While millions of new hires over the past few years of economicrecovery have bolstered the balance sheets of workers' compensationinsurers, seismic shifts in the labor force and turbochargedautomation may be putting one of the property and casualtyindustry's biggest premium generators at serious risk of disruption.

Indeed, two existential questions confront insurers that couldprompt fundamental changes in their exposure base and businessmodel. First, what is the place of workers' comp in a world wheremore and more people are likely to lose their jobs to machines, andthe very nature of work is changing as a result? Second, areinsurers prepared to evolve along with the rapidly changing labormarkets they cover?

'Human middleware'

Science fiction is filled with scary stories about robots takingover 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 personagereacts 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 customerfrustrated or grateful. The demo presenter casually mentioned thatsuch programs are destined to replace the majority of what hecalled "human middleware" — a chilling euphemism for live peopledoomed to lose their jobs to a computer algorithm.

There are many such individuals with targets on their backs. AUniversity of Oxford study — "The Future of Employment: How Susceptible are Jobsto Computerization" — found that 47 percent of 702 occupationsin the US. are at high risk of being automated, and that waspublished three years ago.

The underlying trend is nothing new. For years, factories havebeen increasingly mechanized. ATMs and online banking have greatlylessened the need for tellers. Online markets have driven thousandsof brick-and-mortar book and record stores out of business. Thelist goes on. But this is just the beginning, as the movement towards artificialintelligence and robotic processautomation (RPA) gathers momentum and expands its impactover time.

Take, for example, the race to develop "driverless" vehicles, and theimplications for all those operating taxis and commercial trucks.For the moment, the wholesale replacement of human drivers withsensors and software programs may still be a ways off, but weappear to be heading in that direction. The rapid growth of mobileapp-summoned rides is already reducing the need for fleet taxi andcar 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, onlyseeing a waiter briefly when my food was delivered. When I wasdone, I didn't have to bother calling the server for my check, orhand my credit card to a cashier, since I paid directly on thetablet, with the receipt emailed to me seconds later.

That certainly cuts down on the number of people needed in thefood service industry. And when I was shopping for a cruise Inoticed a least one line spotlighting their automated bar, withmachines mixing cocktails right in front of you. (So much forout-of-work actors making a living between gigs as waiters orbartenders!)

While automation may eliminate many positions involvingroutine manual or administrative labor, growth in other jobcategories where replacement by robots is more problematic couldperhaps pick up the slack for workers' compcarriers. (Photo: iStock)

Insurers themselves are starting to capitalize on this trend. Agrowing number are automating the eyeballs, clicks, and keystrokesof those who sit in front of computers, study spreadsheets,calculate values, pull information from one system to another, andput reports together with some light processing. Those inunderwriting, pricing, claims, audit, and compliance are allvulnerable to displacement by RPA and virtual assistants.

On the other end of the value chain, agents and brokers sellingcommoditized insurance products, such as small-business coverage,will also be prime targets for downsizing as direct-to-consumer online sales catch on. Andwith the rise of robo advisers, even more highly skilled financialplanners may be at risk.

Rise of self-employed workers

One consequence of this trend is the rise of self-employedindividuals. Technology has enabled — and sometimes forced — morepeople to do their own thing, making a living without working outof a third-party's office, store, factory, or vehicle. They workfrom home and their own cars, whether they are employed full timeby a particular company, or are independent contractors orsmall-business owners. 

I'm not criticizing any employer who chooses to automate. It's asound and understandable business decision based on value,efficiency, cost, and bottom line profitability. However, thistrend surely should impact the workers' comp market, as will theaccelerating shift in the workforce away from employer-based jobsto 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 toponder:

Product design may need to evolve. As morepeople are left to drum up work outside of standard gigs in anoffice, retail store, factory, or some other traditional employer,coverage may have to be customized to help those who are injured orbecome sick on the job. Such a product could perhaps be a hybrid —combining elements of workers' comp, standard health insurance fornon-work-related ailments, as well as old-fashioned disabilitycoverage.

Go with the flow. While automation mayeliminate many positions involving routine manual or administrativelabor, growth in other job categories where replacement by robotsis more problematic could perhaps pick up the slack for workers'comp carriers. Health care professionals, for example — from highlyskilled 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 jobmarket and make sure they are capable of assessing risk in segmentson the rise.

Capitalize on the upside of technology. Whileworkers' comp carriers may have a lot to lose from automation whenit comes to their exposure base, they also potentially have a lotto gain by integrating high tech into their operations. TheInternet of Things can enable wired workers, with sensors to helpwarn against danger in the workplace and to document claims. Anduntil people behind the wheel are replaced, the sensors beingincorporated to facilitate autonomous vehicles could help preventaccidents by commercial drivers, thus driving down loss frequencyand severity. Telemedicine can speed injury assessments, discouragefraud, and lower claimant monitoring costs. Internally, technologycan also help workers' comp carriers improve efficiency and lowertheir 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 automationgets more and more sophisticated.

Related: Top 3 issues in workers' compensation litigationmanagement

Sam J. Friedman ([email protected]) isinsurance research leader with Deloitte's Center for FinancialServices in New York. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. These opinions are his own.