Consulting Archives - Perr&Knight

The Human Side of Operations

by Rob Berg

Insurance is an industry famously associated with numbers, statistics, and financial data. And yet, behind every policy, every claim, and every transaction, there are individuals – people just like you and me – who have feelings and emotions, ups and downs, good days and bad.

From the customers who purchase insurance policies to the employees who work for insurance companies, there is a human side to insurance company operations that is often minimized, unnecessarily subjecting the insurer to being poorly perceived. During decades of providing insurance operations consulting services, we have seen the upside of companies that recognize the power of their people – and the problems that arise when they don’t.

AGENTS ESTABLISH THE TONE OF CUSTOMER RELATIONSHIPS

Most obviously, insurance companies interact with their policyholders. When a customer decides to purchase a policy, they’re often making a significant financial commitment, and the insurance company is charged with ensuring the policy adequately secures a given risk at a fair price.

As the face of an insurance company, agents are often the first point of contact. They help customers understand their insurance options, explain the benefits and limitations of different policies, and answer any questions they may have. In many cases, insurance agents build long-term relationships with their clients, providing ongoing support and assistance as their insurance needs change over time.

However, in our age of increasing self-service and minimal human interaction, countermeasures must be taken to preserve the value of the relationship. During insurance operations and technology consulting engagements, we always caution our clients against letting automation usurp the very real value of a genuine human bond.

CLAIMS MANAGERS MUST BE SENSITIVE TO CUSTOMERS IN CRISIS

Of course, when a customer experiences loss or damage, they must file a claim to receive compensation. This is a particularly stressful and emotional time for the customer; it’s critically important that claims managers handle the claim with sensitivity and efficiency throughout the process. Claims adjusters who investigate the claim, determine the extent of the loss or damage, and work with the customer to reach a settlement are especially prone to being perceived as greedy and unsympathetic, which reflects poorly on a carrier brand.

Because adjusters are often best positioned to provide emotional support and guidance during this difficult time, they’re vulnerable to tacking too far to the analytical side of operations (often in service of their organization’s key performance indicators) while neglecting the claimant’s very real emotional and financial needs.

Adjusters take note: A failure to satisfy customers during the claims process can cause a tremendous hit to an insurer’s credibility and reputation. Take a random look at online reviews for practically any insurance company for proof.

SATISFIED STAFF MEMBERS PERFORM BETTER

Perhaps most importantly, because work consumes a substantial portion of our lives, insurance companies are increasingly responsible to their employees for their wellbeing. This means, in addition to providing a safe and healthy work environment, competitive compensation, and opportunities for professional advancement and development, that they actively support their autonomy (their ability to work without constant managerial intervention), competence (their feeling of being appropriately challenged by the work they do), and relatedness (the feeling that they’re adding value to something larger than themselves).

Unsurprisingly, according to Self-Determination Theory – a rigorously researched psychological construct for human motivation – autonomy, competence, and relatedness are three psychological needs that underpin employee engagement. Failure to respect those needs can result in poor morale, burnout, and high turnover.

SUPPORT THE COMMUNITIES WHERE YOU WRITE BUSINESS

Finally, insurance companies have a social responsibility to the communities they serve. This includes investing in programs and initiatives that promote safety and prevention, supporting local charities and organizations, and working to make insurance more accessible and affordable for everyone.

The human side of insurance company operations is often overlooked, but it merits greater attention as it is essential to the success of the industry. From the agents who sell insurance policies to the claims adjusters who help customers in their time of need, to the employees who work behind the scenes, and the communities they serve, the human element is what makes insurance companies truly effective and valuable to society. By recognizing and valuing the people who are involved in every aspect of insurance operations, we can build stronger, more resilient communities and a more compassionate and sustainable insurance industry.

Empower your teams to do their best work. Contact the insurance operations experts at Perr&Knight today to discuss how we can help.

On-Demand Insurance: Insurance for the Sharing and Gig Economies

by Danny Baxter

On-demand insurance is a rapidly growing segment of the insurance market, providing policyholders with many benefits over the traditional insurance model. It can be purchased without directly interacting with a carrier representative, broker, or agent. While on-demand insurance is still new and a small segment of the insurance market, a study by Acumen Research and Consulting estimates the market to grow by nearly 30% by 2026 ⁽¹⁾.

ADVANTAGES OVER TRADITIONAL INSURANCE

According to our insurance product development team, there are numerous advantages that on-demand insurance products have over traditional insurance:

Convenience: The application process for on-demand products is typically through a mobile or web application with an easy-to-understand interface, minimal number of questions, and the ability to tailor the coverage to a policyholder’s needs. Traditional insurance often involves lengthy interactions with carrier underwriters, agents, or brokers, which could involve protracted and complicated paperwork. More sophisticated on-demand products can obtain an applicant’s driving or claims history and auto-complete many data questions, further easing the application process for the customer.
Control: An on-demand policyholder can change the terms of their policy, add or remove coverages, and make other changes through their mobile or web application without having to make time-consuming and inconvenient calls to an underwriter, broker or agent. More sophisticated on-demand products provide many coverage customization options, putting powerful control of the coverage into the hands of the policyholder.
Instant Access: On-demand insurance coverage can be applied for and turned on in minutes. This is a big advantage in today’s economy where consumers are used to instant access (streamed music and video, same-day or one-day shipping, etc.).
Claims Handling: Claims can often be filed through a mobile or web application instead of having to contact a claims adjuster, adding further convenience and time savings.
Expense Savings: Commissions, brokerage costs, and other acquisition expenses are often lower due to the application process being handled through a mobile or web application. Automating the application and claims handling process can also lower the number of underwriters and claims adjusters needed and removes the need for additional paperwork. These costs savings can be passed onto the policyholders through lower premiums.
Usage and Need Based Coverage: Many on-demand products are offered on a short-term basis, from as short as one hour to several months, depending on when the policyholder needs coverage. Often, the policyholder can pause and then reactivate their policies to provide coverage only when they need it. Telematics allows for rating of auto insurance based on the actual miles driven. These features are important to gig economy workers who don’t need full coverage over an entire year, instead only needing coverages when they have a project or gig. Other examples of usage and need based coverages include travel or event insurance, with coverages purchased for a single trip or event.
Continuous Underwriting: Many on-demand products feature continuously updated pricing and risk profiles using real time data. Examples include usage base auto insurance using telematics, travel insurance using flight and weather data, and homeowners insurance using data from Internet of Things (IoT) devices.
Providing Coverage for Gaps in Insurance: On-demand insurance products can provide coverage for gaps in traditional insurance policies. For example, homeowners policies do not typically cover damages when a property is rented to others (Airbnb, Homestay). Personal auto policies don’t cover “business use” of covered vehicles. On demand insurance products can help provide coverages in both these instances and are especially suited to fill in these gaps on a usage and needs basis.

DISADVANTAGES OF ON-DEMAND INSURANCE

Of course, in our experience with insurance product development, we know there are also potential downsides and difficulties with products in this emerging market:

Moral Hazard: Since the application process is typically through a mobile or web application, it is difficult to audit the applicant responses for accuracy. Applicants can answer questions dishonestly in order to pay a cheaper premium. Insurers need to create better verification and auditing systems in order to ensure that risks are being priced appropriately.
Fraudulent Claims: Customers can potentially purchase on-demand coverage after the actual loss or damage has taken place and make a fraudulent claim that the damage took place after they turned on their coverage. Products that allow pausing and unpausing of coverages are especially susceptible to this risk.
Concentrated Exposure: On-demand policies will be purchased or turned on before a work shift or project so the exposure is highly concentrated for the policy term, in comparison to a standard annual policy that doesn’t allow pausing of coverage. Higher rates during usage should be charged to ensure that the premium collected adequately covers the concentrated risk.
Adverse Selection: Underwriting standards and knock-out questions are important for on-demand products. Less control over the underwriting process, with minimal ability to audit and review the applicant, can lead to riskier insureds being able to obtain on-demand coverage when they haven’t been able to obtain coverage in the standard market.
Regulatory Difficulties: On-demand programs have unique rating, form, and other program features that are different than the products that state insurance departments are used to reviewing. For example, short-term on-demand programs often file leveraged rating factors to provide higher premium for concentrated short-term coverages. Mobile and web applications require filing snapshots of each possible screen. Continuous and real-time pricing based on telematics, IoT devices or real-time travel data are difficult to support to the black-box nature of the technologies. This can result in a more difficult path to approval.

CURRENT ON-DEMAND PROGRAMS

Numerous on-demand insurance products are already available in many different lines of business, including:

Metromile offers personal auto coverage for a low monthly rate plus a per miles driven charge, tracked by telematics. Coverage can be switched on and off through the mobile application.
Thimble offers commercial general liability, miscellaneous professional liability, and inland marine coverages on a short-term, episodic basis. They allow their liability coverages to be paused and reactivated by the policyholders, through their mobile and web application. Thimble also provides coverage for drone/unmanned aerial vehicles liability insurance on an episodic basis. They have recently started offering episodic commercial property and event insurance in select states.
Cuuva is a United Kingdoms based insurer that offers personal auto insurance from 1 hour to 28 days in length.
Spot offers $20,000 of accidental injury coverage on a per month, subscription basis. This coverage can provided as a supplemental coverage to a traditional health insurance policy or can be the primary coverage for the roughly 30 million people without comprehensive healthcare coverage.
Flock provides drone/unmanned aerial vehicles liability and physical damage insurance coverage on an hourly, monthly, or per drone flight basis.
Surround offers Starter Pack insurance which includes bundled non-owned auto, renters, and miscellaneous professional liability coverage on a monthly basis, $60 per month. The products are designed for freelancers and other self-employed working professionals.
Digital Risks provides various business insurance coverages for small businesses, with a focus on digital assets, on an on-demand basis. Coverages are paid on a monthly basis. Available coverages include business owners insurance, professional liability and directors and officers liability.
Bind provides on-demand health insurance. The coverage options can be changed through the mobile application, including activating coverage during the year for less common, plannable treatments as needed.
Tapoly offers on-demand insurance coverage for small businesses, sole traders, freelancers, and the self-employed. Coverage options include professional liability, cyber liability, business owners property and liability, and directors and officers liability.
Duuo offers commercial general liability coverage on a daily basis, aimed at gig economy workers.

Perr & Knight has extensive experience assisting on-demand insurers with insurance product development. We have prepared and submitted filings resulting in the approval of many innovative on-demand programs across the United States. Contact us for assistance with your program.

[1] https://www.acumenresearchandconsulting.com/usage-based-insurance-market

Auto Accidents Drop Dramatically with COVID-19 Stay-At-Home Order

by Brett Horoff

Authors: Brett Horoff, ACAS, ASA, MAAA, Director, Consulting Services, Dee Dee Mays, FCAS, MAAA Principal and Chief Actuary, and Denise Farnan, ACAS, MAAA Principal and Consulting Actuary.
To control the spread of COVID-19, many states have issued Stay-At-Home[1] orders for non-essential workers, resulting in a large portion of the workforce working from home and many businesses temporarily closing. Schools have also been forced to close or have moved to online solutions for classes. These changes have brought a significant drop in the number of miles driven by each household and the volume of the traffic on the roads. With fewer miles being driven and a decrease in traffic density, the number of auto accidents has decreased.
According to the Public Policy Institute of California, essential workers are one-third to one-half of the California labor force. The definition of essential workers varies across the state. It includes sectors such as healthcare and public health, emergency services, food and agriculture, energy, water and wastewater treatment, transportation and logistics, communication and technology, government operations, critical manufacturing, hazard materials, financial services, chemicals and defense industries. Outside of these sectors, households are no longer commuting to work. There has also been a significant reduction of personal auto use as this is pretty much limited to driving to the grocery store, pharmacy or to pick up takeout food from restaurants.
The average annual miles driven in the U.S. is 13,476[2] or approximately 260 miles per week. For non-essential workers, this could be down to less than 30 miles per week assuming five trips a week that are six miles round trip. This represents an 88.5% reduction in the weekly miles driven for households with nonessential workers from 260 miles per week to 30 miles per week. For households with essential workers, they will also have a reduction in the miles driven per week; however, the essential worker will still be driving to work. Assuming half the average annual miles driven is commuting to work, then an essential worker is driving 130 miles per week to commute to work plus another 30 miles per week for personal use. With these assumptions, they would be seeing a 38.5% reduction in the miles driven per week from 260 miles per week to 160 miles per week. If half the households have essential workers, the reduction in miles driven is 63.5%, which is just an average of the figures for non-essential and essential workers. This is a very rough estimate with simplified assumptions, but it gives you an idea of the impact that the Stay-At-Home orders are having on miles driven.
The number of auto accidents will be directly related to the number of miles driven, so insurance companies should be seeing a significant drop in the number of auto accidents. With fewer vehicles on the road and a decrease in traffic density, there should be fewer auto accidents. The number of reported auto accidents in Los Angeles is down approximately 25% in March 2020 compared to March 2019 based on adjusted data[3] from the City of Los Angeles. The Safer at Home Order was issued by the City of Los Angeles on March 19, 2020, so the full impact on auto accidents is likely to be more than double.
It is still very early to assess the impact that COVID-19 and the impact that Stay-At-Home orders will have on the number of auto accidents. The definitions of essential workers have been changing over time and the orders could be extended. When the orders are lifted, we may also see a slow return back to the prior driving habits. There are several insurance companies that have already taken action to get the savings from the decrease in auto accidents back to their customers. Allstate has submitted filings this week to state Departments of Insurance for a Shelter-in-Place Payback endorsement that authorizes and facilitates discretionary payments to policyholders. They also had a press release on April 6, 2020 that states their customers will receive more than $600 million as part of this payback. Another insurance company, American Family, announced on the same day that they will return $200 million in premium to their auto customers related to the COVID-19 impact on auto accidents. There also insurance companies with pay-per-mile programs where any savings is automatically passed on to the customer, since the customer pays for each mile driven.
There are a number of filings being made by insurance companies to the state Departments of Insurance to address the impact of COVID-19 on auto accidents. Go Maps has filed to offer personal auto discounts to essential workers and recently unemployed workers in multiple states. Next Insurance has filed to reduce the commercial auto premium for their customers for the month of April in several states. Safe Auto Insurance Company and Elephant Insurance Company have also filed rate reductions related to COVID-19. There are several insurance companies that have filed endorsements lifting the delivery exclusion in personal auto policies during the COVID-19 pandemic in order to provide insurance coverage to the increasing number of people delivering medicine and food.
While several insurance companies are moving fast to pass the savings from a decrease in auto accidents on to their customers, there are consumer groups saying it is not enough. There is much uncertainty right now and the full impact of COVID-19 on auto accident frequency will not be known until the pandemic is over. It is likely that insurance regulators in each state will take a look at the impact of COVID-19 on auto accident frequency and may require the premium savings to be passed on to the consumer.

About Perr&Knight

Perr&Knight is one of the largest providers of State Filing Consulting Services to the insurance industry and is available to help insurance companies with preparing and submitting filings addressing COVID-19’s impact on auto insurance or other lines of business. Our actuaries can help companies estimate the impact of COVID-19 and have assisted companies with preparing and submitting filings related to COVID-19.

Contact us to schedule a consultation.

[1] Also referred to “Shelter in Place” or “Safer at Home” in some municipalities.
[2] Figure is for 2018 and is from the U.S. Department of Transportation Federal Highway Administration.
[3] Data was through March 28, 2020 and was extrapolated to month-end. It was also adjusted for a reporting lag.

Why IT Projects Fail…and How to Prevent Yours From Collapse

by Rob Berg

Authors: Rob Berg SCPM, CSSBB and Mark Nawrath, PMP, MBA
As expert insurance technology consultants with many years of experience under our belts, it feels like we keep seeing the same story over and over. It goes like this: Company has a need for an IT project, Company hires vendor to develop software or processes, project seems to start off strong, but ultimately gets further and further off track until the timeline is blown, the budget has skyrocketed, and Company has invested major time and money—with no useable solution yet in sight.
Though each company has its own unique circumstance and different players involved, we’ve seen the same types of issues derail project after project. Here are some of the most common reasons IT projects fail and how to keep yours going strong.

Reason 1: Lack of involvement from leadership

As the initial (and often final) decision makers, the executive team holds a significant amount of power regarding a project’s success. As we’ve all heard before, “With great power comes great responsibility.” It’s up to the executive team to not only carefully consider their choices and motivations when committing to a project, but to remain actively involved during every phase. The company’s leadership must thoroughly understand the project needs and goals and actively work to support that vision. New IT project implementation brings significant change throughout an organization. If leadership is not onboard at the outset and throughout development, those who are in charge of managing the project will struggle and the initiative may ultimately fail.

Reason 2: Change is challenging

New ways of doing business are often met with some level of resistance. The insurance industry is notoriously slow-moving and many of the people who work in this business have occupied their position for decades. Their experience brings value to an organization, but often those who have been accustomed to doing things the same way for the majority of their careers don’t realize the benefit of change. They may consciously—or unwittingly— undermine efforts to implement new systems.

Reason 3: Poor project requirements

As mentioned in a previous blog, ambiguous requirements are often both a cause and a symptom of a project that is destined to struggle. When project requirements are handled haphazardly, individuals involved in bringing the project to completion spend too much time trying to decipher what is being asked of them, they head down paths that seem right but don’t fit into the greater scope of the project, and they waste time trying to sort out the results of initial poor planning. By clearly and correctly articulating project requirements from the outset, projects stand a much greater chance of successful completion.
Read more: How the Right Requirements Can Make or Break Your Next IT Project.
We were brought into one such stressful situation. One of our clients was struggling with a failing implementation project, and about to head into an expensive arbitration. To assess the situation, we conducted a thorough review of contracts, requirements, and project management artifacts which revealed that their problem originated with the contract itself: it was far too ambiguous. One of the deliverables stated in the vendor contract was to “implement an underwriting module.” But what exactly did that include? The answer was up in the air, and neither our client nor the vendor could agree on what was to be delivered. Furthermore, requirements were scattered within emails, there was no evidence of a project plan or charter, and no regular status updates other than the ad hoc discussions that took place periodically.
Based on our written report, the client invited us to testify at the arbitration as an expert witness. After being certified by opposing counsel and the arbitrators, defending the findings in our report under cross-examination and delivering testimony that stood up under rigorous scrutiny, our client prevailed. However, their victory was a double-edged sword. They were able to recover their funds from the contract but had to pay the arbitrators, experts, and a stenographer – in addition to their own time lost in travel and testimony. They were also back to square one when it came to the project itself.

Reason 4: Sloppy project management practices

In insurance project management, keeping an eye on details is crucial. Projects should be overseen by experienced project managers or insurance technology consultants, not well-meaning junior staffers with an Excel spreadsheet and an Outlook calendar. During the course of development, many high-stakes pieces of information must be juggled, including status reports, baseline tracking, dependencies, and change requests. We’ve seen companies dive head first into costly IT projects with zero analysis of how long it’s going to take, what the final cost of implementation will be, or how it will affect other activities that occur downstream. All of these crucial pieces of information must be identified at the outset, tracked throughout development, and evaluated at project completion to gain a true understanding of whether or not the project is a success.
Read more: Common Mistakes Carriers Make When Implementing New Systems.
We were called in to rescue a project for a medium-sized regional carrier who had sunk millions into a policy administration system that was months over deadline, with no end in sight. We discovered that not only was there no onsite project manager, there were no formal documented requirements (just raw materials like rating worksheets and product filings). Organized status reporting was also nearly non-existent: the Vice President of IT would hand-draw a set of pie charts on a piece of paper each week, roughly approximating the level of project completion—with no verifiable data to back it up.
We recommended that they put substance behind their completion tracking, so we created a formal project schedule for each component. We installed an onsite project manager who took documentation seriously. What had previously been a project that was almost at the point of litigation turned around quickly as all parties were able to assess and achieve their distinct requirements. This intervention ultimately led to a successful implementation.

Reason 5: Ignoring key stakeholders

Leaving out the people who will be using these systems every day is a grave error that will almost always cause problems down the line. If the ultimate end users are not invited to participate in system selection and configuration, not only is the project likely to face resistance, it could lack certain key features that might help these individuals perform better. Involving all levels of stakeholder during all phases of project development gives each a sense of ownership over how the project proceeds. It also provides stronger justification for each person or department to support its eventual success.

How to tell where your project is struggling

We have been called in countless times to help companies who have succumbed to the traps listed above. To prevent such catastrophes, we conduct an in-depth readiness assessment – preferably in advance of the implementation effort – to determine weak areas of the project, then develop a plan to reinforce those issues. For starters, here’s what we look for:

Personnel: Is the project adequately staffed? Are those staff members adequately trained with appropriate competencies?
Internal processes: How does work flow through the project? What is the process for approvals? What is the process for procurements that take place outside the scope of the project’s main deliverable?
Supporting technology: How are status reports obtained and delivered? How are people logging their time against the project? How does this compare against the baseline? Are the appropriate environments (e.g., development, staging, testing, production) set up?
Metrics: What metrics are being monitored? How is project success being defined?
Overall governance: What project management methods are being utilized? Are they appropriate for the project scale and scope and composition and distribution of the team?
Physical environment: Is the project effort being performed with the right facilities? Do people have enough space, equipment, and easy access to the resources they need?

Though every project has its own unique quirks and challenges, most implementation problems stem from one or more of the above factors. Only after a thorough discovery can you develop an appropriate plan to shore up the project. The truth is that there is no stock answer. This is why there’s a high failure rate. However, thinking ahead and crafting a laser-focused plan while maintaining flexibility to combat the inevitable changes and challenges you’re sure to confront gives each project the best shot at success.

If your project is running over time or over budget, Perr&Knight can help. Contact us for a no-obligation readiness assessment to determine where your project might need further support.

How the Right Requirements Can Make or Break Your Next IT Project

by Rob Berg

Authors: Rob Berg SCPM, CSSBB and Mark Nawrath, PMP, MBA
According to the Standish Group’s Chaos Report, an alarming 19% of all IT projects fail. Meanwhile, a full 60% fail to meet expectations. Stats like this show that tech projects run the risk of failing more often than they succeed. For insurance companies, these numbers should be alarming. The amount of capital—both human and financial—invested in IT projects for insurance companies mean that missteps in implementation planning and execution translate directly into significant waste, both of time and money.
We have found that one of the most impactful ways to shield tech projects from serious setbacks is to invest in establishing a clear set of requirements well before system configuration begins. If you’re not paying attention to the fact-finding and requirement-defining phases of your project, you may be unwittingly setting yourself up for failure.

How do you define “good” requirements?

In a single word: unambiguous. This means painstakingly translating information from subject matter experts into a language that can be easily consumed by developers or those configuring IT systems. Too often, subject matter experts get mired in their own vernacular. They forget that terms and definitions that seem obvious due to daily use and a shared language among colleagues are not likely to be fully understood by the developers—who also communicate through their own shorthand. Insurance technology consulting partners must not only record requirements, but they must also take the time to outline specifically what each requirement means and communicate how it fits into the greater context of the project.
Read more: The Importance of Unambiguous Product Requirements.
From there, consistency is key. By taking ad hoc approaches to write their own requirements from scratch at the outset of each project, we’ve seen insurance companies fail to capture and organize important information along the way. The formatting of the project outline plays an important role, even down to details like consistent sentence structure and naming conventions. When each project looks like an entirely new animal, developers and project managers are forced to spend more time taking in the basics, instead of capitalizing on their expertise to document an exhaustive set of requirements and spot areas of ambiguity that require more clarification.

The cost of hazy requirements

We’ve all heard horror stories about IT projects at insurance firms that have been drastically delayed or simply abandoned because the train got so far off-track that it couldn’t be redirected. For example, we saw a company spend millions buying a new policy admin system, trusting the assurances of their software development vendor that the project would take six months to implement. After six months passed and the project was still around halfway from completion, Perr&Knight was called in to try to salvage the struggling project and stave off a lawsuit.
We discovered that the project was doomed from the start because even basic requirements weren’t clear. Obvious problems included project requirements outlined in disparate emails, multiple stakeholders weighing in at different stages and actuaries who simply passed along a rating algorithm, assuming that programmers could just use it to program for a different state or new line of business. Lack of context was stifling each party’s ability to deliver their full level of expertise.

Far-reaching consequences

Poor product definition – the core requirements that document the use of insurance product rates, rules and forms – has the potential to become a quadruple whammy that can hurt the company on multiple fronts, not just the IT or actuarial department. Here are some of the ways badly defined insurance product requirements leak out across departments and damage the company as a whole.

Lost time – When product parameters require constant clarification from underwriting and regulatory staff, project phases extend to weeks or months instead of days, and the delay drains time that could be better spent elsewhere. This lack of efficiency leads to…
Frustration – Projects that proceed at a snail’s pace drain morale and lead to increasing personal frustration as teams struggle to deliver.
Skyrocketing budgets – Resuscitating shaky IT projects that are midway through development often requires throwing good money after bad. It’s the only way to justify the expenditure up until his point and salvage the project.
Regulatory implications – For projects that do reach completion, those with poorly written product requirements often fail to address the true standards required by state departments of insurance. Configuring incomplete or incorrect forms or rates leads to a significant regulatory risk that can take a toll on the company’s reputation and seriously impede their speed-to-market objectives.

The key to establishing clear requirements

In an industry that depends so heavily on specialized expertise, one of the smartest ways to ensure that your product definitions are clear is to approach the requirement through the eyes of a layperson. It sounds counter-intuitive but boiling down needs and specifications to their most basic, plain-English functions enables project managers to deliver the vital translation between insurance company and vendor described above. Additionally, it helps insurance companies gain a deep understanding of what amount of “out of the box” functionality will truly apply to software products they purchase, versus the amount of customization that will be required to achieve the final end-product.
Though it seems like a safe bet to hire the big guys, we find that when insurance companies go directly to big technology consulting firms for development, they often end up with well-meaning tech developers who may lack adequate insurance domain knowledge. This specificity plays an important role in translating the needs of insurance companies into software that not only improves productivity and speed-to-market objectives, but supports compliance in an increasingly burdensome regulatory environment.
Hiring an insurance technology consulting company to painstakingly outline and define your entire project scope may require a slightly higher initial outlay but think of it this way: you’re in the insurance business. Taking the time to do it right the first time is your own insurance policy against expensive delays and demoralizing headaches.

If you have questions about the adequacy of your stated IT project requirements, our expert insurance software consultants can help.

25 Years and Still Going Strong

by Scott Knight

It’s hard to believe that 25 years have gone by since Tim Perr and Scott Knight began Perr&Knight in the luxurious executive suite of Tim’s converted garage office. Tim was an experienced actuary who decided to hang his own shingle and Scott was a part-time sales guy/admin assistant/ babysitter to Tim’s infant son Nick and dog walker to the Perr’s puppy pug, Sybil.
Though everyone wore a lot of hats in those days, Tim and Scott had a tireless passion to help insurance companies become more efficient and effective. We’re still at it today.

It’s always been about the clients

Everything we have done as an insurance consulting company has been about better serving our clients. In those early days, we would travel all over the country—from New York to Chicago, Texas, Florida, and nearly every state in between—meeting with insurance companies and helping them navigate the rigorous regulatory requirements and other operational challenges that vary dramatically by state. As a consulting firm, we have remained by our clients’ sides as they continue to adapt to a changing playing field, and this close-up view of their needs and challenges has helped us develop tools to better serve them. We owe much of our success to our long list of dedicated clients, some of whom have been with us since day one.
“There’s no better compliment than to value our service so highly that companies have continued to engage us over decades. Individuals who have changed jobs throughout the industry have continued to reach out to us over the course of their careers,” says Tim. “We want to explicitly thank our clients because we could never have achieved our current level of success without them.”

Thoughtful company culture brings out the best in our teams

Everyone at Perr&Knight brings their own strengths and experience to the table, and it’s our goal to help every member of the team do their best work. Under the guidance of Judy Perr, Perr&Knight’s Chief Administration Officer (and Tim’s wife), we have continued to adapt our internal operations to meet the needs of our staff. As an actuary herself, Judy deeply understands the hinderances—both minor and major—that can inhibit actuarial and insurance consulting staff from performing at their peak. She applies this unique perspective in her role, ensuring that we evolve as a company to help our teams provide better support to our clients, and also feel supported themselves.
With 100+ employees in five nationwide offices, promoting a uniform company culture ensures that all our employees are on the same page. Three years ago, we assembled a corporate culture committee whose task was to articulate our shared company values. We put lots of energy into making sure that all locations and departments were represented, and that all employees are offered the chance to sit on the committee and offer ideas. This dynamic system adapts to changing times, so we are set up to respond to the needs and realities of an evolving workplace. Not only does this help us better serve our clients, we believe it also helps us attract the best talent.

Where to next?

As we move forward into the next 25 years of Perr&Knight (and beyond), we’ll continue to keep our focus squarely on the future. In an industry that sometimes seems to move at a snail’s pace, we believe in looking at what companies should be doing—and then developing the insurance support services that can help them get there.
By perpetually looking forward, we have added useful services like regulatory compliance consulting, product design consulting and technology consulting, and developed industry-leading products such as Statefilings.com. Many of these ideas were originally launched to help us be more efficient as a consulting firm, then we realized how valuable these innovations could be as services for our clients.
So, what’s just over the horizon for the insurance industry? Tim Perr believes advancements in technology can absorb many of the industry’s most time-intensive tasks and help actuaries apply their expertise in more efficient ways. He recalls, “When I started as an actuarial consultant, I spent half of my time keying data into Lotus 1-2-3 that had originally been entered via typewriter. Today’s machine learning and AI advancements will allow actuaries to focus on things human beings do well—like using their judgment and applying their knowledge from other areas—instead of occupying valuable time with things that machines do well, like running numbers.”
Another issue that will play an increasingly important role in the future: the evaluation of risk and protection regarding companies’ digital assets. We predict that growth in insurance premiums will become more and more tied to the growth of cyber assets rather than physical assets as they are now. Rather than insuring buildings, insurance companies will need to expand their ability to insure data and other property stored digitally. “The cyber world is just like the material world,” Tim explains. “When companies put their property out into the cyber world—like data storage, apps, IP, and even their reputations—it all needs to be insured.”

Cheers to our past—and here’s to the future!

We’re proud of the company we’ve created, the corporate reputation we’ve built, and the career successes our staff has achieved. We’re grateful to everyone who has contributed their insight and expertise and to the clients whom we have watched grow over time.
“When we started out in 1994, we were a couple of young, bright-eyed insurance consultants in our early thirties and we were meeting with insurance executives who were in their 50s and 60s,” recalls Scott. “Now 25 years later, we’re the older, wiser insurance consultants, meeting with insurance execs who are ten and twenty years our junior. But we’re as energetic as ever and all our years in this business have given us insight and experience that continue to fuel our momentum. We’ve got no plans to slow down any time soon.”

Change May Be Brewing for Medical Professional Liability Carriers

by Leslie Vernon

After comparing data from the top 100 nationwide carriers of medical professional liability insurance, upon first glance it appeared that net income declined in 2017. However, after removing carriers that write medical malpractice as less than 50% of their business, a closer inspection of the data revealed that in 2017, net income actually increased slightly. On the surface, this might sound good. However, our experience providing actuarial consulting services to medical professional liability carriers actually makes this steady trajectory raise some alarm bells. These trends could signify a deeper issue: because the results of medical malpractice insurance have been coasting along for so many years, the line could be due for a serious shakeup.

The state of the market

Overall, what we’ve seen over 2017 is a further perpetuation of the profitability of the previous years. Actual premiums have declined, but investment gains have been high, even though underwriting income remains low. More good news is that the rate of incidents of malpractice has been in steady decline for many years. Frequency trend of claims and incidents of medical liability have diminished, thereby helping maintain underwriting profits at present rates. This is a positive trend in the industry. However, there are other less directly-related changes that are important to be aware of.

Evolving medical groups and the rise of self-insurance

One of the challenges facing medical professional liability carriers is the shifting makeup of medical groups. In the past, physicians practiced solo or in relatively small medical groups. Now, many more physicians operate under the umbrella of a hospital or significantly larger healthcare provider. The bottom line is that the market for physicians’ insurers is shrinking. Hospitals and healthcare providers are increasingly forming their own captives and paying their own claims. This overall trend is shifting dollars away from insurance carriers toward alternative risk vehicles.

In a limited market pool, it pays to be proactive

In terms of gaining market share, there are not many more physicians that a carrier can reach. However, you can take steps to increase the attractiveness of your offerings to entice medical groups and single practitioners, including reviewing recent rate filings to compare your rates with the competition. This can present a bit of a challenge since not a lot of companies have changed their rates lately because the line has been so profitable. Carriers are more inclined to file with the state when increasing rates; if things are going well, many carriers are reluctant to lower rates. However, this is where it can pay off to work with an experienced insurance actuarial consulting services partner. For example, at Perr&Knight, we track filings across all jurisdictions, so we can see who is changing their rate filings—and the justification behind it. This intel can help you determine how best to amend your rates to become more competitive.

What’s ahead for the future?

Underwriting income gains have helped support profitability for this line, but these gains have been minimal. Carriers have relied on reserve takedowns to increase underwriting profitability. However, this trend is decelerating. At some point, it will likely swing in the opposite direction as actuaries begin to underestimate reserves on prior years. If (or actually—when) this happens, carriers will need to increase rates.
Because medical professional liability insurance has been such a profitable line for so long, carriers tend to adopt an “if it’s not broken, don’t fix it” attitude. However, this complacency could lead to financial setback down the line if you aren’t keeping one eye trained on the future to make sure you get ahead of the change that may be percolating just beneath the surface of the marketplace.

4 Hurdles to Overcome When Considering a Cannabis Product Offering

by Kyle Hales

The times certainly are a-changin’. As of this publication, thirty states have legalized cannabis use in some form, with eight approving marijuana outright for recreation. As new avenues open up for production and distribution of plants, oils, edibles and the wide variety of other cannabis-related consumer products and medicines, new insurance product development opportunities emerge for companies to provide coverage for every corner of this fledgling market.
As cannabis widens in legal acceptance, the insurance industry is realizing that the market demand for coverage will continue to grow (no pun intended). Before wide-spread legalization, cannabis coverage was part of the non-admitted market; however, as legalization spreads, more and more regulators want companies to write coverage on an admitted basis, which will increase regulation.
The road to cannabis-related insurance product development is still under construction. There are bumps and unforeseen detours along the way. Here are four hurdles to prepare for as you gear up to offer coverage for cannabis products.

Hurdle #1: State vs. federal laws

No matter what is happening on a state level, the bottom line is: according to the federal government, marijuana is still a schedule I controlled substance. It occupies the same classification as heroin, LSD, and peyote. This throws a measure of uncertainty into the entire line of coverage. What if the Feds start cracking down on cannabis companies? If your company pays a claim, could your organization be held liable for participating in what the federal government considers to be a black market? Meanwhile, on a more niche level, certain insurance coverages are regulated under federal standards, such as terrorism and most types of flood insurance. Would your clients be eligible to purchase TRIA or flood insurance? As of now, the answers are unclear.
Just because an insurance product is approved at the state level doesn’t mean you’re fully in the clear to proceed. When the state governing body approves the legality of a product, from an insurance standpoint, the product is fine. However, it’s up to the judicial branch to interpret the contracts. The courts will determine the mechanics of coverage, and those outcomes are still being decided.

Hurdle #2: A long learning curve

Cannabis coverage is uncharted territory, with a lengthy education process for everyone involved. Agents need to be informed as to how the product works, what it covers, what it doesn’t, etc. This information must be sorted out, then communicated to policyholders. Regulators, claims handlers, underwriters—everyone along the entire insurance pipeline is tasked with learning about the new norms and standards for this unconventional product. There are still many ambiguities that require clarification and dissemination among insurance professionals.

Hurdle #3: Product development and pricing challenges

Cannabis insurance product development and pricing are wide open at this point since there is no specific historical information to reference regarding the frequency and severity of claims. It’s also difficult to ascertain an accurate exposure base. Yes, borrowing from other industries that are similar in scope and nature such as tobacco, agriculture and liquor liability can provide the broad strokes. However, when you’re developing a form or trying to determine rates, there’s no specific past data from which to draw. Rate and form development in the cannabis business require a “use your best guess for now” approach.

Hurdle #4: Clarifying what/whom you want to cover

The cannabis industry has three main categories that will require coverage: producers (growers), processors, and distributors. Depending on who you’re insuring, coverage offerings could differ greatly.
Growers and processors require a product liability-type coverage. They will be most concerned with coverage related to product contamination, accidental or deliberate tampering, or recalls. They’ll also need coverage for equipment, general liability, building structure coverage, non-employee slip-and-falls—standard manufacturing-type policies that have nothing to do with cannabis itself.
On the other hand, distributors will need coverage that relates mostly to their place of business, not unlike the types of coverage that apply to a bar or liquor store. As the public consumes the product on their premises, distributors will want to protect themselves against liability from over-serving, fights between customers, product spoilage, etc.

Where do you go from here?

Now that you’re aware of the hurdles, the smartest step is to start drafting a plan. Consider getting approval for products related to one aspect of the industry (production, processing or distribution), then expanding from there. Like all aspects of insurance, regulatory requirements differ by state. Add to that the push-and-pull between state and federal legality, and suddenly the variables multiply exponentially. As mentioned above, there is not a lot of precedent here to draw from, so it’s important to time and proceed carefully. If your company is not set up internally to handle the mountain of research required, work with a proven insurance services provider who already possesses experience drafting policies. Their deliberate methodology and expertise can save you from a significant drain on time and resources.
Cannabis insurance is still uncharted territory with a lot of work to be done. However, if you take your time and proceed carefully, you’ll be in the best position to break in early to this “budding” market opportunity.

At Perr&Knight, our insurance product development experts have already received approvals in a number of states for cannabis-related insurance product. If you are thinking of expanding into cannabis coverage, contact us today to discuss your strategy.

The Sharing Economy: What You Should Know Before Jumping In

by Courtney Burke

Authors: Courtney Burke, JD, CPCU, Michael Goldman, FCAS, MAAA, Les Vernon, FCAS, MAAA
The proliferation of the sharing economy impacts both commercial and personal property casualty insurance by creating new insurance needs. This new landscape brings many opportunities to better serve your customers – but also plenty of pitfalls. If your company is considering undertaking a new insurance product development project to address the needs of this fast-growing and quickly evolving marketplace, here are some key factors to keep in mind.

Mind the gap

Networking companies like UBER, Lyft and Airbnb have specific insurance needs that require customized commercial insurance. If not modified, traditional personal auto and homeowners policies may have gaps in insurance coverage for transportation network drivers and home sharing network hosts due to standard exclusions. For example, although UBER provides liability insurance for its drivers while they are working and Airbnb provides host protection insurance covering third-party liability claims related to a stay, the driver or host may not be protected for damage to their personal property.
The sharing economy also impacts the accident and health insurance industry. The majority of gig workers, i.e. service providers in the sharing economy like UBER drivers or Taskers on TaskRabbit, do not receive employee benefits through their networking companies. This creates a market for individual supplemental health products customized for gig workers.
These gaps create opportunities for insurance companies to develop bespoke products that address highly specific coverage needs.

Insurance + technology = opportunity

Much of the sharing economy is technology-based – services are engaged online or via a mobile phone application. If you’re considering targeting the sharing economy, you may need to mirror this online delivery model for your insurance products. This modernized distribution of insurance provides an opportunity for insurtech companies who can help deliver insurance products that feel native to this tech-centric landscape.

Finding the right insurance product development partner

As the sharing economy becomes more prevalent, you’ll likely begin to explore different methods to provide coverage. If you’re new to the sharing economy insurance market, you may wish to develop products with features specifically designed for this arena, including episodic or short-term insurance, or industry-specific coverage.
To design a solution that keeps pace with the market, you should partner with an insurance consultant who has extensive experience in developing new products. Experienced insurance product development consultants can draft coverage enhancements to incorporate specific coverages that may not be currently offered in your product. A product design consultant will also work with you to understand where coverage gaps or limitations exist in your current product and then make recommendations to address each.

Right pricing requires close actuarial attention

One of the sharing economy’s unique features is shortened exposure periods for coverage. Sharing economy insurance products typically offer coverage just during heightened time periods of exposure to risk, aka “insurance on-demand.” For example, home sharing insurance coverage, such as that offered by Airbnb, would depend on the frequency and length of stays, the number of guests, accessible areas of property, etc.
Understanding and correctly pricing for risks during unique exposure periods requires actuarial experience to correctly handle expense loads, increased risk of adverse selection, potential fraud and risk of litigation. If you’re thinking of entering the sharing economy, work with consulting actuaries and data scientists who have the expertise and experience to utilize predictive analytics and advanced pricing techniques in the development of rates.

Regulation varies by state

Sharing economy insurance products must comply with each state’s insurance regulations – those that apply to all insurance products as well as those specific to sharing economy insurance. For example, several states have passed specific legislation regarding transportation network companies. By working with an experienced regulatory compliance consultant in the markets and jurisdictions you wish to enter, you can ensure that your products comply with applicable regulations and that your products are filed with the states as required.
Strict governmental and industry oversight make insurance one of the most demanding industries for regular and accurate data reporting. Property and casualty insurance policies designed for the sharing economy present unique challenges. For example, for a ride-sharing driver, when is s/he covered by personal auto versus commercial auto? To which special statistical code does the vehicle get assigned? Your regulatory compliance consultants will make sure all these details are covered before you file.
To best capitalize on this exciting time, work with an experienced insurance consulting services team who can help you develop a proactive strategy to release products the correct way. In addition to actuarial expertise, make sure your partners possess years of statistical reporting experience, technical expertise, and data management best practices to help you navigate your unique reporting requirements. With a clear objective and the right team, you can develop a comprehensive solution that puts you ahead of the market in this new economy.

For more information about how to best develop insurance products specifically for the sharing economy, contact Perr&Knight today.

The Importance of Unambiguous Product Requirements: Why a Good Business Analyst is Worth their Weight in Gold

by Ken Ekers

Launching or updating a new insurance system seems like a straightforward process. But it’s common knowledge in the industry that a large percentage of projects hit roadblocks due to unclear requirements. This lack of clarity might initially seem like a small issue. But reverberations further down the line can have massive negative consequences to your timeline, budget, and ability to deliver the defined scope.
In this article, we’ll outline some of the problems that can arise due to ambiguous product requirements and discuss how working with an expert business analyst from a qualified insurance support services partner can start your project off on the right foot and keep it on track.

Evaluate where you are–and where you want to end up.

Charting a course for implementing a new process is not just limited to outlining a list of your project’s final requirements. It begins with taking an honest stock of your “as-is” process and determining clearly how you want it “to be”. This gap analysis enables you to look realistically at the strengths and weaknesses of your current system and the associated processes, and determine the amount of change that will apply to these processes. It is important to include input and gain acceptance from your assigned subject matter experts (SMEs) and the project stakeholders affected by these changes.

What can go wrong?

All of your business processes and systems are so deeply intertwined that small problems can quickly spiral into much larger issues. If product requirements aren’t clear, the first line of defense occurs early in the IT project itself. Vague or incorrect requirements can be uncovered by the developers or testers. These requirements will have to be re-drafted. If the vague requirements make it through development and testing, the SMEs could possibly uncover the issue. That means that the BA will need to refine the requirement(s), developers will have to re-develop and the QA testers will have to re-test, etc. This additional work will create both an immediate and long-term unfavorable impact on your budget and schedule.
Unclear or incomplete requirements will also result in a sub-standard suite of test cases, which will lead to incorrect or insufficient testing. As a result, the quality of your product will suffer.
Your new IT application or system will have to integrate with other systems–it will have to “play nicely.” If your requirements aren’t drafted correctly, not only do you run the risk of not delivering the right product, your new implementation could significantly disrupt other systems and cause those to exhibit problems that in turn require correction. The fall-out period after an implementation could run longer and deeper than projected.
Poor product requirements can create scope creep as your requirements start to veer outside the defined boundaries of your project’s goals. These expanded requirements will go on to get developed and tested, and will more than likely be rejected by the SMEs who will expand the scope a little further (e.g. change control) because the deliverable doesn’t quite meet their expectation. Before you know it, your budget and schedule will balloon.
Finally, improper requirements will eventually create an adverse impact on your business team. Releasing a product that ultimately fails means higher expenses and loss of revenue, a double whammy. Or, the business sponsor might be forced to move forward with whatever portion of the project is complete and still lack certain critical functionality. You’ll end up throwing good money after bad as you divert resources that could be spent on new business or writing more policies toward fixing preventable problems. In short, poor articulation of product requirements can cause you to risk losing your competitive advantage.
Luckily, most of these problems can be avoided. This is where an experienced business analyst comes in.

How can an insurance support services business analyst help?

A business analyst is dedicated to establishing clear requirements and keeping a close eye on the project through every stage. Not only do they bring professional industry experience to the table, but they will take the time to elicit input from business SMEs. This can be done via a combination of various methods including brainstorming, interviews, requirements workshops, and several other techniques. Each of these approaches is designed to reveal the true needs of the project effectively giving your project a boost with a set of clearly defined requirements that are within the bounds of the project scope.

Aren’t business analysts basically all the same?

Business analysts are not all equal. Right now, there is a shortage of quality business analysts in the U.S. market. Of the available pool, some lack effective training or experience. Alternatively, individuals might have been in business analysis for many years but still have a limited perspective or do not use best practices. It’s worth it to take the time to evaluate an analyst’s capabilities and track record before contracting their services.

How you can get the most from your business analyst.

Your business analyst can be a major asset to your project, but your organization must do its part, too. Here are some ways you can support your business analyst as they steer your project toward success:

Use quality software to manage your requirements. There are several tools out there on the market, such as IBM Rational, Jira, or CaseComplete, that can document and log your requirements, so each step is traceable.
Invest in producing quality requirements. That means building time into the schedule to produce clear and accurate requirements and devoting funds to support that phase.
Avoid low-cost business analysts. This could be a sign that they lack experience or confidence, and insurance support services is not an area where you should skimp.
Be willing to accept input from strong business analysts. They can possess valuable subject matter expertise in the insurance industry. They want to deliver a successful project, so be willing to listen to and act on their advice.

At the end of the day, don’t reinvent the wheel. Partner with industry experienced business analysts who can elicit and evaluate your requirements from various angles. This comprehensive perspective creates a clear roadmap and alleviates the chance of misinterpretation, making their services well worth the investment.
At Perr&Knight, we know where to get answers, due to our decades of experience in the insurance industry. We also have a complete set of resources to establish quality requirements right at our fingertips, including experienced actuaries and experts in regulatory compliance, filing, and product design. For project support at any phase of development, contact our offices and we’ll be glad to help.