The End of Insurance as We Know It

by Rob Galbraith

  risk averse

  A general psychological state experienced by the majority of people where they are willing to pay a smaller fixed amount in return for avoiding the potential of a larger loss that might occur; compare with risk seeking and risk neutral

  risk pool

  A group of exposures that are considered similar enough for insurance purposes to take advantage of the law of large numbers

  risk segmentation

  The ability or process by which risks are grouped into different risk pools subject to different rates and possibly underwriting guidelines to achieve profitable growth

  robotic process automation (RPA)

  A software process by which exceedingly manual and repetitive tasks can be streamlined and automated through the use of technology, emulating what a robot might do

  salvage

  The residual value of a totaled vehicle or property, e.g., what a vehicle brings for scrap parts

  schedule

  A list of insured items each with its own description and valuation, compare with blanket coverage

  secondary insurance

  Insurance that could respond to cover a loss when primary insurance is insufficient and leaves a protection gap

  self-insure

  The financial ability to absorb losses without relying on an outside firm such as a carrier or reinsurer

  severity

  The average amount of a paid claim, expressed as the total losses paid divided by the number of claims

  short-tail

  The length of time needed to resolve claims, measured in days or months

  skimming the cream

  An insurance term that refers to the process where a superior competitor is able to attract the most profitable business away from inferior competitors through better risk segmentation; opposite of adverse selection

  smart contract

  A concept that uses technology such as blockchain to enable contractual relationships between parties without the need for some or all of the necessary third parties and verification steps that are traditionally needed in insurance

  smart home

  A class of Internet-enabled sensors and technologies that make existing infrastructure such as lights and doorbells “smart” by unlocking greater customization and new features for property owners

  software as a service (SaaS)

  A business model where software is purchased on a subscription basis and deployed using cloud computing to provide newer features and bug fixes faster, generally with a lower total cost of ownership

  special form

  A policy form that goes beyond the basic and broad form causes of loss to include coverage written on an open perils basis

  special limits

  Distinct policy limits that are usually lower than overall policy limits and apply to certain special classes of items or perils

  special investigations unit (SIU)

  A specially trained team within a claims department designated to handle questionable claims that may involve aspects of fraud

  split deductible

  A policy where more than one deductible applies; the deductible is said to be “split”.

  structured data

  A form of data that is easily manipulated and summarized, such as characters and numeric data, to be analyzed and provide meaningful insights using business intelligence tools

  sublimit

  A limit lower than overall policy limits that applies to a certain item, class of items or peril.

  subrogation

  The process by which insurance carriers may be able to recover money from parties that are in part or in whole legally responsible for losses that the carrier paid to claimants

  supervised learning

  A technique used in artificial intelligence where data scientists provide guidance to the computer to assist in the development of predictive algorithms

  switching

  The process by which an insured moves their insurance coverage from one carrier to another

  systems modernization

  A general description of the effort organizations undergo to upgrade their core legacy systems to more robust versions that leverage modern technologies such as cloud computing

  telematics

  A broad term that describes the use of event data recorders in vehicles for insurance purposes

  third party

  An individual or entity that is not the insured or insurer but is either involved in the claims process or otherwise plays some role in the insurance ecosystem

  third-party administrators (TPAs)

  An organization that processes insurance claims or other services such as underwriting, biling, data and analytics, or handling some customer inquiries

  totaled

  A description of a vehicle or other insured item that will not be repaired but paid out as a total loss per the contract provisions, which could be for actual cash value, stated value or replacement cost

  total losses

  The number of claims paid out by an insurer at policy limits

  transactional data

  Data that is captured as part of a business transaction including data that is input by the customer, an agent or representative from a carrier, and any associated metadata

  ultimate losses

  An estimated amount of the total amount of losses that an insurer will ultimately pay once all loss development has been completed

  umbrella

  An insurance product that is common in personal lines which works as excess liability coverage and is triggered when underlying limits on an auto or homeowners policy are exhausted

  underwriting

  A broad term describing the risk management function and processes of a carrier to include risk selection and segmentation; term comes from early days of insurance when financiers signed their name on lines of paper agreeing to insure ships and their cargo

  underwriting expenses

  All insurer expenses not related to loss adjustment expenses

  underwriting gain or loss

  An insurance term that describes whether a carrier made a profit or loss on their insurance operations, independent from any investment income they may have realized on their reserves

  underwriting profit

  Another term for underwriting gain; indicates an insurer made a profit on its insurance activities

  unearned premium

  The portion of premium that is collected by carriers but has not yet been earned from coverage that was provided

  unearned premium reserves

  A liability on a carrier’s balance sheet reflecting the total amount of premiums collected that have not yet been earned and therefore cannot be recognized as revenue

  unsupervised learning

  A technical used in artificial intelligence where data scientists set up initial conditions but otherwise do not assist in the development of predictive algorithms, allowing the computer to decide on which patterns and correlations are most relevant

  usage-based insurance (UBI)

  A type of insurance that is charged based on the amount that is “used”, as measured by an exposure base such as miles driven, rather than a set period of time such as 12 months

  user-developed applications (UDAs)

  A wide range of technological solutions of varying complexity that are developed by business users and not formally supported by information technology (IT) departments

  user interface (UI)

  A term used to describe the mechanism by which users interact with a technology program or application

  user experience (UX)

  A term used to describe the highs and lows that customers feel when engaging with a product or service; customer journey mapping is one technique used to evaluate user experience

  valuation

  An estimate of what an insured item is worth; used to establish replacement cost and in rating

  value-added services (VAS)

  A broad
term that describes a range of services that insurers or other entities could provide that add value to customers, often used in coordination with telematics or smart home offerings

  white label

  A product or service enabled in part or in whole by a third party but that can be branded by a carrier or other company to enhance their offerings and perceived brand value

  wind/hail deductible

  A deductible that applies when a loss occurs due to a wind or hail event

  Workers’ Compensation (WC)

  A commercial insurance policy that covers the exposure a business has to workplace injuries that may be incurred by its employees

  written premium

  The total amount of premium that a carrier has issued policies for; equals the sum of earned premium (for the portion of time coverage has been provided) and unearned premium (for the portio of time coverage has not yet been provided)

  youthful driver

  Typically a driver ranging from ages 16 to 24 that has a higher accident frequency due to inexperience and overall maturity than more experienced drivers ages 25 to 65

  zero-paid claim

  A claim that is a covered loss but does not trigger a payment from a carrier, typically because it is below the applicable deductible

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  ACKNOWLEDGEMENTS

  Writing a book may appear to be an individual accomplishments as a solo author, but it is most definitely a team sport. I started with inspiration from my CPCU friends Carly Burnham and Tony Cañas who decided to start their own club at school called Insurance Nerds and wrote a book together, Insuring Tomorrow, which they self-published. Their tireless work benefitting so many of our P&C insurance industry colleagues, along with the incredible contributions of Nick Lamparelli and his Profiles In Risk podcast, are a perpetual source of knowledge and motivation. Special thanks to Nick who gets credit for my moniker of The Most Interesting Man In Insurance. When Tony told me that Insurance Nerds was publishing Bill Wilson’s book When Words Collide, I instantly started thinking about following in Bill’s illustrious shoes and writing my own book. Bill’s years as an educator and writer with deep knowledge of the minutiae of insurance contracts and passion for the professionalism of our industry is a blessing to all of us in the P&C ecosystem. An extra special shoutout to Carly whose quiet strength and leadership guided this project from a seed of an idea into what you hold before you today.

  While it was Carly, Tony and Nick that believed in this project from the beginning, I owe my largest debt of gratitude to Marie-Christine Razaire. A testament to the incredible force for good that social media can be, MC and I connected first over Twitter, and our relationship grew over time (and expanded to LinkedIn and eventually Instagram). MC is a true original: she has a brilliant mind for what is wrong in our industry and knows so much more about insurtech than I do. MC was kind enough to review a very rough initial draft of my first few chapters, and delivered feedback in spades - way more than I was expecting! Thankfully, MC channeled her inner Anna Wintour for the entire project, and her attention to detail, encouragement, and challenges have magically transformed my brain dump into a finished book. I let MC know at the outset that I was grateful for her guidance but needed her to believe in this project. While she would not agree with all of my statements and assertions, she brought the same level of belief and commitment to this book that I did. For that, I am eternally indebted to MC and hope someday I may repay her kindness by doing the same for her as she is a gifted writer in her own right.

  Writing a book is at once a big ego trip and the most humbling experience of your life. I started this project because of a passion for insurance and the desire to move my beloved P&C industry into the 21st century. After two decades in financial services, I have been moved by the power of our products and services to transform lives and pick people up when they most need a lift. I have also seen the many ways we fail on that promise. The potential for insurtech to solve many of our thorniest issues as an industry is powerful, yet much of the information available is at conferences, on presentation slides, posted as articles or posts on social media: in short, scattered and difficult to see as a whole. Bringing these fragmented pieces together in a mosaic for you, the reader, is my goal for this book. If I have succeed in doing so, it is thanks to many others. I quickly learned the limits of my expertise when drafting this manuscript and found the need to rely on the insurance community at large in all aspects of this book.

  Some of these individuals I have credited in the book where they directly contributed a thought, idea, concept or insight. Alas, the influence of each person who contributed to this effort, large or small, is always difficult to credit. The following individuals, among others, have influenced my thinking to varying degrees on this project for which I am eternally grateful:

  Fatih Acer, Wayne Allen, Stephen Applebaum, Tim Attia, John Bachmann, Gregory Bailey, Ben Baker, Ryan Bank, Rachel Bannister, Cindy Baroway, Dylan Bourguignon, Avi Ben-Hutta, Shefi Ben-Hutta, Kobi Bendelak, Peter Bransden, Kelsey Brunette, Matteo Carbone, Cara Carlone, Jon Caspi, Anil Celik, Chris Cheatham, Abi Clough, Chris Cocuzzo, Cooper Cohen, Boris Collignon, Mica Cooper, Ryan Deeds, Kumar Dhuvar, Dave Dias, Mark Dowds, Chris Downer, Becky Downing, Allan Egbert, Jr., Gareth Eggle, Sam Evans, Bryan Falchuk, Kristian Feldborg, Sherry Folkerson, Bob Frady, Guy Fraker, Chris Frankland, Alexander Frost, Nicholas Fuller, Brett Fulmer, Denise Garth, Alberto Garuccio, Wolfgang Gauglitz, Nick Gerhart, Elaine George, Karen Geva, Stephen Goldstein, Mark Goodstein, Florian Graillot, Nicholas Gregory, Deb Grey, Alicia Gross, Henk Grouls, Tom Gubash, Danielle Guzman, Taryn Haas, Charlotte Halkett, Nikki Hall-Jones, Ed Halsey, Chris Hampshire, Ryan Hanley, Ash Hassib, Andrea Hatch, Brian Hemesath, Bruce Hicks, Joe Hollier, Caribou Honig, George Hosfield, Adrian Jones, Matthew Jones, Erik Jorgensen, John Kadous, Mrig Kanwal, Urijah Kaplan, Simen Karlsen, Patrick Kelahan, George Kesselman, Dr. Robin Kiera, Lutz Kiesewetter, Euan King, Vivek Krishnamurthy, Dr. Stefan Kroll, Alex Kubicek, Theo Lau, Stephen Lawler, Nick Leimer, Vincent Lepore, Mariah Lord, Derek Lynch, Stephen Matusiak, Artur Matuszczak, Christopher McDonald, Doug McElhaney, Steve McElhiney, Christoph Maile, Aran Mol, Michael Morgenstern, Juliette Murphy, David Muyres, Carey Anne Nadeau, Shunzo (Sanjay) Nagahama, Kyle Nakatsuji, Larry Nickel, Martha Notaras, Jennifer Overhulse, Neelam Paharia, Pankaj Parashar, Karl Heinz Passler, Donna Peeples, Keith Pennell, Nicole Perrault, Matt Peterman, Frank Porzberg, Ryan Prosser, Paul Ptashnick, Nabil Rahman, Robin (Smith) Roberson, Chris Roussel, Anand Sanwal, Lucas Schiff, Michael Schwabrow, Jim Schweitzer, Gilad Shai, Bobbie Shrivastav, Dr. Patrick Schmid, Andrea Silvello, Paul Skeie, Ed Stelzer, Lucy Stribley, Bill Sullivan, Rain Takahashi, Bob Tapscott, Shaun Tarbuck, Dr. Mark Tarmann Jr., Jeff Taylor, Hugh Terry, Dave Tobias, Attila Toth, Abel Travis, Mat Tsou, Toby Unwin, Kevin Van Leer, Dave VandenHeuvel, Sabine VanderLinden, Mike Venske, Patrick Vice, Nigel Walsh, Kevin Wang, Amy Waninger, Daryl Watkins, Jay Weintraub, Billy Welch, Pat (The Shopper) West, Dan White, James Whitelaw, Ben Whittington, Bill Wilson, Nina Winter-Kaland, David Wright, Amber Wuollet, Cheryl Yakey, David Yeng

  To my uncredited colleagues - you know who you are - thank you for your inspiration.

  Finally, the person who has influenced my thinking the most is my incredible wife Dani. This book would not exist but for our many evening walks talking data, analytics, business strategy, office politics and, above all, our mutual love/hate relationship with insurance. I love you - thank you for your incredible support personally and professionally over the years.

  ABOUT THE AUTHOR

  Rob Galbraith has over 20 years of experience in the financial services industry in a variety of positions in the fields of P&C insurance, banking and investment markets. He holds a Master's of Science in Insurance Management from Boston University and a Bachelor of Arts in Economics from Michigan State University. Rob earned his Chartered Property Casualty Underwriter (CPCU) designation in 2003 and has served in leadership roles both at the national and local chapter level. He was
elected to serve on the CPCU Society's Leadership Council from 2016-2018 and previously served on the industry Advisory Board to The Institutes. Rob received the Loman Award for outstanding service to the Alamo Chapter of the CPCU Society in 2009. He has also earned the Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) designations from The American College of Financial Services.

  Rob is a recognized thought leader on P&C insurance. He is a published author and media contributor. Named by Nick Lamparelli as “The Most Interesting Man In Insurance” for his travels and commentary, Rob is a frequent speaker at industry conferences and corporate events. He has been ranked as high as #6 on the InsurTech London Top 100 Influencers. Rob's passion is finding ways to provide insurance products to all who have a need through innovative approaches that leverage the latest in technology, building strong relationships with a diverse network of people from a variety of disciplines, and educating the public on the risks they face. This is his first book.

  Rob lives in San Antonio, TX with his wife Dani and three children: Felicity, Andrew, and Sienna. You can find out more information about Rob by visiting the companion website for this book at http://endofinsurance.com as well as following him on Twitter at @robgalb and connecting on LinkedIn.

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  [2]https://thebottomline.as.ucsb.edu/2018/09/ride-sharing-services-may-soon-make-taxis-obsolete

  [3]https://www.insurancejournal.com/news/national/2017/01/27/440212.htm

  [4]https://youtu.be/S-Bf0wwgLDE

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