An Insurance Professionals Guide to the Digital Transformation

As an active participant in the industry for 20 years, I have observed that the insurance sales professional is at a disadvantage. They are limited by the product they can offer and the process by which the product is obtained. Obtaining the product is challenging due to the lengthy and difficult workflow. In order for insureds to transfer risk to an insurance company, there is a time-consuming onboarding process and needless to say the insured does not approach this application process enthusiastically. Recent advancements brought on by the internet, email, electronic documents and e-signatures have streamlined this but have also forced many insurance professionals to adopt these new technologies at an accelerated rate in addition to managing and identifying the risk for the insureds. This has led to an exodus of an already aging workforce. Not only are the insureds rarely motivated to obtain insurance but the attrition of the workforce is leading to a shortage of trusted insurance advisors. To solve this problem many tasks in the insurance supply chain are being automated and the existing insurance professional is being forced to adapt to survive. This evolution of the modern insurance professional has traditionally been a slow process which is no longer the case. Let us continue this journey by going through the current processes surrounding the insurance transaction.

Client & Prospect Information:

It all starts when an individual or an entity needs to obtain insurance. Once they find the method to acquire the insurance, whether it's online, a phone call or a face to face interview, they need to complete an insurance application. Depending on the coverage needed or the complexity of the risk, this can be a lengthy process. The insurance professional collects the necessary information based on the needs of the applicant. This information is then presented to an insurance company. In the past, this process was typically done with a paper application which was sent manually to an insurance company either through fax or more recently through email.  The internet has now brought this process online and now most insurance applications are completed electronically. We will unpack this further in the next section but the main point is that an applicant and future insured is providing personal information to an insurance professional which eventually is given to an insurance company for obtaining insurance. The applicant is giving their personal data to a trusted and licensed third party with confidence this data is being safeguarded. The data is used to determine a premium by the insurance company for the risk they are accepting. All of this information is stored by the insurance professional and the insurance company as the custodians and fiduciaries who are responsible for providing the insurance policy and all related services. The way this data was historically stored was in file cabinets and paper files in an office but with the computerization of the industry most if not all insurance records are stored in an agency management system of record. Typically, an insurance company provides their agents with this system but there are also many independent insurance professionals that also maintain their own management system to better serve their customers and workflows. Insurance brokers who are not agents of any particular insurance company are also required to maintain their own system of record. All of the parties that are part of the insurance transaction are also required to store the insured's information for a certain timeframe in accordance with their state insurance regulator which in some cases can be in excess of 10 years of record keeping. Let us continue by going through this workflow.

Workflow & efficiency:

The application and quoting process is where most of the time is spent in the insurance transaction. The insurance professional is in many cases is educating the applicant on the type of insurance coverage that is needed which usually involves a vocabulary lesson. In addition to teaching the applicant a new insurance language, they are required to do it in a fashion that is easily understood. Once both parties are on the same page of what the insurance words mean, the process begins on educating the applicant on the exposure. The interview and application process consists of many personal and private questions that the insurance company requires to determine the acceptability of the risk and the eventual rates and premiums they are willing to charge to accept the risk.  Once all of the necessary information is collected it is the insurance professional's responsibility to turn that information into an offer of insurance which is also known as an insurance quote or proposal. This process has become increasingly more efficient thanks to the internet and third-party data sources which contain public data which eliminates the need to ask questions where the answers are already contained. These third party data sources provide information like driving history, prior claim data, vehicle identification logs, as well as public data obtained or offered directly by the applicant on social media and other websites. All of this information becomes a proposal of insurance which is presented to the insured for acceptance. The acceptance of this offer usually in the form of a signed document which traditionally involved a physical signature but is transitioning to e-signatures thanks to mobile and increased internet speeds.

The policy issuance is simply informing the insurance company that the insurance proposal was accepted. This process can be as simple as pressing a button on a website or as complex as assembling multiple pages of applications and required supporting documents the insurer requires as a binding requirement. Once the policy is issued it is the insurance professionals responsibility to distribute this policy to the insured. Each state insurance regulator has specific requirements on how this process is handled but more insurance companies and insurance departments are allowing the policies to be issued electronically, either through email or by access to a web portal that contains the policy for the insured to download. In many instances, both physical and electronic policies are distributed to all of the relevant parties.

 Servicing the policy is also the insurance agent's responsibility. This can include making any changes to the policy done via an endorsement or issuing certificates of insurance to any parties needing evidence of insurance. More agents are using technology to automate this aspect of insurance using self-servicing policy portals that contain all relevant policy documents, payment gateways, and policy modification tools.

Policy cancellation can be done either at the insured or insurers requests. This process has also been introduced to automation and can stem from many reasons.  Technology has streamlined the cancellation procedure and return premiums are being sent to appropriate parties much quicker thanks to automation and electronic document notifications.

 Policy rewrites are also processed faster because the customer information that is being stored in the application process does not need to be requested again and the interview does not need to be repeated. Depending on the reason for cancellation, modern workflows have improved this process and rarely does the insured and insurance professionals need to start from step one.

 The Policy renewals process has also benefited from computerization and technological advancements at both the insurance company and insurance agency level. The updating of information and connection to additional third party data sources can both confirm eligibility and adjust pricing as necessary.

Policy Auditing and inspections:

Policy Auditing is the next insurance process that is about to get radically transformed. Currently, this is a very long process for both the insured and the insurance company. In some cases, a physical audit is required which is both expensive and time consuming for all of the parties. The need for these audits is vital for the insurance company to assess the risk and determine if they are charging the accurate premium. These audits can uncover issues that would lead to both cancellation and premium adjustment, both up or down depending on the findings of the audit.  These audits can be done at any time during the policy term in the form of an inspection which most insurance policies have a clause allowing the insurer to do so. Usually, audits are done at the expiration of the policy to determine the calculation of the premium. Thanks to advances in technology in sensors and Internet of Things, insurance companies are now getting the information they need real time so the audit process is becoming an outdated inefficient method of determining data but it is still necessary to determine risk classification and overall insurability as well as allow the insurer to offer recommendations to reduce risk.

 Department of Insurance required records and retention rules:

Client records are required to be stored for period determined by the state insurance regulator. It is best practice to store the documents for a minimum of 10 years. Reduced cost in electronic storage space and cloud-based storage has made it possible to store an infinite amount of records for as long as needed.

 Accounting records are usually integrated and part of the agency management system of record. In addition to satisfying any federal or local authority, modern management systems if used properly can maintain a complete audit trail of the premium of both the insureds premium dollar and the agencies operating revenue and profit. Proper use of these systems can increase the value of any agency when determining the valuation of the entire book of business. Accounting automation is a future workflow that will be changed with the advancements in artificial intelligence, blockchain, and smart contracts. Ideally, all of the accounting workflows from the payment of the insurance to the distribution of commission could be programmed to a rule set that would reduce the human error element and increase the efficiency all the way to the claim resolution

 Record keeping and litigation discovery:

Electronic record keeping is the primary transition most insurance entities are going through. The days of physical file cabinets and paper folders have been replaced by a computer in a closet that stores countless documents in a fraction of the physical space. Thanks to the improvements of internet speeds these files are now being moved offsite to cloud storage solutions which allow the modern insurance professional to access customer data and necessary documents anywhere in the world where there is internet access. This data storage is also undergoing a revolution known as blockchain which is also known as distributed ledger technology. In essence, the information is being distributed to multiple parties on a need to know and permission basis which allows all of the relevant parties to have access to the same insured data making the entire process more efficient through less friction and double entry of data. This technology is at its infancy and will require a massive industry adoption to realize the potential benefits of transparency. Ultimately the insured would benefit by giving regulators observatory access to this distributed ledger in the event there was any dispute that required regulator intervention. 

The need to store accurate data by the insurance professional is vital to the all of the parties in the insurance transaction as most disputes and issues surrounding claims, premium payments and calculations surround verification of the information at the application and policy issuance level. Insurance professionals maintain an insurance policy also known as errors & omissions. Consistent and accurate record keeping, in most cases, is the insurance professionals only defense when resolving an issue where either expectation was not met or insureds did not accept the recommendations of the insurance professional.

Loss control is essential for the health of an insurance program. When accurate records are kept this protects the insurance company, the producer and the participants in the risk pool. If there is a regular discrepancy traced back to any of the parties it quickly allows these participants to remove the bad actor.

 Risk management is the responsibility of the insurance professional. They are paid by the insurance company in the form of commission and in some cases by the insured in the form of a fee to provide essential advice on reducing risk. With proper record keeping and modern advancements of big data and machine learning, insurance companies and their representatives can better predict and asses risk. Ultimately this benefits all parties by reducing premiums for those that actively pursue a policy of risk analysis and risk reduction. More loss data will be readily accessible to the insurers of risk pools which will improve the sustainability of any insurance product and also introduce new mechanisms and funding sources for risk transfer.

 The claims process is rapidly transforming. When coverage is triggered, insurance companies and the insureds need a better way to indemnify the claimant. With the improvements of how data is being stored and the advancements of emerging technologies such as blockchains, sensory data from IoT and smart contracts, claims can be adjusted and settled in real time with the indemnification life cycle drastically reduced with a transparent and satisfactory resolution.

 Privacy Law:

Federal and state regulators are actively pursuing and enacting privacy laws that protect the consumer. The internet has brought rapid advancements to business processes but it has also exposed consumers information which can be misused. There are severe fines domestically if insureds data is not properly protected. There are few industries that collect more information about individuals and businesses then the insurance industry. Internationally there have been broad stroke laws enacted such as General Data Protection Regulation also known as the "Right to be forgotten" which come with strict penalties and fines if insurance professionals that transact with European markets are not compliant.  The protection of data will soon be a worldwide standard especially in a global industry that is driven by data. This has also led to an entirely new insurance product known as cyber liability.

Other legal requirements covering the use of information:

Department of Insurance information practices act – C.I.C. § 791 et seq. The purpose of this article is to establish standards for the collection, use and disclosure of information gathered in connection with insurance transactions by insurance institutions, agents or insurance-support organizations; to maintain a balance between the need for information by those conducting the business of insurance and the public’s need for fairness in insurance information practices, including the need to minimize intrusiveness; to establish a regulatory mechanism to enable natural persons to ascertain what information is being or has been collected about them in connection with insurance transactions and to have access to such information for the purpose of verifying or disputing its accuracy; to limit the disclosure of information collected in connection with insurance transactions; and to enable insurance applicants and policyholders to obtain the reasons for any adverse underwriting decision.

In closing:

The internet has already accelerated the insurance process and with the introduction of new technologies, there is an urgent need to educate the existing insurance product distribution workforce as well as prepare the next generation insurance professional.