Insurance Product Development Archives - Page 2 of 5

Travel Insurance: A Changed Landscape

The travel landscape has shifted dramatically over the past two years. From travel disruptions resulting from coronavirus variants to the recent surge in gas prices to the abrupt decline in both travel insurance sales and claims, it’s been a wild ride for travelers and insurance companies alike.

Here’s what has changed in the travel market over the last two years, how these changes have influenced today’s travel insurance product development, and what we expect to see moving forward.

Flights as a measure of travel insurance health

Looking specifically at the number of flight bookings is the biggest indicator of what’s happening in the travel market today. Flights are a key indicator because historically, travel insurance was purchased more often when a flight was involved.

In 2019, we saw 2.5 million travelers a day pass through TSA. The initial landfall of Covid-19 in March 2020 threw the market into near-instant havoc, experiencing a sharp decline seemingly overnight. Since then, the travel industry has shown great strides in rebounding.

What’s important about today’s counts is the behavior or seasonality characteristics noted at the end of the year (“holiday season”) that mimic pre-pandemic travel, except at a lower level. However, Americans’ appetite for travel is gaining momentum quickly, resulting in numbers that are nearly back to 2019 levels in two short years.

We are also seeing similar travel behavior from 2019 mimicked in the first four months of 2022—further proof that the market has a strong foothold on the path back to “normalcy.”

Flights and cruises are on the rebound

Beginning in 2020, the largest dip in travel behavior was due to the onset of Covid-19 first reaching the United States. Since that initial bottoming out, the market has made increasing trends upward. Domestic travel has started to gain momentum and is increasing at a rapid pace. As of March 2022, U.S. travel is only roughly 5% below 2019 levels, which is heavily weighted toward domestic travel. International travel experienced a more sluggish rebound in 2020 but is strengthening at nearly the same rate as domestic travel in 2021.

The cruising market took a near-instant nosedive once the outbreak of Covid-19 reached the United States. Today, cruising travel is still less than 50% of 2019 levels. During 2021, the cruising market has shown gradual (but slow) growth. Younger travelers are wary of the potential for virus transmission in enclosed spaces and are therefore not eager to board a ship anytime soon. However, older travelers appear to have a high likelihood to start cruising again soon. This is especially good news since the last of the baby boomers are reaching retirement age, meaning they have ample time and money for travel.

More travelers are hitting the road

Increased road travel is altering insurance product development to accommodate travelers’ changing needs. Travel by car and RV is having its day in the sun. According to the U.S. Travel Association, RV or car trips jumped in popularity in 2020 and 2021— a trend that appears to be continuing in 2022. Great news for the industry: 85% of Americans are expecting to travel this summer. Roughly 80% plan to travel in their personal or rental vehicles and 46% plan to fly.

Today’s travel insurance product offerings have been modified to focus on needs specific to road travelers, including medical coverage and rental car collision, as opposed to air travel-centric products like trip cancellation/interruption, missed flights, or lost baggage.

That said, 59% of American travelers believe travel prices are too high right now which has prevented them from traveling in the past month. The travel price index is 16% higher than 2019 levels, mostly due to rising fuel costs. However, this statistic does not indicate declines in future outlooks.

From pandemic to endemic: how coverage is changing

Many carriers considered pandemics like Covid-19 to be foreseeable events, so travel products have historically excluded events such as pandemics and epidemics. As a result, there was immense confusion among policyholders and insurance companies regarding specific coverages and exclusions for insureds who purchased travel insurance both before and after the initial outbreak of the virus.

That said, carriers continued to cover trip cancellation and trip interruption as well as medical expenses and emergency evacuation if an insured became ill, even due to the coronavirus.

As the virus moves from pandemic (actively spreading across borders) to endemic (a constant presence), insurance carriers are adjusting their insurance product development to reflect the “new normal” in the travel industry.

CFAR/IFAR

Policies generally do not cover cancellations or interruptions based on fear of contracting the virus, which is why “cancel for any reason” (CFAR) became such a hot topic. CFAR or IFAR (interruption for any reason) covers the cancellation or interruption of a trip under any circumstance. Even if the insured simply doesn’t feel like going on the trip anymore. Insureds who purchased this “any reason” benefit are covered and could recoup at least a portion of their trip. These benefits have since become a very sought-after benefit by insureds seeking peace of mind, which is especially relevant in case a new Covid-19 variant is detected.

Carriers are also reassessing pandemic and epidemic exclusions, opting to include them as covered perils in their policies. This is especially important as insureds start to take a closer look at their policies to determine what is covered and what isn’t.

Government-issued travel advisories

One of the coverages also being called into question today is trip cancellation or interruption due to government restrictions based on the U.S Department of State travel advisories. While cancellation or interruption may not cover the pandemic in general, cancellation or interruption because of government restrictions or travel advisories of level 4 (“Do not travel”) that could potentially include Covid-19 or various other reasons may be covered if the policy includes government restrictions as a listed peril in the policy. This may also include the CDC travel risk assessment of level 3 (“high risk”) which was recently revised and unveiled. Otherwise, government restrictions would not be covered. However, CFAR or IFAR would cover these scenarios.

Increased interest in travel insurance

Fortunately, the United States is essentially “back to normal” for domestic travel within the 50 states with no mandatory pre-arrival testing or quarantines. The federal mask mandate on commercial transit has also been discontinued. Vaccine and mask mandates are now based on state and city ordinances. The number of countries without travel restrictions also continues to climb as 2022 rolls on, which means the government restriction peril may no longer be as valuable as it once was.

A survey from the Automobile Club of America (AAA) found that one-third of U.S. travelers said they are more likely to buy travel insurance for their trips through the end of 2022, specifically because of the pandemic. 69% of travelers said, “the ability to cancel a trip and get a refund” is most important to them when considering travel insurance for an upcoming trip.

As more people become aware of the existence and usefulness of travel insurance, sales have seen a 10% to 20% jump over 2019 numbers with spikes as high as 53% increase over 2019 following news of the Omicron breakout. This increase in sales has resulted in a better claims experience than previously seen since anti-selection is being hedged against broader market sales.

The average frequency of 2021 claims based on internal data was less than half that in 2019. As a percent of total claims, the initial spike of CFAR claims has dampened but continues to be a highly utilized claim which we expect to continue into 2022, given consumers’ new knowledge about its value.

A new landscape

Covid-19 is here to stay. The initial fear of the virus is winding down, but the industry will continue to see spikes and dips as each new variant emerges. Travelers and insurers must learn to live with this new landscape and respond accordingly. Insurance companies must embrace this new landscape and take these shifts into account during their product development.

Another big takeaway for travel insurers is their ability to monitor claims. Claims submitted under CFAR should be categorized to determine those that are really for Covid-19 but may be disguised as something else. Tracking Covid-specific claims will help do just that. Likewise, more insurers have options specific to pandemic coverage and are providing coverage as its own benefit (trip cancellation, trip interruption, medical expense, and evacuations).

As consumers begin to feel more confident in their return to travel, the goal is to provide equal comfort in their protections through travel insurance.

Contact Perr&Knight and let our experienced actuaries and product design consultants help you develop insurance products that match today’s market.

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

Key Things to Know Before Getting Into the Insurance Business

by Mark Nawrath

Authors: Mark Nawrath, PMP, MBA, and Dean Ferdico
Today’s technology advancements have the potential to transform businesses across industries. Aging systems and increased demand for new and innovative products mean insurance is ripe for disruption, but new solutions are not always as easy to implement as they may seem. Insurance is both complex and highly regulated: a double hit for Insurtech or non-insurance companies looking to break into the space. That said, there are endless opportunities for your company to make major waves in the industry…if you take a careful approach.
Based on our decades of insurance consulting along with our experience helping numerous Insurtech startups over the last several years, here’s what you should know as you break into the insurance market.

The insurance industry is highly regulated

Many of today’s Insurtech companies emerge from the finance world, where modern technology has transformed everything from customer service to the nature of banking itself. While U.S. banking must comply with a single federal charter, insurance products are subject to disparate rules in 51 jurisdictions, multiplied by 20 to 30 lines of business that each has its own individual coverages. The number of details required for each product filing can be staggering and small errors have the potential to stall the filing on the path-to-market.
Partnering with a seasoned insurance technology consulting company with state filings experts enables you to achieve a clear roadmap of what to expect, potential pitfalls, and areas to consider before you get too far along in the product development process. Experienced partners will provide you with a clear understanding of the playing field and help you draft a realistic strategy for rolling out your product.

Add insurance executives to your team

State Departments of Insurance (DOIs) look favorably upon companies with proven histories in insurance. They have no time to teach inexperienced technology companies or non-insurance companies the ins and outs of creating a compliant filing. Bringing a seasoned insurance executive onto your team – and partnering with proven insurance consultants – helps sidestep avoidable regulatory pitfalls and adds instant credibility to your organization in the eyes of the regulators. The same also applies when raising capital. Venture capital firms feel more comfortable investing in firms with experienced in-house teams and insurance consulting experts onboard.

Primary insurers are skittish

Around eight years ago, many primary insurance companies started issuing paper to unproven Insurtech companies – a move that ultimately damaged their standing with state DOIs. Since then, primary insurers (as well as reinsurance companies) are more discerning about with whom they will do business. After all, their reputations and licenses are on the line. This is where working with a seasoned insurance technology consulting company with state filings experts pays off. Having insurance consultants on your team to thoroughly review and pressure-test your proof of concept will help you stand out to primary insurers and reinsurance carriers.

Insurance compliance is full of hurdles

Receiving approval from state DOIs and remaining compliant also means your policy, billings, and claims administration systems must all meet regulatory standards. These standards include everything from how your products are priced to how you advertise to consumers to how data must be reported. Some requirement documents are thousands of pages long, a difficult task to manage for teams short on insurance experience.
Whether you are implementing an Insurtech solution or offering ancillary insurance along with your primary service offerings, insurance product development is a tricky process. Even bureau-based products that lean heavily on Insurance Services Office (ISO) or National Council on Compensation Insurance (NCCI) content are extremely complicated to interpret and adopt in a compliant manner. Seasoned insurance consultants like the team at Perr&Knight know this content and the related regulatory requirements inside and out because we work with them daily.
We help new Insurtech and non-insurance companies understand how to consume the content to develop an insurance product, how to structure the content for systems development and testing, and how to implement a compliant operational process from the outset. Building compliant systems and communications from the ground up protect your company from speed to market issues or costly re-work while avoiding potential fines for your carrier partner.

Use professional “matchmakers”

Primary insurance companies and reinsurers have what Insurtech companies and non-insurance companies need: approved licenses from state DOIs and capacity. Insurtech/non-insurance businesses have what primary carriers are looking for: fresh ideas, technologies, and access to new markets. Both must vet one another, a daunting task if neither company can accurately verify the validity of the other party’s credentials.
Experienced insurance consultants like the team at Perr&Knight can provide an insurance-focused perspective to determine whether the partnership will be beneficial for both parties. Evaluations from unbiased insurance professionals can increase your confidence that your prospective partner can deliver.

The future is full of opportunity

Technology and consumer product development move with lightning speed. Insurance, on the other hand, is extremely sluggish. The merging of these complementary industries opens a plethora of opportunities for proactive companies, but success is never guaranteed. Re-framing your expectations, working with experts, and adopting a calculated approach to your new insurance offerings are the most effective ways to improve your position. Start exploring “what you know you don’t know” with seasoned insurance experts before you get too far down the road.

Considering launching a new insurance product? Talk to the team at Perr&Knight first.

From Our Actuarial Experts: New Trends in Accident & Health

by Jennifer Choe

Last year was a major disruptor for consumers, insurance companies, and state departments of insurance (DOI). The ripple effects of the COVID-19 pandemic are still playing out, causing changes to consumer behavior and influencing how insurance companies serve them.
Here are some of the recent trends we’ve seen in accident & health coverage – and how insurance companies can respond more effectively to these changing times.

Pandemic-related coverages

Businesses are re-opening, employees are returning to in-person work, and international travel is increasing in popularity. Despite the near-universal desire to return to normalcy, COVID-19-related interruptions are still part of the equation. Insurance companies are faced with new opportunities to provide coverage for COVID-related medical care and travel changes.
Some of the emerging products we have seen include:

Coverage for work-related vaccine mandates
Coverage for mandatory quarantine
Trip cancellation or trip interruption coverage in case of pandemics or COVID infections
Coverage for telemedicine or other virtual care

Self-insured companies are under greater pressure to determine the cost of things like testing or vaccination-related expenses for their employees. Support from experienced actuaries can help accurately estimate these costs.

Younger consumers entering the market

The population of people purchasing insurance is shifting. This is a trend we have seen gain momentum over the previous few years with no sign of slowing down. More millennials (aged approximately 25-40) and Gen Z (age 24 and younger) consumers are buying insurance products. This shift in consumer base has a two-pronged effect: what products they seek, and how they are purchasing.
Older generations were content to work with a trusted insurance agent and prioritized a person-to-person relationship. Millennial and Gen Z consumers are more focused on instant information and instant gratification. Their digital-first consumption habits are causing insurance companies to re-evaluate how they offer products and are opening opportunities for Insurtech companies to fill the gap.
While Insurtech companies may have the technology covered, many have limited experience in the insurance space. Meanwhile, established insurance companies may have the knowledge of insurance product development but must partner with a technology provider to deliver products to consumers. Working with experienced insurance product development partners can help bridge the gap to make sure all products conform to regulatory standards.

The workforce is changing

As the gig economy continues going strong, more workers are tasked with securing coverage on their own. The federal insurance mandate is no longer in place, so consumers can be more creative with their health coverage. They want greater flexibility to choose plans and coverages that align with their needs and budget.
Some workers may not want or need full-blown health insurance plans, instead opting for more cost-effective coverages such as accident-only, major medical, critical illness, gap insurance coverage, or other supplemental plans.
Now is the time to revisit the scope of your medical products to determine if there are areas to offer products that align with today’s self-empowered purchaser. Insurance product development experts like Perr&Knight can provide insight into correct pricing and assist with rate and forms filings to bring these products to market as quickly as possible.

Short-term accident products

More and more insurance companies are offering lifestyle-related products that cover insureds under specific conditions for short periods of time. We’re seeing companies develop medical expense or accident indemnity products related to adventure sports, certain vacation activities, and equipment usage (ex. electric scooters).

Partner with insurance product development experts

Today’s trends unlock new possibilities for insurers to offer coverages that align with the times and evolving consumer expectations. However, everyone in the industry knows that product development, rate development, form filing, and approvals take time. Working with experienced actuaries and insurance product development specialists can accelerate your process and ensure you are not overlooking any critical elements that could slow your time to market.

Develop new products that match consumer expectations. Contact our insurance product development experts to start a conversation.

Supplemental A&H Group vs Blanket Filings: An Overview

by Perr&Knight

At Perr&Knight, our insurance consultants help many clients develop group and individual supplemental health products. We are often approached by insurance companies with confusion about what group policyholder types to use and where a client should use group vs. blanket. When an employer policyholder is not appropriate, insurance companies look to other group types such as associations, trusts, or discretionary groups.

UNDERSTANDING GROUP POLICYHOLDER TYPES

Many clients want to rely on the outdated practice that, by using association or trust filings, a situs state approval means automatic approvals in other states and rating can be more flexible. While that was once the case, it no longer holds true. As associations became more popular, regulators noted that many of the associations lacked a common purpose and thought that the associations were used primarily to circumvent form and rate requirements.
Associations, trusts and discretionary groups often have to be approved by state regulators before a policy can be issued or, in some circumstances, before policy solicitation. Single case filings for these groups are required more often. Approvals for discretionary groups are particularly difficult to gain when the policyholder/insured relationship is not clear.

GROUP VERSUS BLANKET POLICIES

Another area of confusion is how a blanket policy is different from a group policy. On the surface they appear similar; there is a master policyholder and groups of individuals are covered. However, blanket coverage is usually offered to institutions (e.g. schools or camps) that provide excess or secondary accident/medical coverage to individuals participating in activities under their purview. While a few states require blanket coverage to have underlying certificates (like group), the people covered under these policies are often not aware that they have coverage under a blanket program.

HOW TO CHOOSE BETWEEN GROUP AND BLANKET POLICIES

Depending on the needs of the insurance company, policyholder and the individuals to be insured, insurance companies can utilize either a group or blanket policyholder format. Many jurisdiction handle non-employer groups and blanket programs differently. Some states will provide greater latitude to blanket products than group products simply due to the types of groups that may be insured.
Selecting a group type can be confusing so let our insurance consultants guide you. Our accident & health product development consulting team has ample experience in helping companies find success with non-employer groups.

Contact Perr&Knight today to schedule a consultation.

NOAA Releases Report on Historic Year for Extreme Weather

by Jessica Witvoet

There is no doubt that 2020 was a rough year in many respects. While the Coronavirus pandemic was frequently the topic of conversation, there was considerably more to talk about for those in the insurance industry.
According to a recent report published by the National Oceanic and Atmospheric Administration (NOAA), there were an unprecedented 22 extreme weather events in the United States last year, causing 262 fatalities and totaling at least $95 billion in damages. The previous record of 16 events was set in 2011 and matched again in 2017. By comparison, 2019 saw 14 extreme weather events with $45 billion in damages. While much of the country was under quarantine and stay-home advisories, others were ordered to evacuate for their safety. Many lives were changed after the disasters of 2020.
In late August, Hurricane Laura devastated the Gulf Coast and was the costliest event of the year with numerous fatalities and $19 billion in losses. However, this was only one of the record-setting 30 named storms of the 2020 Atlantic hurricane season, 13 of which developed into hurricanes. According to NOAA, the average season will have 12 named storms, six of which will reach hurricane status. This was only the second time that the Greek alphabet was tapped since each of the 21 letters used in the standard naming convention was exhausted. The only other time this has occurred was during the historic 2005 hurricane season that brought Hurricanes Katrina, Rita, and Wilma.
In addition to hurricanes, wildfires and convective storms ravaged other parts of the country. With a severe drought impacting more than a dozen states, conditions were favorable for massive wildfires that consumed more than 10.2 million acres, mostly in California, Oregon, and Washington and caused $16.5 billion in damage. Severe convective storms also contributed to the number of catastrophes last year, including a massive derecho that swept across much of the country from South Dakota to Ohio, leaving $11 billion of damage in its wake.
With the multitude of perils that we are exposed to, being responsive to the market and nimble in the ever-changing insurance landscape is critical. Whether it be rate or coverage revisions or new insurance product introductions, we have the expertise and the resources to enable you to deliver that peace of mind to your customers.

Contact us today to learn more about our services.

Digital Transformation: Old Wine in New Bottles?

by Rob Berg

So much of what we find new and exciting requires what we too often write off as outmoded.
Today’s insurance technology initiatives are increasingly motivated by our latest term of art, digital transformation. We love to throw those words around as if they represent some magical incantation that, when invoked, will produce brilliant solutions that lift us to otherwise unattainable competitive positions, as masterworks of art that evoke feelings of awe eons after their original creation.
Of course, we’ve been “digitally transforming” for decades. Setting aside the nineteenth-century innovations of Charles Babbage for a moment, modern “digital” computing is easily traced at least as far back as 1945 with the introduction of ENIAC, “the first programmable, general-purpose electronic digital computer”.[1] The intervening years have seen a remarkable explosion of computing power. Famously, the Apollo Guidance Computer (AGC) used to put men on the moon in 1969, with its 2 MHz CPU speed, had roughly the same computing power as a twenty-five year-old Nintendo Entertainment System (1.8 MHz). An old iPhone 4 (2010), with its 800 MHz CPU speed, outgunned the $32 million Cray 2 supercomputer (1985) by a factor of three (244 MHz).[2] And today’s iPhone 12 (2.99 GHz) and Sony PlayStation 5 (3.5 GHz) make those computing milestones seem quaint.
The growth in computing power, and therefore the number of practical applications that can be handled by affordable computers, has been astonishing. Indeed, it has made the aspirations of computer scientists who only dreamed about artificial intelligence and virtual reality just a few decades ago – dreams because they would require rooms full of very expensive hardware – available to the masses in tiny packages for very modest sums.
So it follows that today when we hear about insurers wishing to undertake digital transformation initiatives, we understand that their desire is to leverage today’s massive computing power to gain a competitive advantage. Otherwise, we’re simply talking about modernization, which was all the rage way, way back in 2015. Today’s initiatives have the far more ambitious goal of producing novel solutions, in the sense that competitors haven’t yet discovered – let alone adopted – them, and so they’re in a very real sense disruptive.
But disruption comes out of tolerance for mistakes. Disruption comes from having the wherewithal to experiment and fail repeatedly. Disruption comes from having the courage to engage in radically candid conversations laced with dissent and debate. So disruption can only happen if the company culture permits it to happen – an idea antithetical to an insurance company’s traditional mission, which is to avoid undue risk.
This frosty bit of insight begs an entirely different approach to insurance company operations that goes well beyond technology. Famously linear thinkers, insurance professionals have historically worked to place a price x on some risk y in anticipation of a positive return z. We press this button and that happens. Of course, this approach has turned out to be of dubious value, evidenced by the prevalence of combined ratios that exceed the century mark. Instead, a confluence of factors in a variety of dimensions conspire to destroy our bottom lines, if not our innocence: Geopolitics. The environment. Social movements. Generational sensibilities. Competitive moves. Regulatory constraints. Human psychology. Solar flares?! And yes, the rapid pace of technological change. After all, how popular was cyber insurance – arguably influenced by each of those factors – in 1950?
Woke (forgive me, but the term seems to work in this context, too) insurers have accepted this. And so their efforts are directed toward aggregating not just traditional datasets that populate rating algorithms or underwriting rules, but those many ancillary bits of information that influence risk selection and loss potential in a far more informed (read: non-linear) way. They utilize Big Data. They leverage artificial intelligence. They employ dedicated predictive analytics units. They automate routine operational processes. They invest in new technology. And they adopt change management programs to support those initiatives. That’s a long list of expensive undertakings for a smaller insurer. But that’s the world in which they have to compete.
Middle-tier regionals with relatively modest means must contend with tiny upstarts with tens of millions in capital investment unburdened by years of legacy operations on one end, and multi-billion dollar behemoths spinning off autonomous innovation centers on the other, for their share of the hundreds of billions of premium dollars blown skyward by the shattering of preconceived notions.
And so we arrive at the intersection of culture and technology, of art and science, of hard skills and soft skills. In an industry famously fixated on risk avoidance and profit margins, this juncture becomes an especially challenging moment in time. Indeed, a quick review of recent literature on disruption in the insurance industry makes scant mention of the behavioral changes that must accompany any radical innovation, both within an organization among its constituents and outside among its customers and suppliers.
The impact on many well-established insurers? InsureTech startups are eating their lunch. That is, unless those veteran organizations were prescient (and well-capitalized) enough to develop their own skunkworks, separate and apart from their core organizations in order to permit the risk-tolerant cultures found in their more nimble adversaries. That’s fine if you’re a major player, one of the billion-dollar insurers who can afford separately funded venture arms, or an agile start-up with fifty million smackers to burn. But what of the middle tier, those thousands of regional insurers vying for market share in the face of old threats (mainstays) and new (InsureTechs)?
The obvious answer is they need to think a little differently. With no discretionary trove of millions to casually deploy, the focus must be on manifesting beneficial change. And beneficial change begins with vision, culture, and leadership – not bits and bytes. Old wine in new bottles, you might say.
I’m not suggesting plastering office walls with poster-sized admonitions to “embrace change,” nor am I suggesting that beneficial change is a thing that happens if you hire the right consultants. I am suggesting, however, that with all of the marvels of technology available in the twenty-first century, it’s still people who matter most. It’s still paying attention to what motivates – inspires – every individual responsible for the welfare of the organizations in which they toil that separates leaders from laggards. And most importantly, it’s regularly respecting and acknowledging their contributions to ensure they stay focused and motivated, long after the paint is dry on that beautifully executed automation project.
Of course, standard “tactical” practices for operational improvements and technology deployments involving proven toolsets for workflow analysis, business process design, and technical project management are essential for a successful digital transformation initiative. But no amount of funding will replace the unbridled enthusiasm of a group of colleagues setting out to effect change for the better. It’s that enthusiasm and commitment that drive organizations to prosperity; it is rarely prosperity – and never technology – that drives individuals to become enthused if they’re not adequately engaged and committed to the work they do.

Contact Perr&Knight to support your digital transformation initiative with experienced project managers, business analysts, and process improvement experts well-versed in the ‘people part’ of transformation, who can assist with the requirements management, process redesign, and change management capabilities that are essential for any such project.

[1] Swaine, M. ENIAC. (n.d.). Britannica. Retrieved January 25, 2021 from https://www.britannica.com/technology/ENIAC
[2] Routley, N. (2017, November 4). Visualizing the trillion-fold increase in computing power. Visual Capitalist. https://www.visualcapitalist.com/visualizing-trillion-fold-increase-computing-power/.

Large Risk Rating Options for Workers’ Compensation: What You Should Know

by Cyndi Cooper

The market for workers’ compensation insurance has undergone a shift as large employers with more bargaining power recognize they can achieve a better financial position by obtaining coverage that more closely aligns the total cost with their unique risk factors. State Departments of Insurance (DOI) have approved a number of sophisticated loss-sensitive options for workers’ compensation insurance, further prompting insurance companies to develop programs like these in order to remain competitive.
Below we have provided an overview of large risk rating workers’ compensation products and how Perr&Knight can help you develop competitive plans with the best chance of approval.

Large Deductible Plans

Large deductible workers’ compensation plans provide the same coverage as guaranteed or fixed cost plans, but with higher deductibles, possibly leading to reduced costs for insureds. Deductibles for these plans generally start at $25,000 to $100,000 per occurrence and are ideal for large employers seeking to self-insure a portion of their workers’ compensation losses.
Given the insurer is typically required to pay claims as they occur and seek reimbursement from the policyholder for claims below the deductible amount, insurers will often require the insured to provide collateral to secure the claims in this layer. Some jurisdictions may require insurance carriers to hold collateral, and insurers often need to analyze each risk individually to determine the amount of collateral to collect. This is an instance where turning to experienced actuarial consultants is invaluable. Our expert teams can assist in determining how much collateral to hold, either by performing actuarial loss projections based on historical loss runs prior to the onset of the policy or performing a collateral evaluation over time to ascertain how losses and collateral needs have developed for a particular policyholder.
Our actuarial consultants can help you develop your large deductible program, provide guidance on the various premium threshold requirements and permissible deductible levels by jurisdiction, as well as meet other state-specific requirements when filing large deductible workers’ compensation programs.

Retrospective Rating Programs

Retrospective (also called “retro”) rating plans determine the final workers’ compensation premium by evaluating actual losses incurred during the policy period. Employers pay a certain premium upfront, but at set intervals after the policy expires, insurance companies evaluate actual losses versus what was originally expected. This can result in a premium refund to the insured if losses are better than expected and additional premium due if losses are worse than expected. These sophisticated plans can be helpful in controlling the final cost of an organization’s workers’ compensation program.
Because of their complexity, it is imperative to set retro programs up correctly from the outset. Perr&Knight’s actuarial consultants can assist in determining proper rating factors (expected loss ratios, the types of excess factors to file, other rating elements to file in various states, etc.), as well as determining if the state DOI will allow exceptions to bureau filed plans.

Large-Risk Alternative Rating Option (LRARO)

A provision commonly contained in retrospective rating plans, LRARO can be layered on top of other programs, enabling employers with a yearly estimated workers’ compensation premium exceeding a certain threshold to negotiate premiums with their insurance provider. With this rule on file, insurers can negotiate the rating factors and premium components involved in determining the final premium for their workers’ compensation coverage.
This option is permitted in most states, but filing requirements vary by jurisdiction. For example, some states have premium eligibility requirements which must be met before the insurance company may use this rating option.
We have deep experience in developing loss sensitive rating programs and filing LRARO rules to achieve exceptional rating flexibility. Our actuarial consultants understand important jurisdictional filing differences and can help you file this provision correctly.

Partner with Actuarial Experts

Sophisticated large risk rating programs add more complexity to an already complicated process. Our actuarial teams are profoundly experienced in the full scope of loss sensitive programs and can help with designing large risk workers’ compensation products including developing rating plans, defining rules, helping with endorsements, and ultimately managing state filings.
For insurance companies already offering loss sensitive workers’ compensation products, we can conduct reviews to determine if it is possible to enhance your product offerings, or conduct detailed competitive evaluations to make sure your program is in line with the market.

Thinking of making changes to your workers’ compensation products? Our expert actuarial consultants can help.

Pet Health Insurance: Eight Key Ways to Enhance Profitability

by Michael Covert

With foreign body ingestion, poisoning, and cancer, along with being hit by car, ligament ruptures, and other accidents and illnesses, pet owners need to be prepared for the large unexpected veterinary bills that occur in treating their pet for these events. Pets are considered family members by many of us and require a significant amount of healthcare over the pet’s life, especially as the pet gets older and illnesses are more likely. In recent years, pet health insurance has been gaining in popularity and provides a way for pet owners to better manage the healthcare expenses of their pets.
For providers of pet health insurance, there are a number of ways to help enhance the likelihood of being profitable in the pet health insurance space while providing a valuable product to the pet owner.

Here are the key items that should be at the top of the list for successful programs:

Consider the impact and correlation between pet age / breed / size: While most pet health insurance writers want to focus on very young pets that will on average have better claims experience, the average age of the book of business will eventually increase as the company renews policies and the renewal of these aging pets will eventually outweigh the newer younger pets. Pet age factors are key in helping to achieve a better rate for the risk, but the risk associated with pet age is highly correlated with breed and size of dog. The table below shows an example of how pet health insurance writers are helping to maximize the correlation between these rating variables.

Don’t rely on age at inception alone: Age at inception is a concept similar to whole life insurance, where your premiums do not increase as your age increases. While this may work for life insurance, it generally results in inadequate rates for pet health insurance as the average age of the book increases. Without another rating variable to compensate for the lost premium as the pet ages, the use of age at inception becomes more problematic as time goes on.
Include automatic trend adjustments: Since the annual frequency and severity trend in pet claims is significant (typically ranging from 8% to 15%), a number of Departments of Insurance (“DOIs”) permit a rating factor that includes automatic trend adjustments. This allows premiums to increase over time without filing a rate increase with the state DOI. It is best to take advantage of this rating factor as it can significantly help with maintaining the profitability of the program in the states where this is allowed.

Following are a couple of examples of approved automatic trend adjustments:

Example 1: Due to this being health insurance for dogs and cats, loss costs will be susceptible to veterinary medical trends which we estimate to be compounding at a rate of up to 9% per year. A trend factor of up to (1+0.09)^(x/12), where x is the number of months since the effective date of this filing, may be applied to this base loss cost to account for the aforementioned inflationary effects.”

Example 2: This factor is based on an expected annualized trend of 10.0% to account for the increasing cost of veterinary medical care. The formula for calculating the factor is (1+0.10)^(m/12) where m = the number of months since the base rate went into effect, and the factor in the first month of the proposed effective period equals 1.000 (i.e. m=0).

Take advantage of ranges and flexibilities: Because pet health insurance is a property and casualty product and typically is filed under personal inland marine (only a handful of states are different), the DOIs in many states allow an insurance company to file subjective and experience-based rating variables for group policies, such as ranges of debits of credits, a schedule rating plan and/or an experience rating plan. It is best practice to add these where permitted to enhance rating flexibility.
Don’t forget about forms: It is important to ensure your policy form has standard waiting periods and exclusions for pre-existing conditions, etc. to make sure you are not covering unexpected past injuries or illnesses.

Keep in mind that there are difficult states when it comes to profitability: Unfortunately, the biggest pet health insurance states when it comes to premium volume are also the most difficult ones to make money, such as California, Florida, New York, and Washington. These four states can sometimes make up to 50% of a nationwide book of business and the necessary rate changes to maintain profitability are often difficult to obtain with long approval timelines. While it may be enticing to write in these states due to the high growth potential, be careful as it is rare to be profitable in these states and very difficult to non-renew the business if things go south.
Don’t set and forget: Pet health insurance rates need to be managed over time. A key to maintaining profitability is to take the necessary rate changes to at least achieve the target loss and expense ratio. Too often companies wait a few years before reviewing rates. This makes it very difficult to realize the rate level needed to achieve and maintain profitability.
Monitor, monitor, monitor: It is important to not only understand the profitability of your book of business from an overall standpoint, but also whether your class plan rating variables are appropriately pricing the risk. Whether rating variables (such as state, deductible, coinsurance, pet age, breed, et.) are reviewed individually or with the use of predictive modeling, these analyses should be performed at least once a year to understand where the program is profitable and where rate increases are necessary to improve or maintain that profitability.

Pet health insurance is a fast-growing market with significant growth potential, but there are also a lot of ways to lose money in the process and companies can get themselves into a hole that is sometimes very difficult to dig out of.
About Perr&Knight
Perr&Knight is a leading provider of both actuarial consulting and pet insurance product development services to companies providing pet health insurance. Our consultants have assisted a number of pet health insurers with developing and maintaining a profitable pet health insurance product.

Please con tact us with any assistance that is needed with your pet insurance product development.

Travel Insurers Must Pivot in the Wake of COVID-19

by Susan Cornett

Authors: Crystal London, FSA, MAAA and Susan Cornett, FLMI, AIRC, CFE
As international travel restrictions remain in place, more and more Americans are planning domestic travel this summer and fall. According to the RV Industry Association, 46 million people will take road trips in the next twelve months. RV rentals and sales are also way up. This shift in focus to domestic, road-based trips means insurers must remain flexible and be prepared to offer smaller packages that align with emerging trends in travel planning.

Existing policy offerings are less relevant

Traditional travel insurance tends to cover issues impacting travel overseas, cruises, or big ticket domestic trips such as Hawaii or the U.S. Virgin Islands. As insureds take more domestic trips, especially by vehicle, expensive coverages such as trip cancellation/interruption, missed flight connection, lost baggage coverage and international medical coverage are much less relevant. Instead, insurance product development teams should shift thinking toward ancillary coverages that address the myriad of risks associated with travel by car or RV/camper.

Concentrate on road-based benefits

Travel insurance benefits in the COVID era are more nuanced than the big-ticket airline/cruise packages that were previously common. Given that more people are traveling by vehicle, ancillary coverages working in tandem with existing auto and health policies provide peace of mind for travelers spending more time in their own vehicles or rented cars, trucks and RVs.
Here are some common coverages that will be in greater demand as road trip travel increases throughout the summer and into the fall:

Rental vehicle damage
Excess medical expense
Emergency evacuation
Accidental death & dismemberment
Vehicle return
Return of traveling companion and/or minor child(ren)
Emergency hotel coverage
Hotel overbooking

Policies should address unexpected disruptions to road trips

A shift toward road travel provides an opportunity for insurers to develop additional benefits addressing the specific needs of today’s domestic travelers. As people hit the road, many bring along the family pet, creating a need for coverages such as pet emergency medical. Pet return and kennel delay insurance are also valuable should the insured have a loss and can’t get the family pet home or can’t get home in time to pick up the pet. Campgrounds may replace hotels when it comes to cancellation fees or overbooking risks, so insurers may consider offering camping-specific policies. Travelers may also require additional insurance to cover damage to rented properties that goes beyond general liability covered by vacation home rentals such as Airbnb or VRBO. All of these policies are launching points for insurers to develop creative coverages for domestic travelers.

Increasing importance of “cancel for any reason” and pandemic-inclusive policies

Because COVID-19 is still far from resolved, we anticipate travelers will remain skittish for at least the upcoming six months, if not longer. However, given the attractive prices offered by airlines and hotels, some travelers are beginning to plan trips far into the future. With the current level of uncertainty surrounding COVID-19, “cancel for any reason” policies are more attractive to consumers. When international travel does resume, unpredictable border re-openings and attraction re-openings will create a higher demand for pandemic- and epidemic-inclusive policies, as COVID-19 shifts from an “unforeseen” classification to a foreseen event and consumers will look for policies that will provide coverage.

Re-think your customer base

During this time, insurers should shift focus from airlines and cruise company partnerships to add-on coverages through car and RV rental companies. Travel insurance isn’t usually top-of-mind for domestic vacationers, so direct-to-consumer marketing efforts should also increase. Now is the time to initiate outreach to new and existing policyholders to increase awareness and urge additional domestic travel protections. Additionally, since most travelers search online for trip insurance, make sure your company is visible with coverages applicable to their shifting needs. You may not be offering appropriate policies, but your competitors likely are.

The time to act is now

If your company doesn’t currently offer a wide set of coverage for domestic travel, our experienced product development and rate development teams can help. We’ll help you discover which benefits are most important to insureds in this environment and conduct valuable competitive analysis to reveal your competitors’ actions.
In many cases, insurers already have aspects of the above coverages in place, so your company may not require a lengthy insurance product development phase to address the needs of today’s travelers. We can help you develop new coverages or adjust language or rates on existing policies to provide a better fit. Based on our deep experience as insurance consultants, our assistance with form development, rate development and state filings can accelerate your time to approval.
Travel insurers are facing spikes in service requests that are as yet not totally known. Airlines and crowded resorts are out of favor. Instead, industry experts are seeing a transition to road trips and long-term rentals. Since major revenue streams are currently stalled, insurers must make changes to keep premiums flowing. For most providers of travel insurance, this means focusing on creating a higher volume of smaller-premium offerings until more expensive travel returns to popularity, which could take years.