and management of health insurance and employee benefits. These insurtech companies often assume insurance carriers will offer modern platforms designed to exchange accurate information in an instant using protocols called application programming interfaces (APIs).
In reality, most health insurance carriers have systems that trace their origins back many decades and have been patched to accommodate countless mergers, regulatory regimes and business changes. The result: technology that simply can’t interact with the insurtech systems through APIs.
How, then, can a carrier meet the demands of its brokers and clients for modern digital experiences?
One option is to ask each insurtech company to build an interface to the carrier’s legacy systems. But many are understandably reluctant to devote precious developers to navigating archaic technologies, data formats and communications protocols – some of which are many decades old.
Conversely, the carriers could try to build or buy the technology they need to exchange data through APIs. Those that go down this path soon discover they still need seven-figure budgets and several years to rebuild the relevant tech.
Faced with these unattractive options, many carriers are simply not connecting to the various insurtech systems, accepting the risk of alienating existing clients and making it more difficult to meet the demands of potential new ones.
But that’s a price carriers need not pay. Instead, they can connect to insurtechs via a platform such as Vericred. With a single connection, a carrier can exchange data with hundreds of broker quoting platforms, benefit administration systems, and other insurtech companies. The tech companies benefit the same way: one connection links them to many carriers.
Platforms such as Vericred, moreover, can invest in critical services such as security, data validation and error handling that wouldn’t be economical in a world where every connection between carrier and insurtech company had to be managed independently.
In other words, everyone benefits.
Brokers, employers and members all have the up-to-date information and powerful capabilities they expect. Technology firms can devote their resources to product innovation. And carriers improve their service immediately with the flexibility to upgrade their systems down the road when it makes the most sense.
INDUSTRY VIEW FROM VERICRED
Most businesses have already been hit by extreme weather, but still aren’t preparing for future climate disruption
Watching news reports of severe flooding in Europe, of devastating wildfires in the US, of melting ice caps at the poles, very few people now would deny that our climate is changing. The UK’s Environment Agency has just warned in a new report that the country is not ready for climate disruption and that it must “adapt or die”. And while it’s clear that global leaders must work together to reduce greenhouse emissions, what’s not yet apparent to many is how managers in individual businesses must start to plan to adapt for extreme weather.
Adapting to climate disruption means building resilience to current extreme weather – flood-proofing for basements affected by the London flash floods in July 2021, perhaps. But it also means planning for a future which, according to UK Met Office projections, will involve “warmer and wetter winters, hotter and drier summers, and more frequent and intense weather extremes”. That will mean more detailed heatwave action plans, reductions in water use in some areas, and defences against bigger floods than today’s architects ever planned for.
So we have some idea of what needs to happen. But, while the UK has highlighted adaptation as one of four crucial goals to be addressed at the international climate conference COP26 in November 2021, it is not clear how well organisations are prepared for these new challenges.
With our colleague Denyse S. Dookie, also in the Centre for Climate Change Economics and Policy, we addressed this question earlier this year when we surveyed 2,400 people working in organisations in roles related to organisational planning. Our results have just been published, and we found that the vast majority of organisations in the UK are unprepared for the extreme weather disruption that the climate crisis will increasingly bring. Only one in eight have comprehensively assessed the risks of extreme weather disruption, and only one in six have a plan for adapting to future climate change.
This is despite three in five respondents saying their organisation had been affected by extreme weather in the past three years, mostly negatively. Flooding tops respondents’ fears of climate disruption, followed by severe coastal flooding and an intense heatwave lasting a week, while a very mild winter was perceived as a small opportunity. Constructing a more detailed assessment of the economic effects of extreme weather will help build the case for adaptation action and for targeting initiatives.
The effects of climate change on the UK were ranked fifth by the survey respondents out of 11 issues across all UK nations and sectors as a concern faced by organisations. This places it above Brexit (ranked sixth, identified by 57%). Notably, concerns over the implications of government policy to reduce greenhouse gas emissions ranked highly too, at seventh. The top-ranking issue was concern about the ongoing pandemic.
We also asked about organisations’ risk response and approaches to planning. Our survey results support a picture of UK organisations that are taking steps to prepare for similar extreme weather, with the top three actions of organisations affected being capacity training or some form of knowledge transfer, investment in new technologies, and making an insurance claim. While just 16 per cent of organisations reported having an adaptation plan, a considerable proportion (37 per cent) said their organisation was planning to develop one.
But that still leaves us with almost half the organisations having no plan and not even plans for a plan. Barriers they cited include insufficient financial resources; complacent organisational or staff attitudes towards climate change; difficulty identifying effective measures; lack of access to, or awareness of, new technologies; and other matters taking higher priority.
So what should organisations do? Recent experiences provide a strong foundation for promoting more action, particularly establishing a more detailed evidence base to make the case for the cost-effectiveness of taking action now. Almost half the organisations affected by extreme weather followed a plan to cope with the situation. Evaluating how well these plans worked could help improve them and modifying them to consider contingencies for more frequent and intense events would help build resilience to future risks. The lessons and insights could be shared through trade networks. A good place to start with a practical approach is the University of Oxford’s “adaptation wizard”.
And what about the role of government? Most respondents felt that the government should provide more information about the effects of climate change in the UK, plus funding, subsidies or tax breaks for adaptation, and that it should demonstrate how climate change is relevant to specific kinds of organisations. Overall, organisations see a strong role for leadership from government and collective responsibility for adaptation, which should be recognised in efforts to promote plans to adapt to climate disruption.
How insurance firms can come out of the pandemic stronger
James Harrison, Head of Insurance UK & Ireland, Dun & Bradstreet
Insurance, like almost every industry, has suffered from the disruption caused by Covid-19. But for all the irreversible changes to our lives and livelihoods, there have also been invaluable lessons learned – and insurers have an opportunity to emerge stronger from the pandemic than they were before it.
By investing in and embracing the right technologies – and successfully implementing them in firms – insurers can enhance operational efficiencies and re-establish their value proposition. And leveraging the capabilities of digital and data insurers can also lead to a better understanding of the needs and desires of customers.
Continued digital transformation of the insurance industry
Covid-19 quickly made it apparent that firms that had embraced digital technologies were better placed to navigate the pandemic’s prolonged challenges. But the onus is now on the whole industry to invest in digital technology, enhance operational efficiency and move forward as one.
For insurers, digital can remove significant cost and reduce time-consuming manual work. Increased focus on the suitability of smart contracts can also offer significant benefits to policyholders by streamlining the overall claims process, cutting down on delays and reducing uncertainty in the event of a loss.
By embracing emerging technologies such as blockchain, firms can also reduce unnecessary paperwork. Automation and artificial intelligence (AI) will also play a pivotal role in the development of smart contracts to prevent fraud, as well as freeing up staff to focus on more fulfilling and business-critical tasks.
Insurance firms to take on a more advisory role
There’s an opportunity now for insurers to demonstrate their added value to customers. One such way is by taking on an educational, advisory role, whereby if a claim doesn’t occur in a policy lifecycle, customers can still expect to feel that they’ll get what they paid for.
Cyber-security insurance is one area where this is already happening, with firms advising clients on preventative measures to avoid a breach in the first instance and then, where needed, responding to individual incidents. Ultimately, it’s about being proactive rather than reactive and informing behavioural change in an organisation to help prevent loss of products.
Operating in this way means firms can build better relationships with customers and meet their evolving needs. Advising customers also supports loss prevention rather than loss indemnity, which is beneficial because not only does it give customers more control to reduce premiums, crucially, it also helps to improve claim ratios and insurer profits.
Data must be used in a more structured way
Data is central to the running of any successful insurance firm, from helping to better understand customers, to risk assessment and analysing the full extent of a claim. If insurers hope to improve their value proposition to attract new customers (and retain old ones), leveraging insights from enhanced data analytics will be the key to becoming more customer-centric.
To achieve this, however, first-party data alone is no longer enough. Insurers, like banks, have valuable information on their customers, but most of it is their own internal data – and that’s just half of the picture. In response, insurers should be looking to combine this with external data sources to develop a complete view of customers.
Once you have this high-resolution view of consumers, it can breed operational efficiencies across the value chain, from onboarding quicker and enriching experiences with fewer questions for customers to answer, to understanding their wants and needs and knowing exactly what innovative products and services are required to meet them.
Become more data-driven and customer-centric with D&B
The insurance sector today has a unique opportunity to leverage the capabilities of digital and data, to drive innovation and become more customer-centric.
Get in touch today to learn more about how D&B’s world-leading business decisioning data and insights can help you to proactively meet customer demands, seize the digital opportunity and emerge stronger from the pandemic.
Reimagining insurance with innovative lifestyle-inspired products and services
Max Tiong, Head of Digital Transformation, NTUC Income
Consumer expectations, driven by technology, social change and the pandemic, are continuing to evolve. Increasingly, customers expect convenience, an intuitive way to buy and a seamless journey, irrespective of the communication channels they have used.
To meet these changing expectations, businesses need to innovate constantly. This is as true of insurance as it is of any business sector.
Max Tiong, Vice President of Digital Transformation at Singapore-based composite insurance company, NTUC Income, believes the only way to innovate successfully is to take a customer-centric approach. “What kind of products can we create to embed ourselves within our customers’ lifestyles?” he asks. “Could we become a Netflix for insurance? What can we learn from Apple Pay or Amazon Prime to help us capture the Gen Z market?”
The Generation Z market is an important one. Comprising around two billion people globally (more than one in four of the world’s population), it’s a huge opportunity for the insurance industry to focus on. Insurance is a lifetime investment, Tiong adds, and creating brand loyalty early (Gen Zs are under 25) can increase the lifetime value of insurance to a person by two to four times.
But this is an extremely demanding, tech-savvy demographic. Innovation is crucial for companies that want to succeed and grow alongside it.
Innovating the insurance market
Innovation means creating new experiences that create a competitive difference. But doing this is risky and expensive. Not all innovations succeed commercially. And the process of developing and testing new products and services is costly, whether or not they succeed.
However, when innovations do succeed, the payback can be huge.
Keeping the focus on customer experience is the most important way of reducing risk, says Tiong. “Whatever the product, improvement is always possible. There is always an experience that customers will be better attuned to.”
And this is true, regardless of the customer segment. Constantly testing new ideas on different customer segments allows more relevant and desirable products to be developed.
But customer-centricity needs to go beyond the product. Organisations need to examine how different marketing channels work together to build a positive brand experience. And they need to focus on how the product is delivered to customers and how it will be used by them. Optimising the end-to-end customer experience is essential.
The key to this is using data to build up a detailed understanding of an individual lifestyle, whether that of a parent, retiree, delivery driver or gigging musician. Data points from a customer’s lifestyle can inform us about their pain points, needs and preferences, and leveraging such insights for potential product and service innovations is a huge opportunity. For example, everyone has different insurance and financial planning requirements. But if we look at our society, which is increasingly becoming digital-first, customers generally display similarities – they often use smartphones and digital payments and demand high levels of online services.
The lifestyles of different customer segments can underpin the development of many new ideas in the insurance industry such as micro-policies, usage-based and subscription-based insurance. NTUC Income has used data on these lifestyles to develop several such innovative new insurance business models.
One example is SNACK, a novel insurance proposition designed for digital-savvy consumers that offers protection via stackable micro-policies based on flexible micro-premiums. It is built into people’s lifestyles, allowing consumers to build or stack insurance coverage linked to their daily activities such as taking public transport, dining out, or going for a jog and paying as little premium as S$0.30 when each lifestyle activity is completed. An attractive proposition for segments such as Gen Z and first jobbers as they can easily get on board to plug their protection gaps without heavy financial commitments.
An extension of SNACK is SNACKUP. Transact with merchants that partner SNACKUP and you get insurance coverage for free, contributed by the merchants. For example, when customers order food via foodpanda in Singapore, foodpanda rewards them with a free $100 of insurance coverage, via the SNACK app. From the merchant’s perspective, offering customers insurance coverage is a refreshing way to reward customer for their loyalty, whereas, for NTUC Income, it is reimaging the way it extends insurance access to society. These insurance coverage can accumulate over time to provide substantial coverage to customers.
For motor-car drivers, NTUC Income has introduced “Milesurance”, pay-as-you-drive car insurance where mileage is taken into consideration when ascertaining premiums using telematics and data analysis. This usage-based insurance model resonates with customers who are increasingly looking to lower their carbon footprint by driving less, working more from home due to the pandemic, or who are gig workers.
Another innovative solution is TRIBE, a flexible subscription-based insurance model where customers pay a fixed small monthly fee for the insurance plan they select and have the flexibility to adjust as needed, depending on their life stage. For example, a mother purchases a Child pack which comes with two insurance plans for S$5 a month – the Child Illness Plan, which covers infectious diseases, food poisoning, and allergies, and the Child Injury Plan, which covers accidents and injuries. When the child is in nursery, the mother can increase the child’s coverage on the Child Illness Plan as they may be more susceptible to infectious diseases. When the child starts school and is more active in sports, the mother can increase coverage on the Child Injury Plan, and reduce child illness coverage, all kept within the same budget of S$5 a month.
The future of insurance
One thing is certain about the insurance market-change is here to stay. New technologies are emerging that will continue to promote innovation. Big data analysis, artificial intelligence, blockchain – all these will be the drivers of new lifestyles and also of new insurance products and services.
As consumer needs evolve, so must insurers evolve in how they engage with customers – not just in terms of product offerings but also channels and touch-points, online and offline, as well as the experience that comes with them.
By responding to constant change, insurance companies that put customer lifestyles and needs at the core of innovation will always be able to deliver products relevant to different customer segments, as well as services and experiences that delight them.
Click here for more www.income.com.sg
INDUSTRY VIEW FROM NTUC INCOME
Insurance industry integration is vital to address climate change
Over the past year, we’ve seen a clearer picture emerge of the physical risks we’ll experience as our planet warms beyond 1.5 or 2 degrees. We have also seen greenhouse gas emissions reaching all-time highs alongside a proliferation of commitments to decarbonise and achieve net-zero.
Recognition and understanding are growing of government, business and public responsibilities for responding to climate change. There is also a growing awareness of the role of insurance across its value chain in both adapting to and mitigating climate change and creating more resilient communities.
The profound expertise and knowledge within the insurance industry in understanding risk creates great opportunities – and indeed great responsibility – to support and inform other parts of the economy as we brace ourselves for the impacts caused both by physical and transition risk.
The specific risks within financial services firms and the systemic risks for regulators to manage have been highlighted by stress testing and scenario analysis, led by regulators and adopted more broadly by firms. TCFD-aligned reporting, through initiatives such as the ClimateWise Principles, demonstrate the benefits of understanding climate risk and opportunity and providing an aggregate view of industry progress and best practice.
The coming years will undoubtedly see greater action in response to the insights from scenario analysis and greater understanding by clients and society of the role and capabilities of the insurance industry. We will also see increased collaboration and coordination across the insurance value chain to produce a streamlined response that recognises the unique role each player should take to respond to climate change.
We also expect to see new and perhaps more permanent forums being established to facilitate ongoing dialogue and collaboration between government, business and insurers at national and local level to enhance and build on global climate resilience initiatives. The insurance industry will need to work closely with national governments for risk management of natural disasters as the world warms and extreme weather events become more frequent and more fierce. Insurers will also more actively engage with government on transition protection needs and private-public partnership opportunities to facilitate blended-finance approaches to scaling risk-transfer capital, such as through state-backed reinsurance pools.
Partnerships between insurance and the broader financial sector will also be integral to the effective response to climate risk. Banking and investment rely on insurance coverage to manage the underlying economic and physical risks to their clients. Changes in insurance availability and pricing may alter banks and investors’ own risk exposure. Working in conjunction with wider financial services, insurers can have an instrumental role in identifying and promoting mitigation and adaptation measures for private and public clients.
We also expect to see new and perhaps permanent forums being established to facilitate ongoing dialogue and collaboration between government, business and insurers to enhance global climate resilience.
Insurers can build resilience at local and regional levels by planning around building design and construction to adapt and avoid risk. We expect to see an expansion in the role of underwriters to provide greater guidance and a more ‘engineering’ approach to underwriting, building on expertise from technology developers, physical risk modellers and others. Policy-makers may ultimately look to mandating the inclusion of relevant resilience measures in insurance policies that address climate-related disasters, establishing sustainable claims and ‘build back better’ as the default.
To provide detailed analysis and guidance to policy-makers and clients, the insurance industry will be looking for more detailed and forward-looking data. A deeper partnership between government and the insurance industry, encompassing data, can enhance the development of models over a greater range of climate scenarios to help refine underlying assumptions of catastrophe models and building indices to measure climate resilience.
Climate risk exposure needs to be part of all business conversations and clients will turn increasingly to the industry for guidance. As such, insurers need to be ready and have a hugely influential role to play. ClimateWise members are already advancing on this path, particularly with research on opportunities for policy and product innovation. We hope others will join them… and quickly.
To find out more, visit the ClimateWise pages of the University of Cambridge Institute for Sustainability Leadership
by Dr Bronwyn Claire, Senior Programme Manager, ClimateWise, University of Cambridge Institute for Sustainability Leadership (CISL)
The impact of climate change on the insurance industry
There is little doubt that the impact of climate change on insured risk is increasing in severity and impact across multiple perils and continents. A Swiss Re Sigma report shows global losses from natural catastrophes at $190 billion for 2020, with insured losses at $89 billion, notably secondary perils accounting for 70 per cent of insured losses. Recent reporting from the 6th Intergovernmental Panel on Climate Change (IPCC)’s report supports the view of ‘human-influenced climate change through increased heatwaves, precipitation, droughts and tropical cycles since their previous report. The expectation is that the 21st century can expect to see up to a 2 degrees Celsius increase in temperatures unless greenhouse gases can be mitigated in the coming decades.
Supporting the IPCC viewpoint, Swiss Re also highlights climate change as an existential threat. On the one hand, it is a threat to the global economy, civilisation and the uninsured. On the other, it is an opportunity for insurers to capitalise on the rising cost of secondary perils. In another Sigma report, Swiss Re points out that the P&C sector expects double the premium growth by 2040, driven by emerging markets and premium consummate to increased risk.
Aligned to the Sigma report, secondary peril is a term that requires realignment. Chaucer recently noted that large wildfire events have increased 30 per cent in the US over the past decade, exacerbated by extreme drought conditions. This year, wildfires raged across Greece, Turkey, southern Italy and Russia and were ‘at-risk in 38 US states, with record acreage burnt. Such is the frequency and impact of the losses that Chaucer has argued for wildfire risk to be considered a primary peril.
None of this comes as a shock. As an example, we’ve seen a wildfire trend in the US from research undertaken by the National Climate Assessment council that affirms drought as a primary instigator of US wildfire. Indeed, to underline this fact, in June 2021, the Mojave Arizona-Nevada lifeline Lake Mead was at 36 per cent of its capacity, restricting electricity production and generating the first-ever water shortage declaration at the federal level.
Meanwhile, primary perils such as tropical cyclones and hurricanes, storm surges and associated flooding continue to escalate in both frequency and severity, with Swiss Re noting the underlying causes impacting both primary and secondary perils remaining the same. In terms of insurance costs, Hurricane Ida gives a view of our future. The impact of climate change driving the storm trifecta – warmer Gulf of Mexico water, humidity and limited wind shear further north than previously – combined with the increasing expense of materials, partially driven by the pandemic and socio-economic restrictions on the housing market, will continue to lead towards increased claims volume and market hardening. Indeed, in 2021, the reinsurance market saw a 6 per cent rise over the 12 per cent in 2020; yet generally, the agreement is premiums are not consummate to risk.
Hurricane Ida insurance losses are also an example of the exacerbated problem of a combination of supply chain disruption and climate change. Despite Ida having a lower landfall speed than Katrina, business interruption supply chain insurance losses are expected to spread well beyond the insurance area.
Another example of contingent business interruption losses based on the supply chain industry is the Suez Canal Ever Given marine shipping loss. Major shipping terminals saw traffic back up and the unavailability of empty shipping containers delay exports, increase costs and create shortages across multiple industries.
What does this all mean for insurers and how can they mitigate risk?
There are three key considerations. Firstly, loss history is no longer the single greatest determinant factor in predicting future losses. The catastrophe loss model sector has heavily relied on history to predict the impact and frequency of future events. Climate change has upended the mindset that history predicts the future through historical records almost year on year across geographies and perils. An insurer must seek a multi-view on risk and avoid over-reliance on a single viewpoint, regardless of the foundation of the science. Data providers are the basis for a balance in risk and portfolio assessment when paired with accessible technologies that enable immediate access at the point of underwriting.
Secondly, insurers should consider additional data points at the point of underwriting to improve understanding of the risk above the typical submission, survey and schedule. Data from the IoT, real-time monitoring technologies, on-the-scene claims-assessment drones and rich specialist providers are sources of additional information that support decision-making.
Finally, the insurance industry must continue to embrace advances in technologies that monitor the upstream/downstream impact of the supply chain to quantify both direct business interruption and contingent business interruption scope of losses.
In today’s digital age, smart underwriting is about seamlessly bringing data together from multiple sources and maximising data insights in real-time to minimise risk and cost and maximise competitive advantage. Automation of low-value tasks and the use of sensors, IoT, telematics, predictive analytics and machine learning are providing deeper insights on risk. There is always a commercial cost-benefit trade-off with market capital providing competition from traditional and alternative markets. Peer differentiation must be commercially viable, be targeted and leverage data points that will reduce portfolio volatility and enable further resilience of the corporate risk profile.
To find out more, visit AdvantageGo.
by Simon Fagg, Product Strategist, AdvantageGo
Why a feasible fraud management strategy needs to take the inevitability of digitalisation into account
Fraud risk management has always been an essential part of any company’s overall risk management process, although the amount of effort to manage this risk will differ, depending on the type of business and industry sector. Fraud risk management has always been tricky to negotiate – today even more so, thanks to the increasing involvement of technology in all aspects of business.
Digitalisation has been a common buzzword in every industry over the past few years, even more so in the Covid-19 era. To remain competitive and reach customers faster and further, companies started embracing digital technologies in customer acquisition, product sales, receiving payments and many other areas. And in the Covid-stricken economy, reaching customers digitally was the safest way to do business. Many organisations without a digital outreach mechanism failed, or will be prone to fail as the pandemic continues. But almost every organisation seems to be determined to learn from the pandemic and improve customer experience by tapping into digital technologies. Before the pandemic, digitalisation was seen as nice to have, but the pandemic has made it a survival mechanism.
The common understanding is that companies tend to stop all discretionary spending during a pandemic or economic downturn, due to whatever might have caused the downturn. Cost saving and being economical in whatever companies do is the norm during a pandemic – continuous investments in digital technologies may be the exception, but hardly a surpising one given the benefits of engaging customers digitally.
An increasing level of fraud risk
With the increased digitalisation level in companies due to the reasons mentioned above, the remote processing of transactions and digital processing of payments have become the new normal, making it easier for fraudsters and cyber-criminals to perpetrate fraud. Customers are becoming digitally literate about how to transact online, but that doesn’t necessarily mean they understand the nuts and bolts of the risks they are facing. Therefore, it is incumbent upon companies to ensure systems can identify the vulnerabilities and flag them up before the brand’s profit or reputation are endangered.
In the digital context, manual prevention methods become impractical and less relevant. Companies need to start looking at fraud management using digital tools, and fraud management has to be performed on a real-time basis instead of being identified after it has occurred. Two areas will be crucial to fraud management in the digital economies in the future – without them working in coordination, the effectiveness of the future of fraud management will be in doubt.
Use of digital tools in fraud management
When it comes to digitalising businesses and facilitating a seamless customer experience in the battle to win customers, corporates have to remember one thing. Most of the time, there will be an increase in fraudulent activities through digital technologies and connectivity to the internet. Fraudsters are getting more sophisticated with their attacks, so companies must pay greater attention to managing digital fraud with digital tools.
Companies have to focus on the tools that incorporate AI, machine learning, and big data concepts without just limiting the rule-based fraud identification mechanism. Further, reporting of fraud red flags and fraud incidences have to be on a real-time basis to prevent fraud in the first place. The detection alone will not be the solution, because of the speed with which transactions are processed without a proper audit trail. “Prevention is better than cure” holds true in fraud management in the digital era.
Digital literacy of anti-fraud professionals
Historically, anti-fraud professionals did not need sophisticated digital know-how to understand how fraud happens and how it can be identified and prevented. But with the increasing proliferation of digital technologies and companies investing in digital tools to manage fraud, anti-fraud professionals need to be not only digitally literate, they also need to keep that digital literacy up to date.
The pace of development of fraud management tools has been rapid when compared with several years ago, in part due to the increased demand from companies. However, one issue is that those in charge of using and managing those tools are in many cases not equipped with adequate knowledge of the subject matter to be able to do so efficiently.
Therefore it becomes vital for companies to start investing in digitally literate employees when they staff forensic teams. In many cases where companies tried to educate old-fashioned forensic professionals in this new knowledge, I was reminded of the old saying, “you can’t teach an old dog new tricks”. Hence, to achieve success in fraud management in the digital era, companies need to think about the level of risk management, and the level of cyber-security knowledge in the people they hire.
If not, mere investment in the digital tools with the latest technology in fraud management would not yield the expected results and expectations of such investments.
The Institute of Risk Management has developed a Certificate in Digital Risk – this new specialist certificate, awarded by the IRM and developed with support from the WMG Cyber Security Centre and Department of Politics and International Studies at the University of Warwick, has been designed to equip individuals to apply and develop their skills in an increasingly digital world.
For more information please click here.
Global Ambassador APAC, Institute of Risk Management Partner, Head of Assurance, Financial Services, Head of Forensics & Forensic Technology, EY Vietnam
Insurtech has kept the promise
The insurtech trend has significantly matured over the past three years. We have seen billions and billions of euros invested in start-ups with an increasingly bigger number of rounds, and we have several insurtech players listed on the stock market with even an index dedicated to the US stocks in this segment. Over the past few months, we have also seen a growing focus on insurtech by SPAC.
We have been pioneers in this approach. We wrote about Archimede SPAC’s ambition for bancassurance protection and insurtech in Business Reporter’s Future of Insurance report in 2018 when the journey was just starting. Archimede was a very specific SPAC: the first dedicated to the insurtech business, presented to the market with an identified target. We presented an industrial approach focused on governing the business combination.
Now – after three years – we want to look back on this journey and share some lessons learned. Archimede’s ‘bancassurance, insurtech inside’ promise has been kept, generating a 42 per cent return to the SPAC investors.
The Net Insurance team – integrated with new executives – has successfully implemented the strategy and achieved Archimede’s targets. In 2020, the Company has served more than 450,000 clients and gross written premiums amounting to €117.7 million, 20 per cent higher than Archimede’s original plan.
Net Insurance’s traditional business increased from €34.4 million on 30 June 2018 to €42.2 million on 30 June 2021, consolidating its leadership in insuring the CQ business. The new protection business – introduced since the acquisition of the old Net Insurance by Archimede at the beginning of 2019 – has already accounted for €36.9 million, representing almost half of the company’s top line on 30 June 2021. Everything has been achieved with attention to the technical sustainability of the portfolio: indeed, the combined ratio stood at 67 per cent net of reinsurance (gross is 87 per cent).
Our business strategy has been based on a transformative approach that is focused on applying digital technologies to protect people, family and SMEs. Insurtech has been embedded inside the whole insurance value chain by assuming a business accelerator role: on the one hand, technology has been a driver in the evolution of internal processes; on the other, it has created the possibility of a new offer of innovative products.
An open innovation logic has been applied to allow the integration of different partners. For example, on the side of the distribution channels, we developed partnerships with Yolo and Neosurance. In the area of claims management, a partnership with MotionsCloud has allowed the company to process claims within 48 hours and assess damages within one week through a video evaluation. All these industrial partnerships have been led by Net Insurance’s equity investments in these partners.
The insurtech initiatives are also building foundations for future growth. A few months ago, a pay-per-use theft insurance coverage was developed for Enel X’s customer base. This embedded insurance initiative is based on the data of the smart home security system sold by this leading Italian utility, and the insurance premium reflects the risk mitigation offered.
Three main lessons can be learned from our journey.
Firstly, underwriting excellence remains a key factor to company performance. It’s more than simply risk selection and pricing; it requires a set of capabilities, critical judgements, forecasting of future industry performances and ability in portfolio management. We learned that all these elements can be strengthened by the application of new technologies, allowing the use of new data sources and decision models. The real challenge now is to transform underwriting, establishing it as an expanded and more exciting role that matches the complexity of today’s world.
The second lesson learned is the importance of building a transparent relationship with shareholders, especially now, in a ‘new normal’ scenario characterised by lower-for-longer interest rates and in an economic landscape marked by the uncertainty of the post-Covid era. Accountability, transparency and engagement are essential for good governance that has a concrete impact on the business and promotes sustainable growth.
Third, there is the opportunity to focus the innovation effort on insurtech initiatives with a substantial impact on the business. Successful innovations must be closely coordinated with the company’s strategy. Innovation involves all areas of the company, spreading its impact over the value chain. It’s important to improve existing business lines, but it’s also necessary to rethink old processes and empower them with insurtech solutions.
Nowadays, insurers are facing a perfect storm of different converging factors: changing customer needs and the emergence of new players. In this highly competitive and fast-changing market, innovation investments represent a critical factor. There are many challenges – culture, regulation, legacy systems – but the forecast is favourable. Insurtech initiatives will be more and more relevant for achieving results in the insurance arena.
by Andrea Battista, CEO, Net Insurance and Matteo Carbone, Director, IoT Insurance Observatory
New insurance pricing rules will put new demands on data
From January 2022, UK insurance providers will work under new regulations that will require them to ensure a renewal price for home or motor insurance is consistent with the price they offer a new customer – helping tackle the issue of price walking, also known as the loyalty penalty.
The reforms are not just about the price of insurance; they are intended to ensure customers have the right product for their needs and are getting fair value over the long term.
The new regulations pose an extraordinary opportunity to the insurance sector to improve the consumer experience, trust in the industry and put a much greater demand on the use of data to better understand and serve the customer throughout the policy lifetime.
If a consumer trusts they are getting a good deal and products right for their needs, they will not only want to renew but could buy other products from the same brand. It works for both the customer and the insurance provider.
Clearly, customers who don’t shop around for insurance and stay with the same provider year after year are those most set to benefit from the reforms to pricing.
Based on a sample of policyholders who have renewed their motor policy every year for the past five years, a LexisNexis Risk Solutions analysis found that around one in four people have renewed their motor insurance policy each without shopping around and may have been charged more than a new customer by their insurance provider over time.
Offering products that are suitable and achieve fair value for customers will require insurance providers to understand much more about the individual as well their risk, and leveraging all existing data held on a customer should be high on the priority list.
By using a unique identifier such as LexID®, customer data from claims, marketing, quotes and different lines of business or customer databases from a merger or acquisition can be connected, resulting in a single customer view. This consolidated and accurate information for every customer based on their history with the insurance brand can then be used at every touchpoint and built upon to create a 360-degree picture of their risk and needs.
It can help make marketing more relevant and pricing and underwriting more accurate, enabling insurance providers to deliver a swift and empathetic claims experience. The single customer view not only improves data accuracy and helps identify product suitability, but it also tackles a very basic annoyance for customers of having to repeat the same information to different departments.
Data enrichment at the point of the quote has become standard practice in new business quoting to help build a more informed view of a customer. As renewal pricing strategies will need to be consistent with current new business pricing, a real shift in the use of data enrichment at renewal is expected.
The motor insurance market already has access to market-wide policy history, quote behaviour information and some claims information. Recent innovations in-vehicle data provide a much clearer view of the vehicle and can provide a way to do more for the customer, such as rewarding them for the advanced driver-assistance systems on their car or providing enhanced cover based on a change to their vehicle’s valuation. These are just examples of the types of data that can be leveraged to build the understanding of customer needs throughout the lifetime of the policy.
Data enrichment platforms such as LexisNexis® Informed Quotes allow a swift risk assessment at individual, asset, household and postcode level with intelligence delivered on all individuals associated with the quote in a single transaction – such as additional drivers and joint policyholders in addition to the proposer or main driver.
In essence, insurance providers can take advantage of one gateway to a host of datasets during the quote or renewal process, undertake due diligence checks and validate information supplied by customers to help deliver the consumer outcomes the FCA’s pricing remedies are intended to create.
With a holistic understanding of risk, insurance providers can know that the product being offered is suitable for the consumer’s needs and the provider may be able to identify additional products and add-ons relevant to the individual. This has the potential to change the perception of insurance to become something that is valued and recognise it as an enabler for people’s day-to-day lives.
Knowing the customer is the key to better serving them, and data will be the insurance market’s ally in one of the biggest regulatory changes the market has seen in recent years.
For more information please visit risk.lexisnexis.co.uk/insurance
by Jeffrey Skelton, MD Europe, LexisNexis Risk Solutions
Shaping the future of insurance
The future of insurance is here, and insurers can no longer wait on the sidelines. They must get in the game of who will win the hearts and wallets of tomorrow’s insurance customers. Your competitors give consumers frictionless buying experiences. For insurers to keep pace, they must use technology to increase digital maturity across the customer journey and value chain.
But technology alone won’t drive sustainable competitive advantages. Partnerships, people, products and processes will factor heavily into four themes that will shape the future of insurance.
Insurance companies will focus on solutions, not products, to stay relevant
Your customers’ lives are complex and so too are their risk-hedging needs. Hedging is all about loss protection, and your customers’ loss protection needs are as unique as their personalities. Insurers must deploy technology to leverage data and analytics to know their customers better. If you can’t build these capabilities internally, technology vendors offer solutions that will allow you to shift from a siloed operating framework to a customer-centric one. This shift will provide the comprehensive insights needed to get customers the right coverage at the right limits. But don’t forget that your agency partners will also be critical across the customer lifecycle – so you must invest in agency technology that elevates agency experience, too.
Insurers will offer dynamically priced products to drive business efficiency
Connected insurance is coming. According to our survey data, consumers are increasingly interested in sharing data for discounts. Although it’s still early days, sensor-based insurance will transform how you service and engage with your customers. Though adoption is only about 6 per cent in auto (the most ‘mature’ market), these products personalise coverage and help you manage risk. It’s a win-win for both insurers and customers, particularly those customers who are hyper-focused on managing their finances. Connected insurance, in the form of pay-per-use insurance, can help them do just that.
Insurance companies will form new partnerships to create value and drive growth
With many insurance markets constrained by waning demand, insurers are looking for growth in new markets. New distribution arrangements are expected to increase as both insurers and their ecosystem partners remove friction from their customers’ buying journeys. Think about Ford’s and Tesla’s moves into auto insurance and Amazon’s move to sell small business insurance. The industry giants already have customer relationships they can leverage to help insurers extend their reach into new channels.
Insurers will create new business models and explore new revenue opportunities
As insurers position for growth, partnerships can help you extend your products and services into new markets. But revenue growth can also come from the monetisation of your core capabilities. In the future, insurers will explore ways to diversify their businesses and capitalise on what they do best. You must first determine what your core competencies are and if there is a need for them. Insurance technology (insurtech) vendors extend their products and services through APIs. Why can’t you?
The insurance value chain is decoupling, and vertical integration is breaking apart. To participate, you must plan how you will integrate into and not isolate your core competencies from an expanded ecosystem of service providers (i.e., lead generators, comparison marketplaces, agency advisers, claims processors and engagement platforms). You must deploy technology to scale these competencies and create value for your customers, prospects, intermediaries and investors alike.
The future of insurance is exciting
There is new energy coming into the sector from emerging technology and its enabling capabilities. Insurtechs and ecosystem orchestrators are seeing this as an opportunity and must now engage with the growing consumer appetite for digital experiences. Insurers that can invest in innovation across the value chain and customer lifecycle will benefit from improved customer experience, which, in turn, will drive revenue and profit.
by Jeffery Williams, Senior Analyst, Forrester
Protecting the public purse from grant fraud
It seems strange to say so, but in many ways, the pandemic has brought people together. In the spring, we saw neighbours come together every Thursday night to thank and celebrate health and care staff through Clap for Carers. Thousands upon thousands signed up to be a part of the government’s volunteer army. In more recent months, the government’s decision not to extend free school meals for vulnerable children over half term and Christmas prompted councils, businesses and communities to step in to fill the breach. At individual, organisational and sub-national levels alike, we have seen inspiring displays of compassion, kindness and community spirit. If only that were all we’d seen.
As much as we’d love to be able to say that the pandemic has been the great unifier of our generation, it would ignore the fact that many have taken advantage of the chaos and uncertainty to line their own pockets. In September, HMRC told the Public Accounts Committee that up to £3.5 billion in Coronavirus Job Retention Scheme payments may have been claimed fraudulently or paid out in error. The bank advising the government on the Bounce Back Loan Scheme twice raised concerns that the scheme was at “very high risk of fraud” from “organised crime”. And over 100 councils have identified more than £8 million in fraud to the National Anti-Fraud Network. It is clear that we have seen the worst in people as well as the best.
Criminals taking advantage of uncertainty to commit fraud in the public sector is by no means a new phenomenon. However, the sheer amount of public money now being given out at pace in the form of discretionary grants means that grant fraud has been, and will continue to be, a particular risk to the public purse.
Unsurprisingly, the focus from government has been on getting funds out of the door to the businesses and people that needed them most. While this was necessitated by the crisis, the reduced emphasis on control and weakening scrutiny means that we have seen an increase in the success rate of fraud in the past year.
However, this period of increased risk has also represented an opportunity to improve the public sector’s approach to tackling fraud. During CIPFA’s annual conference in October, Neil Green, Deputy Director for Counter Fraud and Investigation at the Government Internal Audit Agency, highlighted that increased collaboration between UK local government and the Department for Business, Energy and Industrial Strategy had resulted in an increased focus on fraud prevention, rather than simply detection and prosecution.
The need for a greater focus on prevention is an issue that we at CIPFA have been emphasising to the sector for some time. For a long time, the approach to fraud in local government has been largely reactive. While fraud investigation still has its place in a robust fraud strategy, a detection-first approach to addressing the issue, more often than not, represents an attempt to close the gate once the horse has already bolted. It requires substantial time and resource to pursue and investigate potential incidents, with no guarantee that those funds will be recovered successfully.
While preventative measures mitigate against this, they come with their own challenges. Many local authorities have highlighted that making the business case for greater investment in prevention is particularly difficult in the absence of established, proven methodologies to quantify savings that would result from prevention activities.
We accept the challenges in making that case – the move to focus on prevention will need close management, strong risk assessment and room to evolve. But most of all, it will require courageous local authority leaders to strike out and pioneer these approaches to share best practice with the sector at large.
We at CIPFA will continue to support local authorities and the public sector more widely in this mission, because we are clear that a prevention-first approach represents the biggest opportunity for tackling public sector fraud and protecting the public purse.
by Rob Whiteman, CEO, CIPFA
Re-designing from the customer up: how to transform insurance with digital technology
Ross Sinclair, Founder and Chief Executive at EIP Limited
Insurance is being transformed through new digital technologies, with customers as well as insurance companies benefitting.
Traditional insurance companies have a reputation for cumbersome customer sign-up processes. And while innovations in technology can provide a more streamlined customer experience, there is often scepticism around “insurtech” and the role that technology plays in the sector.
Ross Sinclair, CEO and Founder of EIP Ltd, believes that insurtech can deliver a customer experience that is simple, efficient, dependable and hassle-free while at the same time driving higher margins and more efficient operations for insurance companies.
The insurance industry has undergone major change over the past decade. Companies are offering a far broader range of financial services to their customers. However, physical retail channels are disappearing, something that has been made worse by the pandemic. This means that they often don’t have the platforms to offer these new products to their end users effectively.
Negative consumer perceptions
A major problem for the insurance industry is that many customers are suspicious of insurers, who they often see as hiding behind small print and with slow bureaucratic processes. But insurance companies are not uniquely at fault here. Increased regulation, intended to protect customers, has complicated the insurance purchase and, to some extent, claims processes.
There is quite often sufficient latitude within the regulations to find a customer-friendly solution to a given regulatory requirement. Unfortunately, compliance professionals in large corporates often take a very cautious approach.
In addition, the quality of claims processing varies wildly across the industry. Inevitably people remember – and share on social media - the bad experiences. Over time, a public perception has, perhaps unfairly, grown up that insurers will often try to avoid claims settlements.
All in all, many consumers feel that insurance is designed with the interests of the insurance companies, rather than the customers, at the centre.
A failure to understand risk
Traditional insurance companies are further damaging consumer confidence with their approach to assessing risk. Take the insurance premiums on mobile devices. These are often wildly inaccurate because of a traditional approach to pricing, where underwriters simply apply a higher premium on more expensive handsets, with the assumption being that these devices present a higher risk.
In reality, while the brand and model of the handset is a factor (although interestingly not the cost of the handset), the biggest risk factors are the behaviour and demographics of the user. A little old lady potentially presents a very different risk of damaging her phone than a 22-year-old scaffolder. No-one has been taking that into account, until now.
Because insurance products involve high customer volumes, and therefore high claims volumes, it’s possible to build a picture of the types of customers that are claiming: age, location, occupation, gender and so on. This data can be fed into pricing engines in real time. The customer then receives a quotation which is specific to them and based on up-to-the-minute claims data.
Pricing can be used to encourage lower risk customers to take out insurance, while high risk customers can be discouraged with higher premiums. This approach gives insurers stability of margins as well as significantly increased profitability.
New solutions for old problems
Insurtech companies such as EIP have developed software and solutions that help businesses such as mobile network operators, banks, retailers and insurers offer insurance products to their customers in more cost-effective ways.
Contextual pricing gives consumers the best price for their individual circumstances. For example, an insurance provider might choose to introduce a “safe location” discount where premiums are reduced when a customer is in a lower risk environment, such as at home.
By applying this intelligent pricing technology, customer satisfaction is enhanced, while overall profitability can be increased by more than 40%.
The claims side of insurance can also be strengthened through technology. One example is EIP’s automated claims processing that makes it far quicker and easier for the customer to make a claim and get a decision. This is now being successfully used in many countries.
However, it is possible to go further. EIP has developed an “Autoclaim” feature for mobile device insurance that anticipates the customer’s needs. Autoclaim mines the gyroscope and accelerometer in the device to detect automatically when a device has been dropped and potentially damaged.
If a device is dropped then the data is immediately used to create a draft claim automatically. The software then checks with the customer whether the claim is needed. If the policy holder says ‘yes’ then the claim is submitted, approved and the repair arranged. The whole process takes less than 10 seconds and two button presses from the time of damage.
Designing from the customer up
Of course some insurers will feel that there is a danger that this type of automation might increase the number of claims submitted. But it is important to look at these innovations ‘in the round’ rather than in isolation.
On one side, claims will inevitably increase slightly as the customer experience is massively enhanced. But balancing that are the very material improvements in programme profitability and management costs – which offset a softer claims attitude. The customer gets an exceptional experience, and the insurer gets higher margins – win/win!
The principle is to start designing insurance from the customer up, rather than insurer down.
Insurtech is transforming the traditional insurance industry, enabling insurance companies with a maturity of vision, to provide highly efficient, light touch, low cost digital journeys that are super-attractive to consumers and profitable for the business.
Insurance companies that design products and create user journeys that are centred on the customer, rather than the insurance company, will not only create competitive advantage in pricing but also build such a compelling service offer that it will crush the competition.
For more information please visit our website.
New gene therapies may soon treat dozens of rare diseases, but million-dollar price tags will put them out of reach for many
Zolgensma – which treats spinal muscular atrophy, a rare genetic disease that damages nerve cells, leading to muscle decay – is currently the most expensive drug in the world. A one-time treatment of the life-saving drug for a young child costs US$2.1 million.
While Zolgensma’s exorbitant price is an outlier today, by the end of the decade there’ll be dozens of cell and gene therapies, costing hundreds of thousands to millions of dollars for a single dose. The Food and Drug Administration predicts that by 2025 it will be approving 10 to 20 cell and gene therapies every year.
I’m a biotechnology and policy expert focused on improving access to cell and gene therapies. While these forthcoming treatments have the potential to save many lives and ease much suffering, health care systems around the world aren’t equipped to handle them. Creative new payment systems will be necessary to ensure everyone has equal access to these therapies.
The rise of gene therapies
Currently, only 5 per cent of the roughly 7,000 rare diseases have an FDA-approved drug, leaving thousands of conditions without a cure.
The resulting gene therapies will be able to treat many diseases at the DNA level in a single dose.
Thousands of diseases are the result of DNA errors, which prevent cells from functioning normally. By directly correcting disease-causing mutations or altering a cell’s DNA to give the cell new tools to fight disease, gene therapy offers a powerful new approach to medicine.
Sky-high price tags
The problem is these therapies will carry enormous price tags.
Gene therapies are the result of years of research and development totaling hundreds of millions to billions of dollars. Sophisticated manufacturing facilities, highly trained personnel and complex biological materials set gene therapies apart from other drugs.
Pharmaceutical companies say recouping costs, especially for drugs with small numbers of potential patients, means higher prices.
The toll of high prices on health care systems will not be trivial. Consider a gene therapy cure for sickle cell disease, which is expected to be available in the next few years. The estimated price of this treatment is $1.85 million per patient. As a result, economists predict that it could cost a single state Medicare program almost $30 million per year, even assuming only 7 per cent of the eligible population received the treatment.
And that’s just one drug. Introducing dozens of similar therapies into the market would strain health care systems and create difficult financial decisions for private insurers.
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Lowering costs, finding new ways to pay
One solution for improving patient access to gene therapies would be to simply demand drugmakers charge less money, a tactic recently taken in Germany.
But this comes with a lot of challenges and may mean that companies simply refuse to offer the treatment in certain places.
I think a more balanced and sustainable approach is two-fold. In the short term, it’ll be important to develop new payment methods that entice insurance companies to cover high-cost therapies and distribute risks across patients, insurance companies and drugmakers. In the long run, improved gene therapy technology will inevitably help lower costs.
For innovative payment models, one tested approach is tying coverage to patient health outcomes. Since these therapies are still experimental and relatively new, there isn’t much data to help insurers make the risky decision of whether to cover them. If an insurance company is paying $1 million for a therapy, it had better work.
In outcomes-based models, insurers will either pay for some of the therapy upfront and the rest only if the patient improves, or cover the entire cost upfront and receive a reimbursement if the patient doesn’t get better. These models help insurers share financial risk with the drug developers.
Another model is known as the “Netflix model” and would act as a subscription-based service. Under this model, a state Medicaid program would pay a pharmaceutical company a flat fee for access to unlimited treatments. This would allow a state to provide the treatment to residents who qualify, helping governments balance their budget books while giving drugmakers money upfront.
This model has worked well for improving access to hepatitis C drugs in Louisiana.
On the cost front, the key to improving access will be investing in new technologies that simplify medical procedures. For example, the costly sickle cell gene therapies currently in clinical trials require a series of expensive steps, including a stem cell transplant.
The Bill & Melinda Gates Foundation, the National Institute of Health and Novartis are partnering to develop an alternative approach that would involve a simple injection of gene therapy molecules. The goal of their collaboration is to help bring an affordable sickle cell treatment to patients in Africa and other low-resource settings.
Improving access to gene therapies requires collaboration and compromise across governments, nonprofits, pharmaceutical companies and insurers. Taking proactive steps now to develop innovative payment models and invest in new technologies will help ensure that health care systems are ready to deliver on the promise of gene therapies.
The Bill & Melinda Gates Foundation has provided funding for The Conversation US and provides funding for The Conversation internationally.
Insurers focus on risk and resilience
As we approach COP 26, Business Reporter is delighted to introduce our Sustainability Talks series, in support of the UN SDGs and the Decade of Action.
Climate Change is the number one risk to the world’s economy. According to Swiss Re, the reinsurance group, global property insurance premiums are predicted to rise by 41 per cent by 2040 due to the growing frequency and severity of extreme weather.
For insurers, the risk is two-pronged – they face increased pay-outs to policy-holders as a result of more frequent floods, wildfires and droughts, while the huge investment portfolios they use to pay out on claims are also at risk from the impacts of climate change on all sectors of the economy.
Business Reporter is delighted to share the Insurance, Sustainability & Climate roundtable with some of the UK’s industry experts to discuss how the insurance industry is developing resilience in their investments and for businesses and policy-holders.
The panel includes:
Alix Bedford, Risk Proposition Manager, Zurich Municipal
Ben Wilson, Director of Advocacy, Association of British Insurers
Dermot Kehoe, Communications and Transition Director, Flood Re
Ekhosuehi Iyahen, Secretary General, Insurance Development Forum
Rebekah Clements, Sustainability Director, Lloyd’s
Sustainability Talks is Business Reporter’s thought-leadership interview series, featuring conversations with some of the world’s most inspirational organisations, subject matter experts, scientists and thought-provoking business leaders. It will explore their work in tackling global sustainability challenges and achieving a just transition to a low carbon economy.
Business Reporter is a United Nations SDG Media Compact member, and as such, it is committed to delivering content to its business communities that will provide insight into how business leaders and industries are moving the needle in our transition to a low carbon economy.