Digital Transformation in Insurance: Pull Ahead of the Pack

Christian Grandy | Introhive | July 9, 2019

Are you a leader or are you a follower? Over the past few years, insurance giants have pulled ahead in their digital transformation efforts, rolling out new features that improve the customer experience, optimize back-end efficiencies, and create a framework for ongoing innovation.

The stakes around digital transformation are high and choosing to hold may affect a company’s long-term solvency. In fact, 44 percent of insurance leaders think that, in the future, “most existing insurers will not survive, at least in their current form.”

Even if you’re lagging behind, it’s not too late for your firm to break away from the pack and embrace digital transformation and disruptive technology. However, being a leader, or even a fast follower, is not for the faint of heart. It requires a top-level commitment—and resources—to become a digital-first and data-driven organization.

If you want to move away from the pack, try these three digital transformation strategies first.


Insurers are actively expanding their digital infrastructure and contemplating what the ideal insurance experience will be in the future. According to a survey conducted by FRISS, 69 percent of insurers currently work with an online distribution channel and nearly 70 percent have adopted mobile apps. But true digital transformation extends far beyond isolated forays into the digital space.

For real, lasting success, you need to focus on an overall digital framework that meets anticipated needs and also accounts for unexpected changes in the future. To this end, carriers are prioritizing emerging technology and partnering with technical platform providers, like Introhive, for support.

The growing push for a “digital first” mindset among carriers, with customers at the center, has led to an emergence off-the-shelf technology that meets the most pressing digital technology needs. However, this leads to a new challenge for organizations, particularly larger, global, teams: disparate, unconnected pools of marketing, business development and sales data. Enter enterprise relationship management.

Digital Transformation Journey

Commonly referred to as ERMs, enterprise relationship management platforms analyze prospect and customer contact data (and automate it, in Introhive’s case) to give organizations a better understanding of their business relationships.

A good ERM platform also works in tandem with your existing, and potentially far flung, tech stack. So it’s not only a balm for global business growing pains, it also supports growth, cost reduction, and risk management.R


Most carriers have updated legacy systems to incorporate basic digital communications, paperless documents, online data entry, and mobile applications. However, optimization of back-end processes needs to remain central to long-term digital transformation.

Through improved efficiency, carriers will be able to shift human and financial resources to more meaningful activities. To this end, carriers are looking to artificial intelligence (AI) and machine learning, with 77 percent of insurers saying they believe AI will transform their role in the future.

One way AI can help is by automating routine, repetitive and rule-driven tasks such as CRM data entry with CRM data automation, which can save employees about 5.5 hours of data entry per week. (Request a demo to see how it works).

Another area of focus is predictive modeling, which carriers are increasingly using for pricing (48 percent), underwriting (45 percent), fraud detection (32 percent) and risk mitigation (28 percent).


The digital revolution has forever changed the business landscape. This is decidedly evident when it comes to the customer experience. As soon as next year, the customer experience is expected to officially overtake product and price as the key brand differentiator.

More than ever before, customers are demanding a consistent experience across channels. In fact, 98 percent of companies believe that personalization has a profound impact on success but over half of companies indicate that data quality remains an issue.

To improve the end-to-end customer experience, insurance carriers are embracing data transformation and big data technologies to translate data into insights. Relationship intelligence automation is also playing a critical role, expanding and correcting contact information and, at the same time, alerting carriers to concerning relationship trends with valuable customers.

Carriers are also looking to new technologies to transform the customer experience. The Internet of Things (IoT) is being evaluated as a possible area for digital transformation and 60 percent of insurers believe IoT can drive changes in consumer behavior. However, data and a clear strategy for IoT implementation remain obstacles for many companies.R


Digital transformation will continue to be a defining trend for insurance carriers over the next decade. Being a leader or a fast follower can set your firm up for long-term success. But the key will be creating a flexible framework that allows your firm to shift focus onto revenue-generating partnerships, invest in technologies to improve the customer experience, and build-out the backend for long-term scalability.

Relationship intelligence automation improves the efficiency of backend processes while providing insurance carriers improved relationship data, which allows you to better serve your current and future customers.

The Best Insurance Lawyers Study Insurance Practices and Not Just Insurance Law

Chip Merlin | Property Insurance Coverage Law Blog | June 21, 2019

The best insurance lawyers are students of the insurance industry rather than just students of insurance law. I learned this truth from insurance claims expert Gary Fye and the late Eugene Anderson. Let me paraphrase what Anderson used to tell me, ‘for the same reason doctors don’t learn medicine by reading medical malpractice case law, judges and lawyers wanting to understand insurance should not expect to learn insurance by reading insurance case law.’Amen.

So, why do so many lawyers profess to be alleged specialists in insurance law after a few years of law practice or doing some cases in a particular field of insurance? Probably because their potential clients do not know that the best insurance lawyers study at least as much about insurance operations, claims practices and what the insurance companies are teaching their own insurance adjusters as they do insurance case law.

Most newer law firms no longer have a law firm library because all the case law is available on the internet. The best insurance law firms have an extensive repository of insurance industry reference materials and books so their attorneys can access and use those in cases. At the Merlin Law Group, we not only have that library, but a law librarian whose job it is to help us track down reference materials to help us destroy the creative but clearly wrong arguments that the insurance defense attorneys make to win their cases.

I do not want to be one of those leaders in my law firm and a speaker to others that “do as I say, not as I do.” I gave a unique speech at the Florida Association of Public Insurance Adjusters Spring Conference about “the why” being a public adjuster is so important to policyholders and the public. One topic I mentioned was the inherent requirement to be the best you can be for the people you are serving. I stressed the importance of learning and obtaining certificates showing the world the credentials of one’s depth of knowledge as a commitment to one’s self, clients, and the public.

So, I am signed up with The Institutes (link) to obtain an Associate in Claims Designation with a Property Insurance Track. After I finish that, I will start on another designation through The Institutes and hopefully end up with a CPCU Designation. Here is what the first of numerous courses to get the AIC Designation—the AIC 30—teaches:

AIC 30 Segment A Topics:

  • The claim function and professional ethics
  • The claim handling process
  • Setting case reserves and investigating claims

AIC 30 Segment B Topics:

  • Documenting claims
  • Communicating effectively
  • Dealing with fraud

AIC 30 Segment C Topics:

  • Negotiating claims
  • Litigating claims
  • Good faith claim handling

Policyholders wanting to hire the best insurance lawyers should look for lawyers dedicated to knowing not just insurance law, but insurance lore and practice which can actually change insurance law and win cases otherwise unwinnable. For me, I owe it to my clients, other lawyers in my firm, and to anybody else I am trying to teach, to be the best insurance law attorney I can and that is why I try to improve everyday—and God knows it is not easy for an old dog like me to learn new tricks!

Insurance Policies: Where Is the Proper Balance Between Limitation of Liability and Adherence to Public Policy

Cheryl Shoun | Nexsen Pruet | June 11, 2019

It is well established that policies of insurance are contracts, subject to basic contract law. While parties are generally permitted to contract as they wish, such privilege is not absolute in the context of insurance; required coverage may not be omitted. Rather, statutory obligations relating to insurance contracts become part of an insurance agreement. Thus, while insurers may generally limit their liability and impose conditions on their coverage obligations, they may not contravene public policy or statutory inhibition. Not surprisingly, legitimate questions abound from the efforts to balance contractual freedom and adherence to public policy. Where are the boundaries? The South Carolina Court of Appeals recently examined an insurer’s limitation of liability against the backdrop of public policy, while contrasting an earlier and somewhat similar limitation. Nationwide Mutual Fire Insurance Company v. Sharmin Christine Walls, et al, 2019 WL 2363539 (June 5, 2019).

Sharmin Walls (Walls), along with two others were passengers in a vehicle she owned that was being driven by Korey Mayfield. A state trooper attempted to stop the vehicle for speeding. Despite the requests of Walls and the other passengers to stop the car, Mayfield instead led the police on a high speed chase, ultimately leaving the highway and heading down a residential road. The officer abandoned the pursuit, following which Mayfield lost control of the car and crashed, killing one passenger and catastrophically injuring the other two, including Walls. Mayfield was charged with and pled guilty to reckless homicide, which is a felony.

Walls was a named insured in a policy issued by Nationwide that provided liability coverage of $100,000 per person and $300.000 per accident. The policy contained an exclusion, providing that the coverage did not apply to any amount above minimum limits required by the South Carolina Motor Vehicle Financial Responsibility Act to bodily injury or properly damage caused by the insured, the insured’s relative or anyone else operating the insured auto while committing a felony or while fleeing a law enforcement officer. 

Nationwide instituted a declaratory judgment action seeking the court’s determination that because Mayfield was fleeing law enforcement at the time of the loss, and pled guilty to a felony, its liability was limited to the statutory limits, to the exclusion of the additional, optional coverage. The trial court concluded that while Mayfield’s conduct fell squarely within the policy’s exclusions, the exclusions were unenforceable because Nationwide failed to inform Walls of the exclusions or conspicuously place them on the policy, the exclusions were ambiguous and they violated the public policy of protecting innocent insureds, specifically the three passengers. The case came before the court on Nationwide’s appeal. In its review of Walls, the court examined and contrasted it to Williams v. Gov’t Emp. Ins. Co.[1] wherein a family “step-down” provision was found violative of South Carolina law.      

In Williams, a husband and wife were riding in a car insured under both their names at the time of a fatal accident. A dispute arose when the estates argued the proper coverage was $100,000, as shown on the policy declaration page, but GEICO asserted its liability was limited to the statutory minimum based upon a family “step-down” provision. The “step-down” policy provided, in part, GEICO’s responsibility under the policy would be reduced to the statutory minimum when an injured party was a family member of the insured. The trial court found the step-down was enforceable as it provided at least the statutory minimum coverage. Upon appeal by the estates, the South Carolina Supreme Court reversed. Noting SC Code §§38-77-142(A) and (B) require a policy insure the named insureds and permissive users against liability for negligence incurred ‘within the coverage of the policy,’ the court found that phrase to equate to the face amount of coverage shown on the policy – not the minimum statutory coverage. The court went on to find the GEICO policy also violated SC Code Section 38-77-142(C), as it appeared on its face to provide $100,000 in coverage to its insureds, including the named insured and family members, but reduced that to the minimum limits under the family step-down provision. Because the family step-down conflicted with the amount of coverage shown on the declarations page, the provision was found invalid.

In contrast, Nationwide’s exclusions were only triggered when an insured sought coverage for injuries sustained in the context of certain acts, such as fleeing law enforcement. The exclusions were based on the conduct of the driver, not the injured party’s relationship to the insured. In short, Nationwide’s coverage remained intact if the injury did not result from foreseeably dangerous conduct the insured could reasonably avoid. The court concluded that an insurer may impose reasonable limitations on coverage above the statutory minimum as long as the mandatory coverage limits are satisfied. In other words, an insurer may exclude coverage above the minimum limit against conduct inherently more dangerous than what is anticipated in the regular operation of a vehicle. 

Finally, the court found no support for the position that the exclusions of the Nationwide policy were arbitrary and capricious, as they were based upon the conduct of the driver. Because the exclusions act to discourage dangerous behavior all the while preserving coverage for innocent victims they are not violative of public policy. The interest in protecting innocent passengers of a vehicle evading law enforcement is balanced by the mandatory insurance coverage. 

It is not difficult to draw a distinction between the exclusions at issue, e.g. those in Williamsare based only upon a family relationship while in Walls the exclusions are based upon dangerous conduct of the driver. Nonetheless, this case raises interesting issues. In Williamsand Walls, the policies set forth conditions pursuant to which the required coverages differed from those shown in the declarations page. Such difference was determined to be dispositive in Williams, but not in Walls. Additionally, Walls may, in fact, act to violate the public policy of protecting the innocent. The three passengers in Walls were clearly innocent; they were placed in the path of deadly harm at the hand of a driver who made the unilateral decision to flee law enforcement and thereby commit a felony. As the recitation of facts establishes, the passengers, including Walls, instructed Mayfield to pull over and he instead accelerated.

Literal application of Nationwide’s exclusions to a more overarching scenario suggests the result would be the same if Mayfield had taken and used Walls’ vehicle without her permission or knowledge and injured others. Such situation would result in harm to those injured as well as to Walls who would face personal exposure for Mayfield’s act. Again, the exclusions affect harm to the innocent. 

It seems the freedom of parties to contract within statutory requirements is not an impossible accomplishment, but the exclusions of the Nationwide policy at issue appear to lack necessary refinement.

[1] 762 S.E.2d 705 (2014).

Property Owner’s Defense Goes Up in Smoke in Careless Smoking Case

Michael Ciamaichelo | White and Williams LLP | June 11, 2019

Property owners owe a duty of reasonable care to avoid causing harm to neighboring properties. When a property owner knows or should know about a condition that poses a risk of danger to neighboring properties, the property owner must exercise reasonable care to make the condition safe. The Court of Special Appeals of Maryland recently held that, where hundreds of discarded cigarette butts had accumulated in a bed of mulch over an extended period of time prior to the fire at issue, the owner of the property with the mulch beds owed a duty of care to its neighbors to prevent a foreseeable fire.

In Steamfitters Local Union No. 602 v. Erie Insurance Exchange, 2019 Md. App. LEXIS 430 (May 30, 2019), a fire originated in a strip of mulch at property owned by the Steamfitters Local Union No. 602 (Union) and caused damage to neighboring properties. The fire occurred when an unknown person discarded a cigarette butt into the mulch. Following the fire, investigators found “hundreds, if not thousands of cigarettes” in the mulch where the fire originated. A representative for the Union acknowledged that there were more butts in the mulch “than there should have been” and that, “[i]n the right situation,” a carelessly discarded cigarette could cause a fire. The Union, however, had no rules or signs to prohibit or regulate smoking at the property, where apprentices would often gather prior to class.

The insurance companies for the damaged neighbors filed subrogation actions alleging that the Union, as the property owner, failed to use reasonable care to prevent a foreseeable fire. A jury found in favor of the subrogating insurers and against the Union.

On appeal, the court held that, under the circumstances of the case, a reasonable jury could conclude that the Union knew or should have known that cigarettes were regularly being discarded in the mulch, which created a foreseeable risk of a fire that could damage neighboring properties. Although the use of mulch, by itself, did not create the Union’s duty to protect its neighbors from a careless smoking fire, the court held that the Union owed a duty of care to its neighbors because it knew that a large number of cigarette butts were discarded in the mulch over a period of time prior to the fire. Because it was foreseeable that the dangerous condition created by the practice of throwing cigarette butts into the mulch would damage neighboring properties, the court held that the Union owed its neighboring property owners a duty of care.

In addition to discussing the duty the Union owed to neighboring property owners, the court considered, among other things, whether the subrogating insurers needed expert testimony to prove their case. The court held that, because habitually discarding cigarettes in a combustible substance is a matter of common knowledge, the plaintiffs did not need expert testimony to establish the standard of care associated with maintaining the Union’s property.

As this case establishes, a defendant can, in some situations, be held liable for a careless smoking fire even if the defendant does not have a duty to control the actions of third parties and is not vicariously liable for the third party’s actions. Thus, when subrogation professionals deal with a careless smoking case, they should consider whether the defendant, such as a landowner, can be held liable because it owed a duty of care – such as the duty owed by a landowner – to the injured plaintiff that does arise from controlling the smoker’s actions or being vicariously liable for his or her activities.

How Blockchain and Smart Contracts will Change the Face of Insurance in the U.S.

Theodore (Ted) J. Mlynar andRobert M. Fettman | Hogan Lovells | May 23, 2019

In the last several years, we have seen a new crop of digital products and services enter the lexicon of the insurance industry. And with these, inevitably comes a myriad array of insurance regulatory issues. Usage-based insurance, peer-to-peer insurance, machine-learning algorithms, robo-advisory insurance processes, blockchain-based insurance, and the Internet of Things present many challenges. Insurtech has permeated virtually every aspect of the insurance industry.

Regulators, technology providers and insurance companies are frequently grappling with questions like:

  • Do digital marketing and advertising activities trigger insurance producer licensing requirements?
  • Does the provision of value-added services violate state anti-rebating laws?
  • How can insurance referrals be compensated without triggering insurance regulations?

The ability of AI and machine-learning to analyse data at very granular levels has regulators concerned about consumer protection.

Algorithms that utilize geographical data or other individualized information may effectively create proxies for sensitive characteristics such as race, religion, gender, etc. prohibited from consideration by insurance law.

On the one hand, the application of machine-learning to price risk could help insurers reduce moral hazard and adverse selection inherent in selling insurance broadly.

On the other hand, the narrow tailoring of risk and the creation of highly customized policies reflecting unique characteristics of an insured could undermine the risk-pooling function of insurance and lead to groups or categories of risk becoming uninsurable in the private insurance marketplace.

Insurtech firms involved in underwriting and pricing functions must appreciate the regulatory landscape governing insurance product development or risk running afoul of multiple insurance regulations.

For example, a company providing a model that impacts rate filings may be acting as an advisory or rating organization that requires licensure under state law.

And, even where state law may be unclear how far licensing requirements extend, regulators nevertheless may insist on some degree of oversight as a condition to approving an insurer’s rate filings.

Regulators are scrutinizing the potential anticompetitive effects of Insurtech vendors that supply similar data and models to multiple insurers serving a particular market. There is a concern also that non-traditional information sources may provide proxies for prohibited discriminatory factors.

In parallel, the National Association of Insurance Commissioners (NAIC) is compiling best practices for regulators to use in reviewing insurance company filings containing predictive models. And such “best” practices may not be the “most streamlined.”

One draft under consideration identified 16 best practices to apply and 92 pieces of information a regulator should consider.

The insurance actuarial modelling world is also benefiting from new forms of data collection and analysis, including data-mining, statistical modelling, and machine-learning. It has become increasingly challenging for insurance regulators to evaluate filed rate plans that incorporate sophisticated technology-based predictive models.

To address these issues, insurance regulators are considering methods of field-testing the new technologies in controlled environments similar to the FinTech “sandbox” concepts implemented in the UK and other countries.

Insurers and Insurtech firms that communicate with regulators early in the development of their offerings will be the ones most likely to achieve compliant success.


Many see tremendous potential for blockchain technology in the insurance industry, especially the ability to bring efficiencies and cost savings to existing insurance processes.

Data management and claims administration are ripe for significant improvement.

While there may be some ambiguity in the application of state insurance laws to aspects of blockchain technology, there are also opportunities for innovative legal and technical solutions.

Of course, policy information and personal customer data residing on a blockchain will need to comply with existing privacy and data protection regulations. State insurance laws generally require an insurer’s books and records to be maintained in state and be available to the state regulator for inspection and audit.

It is easy to imagine encrypted blockchain technology that is designed to provide such compliant storage.

But even more interesting (and perhaps unsettling to some) is the possibility of significantly streamlining compliance efforts by allowing a state regulator to directly monitor transactions in real-time via a node on the insurer’s blockchain.

Smart contracts

Smart contracts implemented in connection with a blockchain offer even more potential benefits to the insurance industry.

For insureds, the implementation of smart contracts could remove key pain points in the claims filing process while reducing claims handling expenses for insurers.

A good example of smart contracts’ potential is in connection with parametric flight delay insurance policies that run on a blockchain.

The insurance process can be fully automated with a smart contract both determining whether customers are eligible for indemnification and managing the payments.

Customers on a substantially delayed flight would benefit from automatically receiving their payout when they (finally) arrive at their destination. No claim need be filed.

The claims-free, guaranteed-payout features achievable with smart contracts certainly add value for insureds and may provide opportunities for premium pricing for insurers.

As smart contracts and blockchain technology reduce administrative, compliance and claims-handling costs, certain traditionally uneconomic insurance products, such as microinsurance, may become realistically viable.

However, the fundamental nature of smart contracts presents a number of regulatory and compliance hurdles under existing insurance laws.

At the threshold, a determination, on a case by-case basis, is needed whether smart contracts with insurance-like features are actually subject to regulation as “insurance” contracts under state law, or are they derivative contracts subject to other regulatory regimes.

If it is a regulated “insurance” product, are automated payments via smart contract allowed, particularly if funds are to be escrowed?

And, can those payments be made in a cryptocurrency? Will the answer change if that cryptocurrency is pegged to, or floats against, the U.S. dollar currency used to pay the insurance premiums?

State laws prescribing claims-handling procedures will also need to be considered carefully. Much like other algorithmic approaches, a smart contract’s automated claim denial may be challenged as a substantive design flaw or as an inadvertent programming error.

Similarly, the immutable and irreversible nature of smart contracts poses an interesting challenge in the context of insurance delinquency proceedings.


The implementation of Insurtech, AI, machine-learning, blockchain technology and smart contracts in insurance is growing. New products, new markets, and new efficiencies are within sight, if not already within grasp. Insurers and regulators will be wrestling with state laws, and looking for ways to collaborate with each other, as each innovation tests the boundaries of existing regulatory regimes.

Next steps

You can find out more about other recent developements in the insurance industry in our Insurance Horizons 2019 brochure, which also covers topics such as insurance business transfers in the U.S., data protection after the GDPR and preparing for Brexit and international initiatives on sustainability and climate change.