The Risks & Rewards Behind Digital Insurance Applications

Despite the efficiency, automation, and customer engagement of today’s digital insurance applications, there’s a catch: the rise in risk as applicants use and insurers employ digital channels. But there are ways to mitigate exposure rather than eliminate the digital experience altogether. Woody Klemmer, Head of Growth at ForMotiv, joins Janet Sachs, Sapiens’ Senior Marketing Writer, to explore the delicate balance of risk and reward behind the digital experience and potential solutions in our latest podcast.

Janet Sachs|Woody Klemmer

Janet Sachs: Hello, welcome to the Sapiens Insurance 360 podcast. I’m your host, Janet Sachs, Senior Marketing Writer at Sapiens, and I’m so glad that you’ve tuned in today. This is where we discuss the latest news, trends, and issues from across the insurance solutions and technology spectrum. Today, we have a very special guest joining us, Mr. Woody Klemmer. He’s the head of Growth at ForMotiv, a behavioral science platform that helps insurance carriers predict user intent by analyzing digital body language, while users engage with digital forms and applications. On today’s program, we’ll be discussing a very timely subject, “The Risks & Rewards Behind Digital Insurance Applications,” and Woody, welcome to the show!

Woody Klemmer: Thank you very much for having me.

Janet Sachs: So you can’t work in insurance insurtech today without being familiar with the growth and impact of digital insurance applications, the online tools and platforms that use technology to provide efficient, personalized insurance services to users while also improving internal operations. Their exponential growth, especially during and after the pandemic, has allowed insurers of all kinds to simplify and automate the customer engagement experience, speed up underwriting and processing cycles, and replace core legacy systems. But as with anything, the growth of these applications does have a dark side. In particular, real challenges in terms of balancing customer experience with risk. Woody, to start us off, can you elaborate on this problem?

Woody Klemmer: Sure, and thanks again for having me. So we think about the balance between risk and customer experience quite a bit. You know, if you think about the industry of just insurance in general, there has been this age-old problem of how do you create a better digital experience without increasing risk? And we usually view these as, you know, [as] a seesaw. They’re inversely proportional. Just if you think about customer experience, marketing, product teams, that want to create a better experience, typically that means you’re removing friction, which just inherently increases risk. If you look at it the other way and you’re a risk in a fraud team, and you want to, you know, tighten up your risk measures, typically that means increasing friction, which reduces the customer experience. So you have this either/or situation and carriers are trying to figure out how do we as we move towards accelerated underwriting and instant decisions and we’re trying to increase face amounts and just make sure more and more people can buy digitally, how do we do that without increasing risk? Why we call it the dark side of digital applications is really just because there’s been this huge rise in risk, premium leakage, non-disclosure, or material misrepresentation as applicants go digital or as carriers have these digital distribution, the veracity of data is down and there’s probably a number of reasons why. But I think if you were to just take like a life insurance example, for instance, and the carrier or whoever it is is saying, hey, there’s no fluid tests, get your policy in five minutes, you’re probably bound to attract a lot of people that don’t want to get a fluid test. And so when you start to remove these friction controls or these risk controls that have been around for a long time, you get exposed to a lot of risk that I’m not sure they were entirely anticipating. I know there was attempts to price it in, but if you just look at the loss ratios, for instance, in the P&C space, you know, they’re losing like $0.16 for every dollar that they’re making right now. So there’s a lot of unintended consequences that have come along. And, you know, I know we’ll get into some of the other things that we’re seeing and what they’re doing to try to figure it out.

Janet Sachs: Interesting. Thanks for that. So to continue, what are carriers doing to combat the risk in risk?

Woody Klemmer: Yes. So the risk in risk. So if you take the P&C side, and I just mentioned loss ratios, most of the P&C carriers, I say most, not all, have had a really hard time the last 18, 24 months. We’ve started to see carriers like if you look at the State Farms, it’s all State Farmers even just recently announced they’re pulling out of certain states. So, you know, California, Florida, some of the high risk, you know, borderline now are becoming uninsurable. So if your home renter’s policies, they’re just straight up pulling out of those states and making decisions based on, hey, can we make money here or can we not? And is the risk worth you know, the juice, is the juice worth the squeeze here? So that’s one area. We’ve also seen carriers actually turn off their digital applications. So you’ve spent, you know, a ton of money and a ton of time creating these digital experiences, only to then turn them off because the risk is higher than you anticipated. And we equate that to Netflix going couple of years of streaming and then pulling back and saying, hey, we’re actually just going to mail DVDs anymore because we can’t control password sharing. You know, it’s just it’s not the best user experience, especially once you’ve been conditioned to buy in a certain way. So they’re trying to figure out a) what can we do to stop the bleeding and b) what do we do moving forward so that we’re not exposed to the same amount of risk. And I know that there’s a lot of new data set solutions, you know, different insured tech providers that are starting to lend a hand in this, whether it’s, you know, medical records, behavioral data. They’re using dental records, you know, and doing different things. But that’s what we think is currently creating the problem. And, there’s a number of ways that they’re attempting to solve it.

Janet Sachs: I see. That’s really fascinating. So how do you think insurers can find the balance between risk and experience?

Woody Klemmer: Yeah. So that’s the that’s the Holy Grail. That’s the question that they’re all trying to figure out right now. And we kind of view this as the pendulum will eventually settle in the middle. Just to use another analogy, of when Covid hit, everybody went remote and some people went fully back to the office. But we think it’s going to ultimately settle somewhere in the hybrid. We think the same thing is going to happen with these insurance experiences where, the narrative has long been, you know, brokers are going away, insurance agents are going away, everything’s going to be DTC. We can cut out the middleman and go completely digital. We can remove all these friction points and just use AI and machine learning and whatever other solution they can to understand our customers better. And we’ve seen what’s happened with a lot of those companies that are the ones pushing those narratives. Stock prices are down huge. No one’s really proven that they can be profitable at scale yet, from at least the insurtech perspective.

So but we do think that there has been this disruption in the digital experience. So they’re going to need to figure out how do you have multiple channels that are designed for the individual customer, right? If you’re a digital buyer, you should be able to buy digitally. If you’re somebody who’s, more prone to purchasing with somebody or wants to speak to somebody, you should have that ability as well and not to self-promote, but the way that our company thinks about it is if you can really understand the intent of the end user, you can provide a dynamic experience that adapts to that user. So currently, usually experiences are completely static, meaning every single person gets the same experience. We think, call it five, ten years from now, we will think that that’s crazy. How could you have the same exact experience for every single person when every person is different? And if you can understand the purchase intent by a high-intense shopper who needs insurance now, am I just browsing or window shopping? Maybe I just got a rate hike from my carrier, which we’ve seen over and over these days, and I just want to see what else is out there. Maybe I’m a bot, or fraudster, all the way through to what’s my risk profile? Am I manipulating certain questions to try to get a lower rate? Am I, for lack of a better term, buying on the application process, all of those users should probably be treated a little bit differently. But if you don’t have a real-time understanding of their intent, you can’t do that. So while we’re able to help carriers do now is say, you know, if I can take a very microscopic view of this individual, I can prescriptively provide them with the experience that is best suited for them, because the key is, is figuring out who should you accelerate and provide that seamless, frictionless process to and who should you further qualify? And the only way to do that is really by understanding their buying intent and their risk profile.

Janet Sachs: Understood. So now for the big question, where do you see the industry going from here?

Woody Klemmer: Yeah. So I think it’s probably going to echo some of what I was just saying around, just the fact that I think digital applications are here to stay. We wouldn’t be surprised if, again, that pendulum swings a little closer towards the middle, and we start to see a reintroduction of fluid tests in life insurance, for example, or in auto, I think all of these carriers that have spent all this money going digital will continue to do that. And they will relaunch their digital experiences. But the ones that maybe we’re considering, I’m shrinking their agent force will reconsider that. So we think there will definitely be a dual approach where you can both buy online, you can speak to an agent. It won’t be either/or. But I think the key is going to be for all of these carriers who are trying to figure out again how do we balance this risk moving forward? And we can’t do what we just did over the last 18 months. It’s clearly not working, especially not in this macro environment. But what can we use and whether that’s additional data sets increasing the adoption of AI and ML during the underwriting process, continuing to adopt whatever the new technological solutions are, you know, from a fraud perspective, from a risk perspective, claims, so on and so forth. We think that that’s going to be at the forefront of everyone’s mind. And the one that continues to show up for us, like obviously claims fraud is huge, but carriers are trying to figure out, okay, by the time they’ve already filed the claim, it’s almost too late, and you’re only going to pull out so much of that. How do we start to be more prescriptive and more preventative upfront?

Can we start to look at applicants during the application and underwriting process and start to pull out bad risks there, especially in these digital environments? So that’s what we started to see a ton of, premium leakage is a $30 billion problem. Non-disclosure in the life insurance is, you know, over [a] $10 billion problem. So how do you understand some of these things? And these are risks that are not available to you through third-party data sets, so you’re essentially completely blind to them? But how do you really understand? And then more importantly, how do you prevent those policies from being underwritten improperly and how do you get ahead? So, you know, we think that in short, in closing, I think it’s exciting times. I think the experiences are only going to get better. And again, I think five, 10 years from now, we’ll look back at the experiences of today, similar to how we look back at probably websites from 2013 and say, Oh my gosh, I can’t believe it looked like that. We thought it was awesome.

Janet Sachs: Exciting times, indeed. Thank you, Woody! We could spend another hour at least discussing the dark side of digital insurance applications, but you’ve provided a great overview on such a significant topic. I know we’ll continue to hear so much more about the subject going forward. We really appreciate you sharing your insight with us today. And thanks again to all of our listeners for joining us for today’s segment. We’d love to hear from you. So if you have any comments or if you’d like to follow us on social media, please reach out. And if you like what you hear, don’t forget to subscribe to our podcast. We’ve got more coming, so stay tuned to the Sapiens Insurance 360 podcast. Bye for now!