P&C Insurance Post-Pandemic: Q&A with Stephen Applebaum

Insurance Industry News & Views - September 22 2020

Stephen Applebaum is Managing Partner, Insurance Solutions Group and a Senior Advisor to Waller Helms Advisors. An insurance subject matter expert, thought leader, author, and frequent speaker at insurance industry conferences, Mr. Applebaum provides consulting, advisory, research and strategic M&A services to participants across the entire North American property/casualty insurance ecosystem. We connected with Stephen to ask a few questions about managing digital transformation and organizational change in P&C insurance and the impact of COVID-19 on Insurtech investment and adoption.

Stephen, you recently wrote that, “There is a general perception that the insurance industry is doing surprisingly well in the face of a global pandemic.” You give the industry kudos, but you also argue that, when it comes to innovation and transformation, this glowing picture is only partially true. Where do you see gaps or areas of concern in how the industry is managing the ongoing impacts of COVID-19?

One critically important aspect of COVID-19 that does not get nearly enough attention is the impact of work-from-home on people’s morale and mental health. This may be because it happens gradually and is not something that is easily identified on a video chat or email. People are basically social beings and the loss of human contact with friends and colleagues will take a dramatic toll. This will also impact the health of the employer, more so over the long haul.

In addition, corporate health is suffering because remote working gradually erodes corporate culture – the very soul of a company.

The third gap I see is the decrease in overall innovation and experimentation. While insurers are refocusing almost exclusively on innovations to address the demands of the pandemic – mainly contactless underwriting, claims and payments and virtual customer support and services – many other promising areas of innovation are being ignored or set aside. The lost momentum of these initiatives will take time to restart and may even be left behind until long after the pandemic ends.

It’s been said that the insurance industry is virtually recession-proof, but the same can’t be said for insurtech startups, who have been a major catalyst for transformation. Can you discuss the impact the pandemic is having on insurtech funding and adoption?

I see two very different realities for insurtech startups – what I might simply describe as a small number of “haves’ and a much larger number of “have nots”. The former group raised enormous amounts of capital some time ago which continues to afford them much longer runways, have gained some degree of market traction and revenue, have carrier support through corporate venture capital investment or other high-level insurer relationships and offer what could be called mandatory pandemic solutions in the categories mentioned above.

The latter group, “the have nots”, likely came to market more recently, are in much earlier and smaller funding stages, have little to no industry traction or revenue as yet and do not offer solutions considered mandatory by the pandemic and are finding it nearly impossible to engage otherwise distracted insurers.   

What about M&A activity in the insurance industry? Do you think we will will see a wave of industry consolidation as a result of the pandemic?

I don’t expect to see significantly increased consolidation with the exception of “spot” situations; deals that were under discussion prior to COVID-19 and still make sense today or are focused on strategic niche opportunities in P&C. These may include cyber products, property claims solutions and reinsurance exchanges. In Life, Health and Accident, they include paramedic, parametric, telehealth and interval insurance product influenced M&A.

Business Interruption claims due to COVID-19 are a major challenge for commercial insurance carriers. It’s an evolving story as legislators weigh their response, but how would you rate insurers’ own response to BI coverage?

I am not an attorney but from a business perspective, I think Insurers are in an awkward spot. If they take too strong a public stance, they attract reputational risk and potentially competitive disadvantage but if they take too lenient a position, they risk eroding their capital base and potential bankruptcy. So far, BI liability rulings in North American jurisdictions have been favorable to insurers. Strict interpretations of policy language regarding “physical damage” and underlying carrier intentions favor the industry. The recent unfavorable high court ruling in the U.K. appears not to have any legal bearing on North American decisions. It seems to me that avoiding any premature position statements or actions and allowing the judiciary to do its work will end up working in the industry’s advantage. They should allow their trade associations and lobbyists to do the work at which they are experts.

Long before anyone had ever heard of COVID-19, the insurance industry was in the midst of a massive digital pivot. If you had to pick one technology trend that will fundamentally transform insurance over the next 5-10 years, what would it be?

Any project involving transformational technologies that can resolve the digital shortcomings that have surfaced during the pandemic will become priorities and if I had to pick one it would be the adoption of digital/virtual claims resolution technology. But the industry doesn’t need to limit its innovations to just one.

Every technology that enables or supports touchless and/or contactless processing anywhere across the insurance enterprise has already moved up every insurers’ priority list and even after COVID-19 fades away, the benefits of these innovations will ensure their permanent adoption. Furthermore, any technology that significantly improves customer experience and brand loyalty, whether it is the use of third-party data to simplify quoting and binding, IoT and connected device data to enable risk avoidance and mitigation, promotes personal safety and security and hyper-personalizes insurance coverage is sure to rise in adoption priority.

You advise clients in the insurance ecosystem on how to manage organizational change when adopting disruptive technologies. What advice would you give insurance organizations looking to embrace new technologies to make sure that the transformation is constructive?

My best advice is to be 100% certain that any technology adoption is perfectly well aligned with corporate strategic objectives. Don’t just follow trends or copy what competitors are doing since not all companies share identical business objectives. I also encourage frequent consistent internal communications articulating executive management support and the importance of the project to ensure enterprise wide support and focus. And with the number of rapidly emerging new technologies it is critical to continuously review employee skill gaps and implement formalized upskilling and reskilling programs as needed.  

Based on your experience, what are the secrets to a successful insurer-insurtech partnership? 

For insurers:

  • a project champion, preferably a C-suiter or influencer who is passionate about innovation
  • define and commit resources; both people and money
  • willingness to conduct pilot/POC with well defined timelines and next steps
  • exercise patience while remaining focused on the strategic project objectives because many insurtech solutions start small and gain over time and through scaling

For Insurtechs:

  • invest to completely understand insurer’s business and culture
  • develop clear, tangible and compelling use cases to inspire and foster insurer creativity
  • develop a collaborative business case/ROI for each use case collaboratively with insurer
  • founder/entrepreneur should remain actively involved throughout the relationship
  • frequently articulate longer-term vision/roadmap to reinforce insurer engagement

Stephen Applebaum haedshotStephen Applebaum, Managing Partner, Insurance Solutions Group, is a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the North American property/casualty ecosystem focused on insurance information technology, claims, innovation, disruption, and supply chain management. Mr. Applebaum is also Senior Advisor to Waller Helms Advisors, the premier investment banking boutique focused on insurance, healthcare and investment services and technologies. 

Stephen is a frequent chairman, guest speaker and panelist at insurance industry conferences and author and has a passion for business process innovation, applying disruptive technologies across the insurance ecosystem.

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