The rapidly evolving risk landscape demands a more proactive and collaborative approach to risk management. In this episode, Pete Miller and Sean Kevelighan, President and CEO of the Insurance Information Institute, discuss why Predict & Prevent is needed now more than ever.
Segment 1 (00:02:18): Pete and Sean discuss the disruption continuum, the increasing frequency and severity of losses, reining in bad behavior, the danger to society of doing nothing, proving the ROI of resilience, why collective responsibility is essential, how technology plays a pivotal role, embedding risk management in our lives, and government's part in resilience.
Segment 2 (00:20:51): Pete and Sean consider why a change in mindset is imperative, Sean shares a personal experience with misperceptions of risk, how FEMA is revising its mission, reimagining insurance's purpose, how policymakers see consumer benefits from P&P, and creating new career opportunities.
[00:00:03] Pete Miller Hi, I'm Pete Miller, president and CEO of The Institutes. We're a global not for profit whose mission is to educate, elevate and connect the people-focused on risk management and insurance. You're listening to Predict & Prevent, a podcast that explores how technology and resiliency can prevent losses before they occur. In each episode, we learn about innovative solutions and hear from leading experts on how they are making these approaches a reality today. Welcome to Predict & Prevent. This is the first episode of an eight-part series. Our goal is to highlight the dramatic challenges facing society and risk management while demonstrating realistic tools and strategies to address those challenges. Today, I'm sitting down with Sean Kevelighan, president and CEO of the Insurance Information Institute. Sean and I discussed the ins and outs of what to predict and prevent approach is why it is vital for managing today's biggest challenges and our collective responsibility to address those risks head on. Sean started his career in risk management 15 years ago. Prior to that, he worked on Capitol Hill and for the George W. Bush administration. Sean first became interested in predict and prevent while overseeing $20 million in flood resilience project for Zurich Insurance. Sean, welcome.
[00:01:45] Sean Kevelighan Good to see you. Good to be part of this.
[00:01:48] Pete Miller Sean, I'm very happy you're here with us because you have been working in this area predict and prevent for quite some time. And I think you know of the folks around the risk management and insurance, you're the one that has a really good handle on certainly the resiliency part. So we want to talk about that for a little bit today. But before we do that, Sean, well, let's just talk about as sort of a backdrop what you would see as the state of the insurance landscape right now.
[00:02:18] Sean Kevelighan Well, you know, right now in the insurance and risk management world, it revolves around what we call the disruption continuum. Right. Disruption is kind of what we do. The insurance industry has been around for 300 years and tried to manage disruption, but it is getting to be a very risky world. You know, we used to say you would talk about catastrophes, manmade natural or economics was certainly no technology. And what we're seeing, you know, the physical space and the cyberspace come together in this fourth industrial revolution, as well as geopolitics. You know, right now we've got more geopolitical tension probably since World War I. And then on top of that, you've got social unrest happening in the area, as well as just still we're still kind of coming out of this COVID phase. So the industry is working hard to manage, help people manage all of these risks, and then always is able to kind of get through those. And, you know, as an industry it doesn't tend to significantly spike or drop. It tends to be a pretty stable economic driver. We are seeing a lot of challenges right now. Some of them arguably are because of the post-COVID world and inflation and things like that. But even before we got into COVID, you know, the likes of severity in catastrophes, both natural manmade, has been increasing. We're just simply living more and more in harm's way. We're a riskier society in terms of our behavior. And both of those combined are really plays of pressure, I think, what you would call the traditional risk transfer tool, which is insurance.
[00:04:02] Pete Miller Yeah. So let's just dig into that, Sean. I mean, as you mentioned, the insurance industry has been around for more than 300 years and has saved countless lives and done countless good. But, you know, man, you mentioned a lot of new and emerging risks. Talk to us about some of the new things that the industry could do and what an evolution might look like. And, you know, we're talking about predict and prevent. So what does that mean to you in terms of how risk management and insurance can really just expand its mission to make people's lives better and safer?
[00:04:34] Sean Kevelighan Yeah, I think and really, I give a lot of credit to you and The Institute for kind of driving a lot of this discussion like we are here today around predict and prevent because the end of the day this is going to come down to people needing more knowledge, more information because you know, insurance is the end result. It is the effect. It's not the cause. And when we look at the cause of what's happening just around catastrophes, if we look at, you know, natural catastrophes and if we look at manmade catastrophes like auto driving and cyber, we both of these are just increasing, like I mentioned earlier, in their severity. And we're seeing that increased severity, it's putting pressure on the insurance industry in a big way. I would say, you know, we've got to start thinking about, you know, collectively, how are we living, where are we living and what are we doing to adapt to all of this?
[00:05:28] Pete Miller Yeah. And I think, you know, very interesting thing that you mention is more people living in higher risk areas, climate change, you know. And I think one of the things is, as we've talked about in the past is people kind of went crazy driving during the pandemic and they haven't changed their habits. So, you know, frequencies up, severities up. You know, you've mentioned before, and something very interesting to me is what if we don't do something here, right, if we don't think in new ways, maybe there's not enough capital to cover losses?
[00:06:03] Sean Kevelighan Yeah, there is. I mean, in certain aspects, we're already seeing, you know, it's not just an affordability issue. It could be an availability issue because of, you know, you just don't want to put capital in certain places. And boy, you're absolutely right on the driving thing. You know, you can look at bodily injury. You can look at the auto liability side of it. All of these spiked up after COVID. People were driving riskier and they just continued to do so. And and it's also, though, I think an interesting parallel for other places, you know, post-COVID that you're seeing some of these riskier things. You know, people are driving closer together than they were for a couple of years. So that's a little different. But people are also now beginning to work again closer together. And so is that going to have an impact in our industry, workers compensation, insurance and things as potentially, you know, safety risk spikes up. And to your point, though, you've got to think about ways to reduce their risk. And that's what the industry is beginning to focus on. I mean, we never want to think something bad is going to happen to us, but be nice to just start thinking about what good you can do if you just take some preventative measures in your life, too.
[00:07:17] Pete Miller Well, and you mentioned, you know, prevent. Right. So all the things we've just mentioned kind of make this urgent right now. Right. I mean, increased frequency, increased severity, you know, you could say cars are more complicated. So even if you do get in a fender bender, much more expensive to fix different risks that we're facing, cyber risk, all these kind of things. So I think I hear you saying and I agree, the traditional view of insurance is a tool that will be here and will absolutely be necessary. But we have a great opportunity here as as an industry. And so we've coined the term predict and prevent. So. Sean, can you just talk to us about how you see that in terms of pre-loss and post-loss and what are the different things that we could be doing? Because that will help us really define what predict and prevent means.
[00:08:09] Sean Kevelighan Well you know it's an interesting way to say, like pre-loss and post-loss, you know, and if you actually, you know, have more predictive and preventative measures then the pre and the post kind of well hopefully look a lot alike because here you know you don't have to recover as much. You know we work a lot in our working out a study right now with the National Institute of Building Sciences, and they're we're working on a project right now about resilience and what it's going to take for resilience and what that means. But this particular body is known for calculating resilience. You know, every dollar spent on resilient measures saves you six or seven dollars in the future from when you have to recover. And I think that's the key. Nobody really wins from a catastrophe loss. You know, a life or business is disrupted and an insurer is, you know, having to pay it out. And there's disruption to people's lives. They have to recover. It takes longer than they wanted to take always. Right. So how can you then think about where are you living, how are you living in a way that you can withstand that catastrophe in a different way? You know, just don't cross your fingers. That's never a good strategy, right? It's much more about, hey, what what can I do to make sure I am living better and I am living and driving more safely. I mean, one of the technologies you mentioned cars and the prices of cars going up, and even again before these inflation pressures that we're seeing now in the world, your point about how much it costs to fix a car in this day and age was becoming a big problem. You know, we saw the likes of a bumper on like a mid range SUV, for example, one of a large insurers in a report had this. It was going up three times in cost and labor in a matter of three years because he got sensors all throughout the bumpers now and then you've got to have somebody who knows how to calibrate those sensors so the labor is expensive. So all of this was it was beginning to happen. These are nice, cool, technology driven cars, but they're getting really expensive to fix and repair. And so then, you know, bring in something like telematics, which really telematics shouldn't be about getting discounts. It should be about helping you and it should people need to think about more about driving safer. Right. If you get that feedback about you're driving and you're driving safer, then chances are you're not going to be one of those statistics that we're seeing on the roads, which is, you know, unfortunately like more deaths happened on the roads in the last year than ever before in history. That's something we got to think about. That's something we got to, you know, train ourselves to drive better.
[00:11:00] Pete Miller You know, it's interesting you bring up telematics because kind of on two axes, but people often say people might be listening to this, in fact, and go, well, what's different? I mean, you know, we've been doing loss prevention for a long time. And, you know, why is predict and prevent something now? What do you think about that, Sean? I mean, yeah, we could say that, but, you know, what is the difference and why now?
[00:11:26] Sean Kevelighan I think you're absolutely right. I mean, insurers have always wanted to have, you know, a loss prevention element. But it's different now, I think, in so far as it's got to become a collective type of responsibility. It can't just be about purchasing insurance. And then I get to go do whatever I want. It's just not working that way anymore. It's there's there's so much risk in the way in our living in this world that it's not just a product that recovers, you know, right. It also it may not be able to cover you in its entirety. So you've got to think about it a little bit more. You know, from start to finish. I always like to use the example of property purchase. For personal property purchasing, it's a very emotional transaction. Everybody says, you know, don't fall in love with the transaction. But I would say 99 percent of people purchasing a house are falling in love with their transaction. They want that house. Right. And so they they want that house. They've got their you know, pre-approval on their mortgage. They start the transaction. And then all of a sudden, you know, they go, oh, you got to go get insurance. So they go get insurance, right? And then they get the insurance and check that box and go through it. And never once does anyone stop and say you're living, do you know where you're living? Do you know what could happen, where you're living? Those types of technologies are available to tell us.Pete, you always use this term like embedded risk management. We need to certainly just embedding some of this into our daily lives, like you get on the Zillow or whatever app you're using to purchase your property. You look at their property and you can look at a walkaround score, you can look at, you know, school zones and things like that. But you know, there's not a whole lot most of the time to tell you about the risks. And and I think that's where we've got to start transferring ourselves is to, you know, bring the risk in earlier in a positive and productive way so that you can think a little bit more about, you know, do I really want this property right there? Do I know what I have to do in case something happens? That I think again, because that kind of collective responsibility we need to think about.
[00:13:43] Pete Miller Yeah, I think the interesting thing for me, if I might just expand on that for a second too, is when you think about that property purchasing decision, there's a time element, right? Because it's timely. They're getting timely information and timely mitigation.
[00:13:58] Sean Kevelighan Right.
[00:13:59] Pete Miller I was looking to buy a house in Arizona, for example. My dad happened to be a geologist. He knows about volcanic soils. He said, believe it or not, he said, Do you know what basalt is? I go, bed night. No idea. He goes, Well, that would be volcanic soil that's, you know, a foot below the ground. And when it gets wet, it expands. And if it expands, it's going to crack your foundation. Go get the geologic map and don't buy a house near. Right. So it's like timely information. But just to circle back, that was timely information. I think for me, the difference now is technology can we can do everything around resilience, and that's perfect. We ought to keep doing that and expand that because there's great opportunities to expand that. But also, we could have real time interventions, right? Because now we have technologies that are available to go, hey, guess what? Right now something bad's about to happen and we can stop it.
[00:14:58] Sean Kevelighan Yeah, and I think what's exciting is we're seeing it, you know, shift into mass market. I mean, we've been seeing some of this these these risk management tools and predictive tools in the commercial space. But some of the stuff like you're talking about is now available on the personal side. We at Triple-I, we have a little tool that you can go on to Resilience.III.org. You can type in any property in the United States and then it'll tell you up to 30 variables of risk, you know, and that was a technology we developed with an insurtech company hazard hub, you know, who has that type of technology available in fact to hazard hub. I understand, can get up to a thousand variables of risk on every single property in the U.S. and beyond. And then to your point about things like prevent and predict, I live in the Washington, D.C. area. I went drove up to a place called Whisker Labs just outside of the city, and Whisker Labs developed a product called Ting. And Ting is a you know, maybe about two and a half inches tall and an inch wide, and you could plug it into any outlet in your house. And it's going to tell you if you have fire risk electric arcs. I live with my little house who is 200 years old, a wood framed. I mean, I'm worried about and there was a fire two doors down, so I'm worried about it. It was worth, though, I heard about this thing. I couldn't wait to get up and try it. And it is now in my wall and it gives me monitor reports every week. One time my little six year old unplugged it from a wall and I got a text that said I had a power outage, you know. So it's monitoring my stuff in real time and say one of the largest insurers in the U.S. State Farm are sending this to customers for free. It is not about discounts. It's just about that nobody wins from a loss. So let's have you the customer prevent that loss from something. And I kind of like it, it's you know the interaction also kind of we should all be mini risk managers in this day and age, you know. And that may sound kind of nerdy or whatnot, but it's true. Like, we've just got to be thinking about what's happening in the world or where, you know, we're in for some trouble. I mean, that's just what the statistics are sharing.
[00:17:15] Pete Miller Yeah, I think that's a great point. And certainly the Ting device that you mention in real time risk management, right, embedded right in the product and it's making your life better and safer. Right. So I think that's the promise, right? You know, from a policyholder point of view, the general public, guess what, this industry, it can transform in such a way that, as you're saying, losses can be avoided in the first place because who actually wants a loss. Better for the industry, certainly better for policyholders, better for society, things are better and safer. And that, I think, is the promise of predict and prevent. And I think if, you know, for people who work in the industry, I think why this is important is because the industry transforms this way and you're going to have a competitive advantage in your career if you can understand and apply these principles.
[00:18:13] Sean Kevelighan Absolutely. I think you're absolutely right. That's going to be and it already is becoming a value driver for the consumers. Again, that the commercial level, the kind of risk engineer relationship, you know, a lot of I work for commercial insurance, a lot of information exchange, it's a lot of knowledge help that you're bringing to the customer. Because, you know, if you're a big commercial company, you know, these are, you know, six, seven, eight figure losses that you can potentially have. Right. So they they want to prevent those, but then bringing it in to the masses and helping people see and understand the value of it, I think really creates a better relationship. And I think that's where we're seeing insurers go more and more, is seeing how and when they can embed, use your term embed risk management into everyday lives. And I think also embedding it into an area like government is going to be important too. You know, the government, as we all know, as some of the most financial strength in the world needs to be doing stuff. Thankfully, you know, we've got near the U.S. we just had the Community Disaster Resilience Zones Act passed in last year, which is actually, you know, designating zones and helping to make these zones more resilient and bringing funding to those areas. Because we've got to, you know, think about where we're living, our developing communities, you know, building codes, those types of things need to need to be brought into play. We're developing all over these these areas, as I mentioned, these riskier areas. But depending on where you're developing, you know. If you're developing in Florida versus developing in Texas, you got two different types of resilience going on there. Florida learned a lesson in the 90s from Andrew. It has pretty significantly strong building codes in place, right. And even as you saw the hurricane come through this year in the Tampa area, you saw a lot of, resilience that took place in that because of strong building codes in Florida. You know, you go to the lakes of Texas and you see something like Hurricane Harvey come around and you've got very weak building codes, you've got very low insurance take-up rates and you get a big flood from a hurricane sticking around. And it's devastating to the economy and to the city. And so those are the types of things we got to learn from pretty quick here, as we're as your point where we're seeing significant increases in severity.
[00:20:51] Pete Miller As Sean explained, the world we live in today is riskier than ever. Economic turbulence, political unrest, climate catastrophes and a worldwide pandemic are just a few of the major factors at play. That's why it's more important than ever to align on a new approach. There's little doubt that predict and prevent is urgently needed. But the big question remains how? How can we put these principles and practices into action? So Sean, so far we've said, look, this, you know, predict and prevent by a combination of resiliency and real time application of technology can help enhance risk management and insurance traditional function of detecting and repairing by predicting and preventing. Right. So everybody wins. By policyholder wins, company wins, society wins, everything's better and safer. With that as a backdrop, what's stopping us?
[00:21:56] Sean Kevelighan Well, you know, I think it's a change in mindset, as we've been talking about, and it's a change in the way we live and the way we might function even as a society. And, you know, traditionally, change is never easy, right. And that is something we're needing to change, is that traditionally people just, you know, look to purchase insurance and then they don't want to think about it again. Right. But what's begun to happen though, is quite honestly, we're just developing and we're living more irresponsibly. It's not going to work well for us unless we make some changes. You know, I recently purchased a house and I knew because it was right by a big bay that it was probably in a floodplain, and that the realtor that we use said to me, you know, you're lucky you live on the side of the street that doesn't need flood insurance. You know, I said in my mind, I mean, my wife, knowing my job, my wife knew we were going to get flood insurance, you know, water, high water. But I'm just sitting there thinking like, well, how can somebody try and sell a house, you know, in that warmer fashion without knowing? And that's where we got to, that's where the irresponsibility. And I don't think the realtor was ill intended. I just think that there's got to be a better change in mentality in terms of how we're thinking about this stuff and how we're talking about it. And I think you're beginning to see some of that. You know, you're beginning to see that shift. You know, even an organization like FEMA, which is I mean, FEMA's the organization that comes right in after big disasters and stuff. They're absolutely biggest focus right now is resilience. They're building out programs to make sure that that there's more education and understanding. So I think we're beginning to see it. I think, you know, we're beginning to feel it because there's shifts in climate risk that are happening even too. And as we're seeing these shifts, I think people, as they're feeling it more, they're trying to figure out what to do with it. And I think, though, it's got to spread. There's risk management got to spread beyond just a tool that helps you recover after catastrophe.
[00:24:07] Pete Miller Yeah, I well, I think one interesting thing is, you know, people in risk management and insurance have to reimagine what they're there for. The mental model now is, well, let's avoid the loss. And if a loss does happen, let's go fix it. If you think about the implications of that, there's a lot, right? I mean, there's how the industry is structured. We're really, you know, structured around. We're going to collect premium, we're going to underwrite well, we're going to understand the risk. And really our underwriting is all around, what does it take to fix it? Instead of saying, well, guess what? What does it take to not let it happen in the first place. Right. You'd have to have all new skills, which is part of obviously what The Institutes is involved in, and business models, mental models of how companies view themselves, how they relate to their customers, certainly regulators in China. I know you've done a lot of work with regulators. Maybe you could tell us a little how the regulators in your conversations with regulators, how do they view, predict and prevent?
[00:25:10] Sean Kevelighan It's a win win for more than just the consumer and the insurer, because I do think the policymaking community is a big benefit. You know, I like to say good consumers are our constituents are voters. When the bad stuff happens and they start griping about things, the politicians hear about it, and then the politicians react to the constituents with it, and pass the legislation that the regulators then have to implement. Right. That's not always the best process, you know, to kind of get all of this change done just because something bad happened and people are griping and moaning about it. It's much more about, okay, again, we can keep our populations more happy if we're able to live in a way that we're not dealing with this much catastrophe and bad things happening. And so that's where or I do think that the regulatory community is embracing this in a lot in a lot of ways. You know, we do a lot of work with the NAIC, the National Association of Insurance Commissioners, and there are many commissioners out there. We had the opportunity to present before them and really embracing this idea of making society more resilient. That's it does, it helps their jobs, helps their constituency that they're trying to serve live better. So it's a great endeavor, I think, from a policymaking community. And that, I think, is why you are beginning to see that the legislation, like I mentioned earlier, that's the Community Disaster Resilience Zones Act and things like that, where we're saying we've got to get in our communities, we've got to figure out where the problems are, we've got to help them, because inevitably, you know, we've got to live in this world. And one way we think we are going to live is not just by, you know, buying a risk transfer tool. It's going to be through adapting and help people, you know, get through that disruption continuum, we talked about early on.
[00:27:08] Pete Miller Yeah, I think as you're saying, there's change and there's going to, it is going to take a lot of different viewpoints and a lot of different actors, if you will, a lot of different people involved in risk management and insurance in order to do that. But, you know, one one thing is to always look at history, right? When have we done this before? And I know you've worked with Highway Safety and IIHS and HLDI and those kind of things. That is an example, right, where we got together and say, wow, we can do some things around auto safety and we've done it collectively and we work with regulators and work with insurance companies and the general public. And certainly through the Triple-I, you know, there's others you know, Underwriters Lab is another one around electrical devices and those kind of things. So, Sean, just one last question for you in terms of the things that to Triple-I, how you look at the world and the things that are priorities for you, where does this where does this kind of fit in the Triple-I plans going forward?
[00:28:14] Sean Kevelighan What I look at Triple-I is our think tank and public affairs trying to inform discussions. Right? That's what we're doing. Our mission is to be a trusted source of data driven insights to help consumers better manage risk. And you know, the risks right now, as we've talked about extensively here today, are increasing. It's going to be an interesting few years, but we've really seen that more and more people are paying attention to this. And I think in a positive way they appreciate knowing what risks are out there and what they can do to prevent them. It's an uphill battle still, but there's there's certainly enough to do on this. And that's what we're dedicated to doing at Triple-I.
[00:28:59] Pete Miller And doing very well. It is an uphill battle, but it's certainly a worthy one and one that I think results in not only, as we've been saying, a better and safer society, but frankly, people who work in risk management and insurance opportunity. There's a great opportunity here for people that, you know, take hold of this and understand it and, as we say, can apply it and not only for their organizations, but for themselves. So, Sean, thank you so much. I really appreciate it. Certainly all the work you do and the great work that the Triple-I does, and thank you for your time here today and for sharing your perspective on this new and exciting method of making people's lives better.
[00:29:43] Sean Kevelighan Thanks, Pete. This is really important. So thank you.
[00:29:49] Pete Miller Predict & Prevent is a podcast brought to you by The Institutes. Subscribe on your preferred listening platform and join us for future episodes where we continue to dig into this approach and the opportunities it's creating for risk management and insurance.