In a previous blog, we talked about how computable contract technology can make it easier to manage insurance claims and thus deal with insurance “sludge”. In this blog, we discuss the possibilities of applying this technology more broadly, from managing individual insurance claims to managing whole insurance portfolios, thereby eliminating the redundant insurance by closing gaps in coverage.
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We often think that insurance policies are divided into different areas: home insurance, car insurance, health insurance, travel insurance, etc.; and we often buy different policies to provide coverage in these different areas. in reality, things are more complicated, with policies in different areas often providing overlapping coverage. For example, damage to a rental car may be covered by a policy purchased from a rental car company, a personal auto insurance policy, a credit card, a travel insurance policy, and even, in some cases, , a home insurance policy. If we are not aware of these overlaps, we may end up paying more for insurance than we need to; worse, there may be gaps between policies that we are not aware of.
insurance portfolio management is the process of managing multiple insurance policies that may overlap, with an eye to minimizing insurance costs and ensuring adequate coverage. By studying the contracts associated with insurance policies, we can avoid duplication and ensure that there are no gaps in coverage. For example, while renting a car, we may find that we don’t need to purchase collision insurance from Hertz because we are already covered if we use our Visa credit card. At the same time, we may find that we need to purchase additional insurance to travel in Ireland, as our credit card insurance does not apply there.
The problem is that insurance portfolio management is not easy. policyholders often don’t have the time or patience to compare policies from multiple insurance providers; And, even if they have the time, they often don’t have the legal training to understand the complex legal wording of the lengthy 100-page contracts associated with those policies.
The good news is that, with advances in information technology, it is now possible to implement computer systems to help with this process. A computer-based insurance portfolio dashboard can provide its user with an overview of their current policies and needs, with overlap and gap analysis. and an automated insurance portfolio advisor can help a user compare available insurance products and build a portfolio of insurance products that meets their needs at minimal cost.
The key to building this type of system is to formalize insurance policies as computable contracts. a computable contract is one that provides a computable specification for the terms and conditions of the contract.
One use of computable contracts is automated claims analysis. given a specific computable contract, it is possible for a computer system to determine the compliance of any specific situationwith the terms and conditions of the contract in a purely mechanical way, without the help of humans . experts and without further clarification from the contracting parties.
As an example, consider a user with an insurance policy that covers their immediate family’s expenses in US hospitals for injuries resulting from activities of daily living. An automated claims analysis system might determine that the policy covers her daughter’s treatment at Johns Hopkins Hospital for a sprained ankle she suffered while dancing. At the same time, it could determine that her daughter is not covered for treatment at a hospital in Europe. could determine that she is not covered if she sprained her ankle while she was skydiving. and may determine that her niece’s recent hospitalization is not covered since she is not an immediate family member.
More generally, computable contracts enable automated insurance portfolio analysis and insurance portfolio design. computable contracts allow computer systems to analyze multi-policy portfolios to assess coverage under multiple what-if scenarios. and computable contracts allow systems to design or configure multi-policy portfolios to meet user needs.
As a very simple example of this, consider a person planning a family trip to the UK and Ireland. the individual could purchase an insurance policy for his entire family for all activities anywhere in the world. however, it is likely to be expensive. could do better by creating an insurance portfolio tailored to his needs, e.g. Combining your pre-existing personal travel insurance policy, auto collision coverage provided by your credit card, a new policy to cover your family’s hospital expenses in Europe, and a new policy from your car rental company for travel In Ireland. this combination of policies is more complicated but is likely to be less expensive than a simpler comprehensive policy.
Automated insurance portfolio management can benefit all parts of the insurance ecosystem. You can benefit clients by analyzing their overall coverage and synthesizing portfolios of insurance products that meet their needs at minimal cost. can help insurance companies increase transparency, decrease frivolous claims, spot upsell opportunities, and design custom insurance products. and can help regulators support and enforce insurance regulations.
citation: genesereth, michael: “insurance portfolio management”, complaw corner, codex: the stanford legal informatics center, 2022, https://law.stanford.edu/2022/07/30/insurance -portfolio-management /.