While millions of new hires over the past few years of economic recovery have bolstered the balance sheets of workers’ compensation insurers, seismic shifts in the labor force and turbocharged automation may be putting one of the property and casualty industry’s biggest premium generators at serious risk of disruption.
Indeed, two existential questions confront insurers that could prompt fundamental changes in their exposure base and business model. First, what is the place of workers’ comp in a world where more and more people are likely to lose their jobs to machines, and the very nature of work is changing as a result? Second, are insurers prepared to evolve along with the rapidly changing labor markets they cover?
Science fiction is filled with scary stories about robots taking over society, but the challenge is already quite real for workers’ comp insurers in a growing number of fields. Consider the case of “virtual” customer service representatives.
I saw a demo recently in which a computer-generated personage reacts to the words a client uses and even their tone of voice — changing expressions and responses to show concern or satisfaction, depending on whether the interaction is making the customer frustrated or grateful. The demo presenter casually mentioned that such programs are destined to replace the majority of what he called “human middleware” — a chilling euphemism for live people doomed to lose their jobs to a computer algorithm.
There are many such individuals with targets on their backs. A University of Oxford study — “The Future of Employment: How Susceptible are Jobs to Computerization” — found that 47 percent of 702 occupations in the US. are at high risk of being automated, and that was published three years ago.
The underlying trend is nothing new. For years, factories have been increasingly mechanized. ATMs and online banking have greatly lessened the need for tellers. Online markets have driven thousands of brick-and-mortar book and record stores out of business. The list goes on. But this is just the beginning, as the movement towards artificial intelligence and robotic process automation (RPA) gathers momentum and expands its impact over time.
Take, for example, the race to develop “driverless” vehicles, and the implications for all those operating taxis and commercial trucks. For the moment, the wholesale replacement of human drivers with sensors and software programs may still be a ways off, but we appear to be heading in that direction. The rapid growth of mobile app-summoned rides is already reducing the need for fleet taxi and car service dispatchers.
In addition, I recently dined at a chain family restaurant, where I ordered from a diverse menu off a tablet at my table, only seeing a waiter briefly when my food was delivered. When I was done, I didn’t have to bother calling the server for my check, or hand my credit card to a cashier, since I paid directly on the tablet, with the receipt emailed to me seconds later.
That certainly cuts down on the number of people needed in the food service industry. And when I was shopping for a cruise I noticed a least one line spotlighting their automated bar, with machines mixing cocktails right in front of you. (So much for out-of-work actors making a living between gigs as waiters or bartenders!)
While automation may eliminate many positions involving routine manual or administrative labor, growth in other job categories where replacement by robots is more problematic could perhaps pick up the slack for workers’ comp carriers. (Photo: iStock)
Insurers themselves are starting to capitalize on this trend. A growing number are automating the eyeballs, clicks, and keystrokes of those who sit in front of computers, study spreadsheets, calculate values, pull information from one system to another, and put reports together with some light processing. Those in underwriting, pricing, claims, audit, and compliance are all vulnerable to displacement by RPA and virtual assistants.
On the other end of the value chain, agents and brokers selling commoditized insurance products, such as small-business coverage, will also be prime targets for downsizing as direct-to-consumer online sales catch on. And with the rise of robo advisers, even more highly skilled financial planners may be at risk.
Rise of self-employed workers
One consequence of this trend is the rise of self-employed individuals. Technology has enabled — and sometimes forced — more people to do their own thing, making a living without working out of a third-party’s office, store, factory, or vehicle. They work from home and their own cars, whether they are employed full time by a particular company, or are independent contractors or small-business owners.
I’m not criticizing any employer who chooses to automate. It’s a sound and understandable business decision based on value, efficiency, cost, and bottom line profitability. However, this trend surely should impact the workers’ comp market, as will the accelerating shift in the workforce away from employer-based jobs to a world of more self-employed individuals.
How workers' comp insurers can adapt
How can workers’ comp insurers adapt to an ever-automating, increasingly entrepreneurial economy? Here are a few ideas to ponder:
▪ Product design may need to evolve. As more people are left to drum up work outside of standard gigs in an office, retail store, factory, or some other traditional employer, coverage may have to be customized to help those who are injured or become sick on the job. Such a product could perhaps be a hybrid — combining elements of workers’ comp, standard health insurance for non-work-related ailments, as well as old-fashioned disability coverage.
▪ Go with the flow. While automation may eliminate many positions involving routine manual or administrative labor, growth in other job categories where replacement by robots is more problematic could perhaps pick up the slack for workers’ comp carriers. Health care professionals, for example — from highly skilled nurse practitioners to lesser-educated home attendants — should be in higher demand as our population continues to age. Insurers need to be alert to such demographic shifts in the job market and make sure they are capable of assessing risk in segments on the rise.
▪ Capitalize on the upside of technology. While workers’ comp carriers may have a lot to lose from automation when it comes to their exposure base, they also potentially have a lot to gain by integrating high tech into their operations. The Internet of Things can enable wired workers, with sensors to help warn against danger in the workplace and to document claims. And until people behind the wheel are replaced, the sensors being incorporated to facilitate autonomous vehicles could help prevent accidents by commercial drivers, thus driving down loss frequency and severity. Telemedicine can speed injury assessments, discourage fraud, and lower claimant monitoring costs. Internally, technology can also help workers’ comp carriers improve efficiency and lower their operating and distribution overhead.
Meanwhile, I can assure you that a real person wrote this blog. How long that will be the case remains to be seen as automation gets more and more sophisticated.
Sam J. Friedman (email@example.com) is insurance research leader with Deloitte’s Center for Financial Services in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.