Expert Commentary

In Insurance, Some Things Never Change … or Do They?

"It's déjà vu all over again." While there's some question as to who first coined this expression, Yogi Berra is best remembered for being the one making this observation in 1961 about a baseball game. But we all have felt this from time to time.


Big Data and Predictive Analytics
August 2019

While David Crosby's rendition of "Déjà Vu" was much more lyrical and melodic,1 the thought process was far from new. This is especially true when we look at the insurance industry.

Back in the Olden Days

At the risk of dating myself (yet again), let me reminisce to my early days as an underwriter trainee. We calculated auto insurance premiums with a calculator. We used a Ronoco wheel to calculate earned and unearned premium for policy changes. We calculated payment plan amounts and hand wrote them on forms for the agent to give to the insured. We keypunched documents into a "computer." "Policy typists" hand-typed declarations pages. We pulled stacks of preprinted endorsements to mail out as a set of policy documents to insureds. And, we sent invoices for premiums via the US Postal Service.

Ronoco Wheel

In 1978, along came a "house built" insurance processing system, Short Term Rate and Write System (STRAWS). After entering rating codes and insured and exposure data, STRAWS would calculate the premiums on any transaction and produce policy documents. Nothing was available online, but it was a huge step forward.

As underwriters, we were concerned we would lose our value and be replaced by this technology. We thought management wouldn't stop there and come up with more automation. We were skeptical that the "system" could do as good a job as we could. We didn't want to change.

It was only a year later that we were converting STRAWS policies to a new mainframe policy processing system that did way more than STRAWS. It was time to sell my green eyeshade and desk calculator on eBay and adapt to a new reality of the work environment. Truth be told, I got promoted to a supervisory position, so it was now up to me to entice the dogs to eat the dog food. How could I respond to my teams' concerns about what their jobs would be like in the future? Of course, it was easy to see there was much more coming.

Back to the Future

Fast-forward to the last 25 years. Insurance-based consumer credit scores started the new trend of injecting predictive modeling into the underwriting and pricing process. First, there was linear regression, then more advanced regression, clustering, factor analysis, neural networks, factor analysis, particle swarms, machine learning, and scads of cool software that continues to flow from inventive and forward-thinking mathematicians and data scientists. The new buzz is artificial intelligence (AI). No one even says "artificial intelligence" anymore. We're all supposed to know what AI is when the two syllables are spoken or written. There's at least one TV commercial that uses the acronym AI with the actual words never used in the message.

I was fortunate to attend the 2018 Chartered Property Casualty Underwriter (CPCU) Annual Meeting in San Diego last October. This is probably one of the best overall conferences for broad-based content for professional development available. A good chunk of the seminars featured technology as a topic. There was a star-studded panel discussion, "InsurTech Rising," as well as seminars on the Internet of Things, connected homes, data-driven approaches to rate local fire responses, and more.

And the trend continues with a new technology conference nearly every month. Insurance professionals now flock to these "tech" conferences to keep up with the latest and greatest innovations.

Like any other industry, we're blessed with more and more innovation. There are investment dollars flowing from venture capital firms and internal teams focused on "the next thing." We're able to know more about customers, prospective customers, risk evaluation, and the most opportune claim approaches. We answer our customer phone calls already knowing who they are and what product we should be offering as part of our conversation. We're doing way more with way fewer people AND doing a way better job at it.

So What Has Changed? Maybe Both NOTHING and EVERYTHING.

NOTHING

  • Change is inevitable. Humans are intellectuals and have been inventing ways to make our lives better since before the Stone Age.
  • People do not adapt well to change.
  • There are and have been remarkable advancements made every day (I am writing this on the 50th anniversary of Apollo 11).
  • There are huge failures every day.
  • Some insurers are grabbing the technology and running. Others are watching because they would rather be fast followers than leaders. Insurers are notably risk-averse.
  • While many companies have deployed mobile apps to make things easier for customers to do on their own as well as cut some costs, the tasks are the same ones previously done with a phone call or by request from an agent.
  • Consumers are still being bombarded by price appeal marketing as much as ever.

EVERYTHING

  • The pace of change has been on an accelerating trajectory.
  • The amount of outside money coming into the industry has grown exponentially faster than any past time period.
  • Career openings in our industry are to the point where information technology-related jobs outweigh insurance-related jobs.
  • Industry employees must understand more and more about technology to stay competent in their roles.
  • The CPCU designation and other insurance training don't mean as much to insurance executives because they're more focused on technology.
  • Most consumers only have the option of interacting with their insurer electronically.
  • Apps put information and control at our fingertips while saving valuable expense dollars for insurers.
  • Pricing precision for insurance coverages has taken the biggest leap forward. While class plans still carry some of the legacy variables, the rating cells are much smaller and focused. Some new variables have been considered and used as allowed by regulators. Usage-based pricing has taken many forms and has taken hold in the marketplace. Agents and underwriters can no longer answer the question, "Why did my premium go up?"

Beyond our world of insurance, television, telephones, cinematography, navigation, cash management, communication, banking, advertising, shopping, aviation, travel, music production and replay, manufacturing (3D printing), medicine, and playing of games are just a few of the everyday activities that have gone through notable changes.

Fundamentally Speaking

On the flip side, I recently sat for the Agent Licensing Exam for Ohio. The test material was the same stuff I learned and later taught in INS and CPCU classes in the 1980s and beyond. Yes, satellite, cyber, communicable disease, terrorism, domestic partners, autonomous vehicles (coming), and other types of endorsements/special coverage sections have been "grafted" to the old forms, but not much has changed here.

The bonus for me was the need to spend less than 20 hours preparing for the exam, which was enough to pass with a grade of 88 percent, where 70 percent was the requirement! Little had changed, including many internal limits on specific coverages. Thankfully, the old dog didn't need to learn any new tricks.

Conclusion

So, what does this all mean? It's a matter of perspective whether our industry is going through a revolution or just continued evolution. The bottom line for me is to watch with wonder but temper the excitement with a touch of reality. The valuable lessons from earlier days in our industry are still pertinent today. Our successors, while seemingly uninterested in the past, absolutely understand how to leverage assets to put Humpty Dumpty back together again should such unfortunate events occur to our customers. But our industry's need for insurance contract knowledge, exposure recognition, and human communication prowess cannot be overstated.


1 If I had ever been here before I would pro'bly know just what to do
Hey, don't you?
If I had ever been here before on another time around the wheel 
I would probably know just how to deal
With all of you.

And I feel like I've been here before
Feel like I've been here before

And you know it does make me wonder
What's going on under the ground.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

Like This Article?

IRMI Update

Dive into thought-provoking industry commentary every other week, including links to free articles from industry experts. Discover practical risk management tips, insight on important case law and be the first to receive important news regarding IRMI products and events.

Learn More



User ID: Subscriber Status:Free