Friction Gap Overview for Salesforce Account Executives 2025-02-13 - Google Docs

Friction Gap Overview for Salesforce Account Executives 1. Understanding the Friction Gap Definition: Friction Gap – The impact of imperfect processes, systems, and business practices on both the loss and expense ratios of an insurer. The friction gap applies to both Property/Casualty insurers and Life insurers. However, life insurers however do not use the Combined Ratio to measure their performance. We are working on a model that will resonate with Life insurers since they face the same “Friction” issues as P/C insurers, they just don’t have a comparable metric to the combined ratio that can be easily used to describe their challenges. Why It Matters to Insurers: ● Property Casualty insurers rely on a few related key financial metrics: ○ Loss Ratio : The percentage of premiums paid out in claims. Is equal to losses paid divided by premium. ○ Expense Ratio : The percentage of premiums spent on administrative costs (salary, commissions, real estate, IT, accounting, etc). It is equal to expenses paid divided by premium. ○ Combined Ratio = Loss Ratio + Expense Ratio (A measure of overall profitability). If the ratio is under 100, the insurer is running with an “underwriting profit”. If it is over 100, the insurer is running at an “underwriting loss” ○ Investment Income - insurers invest reserves which results in investment income. This is not taken into account when calculating the combined ratio. If an insurer has a combined ratio over 100 (an underwriting loss), investment income often can cover that loss if it is not that significant. Insurers do not want to rely on investment income to make them whole because it is not something that they can count on. When interest rates were at zero percent, investment income was hard to come by. Smart insurers work diligently to keep their combined ratio under 100 and do not want to rely on investment income to support insurance operations.

● High friction in processes leads to increased expenses, higher loss ratios, and inefficient operations. ● Reducing the Friction Gap helps insurers achieve profitable underwriting and efficient operations . ● When the Friction Gap impacts timeliness and service, especially to agents, it can impact application volume and hit ratio. If an agent cannot get a quote or an underwriting decision when they need it, they are less likely to bring business to an insurer or may only place less desirable business with the insurer. Most insurers (based upon LOB and market) want to be one of the top three insurers an agent uses, friction issues may jeopardize this. Why it matters to MGA’s In some ways, MGA’s are more impacted by friction than insurers. Managing General Agents (MGA’s) act as the underwriter on behalf of the insurer. Their income is generated by a commission from the insurer and most relationships include a profit sharing component, but smart MGA’s focus on maximizing the value of their commission and view the profit sharing as a “nice to have”, not something they need to stay afloat. Living on commissions, minimizing friction to the MGA is critical because any friction reduces their overall revenue and profitability. Poor service to underlying agents bringing business to the MGA (sub-producers) may decrease the amount of applications they receive so providing an efficient, agent friendly environment is critical MGA’s do not file premium or results with AM Best so a full AM Best analysis is not an option for MGA’s but the messaging and overall model remains the same. The “Combined Ratio See-Saw” Problem: ● Traditionally, insurers reduce loss ratios by increasing expenses (usually by hiring more staff). Insurers have a habit of “throwing bodies at the problem”, where they hire or assign more people to address a problem that needs to be resolved. The hope is that this will improve loss results but this is not guaranteed. ● This creates a see-saw effect , where one ratio improves at the cost of the other. ● Technology & automation offer a way to reduce friction without increasing costs. Insurers can get off the Combined Ratio See Saw by investing in solutions like Salesforce that can help them improve results while keeping major costs (such as headcount) flat

Understanding the Insurance Buyer’s Mindset ● Senior Executive Staff care about keeping the combined ratio under 100. They are ones that ride the Combined Ratio Seesaw daily. When proposals are put in front of them, if the proposal can showcase how the project will impact the combined ratio, it is more likely to be approved. As projects are implemented and start developing results, tying those results back to the combined ratio will put results in front of senior management in a context that senior managers care about. ● CIOs Care About : System modernization, data integration, and automation. It's not unusual for CIO’s to not completely understand the combined ratio or where their company stands against the competition. If CIO’s, or anyone else in the organization, can put their requests for funding in the context of improving the combined ratio, they will have a better chance of success ● COOs Care About : Operational efficiency, reducing friction, and cost control. ● Underwriters Care About : Speed, decision support, and AI-enhanced risk selection. Underwriters often lament that they cannot get to all of the applications they receive. They often will focus on applications from brokers they have relationships with not knowing if they’re leaving money on the table with the applications they did not get to. Automating file set-up and testing for appetite, profitability and stack ranking applications will, at a minimum, help insurers write more business that is profitable. ● Distribution Leaders Care About : Broker experience, ease of doing business, and CRM insights. Keeping distribution channels happy and well run is their major concern. Especially for agents and brokers, having meaningful interactions with proactive followups is critical to creating long lasting/profitable relationships. ● Claim Leaders care about - the timely and efficient settlement of claims. They need to determine if a claim is covered, what the value of the claim is, reserving the appropriate amount for the claim (reserving is putting money aside to pay for the claim) and optimizing the claim cost. Optimizing here means not underpaying the claim (which can lead to lawsuits, regulatory reviews and bad customer satisfaction) and not overpaying the claim (which is generally referred to as “leakage” and negatively impacts the loss ratio. Identifying and avoiding fraud is also top of mind

2. Key Insurance Challenges & How Salesforce Helps Issue that insurers are facing ● Manual Workflows & Siloed Systems: Leading to redundant data entry and inefficiencies. ● Underutilization of Predictive Analytics: Resulting in suboptimal risk selection and pricing. ● Slow Claims Processing: Increasing loss ratios and reducing customer satisfaction. ● Compliance & Data Security Concerns: Complicating modernization efforts. ● Fragmented Digital Experiences: Hampering effective communication and customer service. Challenge Friction Impact Salesforce Solution Manual underwriting & Slow cycle times, Automated underwriting submission processes underwriting bottlenecks workflows, AI-driven risk assessment Agent & broker Poor producer experience, Integrated CRM, self-service dissatisfaction missed opportunities broker portals, improved submission and underwriting Claims processing Increased claims leakage, Digital FNOL, automated inefficiencies fraud risks workflows, predictive analytics Siloed systems & data Lack of visibility, Unified data platform, real-time operational inefficiencies, analytics, end to end workflows, manual processes, tasks and processes redundant data entry, workarounds Regulatory compliance Manual tracking, audit Automated documentation, risks AI-driven compliance checks, full documentation to satisfy audit results 3. How to Use the Friction Gap Concept in Sales Conversations Discovery Questions to Identify Friction Points:

● “How much time does your underwriting team spend manually processing submissions?” ● “Are you using a service or in house staff to set up applications and perform new business testing?” ● “Are agents and brokers frustrated with your submission process?” ● “Are your submissions for project approval supported by impact to the combined ratio and premium development?” ● “How do you track your combined ratio performance and improvement efforts?” ● “Are your claims processes manual and time-consuming?” ● “Do you have real-time visibility into distribution performance?” ● “How proactive are your processes to manage your channels? Agents and brokers in particular?” Salesforce’s Role in Closing the Friction Gap: ● Underwriting Automation → Reduces underwriting time and improves risk selection. ● Claims Digitalization → Accelerates claims processing and enhances fraud detection. ● Distribution Management → Enhances producer relationships and increases policy retention. ● AI & Predictive Analytics → Provides data-driven decision-making for underwriting and claims. 4. Case Studies: Proven Impact of Salesforce & PS Advisory Case Study 1: LWCC – Digital Underwriting Transformation ● Problem : Slow underwriting process, high submission times, poor agent experience. ● Solution : Automated underwriting desktop, OCR for submission processing, integrated CRM. ● Results : ○ Submission intake time cut from 30 minutes to 90 seconds . ○ Straight-through processing (STP) increased from 40% to 71% . ○ Agency visit prep time reduced from 3 hours to 15 minutes . Case Study 2: N2G – Reducing Friction in Multinational Underwriting ● Problem : Siloed systems, excessive manual work, redundant processes. ● Solution : Consolidated seven underwriting platforms into three, integrated CRM and policy issuance. ● Results : ○ 25% improvement in underwriting documentation . ○ 1,000+ hours saved in redundant work . ○ Increased broker satisfaction and faster quote generation .

5. ROI Calculator: Quantifying Friction Reduction Our custom ROI model estimates the financial benefits of digital transformation by evaluating: ● Time Savings: Reduction in manual underwriting tasks and accelerated claim resolutions. ● Improved Conversion Rates: Enhanced quote-to-bind ratios driven by data-enabled decision-making. ● Operational Efficiency: A measurable decrease in loss ratios via streamlined processes and proactive fraud detection. Detailed assumptions and sensitivity analyses are available to provide full transparency and confidence in our projections. 6. Why PS Advisory is the Right Partner ● 100% Insurance-Focused Expertise : Unlike general consultants, PS Advisory specializes in insurance digital transformation . ● Salesforce-Centric Solutions : Deep expertise in Salesforce Financial Services Cloud & Insurance Solutions . ● Proven Success with Award-Winning Clients : Clients like LWCC & N2G have won Celent Model Insurer Awards . ● Incremental Transformation Approach : Small, measurable improvements rather than risky "big bang" implementations. 7. Next Steps for AEs 1. Use the Discovery Questions in your next client conversation. 2. Position Salesforce & PS Advisory as the solution for reducing operational friction. 3. Leverage case studies to prove real-world impact. 4. Engage PS Advisory for a deeper insurance-specific strategy discussion . For more details or to set up a joint customer call with PS Advisory, contact: ● Bruce Olson - [email protected] ● Andrew Bartels - [email protected] ● Tom King - [email protected]