The one constant about the insurance industry is that it is always changing, whether it is the use of technology, the risks that must be anticipated and managed, or policyholders’ expectations.
At a regional conference held recently at the Union League Club in New York City, the International Association of Claim Professionals (IACP) looked at some of the issues affecting insurance companies and their customers.
3-D laser technology
One of the new technologies now available to insurers involves the use of 3-D laser scanning, which allows for the documentation of a wide variety of environments to identify and analyze risks as well as create animations or models of what occurred on a loss. Richard Basom with S-E-A, forensic analysis, investigation and product testing firm, highlighted several cases where the technology was vital to determining what caused a failure or accident.
The scans enable S-E-A to create extremely accurate 3-D models using a 3-D printer, which allow individuals to see and feel how various objects are placed in an environment, and identify areas of risk or issues as small as a gap in the floor that can cause hazards. The 3-D scanners use lasers to create copies of real-life objects and their environments with millimeter accuracy. A single scan can collect millions of data points to create an exact copy of a condition or scene.
[Related: Why protecting claims evidence matters]
The technology can also be used to generate video simulations to recreate events such as accidents in order to determine sight lines, obstructions, speed and other factors based on surveillance footage and information available. Three-dimensional laser scans have been admitted into court regularly to show what transpired in a claim. The scans are actual size, which allow jurors to see the true setting of an event. Models can be used to show any hypotheses as to the cause of an incident. The technology also allows for the documentation of and preservation of evidence for later use.
Michael Gallub (left) and Jeffrey Chase (right) of Herzfeld & Rubin, P.C. discussed high-profile product liability cases. Photo: Sonya Szostak
Managing the “perfect storm” of litigation
High profile product recalls can generate a “perfect storm” when it comes to litigation. The attack comes on multiple fronts and usually starts with negative press for a company, which leads to individual lawsuits, often followed by multiple class action suits around the country, and can eventually lead to investigations by the Department of Justice and attorneys general in various jurisdictions. This type of legal exposure can be disastrous for company with the litigation literally bringing it to a standstill as it fights legal battles on multiple fronts.
Jeffery Chase, a partner at Herzfeld & Rubin, P.C., and Michael Gallub, a member at the same firm, discussed what occurs when a company gets caught up in the perfect storm of litigation, citing examples involving the recalls for Takata airbags and the GM ignition switches. Chase described it as “seeing a confluence of events where all of a sudden carriers and clients see that they have a major problem.” He has served as counsel for several clients involved in product liability suits. “This type of litigation can bring a company to a standstill,” he said.
Gallub agreed. “The storms are converging on multiple fronts and have the potential to be a catastrophe for a company in terms of litigation, class action and the regulatory front. They arise from problems that have been brewing for many years and possibly decades,” he explained.
Gallub reviewed the sequence of events leading up to the GM recall which affected over 2.2 million vehicles. After all of the adverse publicity, scores of class action suits were filed. Consumer advocates issued a continuous stream of criticism and eventually congressional committees and subcommittees opened investigations. New GM CEO Mary Barra testified before House and Senate subcommittees, but didn’t have a lot of details because these events occurred before she took the helm of GM.
In addition to defending lawsuits in multiple jurisdictions, GM paid a $35 million civil penalty to the National Highway Transportation Administration for their failure to notify the administration about the ignition issues within five working days and paid an additional fine of $7,000 per day for approximately one month until the Valukas report was issued to GM’s board of directors with the details concerning the ignition switch recalls. GM also created an internal whistle-blower position to report concerns about actual or potential safety issues and had to meet monthly for one year with the NHTSA on new technical bulletins, dealer communications, GM decisions regarding warranty claims and other safety-related issues. GM now meets quarterly with the NHTSA on the implementation of these guidelines.
Investigations were launched by the Justice Department, the U.S. attorney for the Southern District of New York, states attorneys for multiple states and over 130 class actions were filed across multiple jurisdictions. The defect has become the perfect storm for GM in terms of litigation and public opinion.
Contrast this experience with that of Audi following a report in 1987 by 60 Minutes which said that the Audi 5000S had issues with the automatic transmission taking off on its own and would not stop even when the brake pedal was applied as hard as possible. Chase said that the brakes on the Audi 5000 were several times more powerful than the engine and four countries actually debunked the unintended acceleration defect. Still, the company’s vehicles lost resale value because of the class action suits filed. In 1992, the 7th court found the defect was concocted, but the damage had already been done.
Chase said the takeaways from these experiences are that it is important for any company involved in a product liability situation to quickly assemble a defense team involving client personnel, attorneys, their insurance carrier, and public relations professionals who can help shape how the company is portrayed in the media. It will be critical to determine if there is a safety issue, what steps need to be taken to protect the public and what the solution to the problem will be.
He also recommended that the litigation risks be assessed early to see if there are cases that could be settled quickly, some that should be prepared for trial and to determine how any class actions will be handled.
Karen Furtado of Strategy Meets Action highlighted industry trends. Photo: Sonya Szostak
The next gen insurer
Innovation is vital to the success of any company and insurers in particular are finding that they need to constantly change and adapt to meet their customers’ needs. In her presentation on the Next Gen Insurer, Karen Furtado of Strategy Meets Action, stressed the world is changing with consumers taking control, and they are well ahead of any regulations that might be put in place to protect them.
Companies are adapting and changing but many are finding they can’t do it quickly enough. Business models are also changing and they are having a direct impact on the insurance industry. Influencers like Google and Amazon are impacting the landscape and could eventually become the fronts for insurance, while insurers become their suppliers.
Technology is also changing the insurance environment. Hurricane Sandy was an excellent example of why the “cloud” is valuable because so many companies lost their information after the flooding. Companies that were set up to work remotely were able to continue to function. Furtado said that three years ago only 5% of insurers used the cloud and now 20% of them are considering it for their companies. “Companies are investing in where they can make a difference,” she explained, “and service is paramount because it’s the one place of differentiation outside of price for a company.”
Drones, connected devices, autonomous vehicles and other tools will also impact insurance. “Technology will change our paradigm and how we do things today,” she added.
There will be fewer adjusters in the future because of an aging workforce and technology will be needed to help support the claims management process. Mobile adjusting is gaining momentum and Furtado says the industry will see this in the next three to five years. “We need to embrace emerging technology,” she said, encouraging insurers to select the technologies that will most impact their companies and using them to turn an issue from a problem to a possibility.
While many of these technologies will help insurers recognize and better manage risks for their customers, she said this also means a shrinking business model if there is less risk to cover. However, she added that there will also be “growing opportunities for new products such as cyber insurance. Every person has a risk and no one is talking about personal cyber insurance, which isn’t covered by identity theft insurance. We need to see the opportunities for more personalized service because there will also be opportunities for insurance.”
Furtado closed her presentation with a call to action for insurers focusing on three areas:
- Experiment, innovate, collaborate, co-create and challenge the status quo,
- Develop a focused strategy that can adapt to the changing landscape, and
- Keep a pulse on shifting business models and emerging technologies.
The conference also addressed topics such as the impact of legalized marijuana on employers, aviation issues related to recent airline crashes and provided a brief overview of some of the broader issues the industry is facing. IACP’s annual conference will be held September 27-30, 2015, at the Hyatt Regency Lost Pines Resort & Spa in Lost Pines, Texas.