On this episode of the “AI Wisdom – Talking Innovation in Insurance” podcast, host Ron Glozman speaks with Ryan Stein, Executive Director, Auto Insurance Policy and Innovation at Insurance Bureau of Canada (IBC) about the impact of the coronavirus on the Canadian insurance industry, a potential recession, and what the future holds as insurance companies react to the new normal. Click the play button to listen or read the full transcript below.
Ron Glozman: Hello and welcome to “AI Wisdom – Talking Innovation in Insurance." On this podcast, we talk to business and InsurTech leaders about how artificial intelligence is transforming the way we buy and sell insurance. I’m your host Ron Glozman, Founder and CEO of Chisel AI and a strong believer in the power of AI to help people work smart and enrich their lives. So, let’s get into it.
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Ron: As the Canadian insurance industry is forced to meet the demands of the new normal, deal with a potential recession, commercial property, slumps, and a hardening market, how will insurers address their customers’ demands for touchless experience, embrace technologies and drive innovation? What does the future hold for the Canadian insurance market? I’m very pleased to have Ryan Stein, Executive Director Auto Insurance Policy and Innovation, Insurance Bureau of Canada join me today as we discuss the impact of COVID-19 on the Canadian insurance industry. Ryan, it is a pleasure to have you here. I would love for you to introduce yourself.
Ryan Stein: Hi, Ron, thanks for having me. My name is Ryan Stein. I work for Insurance Bureau of Canada also known as IBC, which is the national trade association for Canada’s property and casualty insurance companies. We work with insurance companies to develop proposals for improving the public policy environment so that insurance companies can maximize value for their customers. I lead a team within the policy department of IBC that develops regulatory or legislative proposals on auto insurance, commercial insurance, market conduct regulation, and innovation policy. With innovation policy, what I am really referring to is how to modernize the legislation and regulation across the country so that insurance companies can innovate and introduce new products and services to their customers. Everything from products to support the sharing economy, usage-based insurance, and the various forms that can take and being able to do as much as possible digitally.
Ron: I love it. I am really excited for this conversation today. So, I would love to jump right in, as the insurance industry is experiencing disruption due to a variety of market factors and a global pandemic being not the least of them. What do you feel is some of the biggest impact on the Canadian market, especially in how is the market reacting?
Ryan: This is the most interesting time where really you have these massive factors that can influence well, the economy in general, but certainly the economy that the insurance industry works and all sort of colliding at once. So, I will speak just about three factors. The first two are not new. We have decades of rising claims costs associated with more severe weather events. So, you hear about a new billion-dollar event almost every year, and it almost seems every year that there’s a new record for annual property on both personal lines and commercial lines associated with natural disasters, floods, fires, hail events. And that has been building for years.
The second one that’s been building for years are interest rates that, every few years seem to hit new record lows, and that puts pressure on insurance companies’ investment income, which then applies pressure on their underwriting performance. And all this really kind of combined putting a lot of pressure on insurer capital, which is needed to write policies for people who drive cars, own homes, and have businesses. And then this year, those two factors collided with the unprecedented COVID-19 and the pandemic, which really compounded the existing challenges for companies and their customers, and we know this is global, and it is affecting everybody.
You know, insurance companies, they reacted fast when the pandemic hit. Their first reaction was to set up virtual operations to support their customers during this difficult time. And they also provided premium relief to their personal and commercial customers to help them manage during the first several months of the pandemic. Insurers, everything’s changing and with these factors colliding, all businesses are looking internally and seeing what the effect is and insurance companies with the pressure on their capital are reviewing their books, their risks, their underwriting practices, their rating practices to see what they need to do differently to be able to continue to deliver for their customers.
But there’s also opportunities that can come from something like this. You know, customers might start wanting different types of products, different types of services, and insurance companies are looking and figuring out how could they respond to that as quickly as possible.
Ron: So when you look at 2020 and sort of next year for 2021, do you think that the market conditions are going to drive premium growth or overall GWP will go down and an increase in premium, meaning less people are getting insured and the cost is being spread across a lower basis therefore premiums are higher? Do you have any sense on how this is going to have an impact on growth next year?
Ryan: You know, that is an extremely tough question. I wish I had a crystal ball that can answer that one. If you were to have asked me two weeks ago, my answer could be different than the one I’m going to provide now, which is going to be different than the one I’d provide in a couple of weeks. You know, generally, when companies reassess their underwriting, it leads to rising premiums. But there is all these other factors that are at play here. We have economic uncertainty the lockdown was unprecedented for us. How the streets were, it was almost like a ghost town the first time I went outside to go to the store after the pandemic hit. It was unbelievable.
So economic activity went to a halt. People were driving less. And then, all of a sudden, it started coming back. But now the case counts are going up and there’s talk about further restrictions, it may be another lockdown because of a second wave. So, the uncertainty is dramatic, and you hear many businesses, especially small ones that are facing extremely tough financial challenges.
Ron: Do you see different sectors in the industry being impacted differently?
Ryan: Well, I mean, you hear a lot about, it is really small businesses and there’s lots of concerns about restaurants and bars right now. Especially bars who might not have the same type of ability to deliver their product to someone’s house as a restaurant would, will be particularly hurt by a lockdown. So, I mean, we are really watching the news and hearing from insurance customers. And that is where a lot of concerns seem to be. So that is what I really see on the commercial side.
On the personal side, you know, people might decide to drive less. If they are working from home, they might, you know, besides driving less, if they have two cars, they might end up getting rid of one of the cars if they do not need it. So, that will also impact the growth of premium. So again, like, I wish I had a crystal ball, you see something’s happening here that could lead to an increase in premium growth, basically lots that could lead to a decrease, and it’s time will tell how it plays out during these uncertain economic times.
Ron: Yeah. I think that is right. One comment that you made earlier sort of jumps out at me, because I think yes, on one hand, bars and restaurants are suffering and there could be rumors of closing and a large number of them may be closing. On the flip side, I also get this feeling even more through my personal life, that there’s a lot of people starting home businesses who might have lost a job, maybe even in a bar or restaurant and now they’re selling things online through eBay, or Etsy, or Pinterest, or whatever you might have, there’s a lot of forums today. Part of me wants to say that we will see a new boom of home businesses that will have their own requirements. And you talked earlier about a shifting in the market and potential new opportunities, and that could be a green space for companies to innovate in and offer products for these types of people.
Ryan: You’re totally right and there are products that are out there to support home businesses and people that end up transitioning to that. So, people that are, we would encourage them to speak with their insurance representative. But yeah, I have seen companies that are tailoring their products specifically for that market. I remember when the sharing economy, ridesharing first came here, insurance companies, responded really quickly to try to start, how do we tweak the auto insurance laws so that we can be able to provide the ride-sharing companies with the right type of insurance coverage? And then they got that coverage in the market.
So, anytime these new types of businesses or change in economic activity they present new risks, but then the insurance industry is always there to step up. I think the example you provided is a good one and I see insurance companies have been there to service customers that want to take on those kinds of businesses.
Ron: So, we talked a little bit about priorities and the priorities we touched on were mostly around underwriting discipline. What priorities do you see shifting as a result of the pandemic as we go into 2021? Aside from the underwriting principles and the discipline that they are applying and the lowered interest rate, are there other things that companies are focusing on prioritizing?
Ryan: Their number one priority will be servicing their customers and being there for people that need to buy insurance, and then being there for their customers that are in the unfortunate position of having to file a claim. But this, again, is another tough question. My answer two weeks ago would not be the same as my answer now, which could be different than two weeks from now. Are we going into another lockdown as we did in March, April, and May or June? You know, businesses are starting to open up, insurance companies are in some cases putting people back in their offices or providing that option in certain situations.
You know if the economy goes into more normal operations insurance companies will adjust to that. But if we’re going to be going into lockdown again, and people are going to be working from home, you know, the number one priority for the insurance companies...I guess two priorities will be, one, keeping their employees safe, and then number two making sure that they’re operational, regardless of the circumstances, to be able to service their customers,
Ron: I am curious to hear on a sort of slightly different note, what are your thoughts on innovation and how innovation can help overcome some of the challenges? And what is at stake for companies that do not innovate?
Ryan: Yes, really interesting question and l will provide a quote from Rahm Emanuel, who’s the former Mayor of Chicago and Chief of Staff to President Barack Obama, and he said this during the financial crisis back a decade ago, he said, “Never allow a good crisis to go to waste. It’s an opportunity to do the things you once thought were impossible.” When the pandemic hit, Rahm Emanuel reiterated that phrase to encourage significant changes to the U.S. healthcare system and economic policy in response to the pandemic. And that quote always stuck with me and I was reading earlier on in the pandemic, how some interesting moves that the Ontario government made, and it seemed like they almost acted on Rahm Emanuel’s advice. What they did is they rapidly modernized court proceedings to facilitate virtual hearings and electronic filings.
Ontario’s Attorney General, Doug Downey stated, “We’ve modernized the justice system 25 years in 25 days and notably, even though these changes were pushed forward because of the pandemic, these changes are permanent.” I could not help thinking the same thing about insurance, especially auto insurance is now an opportunity to modernize auto insurance 25 years in 25 days. It is one of the most regulated sectors. The auto insurance product is set in the legislation. The price is approved by the regulator. In many cases, the underwriting criteria is approved by the regulator. And even the certain aspects of how insurance companies engage with their customers is regulated. But now that the pandemic’s happened, it is almost like a case study for the need for reform.
So, if I were to speak about price regulation, auto insurance prices, it is all about setting the price based on these proxies of risk. So, someone’s gender, their driving experience where they live, their claims history, but there’s a technology out there where you could actually price based on the person’s actual driving habits and how much they actually drive. I’m talking about telematics data that you can collect from the vehicle or from someone’s phone and you could take that data and determinate, not a price based on proxies, but a price based on their actual driving habits. But the regulations in Canada say well, you could collect that data, but you could only use it as a discount factor on a traditionally set rate. So, what that is really saying is regulation is saying, we want insurers pricing insurance as they have always done, but you can add this as a discount factor.
That really limits its capabilities, which is to price based on how much someone actually drives and how well they actually drive. You see in jurisdictions, other countries that don’t have these restrictions, you see customers, especially those who live in urban centers or who don’t drive that often, which is a big customer base, picking up these types of products because for them it provides better value and a more accurate price. It also provides a price that reflects, almost like the driving at the time and what the pandemic showed is people were paying their premiums like they were, and then all of a sudden, they just stopped driving for months. But their premiums technically remained the same, even though their risk level is completely different.
Now, obviously, insurance companies responded and returned significant amounts in premium relief to their customers. But I really felt that this was a case study for telematics space pricing and how regulation is preventing that from growing in the market. So, I think there is an opportunity for the provincial regulators to update their rules to allow greater telematic-based pricing options. So, someone could buy pay per mile insurance or pay as you go insurance and have the price based almost exclusively on how much they drive and how well they drive. I have some statistics.
It was a couple of years ago we did a survey that showed that 66% of Canadian auto insurance customers believe that premiums based on driving performance or vehicle usage are a fair way to price auto insurance. In addition, 60% stated that they would be willing to share some of their personal information if it meant their auto insurance premiums would be lower.
I wish we had an updated study. We do not, but there are studies in the U.S. that showed that as the pandemic went on, more and more people wanted to buy telematics-based auto insurance pricing. So, we think that there’s greater market demand. We think that technology is at the right stage, and now we just need the regulations to modernize so that companies can bring those products to market and the consumers that want them can start buying them. I would be one of those customers. So, it is something I am looking forward to happening.
I will just quickly touch on two other areas that I think that there is an opportunity to modernize the regulation. The other one relates to... price regulation as well, but I am talking about it more generally than just telematics. You know, the way prices are regulated here, it is meant for the changes, the price changes to be slow. So, you do this actuarial analysis, you file with the regulator, depending on the province, you could wait on 25 days, around 25 days, or, maybe even several months before the change is approved and you could implement it.
But we saw with the pandemic, customers wanted their premiums changed instantly. And so, maybe we need to look at how do we speed up that process so that the price insurers are offering in the market are more reflective of the market conditions at the time.
And then the last thing is, digital communication. Again, when the pandemic hit, people, I can only imagine, like, if I just look at my house, the amount of Amazon boxes that were coming, we were doing almost everything we could digitally. But it depends on the province that you are in, but there is still, some provinces that require certain insurance documents to be sent by the mail regardless of what the customer wants.
So, we think that now’s the time to look at those laws that require mail or in-person delivery of certain insurance documents and start changing them to provide electronic options. Now, I am being a little bit critical here of the regulations, but I should say that there are partners in the government and regulator communities across the country, and there has been a lot of positive change over the last few years to modernize them.
I think insurers, and governments, and regulators just need to maybe kickstart that a little bit more and move a bit faster. So, consumers could have more digital or telematics-based insurance experiences. I think by doing that, you could advance the auto insurance system by 25 years in 25 days, just like the Ontario’s Attorney General did for the court system.
Ron: I love that quote. That is such a good quote. I am curious, though, whether you have any worry about fraud, especially in Ontario, a study that I read Aviva found in 2018, their studies showed 9 out of 10 claims had some level of fraud in them. Any words, especially with telematics, I mean, it is relatively easy to spoof for GPS and the speed. I could be going 200 and telling the computer I am going 100.
Ryan: There’s always a worry with fraud in the insurance industry. I do not see the risk of fraud here as something that should stop these innovations and developments from coming. But they are extremely important considerations. And it is almost like you need to make sure that you reduce that risk as much as possible. And I believe that there is the technology and the processes out there to do that. It is extremely important to do it. Sometimes we talk about, in the insurance industry everyone knows that fraud is a big deal outside of it. Sometimes people are like, okay, that is just the cost of doing business, but that cost is spread amongst all the policyholders. So, it is a real cost for real people. So, the risk you identified is real, but I believe the solutions are out there. You just have to make sure that you do the right work to get everything ready, and then you could come out with your new products and services.
Ron: Yeah, that is a great perspective. We are going take a quick 20-second break to tell you where you can find more information and insights about insurance innovation. We will be right back.
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We are back with our feature guest, Ryan Stein. Let us jump right into the next question. We are living through unprecedented times, which is putting more strain on insurance organizations as workforces are now virtually 100% remote or work from home. The need for business continuity and resilience is heightened and cyber-attacks are as ever vigilant and, on the rise, and face-to-face interaction is in some cases not even possible. And so, customers end up having a lot higher expectation with a lot lower opportunity for providers to meet their needs. I would love to hear in your opinion, how can these insurance companies catch up to some of these mounting changes and deliver, like you said, a 25-year difference in 25 days?
Ryan: That’s the ultimate challenge, it is meeting the customer expectations. I think insurance companies really showed when the pandemic hit that they could adapt quickly. You know, insurance, the business did not stop when the pandemic hit, and insurance companies did not have several weeks to figure out their operations in a remote environment and then return to their customers. They had to do it on the fly, and they were able to do that and continue to provide high-quality service.
I mean, I work with companies, but I don’t work in a company, but if I did, I would think that that should give the insurance companies confidence that other challenges that come, whether it’s new customer demands or whatnot, that they know that they can move fast and responsibly, and be able to respond to those challenges.
I talked a little bit before about regulatory barriers and opportunities for change and what I would say to insurance companies, don’t look at that regulatory barrier that’s preventing you from meeting the customer demand or improving the customer experience. Do not look at it as, okay, you cannot do it, like it is over, we can’t pursue this. Governments and regulators also want the customer experience to improve and want businesses to innovate.
So instead of looking at a regulatory barrier as something that just stops you in your tracks, look at it as another challenge and build the case for why that rule should change. The case really needs to be how you are going to improve the customer experience and mitigate any adverse customer outcomes that could come.
And then you could do it through an industry association like IBC, a collective voice, or you could do it individually as a company. It really depends on what you are trying to pursue. And engage governments, engage regulators, and come to common ground on what the problem is and how the customer experience could be a lot different for the better by making that change. These are all challenges out there and there is a lot of challenges out there. Regulation is one of them, and there is an opportunity always to pursue change. You just need to build the case for it and pursue it.
There’s been examples of it in the past, how companies wanted to provide insurance for ride-sharing companies, but the products that they were allowed to sell based on the rules were not appropriate for the ride-sharing companies. Insurance companies worked with IBC, worked with regulators and were able to tweak the laws in certain provinces to be able to deliver the type of product that worked for that customer. So, there’s other examples out there as well, and I think I would just say take the challenge head-on and push for change.
Ron: I love that. And that is actually a really great example. I think part of it, though, is that change is very daunting, and I would love to get your thoughts on if you were actually the CEO or the leader of an organization. Many people in their organizations might be afraid of what change means, and they might be worried about their jobs, or their budgets, or their timelines, or a variety of different things. What advice do you have for leaders who are trying to actually bring the change in facing internal, not resistance, but fear to change?
Ryan: Number one is building just a customer-focused culture and really just putting the customer at the front so that everyone is working from, okay, we want to introduce change. It could impact, the business, people’s jobs, but really putting the customer upfront so you can get people kind of working together for improving that experience for the customer.
But the other thing is collaboration. I think if you were to push change, I think you should expect resistance and that’s part of the challenge. I think working through it is how you get the buy-in and that allows you to proceed. It could be frustrating for sure, especially for the proponents of the change and the innovation, but that’s part of it. That is part of the work is getting the buy-in talking with people, hearing what they have to say, hearing their concerns, hearing their ideas. And that’s kind of how you get to, it’s not about the changes and about a person or the people who are pushing it, it’s about the organization coming together and making that decision that’s in the best interest for the customer and pushing forward with it.
If I were to look in my world, I would be working with anywhere from 5 to 10 insurance companies on a regulatory problem that they have. You will have some that are really pushing for a certain type of change to a regulation or want IBC to bring that change to the government, and then you have others that think differently. You cannot just sort of try to take the case of the people who want to go a certain direction and just move with it. That is not how it works for us. You have to talk it through, hear people’s concerns, hear their ideas, and bring them together around a consensus. And then you are able to also move forward with more confidence. I think you could apply, kind of that to an insurance company environment where they are looking to change a process or introduce a new product.
Ron: Are there specific technologies that you think that companies can implement today to really help them get started on being customer-centric?
Ryan: Well, I think I will mention there are good examples. I think companies that have usage-based insurance offerings, even though I am saying that there is more you can do there. The ones that you are allowed based on the regulations, which are discount factor based, I think those are important options to have for our customers.
I think digital pink slips is another great example, it’s the one document that you get every single year for your auto insurance, your proof of auto insurance, and having the ability to now get that electronically is really important to a lot of customers. We have seen several provinces now allow it, and hopefully, the others will follow soon.
But I wanted to really just actually mention, it is not really a technology, but the ride-sharing insurance. I just think it was a good example of the insurance industry, you know, stepping up to help their customers. When ridesharing first came, they had an insurance policy, but there were a lot of gaps in it. You know, some people thought that they were mavericks, but really the ride-sharing companies were buying the insurance that the regulations or the laws allowed them to buy. And insurance companies saw this customer demand for something better, but they also saw these regulatory hurdles and they worked together, worked with IBC. They worked with the government to try to really build that customer case for a different type of insurance product for that type of business.
They were successful in showing governments and regulators, how making these regulatory changes could fill the coverage gap and really make sure that ride-sharing drivers and their passengers are covered when using their vehicle for ridesharing. So, I just thought that to me, I looked at that as, finally, people in the insurance industry are not looking at the laws and saying, “Okay, well, these are the rules. We just have to play by them.” They’re saying, “Hey, look, there could be problems with these rules. And, you know, we’ve had to work with the government and the regulators to change it.” And they were able to successfully do that.
They started taking that approach of working with the governments and the regulators on some of the customer risks that the governments and regulators see to push for other changes. One of those was digital pink slips which came in several provinces a few years later. I am hoping that we can continue that momentum with bringing more telematics offerings here or allowing more telematics offerings here. Really pushing change forward and advancing auto insurance by 25 years in 25 days.
Ron: That’s such a great saying. So, as we wrap up, would love to get you to share one piece of wisdom with our listeners. It does not have to be business or insurance-related, it is just something that you want to let people out there know that you think would help them in their lives.
Ryan: That’s a real tough question. I think I will stick with an insurance reference instead of giving general life advice. I would say just remember as insurance companies, you put the customer first. Remember that governments and regulators also put the customer first, so you have that commonality there. I think you could build on that to modernize the laws and the regulations. So, you can innovate just like how you modernize your processes and your products and services within your company.
Ron: That’s a great point, actually. So, Ryan, where can people find out more about you and IBC?
Ryan: Go to www.ibc.ca, and you can also see our LinkedIn and Twitter feeds, and you can see all the interesting work we have going on. If anyone wants to reach out to me directly, please do so, I would be happy to chat.
Ron: Awesome. Thanks for taking the time, Ryan. And as always, if you guys want to find out more about insurance and stay up-to-date, you can find out more at chisel.ai, and we hope everybody stays safe.
That’s a wrap for this episode of “AI Wisdom” hosted by Chisel AI and me, Ron Glozman. Thanks for listening.
Join us next time for more expert insights and straight talk on how AI and insurtech innovations are transforming the insurance value chain. See you on the next episode!